Our Fed-fueled lottery-ticket economy will unravel with a vengeance in the years ahead.
Malinvestment--the systemic consequence of the Federal Reserve's policies of near-zero interest rates and abundant credit--doesn't just inflate destruction asset bubbles: it poisons productive assets and the entire economy.
Malinvestments arise when credit is cheap and abundant, as it costs speculators very little to borrow money for gambles, and they can in essence buy lottery tickets in the asset bubble of the day without having any skin in the game, i.e. without having to put any of their own money at risk.
The classic example in the previous housing bubble were speculators who bought houses with no-down, no-document low-interest "liar loans": with no money down and a modest interest-only mortgage payments, speculators could buy a lottery ticket in the housing mania for almost nothing, and maintain their ...