Wile E. Coyote should be used to explain Schopenhauer and his vision of the will as a blind, irrational and senseless cosmic force that controls and determines the actions of living individuals and of the whole universe. The poor animal is the victim of a repetition compulsion that forces him to an endless series of attempts to capture and eat the Roadrunner Beep Beep bird. The attempts are gradually more daring and sophisticated and make use of the (always defective) technology of the mysterious Acme Corporation but each time they end tragically, with Beep Beep unharmed and the coyote exploding or falling into the very deep canyon, only to promptly get up and, Schopenhauerian, resume with cold, blind and desperate tenacity his perfectly useless hunt.
The coyote is even more tragic than Sisyphus (who at least is punished by the gods for his excess of cunning and hubris) because he is innocent. And he's not stupid at all, but uses his intelligence only to meet his destiny, never to get rid of it and become, for example, a vegetarian.
In recent weeks, former governor Bernanke declared that in 2020 the American economy will face a Wile E. Coyote moment, referring to the poor animal that, during its furious pursuits, promptly leaves the road that climbs along the rock , continues to run horizontally in the void for a few moments, looks down, understands everything, looks at the viewer with the saddest look imaginable and finally falls into the canyon. Bernanke estimates that the positive effect of US tax cuts will end abruptly two years after their introduction last January and that the US growth rate, currently close to 4 percent, will drop towards zero for at least a few months .
Bernanke is basically generous in granting us another year and a half of grace. In fact, there are quite a few economists who believe a marked slowdown, if not even a recession, is possible as early as 2019. The causes? Someone sees them in the real economy, which will yield under the blows of the Fed's slow but constant hikes, all the more painful, at a certain point, as they coincide with the disappearance of the effects of the tax cut. For others, the slide will instead start from the stock exchanges, crushed by the contraction of multiples caused by the rise in interest rates. At that point, the fall in the stock market will remove the public's desire to consume and companies that of hiring and investing. All in a highly unpredictable context (duties, Italy, Chinese slowdown and devaluation of the renminbi) that could bring the crisis to a head.
At that point Wile E. Coyote would be evoked to describe an even more serious and structural problem, the compulsion to repeat the sequence recession, collapse of financial assets, monetary hyperexpansion on an ever-larger scale (with the tool kit provided by central banks behind the Acme Corporation), negative real rates to help debtors stay alive, bloat and bubble of financial assets driven by negative rates until the next crash. All by using our intelligence, like the coyote, to find new increasingly aggressive and sophisticated methods to get us back on our feet (next time abolition of cash and helicopter money) but never finding the way to avoid falling back into the canyon after some time.
We have been going on like this for three cycles, each time with the lowest rates, the most abundant money and the level of assets ever higher. Except that the debt ratio also grows with each cycle. As John Mauldin recalls, in constant value dollars, global debt (states, banks, businesses, households) according to McKinsey was 87 trillion in 2000, 142 trillion in 2007 and can now be calculated at around 250 trillion, three times global GDP. If we then calculate the potential liabilities of the states (the promised social security and health benefits) and discount them, we arrive, according to Laurence Kotlikoff, at 10 times the GDP, or one thousand percent (in all these rankings Italy is always halfway). . For this reason, some speculate, already for the next decade, a debt crisis that will be very difficult to manage.
But every day has its cross and there's no need to wrap our heads right now for problems that won't come right away. No recession is in sight, says Larry Kudlow, White House chief economic adviser. We aim for very high growth, he adds, and we are not worried about inflation. As for tariffs, Kudlow does not rule out an agreement with Europe based on a lowering, not an increase, of some tariffs. The dispute with China remains open, which is making little progress and seriously risks causing perhaps temporary but generalized increases in tariffs.
And then there is the Fed which, with Trump's Powell in charge, tries to be noticed as little as possible and not to disturb growth and markets too much.
In short, let's pay attention to the increase in slowdown forecasts for 2019-20, let us not find ourselves in mid-2019 with portfolios overloaded with shares and credit risks and begin to prefer duration risks on safe securities to credit risks on securities less secure though relatively short. But let's also take into account the fact that, after two recessions not foreseen by almost anyone (including Bernanke), there is now a race to go ahead and predict the next one, also to be able to say that it was said. As he was wrong before, so he could be wrong this time too. The cycle could certainly have one or two quarters of near-zero growth over the next two years and this would certainly be accompanied by a 15-20 per cent fall in stock markets and a recovery in safe bonds, but nothing suggests, the moment, that we would have a repeat of 2008. And let's not forget that, precisely for 2020, the Trump administration is studying, as Kudlow recalled, new tax cuts, this time for individuals and, moreover, permanent.
In the short term, therefore, there is no reason not to remain reasonably invested in the stock market and not to take advantage of the growth in corporate earnings, which is spectacular in America and good in Europe.
