Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
CATHY WOOD ARK GARBAGE ARK Funds Heading for 90% STOCK CRASH! - 22nd Jan 22
Gold Is the Belle of the Ball. Will Its Dance Turn Bearish? - 22nd Jan 22
Best Neighborhoods to Buy Real Estate in San Diego - 22nd Jan 22
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
WARNING - AI STOCK MARKET CRASH / BEAR SWITCH TRIGGERED! - 19th Jan 22
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
NVIDIA THE KING OF THE METAVERSE! - 10th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
MATTERPORT (MTTR) - DIGITIZING THE REAL WORLD - METAVERSE INVESTING 2022 - 7th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
METAVERSE - NEW LIFE FOR SONY AGEING GAMING GIANT? - 6th Jan 2022
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

U.S. Economy at Major Long-Term Pivotal Point

Economics / US Economy Nov 16, 2016 - 02:19 AM GMT

By: Clif_Droke

Economics

As the dust settles from the U.S. presidential election, multitudes of political analysts and news commentators continue to scratch their heads wondering “what went wrong?” The collective question they're asking of course is in reference to the candidate who was elected President.

This is the wrong question to ask, however. What they should be asking is what led millions of (mostly) middle class voters to rise up against the favored establishment candidate and voice their disapproval with the incumbent party.  As is normally the case with anything relating to politics, the answer is to be found in the realm of economics.


It's no secret that the main source of the middle class revolt is that class's overall lack of strong participation in the economic recovery of the last seven years. Pundits have tended to put the blame for this squarely on the shoulders of middle class workers. They never tire of repeating the mantra that the middle class's skill set is fast becoming obsolete due to the evolution of technology and increased globalization. This, though, has been true for at least the last three decades, so it hardly qualifies as a prescient insight.

No, the root of middle class revolt is far more contemporary in origin and is much easier to isolate than the pundits think. Let's ask ourselves, in political terms, what is it that the middle class demands more than anything else? The political philosopher Niccolo Machiavelli provided the answer to this rhetorical question centuries ago: the working class want nothing more than to be left alone by the ruling class. In other words, they don't want to be excessively taxed.

Without almost a single exception, any revolution in any country – be it political or military – has begun when the people were over-taxed and their cost of living became too high to support without undue strain. It isn't as much a lack of skills which has led to the middle class's troubles as it is a drastic increase in their cost of living, thanks largely to an extraordinary increase in taxes in recent years. And the main source of their tax trouble can be pointed to a single source, viz. the Affordable Care Act (a.k.a. Obamacare).

Regardless of what your opinion might be as to the efficacy of this legislation, the undeniable fact remains that for millions in the middle class it has effectively drained their earnings by inflicting a hefty a penalty on those who don't wish to purchase health insurance. It enacts an even stiffer drain on consumers' earnings by encouraging the young and healthy to purchase costly medical insurance when they don't really need it.

As Machiavelli himself wryly observed, history does tend to repeat and most political rulers fail to learn from its precepts. One would think the Democrats would have learned a valuable lesson about forcing healthcare upon an unwilling populace in 1993, when the Clinton Healthcare Plan (a.k.a. Hillarycare) was first proposed. It basically amounted to a forced attempt at socialized healthcare in the U.S., and it was staunchly opposed by millions of (mostly) middle class voters. A vigorous initiative against the plan launched by the Christian Coalition effectively sealed the fate of the Clinton Healthcare Plan, allowing the economy a narrow escape from a substantial tax increase.

A rudimentary lesson of Economics 101 is that unwarranted taxes always hinder productivity to some degree or other, for taxes are a disincentive to produce.  The more taxes government implements to remove money from the pockets of wage earners, the less incentive they have to work hard and make even more money.  Thus the velocity of money decreases, which is the basis behind a sluggish economy (as we'll see here).

The Obamacare penalty must certainly rank as one of the biggest tax increases in U.S. history. One simply cannot tax the American middle class like that and expect to that economic growth will continue unimpeded. This is a big reason why the Democrats lost big in the latest election: it was the middle class's repudiation of the Obamacare tax more than perhaps any other factor.

