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’m not sure.
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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. Similarly, if you have a leaky basement and you 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’s because of unemployment. I think there is a much bigger issue (the cause) that 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 in low-yielding investments. With that cash, they could be hiring, but they are not. Speaking to some of our clients who run those companies, they say it’s 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 could 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 when they have strong enough doubts as to whether they’ll 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 they are not making the loans. It’s in the loans that they make their best return.
Again, confidence is the issue.
Finally, what about consumers? Most of the recessions we have experienced have been resolved by an increase in 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? Although many of our clients feel comfortable about their jobs now, they are not necessarily confident about the future of their businesses, the economy, or the political process, etc. As a result, they are holding more cash.
Again, it is all about confidence.
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So how do you help the economy? I believe it is about restoring confidence in the US. It’s 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’s about unity, teamwork, and the long-term progress of the 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 we have the right plan.
Good luck and happy investing.
Kelly Campbell, CFP® and Accredited Investment Fiduciary, is founder of Campbell Wealth Management, a Registered Investment Advisor in Alexandria, Va. Campbell is also the author of Fire Your Broker , a controversial look at the broker industry written as an empathetic response to the trials and tribulations many investors have faced as the stock market cratered and their advisers abandoned their responsibilities to help them weather the storm.
Reader Comments Read all comments (3)
Russ Wetherill of CA 5:55PM November 07, 2011
I Guess Some Financial Advisors Have It and Some Don't 10:41PM October 22, 2011
TinyTuna of IL 12:48PM October 21, 2011