Inflation is the “greater risk,” said Ben Bernanke earlier this week.
Greater than what? Greater than deflation, we presume he meant.
“Still,” continued the chairman of the world’s largest banking cartel, “uncertainties have arisen, and therefore a little more flexibility may be desirable.”
The main uncertainty that has arisen concerns the aforementioned deflation.
Look at what happened to Japan when its expansion turned into a contraction: The land of the rising sun didn’t see daylight for nearly 17 years. Those poor sumo wrestlers and manga artists were bumping around in the dark.
Seventeen years is nothing unusual for the downside of a major financial cycle. And that’s why Ben Bernanke – who thinks we are still in an expansion – will do all he can to make sure it continues.
Today we are talking about Economic cycles – the final of our 5 Big Es – the inescapable, ineluctable, irreducible trends of our time. Up and down, in and out…life and death…day and night…dust to dust…inflation and deflation…boom and bust…ashes to ashes.
Even ol’ sol itself will someday burn out. Everything follows a cyclical pattern.
Even our Big Es.
Energy is going up. The Exodus of money and power swings from West to East. The Experimental, faith-backed dollar is going the way of all paper money – to Hell. And the Empire is peaking out (about which there is a little more below).
But where is the Economic cycle today? And where are you in it?
The Feds’ main man thinks we are still in the expansion stage of the credit cycle…and maybe he is right. The cycles can take a long time.
Stocks peaked in the United States in ’29 and didn’t hit a final bottom until after WWII…and then they began a major boom that lasted from ’49 to ’68 – almost 20 years. But, the cycle turned again. From ’68 to ’82 stocks went down.
Then, in January 2000, the Dow registered a new, record high – 11 times higher than the low recorded in August of ’82.
A flood of liquidity pushed many financial assets to unreal new highs. From 2000 to 2007, total credit market debt increased five times faster than GDP. That tide of money washed almost everything up.
But tides ebb and flow too, and the last seven years have seen little real stock appreciation. In fact, in real terms, the Dow has lost ground.
We look out the window and see mixed signals…eddies…crosscurrents…backwashes… It’s hard to know which way the water is going.
Big Ben says it is still coming in.
But maybe not.
Markets and Money