Debt, interest rates and other scary matters
Data point to gradual global expansion, but outside factors feed the anxiety of markets
As the northern New England economy continues to bounce up and down as well, news continues that if certain economic indicators remain strong through the summer, Fed Chair Janet Yellen will consider raising interest rates after Labor Day. As an eventual retiree, rising interest rates sound good for my savings, but as a real estate practitioner, not so much!
Of course, in Japan and some parts of Europe they are experiencing negative interest rates – no thank you. Some view this as desperation.
According to the D.L. Carlson Investment Group newsletter, “Economic data point to gradual expansion even though recent outcomes were generally weaker than the market.”
In the same issue, they recounted how Yellen described the possible British exit from the EU as the biggest economic risk to the global economy this year. I think I agree the unraveling of the EU can't be good for anyone.
They conclude: “global political/economic issues and the U.S. political season (ugh!) foster perhaps an unusually high degree of market anxiety, but a reasonably solid, moderately improving domestic economic outlook, while the global economy works toward rebalancing/recovery, can be a counterbalancing positive.”
For a while, there has been a world of worry. Last year it was Greece, this year the potential “Brexit.” But in the U.S., things aren't too bad. Not that we are out of the woods – the slowdown in China, volatile energy prices, the eventual raising of interest rates.
The political scene seems comic and entertaining, but eventually one of the candidates will be our new president.
Two weeks ago, NBT Bank hosted an economic forecast breakfast in Manchester. It was an excellent presentation by Ken Entenmann. In the industry, there are fewer and fewer banks – 12,000 in 1986, 6,000 today and maybe 4,000-5,000 by 2020. That is a lot of consolidation.
He said he was “unenthusiastically optimistic”!
Entenmann’s biggest concern is “the debt.” Ostensibly, the current U.S. debt is about $19 trillion, more or less equal to our current GDP, so call it 100 percent vs. 300 percent for Japan, 250 percent for South Korea, etc. But (there is always a but) the real debt, including what Congress has borrowed from the Social Security trust funds (with no ideas how to pay it back), Obamacare, school and tuition debt, etc., is closer to $60-$65 trillion dollars. That is a big challenge facing us sooner, rather than later.
So think about who can most likely get the U.S. economy jump-started, revved up and keep it there (when you do, please let me know). Not to scare you further, but 65 to – 70 percent of all U.S. debt outstanding comes due in four to five years. If we have rising interest rates, the cost to service that debt grows dramatically.
But these are all big, global things. We in New Hampshire are not going to solve them, or even significantly impact them. So we need to focus on what we can do: keep energy costs down; work on improving and expanding quality of life; develop a bigger and better workforce; attract capital and investors; and get more of our successful prep school and college alums to come back and start businesses.
Bill Norton, president of Norton Asset Management and principal of Harrington & Reeves, is a Counselor of Real Estate (CRE) and a Facilities Management Administrator (FMA). He can be reached at firstname.lastname@example.org.