I recently wrote about President Trump’s goal of 4% economic growth, Is Trump’s Forecast Of 4% Growth Realistic And Will It Create A Long-Term Stock Market Rally?. This would be greater than twice what we have experienced in recent years. I described that Trump and Congress have a significant uphill climb to accomplish such high growth and why it was improbable that they would accomplish sustained 4% economic growth.
But How could we accomplish much higher economic growth?
What we need is higher productivity, higher incomes for the average worker and the poor (they need to share in economic growth more than they have over the last couple of decades), and control over our currency. If other countries do not manipulate their currencies and all countries cooperate, we can avoid excess inflation while wages and the economy grow. Here is a link Economic Growth with No Inflation to a 2007 paper by Robert McTeer, Ph.D. who is an economist and former head of the Dallas Federal Reserve Bank which explains how we can have strong economic growth and wages without inflation. Following is an excerpt from Dr. McTeer’s paper:
Can the economy grow faster without causing inflation to accelerate? Some argue that the downside of a rapidly rising gross domestic product (GDP) is more inflation, and that you can’t have more of the former without more of the latter. But both logic and history suggest otherwise. There are periods in recent U.S. history when growth rates were higher, but prices were level or falling. And there have been periods with less real growth, but with rapidly rising prices – and rising unemployment. While slower GDP growth might reduce inflation, it is not a necessary condition. Faster real growth can also reduce inflation.
Consumer and business confidence are rising. “Animal spirits” alone (a term made famous by the economist John Maynard Keynes) can significantly improve and sustain economic growth. Confidence coupled with innovation and level-headed government and business leadership would be necessary for sustained growth. Time will tell if our elected and business leaders can work together for the common good and not their own personal and political aspirations.
Cautionary note – I explained in the article, IS TRUMP’S FORECAST OF 4% GROWTH REALISTIC AND WILL IT CREATE A LONG-TERM STOCK MARKET RALLY? that economic changes don’t happen quickly in such a large economy. This may set up consumers, business owners and investors for a reactionary let-down if they don’t see signs of improved prosperity. In addition, the market is at extreme historical highs. It can go higher but you must keep a watchful eye for the next correction. Decide when you need the money, calculate what amount of loss you can stomach and afford to lose and create or adjust your plan accordingly. The time to formulate your plan is now, while the good times are rolling!
It has been a fun few months in the market, here’s hoping for more but not only are we opportunistic, we are also realistic.
That is why we have been voted top financial advisors. We focus on the evidence, not speculation. You need a solid footing to create the correct long-term financial plan. We also take our fiduciary fee-only responsibility seriously. This makes all the difference.
“If everyone is thinking alike, then no one is thinking.” – Benjamin Franklin