Solvency Events Take A Long Time To Play Out

Hey Jessolvent businesses

Lockdowns and economic distress are far from over, even if society has accepted and come to terms with it. If I have a look at sentiment online people are moving on thinking this was just a setback and it will be business as usual for everyone.

We will get back on our bikes and begin cycling like we were before and it's endless economic growth ahead. Many banks on the fact that the decline was so sharp, once we all get back to work, it will be a U, V, W, L shape recovery.

But most people agree on the recovery; they disagree on the level at which we will recover. As I look at market data, I don't look at it like many do, on how they make money, I look at the signs it gives. As an SEO, I look at search trends, and what people are looking for, as a macro investor, I look at where people are putting their money, and this is how I see the world.

So what do I see in the way data is shaping up?

We've inflated actual results

As the lockdowns came into play, governments decided to jump in with relief, sending out helicopter money, covering salaries, and trying to keep the economy afloat. So the results we see now even as it trends down, is due to an inflated result, the sugar rush that is free fiat money. Keeping up asset prices and pegging back interest rates to keep debt from exploding has only mitigated so much.

Regardless of the economic data, we saw massive unemployment, mass job losses, the mass company closes and mass debt defaults, but it is only the beginning. The cash injections and government stimulus via central banks, deficient spending and borrowing form international debtors can't do much to improve productivity. It's only financial engineering and eventually the money either runs out, or it takes more and more to maintain the same nominal results.

You can't stop the bleeding

As time goes on the truth eventually will reveal itself, the fact is people are going to have to deal with their debt. The truth is people are going to consume less. The truth is people are going to save more. This reduction in demand and consumption, in general, will first weed out overleveraged companies who won't be able to service their debt or their interest on their debt. Once we've run through that, it will squeeze the margins of businesses that thought they had manageable debt.

It will be slow bleeding, and we will gradually see the truth, that there are more companies not making money and are unprofitable than those that are, the zombies will come into the light.

Reduced demand, less supply can only be solved with time, something those who hold debt does not have, and no matter how much money you throw at the problem, those insolvent companies, households and governments will have to face the truth.

The recovery won't be business as usual

Everyone's economic situation is different; others may think they managed their lockdowns better, had a runway and adjusted their burn rates. Still, as the recovery flat lines and markets find new equilibriums, it will throw off a lot of peoples expectations, and I expect more job losses, more businesses closures, more debt defaults.

We've been living in an economic fantasy world, and we're going to continue to do so, as governments and central banks refuse to accept that these policies are unsustainable.

Unsustainable debt piling can only be mitigated with so much financial engineering. We've seen that England's banks are flirting with moving into negative interest rates, and this, to me, is an indication of the desperation to salvage as much as we can while we can.

While the US is trying to run at higher inflation to avoid negative interest rates, both policies have horrible effects on the economy. Still, if this is the option that keeps us from something worse, you can only imagine how bad things are if we could remove the veil of economic fiction.

How much longer banks and governments can keep people confident in their unit of account will be interesting. I think it took only a few decades of debasement in the Roman empire before the empire collapsed and it began with soldiers refusing to accept the denarii.

Could we see a similar path taken?

Honestly I don't think so, I think the indoctrination and reliance on fiat are too entrenched for the majority of people to realise the trickery and protect themselves. So with their willingness to hold and accept these forms of payment, banks and governemtns can tonineu to compound the misery on those who need it the least.

Have your say

What do you good people of HIVE think?

So have at it my Jessies! If you don't have something to comment, comment "I am a Jessie."

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