The economy today, tomorrow

Hi all, I was thinking about what tomorrow holds and where the economy might be going so I thought I'd share my musings.

What do we know or think we know about the economy.


1. Consumer growth in USA is positive but meager at 2.5 -3.0%. Fine is normal situation but weak against 2009 numbers.

2. Without consumer spending growth the US economy teeters on the edge of slipping back into recession following the pattern of the 1930’s.

3. Consumer spending is influenced by consumer confidence. Consumer confidence is rooted in the fundamental belief that home ownership is a store of wealth.

4. The housing market is continuing to contract and values are continuing to slide, albeit more slowly than 2008/2009.

5. Retail store margins and auto industry margins are being squeezed.

6. National Debt is higher (as a % of GDP) than it has been since the end of WWII. It peaked at 120% of GDP in 1947. Today, according to the CBO (Congressional Budget Office), it will reach 102%.

7. The debt fell sharply following the war for all the reasons you might imagine once the returning soldiers had education and support until the private sector could absorb them (1947 -1950).

8. Housing was a tremendous employer as returning soldiers married and needed a place to live, raise children, etc. They needed cars to get to work. Car plants had been turned into truck and tank plants. No new cars were produced during the period of 1941 until 1946. Car sales and home sales became the economic engine. These times created confidence and the idea that home ownership was the American dream.

9. Europe is a house divided. The southern countries of Spain, Portugal, Italy and Greece are very socialistic. France is quite socialistic as well. The attitude is that the government owes us a safety net that is quite rich by American standards. Germany, Austria, Switzerland really are much less socialistic by their culture. They are more inclined to be self reliant.

10. Eastern European countries were communist and they aren’t ready to go back. They are very capitalistic and anxious to increase their standard of living.

11. Asia, China, India, Thailand, Viet Nam, Indonesia and the rest are busy improving their own living standards. They are spending on education the way we once did, focusing mainly on the hard sciences, rocketry, electrical engineering (Computers) and medicine, less so on rounded educational issues. They are breeding and educating winners. Losers are on their own.

12. Africa, as a continent, is lagging behind on almost every front. Rich beyond measure in terms of natural resources and such yet leading the world only in subjects in which no one wishes to be a leader such as infant mortality and short life spans.



What don’t we know?



1. Apparently we don’t know how to create economic growth.

2. We did a stimulus package that hasn’t really gotten much bang for the buck.

3. Politicians are running scared and trying to create buzz that keeps the focus off the lack of progress. How the fall elections will turn out?

4. What the fall election results will bring – more fiscal conservatism or more socialistic programs.



What might we consider?

1. Significant tax breaks for purchasing hybrids or all electric cars, provided they are manufactured in the United States, don’t care who the company is owned by, just care about creating jobs and reducing oil dependence.

2. Offset the cost with a carbon tax on vehicles that are intended for passengers that don’t get 30 mpg or more for now. That means ALL registered vehicles, regardless of year (some exception for limited use antique vehicles). Future MPG requirements can be legislated as the industry catches up. The tax would be based on the EPA estimated MPG vs the 30 MPG standard. Thus an SUV getting 17 MPG would be at 56.7% and would be taxed more than a small car that gets 26MPG (86.7% of the base line 30 MPG). Cars that already exceed 30 MPG would get a tax credit on the same basis. Let the consumer buy and drive whatever they choose but tax those who pollute and reward those who do not.

3. Double the mortgage deduction on first homes(primary residence)on any home that is purchased out of foreclosure or short sale. The caveat would be that the home must remain the primary residence for 5 years (shorter = recapture of the bonus deduction) and the bonus deduction goes away if the property is refinanced. This will help the banks get troubled loans off their books and qualified buyers into homes and reduce the use of home equity for frivolous purchases. (Exceptions could be granted for money used for educational expenses and/or medical care).

4. States could refund to employers all state income taxes collected from “new” employees hired over a 12 month period to begin on the day the legislation becomes law. If the employee is terminated for any reason (Including cause) and not replaced immediately by another at equal pay rate, recapture of the taxes with interest is the penalty. If the employee is retained for a period of at least one year (could require 6 months past the end of the tax rebate program) then the tax money is considered a job stimulus. If the job is terminated for any reason during the stimulus period, any taxes refunded to the employer under this program will be recaptured with interest.

5. Communities could also consider a tax abatement that is directly tied to new hires with the same proviso’s regarding linkage and recapture detailed above.


These are proactive, job creating programs that could work. Here in the Cape Fear region, the faster we absorb the foreclosure inventory the faster housing prices return to normal and the sooner the home builders will be able to begin hiring. Until that happens our economy is at risk of a double dip and there isn’t an economist out there that thinks that would be anything but downright ugly.