Fed...what
Fed?
Several anticipated
secular employment data were released last week, without much fanfare,
particularly indicating that traditional brick and mortar retailers were
suffering from decreased sales, limited foot traffic (most notably at shopping
malls), and that tens of thousands of employees will be laid off in the coming months. Yet, the overall employment statistics were
quite good because the amount of jobs created in other more technological
fields has been increasing and offsetting whatever losses elsewhere might have
occurred. Make no mistake, the
preponderance of employment and overall economic activity is good. So investors had to focus on other news to
justify the enormous bounce back stocks experienced for the week. Besides looking at the resolution of the
Presidential impeachment process and the reduction of Chinese tariffs, I think
there is one specific area they should be studying....
If, indeed, low interest rates are the engine behind the stock market's last
decade of success, perhaps we need to focus more upon the locomotion effect
they created than upon the shiny vehicle that sits atop.
For the last century
every recovery has been ushered in by lower rates... a clear attempt to make
borrowing money to cultivate new enterprise more affordable. (Conversely, every recession has been preceded
by higher rates as central banks sought to rein in spending and
inflation). But with global rates at,
near, or below zero those central bankers have lost their monetary and
psychological advantage over the direction, magnitude, and duration of the business
cycle.
We might want to
prepare for an economy...at least in the near term....which is wholly governed
by fiscal and moral doctrines more so
than by traditional supply/demand monetary-style economics. The tail will, for certain, wag the dog in
that instance. Traditional guideposts
and norms of our past might only minimally apply going forward.
The new normal is lower
inflation and lower rates. However,
another offshoot of that "new normal" is lower growth rates, as
well. Strategies for incentivizing
commercial and personal spending must now fall into the domain, brain power,
and idealism of scientists, entrepreneurs, educators, social theorists, and, of
course, politicians.
Taxes, spending
initiatives, war, immigration displacement, healthcare, and infrastructure are
now the new engines driving the global economy especially in an era where cultural/geopolitical
differences are exacerbating and bank's monetary influences are receding.
Since this is a
relatively new economic phenomenon there are doubts that the outcomes prescribed
by these new "influencers" are a necessary and sufficient predicate
for the development of effective policies.
New
tapestries
Before the Federal
Reserve or ECB (European Central Bank) ever existed, causes for economic booms
and busts were numerous. Capricious
passion, agriculture, weather, territorial conflict, industrialization, and
geography were the prosecutors of the economic landscape. For all intents and purposes there was no monetary policy. Spending and taxation were local matters
handled by powerful despots, kingdoms, and fiefs. Don't forget also that the currency of those
times was based in commodities, textiles, gold, and other precious minerals.
Macroeconomics is a
relatively new study. It represents the
global economy as a whole, not just
individuals and firms. When we act
responsibly, morally, together there is a much more powerful economic engine to
be had. Unemployment is lower when the
common good is the desired outcome.
Demand is better when the common good is the desired outcome. Growth is sustainable when the common good is
the desired outcome.
Fear, volatility,
recession, marginalizing one's neighbors is the outcome when "every
man" is in it for their own benefit.
Our politics is a
harbinger of a new social paradigm led by nationalism, proprietary interest,
and cultural survival. Despite a new sense
of social and economic imperatives brought about by synthetic monetary
manipulation (low interest rates), we sometimes need a reminder that the Dow
Jones Industrial Average is not always the best barometer by which to measure our
outcomes.
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