From Drawing-Hands to Erasing-Hands
There is far from fully random walk over the larger credit-cycles. In credit expansion the electronic printing press of the commercial banks drives up the housing prices (and typically also other investment assets). The same houses are used for backing the loans, now higher house prices gives higher collateral, now the banks can increase their lending, and more loans will typically give even higher housing prices and higher collaterals. When the bubble at some point starts to inflate the process is simply the reverse, and it is very hard to stop when contracting.
Many investors have recently been buying more stocks the worse the fundamentals, and the stock market has kept up remarkably well. The idea is basically the worse the fundamentals the more liquidity the FED will inject (more and bigger rate cuts etc.). For a country in deep debt this is nothing else than indirectly letting the printing press running for ”full machine”. Among smart money there is an ongoing escape from the inflating FIAT into gold, silver, platinum and commodities. Another side effect from FED’s policy is exploding food prices and energy prices. There are naturally also other reasons for this, but trying to inflate yourself out of the fundamental problems is one of them. Sooner or later FED will run out of bullets. Do they have enough bullets to save the stock market? Remember if you plan to spend your expected profits from the stock market on buying food, then you will need the stock prices to explode just to keep up with the food price-inflation.
The little art-piece is Drawing-Hands from Escher (I added some text) and it illustrates the credit expansion. The banks lending practice, their collateral, and the FIAT money system is closely connected to each other, it is far from random walk (except from in most credit derivatives models).
The credit contraction would be Drawing-Hands in reverse, that is Erasing-Hands (or Destroying hands) (artist needed to Draw/Erase-this, would love to add it to my
