Debt Bomb

We all know that one sad day in the future our debt bomb will explode ... and America will have a very painful period digging our way out of the unsustainable national debt we have been accumulating over the last half century. (Zero or negative interest rates are now just too tempting for pols to resist.) The pain might be another period of crippling inflation ... or maybe even a debt default which would also destroy the wealth of most retired people ... and turn the American dollar into un-Sani-wipes. Circumstances might even force us into a kinetic war with our hegemonic rivals ... which would likely devastate much of what we enjoy today.

Why are we doing this to ourselves ... flying like a moth to the flame? Simple ... because we can. The rest of the world is also printing money like there will be no accounting ... so why shouldn’t we? President Trump suffers from this same tropism ... saying that zero interest rates allow us to nonstop borrowing. Just wait till rates go negative! And most politicians of both stripes of course stand and cheer.

If we can just postpone this day of reckoning until we, dear readers, will no longer be around ... just kidding. Our issue don’t need this issue too!

Price Controls

The Chinese government is effectively manipulating the Shanghai stock market (reducing supply and increasing demand). It has restricted trading in certain stocks (reducing supply), outlawed short selling (reducing supply), told certain large investors that they couldn't sell certain stocks for five years (reducing supply), encouraged government-owned banks and insurance companies to step into the market to bolster stocks (increasing demand), reduced margin interest rates (increasing demand), etc. The result is that the recent free-fall in the Shanghai market has been arrested ... see below:.

Is this a good thing? Somehow I doubt it, because history has repeatedly shown that government "price controls" never work. However this Chinese government market interference differs from past price controls in that it is encouraging price increases, not discouraging them. One might also point to our Federal Reserve Bank insofar as its actions over the last seven years have clearly done effectively the same thing ... flooding our economy with liquidity and holding interest rates at near zero. So maybe China is just learning from our experience ... only taking it four steps further.

My spider senses tell me that this type of inverted price controls by a government will also not work, but that they take a longer time to fail ... and the cathartic consequences may be far more devastating. 

New economic theory and history is now being written.