We wrote earlier that the steady state for the economy is being reached. Profit growth is still the base case. What could offset this strong profitability? It seems far fetched that the declining Euro will put a huge dent in US profitability, given that approximately 18-20% of US revenues are from the eurozone. What are some potential catalysts?
- tax increases by state / local governments
- collapse in the EUR to below parity
- aggressive tightening in China or Europe (for different reasons!)
- policy mistake in the US
It is clear that the economy is chugging along, and that some of the biggest risks are how the markets will punish policy mistakes. It reminds us of a quote from Schumpeter:
“As a doctor is unable to predict whether his patient will be run down by a motor car, so the economist is unable to predict in a situation in which so many political motor cars run about …”
- “Depressions, Can We Learn from Past Experience?”, Schumpeter, 1934
Tags: economics, Monetary Policy, Schumpeter