The Ugly Side to Easy Money

Updated: Dec 6, 2019

Many have written extensively about the both the benefits and negative side effects of the decade plus long easy money the central banks around the world have pursued to continue economic growth. On the negative side of the ledger is the negative feedback loop and the law of diminishing returns of such a pursuit. As an avid observer of the big picture I can't help notice the lack of punishing the weak to make them and others stronger and the overall economy. I can name countless public companies miss earnings, see a temporary drop in price and then recover shortly thereafter and make new highs. Further companies that should go bankrupt that never do because borrowing rates keep falling. Or witnessing the record $1 trillion in stock buybacks on the back of artificially lower rates and debt issuance. This creates an environment (tied to inefficient use of capital) where ALL survive and none fail and was partly born in the "too big to fail" scenario during the 2008 bailout process. By not allowing the weaker companies to fail weakens the overall fabric of our economy and in the end leads to the dilution of central bank policies. The end result, is slower and slower growth, shorter and shorter growth spurts and the need for higher amounts of stimulus needed to create growth. Eventually, imbalances occur in weaker parts of the economy and the next economic crisis gets born. We may be closer to that occurring than most think given the recent switch to loser money once again. The next step will be the realization of the laws of diminishing returns vs the optimism that exists today.


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