A fatal bout of runaway instability becomes inevitable when “extraordinary emergency measures” become permanently essential to keep the bubbles from popping.
A funny thing happens as policies intended to fill financial potholes transition from “temporary emergency measures” to “we need to keep doing this to stabilize the status quo”: extremes get more extreme as what were once viewed as extraordinary policy measures required to keep the rickety system from collapsing become the “New Normal.”
Of course the Federal Reserve continues suppressing interest and mortgage rates even after the financial crisis has passed, because if they stopped, the system would revert to crisis and collapse.
I’ve assembled a few charts of extremes becoming more extreme as a consequence of “emergency policies” becoming not just normalized but the keystone of the entire economy. What were desperate expediencies at first are now the lifeblood of the economy: withdraw them and the economy collapses in a heap.
I discussed these extremes in a podcast with Richard Bonugli (26 minutes), with the following charts providing context.