The domestic and global economy is recovering from one of the greatest economic downturns since "The Great Depression" of the 1930's. The U.S. economy and capital markets remain fragile, the labor market is frozen, and banks are gradually coming off life support.

When will the economy resume normal growth?  Will companies restart hiring in 2012?  How will government policy impact business?  Algenon will answer these questions and many more in this comprehensive analysis of current trends and future prospects for the national and local economy.

Coming under great pressure from the right and left, President Obama this week held a Joint Session of Congress to unveil his plan to get America back to work and the economy growing – The American Jobs Act. The announcement came the same week that Lehman Brothers failed three years ago and virtually collapsed the entire financial system triggering a global economic downturn. Undoubtedly, critics are wondering where this plan was during Mr. Obama’s first 100 days in office, but clearly he had other priorities.

I received a copy of the plan on Wednesday and after a thorough review it left me feeling unimpressed. First, I must applaud Mr. Obama simply for the effort that went into coming up with “something” and placing it on the table. However, the plan that he presented reveals a President that is clearly out of his element, and attached to unsustainable solutions – spending increases along with temporary and targeted tax cuts. Obama has a flawed belief that by pulling this or that policy lever, by extending this program or cutting that tax for a year, the Administration can stimulate the $15 trillion U.S. economy to grow.

The President’s plan will expand the payroll tax cut passed last year – providing a $1,500 tax cut to the typical American family – and costing the Treasury about $115 billion. These cuts have largely failed to stimulate demand because most Americans are using the extra cash to deleverage and pay off debt, so extending the tax cut would likely fail to have an impact on private sector job creation. As stimulus goes, it makes much more sense to incentivize workers to work by cutting the payroll tax than paying people for not working by extending unemployment benefits again.

Mr. Obama hopes to cut the payroll tax in half for 98% of businesses, while providing a payroll tax holiday for added workers. Both measures are decent policy proposals during a normal economic recovery, but there is nothing normal about this recovery. Companies are not expanding payrolls because new regulations are creating uncertainty, hiring costs are rising, and generally there is a lack of demand to justify more production. Employer payroll tax cuts will not address those issues. Furthermore, the tax cut is temporary; employers are not likely to add workers based on lower tax costs if they know those costs are going to rise in a year. Most companies will pocket the tax cut to build cash reserves or possibly make capital investments.

These temporary tax cuts will show up as a temporary blip in consumer spending and GDP, but they will not change incentives to work, consume or invest and promote long-term growth. Other ideas put forth by the President include – extending accelerated depreciation into 2012 and regulatory reductions for start-up companies – both are good recommendations and should be implemented.

Obama called on Congress to provide hiring tax credits for veterans and long-term unemployed workers. Both are noble goals, but Obama fails to understand that temporary measures never create sustainable outcomes. Moreover, this Administration is seemingly obsessed with picking winners and losers. Employers will hire the best and brightest talent for an available position based on need, so targeted incentives do very little to create jobs. Resources allocated for these tax credits would go farther if utilized to create a comprehensive job training program, and then veteran and unemployed workers would have an option to acquire the required experience to fill open skilled labor positions.

In 2009, the President warned the country about deteriorating roads, failing bridges, and obsolescent schools. Congress passed the American Recovery and Reinvestment Act and appropriated $787.5 billion for fiscal stimulus, but the Democrats in Congress only allocated 5% of the bill to infrastructural spending. Now, the President is back center stage, and sounding the alarm that our bridges and schools are falling down – more “shovel-ready” projects.

Obama’s jobs plan call for the modernization of 35,000 schools across America and the creation of a bipartisan National Infrastructure Bank. No one can deny that America is long overdue on making investments to strengthen the country’s network of roads, bridges, highways, waterways, airports, and nuclear facilities. However, the historical track record of GSE’s or government sponsored-enterprises are peppered with unintended consequences, does anyone recall Fannie Mae and Freddie Mac. Not to mention, other countries that have experimented with infrastructure banks have discovered they are rife with corruption, overspending, and crony capitalism.

Exploring the use of public-private-partnerships or P3’s would be a far better approach. For example, a private developer could acquire the land to build an elementary school, and then lease that facility to the local school system. That would reduce costs to the taxpayers and mitigate risks associated with the land acquisition, development, and building construction. Other examples might include a private investment company taking over an airport, implementing a significant capital improvement plan, and then reselling the ...

Kathryn Mobley invited me on her show to discuss the importance of having a personal philosophy. We discussed my belief that positive choices lead to positive outcomes, I shared my philosophy about personal finance - "Keys to Money Mastery", and talked about  "LOCKING IN" success through self-discipline. I enjoyed visiting the show and engaging in a discussion about restoring personal responsibility and freedom. I simply hope our conversation empowered someone that has loss hope to remember they have to power to make new choices, achieve new outcomes, and change their circumstances.

