Global Economy Is Deteriorating Fast

Monday, July 14, 2014
By Paul Martin

By: Raul I Meijer
Market OracleUK
Jul 14, 2014

The insanity doesn’t just continue, it intensifies. The overriding idea is still that the more companies and individuals borrow, the better the economy goes. But that is nowhere near true. It may have been at some point in the past, but not now, not with debt levels at historic highs. Today’s problem is not that there is not enough credit or money available, as central banks try to make you believe, but that people are not spending what they have. Individuals are either maxed out or scared to be left with nothing, and companies see no opportunities for investing in productive projects (besides, they may well be maxed out too).

Credit can play a functional and beneficial role in a society if an individual or company borrows at 5% and puts the money to work towards the production of something with an added value of 10%. That works, because the risk is real. At a 5% rate, you know you will need to do actual work to pay back your loan. And a 10% return means there are things to invest in that are productive. A 1% rate only papers over the fact that there are no productive investment opportunities left, and that they need to be created artificially to prevent the public from finding that out. The entire economy seems to take place on paper – or screens – only. But that’s of course an illusion. We need physical food and physical shelter.

Credit is neither beneficial not functional when companies borrow at 1% and only buy back their own shares or purchase/merge with competitors. Companies today don’t borrow because they feel optimistic about the economy, they don’t borrow because they see productive opportunities at the horizon. They do so only because, to paraphrase Obama, they can. And because financial trickery is the only way to make people think they are healthy.

In the present circumstances what this means is that because debt nevertheless increases at a rapid clip, the economy deteriorates just as fast. And you won’t like what you see when we come out at the other end. The economy is completely hollowed out from the inside, while we’re looking only at the facade. That’s why there no longer is a connection between economic performance and stock markets. In fact the stock markets have become the de facto economic performers. But nothing is being produced, or at least not nearly enough. And not nearly enough is being bought to keep the wheels spinning either.

Today it was announced that Eurozone industrial production fell 1.1%, but stocks just keep on rising. And much more of the same is in the pipeline:

Draghi Seen Delivering $1 Trillion Free Lunch to Banks

The Rest…HERE

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