The stock market recently has been a roller coaster for investors. Even though even today, financial markets are reflecting signs of instability. The fear of higher interest rates and impending recession are cited as the primary causes for the emotional nature of investment uncertainty.
The underlying causes of the tumultuous volatility are more fundamental and interconnected.
For over a decade, governments around the world have deficit spent annually, accumulating sovereign debt greater than their yearly Gross Domestic Product (GDP). As more and more countries have struggled with their local economies and corresponding government facilitation, the United States equity markets have become the safe haven for global investments. This situation of U.S. stock markets being the protector of world wealth and liquidity has, in fact, accelerated in recent years.
Historic low interest rates, coupled with quantitative easing implemented by the Federal Reserve, have put stress on the bond market to meet financial objectives. Annuities require an average of 4.2% interest rate earnings to meet the required projections of Triple A bonds. Interest rates have been well below that threshold for several years. Speculation is that managers of corporate annuities have been investing in the stock market to meet their cash flow demands.
Stock markets were originally designed to provide for liquidity of minority investors and to aid corporations in the raising of capital. Simply put, prices of stocks should rise on the profitability of the companies and the expectation of growth in future market share.
Investors around the world buying equities in the United States as the safe deposit of last resort, and bond markets deferring to stocks to account for depressed interest rates, distorts the overriding risk-reward formulas of the stock exchange index.
The Covid pandemic put extraordinary pressure on the world’s economies, supply chains, and access to capital. The United States government policy of providing Covid relief funds directly to the American people has contributed to inflationary pressures.
There are consequences of denying rules of reality. Like a dam holding back water for a reservoir, pressure must be released on the dam at some point or it will break. Dams are designed to hold back water for a specific use. When the reservoir is full, valves release water from the bottom of the dam. Water will always find a way to ultimately run downhill. The natural force of accumulated pressure cannot be ignored.
Holding down interest rates for a specific objective, without alleviating pressure on the cost of investment, will ultimately break the system. It is impossible to have economic growth without cost of capital. Rules of reality, whether in nature or financial markets, cannot be ignored forever.
Covid accelerated the day of reckoning by its impact on the global economy.
The education system in the United States is now showing its own cracks. Covid necessitated in-home learning. Upon return to full classroom instruction, research surveys found that 60% of students lost or did not retain 30% of what they had learned prior to Covid. Thirty percent however retained all prior learning and began primarily where they left off before Covid. In looking for a differentiating denominator between the two groups, nothing appeared dominant other than one simple fact. It was not gender. It was not race. It was not economic standing. It was not ethnicity. It was not culture. It was a two-parent household. The study did not point out exceptions which, of course, there would be some. Some single parents do fine. It also did not mention straight or gay parents. The point of a known fact of reality is that, in a two-parent household, a child is more likely to graduate from high school, learn a skill, obtain a good paying job, and enter the middle class. They are also less likely to be addicted to drugs or go to prison.
Further, education professionals, particularly in middle schools, are calling mental illness among students a crisis. Depression, anxiety, and suicides are increasing. Covid has exposed cracks in the educational system, just like in the financial markets. It is uncertain how school systems will handle these exacerbated challenges. Hopefully, students who have fallen behind will not just be advanced. There is already a problem in America of high school graduates not being equipped to go to college or compete in the workforce of the 21st century.
That workforce is now approaching its own crisis. Unemployment is low and yet there is still a substantial number of people of working age not employed or underemployed. The lack of qualified engineers, scientists, teachers, and skilled workers is worsening. For America to maintain its position in the world, educating, training, and supporting professionals and skilled workers is critical for manufacturing jobs in high tech industries.
The question is: why is it that we as a country cannot honor the rules of reality while we engage in the rhetoric of political ideology? Why can’t we agree to respect the axiom that no nation can print and borrow money forever whether or not we agree on the cost of social programs? Why can’t we agree that reading, writing, arithmetic, and science are basic to a child’s education whether we believe in critical race theory (CRT) or not? Why can’t we support the next generation in counseling for jobs and vocation, regardless of whether we can agree that a college education should be free or not?
When circumstances impose struggles upon society, whether by natural causes of a pandemic or failed government policy, why can’t we address the issues of early childhood development, systemic poverty, job skills, and career options together in one national purpose?
Economic stability relies upon a sound productive economic workforce. A sound economic workforce relies upon a rewarding occupation. A rewarding occupation relies upon a meaningful economic purpose. Fulfillment in a life purpose renders sound mental health. Sound mental health produces a homogenous, peaceful society.
Ignoring the rules of reality in financial markets, education, workforce development, and career opportunities is denying the resulting reality of an opportunity gap. These basic principles are not the province of Democrats or Republicans, progressives or conservatives, or independents. They are the providence of humanity.
Many parts of the world, including China and Russia, are doubling down on systems of economics that ignore the consequences of denying rules of reality.
Only the United States of America has, within its own control, the discipline to recognize the principles of freedom that are the foundation of individual prosperity. It is the government’s obligation to respect the rules of reality to position and aid every citizen in their pursuit of happiness to take advantage of their ordained opportunity.
My name is Marc Nuttle and this is what I believe.
What do you believe?