Friday, October 30, 2015

Polarization........ANOTHER PESKY FACT!


What happens when you get greater political polarization?

Wealth inequality is both outrageous and poisonous. Increased wealth inequality always leads to increased political polarization, within and between countries, within and between political entities. That was true in the 1870s, that was true in the 1930s, and it's true today.

Everything in the chart below is significantly worse today than in the past, and the same chart could be drawn for every other country on earth (including one-party states like China). You could also draw a chart with exactly the same dynamic for Congress. Or FOMC voting member views on raising rates. Or financial advisor views on liquid alternatives.

What this means is that we will all have a George Costanza moment where we come to the realization that all of our instincts are wrong. Most of us, of course, have already endured more than a few of these George Costanza moments here in the Golden Age of the Central Banker. I think you ain't seen nothing yet.

It's not the Minsky Moment I'm worried about, where some credit bubble internal to markets wreaks havoc as it pops. No, it's the Sideways Moment that I'm worried about, where a political accident external to markets wreaks structural havoc on the entire market system.

The likely outcome is that we will have a structural political accident that will destroy every bit of the debt maintenance and wealth creation that the High Church has labored so hard to build. I think we're getting very close to that sort of political accident.

Inequality Undermines Democracy!

Representative democracy is not compatible with deep economic inequalityAs FDR warned, "Government by organized money is just as dangerous as government by organized mob."

A divided nation is a weak nation!

From the Pew Research Center based on 1994 – 2014 data.

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