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How stimulating will the recovery be?

With the primary elections in the book, we now have fewer than 90 days until the November election. Thanks to COVID-19 and its associated issues and concerns, I believe the overall trajectory of our economy has significantly changed. It doesn’t matter who wins the election.

There are a whole host of issues and concerns that have altered our economy, perhaps for many years. For instance, in no small part due to the various COVID stimulus programs, our national debt has ballooned beyond comprehension. The Federal Reserve, manager of our monetary policies, has implied that it’s not even thinking about raising interest rates.

In other words, we’ll likely be in a low interest rate environment for years to come. That’s great for homeowners and borrowers, but not good for people who rely on interest from their bank deposits to supplement income. Also, I believe our faltering relationship with China and the push to bring manufacturing back to the U.S. will ultimately lead to higher prices nationwide.

From a political perspective, I have several concerns brought about by both sides of the aisle. My role isn’t to promote blue or red policies, but rather to keep my readers and clients in the green.

During the pandemic, politicians have argued about how to get monies to those in survival mode. Their bickering caused delays in disbursing funds even as jobs were lost, businesses closed and the delinquency rate on home mortgages spiked. 

But the overriding concern I have about government spending is that the spigots are frequently turned on, but very seldom turned off.

With that in mind, I wouldn’t be surprised if there’s some sort of COVID-19 income related program that will continue on for years. I think it would be refreshing if Congress passed a special spending bill that included criteria to end the spending. In short, a way to motivate the recipients to get off of Uncle Sam’s payroll.

That being said, many economists have debated whether we’ll have a V-shaped or W-shaped recovery. I don’t pretend to be an expert, but I heard one dissenting economist project that it will be neither. Instead, he called for a K-shaped recovery.

Looking back, I have to agree with the dissenter. I feel the recovery will likely be K-shaped. Some households and businesses will recover quite quickly, represented by the ascending upper part of the K.

The descending, or lower part, signifies those businesses and households that will feel the devastation for months or years.

A lot of challenges lie ahead for all of us. Unfortunately, we’re in an environment that discourages civil discussion on many topics. There seems to be little room for differing opinions, and I think this could ultimately lead to an increasing debt. I say this because, rather than talking through tough issues or making difficult decisions, it's much easier for Uncle Sam to just throw more money at the problems.

Again, my primary concern is that all the dissension we’re seeing will only increase our debt. When it comes to your own finances, I believe the altered economic trajectory will require more money out of your wallet even as the government takes a larger bite out of your paycheck.

But with proper planning and disciplined saving, I’m confident you can achieve your financial goals.

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E-mail your questions to kenmorris@lifetimeplanning.com 
Ken is a registered representative of LPL Financial. Securities and financial planning offered through LPL, a Registered Investment Advisor, member FINRA/SIPC. Ken is Vice-President of the Society for Lifetime Planning in Troy. All opinions expressed are those of Ken Morris. LPL and Society for Lifetime Planning are independent companies. Investing involves risk including loss of principal. No strategy assures success or protects against loss.