RAINING ON THE PARADE
It’s a great time to be alive in America. Asset values are on the rise. The economy, although not brisk, appears viable enough to keep the good times rolling. Plenty of money is available for business deals, leveraged investments and asset purchases. In fact, we’re close to an economic nirvana, not too cold, not too hot, but just right. Nevertheless, we are purchasing our "golden age" at the expense of tomorrow. Every sweet has its sour, and as every champagne drinker learns, tomorrow always comes.
For now this "day of reckoning" doesn’t seem imminent. However, don’t believe that such a day will never come. Make the most of our current prosperity, but don’t close your mind to the dire consequences of our economic sins.
- Loose money and credit, along with a record debt level, make rising interest rates the nemesis of the economy. Higher rates mean a downturn in real estate activity that imperils the entire credit structure and, with it, the economy.
- Currency debasement and inflation make assets appear to be in a permanent boom, but it’s likely they’re just standing still while the value of our money goes down.
- The trade deficit transfers money and jobs out of the country, harms the economy and puts us in thrall to foreign creditors.
- To the extent that assets are propped up by excessive leverage and dubious credit quality, the degree of the inevitable downturn will be multiplied.
- The cure accepted for any economic downturn is more money and credit. Throughout history this kind of inflating has proved disastrous. Nations or empires that resorted to inflating lost their significance.
You should begin to hear alarm bells and take defensive measures when money and credit growth falters, or interest rates climb. Either one will sound the end of asset appreciation, economic growth and the golden age.