TAKING STOCK: Recession or...

prev
next

Dear Mr. Berko:

Some economists are predicting that the U.S. economy will report good earnings in 2016 and 2017 and that the Dow Jones industrial average will rise over 21,000. Other economists think that the U.S. economy will go into recession in 2016 or 2017 and that the Dow will fall to 10,000. Your thoughts are requested by the members of our investment club, at which you spoke in 1990.

-SM, Durham, N.C.

Dear SM:

I remember! The first law of economists: For every economist, there's an equal and opposite economist. The second law of economists: They're both wrong. I don't like economists; I never did. Along with members of Congress, they are among the useless humanoids on earth.

Corporate profits have declined for three successive quarters, and many companies will report lower profits for the last quarter of 2015. I'd not be surprised if the U.S. economy officially entered another recession in mid-2017. Former Federal Reserve Chairman Ben Bernanke believed that a rising stock market would improve consumer confidence and goose corporate profits, much of which would trickle down to consumers' pockets. The $3 trillion of quantitative easing funds the Fed gifted to the banking system certainly goosed the market. However, the rising market didn't put a penny in consumers' pockets. Instead, it trickled up to the very wealthy, whose wealth increased in the amount of the QE funds issued by the Fed.

There have been gains in home prices; auto sales have surged; and consumer spending for other goods and services has grown by 50 percent since early 2009. However, it's notable that record consumer borrowing is responsible for this growth. And that consumer borrowing is nearly tapped out, so the slowdown may be speeding up. Recognizing that 37.2 percent of our work-age population is unemployed, consumer spending gains don't bode well for the future. Falling profits and increased borrowing are taking their toll on the bond market, a sign that the six-year recovery wants to end. Now the weak economies of China and Europe are beginning to create uncomfortable uncertainty. Reflecting such concerns, investors are demanding higher bond yields as global risks increase. Since June, Moody's Investors Service and Standard & Poor's have downgraded a near record number of bonds. And U.S. companies with global footprints-McDonald's, IBM, Caterpillar, Hewlett-Packard, Boeing, The Dow Chemical Co., Qualcomm, Monsanto and Citigroup, to name a few-are reducing their workforce. Many investors believe that the U.S. is headed for another recession. And Federal Reserve Chairwoman Janet Yellen, whom some call the Tinker Bell of the Hells Angels, just raised interest rates.

The U.S. economy is the cleanest diaper in the pile of the world's dirty laundry. According to the American Society of Civil Engineers, the average bridge in America is 42 years old, and 151,238 of them are deficient. The average dam is 52 years old, and 14,076 of them are rated "high hazard." America's seaports, airports and highways require extensive upgrades. This crumbling infrastructure is dangerous and inefficient. The ASCE estimates that 42 percent of America's urban highways remain congested and cost the economy over $101 billion yearly in wasted time and fuel. Over $150 billion is lost (perishable items, crashed computer systems, disappearing data and cancellation of public events) to power outages. And it's estimated that airport congestion costs the economy $26 billion and increases each year. Those billions add up to real money no matter how you slice the salami, Sam! Every member of Congress has this ASCE report. Still, Congress missed an opportunity to employ 2 million Americans in shovel-ready jobs. Since 2008, the cost to update and modernize our infrastructure has increased by 50 percent. Imagine the ancillary jobs that would be created; 2 million more Americans would have fresh cash in their pockets, and their demand would create increased demand for more goods and services, which would require hiring more Americans to meet that demand, ad infinitum.

Last week, I saw a septic truck with the following message: "Caution. This truck is full of politicians' promises." I think that electing a Congress is too important to be left to voters who watch the Kardashians and Jerry Springer on TV.

--------

Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at mjberko@yahoo.com. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.

©Copyright 2015 Creators.com

Published: Tue, Dec 29, 2015