THIS IS MY 78TH BLOG ON UNDERSTANDING MONEY TOOLS
For you to understand money tools I feel it is important to
understand certain dynamics that go into governmental financial policies both
in the USA and worldwide. Your employment and investment future will depend on
your basic understanding of both micro and macro-economics. Everything is “cause and effect”. At the moment there is a ton of stuff
happening and it will have an effect on all of us down the road.
Let’s start out with last week’s Federal Reserve’s
decisions. Fed Chairman,
Janet Yellen, (yes, from my
understanding it doesn’t matter if the head of the Federal Reserve is a man or
woman they are still known as Chairman) decided not to raise interest rates.
More manipulation of money, more Keynesian philosophy and less reliance on free
market policy. The odds were 50-50 that the Fed would raise interest rates at
least 25 basis points, which is 1/4%. The decision not to raise interest rates
was based upon the world’s financial turmoil and weakened nature of many
countries; China’s uncertainty getting most of the blame.
China’s growth is still quite good because of mass and
momentum, and should still result in a GDP of about 4%. They have been huge
buyers of commodities in past years with their growth taking in about 50% of
the world’s iron/steel, concrete and copper for building. Their future depends
upon internal consumption and close monitoring of debt and diminishing
production. China, unlike us, is very tight-lipped on finances, and very closed
when it comes to sharing information outside the country.
I think larger problems exist. One is the worlds’ economies
are weakening and deflation is a real problem, not inflation. If we had raised
interest rates our already strong US dollar would get stronger, more people
would desire our bonds, it would help retirees and people on fixed incomes with
savings, but it would hurt our exported goods and international business.
In a parallel note, the government needs to pass a new
budget and with that borrow more money. If interest rates had risen the cost of
money for the US Government and new budget would only be larger. We have major
problems here in this country similar to countries around the world. We are not unique nor isolated.
Let’s add a couple new numbers to the pie. These are from
news reports, not from me. As reported the unemployment rate dropped to
5.1%. On the other hand, numbers
that you don’t hear often are that the unemployed who have given up looking for
work, the underemployed, and non-accounted workers desiring to work rose to 94
million, while 46.7 million people in the USA live at the poverty level. We are
getting near election time; we need to make numbers look favorable!
Here is another stumbling block for the Feds. Preceding all recessions commodity
prices drop; and they now have been dropping for some time. If the Feds had
raised interest rates we could lower rates again when and if a recession
hit. That option is now off the
table. There are only two other options in a future recession, one would be to
start printing money again in the form of Quantitative Easing IV, the second
option would be to ease lending policies for middle class Americans. As we have
discussed in previous blogs the government printed about $4.5 trillion in new
money, however it never made it’s way into “mainstream America” and the middle
class. Part of this reason was the new banking regulations, being overly
restrictive thanks to the Dodd–Frank Act that many people don’t understand. Did
this act help or cripple the recovery in America? A bit of both, I am
afraid. With the “over regulation”
of the banking industry and low rates, banks are not lending to small business
or risk. Therefore, more business
and money goes to big business and the wealthy, not where it should go.
The world’s economies especially in Europe are going to have
a tough time because of the unexpected amount of immigration going on from the
Middle East turmoil. These are millions of people needing things. Most
countries can’t afford the financial drain. Germany is accepting a great number
as their own population recedes. For years the expected growth rate for a
family was 2.2 children, it is now far less and even less than one child per
family as in Germany. For every
death, they need a replacement worker. There are two variables here. One
variable is the assumption that the immigrants they take into the country will
want to work, the second variable is that the future demands for workers will
lessen with more factories running on robotics and requiring fewer employees to
work.
Several years ago Italy needed more labor workers and
encouraged Polish people to migrate into their country. This was a more natural
assimilation into a country because of race, color, cultures, religions all being
very similar. With the current Middle East immigration of people into Europe
none of these similarities are in place. In the long run European countries may
be in for a culture change. (If
you are interested in further exploration on this topic Google “The Moors and
Islam” and the effects on Spain and Portugal from about 800 to 1492AD.)
The majority of the millions of immigrants heading to
Western nations are not from war struck Syria, but from other countries like
Afghanistan and Iraq. What I don’t understand is why other very wealthy Middle
Eastern countries like Saudi Arabia and Qatar are not offering asylum. Here the
assimilation into their populations would be easier with the people speaking
similar languages, similar cultures and similar religion.
Why have I addressed the above issues quite heavily? This week Secretary of State, John
Kerry, announced the US would take another 200,000 immigrants into this
country. These people will compete for lower end jobs, and also be a burden on
society until they can become independent; this means taxes will further
increase.
Quickly, I will touch upon what reports I receive regarding
the stock market. In general, the consensus is that we are in a bear market,
not a quick correction. The world economy shrank the most since the Great
Depression. There are too many negatives pulling on the markets. Two current
negative issues are the possible Government shutdown again come October 1st,
and financing for Planned Parenthood in the budget. Yes, there will be turmoil, but the overall trend should be
down as we are due for a correction. The stock markets are very manipulated and
not a true free market; it is controlled by the wealthy and the bankers. Wall
Street is putting perfume on a pig!
We have discussed strategies to protect your gains in the
market. Many times it is best to hedge your positions versus sell stocks and
pay short or long term capital gains. Another hedge to the market is the
precious metal gold. Definitely around $1,000 an ounce gold seems to be a
recommended buy. Right now gold has taken off because of the world concerns and
it is priced around $1,130/ounce.
I hope this has been a constructive, learning blog for you.
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