The Twenties Terrible Trifecta.....
Mar 16, 2022 6:22:58 GMT -5
Post by Cranky on Mar 16, 2022 6:22:58 GMT -5
I wanted to start a thread on gas prices, even had a catchy title...Domestic Terrorism...at the gas pumps.
But, the more I thought about it, it was more of what gas prices are doing to our economic collective and where it can lead, so new catchy title.....see above.
In the last two years we are living in two previously unimaginably events. One had and still has miassive social consequences and the other has a glowing potential of even worse. Both are causing inflation which along with covid debt is primed to cause a massive recession. Maybe even a danger by exposing the fiat currency, which would be right besides nuclear winter in terms of economic Armageddon.
Environmentalist clap with glee at crazy prices for "fossil" energy, but those prices also sap away at spending on other sectors. Classic recession is caused by a slow down in consumer spending and confidence, or in this case, forced spending on one thing that in itself causes more inflation and less ability for other spending. A vicious circle that is not sustainable and worse, very personally destabilizing since wages/pensions ALWAYS, ALWAYS lag behind inflation.
This vicious circle is not felt at first since people assume that it's temporary and make room through cutting out the easy done things. Maybe forego those restaurant dinners and a few more hamburgers nights. Eventually, inflation starts to cut into spending on necessities and exposes very, very short distance the vast majority have between savings, living cost and....mortgages.
Why this may be more dangerous now for Canada is that there are two mutually destructive issues and a big tank of economic gasoline ready to blow up. The classic way of fighting inflation is to raise interest rates, but we have a huge tank of economic gasoline....an enormous housing bubble that simply can NOT take increased mortgage rates. Any increase in interest rates creates havoc in affordability of current mortgages. Too many people invested to the very edge of affordability. They simply can NOT keep up with inflation on their daily needs AND barely affordable mortgages AND rising interest rates. Something has to give.
Like everything now, things will happen at an accelerated rate. The bubble will literally blow up in a matter of weeks as panic will set in. It always does and it always goes the same way. Of course the media will be there, fueling it in the name of "free press"...and eyeballs to sell ads. If we are epically unlucky, we may have a government which may try to put their fingers in a 12 trillion dollar dyke and nuke our debt. Nothing new in politicians solving one problem with another even worse solution. Particularly the current regime with the ingrained belief of a "limitless tax payer credit card". We've already seen it in action...almost daily at one point.
What to do? Like too much overgrowth in a forest, it's time to cause a bit of a clearing and keep the potential of forest devastating growth at bay. By raising the bank rate to 3% NOW and real mortgages to 5%-6%, it will cause a milder recession AND dampen inflation. Better now with a smaller and controlled economic brush fire then uncontrolled blaze. But that goes against every fiber of politicians self preservation and electability. So it won't happen.
What can one do individually? Avoid the bubble...or get out of it NOW. The Captain Obvious solution that is thought about, occasionally spoken...but rarely done.
Pandemic, war, epic recession. Good luck to us....and our head first dive into the Terrible Trifecta of the Twenties.
Comment?
But, the more I thought about it, it was more of what gas prices are doing to our economic collective and where it can lead, so new catchy title.....see above.
In the last two years we are living in two previously unimaginably events. One had and still has miassive social consequences and the other has a glowing potential of even worse. Both are causing inflation which along with covid debt is primed to cause a massive recession. Maybe even a danger by exposing the fiat currency, which would be right besides nuclear winter in terms of economic Armageddon.
Environmentalist clap with glee at crazy prices for "fossil" energy, but those prices also sap away at spending on other sectors. Classic recession is caused by a slow down in consumer spending and confidence, or in this case, forced spending on one thing that in itself causes more inflation and less ability for other spending. A vicious circle that is not sustainable and worse, very personally destabilizing since wages/pensions ALWAYS, ALWAYS lag behind inflation.
This vicious circle is not felt at first since people assume that it's temporary and make room through cutting out the easy done things. Maybe forego those restaurant dinners and a few more hamburgers nights. Eventually, inflation starts to cut into spending on necessities and exposes very, very short distance the vast majority have between savings, living cost and....mortgages.
Why this may be more dangerous now for Canada is that there are two mutually destructive issues and a big tank of economic gasoline ready to blow up. The classic way of fighting inflation is to raise interest rates, but we have a huge tank of economic gasoline....an enormous housing bubble that simply can NOT take increased mortgage rates. Any increase in interest rates creates havoc in affordability of current mortgages. Too many people invested to the very edge of affordability. They simply can NOT keep up with inflation on their daily needs AND barely affordable mortgages AND rising interest rates. Something has to give.
Like everything now, things will happen at an accelerated rate. The bubble will literally blow up in a matter of weeks as panic will set in. It always does and it always goes the same way. Of course the media will be there, fueling it in the name of "free press"...and eyeballs to sell ads. If we are epically unlucky, we may have a government which may try to put their fingers in a 12 trillion dollar dyke and nuke our debt. Nothing new in politicians solving one problem with another even worse solution. Particularly the current regime with the ingrained belief of a "limitless tax payer credit card". We've already seen it in action...almost daily at one point.
What to do? Like too much overgrowth in a forest, it's time to cause a bit of a clearing and keep the potential of forest devastating growth at bay. By raising the bank rate to 3% NOW and real mortgages to 5%-6%, it will cause a milder recession AND dampen inflation. Better now with a smaller and controlled economic brush fire then uncontrolled blaze. But that goes against every fiber of politicians self preservation and electability. So it won't happen.
What can one do individually? Avoid the bubble...or get out of it NOW. The Captain Obvious solution that is thought about, occasionally spoken...but rarely done.
Pandemic, war, epic recession. Good luck to us....and our head first dive into the Terrible Trifecta of the Twenties.
Comment?
:quality(70)/cloudfront-us-east-1.images.arcpublishing.com/archetype/6F6VF25GCFF2HFJCOITRJSGNPE.jpg)