We have also seen that there is growing concern about China’s inability to manufacture domestic inflation and economic growth. If China is challenged, with its vast policy tools and committed government, then how can other central banks possibly succeed?

It worked. It really, really worked.

This isn’t to say that quantitative easing and other extraordinary monetary policies haven’t worked. On the contrary, they have helped global economies avoid deflation, repair unemployment and restore confidence in financial markets.

However, these policies were meant to be temporary and governments around the globe were supposed to use the breathing room of low interest rates to revamp their economies. Governments have failed to enact longer-lasting policy overhauls as they try to combat an array of demographic and other challenges, such as falling labor participation rates.3

It’s now time for public and private sector solutions to broaden the economic recovery from just holders of financial assets to include a much larger group of stakeholders, and restore inflation and growth to historical norms.

What does this mean for investors?

Generally speaking, investors with long time horizons and a disciplined, diversified investment approach have been rewarded with returns that enable them to grow wealth and preserve capital faster than the rate of inflation, even after the deduction of taxes, fees and transaction costs. I believe once investors adjust to the new environment that this time will be no different.

The markets are realizing that full recovery from the 2008 economic downturn, the greatest since the Great Depression, will be even harder and take longer than they thought. As a result, stock market volatility may be elevated in the coming months and quarters while this adjustment occurs.

On the bright side, it also means we’ve entered the next phase of recuperation. US economic growth continues to show signs of life and underlying company fundamentals remain compelling. This may enable stock prices to recoup recent losses and grind higher into next year.

You can read more about my contrarian view on market volatility in my full Uncommon Sense article.

Definitions

Shanghai Stock Exchange Composite Index
An index that tracks the performance of all A and B shares listed on the Shanghai stock exchange.
1Bank of America Merrill Lynch
2Financial Times, “Renminbi outlook a puzzle for investors,”as of 10/8/2015
3The Wall Street Journal, “Central Banks’ Lesson: Easy Money Alone Isn’t a Growth Salve,” as of 9/17/2015