David Martin

Will Volatility Be Embedded in the System for a Generation?

Great analysis. It might have missed the real estate market though.
As the recession hits and people are thrown out of work, mortgage defaults will soar and house prices and commercial real estate prices crash.
This leaves the banks no collateral, and means another bail out, further depressing the credit worthiness of many Governments around the world.
As interest rates of Treasury bonds soar, the US and UK Governments in particular may have no option but to institute brutal cut backs.
The weight of money they have already created may still lead to hyperinflation in the nominal money supply, but the underlying deflation should be profound.
In some Western economies there may be little need to worry about coming out of recession and forcing up commodity prices, as the mechanism to come out of recession is difficult to see.
This is beside from the fact that many raw materials and in particular oil and gas are entering a stage of depletion where more energy is required to extract them, at a time of decreased ability to muster the funds to pay for this.
I'm not sure if the result will be continued deflation or hyperinflation, but either way we won't like it.