Don’t be fooled by the pictures that will shortly start to emerge of traders apparently tearing their hair out against of backdrop of red screens. A proper crisis is exactly what Wall Street traders want — to provoke yet another stimulus package, as well as the cancellation of interest rate rises. In the Alice in Wonderland world of bubblenomics, bad news is good, and good news is bad. If we have good economic figures, there is a danger that the Fed, the Bank of England and other central banks will take away the punch bowl. On the other hand, all we need is a sudden crisis that gives the impression, however briefly, that the world is coming to an end — and back will come the bowl, with an even stronger mix than before.
Already, central bankers will be recalibrating their assumptions in order to price-in a recession in western economies. They will be calculating how much a renewed surge in oil and gas prices might detract from economic growth, trying to quantify how much the sense of fear and unease among the general public will stop consumers’ spending. They will be asking themselves: what might rising unemployment do to the projected path of inflation? Sure, oil and gas prices are rising now, but if the labour market softens, we won’t need to worry so much about the secondary effects of inflation: where it inspires workers to demand higher wages. The workers will be too frightened for their jobs.
Don’t be surprised, then, if the Fed drops its apparent plans to raise interest rates in March, and if we don’t end up with yet more quantitative easing on the table. Now is not the time to be withdrawing stimulus, they will say, not when we have war in Europe for the first time since 1945 (an analysis which rather omits the annexation of Crimea, the civil wars in the Balkans, Czechoslovakia 1968 and Hungary 1956, which involved tanks, shooting, war crimes and invasions by foreign powers).
And Wall Street will love it. Before long, when things have moderately settled down, we will have a Ukrainian rally — not in Ukraine itself, but in western markets, especially in the tech sector which has been on the slide for the best part of a year. Just look what happened with Covid, when markets started to surge just as lockdowns were being imposed — six months before there was any sign of vaccines. None of this is to say we won’t have a recession, but it won’t matter as money starts to flood back into fallen markets.
It might seem instinctive to sell up and put all your wealth into a pile of gold to bury in your garden. But that is not how the modern world works. Gold is up today, but in the near future, quite possibly within the next week or fortnight, you can expect Wall Street to be lurching upwards on its next disaster rally.
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