Barackface: 28: Cartoon Physics

Why Aren’t Markets Freaking Out? Of Trump, Keynes and Wile E. Coyote .......... Indeed, Trump claims that he has already fired her, although he has no legal right to do so. ........ the attack on Cook signals that Trump and his people will try to ruin the life of anyone who stands in his way. ....... There is now a substantial chance that the Fed’s independence, its ability to manage the nation’s monetary policy on an objective, technocratic basis rather than as an instrument of the president’s political interests and personal whims, will soon be gone. ....... Nations in which central banks lose their independence sooner or later suffer high inflation, especially when they are taken over by autocrats who buy into crackpot economic doctrines. And Trump, who has been demanding large rate cuts because, he claims, the economy is running hot — which almost every economist would say is a reason to raise rates, not cut them — certainly fits that pattern. ......... markets act as if everything is normal until it’s blindingly obvious that it isn’t. ...... we devote our intelligences to anticipating what average opinion expects the average opinion to be. ........ So if the conventional wisdom is that economic conditions will remain more or less normal despite highly abnormal policy, markets will remain calm until the illusion of normality becomes unsustainable. At that point market prices may “change violently.” The current technical term for this phenomenon is a “Wile E. Coyote moment” — the moment when the cartoon character, having run several steps off the edge of a cliff, looks down and realizes that there’s nothing supporting him.
Only then, according to the laws of cartoon physics, does he fall.
........ the subprime crisis of the 2000s. By 2005, at the latest, there were very good reasons to suspect that we were in the midst of a major housing bubble. ........
We are, in fact, looking at a policy disaster in the making. But markets probably won’t react strongly until the disaster is already upon us.