If you think things are bad for the first half of 2022, you better buckle up because things don't look dandy for the second half.

All signs point to a liquidity trap.

"A liquidity trap is caused when people hoard cash because they expect an adverse event such as deflation, insufficient aggregate demand, or war. Among the characteristics of a liquidity trap are interest rates that are close to zero and changes in the money supply that fail to translate into changes in the price level"

All of the end-of-cycle indicators are present and yet it seems like we are far from declaring the cycle to be over. Some of the indicators include:

• Inflationary bottlenecks
• Tight job market
• Energy stocks leading 
• Commodities rally
• Asset bubble
• Growth stock collapse 

Here's how things looking right now:

• Current economic conditions are already at the lowest level in history. Do you honestly believe that the current situation is the worst-case scenario? Hell no. This is only a taste of what's coming 
• What's coming is a combination of falling incomes and asset prices
• Consumers have yet to be trapped by crashing asset prices, imploding incomes and fixed liabilities and the Fed doesn't have dry powder to bail them out this time 
• This means that the real deflationary "revelation" has yet to occur and consumer sentiment can only go down from here
• So far volumes are falling across all markets while the Fed will be tightening their balance sheet by an additional $15b/month for the next three months: $60b in July, $75b in August, plateauing at $90b in September for the indefinite future. Meaning they are going to starve all markets of liquidity

At this point, the unanimous consensus is that inflation is the most likely outcome in 2022. In reality, nothing could be further from the truth. The current conditions are now set to ensure a global deflation in the economy - the economy will begin deleveraging

In a DELEVERAGING

• People cut spending, incomes fall, credit disappears, asset prices drop, banks get squeezed, the stock market crashes, social tension rises and the whole thing begins to feed on itself the other way
• As income falls and debt repayment rises, people are forced to sell assets
• The rush to sell assets floods the market at the same time spending decreases which leads to a liquidity crisis
• This is when the stock market crashes, the real estate tanks and banks get into trouble
• Less spending + less income + less wealth + less credit + less borrowing + Fed lost ability to lower interest rate = DEPRESSION

Bitcoin 'may be just a passing fad'

Before you go...

• Check out issue #82 where we talked about the business of badminton courts 🏸
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