Instability is common in periods of huge transformation, and at this moment, the world is experiencing a historically huge transformation. Putting that aside, Europe alone is transforming and that is a major source of today’s market instability. True, I am stating the obvious, but understanding the nature of the transformation might help in positioning money as Europe moves through the gyrations of change.
Make no mistake the economic clouds in Europe are dark. The issue in Europe right now is confidence across the board. High unemployment in Spain (24.6%) and France (10.3%), along with a slightly increasing unemployment rate in Germany (6.8%), does not inspire confidence. Even more problematic for confidence is the slow pace of fiscal reform. The problem is fiscal reform is tied to tighter political and economic integration, which is a tough but necessary slog. As that process progresses, however, economic stimulation will emerge and slowly the economic ship will right, just as it did in the US after the financial collapse in 2008.
Speaking of the US, the economy is stuck, but it is not moribund, and confidence is on the rise.
- Orders for long-lasting U.S. manufactured goods fell sharply in August. While weak demand for aircraft and automobiles accounted for much of the drop in orders last month … Spending on durable goods rose 0.3 percent, helped by gains in auto sales.
The contradiction above reminds us to always look deeper into the news. Americans are still spending, even if the Europeans are not. In any case, the volatility in the market reflects the unknown, but as the world transforms, understand everything is cyclical and nothing is apocalyptic. It is always darkest just before the dawn, so pay attention and get your money in when it is the darkest, or, for the more prudent, just as the light begins emerging …
- Can governments really borrow and spend their way out of a world financial crisis that was originally created by too much borrowing and spending? I may not be the brightest candle in the darkness, but I don t think you need to be very bright to figure out that you cannot spend your way out of debt!!!!!
Actually, government borrowing and spending did not create the US-based financial crisis. Big banks overleveraging caused the problem, to put it simply. The US government had to borrow to fix the problem. With this reality in mind, let me reframe your question. Can governments really borrow and spend their way out of debt? The answer is clearly “yes.”
One modern example is the US after WWII. After the war, the US had relatively more debt than it does now. What did it do? It spent gobs more borrowed money on rebuilding Japan and Germany, sending vets to college through the GI bill, building a transcontinental highway system, rebuilding a more massive military, and creating a hugely expensive space program that put a man on the moon. What happened? The US built the largest middle class and the wealthiest nation the world has ever seen. Did this kill the US? Nope. Throughout the 1950s, 60s, 70s, 80s, and 90s, the US ran up debt, yet, in the late 90s, the US was producing budget surpluses, and the debt was $5.6 trillion and declining. Had we stayed on that path, our debt would have disappeared in five years. Can we get there again? We have to, and the only way is to borrow and effectively spend until the economy is up and running full speed.
One more thought about this, as I am so tired of this unrelenting doom and gloom debt argument. Revenue generating businesses all around the world spend to get out of debt. They invest borrowed money in rebuilding the business to generate more revenue. The plan is always to increase revenues to pay off the debt. It works. Just ask GM, or any of the big banks that would have gone under had the US not lent them money to get out of debt.
Trade in the day; Invest in your life …