Play this podcast of NPR and listen to the interview.

I spend a great amount of time studying history, analyzing policymakers, and I dare to say even criticizing the performance of our elected leaders. Routinely, organizations will invite me to speak about the economy and American politics, and I must admit that I get a sense of fulfillment from sharing knowledge and discussing ideas that will improve our country. Recently, I was approached by a young lady after giving a talk about the economy, and she had clearly grown frustrated with my plethora of critiques for the current administration. She challenged me to offer my own economic recovery plan, so of course, I had to follow through.

The year is 2012 and the Republican from North Carolina has just become the 45th President of the United States …

Education

Improving the education system is the single most important action that government can take to grow our economy, stimulate private sector jobs, and develop a prosperous nation. Our society has moved dramatically away from an economy that is powered by agriculture and manufacturing, which means that workers must have the required experience to compete for the skilled and highly educated jobs of the future.

The k-12 education system in America is inefficient and largely ineffective, which requires policymakers to make tough decisions about reform. We have created a system with far too much bureaucracy, where the federal government places unfunded mandates upon the states, and then state governments place further controls on local school boards. The Department of Education should only focus on maintaining a national standard, so that boys and girls in North Carolina are just as educated as boys and girls in California.

Moreover, the role of state government should be reduced, and local school boards should have full autonomy in how they operate their schools, as long as national standards are not being circumvented. The teachers unions must come to realize that the success of our children is the most important outcome when it comes to education, which requires compensation that is based on merit and performance, not tenure.

We must work carefully with graduating high school seniors to help them make decisions on the next phase in their life. Several decades ago, we wrongfully promoted the message that everyone must go to a four-year college and that propaganda has resulted in a deficit of skilled labor and a misallocation of resources. Some college graduates fail to utilize their degrees because they were never originally committed to the idea. We have a network of community colleges that stand ready to train the workers of the future in computer technology, high-skilled manufacturing, and biotechnology – these are the industries of the future.

Economic Development

We must repeal the Bush era Sarbanes-Oxley accounting rules, which will provide immediate relief to our small and medium-sized businesses. We must repeal the Obama era Dodd-Frank financial regulation, which will lessen burdensome regulations placed on the financial sector and allow them to better serve consumer and business customers. We must repeal ObamaCare, which does little to bend the exploding cost curve in healthcare, and replace with reforms that will not only focus on access to health insurance, but also will bring down healthcare costs through enhanced prevention, policy options, and tort reform.

The current tax system is too complicated and rife with loopholes that unevenly benefit taxpayers. We should flatten tax rates by removing all loopholes, credits, and subsidies – for example tax carve outs for mortgage interest, municipal bonds, child credits, and energy subsidies would all be gone. In addition, we would end the double tax on capital gains and dividends, by expunging them from the tax code along with the Alternative Minimum Tax. The corporate tax ...

Alexander Hamilton established the “full faith and credit” of the U.S. in 1790 when he pushed to have the newly created U.S. Treasury to assume and repay debts that states incurred during the fight to win our independence from Britain. Subsequent administrations have made sure to preserve the longstanding guarantee on the public debt, with only one small black mark on Uncle Sam’s impeccable credit, a 1970 debt-ceiling argument that delayed a few payments.

Standard & Poor’s, a credit ratings firm, recently shook the global financial system when they removed for the first time the triple-A rating the U.S. has held for 70 years. S&P downgraded long-term U.S. debt to AA+, a score that sounds good, but ranks below more than a dozen countries, placing the U.S. on par with Belgium and New Zealand. S&P left the triple-A sovereign credit rating of France, U.K., and Germany unchanged despite ongoing problems in their domestic banks and mounting sovereign debt issues that could harm the global financial system. S&P’s decision sparked a firestorm of negative reactions from Obama Administration officials and a flurry of questions from investors and analysts both curious to know what motivated the ratings firm to adopt a “negative outlook”.

S&P officials stated in a press release that the recent “debt deal” in Washington that ended the impasse on whether to raise the country’s statutory debt-limit fell short of the ratings firm’s expectation of what is needed to “stabilize the government’s medium-term debt dynamics.”  In other words, S&P expected Congress to develop a fiscal austerity program that would cut more than the agreed upon $2.4 trillion over 10 years, officials were hoping for a minimum of $4 trillion in cuts according to the release. More striking is the ratings firm disclosure that the “political instability” in Washington was a significant driver in their decision-making. Apparently, the U.S. is not only suffering from a “fiscal deficit”, but we also are being severely handicapped by a “leadership deficit”.

