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ZH: "We've Never Had A Shock To The System Like This" - Global Selloff Accelerates On Brexit, Italy, "Unknown" Fears
“Everyone is trying to react to a situation we’ve never been in before,” said Stewart Richardson, chief investment officer at RMG Wealth Management in London. “We’ve had shocks to the system before, but we haven’t had one like this. And we won’t know the answers for a long time.”
When I read headlines at ZeroHedge, I assume the writer is levered 10:1, then the headlines go from hyperbole to quite accurate. This quote is a case in point. The world has seen this many times over, even recently in Europe. Germany reunified in the 1990s, Czechoslovakia broke into two states. What has never happened before, outside of empires and war, is an attempt to unify Europe under one government and one currency. That this also happened at the tail end of an unprecedented credit inflation, amid a major demographic transition that threatened the stability of the welfare state, is unprecedented.

The expansion of wealth and credit does have precedent throughout human history. The Chinese have a saying for it: 富不过三代. Wealth does not pass the third generation. An unrelated theory of generations finds a similar pattern in history: The Fourth Turning. The amount of leverage involved this time, with Japanese and Swiss bonds out 40 and 50 years at negative yields, that is unprecedented. The room for error and shocks is vanishingly small, which is why people panic over formerly inconsequential economic and political events. That the established powers react in panic over these events shows they have no plan for what comes next. Their only plan, like the central bank in China trying to prop up the yuan, is to manage the decline. If at any moment they lose control, they may never get it back. In that political and economic context, one can understand the panic over Brexit.

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