Basic Finance - Economics - Investment - Jobs

We are bombarded daily by all sorts of media that America is about to undergo a crisis due sub-prime loans given by greedy financial institutions to customers who either do not deserve the loans (speculators) or poor people who must not be allowed to lose their homes. The House of Representatives and the White House are even developing a stimulus package for the economy because they misunderstand basic finance and economics. I don't mind receiving extra money so I will not complain.

While there are elements of truth to these beliefs, the real problem for the American economy is unrelated to the loans.

The real problem is the election. At the end of every presidency, especially an 8 year, two term one, there is a recession (whether it is called one or not). This recession is entirely the result of the uncertainty of whether the Democrats or the Republicans will win. Businesses are reluctant to invest if they cannot predict what will happen to their investment.

This election period is particularly difficult since the Democrats have said they will raise taxes on the ‘rich’ – I think this means us although I do not feel particularly rich. Investors prefer environments where taxes are not increasing. For the last 100 or so years everywhere in the world, the lower the taxes, the higher the growth. It is too bad government is full of lawyers and not people who have ever had a job.

The uncertainty is made worse by the close races in both the Democratic and the Republican primary races and the trend to more divisive rhetoric. Whoever is elected will find it much more difficult to govern if the parties are essentially bi-polar. Investors are smart. They can invest anywhere their rate of return versus risk is the highest. If we want a rapidly expanding economy for everyone, we need to understand investing!