The Economy: Back to the Future

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Have you heard the advertising mantra, “Perception is reality”? rollover082712

It’s not.

Reality is based on data that isn’t subject to twisting by political pundits — for example, a rapid growth in inventory of unsold cars and trucks at US dealers.

The election brought about  a rally in consumer confidence and in the stock market without changing any of the fundamentals affecting actual economic performance. Auto makers apparently lifted production, and are now left scrambling for buyers. Layoffs haven’t been announced yet, but they’re likely.

  • Now we know why Ford was so agreeable about cancelling a new car plant planned for Mexico. There’s no reason to expand production when you can sell what you make. However, Ford is still moving small car production to Mexico, just to an existing plant and not a new one.

If you drain consumer wallets with health insurance costs, housing costs, credit card interest rates, education costs and taxes, there’s no money for discretionary purchases, like a new car, vacation, or furniture. Of course, we’re talking workers here, not the 1%ers. There simply aren’t enough top earners to keep the US economy going.

As I’ve noted previously, current administration policies are going to negatively impact consumers:

  • Food prices (Mexico import tax)
  • Gasoline prices (Instability in the Middle East)
  • Health insurance (Insurers are projecting increases in premiums of 15 to 20 percent.   for 2018 with the repeal of the Affordable Care Act.The nonpartisan Congressional Budget Office thinks the increase for individual health insurance will be between 20 and 25 percentA lot of people won’t be able to afford insurance in 2018, and then with pre-existing conditions, won’t be able to get it later under current guidance about reforms. Planned revisions in Medicare will raise the price of Supplement policies and make them more essential.)
  • Rising foreclosures (Financial deregulation and end of consumer assistance programs)

Some analysts are calling for growth in business investments due to reduction of government regulation.

  • There’s no actual data to support that argument.
  • Changes require new government regulations, that typically require one year or more to move through the approval process. Even if there were a benefit, it wouldn’t be felt in 2017. As time slips by, maybe not in 2018 either.

The government isn’t acting on any of the fundamentals that are dragging on the US economy.

  • Example:  Federal law is responsible for sky high pharmaceutical prices in the US. Efforts at reform have failed in both 2016 and 2017 to date, after intense industry lobbying and payoffs.

It’s really hard to see how we can avoid a recession.


Sources

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