The fragility of our financial buffers will only be revealed when they fail in the next crisis.
While buffer has a specific meaning in chemistry, I am using the word in the broad sense of a reserve resource that absorbs the initial destructive impacts of crises or system overloads. Marshland along a sea coast is a buffer against destructive storm waves, for example. A savings account acts as a buffer against financial drawdowns or losses of income that would otherwise quickly cascade into a full-blown crisis. Redundancy of resources can act as a buffer. If an airline maintains an aircraft in reserve, this reserve plane acts as a buffer against the disruption to the airline’s scheduled flights should one of its aircraft be unexpectedly removed from service by a mechanical failure. The reserve aircraft can replace the plane that was withdrawn from service with minimal disruption.
This post was published at Charles Hugh Smith on WEDNESDAY, JULY 12, 2017.
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