A2 Economic Anomalies

Topic

A market crash is the economic anomaly that occurs when asset prices fall abruptly—one of the anomalies comprising "Economy," a theme carried over by the "Resource Regime" track whenever it shifts to a new phase. A crash is triggered when this sharp drop in asset prices crosses a panic threshold: as long as the decline remains below that threshold, the market absorbs the drop as a mere correction; once the threshold is crossed, the decline ceases to be a correction and becomes a crash.

Just as a crash is triggered by a panic threshold in asset prices, hyperinflation is the economic anomaly triggered when monetary expansion remains far above the economy's real growth. Hyperinflation does not arise from isolated, transitory monetary expansion; rather, such expansion must be sustained systematically above real growth for a prolonged period for hyperinflation to take hold.

Unlike crashes and hyperinflation—which are triggered by asset price behavior and monetary expansion—a debt crisis is the economic anomaly triggered when the ratio of debt to gross domestic product (GDP), or the ratio of debt service to fiscal revenue, crosses a threshold of unsustainability. As long as the ratio remains below this threshold, the debt remains serviceable; once the threshold is crossed, the debt crisis ceases to be a latent risk and becomes an active anomaly. Thus, the crash, hyperinflation, and the debt crisis represent three distinct ways the economy enters a state of anomaly, each triggered by a specific variable: the panic threshold for the crash, sustained monetary expansion exceeding real growth for hyperinflation, and the debt unsustainability threshold for the debt crisis. Depression and stagflation belong to this same family of economic anomalies, but unlike the crash, hyperinflation, and the debt crisis, they do not yet have a specific triggering variable defined within this model.

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