The election of Scott Brown to the Massachusetts U.S. Senate Seat has been called one of the biggest upsets in elections history. There are obvious important implications of his election. The fact Mr. Brown will be the 41st vote in the Senate takes away the democrats’ ability to dictate policy. His election probably derailed the current healthcare bill which was one of the biggest expansions of government ever. And certainly his election changes the tone in Washington because it shocked and scared politicians as to both the anger and power of the American people.
The implications beyond the obvious may be more important and have a greater effect on our lives and investments than the realized realities. History may show this as a marking the top of the “government bubble”. Our society and our government in particular, has been living far beyond its means; living literally on borrowed money. Many American families have realized this and have already made drastic changes in consumption and borrowing. The reductions in consumer spending and popularity of anti-debt, and pro-savings financial advisors such as Dave Ramsey are evidence of mass change toward frugality among much of the populous.
The government has been holding up the economy with massive deficit spending and expansionary monetary policies. While these kinds of policies are unsustainable and harmful in the long-term, it has provided stimulus and a false sense of prosperity in the near term. The long term unfunded liabilities of Social Security and Medicare are looming disasters even without additional programs or new mandates. The government is always the slowest and last to make changes; and rarely do make changes until they are forced.
The election of Mr. Brown to the Senate was a sign the American people are ready to force the government to deal with the problems we face. If the current politicians choose to not address these changes, the election of Scott Brown demonstrated the public is willing to vote for politicians who will do so next November.
While we will be better off in the long run if we implement sound policies, it does not mean we won’t pay a high price for our past policies and highly leveraged economy. Even if we don’t reduce the size of government, but only take the smaller step of getting our fiscal policy more balanced, the economy will go through a long period of adjustment. This adjustment will be painful; reducing deficits, withdrawing government stimulus, and deleveraging balance sheets are short-term negatives for economic growth. In addition, interest rates are being kept artificially low by Federal Reserve policy. Higher interest rates can only put additional drag on economic growth.
The result is that investing for the future will be harder than ever. Periods of stagnation or slow growth require excellent stock picking and a sound asset allocation policy.
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| AAAMP Blog by Ken Faulkenberry | |
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Ken Faulkenberry earned an MBA from the University of Southern California (USC) Marshall School of Business with an emphasis in investments. Ken has 25 years of investment experience and is dedicated to helping people with self-directed investment management through the Arbor Investment Planner. His asset allocation strategies have an outstanding performance record. |
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