I do enjoy listening to Chief Economist Brian Wesbury of First Trust. He cuts through the flak and garbage and looks at things from an objective point of view and not a sensational one. He often talks about the "four pillars of economic strength or weakness — monetary policy, tax policy, trade policy, spending or regulatory policy." (For more, see: Economic Indicators: Overview.)

Monetary Policy: Money needs to circulate in an economic system for that system to grow. In a central banking system, tightening and loosening are dictated by the central bank in a series of policy changes designed to slow down or increase money circulation. Right now the Fed, our central bank, is still "easy." Although rates increased in December 2015, inflation is still stable. So, we're still encouraging money moving more rapidly. Rating: This is good. (For more, see: 3 PIMCO Thoughts on Central Banks in 2016.)

Tax Policy: The U.S. government has perhaps the most complicated tax codes of any society on the planet. Are you a reader? Currently, the tax code is in excess of 74,000 pages. I think it's pretty safe to say this is inefficient. A simplified tax code would likely loosen the wallets of businesses and individuals but Uncle Sam isn't buying. The burden on the private sector to pay for overspending has become a bit ludicrous. Do we really need to enhance and expand government entitlement programs? I'll get to that in a moment. One thing is for certain, you can't have a big public sector and a big private sector. Rating: Tax policy poor. Make your vote count in November.   

Trade Policy: This is such a dynamic topic to cover. Let's look at the 30,000 foot view. The U.S. dollar is the business currency. And right now our economy is arguably the healthiest globally making the dollar strong against other currencies. Importing and exporting goods is predicated on supply and demand as well as international exchange rates of currencies used to move those goods. The U.S. government could be doing more to protect U.S. businesses from losing work to foreign competitors for goods and services that could be produced and provided here in the U.S. Tariffs on foreign steel, imposed by George W. Bush in early 2002, likely saved what was left of the U.S. steel industry. That's something we could see in the future on commodities and other goods. We're producing more oil and natural gas in this country than ever before. The dollar is strong. We'll take it while we wait for the other economies around the world to sync back up. It's an opportunity for the U.S. to reposition the dollar in the global economy. Rating: This is average. (For more, see: The Biggest Losers From the U.S. Dollar Gaining Strength.)

Regulatory/Government Spending Policy: Overspending seems to be "American." For many individuals a credit card, second mortgage, line of credit and IOUs are just a way of life. The U.S. Government spent $3.5 trillion dollars in 2014 and created $486 billion in further debt. You don't have to be an economics professor or a finite math wizard to understand that spending more than what you make leads to more debt. Simplified: A family unit has an annual income of $50,400 and spends $60,400 and puts $8,400 on a credit card each year despite being $308,800 in debt already. No penny-wise American would approve of the government spending policy.

One thing the U.S. government has going for it is sovereignty. We own the U.S. dollar. We can just print more. If you and I do that, we go to jail. Not so for the U.S. government. Selling U.S. sovereign debt is one way to increase money supply. The U.S. government then must service or pay the interest on that debt. This number is pretty average or even lower as a percentage of gross domestic product (GDP) compared to historical averages. Forty-nine percent of every budgeted dollar goes towards funding Medicare, Medicaid, other healthcare and Social Security. (For more, see: The Top Reasons Behind the U.S. National Debt.)

Baby Boomer. Say it. Sounds light and fluffy and friendly coming off the tongue but not so for the U.S. economic picture. Ten thousand people turn 65 every day in our country. I said every day. That will continue for another 12 years, approximately. Now say it. Baby Boomer. Not so friendly anymore considering that 49% will grow to 62.5% by 2024 unless something changes. And by change I don't mean become a socialist economy. Debt is growing. Eighteen trillion dollars is the national debt total, private and public or about $145,000/household. That's 74.4% of GDP. Thirty-eight percent is the historical average. Wasteful is how you could describe Federal spending. Rating: Bad. 

(Source of aforementioned statistics: Federal Spending by the Numbers, 2014.)

The Bottom Line

It's time to put the federal government on notice. We're watching them and we're not too happy with their lack of fiscal responsibility. Overall, we're okay. There's no impending recession. I saw an article title that said: "Morgan Stanley Sees 30% Chance of Recession." Do you know that at any one time and historically the probability of an economic recession is never at 0%. The U.S. economy has spent nearly 26% of the time in recession. It has varied widely and often is measured differently by each reporting source. Some would argue that data being used to predict recession has such little correlation to the economy that its use is far reaching and insignificant. Others would argue monetary policy can and has actually induced each U.S. economic recession. Money remains easy. If interest rates go to 3.0%+ then we'll have some tightening of the money supply.

Despite global growth slowing down, despite rising rates, despite crazy, sensationalized headlines, I do not believe we will see a recession in 2016. The economy is moving forward, albeit at a slower pace than desired. Stop reading articles for headlines. Speak up! This is your country. Take some time to learn about topics rather than skimming the doom and gloom headlines that sell papers and improve ratings. (For more, see: Morgan Stanley Sees 30% Chance of Global Recession.)

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

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