The other side of the coin

Weekly Updates

Popular reporting of economic issues can be very one sided. This is particularly true with what might be called “puritanical” issues, especially around inflation and debt.
Until recently, “reckless” printing of money by central banks was widely criticised. What is missing from this analysis is the level of money demand. Printing money is not inflationary—printing too much money is the problem. If money supply does not go up when demand for liquidity rises, the result is a credit crunch and deflation. Considering money supply without considering money demand is a waste of time.
As money supply has followed money demand lower, the latest focus for disapproval is the level of government debt. Debt-to-GDP ratios are generally below record levels, but they are higher than they have been for some time. The other side of the debt coin is the very high level of global wealth. Increasing debt has to be considered against the fact that there is more money looking for an investment home than ever before.
The combination of political polarization and soundbite economics means that a one-sided view of economics is likely to steal the media spotlight. Investors need to consider both sides of the coin if they are to invest effectively.