Stock Prices are rising as another earnings reporting season begins. The first of my stocks to report has “better than expected” earnings. This is good. Bernanke is keeping the money pumps pumping. As stock to earnings ratios approach 20:1, that piece of the economy is being nailed into place and all is right with the world.
But then economies aren’t about balance and stability, or at least they haven’t been for at least 500 yrs. Maybe they never were, as drought, war, plague, religious reform, new ideas, trade always have affected economies. “They” say that a tree that stops growing is dieing. An economy that stops bubbling and frothing is, while not dead, well, its stagnant. A healthy growing economy is one that creates new opportunities, and kills off some of the obsolete ones, shedding the dead wood.
We still have an artificially low interest rate. Some people say that is good, it encourages borrowing. To me, it discourages lending. I am afraid to tie up money long term, for fear it will lose value, if it cannot be moved. Low return for high risk. Its probably not in the best places, but are the best places much better? While we hear banks are “lending again”, I’d bet they are still being very cautious – I know I am. If interest rates were a bit higher lenders could take on more risk, and I think we would see more investment – more development of new ideas.
The unemployment rate seems high, though it too may be artificially low, as the “people looking for new jobs” rate is much higher. We begin to see part-time and temporary jobs increasing, This is usually a good sign, for recovery. Though with new government regulations, this may be a sign of business contraction.
Our baby boomer generation is nearing the end of its productive years. In addition to the loss of experience (fortunately, no loss of wisdom) they will start consuming, and cashing in on their investments. The market for antiques and collectibles is probably doomed. & I intend to join them.
The bubbling stock market is usually considered a good sign. I’m not so sure. I fear it is a response to a restricted banking market. Trading stocks doesn’t doesn’t create value, doesn’t create more widgets. Where are the new stock offerings, the new investments the new businesses, the new products? Devaluing the currency is supposed to be inflationary and here, in the stock market, is the inflation. If new businesses were being created, wouldn’t we here about it? Wouldn’t the administration be trumpeting this success?
In Dave Freer’s Dragon Ring, It is the job of Fionn the Dragon to identify cluster’s of energy and free them, to open the bottlenecks, to release the instabilities before they become worse. That is what our guiding economists should be doing, releasing the instabilities before the become a problem, not trying to contain them.
One can build a structure by placing things where the aught to go and the releasing them. Aren’t arches created this way? But often using this approach, the structure simply collapses when the supports are taken away. If you want to see some challenging dynamics, watch a multiple pendulum. A simple pendulum is pretty repetitious, but a multiple pendulum an be extremely complicated. While I don’t think economies collapse into rubble, the economic pendulums may start swinging unexpectedly and we could all be in for a wild ride.
© David B Snyder 2013