|Will You Be Able To Walk Away?|
The idea the economy will simply be able to adjust and grow its way out of many problems we have tried so hard to ignore and not just muddle along but to thrive deifies what history has taught us. It is based on a view of history that often overlooks the many who have "lost it all" in prior periods of economic chaos. As we focus on the fact the system always moves forward we tend to forget how it has a way of sacrificing many investors for the "better good", this is fine if you are not one of those being sacrificed. This means we should not be blind as to other less optimistic scenarios concerning our economic future. A key assumption of the current "escape velocity" mantra is that we have all the time in the world to deal with our problems, it discounts the notion that forward progress may at any time be fouled by events often beyond our control. This feeling all is well is strengthened by the government's optimistic projections and numbers that fail to recognize how another recession could skew future tax revenue and cause spending to soar.
|Computer Screen Of Inaccessible Sites!|
At the time anyone watching closely as the deadline approached for Greece renegotiating its debt with the Euro-zone noted that many people reading about money coming out of the Greek banks were wondering why any money was still even left in these accounts. He went on to say "It is simply another Greek tragedy that so many of the local depositors were merely waiting until just after the last minute to withdraw their funds before joining those already busy hoarding fuel and food." The financial default of Greece could be the thing that fuels the fire that finally brings down the house. If it does not, the light from the flames will surely illuminate and expose the fact that similar flaws and massive debts exist in many other countries across the world.
The more and more I study derivatives it now appears the main goal of QE may have been to hold up the underlying value of assets that feed into and support the massive derivative market more than help the economy. QE has up to now stopped an implosion of derivatives and the resulting contagion and shock that would have spread throughout the financial system. The irony is how little of this money has reached Main Street in a constructive way while the damage to savers has been massive. While the Fed has essentially abolished the most basic rules of macroeconomics do not be surprised if the natural laws of economics show their dominance over FED policy. It appears complex and strong crosscurrents may be about to converge and knock the implicit assumption of the escape velocity off its axis.
The theory that we have plenty of time and that another recession does not loom anytime in the future is rooted and based on the momentum model of economic growth. It rests on the idea we will experience a trend of ever-growing year over year increased production. The problem we face today is much of this recovery has been constructed on the unstable base of false demand coupled with new debt and government spending. The easy money policies and artificially low-interest rates of the last decade have simply moved demand forward and created a slew of economic activity that is unsustainable in what would be considered a normal economic environment. This tends to distort prices and lead to overbuilding that often abruptly comes to a painful end.
|Much Of The Current Job Growth has Been In Services|