Streets of Gold or Pathways to Poverty: Reviving America's Cities

Streets of gold look a little more like pathways to poverty. American cities have been on the decline for decades as investments diverted from urban areas to emerging countries that rolled out the red carpet. The infrastructure that was built when American cities were at the height of their economic might is still mostly intact waiting for visionary investors. Getting investment interest and better city governance can lead to mutual growth for business and job-hungry residents if the two can come to a mutual understanding.

Pick any major city in the country and follow its historic rise and fall. You may notice that as people moved to the city, built homes, and invested their resources these collections of people grew in wealth and influence. The collective action of small and large investors created a synergy of growth that pushed profit margins to higher levels. Money, government, and people had a mutual self-interest in development.

As international competition rose, technology changed, and poor government policy stagnated these cities; they became ghost lands that are a pale comparison to their previous glory. Where opportunity flourished a few decades ago, some cities have grown dilapidated virtual prisons. The poorer a family was, the more likely they were stuck in a cycle of poverty. American men, women, and children were left behind.

Bleakness doesn’t need to be the norm. Cities that still retain their basic infrastructure are ripe for renewed development that not only produces higher returns on investment (ROI) but offers new opportunities for residents. When opportunity grows, hope also grows, and new economic life is born with it. The marriage of investors and government  into pro-growth policies can nurse new opportunities.

Consider the mass investment draws to places like Eastern Europe, India, China, and other emerging nations where red tape restrictions are little but returns are high. American cities offer many of these same opportunities as the low cost of buildings, motivated work force, and reliable infrastructure found in combinations will grow once the right capital levers are applied.

Stakeholders will need to look at the global market and existing local competencies to determine where the best investment growth potential can be realized. When capitalists engage in pack investments and create spawning clusters of business activities to capitalize on existing competencies and infrastructure, growth is not far over the horizon. Economic wastelands can become investment wonderlands with a little good old fashion spit shine.

Many proposals such as new recreation centers, additional funding, tax allocations, etc...have been tried at one time or another. They were short-lived because they were not profitable and often came with long-term commitments with difficult to measure results. Building investment hubs fixes the foundations of poverty that lead to better housing, additional tax bases, better education and more community support.

The problem isn’t so much that investors are not willing to invest in these cities but that awareness is lacking, and local government is often short-sighted in their policy development that inadvertently restricts future opportunities. Revamping the way we think about investments, government, and education/training helps to ensure that struggling cities look more like diamonds in the rough. Enlightened government starts where partisan politics ends.

The Benefits of Staying Home and Living Mooch Economics

Young people are staying home longer and delaying their inevitable jump out of the nest egg into real life. Some may wonder why this is happening when their Baby Boomers left home while still in their late late teens (18). If you think about why they are doing this and the benefits it brings them you can't blame them for smart  mooching economics.

In the past young people couldn't wait to get out of the house in hopes of striking out on their own. Working for minimum wage they took their sleeping bags and roomed with their friends. Over time they got a better job, earned more money, and eventually found someone they wanted to marry. Not long after that they were buying their very first starter home.

Those days are gone and they are not likely to become popular again soon. Over the Great Recession young people couldn't find employment, needed a degree, had material wants, and became influenced by other cultures. No longer was a healty person who was willing to work ensured that they would have a job that would support them.

When jobs aren't plentiful and it is nearly impossible to pay for much beyond car insurance, cell phone and movies it can be difficult for people to move out. A couple hundred dollars a week just isn't going to cut it with the cost of living and other expenditures are twice their income.

Of course young people also grew up during a time when they were provided with lots of electronics, toys, and cosmetics that were associated with a heightened consumer culture. Asking them to throw away the toys and surface stuff they are being judged by their peers on doesn't make a whole lot of sense at an age where image is everything.

Europeans and Middle Easterners are accustomed to staying longer in their parents house. Culture has changed and young people are looking more for security. Staying at home is fine with today's open parenting styles.  If parents aren't pushing them out they shouldn't worry about it, grab a bag of Cheetos and play a video game.

Likewise, if they are attending college and going to be saddled with debt they might as well minimize their expenses as much as possible and stay with their parents. With a little luck their parents won't kick them out until a few years after full time employment.

We may say we want our children to move out as soon as possible but that doesn't make a practical sense for those who are going to struggle to make ends meet. It is much better for them to stay home, finish college, and pay off their student loans before getting married and starting their own nest. If you want one way to lower your debt...stay home and mooch off your parents as long as possible!

