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Date Posted: 14:51:20 4/22/23 Sat
Author: Jasper
Subject: From the Credit Bubble Bulletin

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So, I worry about China’s “Plan B”. Beijing is clearly preparing its military and people for confrontation with the U.S., a conflict I fear will be increasingly likely when China’s economic gambit falters. Xi and the communist party will never accept responsibility for so mismanaging China’s financial system, economy, and international reputation. Crisis will have Beijing pressing the Taiwan issue, deflecting attention and responsibility, increasing the odds for a direct showdown with the U.S.

I’ve discussed previously how boom periods engender perceptions of an expanding global pie. Cooperation, integration, and alliances are seen as mutually beneficial. But when the cycle turns, the pie is increasingly viewed as stagnant or shrinking; zero sum game thinking dominates. Insecurity, animosity, disintegration, fraught alliances, and conflict take hold.

We are in a period of momentous change. A historic global Bubble has begun to deflate. The war in Ukraine has unleashed pernicious forces that will be difficult to control. China’s autocratic communist government has towering ambitions - inflated by a historic Bubble that is now leaking a lot of air. Japan has a new central bank governor that will need to end a historic monetary experiment that was for a decade left to run wild. Across the globe, economies big and small, wealthy and poor alike, confront unprecedented debt overhangs. Policymakers almost everywhere face the predicament of elevated inflation and weakening growth prospects.

We’re at a critical juncture in the global bubble, where acute fragility is forcing another round of desperate measures meant to hold crisis dynamics at bay. Over recent quarters, we've witnessed major instability and volatility. I suspect this has become the new normal. We should be prepared for the environment to turn only more uncertain and tumultuous, with odds rising for a major accident.

In conclusion, I see developments at home and abroad corroborating the new cycle thesis. I just wish I could be more optimistic about future prospects. Much has to go right - and we need some lucky breaks - to avoid a destabilizing downturn. So much is uncertain. However, there’s one thing I am certain about: additional monetary inflation and massive government deficit spending are not the answer. They only make things worse.

https://creditbubblebulletin.blogspot.com/2023/04/weekly-commentary-plan-b.html

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