How “Prosperity” Ends

 Bogus "prosperity" depends on credit-asset bubbles inflating, magically creating "wealth" not from labor, production or improving productivity, but from the values of assets soaring as bubbles inflate. This bubble-generated wealth then fuels a vast expansion of credit and consumption.

Why All Credit-Asset Bubbles Are Self-Liquidating

• Once the cost of credit drops to near-zero, there's no discipline left: Any loan for any investment can be justified by the "guaranteed" increase in value/collateral
• Since everything will rise in value, then it makes sense to leverage up as much debt as possible to gain control of as many assets as possible

Free Money, Big Costs

• Central banks eventually have to raise interest rates and reduce credit expansion to put the brakes on the bubble's inevitable offspring, an inflationary spiral
• Marginal borrowers can no longer roll over their debt based on ever-higher collateral
• Default becomes inevitable once markets tighten

Stickiness

• Inflation generated by bubbles is "sticky"
• Landlords are reluctant to drop rents, as they've been trained by central bank bailouts and decades of easy money/credit to expect a prompt resumption of the bubble's expansion
• Bubble "prosperity" is illusory
• All the "wealth" wasn't generated by improvements in productivity or the production of more goods and services, it was based on soaring valuations driven by cheap, abundant credit

The Liquidation Phase

• Bubbles liquidate the illusory "wealth" they generated when they pop, and then the bogus "prosperity" dissipates into the air from whence it came.
• The only source of real prosperity is improvements in productivity that generate more goods and services with fewer inputs of capital, labor, materials and energy.

The Psychology of Collapse

• All bubbles pop because they are based in human emotions
• We attempt to rationalize them by invoking the real world, but the reality is speculative manias are manifestations of human emotions and the feedback of running in a herd of social animals
• Humans are still running Wetware 1.0, which has default settings for extremes of emotion, particularly manic euphoria, running with the herd, panic/fear

Charles Hugh Smith

• He is the chief writer for the blog “Of Two Minds”
• listed as No. 7 on CNBC’s list of alternative financial sites
• His commentary is featured on a number of sites including Zerohedge.com, The American Conservative, and Peak Prosperity.

https://dailyreckoning.com/how-prosperity-ends/