The “Perfect Storm” that we are experiencing is the result of a combination of bad political decisions. Previously we reviewed the trigger of this Perfect Storm, the Asian financial crisis of 1997 – 1998.
In the Clinton Administration, the decision was made to change our tax code to encourage Information Technology business investments. Since manufacturing jobs was not our future according to our political leaders, the tax code changes put American manufacturers at a disadvantage. Our political leader’s vision was that all Americans were going to be IT professionals. Oops.
Someone forgot that manufacturing is the basic creation of wealth. In manufacturing, a variety of parts are assembled and sold when a profit can be made doing so. By definition, less valued parts are combined into something of greater value than the cost of assembling them, hence wealth is created.
Unfortunately, the Clinton Administration was distracted … Monica Lewinsky, impeachment, etc. all apparently were more important to Washington than the economic future of Americans. Remember the party the Democrats had in the Rose Garden immediately after the vote to impeach Clinton? Does that seem more like a fraternity act than a serious effort at governing a country?
When the 1997-98 Asian financial crisis occurred and those countries devalued their currencies by 80%, their manufacturing costs plummeted as did the price of their finished goods. American manufacturers could not compete if their manufacturing plants and employees remained based in the USA.
The outflow of American manufacturing to Asia, especially China, began in 1999 and accelerated. The hollowing out of America happened very quickly. The resulting pain is easy to see today.
To date I have not heard a single national political leader voice the fact that we need to return the incentives to the tax code that encouraged American manufacturing in the USA. But without those jobs, we are destined to continued economic decline.
Worse, we are doomed to a stagnant economy and inflation. That is a condition called “Stagflation” last experienced under another failed President – Jimmy Carter.
In “Stagflation” the economy struggles and job growth is almost non-existent but the cost of everything goes up because the buying power of the dollar is reduced due to inflation. Does that sound familiar? Hold on, more is coming.
So the key question is “How should one invest to combat stagflation?” The answer is to focus on the effects of inflation and buy hard assets such as land, gold, commodities that will protect your buying power even as the value of the dollar declines.
Of those alternatives, land shines. Give us a call. We would love to help you prosper.