QTR’s Fringe Finance: Our Economic Arrogance Will Be Our Undoing
Predictions are often wrong. That’s true whether they’re made by laymen, or made by experts armed with prior knowledge.
For instance, many central banking and government officials noted that rising inflation in late 2020 and 2021 was “transitory.” It would soon drop. Yet as inflation continued to move closer to double-digit levels, it was clear that it was far from being transitory. Action became needed.
We’ve now seen that action with the fastest pace of interest rate hikes by central bankers in over 40 years. And interest rates are at a 15-year high.
That move is now having consequences. Several banks have failed, and have required government assurances to be quickly acquired and avoid a 2008-style meltdown.
Will that be enough? Saying yes to that right now would feel much like saying inflation is transitory. It’s simply too soon to know for sure.
What we can say is that we will have bank failures in the future. Those can’t be prevented. Neither can recessions. But the economy feels more like a recessionary one than a growth one.
Rising interest rates are having an impact on the rate of change in household debt. It’s now growing at its lowest rate in two years. For a credit-based economy, that’s a sign that a slowdown is well underway, and that a recession is still on the table. Ultimately, that could lead to lower asset prices across the board.