Economy – Pray or celebrate?

There are a lot of conflicting news and data about the state of the economy. Some sources are pointing out growing stock market, rising house prices, low unemployment, growing GDP and moderately low inflation as signs of a healthy growing economy. Other sources identify reducing labour productivity, low labour participation, lower tax revenues, low investment and failing retail as signs of economic peril.

Viewing the economy through the lens of the high and increasing debt then the observations actually align. Easy access to debt pushes up assets prices and increases GDP while companies and individuals seek easy rent rather than investment that would improve labour productivity. The accompanying low interest rates reduce wages which discourage participation while encouraging employment. This leads to stagnant consumer demand affecting retail and the broader tax base.

The economy appears to be reacting to the long period of low interest rates and debt creation. The path of increasing debt has an end, ultimately driven by the confidence of creditors. Moving out of the debt cycle will result in a combination of debt defaults, high inflation and unemployment.

The economy is appears to be going ok

However its fundamentals are unsustainable as it is propped up by debt.