On Wall St. we like to spout on about our analytic insights when giving our economic forecasts; we point to correlating markets, ratios, data reports, and more theories than than there are days in the year. Like most things, some of these data points are worth their weight in gold while others aren’t worth the paper they are printed on, but in the end it all comes back to fundamental principals; the solid bedrock which our Economic Structure is built upon…and in its rawest form, Supply & Demand.
This principle properly practiced and properly understood can lay a diagnosis and prescription for anything from ailing consumer confidence to product longevity and innovation.
So the questions I entertain, within the scope of the ‘Supply/Demand’ principle and with regards to a legitimate improvement to our economic system, are focused towards two groups: Financials and Consumers; Those who delegate the money and those who spend/save the money. These two groups are the foundation of all points in our economic cycle and are representative of the Supply & Demand motion that churns our system. But what happens when the two weights which keep a system functioning become out of balance and are each distracted by narrow, short sided, and self benefiting interests. Former IMF chief economist Simon Johnson stated that “from 1973 to 1985, the financial sector never earned more than 16 percent of domestic corporate profits…this decade, it reached 41 percent.”
For the past decade or so our nation has had a negative savings rate, over extended credit, and a continuous erosion of the middle class, while our financial services sector accounts for almost half of corporate earnings. This is not an appropriate recipe for an Economic system based on progressiveness , innovation, and growth. Our system is completely out of whack as Felix Salmon at Reuters points out stating “financial services companies are meant to be intermediaries, middlemen, and any time that the middleman is taking 41 percent of the total profits in what’s meant to be a highly competitive industry, there’s something very wrong.”
We must get back to basics. In our nature we have taken a progressive and inclusive economic practice like capitalism and corrupted it into a self serving ideology. We have traded in Progression for Profits and Dreams for Dollars.
An equilibrium can not be sustained when an entire monetary system is based on quick money, false value, and borrowed assets… and a recovery will not be sustainable until our core problems are exposed and addressed.