SATURDAY, MAY 29, 2021
Increasingly Chaotic Volatility Ahead--The New Normal Few Think Possible
THE NEW GOLDMAN SACHS?
That the era of stability has ended and a new era of increasingly chaotic volatility has begun is not on anyone's radar as a possibility.
The standard debate about the future of the economy is: which will we get, high inflation or a deflationary collapse of defaults and asset bubbles popping?
The debate goes round and round in widening circles of complexity as analysts delve into every nuance of the debate.
A recent conversation with my friend A.T. raised a third possibility few seem to consider: increasingly chaotic volatility will be the new normal, as wild swings between inflation and deflation will increase in amplitude and ferocity as the system destabilizes.
Increasingly chaotic volatility is a classic sign of a system that has lost equilibrium and is attempting to regain its dynamic stability by going into overdrive.
The amplitude and violence of these fluctuations increase as each attempt to restore stability fails.
This loss of stability is not what people expect. The experience of the past 60 years has been that any hiccup in financial stability--a recession or market crash--is temporary, as the system responds with monetary and fiscal stimulus which quickly restores the system's stability.
That the era of stability has ended and a new era of increasingly chaotic volatility has begun is not on anyone's radar as a possibility.
