From one bubble to the next

By: Aka

After ten years of debt fueled consumption, where the US borrowed from China in order to consume products from China the great unwind and deleveraging process has started in earnest. Given the structural nature of this bubble monetary and fiscal stimulus is needed to substitute for the fast falling away consumption and investment wave that has swept us to false hights over the last ten years.

Stimulus is good but only to the extent that is stops structural damage, i.e normally leveraged, well run companies from being washed away with the culpable (US banks and hedgefunds who created and fueled this bubble using leverage, cheap debt and dis-aligned systems - derivatives). Because if we allow the foam of the bubble to continue to exsist by funding a false economy, we will only be replacing one bubble by the next. It is a fine act to find the right balance between clearing out the dead wood and not distroying an entire forest.