Is Europe Shrinking or Growing?

According to a European data analytics company called Markit Economics, Europe is still growing despite poor projections. Based upon a survey of purchasing managers and their prospects throughout 18 nations in Europe, their index of economic growth moved upward from 51.1 to 51.7 showing a higher rate of growth than previous expect. Some economists predicted a slight contraction but improvement in the market appears to have lowered the pressure by improving the situation.

The study also shows that core countries like Germany and France are experiencing slower growth and waning job creation while those countries on the periphery are doing better. Combined Europe has a moderate rate of growth somewhere around .2 percent showing near stagnation. Such slow rates of growth give European officials pause in deciding their next course of action. 

Selling prices for manufacturing and services is slowing.  Stagnating wages, lower oil prices, and lower demand are putting downward pressure on production costs. Depending on how this plays out it could lead to greater exports or hints of deflation. Much of it depends on how administrators respond to growing challenges.

One thing for sure European officials are not likely to push for further stimulus anytime soon. The last round of stimulus had only a moderate impact, leaving countries like Japan and Greece in heavy debt, while still leaving many wonder what the long-term advantages were. The Economist put together a fairly strong analysis of the total costs when countries soared in debt topping 74% to 101%of GDP.

The problem with Europe's economy is that are tied to a global slowdown and have already spent a significant amount or resources on past stimulus. They simply can't afford to do another round now without serious consequences. Some of the nations seem to be doing well while anchor countries suffer to improve their positions. Understanding whether Europe is growing or shrinking might depend on whether you are the type who sees the grass half full or half empty.

China Stimulates Economy to Keep Deflation at Bay

Experts predicted the Chinese economy to slow down for the last five years but it never happened-until now. Instead, the economy continued to grow and develop moving from copying technology to inventing some of their own. As the world’s No. 2 economy it has recently recognized that significant slowing in Asia and Europe may be hampering its own growth and it is taking precautionary measures to prop up its position. 

In an attempt to support development and investment it slashed interest rates at the time when American’s have weaned themselves off easy money policies. By injecting credit into their financial system they hope that their banks will lend more money and encourage higher levels of investment. The interest rate on the one-year loan has been reduced to 5.6% while the rate of pay on a one-year savings rate is now 2.75%. 

A low interest and saving rate combination incentivizes borrowing money for growth while discouraging the hoarding of cash by more profitable businesses. Through keeping the money flowing in and out of large banks it sparks higher levels of economic activity. It is believed that lower lending and borrowing rates will spark higher levels of investments. 

China’s economy has been growing through cheaper production costs and higher levels of investment. As the world experiences a slowdown and major nations are stimulating their economies China has decided to jump onboard.  Only the U.S. is projected to keep growing. 

With a growth rate of 7.3% and a decline in housing value the Chinese economy slowed. It is still an impressive number and the Chinese sought to weather into more sustainable growth pattern but a global slowdown has them on edge. China must continue to export at significant levels or risk moving into a deflationary position.

Is China’s at Risk for Deflation?

For the past two decades China has been growing at a remarkable pace year after year shocking economists and rewriting economic theory. It appears that the Bull Run has just about come to an end. According to the National Bureau of Statistics in Beijing the factory-gate prices fell for the 32^nd month in October. Likewise, consumer prices were also stagnant. Some economists are arguing low inflation, low capacity engagement, and high inventories may lead to deflation. 

The Chinese government is debating infusing some of its own capital into the economy in much the same way as the U.S. and Europe. The methodology may be somewhat unique as expanding production without significant household consumption or willing international buyers can be difficult. China’s economy could be experiencing the first signs of “burn out” as consumers across Europe tighten their belts.

As prices and products become cheaper there is some risk of deflation. Deflation is seen as a very destructive force that impacts the ability of the economy to maintain upward trajectory. Such things as debt become extremely difficult to service as money becomes worth more and requires much more money to pay back loans. 

Inflation can be caused when the supply of goods goes up but the amount of money does not go up to match it. This means that money is in demand and can purchase more products. This normally would be a good thing but it creates risks for investors who would rather sit on cash then invest in a deflating market, it encourages consumers to wait until products are cheaper, and it makes hording of money more likely-economic activity declines.

At present it doesn’t appear that China is concerned about deflation based upon its relatively unchanged economic policy. That risk does still loom and even though it is not common in history it has been known to cause economic hardship and recessions in those countries that experience it. It is always possible China could be in for slower growth and a bumpy ride over the next few years.  The Bull Run may have just hit a wall.