It’s 2016 All Over Again. Or Is It?

The fate of the global economy rides on the answer.

Conditions today mirror 2016, when growing weakness in the global economy and wobbling financial markets caused the world’s central banks to absolutely freak out.

They responded by dumping more thin-air money into the system than ever before in history. And it worked (for them at least). Economic growth stabilized; and the prices of stocks, real estate, and other assets enjoyed another three-year joyride.

Similarly, as things started getting shaky in late 2018, the same playbook was deployed. And again, we’ve seen stocks rocket upwards ever since.

But will the strategy actually work this time?  It’s unclear. And a lot is riding on the answer.

Back in 2016 the financial world was falling apart. The US dollar was spiking. Emerging market currencies were getting destroyed. The S&P 500 equities was exhibiting a classic head-and-shoulders formation, indicative of a coming plunge. The macro-economic outlook looked grim, too, with global trade slipping into contraction:

(Source)

But then everything suddenly turned around, as if by magic.

Well, we now know that ‘magic’ was actually a massive quantity of monetary and fiscal stimulus pumped into the system by the world’s central banking cartel.

Our concern is that the monetary and fiscal authorities are thinking that since they were “successful” back in 2016, they can repeat the same strategy here in 2019.

But can they? Maybe. Or maybe not.

If the answer is “yes,” our prediction is to expect what we got last time, just taken to more extremes:  a vastly wider wealth gap between the 1% and everyone else, accelerated destruction of savers and the middle classes, and anaemic GDP growth coupled with explosive further growth of global debt levels.

If the answer is “no,” a massive crash of epic proportions, unlike any most of us have ever experienced, is in store. Credit bubbles are ugly beasts. They’re fun while they last but devastating when they burst. The longer they carry on, the worse the crash when it comes — this bubble has been going on for longer than most people ever could have imagined

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