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Wednesday, 31 January 2018

Sky-High "Systemic Risk"

Rising stock market prices over time has little to do with economic growth as they are largely a reflection of monetary inflation. Though increased economic growth facilitates increases in the money supply, monetary inflation actually results in growth that lags potential. Furthermore, monetary inflation sets in motion the business cycle with an inflationary boom followed by a very real correction. Monetary inflation is therefore, more than anything else, a source of risk in an economy. 

Increased saving (the act of earning more than is spent) on the other hand is a source of financial stability. Decreased saving is the opposite, though it admittedly creates the illusion that the economy is expanding due to an ill-placed obsession with GDP (of which consumers spending makes up around 70% in the U.S.). 

Combining the two, it should be clear that stock prices outrunning saving on a vast scale and over a longer period of time necessarily brings with it the potential for great economic instability sometime in the future. With the ratio between the two spiking to a new record high in recent months, that time is fast approaching. 

As of January 2018
It's a safe bet that economic measures like this one are not included in central planners flawed econometric models of "systemic risk". Which is a major reason they always fail to predict (and stop them before it's too late) major market turns and GDP recessions. Just as they will this time around as well. Needless to add, if they were aware of the economic problems caused by monetary inflation, they would not have allowed it to happen in the first place.

Related: The Money Cycle, Stock Market, And The Return Of The Inflation Premium


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