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| The modern economy |
In recent days stock markets around the world have been tumbling -- and then recovering sharply. Oddly this headless chicken hysteria is not because of bad news but because of good news.
WTF, how can good news be causing such economic turbulence? The answer to this question is that the modern global economy is a clownishly complex contraption, twisted out of shape by constant interference from governments and globalists.
But back to the good news -- higher earnings and lower corporate tax -- how can it be causing such chaos and confusion?
The first of these factors raises the possibility of some workers daring to demand higher salaries, which in turn generates fears of inflation. Yes, because hard-working people might actually spend some of this money in the shops, instead of pumping it into crypto, shares, or bad modern art.
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| Bad modern art |
In turn, this possible inflation means that banks could be forced to raise interest rates, as savers won't want to leave their money in there if it is just losing buying power.
Higher interest rates then make borrowing more expensive -- the ultimate economic taboo in an economy now drugged to the eyeballs on cheap credit. For the same reason, inflation also pushes up the yields governments are forced to offer on their bonds in order to raise money. With government debt at record levels they need a continuous and ever supply of money through the bond markets. Rising bond yields then suck money out of the stock market, pushing down stock prices,
The second piece of good news -- lower corporate tax thanks to Trump -- can also have a lot of bad fall out in our modern Mickey Mouse economy and perversely can impact stocks. This is because companies no longer need to bury their profits in the stock market to avoid high taxes -- something they have been doing through "buy backs" of their own stock. Instead they can invest profits, as they should be invested, in increasing productivity by hiring better workers and investing in plant and equipment. This too naturally pulls money out of the stock market hitting what are actually inflated stock prices, while also contributing to wage and price inflation.
Another major factor in the demented economic equation on which the World runs is the growing pressure on the Federal Reserve to "taper" -- slowly reduce -- Quantitative Easing. This, remember, was only ever supposed to be a temporary stop-gap measure.
This glut of money in the economy has driven borrowing costs into the ground, making debt about as cheap as breathing, which in turn has driven savings in search of a profit into the stock market -- and, for a time, crypto -- instead of bonds.
So, what is likely to happen next?
Either a positive or a negative cycle will emerge. For example, companies might compete for diminishing capital by improving performance and productivity and thus pull money out of bonds, while rising prices create rising profits and better wages. Alternatively, the more competitive conditions might lead to companies failing or downsizing, leading to downward pressure on wages and slackening demand leading towards recession.
For this reason, Trump's measures protecting US companies and workers from unfair competition are vital. Less vital are any major infrastructure investments -- except the Wall -- as US government debt is already suicidely high.
