The Economy

The running joke is that since the 1990s, nuclear fusion energy has been 20 years away.

 

It feels like they are constantly having fusion reaction breakthroughs. In labs in the UK and Europe, mostly. But they never seem to have any solution for how to scale it up.

 

Amazon was kind of in that position in the 1990s, but on a much, much smaller scale. That story is about zombie companies that don't have viable businesses but have been able to stick around, and in many cases scale up to be larger, because they have been able to borrow billions of dollars endlessly. This is what the Federal Reserve gave us with the interest rate supression and quantitative easing. It's survival of the unfittest, and the malinvestment it spurs steals growth from the future for which we get very little in the present.

This kind of monetary policy had its roots in the 1990s under Alan Greenspan's Fed. On a much smaller scale, but the debt levels were smaller then, so it required less booze being poured into the punchbowl to keep a party going.

They kept interest rates artificially low, selling the public that they were geniuses who could keep the economy growing forever. What we were getting wasn't good economic growth. It was a debt-fueled binge. It led to a series of credit crises that created an emerging market currency crisis, then the Long-Term Capital Management debacle. And each time they stepped in with more monetary easing to stave off default, but make the hole they were digging bigger. That led to the dot-com bubble, from which Amazon was a survivor.

Amazon did largely exist on debt early on, and the fact that it came through while hundreds of other companies went bust when there was a collapse in 2000, was largely luck. I was trying to find details and just came upon this: The little-known deal that saved Amazon from the dot-com crash

The dot-com bubble was quaint compared to what we are staring at today. But their answer to it was more interest rate suppression, which just spurred more malinvestment and led to the housing bubble and AIG and the collapse of Lehman, etc. The debt levels there were so large that they couldn't just use their overnight lending rate to manipulate the lending markets anymore to keep the debt levels growing, so they actively started intervening, creating money out of thin air and using it to buy debt directly (which drives up the price of that debt and drives down yields). In the environment they have created, there is trillions upon trillions of dollars of mispriced debt that has kept lord-knows-how-many-things afloat that should never have seen the light of day, and worse, were selling equity to people at sky high valuations. It has allowed Uber and Lyft, which that article talks about, to keep losing money, but get rewarded for it with higher and higher debt levels that have allowed it to keep scaling up to larger.

The thing about that article. ... we still haven't seen the end of the madness. Things are cracking simply because of fear that they can't keep the debt levels growing exponentially anymore, even as they dither because they know that if they take their thumbs off the scales of finance (which the inflation is pushing them to do), the credit crisis is going to be very severe.