Loading ...In our complex socio-economic system, the buffers are largely invisible. As a general rule, “money” is our all-purpose buffer: if something becomes scarce and threatens the system, we print/ borrow into existence more “money” which is distributed to buy whatever is needed.
But “money” is an illusory buffer. If the well has run dry, no amount of money will restore ground water. If the fisheries have collapsed due to overfishing, no amount of “money” issued by the Federal Reserve will restore the fisheries. In other words, the natural world provides hard limits that money can only fix if buffers are available for purchase.
“Money” is itself a system, a system with financial buffers, buffers that have been consumed by the speculative excesses of the private sector and the financial repression of central banks. These buffers are largely invisible; few know what’s going on in global liquidity markets, for example. Yet when liquidity dries up, for whatever reason, markets go bidless and asset prices go into freefall.
Flooding the financial system with “free money” only restores the illusion of stability. As noted in my diagram, restoring and maintaining an apparent stability thins buffers to the point of dangerous fragility.
When buffers are paper-thin, a crisis that would have been overcome with ease in the past triggers the collapse of the entire system. Everyone who based their faith in the system on its surface stability is stunned by the rapidity of the collapse, for how could such a vast, apparently robust system implode with so little warning?
The financial system’s buffers have been thinning for 10 long years, but nobody seems to notice or care. The quality of risk, debt, borrowers and speculative gambles have all declined, but faith in the “Fed put”–that the Federal Reserve can fix anything and everything by printing “money”– is quasi-religious: few doubt the limitless power of the Fed’s “money”-printing machinery to quickly overcome any crisis.
This is how systems collapse: faith in the visible surface of abundance reigns supreme, and the fragility of the buffers goes unnoticed.
https://www.zerohedge.com/news/2018-05-29/how-systems-collapse