I agree with mostly everything Michael Pettis is saying here. I have been jokingly calling our economy “capitalism without the capital” for a while now. That is the basis of the Fed’s great experiment too. Can you keep a “capitalist” economy going with an endless cycle of mind-crushing debt? The result is off-the-charts economic gains and off-the-charts economic losses in succession. That’s the path dependency of balance sheets.
In the financial crises we have been experiencing lately, the political class gets to print off money and use it to hand-pick winners and losers. The response exacerbates economic inequality by design. It also breeds hate.
People who held paper assets through Obama’s financial crisis don’t even remember the financial crisis now because the Fed artificially pumped up the value of their portfolios. But everyone whose wealth derived from work in the “real” economy saw a lost decade and a shit ton of consumer debt. This is how we ended up with Baby Boomers with multi-million dollar 401(k)s and expensive real estate and over-educated millennials who are approaching middle age with a negative net worth. It’s how we ended up with the dichotomy between “elites” and “globalists” and people who work for a living. It’s why our politics are now defined by people who love the establishment that has a history of enriching them specifically and people who are legitimate communists. They’ve all given up on the notion that the system can ever be fair and just want to make it more fair for their own demographic. Our modern democracies have more in common with autocratic systems than many care to admit, because it’s training people to think this way about money over the course of decades.