If you think the American economy is booming now, just think what it would be like if American collegians had an extra $1.5 billion to spend—especially with President Donald Trump’s tariffs set to raise the prices of imported consumer goods despite he and his administration saying the tariffs won’t result in price hikes.
Well, if prices aren’t increasing, tariffs aren’t working. The point of a tariff is to make locally produced products more attractive to local consumers by raising the price of imported alternatives. This, in theory, would result in more local production and fewer imports. But a tariff is paid by the importer of a product, not the exporter. So the 25-percent tariff Trump recently leveled on Chinese imports is transferred to the American consumers of those goods, not the Chinese producers.
The trade war isn’t taking money out of the pockets of Chinese manufacturers; it’s taking money out of the pockets of American consumers of Chinese products and Chinese consumers of American products. And since the United States runs a $375 billion trade deficit with China, the only way Trump can “win” his trade war is if Chinese economists can’t do the math to match Trump’s tariffs dollar-for-dollar. It’s even becoming more likely trade with China ends altogether. China has already cancelled planned trade talks with Trump.
It is impossible for America to run a trade surplus with China because China produces more products Americans consider essential than America produces for the Chinese, including car, computer and mobile phone components. It’s lower labor costs and Americans’ addiction to consumption allow China to perpetually have the upper hand in a trade war. If an iPhone were made entirely in America, it would cost as much as a brand new car, so while Trump might be making some American-made products more attractive to American consumers, he’s doing so at the expense of American consumers who can’t do without many of the Chinese imports found in their technology and automobiles. Even the Tesla Model 3 can only be 95-percent American-made at most.
Since Americans will be paying more for computers, mobile devices and cars, it’s not entirely unreasonable to forgive the $1.5 billion in student loan debt and allow those accepted into college two years of college education free of charge. Students and parents are going to pay more for the devices required to attend college, and colleges are going to pay more for them as well, which will be reflected in tuition costs, which will further increase student loan debt while decreasing consumers’ available income for spending in the American economy, potentially sinking the stock market.
There are other reasons besides boosting the economy for the government to payoff student loan debt. First, today’s Associate’s degree, usually obtained in two years at a community college, is the equivalent of a 1980s high school diploma. Advances in technology have made working in what is now a global economy much more complicated and necessitates further education be obtained. Students are not leaving high school with the education necessary to provide for themselves let alone a family, and it’s not their fault.
Secondly, with 17 states offering tuition-free college programs, the trend seems to be students at least delaying the accumulation of student loan debt for two years, potentially lowering accrued interest as well as principal loan balances. In short, future college students in the United States will be saddled with considerably less student loan debt than current and past college students. Meanwhile, entire generations (and student loan debt does span generations), are suffering student loan debt and unable to stimulate the American economy by spending money on anything but debt and living expenses.
Finally, the collective credit rating of American college students, past, present and future, would receive a boost that could spur entrepreneurial growth and investment in businesses as a whole. America was the land of opportunity, where you could go from “rags to riches” with enough hard work. America used to be the best place to start a small business and be your own boss. That isn’t the case these days because despite incomes increasing for middle-class Americans, their purchasing power has barely budged since 1965. You can’t grow an economy in which most consumers have hardly more purchasing power than their grandparents did over 50 years ago, and consumer confidence in the stock market can’t increase if consumers have no means to express their confidence by purchasing stocks.
Lifting the $1.5 billion in student loan debt owed by 44.2 million American borrowers would allow 44.2 million Americans to spend their student loan payment, averaging $351 per month, stimulating the American economy instead of simply paying off interest. Lenders can’t be the only ones making money if the American economy is going to grow.
If you like this, you might like these Genesis Communications Network talk shows: The Costa Report, Drop Your Energy Bill, Free Talk Live, Flow of Wisdom, America’s First News, America Tonight, Bill Martinez Live, Korelin Economics Report, The KrisAnne Hall Show, Radio Night Live, The Real Side, World Crisis Radio, The Tech Night Owl, The Dr. Katherine Albrecht Show
The stock market is not the economy. It is not indicative of the economy’s health. The stock market is a human collective reacting emotionally to news and numbers. It is merely a means to measure the perceived value of publicly-owned companies based on human emotion and expectations. Those perceived values can be overvalued, undervalued or properly valued, and with the Dow Jones Industrial Average dropping nearly 1,000 points the last three days, it seems stocks were overvalued.
Stocks were overvalued due to a myriad of factors. According to the “Shiller PE Ratio,” stocks were more expensive than they were on “Black Tuesday” in 1929, but less expensive than they were at the height of the dot.com bubble. So historically speaking, stocks were dangerously expensive.
Stocks are overvalued when things are going right. A lack of volatility over the past few years has culminated in a perfect storm that’s seen the VIX -- the stock market’s most popular measure of stock volatility -- rise more than 300 percent in a month.
“One big change affecting the market is interest rates, which have climbed sharply in 2018 to multiyear highs in the U.S. and around the world as economies have picked up steam,” Ed Carson writes for Investor’s Business Daily. Higher interest rates mean higher borrowing costs, which result in people consuming less. Much of the stock market’s recent losses are tied to an expectation that consumers will be spending less in 2018.
Don’t expect the stock market to continue providing 2017 rates of return, and with interest rates likely to increase, bonds aren’t necessarily the best place to put your money, but not the worst either.
There is good news for this newly volatile stock market. Midterm elections are more often good for the stock market than bad. “[T]he seasonality associated with midterms has brought positive returns for the stock market a lot more than it has brought losses,” according to Dominic Chu of CNBC. “On average, the S&P 500's return between Oct. 31 of the midterm year and Oct. 31 of the following year has been an eye-popping 17.5 percent.” So it’s not time to pull your money out of the stock market; it’s time to invest in the stock market.
The best approach for investing in 2018 is the same approach for investing in 2017 and any other year: invest and forget. You’re not going to get rich buying Exchange Traded Funds (ETFs), but you will realize a better return than you would from putting your money in a savings account or buying a Certificate of Deposit (CD).
Attempting to time the market is also a mistake, as is reacting to the market like stock traders did this week. Pulling your money out of the stock market at the first sign of adversity is the same emotional response that drove the stock market down in the first place. Traders selling shares in fear worsened the market’s decline because they had come some accustomed to the market’s lack of volatility. In fact, regular contributions to the stock market help limit volatility. So expect volatility and accept it. Just keep feeding the beast and try to forget that it’s there.
If you like this, you might like these Genesis Communications Network talk shows: USA Prepares, Building America, Free Talk Live, American Survival Radio, Jim Brown’s Common Sense, Drop Your Energy Bill, The Tech Night Owl