The World Economic Forum In Davos Gives A Prescription To Fix U.S. Economic Policy

World Economic ForumWhat Does The World Economic Forum In Davos Have To Say About U.S. Economic Policy

In previous economic forums, the U.S. hears  about their accumulating debt, and how the deficit will ultimately be hugely destructive to the U.S. economy, but this year in Davos Martin Sorrell, the head of global communications giant WPP called the deficit, not only the U.S.’s key economic problem, but also the whole world’s key problem.  He referred to the U.S. debt as the “World’s Gray Swan” making a play on the idea of the unpredictable powerful black swan metaphor.

Not Everyone At The World Economic Forum Held To Sorrell’s Opinion Of The U.S. Economy

One thing that was different from previous years is that not everyone at the Forum agreed with Sorrell that the U.S. is inappropriately managing their finances. Lawerence Summers, who is a Harvard University economist, and how has been the secretary of Treasury, President of Harvard and Obama’s Chief economic advisor, has a different view point.  Summer approached the deficit issue carefully.  Instead of the doom and gloom opinion, that has permeated most investors opinion, he referred to economic policy as a medical treatment.  Medical treatments can not be the same for each patient; each treatment must be carefully tailored to the individual.  Likewise, what works for one country at one point in history, may not work as well in a different point in time.  For example, even though the 90s indicated that we should use a firmer approach to the deficit, today the environment we live in and the economic climate requires a different policy.

Summers Made Comparisons Between Economic Policy In The 90s and Economic Policy Today

1993:

In 1993 the economy was very different from today’s economy.  Capital costs were up, there was a big trade deficit and wages and productivity were similar.  As a result, bringing down the deficit, reducing capital cost, raising investments and encouraging productivity made sense for that particular economic climate.

In contrast, 2013: 

Long-term interest rates are insignificant, lack of demand is holding back investments, and productivity is stronger than wages.

Economic Policy Needs To Ebb And Flow With the Economic Times

So, while its easy to say you need to crack down on the deficit, we need to run the fine balance of not slowing the economy to the point of creating a crisis.  Without changes being made, it is true that the federal deficit will be catastrophic for our nation.  Yet, as Summers suggests, we need a strategy that spurs on the economy and encourages spending in an effort to boost our economy to 1993 levels, where we can begin considering reducing the deficit.

In the meantime we can hope that the economic policies that are currently in place, will at least create a short term burst in the economy, causing markets and equities to start climbing.  If you have not yet moved your assets that have been sitting on the sidelines back into equities, now is the time to consider doing so.  For more information speak to a Redhawk advisor near you today.

 

 

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