Tech News, Magazine & Review WordPress Theme 2017
  • FEATURES
    • News
    • Bitcoin
    • Ethereum
    • Ripple and XRP
    • Altcoins
    • Trading
    • Blockchain
    • Futuremash
    • Regulators
    • Scams
    • Crypto 101
  • HODLX
    • Latest Stories
    • FAQ
    • Submit Your Guest Blog
  • CRYPTO LIVEWIRE
    • Latest
    • Press Releases
    • Sponsored Posts
    • Submit Your Content
  • BEGINNERS
    • What Is Bitcoin?
    • What Is Blockchain?
    • What Does Hodl Mean?
    • How to Pay Your Bills with Bitcoin
    • Best Bitcoin FAQs
    • Example of Bitcoin’s Purpose
    • Cryptocurrency Has Multiple Meanings
    • Authenticator Alert – Securing Your Crypto
  • SUBMIT
    • Guest Blog
    • Press release
    • Sponsored post
  • EXPLORE
    • eToro
No Result
View All Result
  • FEATURES
    • News
    • Bitcoin
    • Ethereum
    • Ripple and XRP
    • Altcoins
    • Trading
    • Blockchain
    • Futuremash
    • Regulators
    • Scams
    • Crypto 101
  • HODLX
    • Latest Stories
    • FAQ
    • Submit Your Guest Blog
  • CRYPTO LIVEWIRE
    • Latest
    • Press Releases
    • Sponsored Posts
    • Submit Your Content
  • BEGINNERS
    • What Is Bitcoin?
    • What Is Blockchain?
    • What Does Hodl Mean?
    • How to Pay Your Bills with Bitcoin
    • Best Bitcoin FAQs
    • Example of Bitcoin’s Purpose
    • Cryptocurrency Has Multiple Meanings
    • Authenticator Alert – Securing Your Crypto
  • SUBMIT
    • Guest Blog
    • Press release
    • Sponsored post
  • EXPLORE
    • eToro
No Result
View All Result
The Daily Hodl
No Result
View All Result

Wall Street Veteran Caitlin Long Doubles Down on Why Financial Markets Are Crippled, Based on Data Since 2008

by Daily Hodl Staff
March 16, 2020
in Regulators
‏‏‎ ‏‏‎ ‏‏‎ ‏‏‎

Caitlin Long is peeling back the cover on a chronically ill financial system, highlighting why its vulnerabilities are crippling the markets.  Long, a former Morgan Stanley managing director and the founder of Avanti, a new US bank serving the digital asset industry, says the Fed’s trillion-dollar cash injection to lift the economy isn’t working.

In a recent tweetstorm, Long says artificially low interest rates have triggered a cascade of bad business decisions that lay the groundwork for major upset.

“How to understand what’s going on in financial markets: Western world built up a debt bubble of stunning proportions over past ~50 years. It’s deflating now, just as it tried to do in 2008, 2001, 1997, 1994, 1987, 1981 and 1974.

Each time, though, there was enough balance sheet capacity to reinflate the system by pumping more debt into it. In other words assets still existed that hadn’t yet been encumbered by debt (directly or indirectly) – meaning the countries were solvent.

That’s why their fiat currencies had value – assets were still available that lenders didn’t yet have a claim upon (i.e., assets not yet mortgaged). Important to understand that when debt expands, liquidity grows – and mostly it just pushes up financial asset prices (for various reasons). Reverse is also true. Debt has grown for ~50 consecutive years but peppered by deleveraging periods when the total debt outstanding actually shrinks (e.g., 2008 and now). Typically, mainstream economists call for central banks and governments to offset that credit contraction by creating new debt (monetary and fiscal stimulus) to fill the hole.

What they’re really doing is back-filling for shrinking debt by creating new public sector debt, in an attempt to counter the financial asset price correction that inevitably accompanies a credit contraction (aka debt deflation). That’s what we’re seeing now. The shrinking debt is caused by capital destruction, where capital was consumed by businesses that earned a return less than their cost of capital.

Entire industries have done that (housing going into 2008, shale producers going into 2020, etc) – and in these debt deflations the magnitude of the capital destruction that was building all along is revealed (it just wasn’t obvious because new debt injections were able to paper over it).

Why wasn’t it evident as it was building? Because interest rates are mispriced – artificially low – and this is why you see entire industries making the exact same (bad) biz decisions at exact same time.”

Long adds,

“Here’s the data. I’ve been tracking it ever since 2008. That’s when I learned how the US economy had been hollowed out by decades of bad economic decisions (by both political parties). The US was consuming more than we produced and borrowing to do it. Federal Reserve statistical release

So, to put this week’s multi-trillion-dollar monetary and fiscal stimulus into perspective, how much of that $7.5 trillion of new debt in just two years do you think produced a real economic return? Probably not much. Probably most of it equals destroyed capital. Ponder whether all the corporate debt issued to finance stock buybacks at much higher stock prices generated a real return? Or the massive misallocation of capital in energy industry?)

