CHS: Doom-Loop I: 'Bringing demand forward' will no longer save us

© Aleksandrsb

Charles Hugh Smith writes:

(The fantasy is that inflation will plummet to zero and we can all go back to “Bringing Demand Forward.” The reality is what’s plummeting is demand.)

The US economy has been saved time and again over the past two decades by this one weird trick: “Bringing Demand Forward” by lowering interest rates and lending standards so Americans could continue to buy stuff they didn’t really need because the monthly payment dropped as interest rates were pushed toward zero.

Every time the economy faltered, the Federal Reserve would push interest rates down to “Bring Demand Forward” by goosing debt-based consumption: OK, so you don’t actually need a new car, but come on, the new car loan is only 1.9%, you can afford the monthly nut. Or hey, it’s zero-percent financing for a couple years. Just go for it, get that new vehicle. Live large, you can swing it.

Flooding the economy with low-cost credit doesn’t just “Bring Demand Forward;” it also juices speculative bubbles across the entire spectrum, from cryptocurrencies to commercial real estate. As bubbles inflate, punters feel wealthier and so they’re willing to borrow and spend more–the infamous “wealth effect.”

Nothing “Brings Demand Forward” like a speculative bubble and so inflating credit-based bubbles is all part of the plan to encourage people to buy stuff they don’t need on credit to keep GDP expanding…

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