Wednesday, October 31, 2012

The election is approaching!

With just a few days to go before the presidential election on November 6th, it seems relevant and timely to critically examine economic and financial policy issues.  My goal is not to sway your vote one way or the other, but rather to dispassionately consider policy challenges that will confront the winner of the presidential race.

From my perspective, generating high and sustained economic growth is the most paramount issue facing the country.  Presidents, like quarterbacks, probably get too much credit when things are going well and too much blame when times are tough.  No president in a free-market democracy can mandate or command the economy to grow.  Effective fiscal and monetary policies are more nuanced.

Modern economic theory supports the notion that government can and should act to attempt to stimulate aggregate demand in times of recession or weak economic growth.  The looming “fiscal cliff” or budget sequestration is very disconcerting to many.  Tax increases and/or federal spending austerity are not the correct short-run policies for a feeble economy with high unemployment.  Without question, this issue will be job #1 for the winner of the election.

The level of the federal deficit and national debt must be addressed during the course of the next four years.  Research economists who examined debt and gross domestic product (GDP) data from many countries have concluded that a debt-to-GDP ratio exceeding 80% can stifle future economic growth, increase unemployment and cripple the federal budget as a result of the high cost of interest to service the debt.  Our current debt-to-GDP ratio in the United States is 105%.

Strong economic growth would help alleviate some of the pressure on the federal budget.  The oft-used cliché that “a rising tide lifts all boats” is applicable here.  Economic growth lowers the debt-to-GDP ratio, decreases unemployment and helps make servicing the national debt more manageable.

Economic growth, as measured by real growth in GDP, has exceeded the long-term average of 3% only two quarters out of the past 12.  This weakness, along with political and policy uncertainty, has caused business investment to stall and the banking system to be uncharacteristically risk averse, particularly harming the job creation machine of small business that has suffered under tight credit conditions.

Whoever wins the presidency will face important policy-making decisions to address our sub-par economy.  Legislating incentives, such as tax reformation, will generate better economic growth, increase employment and reduce uncertainty.  Exercise your right to vote!
 
Dr. Jason T. White
Principal / Chief Advisor for Research & Economics

Tuesday, October 23, 2012

A question for voters


 
Are we better off now than we were four years ago?  An article in Sunday’s issue of the St.Joseph News-Press addresses the question and asked local economists their thoughts on important economic issues of the current election.  Click here to read the article, "A decision for voters: Are you better off?"

Monday, October 22, 2012

Avoiding college debt

College debt can add up quickly, as explained in CNNMoney's recent article, "The other reason grads are drowning in debt" by Jon Marcus.

The best way to avoid college debt? Plan in advance. There are several different ways to save for college, some of which include 529 plans, Uniform Transfer to Minor (UTMA) accounts, education savings accounts, and others. Check into all of your options, and also see which plans offer tax advantages. Talking to a professional could be extremely beneficial to make sure you receive all the benefits available.

Monday, October 15, 2012

3 Costly Surprises for Retirees

Check out this Kiplinger video titled, "3 Costly Surprises for Retirees."  These three factors can make a huge difference in how well you plan for (and live in) retirement.

Friday, October 5, 2012

Top 7 Warren Buffett Quotes on Gold Investing

In response to a few recent inquiries about investing in gold, we are sharing some of Warren Buffett's thoughts on gold in this interesting article that was posted October 3rd on Minyanville.com:

"Warren Buffett, the Oracle of Omaha and Chief Executive Officer of Berkshire Hathaway (NYSE:BRK.A), is one of the most famous investors of all time. This billionaire has made so much money that he hardly knows what to do with it, although he has decided that after his passing he would like a sizable portion of his earnings to be dedicated to charity. Still, for all of the successes and endeavors that Buffett has taken on in his lifetime, there is one asset that he never quite warmed up to: gold.

Buffett is well-known for not only his strengths as a businessman, but also for his rather outspoken hatred of gold. The stance is somewhat controversial given the massive popularity of the precious metal that has made millions for investors all around. Also, we have seen other billionaire investors betting big on gold in recent weeks. Nevertheless, Buffett is not the least bit timid about his opposition towards the commodity. We scoured the Internet to bring you the seven best Warren Buffett quotes regarding gold and why he hates it so much.

1. “Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.”

2. “The problem with commodities is that you are betting on what someone else would pay for them in six months. The commodity itself isn’t going to do anything for you….it is an entirely different game to buy a lump of something and hope that somebody else pays you more for that lump two years from now than it is to buy something that you expect to produce income for you over time.”

3. “Gold is a way of going long on fear, and it has been a pretty good way of going long on fear from time to time. But you really have to hope people become more afraid in a year or two years than they are now. And if they become more afraid you make money,  if they become less afraid you lose money, but the gold itself doesn’t produce anything."

4. “I will say this about gold. If you took all the gold in the world, it would roughly make a cube 67 feet on a side…Now for that same cube of gold, it would be worth at today’s market prices about $7 trillion – that’s probably about a third of the value of all the stocks in the United States…For $7 trillion…you could have all the farmland in the United States, you could have about seven Exxon Mobils (NYSE:XOM) and you could have a trillion dollars of walking-around money…And if you offered me the choice of looking at some 67 foot cube of gold and looking at it all day, and you know me touching it and fondling it occasionally…Call me crazy, but I’ll take the farmland and the Exxon Mobils.”

5. “The major asset in this category is gold, currently a huge favorite of investors who fear almost all other assets, especially paper money (of whose value, as noted, they are right to be fearful). Gold, however, has two significant shortcomings, being neither of much use nor procreative. True, gold has some industrial and decorative utility, but the demand for these purposes is both limited and incapable of soaking up new production. Meanwhile, if you own one ounce of gold for an eternity, you will still own one ounce at its end.”

6. “What motivates most gold purchasers is their belief that the ranks of the fearful will grow. During the past decade that belief has proved correct. Beyond that, the rising price has on its own generated additional buying enthusiasm, attracting purchasers who see the rise as validating an investment thesis. As 'bandwagon' investors join any party, they create their own truth — for a while."

7. “I have no views as to where it will be, but the one thing I can tell you is it won’t do anything between now and then except look at you. Whereas, you know, Coca-Cola (NYSE:KO) will be making money, and I think Wells Fargo (NYSE:WFC) will be making a lot of money and there will be a lot — and it’s a lot — it’s a lot better to have a goose that keeps laying eggs than a goose that just sits there and eats insurance and storage and a few things like that."

While Buffett certainly makes a lot of good points about gold, it is very difficult to argue with its historical performance in recent years. What do you all think? Is Buffett  simply stuck in his ways, or is he right about gold?"
The direct link to this article is: http://www.minyanville.com/trading-and-investing/commodities/articles/Warren-Buffett-brka-gold-investing-investing/10/3/2012/id/44617

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