|Slow Economic Growth And Stagflation Ahead|
Over the last few years, we have continued to see many companies cut their workforce or rotate and replace higher paid workers with lower paid employees. We have also witnessed production continuing to be outsourced to offshore factories in an effort to increase profits. Many companies have seen profits grow as sales have remained relatively flat. In some cases where margins have been squeezed stock buybacks and cost cutting have been the only driver of higher profits. This has occurred at a time where sales have been propelled forward by cheap money rather than by real or pent up demand. Few people have realized that record government deficits and a shift to more healthcare spending by consumers facing soaring insurance premiums as a result of Obamacare are also inflating and driving the GDP higher but not in a good way that reflects quality growth.
|Slow Growth And Growing Debt!|
We should figure the deflationary effects of lower interest rates, increased oil supplies, and falling commodities are largely behind us. This means grinding stagflation is on the horizon. While oversupply in the auto sector pressures sales margins and provides lower prices to consumers it will be more than offset by rising health cost and other increases throughout the economy. This means going forward we should expect very slow growth as QE comes to an end and the government at some point becomes forced to deal with runaway spending. The reality is our America's future cannot be sustained forever on just the exports of Boeing aircraft, the sale of phones and computer tablets we manufacture overseas, or increased internet usage. We need to look at more substantial and broader based benchmarks. At the same time, it is not realistic to think the American consumer can continue to support exporting countries like China and Japan by racking up a 600 billion trade deficit year after year.
A strong case can be made that the economy is about to stall under strong headwinds as the burden of past debts and future promises made to those retiring and unable to find good jobs begins to weigh heavily upon society. Tensions have become elevated in many parts of the world as ISIS continues wreaking havoc and a flood of refugees flee war-torn areas. Protest and political unrest in countries like Brazil, Turkey, Pakistan. and throughout the Euro-zone may be about to get worse. In addition, we cannot rule out the possibility of conflict with North Korea or a major war breaking out, it is clear the world is rapidly changing and nobody has a crystal ball that will predict how this will all play out, but one thing is certain, and that is storm clouds do exist. This leaves the possibility at any time the markets could morph into a "realizing market" that grinds slowly downward or that at some point the wisdom of buying every pullback changes and the market simply drops like a stone.
Speculation based on mere hope is not a solution to our complex problems and today long-term planning is in short supply. Silly talk about the fact that the deficit is beginning to shrink is like saying it is now safe for someone who can't swim to jump into the water because in is no longer as deep ignores reality, the drop is small and the depth still great. Even with today's low-interest rates, we are adding to the deficit at near record numbers never witnessed except during major wars. How America and countries across the world react to the stress that comes from slow economic growth and how it will affect our budget and culture as the long-term cost burden of carrying the unemployed builds has yet to be determined. It is becoming increasingly clear that the logic and motives of those forecasting a bright and robust economy need to be scrutinized.
Footnote; A post I wrote some time ago remain strongly tied to the message of just how large our debt has grown the link can be found below. Other more recent articles can be found in my blog archive, thanks for reading, comments are encouraged,