2012: A Year of Choices
The Consequences of Path Dependency
There’s No Going Back
The End of the Debt Supercycle
The Time for Hard Choices
Hong Kong, Singapore, Bloomberg, and a Personal Note
Once to every man and nation, comes the moment to decide,
In the strife of truth with falsehood, for the good or evil side;
Some great cause, some great decision, offering each the bloom or blight,
And the choice goes by forever, ’twixt that darkness and that light.
– James Lowell, 1845
God grant me the serenity to accept the things I cannot change, the courage to change the
things I can, and the wisdom to know the difference.
– Reinhold Niehbuhr
“Happy New Year. We enter 2012 with a great deal of hope, but our hopes are not for
more bailouts, or money printing, or any of the myriad policies that investors seem to hope will save bad investments and sustain elevated valuations. Instead, our hope is that in 2012, the market will finally "clear," in the sense that bad debt around the world will be recognized as bad and restructured; that overleveraged financials will be taken into receivership instead of forcing austerity on every corner of the global economy in order to make them flush again; that rates of return will rise enough to compensate and encourage saving – and high enough to encourage borrowers and other users of capital to allocate the funds productively. Of course, in order to restructure bad debt, someone has to accept a loss. In order for rates of return to rise, valuations must decline. In short, our hope is for events that will unchain the global economy from an irresponsible past and open the gates toward a prosperous future. Maybe that is too hopeful, but we are not entirely convinced that bailouts and ‘big bazooka’ will be as easily procured in the year ahead as a confused public has allowed in recent years.”
– John P. Hussman, Ph.D. (hussmanfunds.com)
2012 will the year that the consequences of the choices made by nations of the so-called
developed world will begin to truly manifest themselves in the economic realm. We are in the
closing chapters of the current Debt Supercycle, with different countries strewn out along the path, some at more advanced stages than others but all headed for a destination that will force major decisions if politically painful actions are not taken. The longer that process takes, the fewer options that are available and the more painful the outcomes. Some countries (think Greece, et al.) have a choice between dire economic circumstances and disastrous. The option for merely difficult choices was passed long ago, and the rules are such that there is no going back to where you started without a different but equally painful outcome.
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