From a small northwestern observatory…

Finance and economics generally focused on real estate

Archive for July 2017

Not a good sign….

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The International Monetary Fund (IMF) tracks gross domestic product (GDP) both globally and by nation.  Their metrics are generally quite good.  They’ve downgraded the 2017 expectation to 2.1% from a prior forecast of 2.3%, in no small part to the abysmal 1.4% the U.S. turned in during the 1st quarter.  They’re currently projecting 2.1% for next year as well. This is a far cry from the 4% annual rate the Prez promised on the campaign trail, and the 3% he promised after taking office.

Admittedly, a president can’t be judged on the economics of his first year.  That said, a principal driver of the lousy 2018 forecast is the amazing lack of understanding this administration (and Congress, for that matter) has about the power of fiscal policy to drive the economy.  This lack of understanding can trace its roots to the early Reagan days and the GOP’s enamor with Milton Friedman.  The Chicago economists (and this is a wild oversimplification) preached monetary theory, holding that the entire economy was driven by the money supply, which could be improved with tax cuts.  This was in contrast to the Keynesians (and again, a wild oversimplification) who held that targeted fiscal policy was the order of the day.  Since the Kennedys were Keynesians (or at least Harvard graduates), then they had to be the enemy of all that was good.

Of course, many of us have been forecasting a recession for 2018 or so.  Why?  From a simple cyclical perspective, we’re long overdue.  My own thinking was that the Congress would enact a tighter budget which would be felt in the short-term, but that tax cuts wouldn’t be felt (if at all) until father out.  As it turns out, I was an optimist.  The budget cuts are draconian, and the tax cuts proposed will do nothing to add to consumption or investment.  (The former is patently obvious.  Give Bill Gates an extra million a year in tax cuts, and he’s not going to eat better or buy nicer clothes.  As for the investment side, money is already essentially free — overnight LIBOR is actually negative — and yet cash lays around on the sidelines looking for a new merger to fund.)

I’m presently not an optimist.  Neither are the economists at the IMF.  For a great synopsis of their report, read Rishi Iyengar’s report on CNN Money.

Written by johnkilpatrick

July 24, 2017 at 5:28 pm

WordPress v. Facebook

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Loyal readers will note that I’m frequently on Facebook and less frequently here.  You may have also noted (or not….) the very different tone of my two sets of writings.  My pure FB posts are generally either my (fairly strident) political views or mental meanderings about family, travel, restaurants, and bars.  In other words, normal stuff.  My blog posts lean to business, finance, and the economy, with a bent toward real estate.  By construct, the “voice” on this blog is different than the “voice” on FB.

Here’s where life gets interesting.  I had the honor last week to speak to a small audience at a luncheon at Seattle’s historic Rainier Club about the economy.  It’s quite impossible now-a-days to separate “economy” from “politics”, much as I might like to.  Calvin Coolidge, I believe, said that the “business of America is business”, and the current government in D.C. has adopted that mantra.  Sadly, the current government in D.C. appears to know quite little about mainstream business.  they know a bit about a few things, and almost nothing about most things.  That said, they’ve sold a bill-of-goods to many mainstream business folks.  I saw a truck heading into Seattle today with InfoWars and “Arrest Hillary” bumper stickers.  The driver was a bearded young man who appeared to be a hard working fellow.  He’s been sold on the notion that the government in D.C. is on his side now, and they’re going to make everything a lot better.  I’m waiting to see that.  I haven’t seen anything yet out of D.C. that suggests this government is representing anyone other than Russian bankers and the Koch brothers.

At my Rainier Club talk, a questioner — clearly a Trump supporter — commented that the benefit of the new administration was that they were dismantling onerous regulations which affect small business.  I reminded the questioner that I’m Chair of the Board of a business headquartered in Seattle, and that nearly all of our regulations are imposed by the City of Seattle and the State of Washington.  I further reminded him that these regulations make Seattle the sort of place where creative people wanted to live, and since my bread and butter is hiring creative people, I’m happy to put up with these regulations in order to hire creative folks.  I noted that Amazon, Starbucks, Nordstrom, Weyerhaeuser, Expeditors International, Expedia, Alaska Air, Microsoft, Boeing, Costco, the Russell Group, Symetra, F5 Networks, Paccar (who make Peterbilt and Kenworth trucks) and a host of other global companies were also willing to put up with these Washington State regulations in order to be able to tap into the brain trust that wants to live here.  Intriguingly, the most “regulated” cities and states in the nation tend to be homes to the most forward-thinking and growing businesses.  Indeed, New York and California have over 20% of the Fortune 500 headquarters, and the states which are generally the least regulated have no Fortune 500 or even Fortune 1000 companies (Montana, Maine, South Dakota, Wyoming, West Virginia, New Mexico, and Alaska).  You go figure….