I am not sure if it is because I read too many financial articles, newsletters, magazines and watch too much CNBC/Bloomberg, but I am becoming more and more worried about the world's financial dilemma. As I write this, I see on CNBC that union strikers in Greece are turning somewhat violent. Maybe if I bury my head in the sand I could ease my troubled mind, but somehow mimicking an ostrich doesn't appeal to me much.
After all the easing provided by our Federal Reserve, Treasury, and current administration I firmly believe that we have only one viable option. We have to grow our way out of this problem, and the kind of growth I am talking about will have to come from economic expansion not cost cutting and productivity enhancements. Forgive me if I am repeating myself ad nauseam but the only indicator I can fathom providing insight to this growth possibility, are jobs. I know this is a lagging economic indicator, but I only see sluggish improvement in this indicator, at best. One thing continues to rush back to my over worried frontal lobes when I try to format the big economic picture. Any improvement we have seen in jobs growth has been dominated by Government jobs. Am I insane for thinking that Government job growth is just another tax affecting all of us? Their salaries have to come from somewhere. This type of job growth is only exacerbating the current debt problem.
If we do not change our current path somewhat quickly I eventually see two possible outcomes. Before my readers label me as some type of Chicken Little, I still believe it is possible to change our current path, and see the foundation for this possibility. (It must be what little is left of the optimist in me.)The two possible outcomes mentioned earlier are hyper inflation or I think to a lesser degree terrible deflation. Both of these are extremely destructive and I am somewhat frightened by the type of chaos that might ensue by either.
How did we get to this point? As a result of years and years of excesses in credit, lending, and corporate risk taking we experienced a frightening prospect of our financial system grinding to a halt. As a result, there were actions taken to stabilize the system. One of my theories is that the system was not actually broken and if we as a society actually had to swallow our own distasteful and painful medicine the system would have eventually corrected without intervention. I suppose the pain may have been somewhat intolerable, so interventions (medicines) were taken to prevent economies from falling into a depression. History will provide the answer if the cure was worse than the disease?
There have been some serious side effects. The levels of money printing and debt are creating currency devaluations. What will happen when the quantitative easing strategies (I have seen /heard referred to on CNBC as the sugar rush) are removed? It is much harder to determine fundamental values when artificial growth by government is creating the demand. We are artificially increasing asset prices by devaluing our dollar, (Is the medicine worse than the cure?) My guess is that the Federal Reserve will continue to provide asset increasing sugar and dollar devaluation strategies which will result in obvious inflation and possibly hyper inflation. Maybe burying my head in the sand will at least prevent me from seeing what is happening? I might feel more comfortable if I buried my gold with me realizing that it will not be devalued like the US dollars we all possess.
Daniel Petrey, CFO, MBA