The economy continues to show
signs of life. November job losses were reported last week
at 11,000. Economists had been anticipating 100,000 to 125,000.
Also, job numbers for the previous two months were revised
to show 148,000 more jobs than first reported. That is the
best job report in over a year. We should start to see some
positive numbers early next year. Corporations have cut employment
to the bone so the remaining question is how rapid and strong
will the recovery be. We still have about 15 million unemployed
in a 138 million job economy (Bureau of Labor Statistics).
There are many things that can be done to accelerate the recovery,
but let’s focus on three – real job creation,
interest rates and uncertainty.
1. Real job creation. One of the best
ways to help small businesses expand is to keep the tax
cuts of the early century in place. It really is pretty
simple – promote an environment conducive to making
a profit. This means lowering taxes, reducing health care
costs and eliminating regulations that tie the hands of
small businesses. More profit means more money to hire more
employees. Free enterprise works where it is allowed to
flourish. This is a formula that has produced a strong American
economy for decades. Government regulations and other micromanaging
only interfere with this process. We are developing some
positive economic momentum now, and it will feed on itself
if we let it.
2. Interest rates. Low interest rates
were helpful in preventing a recession from turning into
a depression. Low interest rates today are helping financial
institutions, who can borrow at near zero rates and re-invest
in longer term bonds (10 year treasuries) and earn a spread
in excess of 2.5%. However, near zero rates here are causing
dollars to flow overseas where returns are higher. Foreign
countries are complaining that excess dollars are creating
asset bubbles and undercutting global growth. According
to the IMF (International Monetary Fund) US GDP has fallen
to 24% of world GDP from 32% in 2001 (Investors Business
Daily editorial). As US dollars move overseas, the dollar
weakens. This coupled with high tax rates (and the possibility
of even higher tax rates) has caused the US share of world
equity market capitalization to fall to 30% from 45% (Investors
Business Daily editorial).
3. Uncertainty is also hindering strong
economic growth. First, we have concern over the budget
deficit. What type of health care plan will be unveiled,
and what will be its impact on businesses and consumer costs?
Will a cap and tax bill be passed next year? Uncertainties
are weighing on business expansion and Congress needs to
resolve these issues. We are almost certain the tax cuts
implemented by the previous administration will be allowed
to expire. The equity market has staged an impressive rally
from an oversold level in March of this year, and in the
process, has restored much of the wealth of the American
public. However, to continue this restoration of wealth
these uncertainties need to be resolved and the business
climate enhanced.
Federal Reserve Chairman Ben Bernanke’s position as
head of the Federal Reserve expires at the end of January.
He sat before Congress last week while they grilled him unmercifully
and blamed him for everything under the sun. Just once, wouldn’t
you like to see certain members of Congress grilled by Bernanke
or a team of economists? Truth be told, Congress was as much
to blame as anyone for the mortgage meltdown with its zeal
pushing Fannie Mae and Freddie Mac to sponsor more and more
sub-prime loans. Yes, Bernanke has made some mistakes, but
he did act, and in all probability prevented a depression.
After all, he was not balancing the family budget but a $12
trillion economy. He deserves to be re-appointed.
What an exciting year. Isn’t this a great country?
All religions can come together this holiday season to worship
as they please. In that spirit, we want to wish you
and your families a safe and happy holiday season.
Random thought for December 2009:
“People who refuse to face the reality of hard choices
are forever coming up with some clever third way – often
leading to worse disasters than either of the hard choices.”
- Thomas Sowell, Economist |