This is why the Fed’s “bazooka” $1.5 trillion stimulus – stunningly large – hasn’t worked and is just pushing on a string because the debt bubble is even more staggering in size.

One of my hero analysts – Doug Noland – predicted last fall that the Fed’s balance sheet would swell from $4 trillion to $10 trillion in the next financial crisis. Well, it’s here.

At the time I tweeted his estimate was too low, and I hope you see why now – because writing off just the last two years of bad debt alone would need a $10 trillion Fed balance sheet to fill the hole! What does this mean? Strap in for some serious volatility. We ain’t seen nothin’ yet.

I’ve read a lot of history about what happens when credit systems die. The volatility is staggering. The 5% swings in both directions we’re seeing now is nothing! Try 20%. In one example, near the end the swings were 50%. Yes, 50% intraday swings up and down! Will that happen here? Dunno, but don’t be surprised if yes.”

You can check out the full thread here.



Check Latest News Headlines


Disclaimer: Opinions expressed at The Daily Hodl are not investment advice. Investors should do their due diligence before making any high-risk investments in Bitcoin, cryptocurrency or digital assets. Please be advised that your transfers and trades are at your own risk, and any loses you may incur are your responsibility. The Daily Hodl does not recommend the buying or selling of any cryptocurrencies or digital assets, nor is The Daily Hodl an investment advisor. Please note that The Daily Hodl participates in affiliate marketing.

Featured Image: Shutterstock/Adam Dodd

Submit a Press Release

Crypto Livewire – Press Releases

  • How Traders Are Gaining by Holding Crypto: Staking Tron (TRX) and Cardano (ADA)
    January 21, 2021
  • QuiverX to Integrate Chainlink Proof of Reserve To Power Transparent, Decentralized Crowdfunding
    January 15, 2021
  • The Online Family Office and High Net Worth Blockchain Conference
    December 22, 2020
  • How Blockchain Empowers Wuhan’s Digital Economy Growth – World Blockchain Conference
    December 14, 2020
  • SnapEx Adds LINK, BNB and TRX Alongside Sign-Up Bonus on a Sleek New App
    December 11, 2020
Submit a Guest Post
Bitcoin
$32,785.00
$32,785.00
6.71%
Ethereum
$1,255.94
$1,255.94
11.51%
XRP
$0.278675
$0.278675
6.44%
Litecoin
$140.43
$140.43
5.09%
Bitcoin Cash
$439.41
$439.41
5.78%

Spotlight

  • Enormous Ethereum Investor Is Giving Away $450,000 in Crypto – Here’s Why
    January 16, 2021
  • Crypto Trader Says Two Altcoins No One’s Talking About Are Set To Explode in 2021
    January 21, 2021
  • Top Crypto Analyst Pivots to Altcoins, Names Top Picks, Declares Historic Bull Run Imminent
    January 18, 2021
  • Top Crypto Analyst Says He’s ‘Backing the Truck Up’ To Buy 7 Altcoins As Ethereum and Bitcoin Tumble
    January 22, 2021

DON’T MISS A BEAT

Crypto headlines delivered daily
to your inbox
BTC, ETH, XRP news alert options

By joining The Daily Hodl news list you agree to our
Terms and Conditions and Privacy Policy.

Check your inbox for confirmation email.

Cryptocurrency news and analysis, covering Bitcoin, Ethereum, Ripple, XRP, altcoins and blockchain technology

Categories

Bitcoin • Ethereum • Trading •
Ripple and XRP • Altcoins •
Blockchain • Regulators •
Scams • Crypto101 • HodlX • Explore • Futuremash •
Crypto Livewire

ABOUT US | EDITORIAL POLICY | PRIVACY POLICY
TERMS AND CONDITIONS | CONTACT

JOIN US ON TELEGRAM

JOIN US ON TWITTER

JOIN US ON FACEBOOK

COPYRIGHT © 2017-2020 THE DAILY HODL

No Result
View All Result
  • FEATURES
    • News
    • Bitcoin
    • Ethereum
    • Ripple and XRP
    • Altcoins
    • Trading
    • Blockchain
    • Futuremash
    • Regulators
    • Scams
    • Crypto 101
  • HODLX
    • Latest Stories
    • FAQ
    • Submit Your Guest Blog
  • CRYPTO LIVEWIRE
    • Latest
    • Press Releases
    • Sponsored Posts
    • Submit Your Content
  • BEGINNERS
    • What Is Bitcoin?
    • What Is Blockchain?
    • What Does Hodl Mean?
    • How to Pay Your Bills with Bitcoin
    • Best Bitcoin FAQs
    • Example of Bitcoin’s Purpose
    • Cryptocurrency Has Multiple Meanings
    • Authenticator Alert – Securing Your Crypto
  • SUBMIT
    • Guest Blog
    • Press release
    • Sponsored post
  • EXPLORE
    • eToro

© 2020 The Daily Hodl

We use cookies to give you the best online experience possible. Continue browsing if you are happy with that, or see how to manage cookies.