Did No-one “see this coming” too?
Today’s 4.78% fall on the S&P could easily be reversed tomorrow if the BLS unemployment number is better than expected; equally today’s fall could turn out to be just the starters if it is worse. But beyond the volatility of the stock market, it is becoming obvious to everyone now that the crisis that began in 2007 is still with us.
When the crisis first hit, many of those whose behavior (or delusional economic models) helped cause this crisis claimed when it hit that “No-one saw this coming”–that it was an unpredictable event. Dirk Bezemer gave the lie to that with his paper of the same name, identifying the handful of academic economists and market commentators who had anticipated this crisis because they focused on the explosion in private debt that had occurred since the 1987 stock market crash.
The same group–myself included–argued that this crisis would not end until that debt was substantially reduced, and that the process of debt reduction would usher in a second Great Depression.
I’ll write more on this process next week, but given that the minds of market speculators and politicians are now refocused on yet another economic downturn, I thought it prudent to note that this downturn was also something that was obviously going to happen, given the private sector’s process of deleveraging. Below are some relevant blog posts on this topic:
September 20, 2010: Deleveraging with a twist
October 19, 2010: Deleveraging, Deceleration and the Double Dip
June 11, 2011: Dude! Where’s My Recovery?
Mish Shedlock also has a very good piece today, challenging the people who expected hyperinflation to occur because of the Fed’s money printing:
As Mish notes there:
Hyperinflationists simply do not understand the role of credit in a global economy. China has a huge inflation problem and various property bubbles because credit growth is soaring 30% annually.
In the US, banks want credit-worthy borrowers. However, credit-worthy borrowers are parking cash, not asking for more of it.