Economics and politics

Economics may propose, but politics dispose.

-Martin Wolf

Figuring out the economics of the post financial crisis is not as hard as some make it out to be. We still face a balance sheet adjustment around the globe created by excessive credit. It takes time to adjust balance sheets and there will be pain. We can delay the pain. We can soften the blow through having the workout done over a long time, but balance sheets have to be corrected. The economics are clear.

The issues are more with the politics of what are possible solutions and will be tolerated by the populous. The intersection of economics and politics leads to market distortions but the markets will eventually win. Every portfolio has to be prepared for the balance sheet adjustments that cannot be controlled by politics.