There’s No Stopping a Recessionary Reckoning, by Charles Hugh Smith

The global economy has everything working against it. From Charles Hugh Smith at oftwominds.com:

If there was only one causal factor nudging the economy into recession, it might be a mild, brief recession. But with all five conditions in confluence, this recession will be unlike any other.

Recessions reliably arise from the confluence of these conditions. Note that any one condition can trigger a recession, but no one condition guarantees a recession. Severe, long-lasting recessions occur when multiple conditions arise at the same time.

1. The business cycle. The business cycle reflects human nature interacting with finance: as credit loosens, people borrow more to spend and invest, and this generates a self-reinforcing virtuous cycle of expansion.

Profits expand, speculation is rewarded and the positive vibes notch up to euphoric confidence in future expansion. Enterprises over-order to maintain inventories, hire more staff to expand production and go on a shopping spree, snapping up other companies by issuing more stock or borrowing via the bond market.

In this confluence of greed and euphoria, people over-borrow and put the money into marginal investments and speculations that unravel. Defaults rise, credit tightens, the mood sours and profits tank. Speculations crash, layoffs boost unemployment, consumers trim debt and enterprises work off excess inventory.

This is a conventional business-cycle recession: excesses are worked off and the dead wood consumed by write-offs and defaults. This a healthy process that is required to set the stage for the next cycle of expansion.

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