Four horsemen of the economic apocalypse are: high debt, deflation, default, depression. They
were on the far horizon as early as 1981. but easy money, with occasional large help from fiscal
policy, kept them at bay since then save for the major slip up in 2007-08. But, huge central bank
easing allowed the global economy to barely skirt a depression. Even then there were massive
defaults in short term credit which almost did us all in. Since then more debt has been piled on,
mainly at the long end.
So, the battle to keep the horsemen at bay is monetary and fiscal policy job #1. Bloated central
bank balance sheets have created enormous inflation potential viewed long term. But since
stringent monetary and fiscal policy needed to curb inflation might well set the horsemen free
to roam about the world, gov't policy may well remain on the easy side until inflation finally
accelerates significantly and tilts policy to tightening the reins no matter how gingerly.
So, as we enter the new decade, fending off deflation and default will be the governing worry.
With global output growth potential modest reflecting demographics and the very limited
sustainable spending power of the vast majority of the masses, gov't policies will have to
figure ways of managing the possibility of further asset inflation (stocks and bonds). On top of
this challenge, there may come a point when accomodative policies wind up having sharply
diminishing returns for growth. Hence, 'The Great Whatever.'
- Peter Richardson
- Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!