Politicians Punt - What Now?

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by Douglas L. Williams, President & CEO

January 4, 2013

Action by the US Congress on New Year’s Day to avert substantial tax increases is welcome news; however, it does little to improve the nation’s fiscal condition or economic prospects.  Congress must still address the debt limit and spending cuts over the next couple of months to avoid a significant global financial market crisis and an economic recession.  The obvious, but politically elusive, solution is meaningful reform of entitlement spending and pro-growth tax policies.

Given the lack of political will to deal with these issues in a comprehensive and permanent fashion, we should expect more political brinkmanship and a series of stop-gap measures while the budget deficit and national debt continue to grow to unprecedented levels.  The Federal Reserve is enabling this reckless course with a hyper-accommodative monetary policy.

While the timing of inevitable consequences is unknown, markets seek equilibrium and correct past excesses.  History has shown that the eventual result of unrestrained government spending and easy money is surging inflation, rapid increases in interest rates, and a collapse in currency values and government credit.

In the near to intermediate term, the most favorable scenario is for the US and European economies to continue to grow at a sluggish pace while serious consequences are deferred.  Successful business managers and owners will rise above the prevailing mediocrity with thoughtful strategies, innovative products and services, and high touch customer service.

 

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