The Periphery is Failing-The next big economic dislocation might be only weeks away
by Chris Martenson
Tuesday, August 27, 2013
For years we’ve preached the From the Outside In principle of markets: When trouble starts, it nearly always does so out in the weaker periphery before creeping towards the core.
We saw this in the run-up to the housing bubble collapse, as sub-prime mortgages gave way before prime loans, and in Europe, as smaller economies like Greece, Ireland, and Cyprus have fallen first and hardest (so far). We see this today in accelerating food stamp use among poorer U.S. households. In each case, the weaker economic parties give way first before being followed, over time, by the stronger ones.
Using this framework, we can often get several weeks to several months of advance notice before trouble erupts in the next ring closer to the center.
Which makes today notable, as we’re receiving a number of new warning signs. The periphery is giving way.
Ever since the current economic “recovery” began, we’ve been warning of the high risk of a renewed financial crisis. That risk is now uncomfortably high. This is because nothing that led to the first round of troubles was actually addressed at the root level. Instead, prior troubles were simply papered over with central-bank liquidity, leaving structural weakness intact – for instance, our ‘too big to fail’ banks are just as big, and our sovereign debt levels are even worse than they were pre-2008.
The next crisis will be larger and more damaging than the last one, principally because nothing got fixed, political capital was spent, and trust has been eroded, leaving everyone depleted and ready to bolt for the financial exits.
With the periphery failing, we likely have only weeks – perhaps a month or two – until the next big dislocation hits.
Déjà Vu (All Over Again)