Grand Rapids, MI -- (SBWire) -- 05/02/2011 -- Dennis Tubbergen is a financial advisor, advisor to financial advisors, author and radio talk show host. Tubbergen frequently keeps his clients and readers informed of current topics by posting on his online blog and writing his financial newsletter, Moving Markets™. One of his recent blogs was dedicated to interest rates in the U.S.
“A recent Reuters news article reported most economists don’t expect the Federal Reserve to increase interest rates, even though there is mounting evidence that the Fed’s policies are causing inflation,” reports Tubbergen. “This is despite what Fed Chairman Ben Bernanke might say publically.”
Tubbergen quotes the Reuters article as saying, “Most leading economists do not expect the U.S. Federal Reserve to increase interest rates this year, despite forecasts of rising inflation and after further evidence of a recovering jobs market.”
The article goes on to state that although growth in employment can be viewed as a recovering economy, when polled by Reuters, most economists at primary dealers feel “the economy is weak enough to keep the central bank on hold through 2011.”
Reuters claims weak wage inflation could hamper a recovery and cites concern over the rising cost of gas and food.
“The article also reported that the 18 economists responding to the survey have revised their estimates downward for economic growth for the year,” explains Tubbergen. “There are a few variables here worth noting.”
Tubbergen states the first is that in spite of economic growth being reported and an improving jobs report, the jobs that are being created are not great-paying jobs; nearly half the jobs being added are in the food, retail and temporary sectors.
“Not only are these jobs not great paying, there are not nearly enough of them,” claims Tubbergen. “The San Francisco Chronicle reported on April 2, 2011 that if the economy continues to add 200,000 jobs per month – which is far from a guarantee – it will take until 2019 to get the employment rate back to pre-recession levels.”
Tubbergen adds the article also stated that according to the Department of Labor the average duration of unemployment rose to 39 weeks, which is the longest average duration on record.
“The second variable is the relationship between inflation and wages,” notes Tubbergen. “With more of the jobs being created being low-paying and food and energy prices increasing, many American families are being forced to buy essentials that are rapidly increasing in cost with wages that are stagnant at best.”
Referring to a Market Watch report from April 1, 2011, Tubbergen says of the workers who lost their jobs between 2007 and 2009, half had found new jobs but most were for lower wages. According to the article, some 36% of these individuals took a pay cut of 20% or more.
“The last variable isn’t really a variable at all,” warns Tubbergen. “Given that the U.S. federal deficit is $1.65 trillion, the spending gap needs to be bridged somehow. There are only three ways to accomplish this, two of them honest, in my opinion.”
The first one is to cut spending, including entitlement spending. Tubbergen believes the bottom line is that we cannot afford entitlements in their current form and if politicians and policymakers are looking to address these issues honestly, spending would be cut.
“The recent arguing about $30 billion in cuts by many politicians is akin to rearranging the deck chairs on the Titanic,” cites Tubbergen. “There is nothing substantive being said, it’s just political posturing.”
Tubbergen claims the second way would be to borrow the money from a lender, but notes this is not likely to happen. Given the increased risk in loaning the U.S. money due to the massive deficits projected to occur, the U.S. cannot afford the interest rates the market would demand. Tubbergen believes this will become evident as the Federal Reserve’s QE2 program (second round of quantitative easing) draws to a close over the next few months.
“The third way to finance the deficit is to print money,” concludes Tubbergen. “This debases the currency and punishes the savers of the country through inflation, making their nest eggs worth less as each day passes. It’s frankly, in my opinion, dishonest, but the likely course of action.”
Dennis Tubbergen has been in the financial industry for over 25 years and has his corporate offices in the USA Wealth Management Building in downtown Grand Rapids, Michigan. Tubbergen is CEO of USA Wealth Management, LLC and has an online blog that can be viewed at http://www.dennistubbergen.com. His weekly talk show The Everything Financial Radio Show is simulcast on two Michigan metro stations and also airs to over 600,000 financial advisors, with recent podcasts available at http://www.everythingfinancialradio.com.
The opinions expressed herein are those of the writer and not necessarily those of USA Wealth Management, LLC. This update may contain forward-looking statements, including, but not limited to, statements as to future events that involve various risks and uncertainties. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual events or results to differ materially from those that were forecasted. Therefore, no forecast should be construed as a guarantee.
Prior to making any investment decision, individuals should consult a professional to determine the risks, costs, benefits and fees associated with a particular investment. Information obtained from third party resources is believed to be reliable but the accuracy cannot be guaranteed.
Those Who Know See Interest Rates Staying Low
Financial advisor Dennis Tubbergen takes a look at interest rates in the U.S.