Many experts assert that the economy is on the upswing. Can you believe it? Despite a 1 percent decline in GDP during the first quarter, economists are concocting various reasons to suggest improvement.
Last Friday, the Federal Reserve released data on April consumer credit, as reported by MarketWatch. “Nonrevolving credit, including student and auto loans, has been a driving force behind this growth, rising at a seasonally adjusted annual rate of 9.5 percent, the strongest increase since February 2013.”
The most notable detail, however, was credit card growth, which surged by 12.3 percent—the fastest monthly growth since February 2001. This surge in consumer spending, even when money hasn’t been earned, is bizarrely interpreted as a positive economic indicator. It’s strange, but it’s happening nonetheless…
Kristin Reynolds, a U.S. economist at IHS Global Insight, commented, “Improvements in employment and rising home equity are making consumers feel more comfortable about taking on debt.”
Illusory Growth
Clearly, Reynolds emphasizes growth, no matter the origin. Yet true economic health is built on increased savings and investments, not on escalating debt.
Relying on consumer debt to boost GDP symbolizes a kind of deceptive growth that merely drains capital and exhausts wealth. This method has been facilitated by the Federal Reserve’s zero interest rate policy since the 2008 financial crisis, resulting in increased public debt. Yet that’s only part of the picture…
Current trends indicate that private debt is also on the rise. This situation distorts the economy in troubling ways, blurring the lines between genuine productivity and credit-driven growth.
Without an effective pricing mechanism to deliver clear economic signals, both borrowers and spenders risk making misguided financial decisions, often leading to ruin. Over time, the entire financial landscape stretches beyond sustainable limits—and that’s precisely where we find ourselves now.
After years of escalating debt, the economy has become reliant on it. This dependency is why fresh public and private debt is essential for GDP growth. Without this influx, the economy contracts, and defaults cascade like an avalanche.
Understanding the Aftermath of a Broken Market
At this juncture, it only takes a slight slowdown in new debt creation for the entire economic structure to unravel. Through aggressive debt creation policies, the government has effectively cornered the economy, leaving little room for escape without causing significant chaos.
These are the stark realities of our current situation. While you can’t change it or resist it, the best strategy is to avoid being caught unawares when everything collapses. What lies ahead is a mystery.
Meanwhile, stock markets seem poised for a catastrophic downfall, yet they continue to rise higher and faster than any rational person expected. Perhaps the S&P 500 will reach 2,000 and the DOW will hit 17,000.
Honestly, we wouldn’t be shocked by anything. The functioning pricing mechanism has been disrupted by the Fed’s low-interest-rate policies, distorting the cost of money downwards and inflating stock prices upwards.
“I’m not particularly enthusiastic about stocks at these levels,” stated Gina Sanchez, the founder of Chantico Global. “The market is clearly overextended, though as long as interest rates remain low, that’s what’s sustaining stocks at these levels.”
“The fundamentals do not justify the current valuations. While it’s difficult to predict what might trigger a downturn, something is on the horizon. This is certainly not a sound investment opportunity.”
In conclusion, the current economic landscape is fraught with uncertainty, driven by factors that may not be sustainable. While specializing in debt can prop up numbers in the short term, it ultimately risks the financial stability of individuals and the economy as a whole.
Sincerely,
MN Gordon
for Economic Prism
Return from Cause and Effect of a Broken Market to Economic Prism
