When I first commenced my investment journey with balanced mutual funds in 1983, the Dow Jones Industrial Average was a mere 1,190. A nostalgic reflection on the old days, really. Currently, the market stands vastly different. Even with a recent tumble of more than a thousand points last Monday, the DJI perched at 41,911. It starkly highlights the distinction between short-term versus long-term investing perspectives.
In a rather comforting chat, my financial advisor, bless her, reassured me. “There’s no need to fret over the recent downturn,” she proclaimed, noting my well-diversified portfolio. She also remarked, “It’s only paper,” which, although not immediately comforting, does bring some solace when we recall similar instances in history.
Reflecting back to 1981, the nation was amidst a whirlwind of economic challenges. With double-digit inflation – exactly 13.5% by the close of President Carter’s term – and unemployment at an unsettling 8%, public sentiment was notably lackluster. Mortgage rates, notably, skyrocketed to 16.64%. Amidst such economic turmoil, it took the calibre of Ronald Reagan nearly two years to orchestrate an economic revival.
The 1981 Economic and Recovery Tax Act was pivotal, substantially slashing taxes and paving the pathway for robust economic growth. Bruce Bartlett, who played an instrumental role in drafting an earlier iteration of the bill, offered his insights in The Washington Post. “Keynesian economics dominated the era, advocating for higher taxes to curb inflation by limiting disposable income,” he wrote. He argued, however, that reducing taxes would bolster incentives to work, save, and invest, ultimately spurring an anti-inflationary uptick in goods and services supply.
Such policy manoeuvres eventually bore fruit. Ronald Reagan’s approval ratings, initially dwindling to 35% in 1983, soared to 61% by November 1984. Consequently, his re-election was a resounding triumph.
Fast forward to more contemporary times, President Trump adopts a similar “wait and you’ll see” stance concerning his economic agendum, promising a potential economic boom, a veritable “Golden Age.” Whether it will mirror Reagan’s precedent remains an unfolding narrative. Alas, his evasive responses on impending recession questions further muddle consumer confidence.
In The New York Post, Charles Gasparino from Fox Business articulates his stance to remain unfazed by the stock market. “Wall Street is enduring a painful detox,” he asserts, likening the US economy to a “junkie weaning himself off heroin.” The economy, he argues, has been overly reliant upon the “heroin of government spending,” courtesy of both monetary and fiscal policies, leading to whopping $2 trillion deficits. This, despite the economy thriving at an enviable near 3% growth with minimal unemployment, as President Biden spent funds nonexistent in reserves.
Trump, akin to Reagan, is currently mending the aftereffects of his predecessor’s economic decisions. Biden’s “Inflation Reduction Act,” for instance, has been blamed for heightened inflation, with many attributing the resultant high prices to Trump. This perspective seems quite the leap since the incumbent only assumed office six weeks ago!
It seems we have veered sharply from the time-honored Puritan ethic of self-reliance. Far too many have grown accustomed to government reliance, a sentiment politically advantageous in reinforcing career tenures and power. Consequently, our national debt skyrockets at $36 trillion and inflation pervades, a challenge the administration endeavours to curtail, possibly with the backing of Elon Musk and his adventurous DOGE squad.
Economic cycles resemble roller-coaster sojourns. Despite the trepidation they elicit, they culminate in satisfaction, relief, and a sprinkle of thrill. So, hold on tightly, and enjoy the ride. For, as history shows, the storm will eventually pass.
For further insights or inquiries, feel free to contact Cal Thomas.
