Two years ago I wrote about our booming economy and my hopes for a strong future. I listed five key reasons why I thought the economy would continue to grow and reward investors in the process. I mentioned that maintaining those five items would be an important part of continuing our growth cycle. So today let me review those five items and see how we are doing.
1 – Energy independence. In January 2020 the United States enjoyed energy independence, being a net exporter of oil. This was an enviable position that had been dreamed of for generations and gave us great economic strength. A cheap and reliable source of dependable energy is critical to the growth of a modern industrial nation. It is tragic that we have already lost our energy independence and are again unnecessarily dependent on foreign nations. This poses a great risk to our future.
2- Abundant capital. Money is the lifeblood of business. Since expenses precede revenue growth it is imperative that businesses be able to borrow what they need at reasonable interest rates. In this area we are still strong. Recent market volatility due to potentially rising interest rates show there is some concern here but for the time being it appears capital is still plentiful and relatively cheap.
3 – Reduced Regulation. This is a tricky one because Covid policy has introduced new regulations that hinder many businesses, but these are supposedly temporary. At the same time, old regulatory policies are creeping back in threatening to hinder the growth of business. It is a downside of having a free society that every time we get a new government, the rules can quickly change. I am not as positive in this area as I was two years ago so will continue to watch and see if government overreach will hamper business.
4 – Technological advancements. This is an area where I believe American lives will continue to improve as science and medicine develop better and more cost-effective technologies.
5 – Reduced Taxes – This is the toughest of all. Americans generally don’t like higher taxes and the more money they are allowed to keep, the more they can use it to reward businesses that produce great goods and services. But the problem here is that in the past two years we have seen, in my opinion, one of the biggest tax increases in history, although it was not a direct tax. Dumping trillions of stimulus dollars into the economy created high inflation, which is nothing more than a tax on everyone.
So, my take is that we are not in as strong a position as we were two years ago. Two of the biggest challenges we face are our loss of energy independence and our taxation through deficit spending. I believe both of these will be a drag on the economy, and the stock market, in 2022.