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Blog Feb 3, 2010
Hi all,
I hope you didn’t worry when I fell silent for a short while. I was trying to catch up on my reading so that I could make heads or tails of the political/financial arena. Arena may be a good choice of words because it has been somewhere between a 3 ring circus and the Roman Arena. I’m still not sure who the lions are.
The loss by the Democrats in Massachusetts was a big deal politically. What, exactly, it means is the subject of many but no one really knows, other than it made the US Senate a two party debate once more. How that will change things will be seen over the coming months.
The stock market has rebounded nicely over the last year, although January has not been positive. As goes January goes the year is the old saying. It is right about 75% of the time. So where do we go from here?
The economy is recovering, however it is doing so slowly. Very slowly. Housing sales are starting to show signs of improvement over last year ( a truly horrible year) as are auto sales. Inventories are still being reduced but at a slower rate as they approach equilibrium with sales. This doesn’t mean that we will see a sudden jump in hiring, but at least the layoffs should stop That makes it a jobless recovery at least for the near term. I’m not at all certain a jobless recovery can last. The current statistics show that the jobless number is 10% or about 15 million people. The soft number which includes people whose benefits have expired and those who have given up looking for work and those who are working part-time is reported at 17% or 25,500,000 people. That is a lot of jobs. Add to that the fact that the work force is growing at 1% per year or another 1,500,000 people (kids do keep growing up and legal immigration continues). That means that if we could begin creating jobs, we need about 7.5 million jobs plus an additional 125,000 jobs each month that it takes us to create those 7.5 million jobs. Expanding the economy at a sustainable 4 or 5% per year it will take at least 5 years for us to get back to the unemployment levels of 2006. So we are looking at 2015 before we are “recovered” If the government, in its wisdom, decides to try to expand the economy faster than 5% we risk inflation in the neighborhood that we experienced in President Carters day with home loan interest rates of 16%. That will again kill the housing market and drive us back into recession.
Politically 5 years is a long time. So politically the best course of action is to throw money at the problem and try to create jobs at any cost. If that is the course of action taken and which may feel good in November 2012, the price we pay in the following years will be very, very high. Be prepared.
My prediction is that the Federal Government is going to incur ever larger debt, it will begin reducing aide to States and States in turn to counties and municipalities as it “cuts costs”. This will result in either a larger debt burden at the local levels or substantial increases in taxes. Could NC be looking at 9% sales taxes or 10% income taxes? Will there be a mass exodus from NC by retirees to lower tax states like Florida or Texas?
What is the proper balance between spending and taxation? I do believe that Pay/go is the right answer. Borrowing to fund current expenses is a sure prescription for financial ruin. Maybe we need a state constitutional amendment to require any increase in debt by the state, in any form or fashion, to be ratified by referendum. Let the people decide. Decide what they want and are willing to pay for and for those who disagree there are choices. Stay and fight or move. The latter option is one which poses risks for those who stay but this is a free country.
My advice is save your money. There are going to be some really good deals on just about everything for the next 6 months, and cash will be king.
