Growing Pains
Despite the negative economic outlook by the Fed on US and global growth, as well as the concerns in Europe regarding sovereign defaults, US leading economic indicators actually rose last month. The primary reason is due to an increase in the money supply, because consumers are reserving their cash, keeping it in bank accounts. This is a long-term positive, because it will lead to more money to lend in the future and continued lower interest rates. However, its a double-edge sword in that it meas that consumers are cautious and not spending. And when GDP is primarily driven by consumer spending, the result is slow or no growth.
I was asked today (mostly in jest) if the world is collapsing. The answer is no. To the contrary the world is evolving, growing and thus experiencing serious “growing pains”. The cause of these growing pains today is “de-leveraging.” Consumers, business and governments had borrowed too much during the boom leading up to the “Great Recession”. Businesses since have de-leveraged the most. Consumers and governments have a lot more work to do in this area. Once this de-leveraging can run its course, we’ll return to growth, with less growing-pains.