Have you heard the following thought expressed recently in one way or the another, “I’m less worried about what new black swans might swim onto our screens and more worried that we will just wake up one day, peer out of our bunker of habituated indifferences to the drumbeat of troubling news and decide, suddenly, that things actually are terrible!”  Bad news seems to pile upon bad news in the larger world.  We are off the map of the known universe in terms of monetary and fiscal norms, and yet when the last worse headline comes across the ticker, and the newsreaders do their level best to create drama, the debt and equity markets seem to, well, yawn.  What happens if one day we wake up and all of a sudden all that which was benign yesterday is terrible today?  It’s like one of those sci-fi movies where the doughy earthlings encounter a race of beautiful, peaceful people and then, in a blink, see them as the multi-arm, walking crustaceans with eyes on stalks and a distinct preference for space hero tapas that they really are. 

Could we be at the edge of the abyss and not know it?  Is all that is preventing us from having our hair on fire a shared hallucination, an irrational, almost bipolarly cheerful view of the geopolitical landscape and financial world and its institutions?  Emperor’s New Clothes anyone? 

Just for a moment, let’s see what the case that things are really terrible looks like:

  •                  Almost all major countries in the world have massive public debt that can only be serviced if we continue to agree that it can be serviced and the central bankers continue to pursue a radical easy money strategy indefinitely.
  •                  We have a deeply damaged banking system in the West, and apparently in China as well, that is a long way from restored health.
  •                  We have interest rates at the zero bound and no one really knows what that means or how to exit that environment.
  •                  There is global subpar growth and except for President Hollande, who in a breathtakingly stubborn commitment to magical thinking continues to believe that government spending and higher taxes can fix things, no one seems to see a way out.
  •                  We have static middle-class income and increasing anxiety over inequality in the West.
  •                  We have an aging population and a real concern, when we care to think about it, that we are not going to have enough workers to support our retirees before much longer.
  •                  We have central banks with massive balance sheets and a certainty that over the next years and decades those balance sheets will have to shrink.  There are no bazookas left in the Feds’ tool box and soon, President Draghi will have fired his last round. 
  •                  We have centrifugal nationalism boiling over around the world with the nation state under attack, Scotland, Catalonia, the Ukraine – what’s next?
  •                  We have an ascendant China who keeps making war like noises across the South China Sea (and social peace in Hong Kong is dangerously fragile). 
  •                  We have a wild-eyed tyrant in Russia who pines for the days of the USSR.
  •                  We have horrific and seemingly unsolvable radical Islamic movements that are destabilizing vast centers of the mid and far east.
  •                  We have political gridlock here at home and throughout much of the West where no politician is prepared to confront the dissonance between the twin goals of economic growth and preserving generous welfare states.
  •                  Iran continues to play a nifty game of rope-a-dope in preserving its nuclear ambitions, getting even closer to nuclear power status while the West looks for comfort in a good peace process. 
  •                  And we are destroying our world through man-made global warming (fires, plagues, floods, Republican Senate majorities, etc.) (I threw this in just to avoid the climate denier moniker).  

I’m sure there’s more, but that gives some sense that there are plenty of problems here, if you care to worry about such things.  Looking at all this in a clear eyed sort of way could bring one to conclude that, shall we say, there’s more than a bit of asymmetry of risk and reward abroad in the wide world right now.  But what does one do?  Dig a hole?  Are we talking guns, canned food, a “go bag” and a log cabin in the woods?  I certainly hope not. 

God knows it’s actually pretty hard to see a way forward.  On the other hand, we know that straight line projections are never right and doom is hardly inevitable.  The passage of time typically results in a reversion to the mean. 

So, perhaps our shared delusions are shear brilliance.  We can’t really stare into the abyss and keep all the plates spinning.  That way lies madness.  Perhaps if we pretend long enough that everything is really ok, things will indeed get better.  The economy may start to grow again, the international environment may quiet, balance sheets may self repair, banks may find a way forward, politicians will find a bit of statesmanship, and the lions will lie down with the lambs!  It’s a strategy of sorts!

For lack of anything better to do, that’s my story and I’m sticking with it.