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The Confusion Factor
In discussing the buy and hold strategy, James Scott and I were both mentioning that one of it's huge assets is the kind of results that you can get without having to spend a ton of time researching. With proper ETF advice you can build a fairly diversified portfolio simply using your brokerage account and investing every month.
While I am not as angry with the government as many pundits out there, I wonder if they're interference is doing more harm than good. Confusion is a real deterrent to investment and with all the government programs it's difficult to know simple questions like whether the mortgage crisis is over. Meanwhile this confusion makes it very difficult for investors to have the confidence to move their money back into the markets. This is not to mention the debt we're incurring, which while not comparable to Japan's government debt is much more striking when combined with our household and financial sector's debts.
I feel like ultimately the moral hazard brought about by current debt levels is really setting us up for a lot of difficulty. Until we start to redress our debt levels it's going to be very difficult to make informed long term decisions. What bedrock beliefs are left for us to cling to?
While I am not as angry with the government as many pundits out there, I wonder if they're interference is doing more harm than good. Confusion is a real deterrent to investment and with all the government programs it's difficult to know simple questions like whether the mortgage crisis is over. Meanwhile this confusion makes it very difficult for investors to have the confidence to move their money back into the markets. This is not to mention the debt we're incurring, which while not comparable to Japan's government debt is much more striking when combined with our household and financial sector's debts.
I feel like ultimately the moral hazard brought about by current debt levels is really setting us up for a lot of difficulty. Until we start to redress our debt levels it's going to be very difficult to make informed long term decisions. What bedrock beliefs are left for us to cling to?
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Comment by James Scott on July 6, 2009 at 11:07pm -
Well, the "great recession" has caused an increase in the consumer savings rate, but this caused more damage to the economy since people were not spending money as they once did.
The government stepped in to add some stimulus to the economy. The government spending will probably help revive the economy to some degree, but the national debt is exploding.
I agree with the government policy because the United States is economically viable enough to take on large amounts of debt to stop the current bleeding while making policy changes in the future to reduce the national debt. There also needs to be some policy changes to reduce the risk of this type of bubble and burst from happening again.
Not a good situation, but hopefully we are pulling out of the dive.
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Comment by Vitaly Indinko on July 7, 2009 at 2:14pm -
It's definitely not good in the short term for consumer spending to clamp down, but it may be good in the long term. I think we've overspent and now's the time to pay the bill before the bill gets even higher. Right now we're transferring consumer debt to government debt, which may be for the good, but if consumer debt starts growing again as well, we'll be in worse shape than before.
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Comment by Tom McCann on July 8, 2009 at 11:20am -
I think that just as the economy sprirals down opn itself (no jobs leads to less spending leads to fewer jobs leads to less spending, etc...) the economy also spirals up on itself. Consumer confidence increases which leads to more jobs and higher incomes leading to more spending and more jobs leading to excess capital which can be loaned to consumers at low rates leading to more spending, etc....
Classic boom and bust cycles. Will consumers and businesses curb this cycle on their own? Does government need to do something to curb these cycles?
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Comment by Vitaly Indinko on July 22, 2009 at 1:23pm
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Well central banking is really being put to the test as it's been suggested as the "solution" to these cycles. Thus far however it's shown no ability to reign in booms.
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