The upcoming elections are a focal point for investors across the globe. The debate is Republicans or Democrats, with the idea that Republicans will be much friendlier to business than Democrats might be. Wall Street and other global markets are acting as if a relief will come if Republicans are elected and control Congress. Their perception is misguided.
Beginning with the Bush tax cuts, the opportunity to foster growth does not actually exist because the proposals on the table are not to incentivize additional investment by reducing existing taxes but simply to leave the tax levels where they have been instead. Nothing new is likely to be implemented for a number of reasons, but instead the hope is that it will not get worse.
Obviously, no one wants the economy to get worse. Therefore, there is a positive slant with respect to the Republican-controlled Congress if one should arise. Gridlock is also attractive to some observers, but if a Democratic White House and a divided Congress cannot reach a conclusion to help our economy then we will remain in this quagmire until such time as they come to terms with each other. Gridlock, as a result, will be a detriment not a positive as it slows the entire system.
Unspoken as of yet, regardless of Democrat or Republican, this same topic exists for virtually all candidates. With deficit levels spiraling out of control, everyone knows that must be a focus. At the same time, the economy is weak and opposite forces are colliding. In 2006 I wrote a piece that suggested our government must take prudent action immediately or they would be caught in a bind where either choice would be detrimental to the economy. Instead of adopting prudent fiscal responsibility then when I made my observations, the government made already imprudent fiscal policy worse. Now, it is caught in between reducing the deficit and trying to save the economy.
Although the upcoming elections are being watched with a pro-business focus, even if Republicans are elected as they are expected to be, their focus will not be any different than Democrats. The steps they take to tackle the problem may be slightly different, but both parties recognize what needs to happen.
First, in order to restrain the spiraling debt levels in the United States spending needs to be cut and tax revenues need to increase. During these elections, very few candidates are talking about how many programs they will cut and how many jobs will be lost as a result. Reasonably, they can't do that. If they campaigned on a platform of higher unemployment no one would elect them.
Unfortunately, behind the scenes, that is exactly what is being proposed. The Deficit Committee has already outlined a number of possible cuts in spending and a number of ways to increase tax revenues. None of these are positive for the economy, and very few campaigns, save the tea party, are based on cutting spending and raising taxes. No matter who is elected, that is the ugly truth.
Unless these critical issues are addressed immediately, the United States will be faced with a Greater Depression. In fact, even if the issues are tackled immediately, a Greater Depression within the United States may be inevitable. The investment Rate explains exactly why. Read it now if you have not read it already.
Although China and India will almost surely continue to see high levels of growth, the United States as proven by the quantitative easing measures likely to take place next week and the relative fear of deflation on the minds of the FOMC as they recognize that the economy is not strong enough on its own, is at risk of decelerating instead.
While China and India becomes stronger and stronger, the United States will become weaker. If we allow our dollar to continue to decline, we may also run the risk of losing it as a world currency.
In my younger years, I played basketball with someone who, after he made a good shot, would always celebrate the same way. He would always say, "There is no one greater, there is no one stronger", and dance in circles with his hands in the air. For many years, the United States has been singing that same song. Unfortunately, the United States feels as if it needs to sing that same song for ever.
Instead of accepting naturally weak economic environments as those are proven by The Investment Rate, our government is trying to make shots from half court instead. The percentage is low.
We do not need to accept defeat, what we need to do is re-group, and position ourselves to come back stronger when the natural forces that drive our economy permit us to do so. The Investment Rate tells us when that will happen as well. Otherwise, our already weak economy will continue to be weak for much longer than it should. The duration of this weakness will be based on the decisions our policymakers are making right now. These elections are critically important, but the issues at hand make the Republican or Democrat debate that everyone focuses on a moot point. The same issues exist for both parties, for our entire country, and the decisions being made will not only be extremely difficult, but they will shape the future of the United States for the next 10 or 20 years.
The question is, will it just be bad, or worse than it should have been?
Disclosure: no conflicts