debt bubble

Easy Money, Hard Truths

© Can Stock Photo / alexskopje

If you follow market commentary, you may have noticed a lot of attention being placed on Federal Reserve Chairman Jerome Powell. After a series of interest rate hikes, the Fed has started pumping the brakes and some market watchers—the President among them—are hoping for interest rates to go back down, or even a return to the Fed’s “quantitative easing” policy.

It is easy to understand the appeal of easy monetary policy. Being able to borrow money cheaply helps fuel economic growth. Corporations, individuals, and governments all benefit from being able to take out lower interest loans.

That growth comes with strings attached. The cheaper it is to borrow money, the more borrowed money accumulates on balance sheets. In moderation, borrowing money allows people and companies to accomplish things their own money could not. But those debts eventually come due, and not all of them always pay off. Too much debt can have catastrophic results.

We do not need to look far into the past to get a glimpse of the consequences that overly easy monetary policy can have. Not even 10 years ago there was widespread panic about the possibility of Greece’s national debt dragging the whole Eurozone down with it.

How did this happen? Greece was a developing country with a growing economy, but Euro monetary policy was dominated by larger countries with slower economies that wanted looser money to fuel their own growth. For Greece, that loose money just wound up inflating their debts into an unsustainable bubble.

We have been concerned for some time about signs that corporate and government debt in the U.S. may be growing into a massive debt bubble, and we are not alone. In our opinion, the last thing that the economy needs is even more debt. We hope that cooler heads prevail and the Fed agrees with us.

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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.