Although rival ratings firms Moody’s Investors Services and Fitch Ratings have maintained their respective top-credit ratings for U.S. debt, the downgrade could have a psychological effect and other unintended consequences. Investors’ faith in the American political system is at an all-time low and that deterioration could accelerate as a result of the debt downgrade. States, municipalities, companies, and consumers could all see their borrowing costs increase after credit markets adjust for the paradigm shift on U.S. public debt.

Various types of debt, including mortgages, car loans, and student loans are pegged to the price that Uncle Sam pays to borrow money. U.S. Treasuries are largely considered a safe-haven, so interest rates have been historically low, allowing the U.S. government to finance large budget deficits and a burgeoning public debt. However, investors could begin to demand more return on their investment, if they perceive the U.S. to be a riskier bet – possibly triggering a .50 bps increase in current yields.

Other concerns are centered on our international neighbors and their appetite for U.S. debt. In 1945, foreign countries owned just 1% of U.S. Treasuries; today they own a record high of 46%. In particular China, the world’s largest foreign holder of U.S. Treasuries, currently the Chinese hold 9.5% of the country’s total outstanding debt.

Many predict that China might become more attracted to other countries that have maintained their stellar triple-A credit ratings – Canada and Australia. Largely unlikely considering the size of their public debt markets when compared to the existing $9.8 trillion market for U.S. sovereign debt.  The ongoing economic challenges in Europe and other parts of the world should keep U.S. Treasury debt attractive for the foreseeable future.

More importantly, the Federal Reserve, FDIC, and other federal banking regulators have signaled the downgrade would not affect risk-based capital requirements for U.S. banks – the liquidity cushion banks must reserve to protect against potential credit losses. Banks hold an estimated $4 trillion worth of U.S. Treasuries that are pledged as collateral against outstanding loans. S&P left the U.S. short-term credit rating unchanged, so the downgrade is less likely to have a substantive impact to money market funds that hold some $1.3 trillion in U.S. Treasury bills. Any impact to these critical components could have triggered a broad market selloff to raise cash to meet margin calls – recreating the 2008 Lehman Brothers crisis.

Undoubtedly, the real story behind the downgrade to U.S. debt is the view by S&P officials that the “effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges”, many are criticizing the S&P for highlighting political challenges while choosing not to focus solely on Uncle Sam’s unquestionable ability to repay the escalating public debt. However, the ratings firm decision to highlight the “leadership deficit” in Washington is appropriate, and I hope that elected officials pay close to attention to their assessment.

Maintaining the trust of lenders, investors, and taxpayers require our elected representatives to make difficult choices, to place “service above self”, and lead on those critical issues mostly affecting the nation. The American political system is greatly divided and in dire need of leadership to break the political ...

President Obama and congressional leaders Sunday night reached a compromise to raise the federal debt-limit that includes curbs to government spending but no new taxes, breaking the partisan brinkmanship that nearly resulted in a government default. Over the past several weeks, lawmakers in Washington have been consumed by a self-created crisis that has shaken the entire nation – Main Street and Wall Street. The U.S. Treasury is set to run out of cash to meet its obligation on August 2 if Congress fails to approve a routine increase to the federal debt-limit that would allow the government to continue borrowing, avert a credit default, and avoid the economic consequences from no action.

I joined Republican lawmakers on a private phone conference to learn more about the mechanics of the debt-limit agreement and its implications on the country. The one-hour phone call revealed that the debt compromise has something for everyone to hate, which means in my opinion, that the deal is a good compromise.

President Obama is authorized to increase the $14.29 trillion debt-limit in two stages by at least $2.1 trillion and possibly as much as $2.4 trillion, eliminating the need for further increases until after the 2012 elections. Congress would immediately increase the federal debt-limit $900 billion in exchange for immediate 10-year discretionary spending caps of $917 billion; balanced between defense and non-defense spending. U.S. Treasury would gain access to $400 billion in fresh borrowing capacity immediately. The other $500 billion would come later this fall, barring two-thirds of the members of both chambers of Congress do not object. Secretary Geithner will have cash to pay bills through early 2012.

Rightfully, lawmakers did not front load the caps in government spending, so the impact to the fragile economy will be less than significant. However, the plan would reduce domestic discretionary spending to the lowest level since the Eisenhower Administration, including cuts of $350 billion to the Pentagon – the first defense cut since the 1990’s. Extending the debt-limit beyond the election cycle will remove economic uncertainty, reduce the probability of a credit downgrade, and eliminate a key headwind to the economic recovery.

