There were several key issues that created the recession in the late 1980s. There were also a set of primary variables that fueled the bull market in the 1990s.
The 2020 economic-stimulus bills have been passed by U.S. Senate Majority Leader Mitch McConnell and President Donald Trump, and there is now $2.2 trillion in new money flooding into the economy. This money is intended to assist working families.
Here are the main four reasons why the U.S. is poised for a V-shaped recovery and a potential economic boom.
1] Oil Prices
There are three key economic benefits of low oil prices:
- Low-cost fuel keeps inflation super low as the basket of goods that measures inflation is highly dependent on oil prices.
- A barrel of oil below $30 hurts energy jobs. However, energy independence and oil and gas jobs are supported by a barrel of oil priced over $30-$35 per barrel
- Low-cost energy and fuel boost profits in many areas such as travel, transport, helping to sell goods online, and even powering the internet.
2] Mortgage Rates
A 30-year mortgage under President Bush in 1990 had a whopping 10% interest rate, which killed disposable income. By the time Bill Clinton was in office for a few months, 30-year mortgages had dropped by 30% to below 7%.
3] Prime Rates and the Fed
Prime rates in 1989 were a stratospheric 11.5% at the beginning of Bush I in May 1989 and were soon cut by 50% to below 6% after Clinton was elected.
By 1994, the banking consolidation and internet age had begun. In the mid 1990s, the business textbooks were making gigantic internet-use projections that took 20 years to fully materialize. In 2000 and 2001, many internet startups failed because interest rates were very high. With the Federal Reserve cutting rates to virtually zero in 2020, the cost of money and running government has reduced expenses from top to bottom.
4] Corporate Taxes
Corporate-tax rates were ranked the worst under President Barack Obama, compared to the rates of other nations. Now the rates are in the middle of the pack, which makes the U.S. attractive for business. Combined with cheap oil and low-cost loans, some states such as Texas may be some of the most business friendly places in the world.
What Will the Stock Market Do Now?
Economists seem to have difficulty understanding middle-class disposable income in contrast to a worker’s geographic location and to city, state and federal taxes. When money is cheap, taxes are reasonable, and inflation is low: three factors to fuel rapid economic growth. The Fed in March slashed interest rates to nearly zero, along with announcing it would take measures to stabilize the bond markets.
If governors are too slow in reopening their respective states, millions of lives will be injured by the shutdown. With a government shutdown, families can't put food on the table, can’t buy life-saving medicine, and can’t afford to pay deductibles and see the doctor.
As with past chaotic economic events, governmental measures are put in place to stabilize the economy and incentivize work, entrepreneurship, increase jobs, and boost sustainability of business.
Overall, the simultaneous factors of stimulus loans, low mortgage rates, low Fed rates and historic low oil prices are a winning recipe for a rapid economic rise, provided our country can reopen sooner rather than later.
George Mentz JD MBA CWM Chartered Wealth Manager ® is a licensed attorney and CEO of GAFM ® global education, which is an ISO 29990 Certified professional development company operating in over 50 nations. Mentz is an award-winning author and advisory board member to several companies around the world in education, charities, and FinTech Companies.
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