Tag Archives: US economy

US Economic Decision Making

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This is all in one day: Last Tuesday October 6th:

Federal Reserve Chairman Powell called for a stimulus package as the economic recovery is pretty weak and there’s certainly no chance of inflation returning for years. He warned of “dire economic consequences” without another stimulus. That was first thing Tuesday morning.

It immediately boosted the Dow (let’s just use that one index as an example) by over 200 points.

President Trump doesn’t make speeches – he just tweets: At 12:48 pm it was that “I have instructed my representatives to stop negotiating.” In other words: Forget any stimulus. In less than a minute, the Dow dropped over 400 points to be down 200 points.

No stimulus package means no money for airlines, small businesses, or for millions of unemployed through no fault of their own.

But the bummed out market and investors weren’t done yet. And it turns out – neither was Trump: Less than seven hours and many tweets later, Trump had totally reversed himself: His tweet at 7:54 pm was that: “The House and Senate should immediately approve …(a stimulus plan)…Have this money – will sign now!”

Fast forward to the next mornings’ opening of the markets and the Dow was up 400 points in the first half hour. It finished the day up 530.

Three lessons here:

1..You may not be a fan of our Liberal government, but for all its faults, at least here in Canada we have an economic policy plan that lasts longer than 7 hours and 6 minutes at a time.

2..This is a small insight into why it’s next to impossible to actively manage your own investments in the short term.

3..The lack of another round of help to individuals (at least so far) will have an impact on the election – especially in Florida.

And with Florida in mind, I’ll give you my fearless US election  predictions next week…

Yesterday’s U.S. Elections

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Yesterday, the U.S. had their mid-term elections and there are certainly some interesting philosophies and policy suggestions raised when it come to debt and financing.

A number of very conservative Tea Party Republicans were elected as senators yesterday. Their common belief, and quite correctly, is that the deficit (spending) is out of control, and spending has to be curtailed – NOW. OK, but between March and June of next year they will need to vote on increasing the debt limit. That’s the total the government owes, but something nobody really talks about at all. That’s kind of like the U.S. credit limit, and it has to be voted on a specific day when the debt ceiling is reached.

Will these senators stand on principal and refuse to vote for it? If so, you are going to see a huge, immediate, and world-wide impact on the stock market, consumer confidence, the dollar, and many other areas. It will also immediately shut down all but essential government services. Will they do it on principal, no matter what the implications?

What drove me insane yesterday were a bunch of politicians flagrantly refusing to answer direct questions of what spending they would cut. For the entire election campaign, it was nothing but generalities and buzzwords. That sounds nice, but specifically, what would you cut? Pretty much all of them said it couldn’t, and wouldn’t be defense, social security, and medicare. Fine, but there’s a problem: These three areas are around 93% of all federal spending. So what does that leave?

The equivalent is that you can’t or won’t cut your spending on housing, vehicles financed, and utilities. What does that leave where you can have a meaningful impact on your debt? Yup – nothing. Take a $4,000 income, and now work with only 7% that you can impact. That’s $280. Can you work your way out of an incredible mountain of debt when all you can work with is maybe 5 or 10% of that $280? It’s nuts. It’s political talk, and it’s ridiculous.

There are literally trillions of dollars that the U.S. government has in unfunded liabilities. That’s IOUs for pensions and medicare that are not funded and for which there’s no money. Yet, there was no talk about that. They can’t even come up with specific solutions to today’s debt – never mind the next wave that will hit within five or ten years.

There’s a Canadian politician that coined the phrase: Elections aren’t the time to talk about policy. Yesterday’s elections reminded me of that. Or essentially, we’re pretty much too stupid to understand policy questions and meaningful solutions.

Lastly, you know I’m not in favour of debt and borrowing. But in the U.S., and Canada, there are only three groups that can spend in the economy: Consumers, businesses, and the government. In a recession as severe as the one just ending, consumers stopped spending, as did businesses. Who does that leave? Can you imagine how much worse it would have been without the government infrastructure spending?

And ironically, the U.S. Chamber of Commerce heavily lobbied politicians two years ago to vote in favor of the stimulus programs. A year later, they’re spending tens of millions in campaign money against those same people who did! But that’s not much different than what some of the opposition parties did in Canada. Ah, if we could only be like politicians and have it both ways – all the time. Unfortunately, for us, in the real world – that’s not reality.

More Stories and Insights from the U.S.

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Last week we discussed some real on-the-ground stories from Phoenix. Here are a few more insights worth sharing:

First and foremost, something very critical that separates us from the current U.S. policy. We spoke briefly last week about Prime Minister Harper traveling the country stating how well we are doing as Canadians in this economy. And he’s right. This isn’t about politics, although in the interest of full-disclosure, I’m a fiscal conservative. I believe that much of the intervention in the U.S. economy by the government is doing nothing more than creating a phony and temporary sugar high. Cash for clunkers was $3 billion of tax money to sell 700,000 cars – the car market is now dead again.

There’s an $8,000 tax credit for first time home purchasers. I guarantee you, when that expires in November, the housing market will die off again. Foreclosures are still increasing, and there are more than 17 million people out of work – and that’s still rising. The only way to get the economy back to health is to create jobs, and to reduce the killer debt load the average American is under.

If you believe the government programs are a blessing and not a temporary fix – just wait a year for them to expire, and you’ll see the results. Until then, you might not like Prime Minister Harper’s policies, but as a former economist, he knows that governments can’t be the solution to everything.

General Motors has now begun to sell new vehicles on the giant auction site e-bay. The trial with their California dealers was last month, but you can bet it’ll be back nation-wide. And GM is now working on a $4,000 vehicle. Tata Motors is selling their inexpensive one in India right now for $2,000, and they already have European certification, so you know they’re coming to North America at around $5,000 or so. Yes, GM is behind again – but not as far as usual.

Anyone who travels a fair bit will love this story: For some time now, there has been an on-going, multi-country investigation into illegal price fixing by airlines into their fuel surcharges. The CEO of Virgin Atlantic has already admitted to it. But it’s sad that any company that’s convicted will only have to pay a fine. And that fine will be way less than they made in profits from the fuel surcharges. Some of these executives should spend some jail time!