Bi-partisan committee of twelve Republicans and Democrats tasked with identifying an additional $1.5 trillion in deficit reduction over 10 years, including from entitlement and tax reform. Committee is required to report legislation by November 23, 2011 and Congress is required to vote on Committee recommendations by December 23, 2011. If the Committee fails to agree to a “balanced deficit reduction” plan, then an automatic “trigger” will reduce government spending beginning in 2013 by at least $1.2 trillion beyond the discretionary caps – split 50/50 between domestic and defense spending. The automatic trigger would exclude coveted programs such as Social Security, Medicare beneficiaries, Medicaid, and any low-income schemes.

The automatic “trigger” built into the plan will provide a strong enforcement mechanism to lawmakers from both sides of the aisle. If the bi-partisan fiscal committee approved no action, the “trigger” would automatically add nearly $500 billion in defense cuts on top of the previous cuts to the Pentagon, at the same time, the “trigger” would make deep cuts to infrastructure and education spending. That outcome would be unacceptable to Republicans and Democrats. One key point is that the fiscal committee’s failure to develop a bi-partisan plan would not automatically “trigger” revenue increases; however the Bush tax cuts are set to expire January 1, 2013, the same date the “trigger” would go into effect. I anticipate these two combined events will force lawmakers to reduce the deficit and balance spending priorities.

Other less notable features in the agreement were included to “sweeten” the pot. In an effort to win support from tea party-aligned conservatives, Democrats agreed to stage a vote on a balanced-budget amendment.  Republican leaders agreed to include funding to protect Obama’s commitment to financial aid for college students; the compromise provides specific protection in the discretionary budget to ensure that sufficient funding will be available. President Obama failed to secure other top priorities from Republican deficit hawks, including a fresh round of stimulus to revive the waning economy and an end to tax breaks for “big oil” and “corporate jet owners”. 

Undoubtedly, the compromise to raise the federal debt-limit is a victory for those fighting to reduce the size of government. In the past, raising the cap on the public debt was a routine exercise, but conservatives placed the issue on center stage by refusing to increase the debt-limit without meaningful curbs to the size of government. Moreover, conservative deficit hawks achieved their objective with no immediate tax increases, no small achievement when you consider that Democrats control the Senate and the White House.

Many to the far right will denounce the deal without considering that the plan makes the biggest dent in government spending in 15 years, with more cuts likely next year. Liberals will howl about the reductions to government agencies and programs. Personally, I believe more needs to be done to restructure Social Security, Medicaid, Medicare, and our antiquated tax code. However, Washington is fundamentally broken, and you cannot fix everything at one time. Republicans and Democrats should pass this bi-partisan plan, avoid credit default, and continue ...

This summer has been one of the hottest on record in Washington, D.C., but unlike past summers, Uncle Sam is more responsible than Mother Nature for the unbearable heat in the Capitol City. The public debt has taken center stage over the last two months as leaders in Washington feverishly debate competing plans to raise the national debt ceiling before the country runs out of cash on August 2. The fact that America has never actually defaulted on its public debt is worth noting. Every major media outlet in America is covering the runaway train that could destroy the fragile economic recovery, so terms such as “deficits, debt ceiling, and default” are routinely being tossed around on cable news programs. For most Americans, the debate over the summer is their first time hearing these terms, and they can barely digest how we even reached this point in our country. I have been receiving a flood of emails, phone calls, and questions about the national debt and any potential consequences that Americans could suffer in the event that our elected officials cannot agree to a bi-partisan solution.

The U.S. Treasury currently has the ability to borrow $14.29 trillion to fund a variety of America’s obligations and commitments, but the country is on the path to surpass that number August 2. Technically the country defaulted in May, but Secretary Geithner has been deploying creative accounting methods to pay bills since then. Increasing the debt ceiling would not alter or create new obligations for the country; the act simply permits the U.S. Treasury to fund those obligations that Congress has already committed to appropriating. However, the American people would like to know how our country accrued so much public debt and who actually holds those bonds.

The fact of the matter is that America has always been in debt. Before the first session of the U.S. Congress came to a close, the public debt stood at more than $75 million, and since that time it has been paid off only once in American history. In 1835, President Andrew Jackson paid off the entire national debt, when he effectively shut down the Second Bank of the United States. Subsequently, the actions that Jackson took would cause the Panic of 1837, and a severely deep depression until 1844.

