Greenspan wasn't finished. As stunning as his reversal was, he finally spoke to the real economic problem within the US, i.e., the absence of real DEMAND. He confessed that quantitative easing (QE) helped asset prices (inflation) but "didn't do much for the real economy," reports Zero Hedge.
The first tenet we learned in economics class was the law of "Supply & Demand." Astute investors have always understood the deadly flaw in the understanding of this principle: It is not the law of Supply & Demand but in fact the reverse. It is the law of DEMAND & Supply.
DEMAND drives capital. Capital always chases DEMAND. America - and by extension, all world economies - have ample supply but now lack DEMAND. How did Greenspan address this?
“Effective demand (emphasis mine) is dead in the water,” he admitted, adding: "The effort to boost it via bond buying 'has not worked,' but 'boosting asset prices has been 'a terrific success.' ”
Investors must fully appreciate the breadth and gravity of the message Greenspan intended to convey. Real DEMAND is "dead in the water." This means, of course, that the chain-reaction of increasing Inflation and decreased employment can only intensify. As investors, what does this augur for company earnings and the $20 trillion or so in investing capital held by Americans?
As discussed here, monetary policy "adjustments" haven't worked (and have merely piled trillions of dollars onto the national debt) which leaves only fiscal spending - direct government payments to keep the economy relatively stable with the hope a catalyst for growth and expansion will emerge.
The only success Greenspan was willing to attribute to the QE effort cite was a "boost in asset prices." Aside from the temporary slide in Energy prices, prices for all other goods and services are climbing to the point where the average citizen cannot afford ground beef. Still the IMF wants more - much more - Inflation here in the US, with the hope it will appear in the Eurozone. Inflation is their plan - and it is their only plan.
The world is heading to a pivot point, a tectonic shift in the status quo. While much of it is planned, unexpected events will have an impact as well. Regardless, it is the reason the MDEF™ Investing strategy was created: Own only the essential market sectors that both governments and individuals must rely on for survival. As events unfold, and DEMAND for non-essential goods and services wane, investing capital rotates into areas of confirmed need and reliable returns.
If you want to know more about how the MDEF™ Investing strategy is positioned in this, or other geopolitical possibilities, please contact us directly.