Some meanderings on denial and reality.
It seems to me that we are in a period of denial.*
A period where we're acting as though everything is okay, and when something bad pops up, we respond to it appropriately, but we are able to look beyond the present negative to a better time in the future. Perhaps it is more simply optimism than it is denial. But the word denial generally carries negative connotations. It implies a reality worse than the perception.
Q. Where does optimism begin and denial end, and vice versa? Ans. I don't know. Perhaps it depends upon the issue and the zeitgeist of the time.
Denial can be both conscious and/or unconscious. It may be closely tied to hope and/or optimism. It is generally pretending or believing that something isn't true, that is true. In many ways it is like the childish impulse to simply close ones eyes (mind) and hope that something goes away (or isn't true).
The question at hand is whether the underlying structural problems/imbalances are sufficiently large to cause another crisis. An. Probably, ceteris paribus.
Q. Is the market in denial about the size and scope of the global economy's long term structural imbalances? Ans. Yes and No. Since no one knows the future, it is merely an opinion or speculation.
If size and scope of the global economy's long term problems is not great enough to cause another crisis, then the market is not in denial, it is simply reflecting that reality.
Q. What is reality? Ans. Belief, perception, opinion. Reality is what happens. Speculation on the future is reality in the present, but it does not necessarily reflect the reality that takes place in the future.
Q. How long can a market ignore reality before it responds? An. A long time. Imbalances take a long time to accumulate, before they reach a destabilizing point.
Q. Is denial reality? An. Yes. If the consensus is happy with ignoring an issue or problem, then that is reality.
*Actually, we are always in a period of denial, if you define denial as a present opinion/belief regarding the future that ends up wrong.
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