The American lifestyle and economy depend on a vast number of implicit guarantees— systemic forms of entitlement that we implicitly feel are our birthright.
Chief among these implicit entitlements is the Federal Reserve can always “save the day”: the Fed has the tools to escape either an inflationary spiral or a deflationary collapse.
But there are no guarantees this is actually true. In either an inflationary spiral or deflationary collapse of self-reinforcing defaults, the Fed’s “save” would destroy the economy, which is now so fragile that any increase in interest rates (to rescue us from an inflationary spiral) would destroy our completely debt-dependent economy: were mortgage rates to climb back to historical averages, the housing bubble would immediately implode.
Hello negative wealth effect, as every homeowner watches their temporary (and illusory) “wealth” dissipate before their eyes.