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MAKING CENTS OUT OF THE NEWS
Blog #04
(January 28th, 2010)
NEW DECADE, NEW/OLD QUESTIONS…
By Tom McAllister, CFP®
As we finish the first month of the 120 months of this new decade, I would like to offer my answers to questions at least some people are asking.
Will deficits and debt sink the United States? (My gut says yes, my mind says no.) High deficits and an increasing debt load are manageable, but only if the Gross Domestic Product and the assets on the balance sheet are growing faster than the debt, with the economy doing well amidst an inflow of investment capital. In other words, the way to fix our deficit and debt problem is with pro-growth tax and regulatory policies. The American public, realizing that anti-growth policies result in stagnation, is signaling to the Obama administration that if Congress’ policies are not changed, the Congress itself will be!.
Will health care costs sink America? Over the extreme long term, yes! Drastic changes are needed in this area, beginning with tort reform; portable medical care insurance available across state lines, electronic record-keeping throughout the health care industry, mandatory coverage, and expansion of federal funded Medicaid coverage for the uninsured. Higher co-pays should be imposed to motivate patients to seek out the lowest cost care. To fund these changes we would need a national sales tax of one to two percent.
Will unemployment remain high? The answer is “probably”, at least for the next two to three years! High unemployment rates will mean a change of leadership in the House of Representatives. Continued high unemployment into 2012 will mean an Obama defeat and Republican takeover of the Senate. A majority of the American people are signaling they do not want a far left socialistic government.
Is inflation or deflation the greater threat? Continually improving technology puts downward pressure on prices. At the same time, a debased currency, runaway deficits, and government stimulus plans all lead in the direction of inflation. My bet is on inflation, at least while the present Democrat majority Congress and administration are in office.
Can and should we become energy-independent? Not necessarily. Many proponents of this course insist that we must radically shrink our energy use at the expense of our standard of living. What we need is a full knowledge of the cost of energy. Is solar energy or ethanol truly competitive without government subsidies? A definitive answer has yet to be demonstrated. (While we’re at it, how about removing the barriers to importing cellulose-based ethanol from Brazil and other countries where it is plentiful? And how much does oil from the Middle East cost when we factor in the cost of U.S. military protection?) Once we have a clear picture of the actual cost of energy, we can make decisions regarding possible domestic substitutes, such as natural gas, shale oil, coal gasification, increased off-shore drilling, and Canadian and Mexican imports.
Is China our friend or our foe? Yes and yes! China is our largest and strongest foe; China is our friendly trading partner and financial supporter. This ambiguous situation is not likely to change soon.
Is political bi-partisanship dead? For now, yes!
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