Unemployment: The Cause or The Symptom?
I have spoken to many experts and read numerous articles that say that unemployment is the reason our economy is stumbling. Do I agree? I am not sure.
But before I give my reasoning, think about one thing. Trying to fix something starts with looking to the cause, not the symptoms. For example, if you have a toothache due to a cavity, you cannot just take an aspirin for the pain and then be okay. You need to treat the cavity. If you have a leaky basement and you simply dry up the water, that will not help the next time it rains. You need to fix the leak.
So thinking about the economy and why it is struggling, I am not so sure it is because of unemployment. I think there is a much bigger issue (the cause) we must confront.
So what is the cause?
First, many large American corporations are sitting on tons of cash. Yes, just sitting on it. They are not deploying it. They are just keeping it low yielding interest bearing. With that cash, they could be hiring but they are not. Speaking to some of our clients who run those companies, they say it is because they are not confident in the economy. They feel if they hire people and begin to raise production levels, they may not see an increase in sales. This would lead to losses.
Therefore, I would say that business confidence is the cause.
Second, banks too are sitting on plenty of money. They are not lending at anywhere near their 2007 high. But why? They too are not confident. They are not willing to lend to a consumer or business fearing they will not get paid back. While that seems like a good corporate move, their business relies on deposits and loans. With a volatile stock market, they certainly have the deposits (even though they are paying very little interest) but are not making the loans. It is in the loans that they make their best return.
Again, it looks like confidence is the issue.
Finally, what about consumers? Most of the recessions we have experienced have been resolved by higher consumer spending. Obviously, those without jobs are not spending more money. But even those that are fully employed have decreased their spending levels. Why would they do this? They still have their jobs and their paychecks. After speaking to many of our clients, they said they feel comfortable about their job now, they are not necessarily confident about the future of their business or the economy, or the White House or the political process, etc, etc, etc. As a result, they are holding more cash.
Again, it is all about confidence.
So how do you help the economy? I believe it is about restoring confidence in the U.S. It is about looking beyond the politics inside and outside of the white house and working together on a plan that will put America on the right track. It is about unity, team work and the long term progress of these United States. If we had a plan to restore the confidence in America, I believe businesses would begin to hire, banks would lend at higher levels and consumers would start spending again.
When times are tough, America unites, but only when you have the right plan.
Good luck and happy investing.
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From what I am reading it appears that the lack of confidence in business is directly reflected in the multitude of restrictions, rules and regulatons that the bureaucracy is placing on the business community. How can the country eliminate many of the superfluous ones?
I believe businesses would begin to hire, banks would lend at higher levels and consumers would start spending again.