Alasdair Macleod: Economics of a crash

By Alasdair Macleod
GoldMoney, St. Helier, Jersey, Channel Islands
Thursday, August 27, 2015

For the moment investors are in shock, seeking reassurance and keenly intent on preserving their diminishing assets, instead of reflecting on the broader economic reasons behind it. To mainstream financial commentators, blame for a crash is always placed on remote factors, such as China's financial crisis, and has little to do with events closer to home. Analysis of this sort is selective and badly misplaced. The purpose of this article is to provide an overview of the economic background to today's markets as well as the likely consequences. ...

Equity markets are telling us that the debt crisis is now upon us again. The detailed course that events will take from here cannot be predicted, but we can be certain that over the coming months governments will be ready to move heaven and earth to prevent a deepening crisis, by any means at their disposal. In this respect the lesson of the Lehman crisis is that flooding the system with money and guarantees of more money actually works.

Gone will be any pretence of monetary discipline, gone will be any pretense of higher interest rates, and gone will be any constraint on the issuance of yet more debt. A crisis of malinvestment has become a crisis of the financial system, and will soon become a crisis of currencies. We can be increasingly certain that debt will be extinguished not by debtors reckoning with creditors, but by the debasement of money, and that this outcome becomes the unstated objective of policy makers. ...

... For the complete commentary:

https://www.goldmoney.com/research/analysis/economics-of-a-crash?gmrefco...