Although the economy has certainly made significant strides since the depths of the Great Recession, there's no denying that it hasn't regained its luster from the heady years prior to the crash. Economists often lament the lack of money velocity in the U.S., which is depicted in the following graph.

Velocity of M2 Money Stock

Velocity is simply a measure of how quickly money is changing hands in the U.S. The above chart is a snapshot of the annual percentage change in money velocity. The picture speaks for itself and is a perfect reflection of the residual anxiety still very much present within the middle class economy.  Money simply isn't changing hands fast enough among typical wage earners and this has kept the economy from what could have been a vigorous expansion.

The blame for that can be put largely on the biggest tax increase in decades previously mentioned. As long as the Obamacare tax remains on the shoulders of non-healthcare consumers it will continue to create a drag on the economy and prevent the kind of efflorescence historically associated with the strongest rebounds.

Beyond the impact that the Obamacare penalty laid upon millions in the middle class, it has also had repercussions for investors and business owners. The drag created upon business by Obamacare requirements has almost certainly contributed to the lack of forward momentum in the stock market these last two years.  It can be seen most clearly in the NYSE Composite Index (NYA), below, which is the broadest measure of the U.S. equity market.

NYA Daily Chart

The breakout to new highs in several of the major indices, excluding the NYA, may indeed prove to be an anticipatory move in response to expectations that the Trump Administration will relieve business of its excessive tax and regulatory burden. In order for the breakout to give way to a continued boom, however, this expectation should become reality.

Now that Republicans control both chambers of Congress they have a chance to redeem themselves from their lack of a concerted effort against the Obamacare vote. Regardless of whether they support the law remaining intact, to acknowledge the middle class constituents who voted for them they can, and should, send an undeniable message of support. By eliminating, or at least significantly lowering, the penalty for not buying health insurance they will have given the middle class the best possible gift they can give. In doing so they will be lifting a huge hindrance to the economy and allow it to truly take off in 2017.

The 60-year economic cycle of inflation/deflation which bottom a couple of years ago hasn't had a chance to work its magic on the U.S. economy by lifting the deflationary currents from the last two decades. The early years of the new 60-year cycle tend to exert a benign inflationary impact by gradually lifting prices without creating the problems associated with too much inflation. The up-phase of a new 60-year cycle also tends to stimulate consumer spending and investment within the economy due to the gradual increase of benign inflation.  Yet the cycle hasn't been allowed to do its work thanks to the grievous burden of taxation imposed by Obamacare.

If this tax is reversed by the incoming Congress, it's highly likely that we'll witness a magnificent flowering of the economy in the years that follow.  While the economic recovery since 2009 can be likened to foliar growth in a fruiting plant, the second and most important phase of the recovery must involve flowering. Only then can the plant bear its fruit. To date there has been much leafy growth, yet little flowering. The stimulant required for this flowering is the lifting of the excessive burdens placed upon it by the previous caretakers.

Mastering Moving Averages

The moving average is one of the most versatile of all trading tools and should be a part of every investor's arsenal. Far more than a simple trend line, it's also a dynamic momentum indicator as well as a means of identifying support and resistance across variable time frames. It can also be used in place of an overbought/oversold oscillator when used in relationship to the price of the stock or ETF you're trading in.

In my latest book, Mastering Moving Averages, I remove the mystique behind stock and ETF trading and reveal a simple and reliable system that allows retail traders to profit from both up and down moves in the market. The trading techniques discussed in the book have been carefully calibrated to match today's fast-moving and sometimes volatile market environment. If you're interested in moving average trading techniques, you'll want to read this book.

Order today and receive an autographed copy along with a copy of the book, The Best Strategies for Momentum Traders. Your order also includes a FREE 1-month trial subscription to the Momentum Strategies Report newsletter: http://www.clifdroke.com/books/masteringma.html

By Clif Droke

www.clifdroke.com

Clif Droke is the editor of the daily Gold & Silver Stock Report. Published daily since 2002, the report provides forecasts and analysis of the leading gold, silver, uranium and energy stocks from a short-term technical standpoint. He is also the author of numerous books, including 'How to Read Chart Patterns for Greater Profits.' For more information visit www.clifdroke.com

Clif Droke Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in