As Sebastian Mallaby writes in foreign affairs, our lessons from the 2008 financial crisis are being implemented with great effect. The Fed is doing whatever it takes, creating money for nothing from the world's reserve currency. Our US stock markets would suggest that we are already out of the crisis and on our path to another boom cycle of 5-8 years.
What we do know is that "...the U.S. national debt will swell, and its management will depend crucially on the credibility of the Federal Reserve. In times of high national debt, U.S. presidents since Harry Truman have tried to subjugate the central bank. If the Fed loses its independence, the age of magic money could end in catastrophe". Should the economy become imbalanced, likely due to inflation but perhaps some other mechanism, there could be a scenario where the government and the fed are not able to align, similar to the 1950s.
So, is there some imbalance on the horizon?
Likely, but even the Economist does not know when, and can only warn that 2020 surely shows that it is worth planning for low probability situations. In their latest economics brief, they highlight the issue of chronically weak demand as perhaps the key issue. That allows us to benefit from the ongoing low interest rate environment as governments borrow like they were all Japan. But it seems that some of the underlying reasons will one day come back to bite us, as our overall health seems to hide some important divisions below the surface. Those include growing inequality between the 1% and the bottom majority, the aging of the population, the lack of productivity progress below the surface of internet enabled progress. If our governments continue to be unable to act for the long term, then we increase the risk of a more drastic socio-economic crisis to come.
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