2022: How Crazy Can It Get?

Populism rises as currencies fail. And the world's enormous debt-load means there's plenty more to come.

2022: How Crazy Can It Get?

Anyone can make a long list of all the nutty things they see happening everywhere. But is it all random chaos, or can we make predictions for the rest of 2022?

The Superbubble view:

  • Economic history moves in boom/bust cycles, and we are at the point where a 75-year boom turns to epic bust.
  • The global economy is seeing the end of the post-WW2 US dollar credit bubble, and the transition to something new.
Godzilla meme illustration - waves of risks

A world-view is only useful if it predicts, and Superbubble has stood up well in the last few years. So here are specific predictions for the rest of 2022:

  • Currency crises will overtake Covid-19 and climate change as the #1 headline grabber.
  • These crises will be worst in countries with the widest gap between what they consume and what they produce.
  • Shortages, inflation, and energy crises will give rise to populist rage – especially in nations with the worst debt problems.

The chart below shows where we can expect things to get craziest fastest:

The United States and Britain face the biggest shocks, because they have the biggest shortfalls between:

  1. their standard of living, and
  2. what their economies produce.

The US and UK issue their own currencies and run enormous deficits. This allowed them to financialize (slowly destroy) their economies while feeling very rich and clever.

To support this delusion, we have had decades of Anglosphere economists telling us that 'deficits don't matter'. I expect 2022 to be the year that rising inflation proves them wrong.

'The problem is a society where inflation is accelerating is a society that feels out of control'—Larry Summers, 71st United States Secretary of the Treasury

The mechanism is simple:

Inflation – especially rising foods and energy costs – leads to populism, and inflation is rising fast. In the US:

  • Unleaded gas prices are up 50.8% from last year
  • Bacon is up nearly 19%
  • Renting a car costs 36% more than it did in December 2020

A year ago, the Federal Reserve forecast that consumer prices would end 2021 about 1.8% higher than the previous year.

They were totally wrong. As usual.

Prices are rising at rates not seen for decades. Last week US inflation jumped 7% in December. And there are good reasons to suspect the USG's official numbers are hugely distorted.

This is what happens as currencies fail

So while the world looks more and more nuts, currency crises are a regular and normal part of economic history. Here's an actor listing recent financial crashes (from the 2011 movie Margin Call):

When nations cannot produce the standard-of-living their citizens are used to, the citizens get angry.

And citizens are not good at understanding currency systems, but they are good at finding people to blame.

It might be the wrong people or the right people, but scapegoats are inevitable when public rage gets expressed as populism.

Populism is defined as political movements who attack the political and corporate establishment (from within or without).

Hedge-fund manager Ray Dalio created a populism index to measure how crazy things can get when currencies fail. The answers: very crazy indeed.

Seen through that lens the current era can be compared to events in the 1930s – the last once-in-a-lifetime collapse of the global monetary system.

Populism comes along in a big way about once a lifetime — like pandemics, depressions, or wars. The last time that it existed as a major force in the world was in the 1930s, when most countries became populist. In recent years, it has again emerged as a major force.

This period is mostly remembered as the run up to WW2, but also saw ongoing financial crashes and currency devaluations as the global monetary system fell apart.

And with economic history as our guide, we can expect populist movements to grow through 2022 and beyond, as the global currency system comes closer to failure.

Things are going to change dramatically in 2022. Superbubble will continue to highlight the dangers and opportunities our growing audience.

Until then – enjoy the rest of January and beyond.  

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