The bubble boy economy

Are you secure like a sewer rat or like a bubble boy?

There are two approaches to security out there, applicable to many different fields. The first is that of a sewer rat. Rats are exposed to incredibly harsh conditions, often living in dirty environments with dirt and disease all over.

Living in these conditions is exactly what makes the sewer rat so robust. By being constantly exposed to dangerous elements, the sewer rat has evolved to be immune to many of the dangers and diseases that many other animals would be susceptible to. Sewer rats are tough because they are exposed to all elements. Our immune system is a good example of sewer rat toughness.

Contrast this with the bubble boy.
The bubble boy takes a different approach. Instead of being built to withstand the harsh elements of the world, the bubble boy tries to shield himself from them. As a result, the bubble boy hardly has any immune system at all. He must be protected and shielded, for if his bubble pops, he is surely doomed.

The reason I’m writing this is because we live in a bubble boy economy right now, even though the economy should be more like a sewer rat.

What keeps an economy robust is the natural progression of economic cycles. Bull markets start when debt is taken out and put to productive use. As long as income growth outpaces debt growth, the economy benefits from increased debt.  

What eventually happens however, is that as the economy booms, people increasingly take out debt that is used unproductively. Debt growth outpaces income growth and eventually people have trouble paying back their debts. That’s when economies dip into recession, and it’s a good and natural thing that helps reset a healthy economy for the next cycle.

Now though, the idea that we can just let a recession happen is unpalatable. There are no more economic cycles. Recession must be prevented at all costs. 

Instead of a recession fueled by a debt contraction, we’re encouraging more and more debt. Interest rates keep getting lower. There’s a ton of money in the economy. While in 2006, there was a housing bubble, now there is an everything bubble, with nearly every investable asset class at or near all-time highs. Debt is our protective bubble.

Our house of cards is getting taller and more fragile. The real problem with our bubble boy economy is that it can’t withstand uncertainty. It might be okay for now, but when that unexpected gust of wind blows, it could all come falling down…

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