As of October 17, 2018, recreational marijuana use will be legal in Canada. The question now is whet...
Waiting for the Economy
09/20/2010 12:01 am EST
Like the tramps in the famous Samuel Beckett play, we are all waiting—not for Godot, but for the economy.
Banks are waiting to lend. Businesses are waiting to borrow. Consumers are waiting to spend. And homebuyers are waiting to make an offer. Unemployed workers are waiting for jobs to come back. Bosses are waiting to hire. Troubled homeowners are waiting for either foreclosure notices or help in modifying their loans.
And meanwhile, the economy is basically in a stand-off, according to a series of reports released this past week.
Unemployment. New claims for unemployment dropped slightly, giving hope that the job picture is bottoming out—but with 450,000 new jobless claims filed in one week, you can hardly say tough times are “over.”
Inflation. Producer (wholesale) prices increased 0.4% in August, and consumer prices were up 0.3%, mainly because of rising food and energy costs.
Normally, we don’t like to hear about inflation—but at least these numbers show that we’re not falling into the black hole of deflation and depression.
Government balance sheet. The “current account deficit”—the difference between the goods, services, and investments that we import and export—grew slightly, to $123 billion in the second quarter. It was somewhat better news than expected, showing that foreigners are at least buying more goods and services from us these days.
Housing. Foreclosures are soaring—and the national rate is now one in every 381 properties. Higher foreclosures are not good news in any case, especially for the families involved. But the number indicates that banks are finally clearing the decks on bad deals—a signal that they might be ready to lend again and that buyers can find bargains Again, the glass is half-empty or half-full, depending on how you look at it.
The stock market. Despite many predictions of a huge decline in stock prices, the market is holding its own—still in the midst of a trading range it has maintained for months. Technology companies like Oracle (Nasdaq: ORCL) and Research in Motion (Nasdaq: RIMM) are posting earnings that beat expectations and are forecasting better future profits. Apple’s (Nasdaq: AAPL) stock recently traded at an all-time high over $276 per share.
So, what is everyone waiting for? Business owners and investors are waiting for word from Washington as to what steps it might take next to help, or hurt, the economy.
In the Senate, Democrats proposed hiking taxes on investment fund managers and oil companies. Some professional investors who provide liquidity to the market would no longer qualify for the current capital-gains tax treatment. And oil companies would ante up $13 billion over ten years for a “trust fund” in case of future oil spills, not encouraging for our quest for energy independence.
Meanwhile the Senate, in a 61-38 vote, passed a $30-billion government fund to help open up lending for small businesses, cut their taxes, and boost Small Business Administration loan programs.
But a debate over a tax increase on the wealthy drags on. The Obama Administration wants to continue the Bush-era tax cuts for middle-class households that earn less than $250,000, while increasing the burden on higher wage-earners. Is this really a quest to cut the deficit—or merely a ploy to divert more private dollars to government spending?
The prospect of all this government intervention in every sector of the economy is what is keeping the economy waiting. Add to this uncertainty about the real costs of health-care and financial reform and you can see why business is too nervous to invest. When you throw in election-year politics, you have the perfect recipe for economic paralysis.
When will it all end? It will all move—in one direction or another—only when Washington has a clearer mandate to act.
Meanwhile, like the canary in the mine, gold prices soared to a record high of $1,279 an ounce mid-week. Clearly global investors are wondering whether the dollar can maintain its value in the face of proposed spending, wider deficits, and tax increases that could derail growth.How do you think this standoff will end? And when? Please join the conversation and have your say.
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