The Great Devaluation

18The Big Short

As noted in Chapter 16, the word “crisis” comes from the Greek word krisis, which means “to decide.” It can further be defined as “a crucial or decisive point, or stage in a sequence, involving an impending change from an unstable situation.” The situation today is indeed unstable. The asymptote of debt is now a worldwide challenge. We are in crisis and the decision has been made for debt expansion. The supercycle is turning. Understanding that this decision has already been made is the key to winning at investing over the next decade.

Imagine swimming out into the ocean as far out as you can fathom. At some point you hit the exact moment where you must turn around in order to make it back to shore. One stroke further out and return becomes impossible. At this exact moment in the ocean, you are left with a choice: turn around or die. If you keep swimming, you've effectively sealed your fate.

Central banks have officially swum too far. There is no turning back. The only solution they have is to keep on swimming forward. While their heads may look like they're above water, central bankers are simply treading water. They will inevitably drown. Fed Chair Jerome Powell himself actually admitted as much at an October 2012 Fed meeting:

I have concerns about more purchases. As others have pointed out, the dealer community is now assuming close to a $4 trillion balance sheet. . .I am uncomfortable with it for a few reasons. The first question is, why stop at $4 trillion? ...