Much of the economic landscape is beginning to look like something out of "Alice And The Looking Glass" A bizarre and unrecognizable land, a land that is distorted and papered over by ream after ream of paper. This paper has been rolling off the printing presses of central banks all across the world in an attempt to mask reality. Peter Schiff says, printing money is to the economy what taking drugs is to a drug addict. In the short term it makes the economy feel good, but in the long run it is much worse off. What was once the "long run" or "distant future" may be getting much closer.
We must remember that this influx of monetary stimulus has created the illusion of more pent up demand then exist or can be substantiated. This results in an elevated baseline for comparing year on year growth, in short we have to move forward faster next year just to keep growing. For example, if we manufacture and sell twelve million automobiles this year up from ten million because of low interest rates and easy money, we now must sell the same number for the economy not to contract.
The whole concept of economic growth is based on an ever growing trend
of increased production. At times we see a sector rotation such as
computer sales increase when clothing falls, but overall we seek numbers that reflect an upward and onward slope. History shows
that such trends falter when they become overdone and unsustainable.
Economist often talk of headwinds and tailwinds, much of what has been
done in recent years has acted as a "artificial tailwind" but this is
not a normal state and cannot be sustained.
So the question is, what happens
after the momentum ends? After QE can no longer increase demand. After most or
all of this easy money has flowed into the investment "of the day," what
happens when it begins to flow out? The problem is that this recovery has been constructed on the unstable base of false demand. It seems that we always think that
we will see "it coming," we always think we will have ample time to
react if it becomes apparent the markets are about to crash but the speed at which events can occur is often a surprise.
For a fun read glance at my post of November 18th; What Is Something Worth?