The U.S. Treasury piles up national debt for a variety of reasons, but the one reason that has the limelight in today’s debate – overspending has led to annual budget deficits. Those never-ending deficits lead to massive public debt and a real overhang in our domestic economy. Mr. Obama has become the “poster boy” for conservative deficit hawks. However, history reveals that overspending is not exclusive to Democrats or Republicans. Between 1960 and 2008, government spending as a share of the economy has bounced around within a fairly narrow range of between 17.7% and 21.8%, and we increased the national debt ceiling 78 times. Ronald Reagan started his term with total debt outstanding of $930 million and increased total debt to $2.7 trillion. Bush 41 started his term with outstanding debt of $2.7 trillion and increased the total debt to $4 trillion. Clinton started with total debt of $4 trillion and increased the total debt to $5.6 trillion. Bush 43 started out at $5.6 trillion and pushed the total debt outstanding to $10 trillion.  

Currently, government spending hovers around 25% of GDP with the U.S. Treasury collecting tax revenue around 15% of GDP, and the public debt is $14.2 trillion. The “crowding out effect” of $4.2 trillion of borrowing since 2009, when Obama took office, is that investors are buying Treasury bills instead of investing in the next Google, Microsoft, Wal-Mart, or biotech company, which harms new job creation. 

The wide gap between government spending and tax revenue is sounding alarms throughout the country. Elected leaders have drawn a line in the sand and some are on the side of dramatic spending cuts to close the gap while others demand more revenue to regain control of the federal budget. Both camps happen to be right on the issue, but they have failed to compromise and develop a plan that will achieve both goals. The U.S. Treasury is collecting the least amount of revenue in 50 years, but it has nothing to do with tax rates being low. As recently as 2007, the current tax structure raised 18.5% of GDP in revenue, which is slightly above the modern historical average. Even in 2008, when the economy contracted, federal tax receipts still came in at 17.5% of GDP. On the other hand, only a third of the current federal budget deficit is related to new domestic spending. Undoubtedly, the deficit problem is invariably connected to rising borrowing costs and the mediocre economic recovery, and truly has less to do with spending and tax receipts.

There is widespread debate about who serves as banker to the United States. The media pundits enjoy making wild claims such as the Japanese and Chinese are our “bankers”, so one day they could arbitrarily destroy America by dumping our bonds or forcing the American people to “work” for them. However, this conventional wisdom does not bear out when you consider some surprising ...

Many Americans feel controlled by their money, which results in low self-confidence and a "poverty mentality". I recently appeared on the "Tom Joyner Morning Show" to give listeners my five common sense principles on how to manage money and build wealth.

Play this podcast of "Community Focus" and listen to my five keys.

I grew up in a small “shotgun house” on Liberty Street in East Winston-Salem. The block that I called home also provided a “home” for men that had no address of their own. Homeless men peppered the corners that were less than 100 feet from my back porch. We had very little in terms of money, food, and other “niceties” growing up in that tiny house on Liberty Street. However, I had the rare opportunity to have two amazing people in my life that understood that wealth came in forms other than money and material possessions.  These two people were rich in love, humility, sacrifice, simplicity, courage, and gratitude. My grandparents, Annie Irene Wharton and Franklin Gladden, exemplified these principles and demonstrated to me how to serve others. I love them both for their many contributions and I strive to live a life centered on the values that my grandparents modeled daily with excellence.

Although we had few resources to care for ourselves, I can vividly recall days when I would come home to witness my grandmother feeding these “corner guys” in our kitchen. My natural reaction was to question my grandmother’s judgment and compassion toward these men considered to be the least of us.  She would always respond by reminding me that we could easily be in the same circumstance that had fallen upon these unfortunate men. My grandfather would chime in and echo that “all situations are temporary” and that each of us could simply be one choice away from being on the streets. I had no way of realizing the powerful lesson that I was absorbing, but those acts of kindness and generosity with no expectation for anything in return sowed seeds of greatness into my spirit. In that tiny house on Liberty Street, my grandparents helped me to understand the importance of human dignity in the world, and that all of us are entitled to basic resources – food, clothing, and shelter.

Most are surprised when I share that America has the highest rate of poverty amongst the world’s richest countries, 13% of Americans live in poverty, including one in five children. Sadly, families with children comprise one of the fastest growing segments of the homeless population today, 42% of homeless children are under the age of 6. Around 2 million additional American children will fall victim to the foreclosure crisis over the next two years. Who would have imagined anyone could be homeless in a country that boasts a $14 Trillion economy?

Unfortunately, many of us choose to ignore this growing epidemic in our country, or we mistakenly assume that chronic homelessness only affects those addicted to illegal substances and/or suffering from mental health illnesses. Many of us have family and friends that have been homeless or close to living on the street, but we might not be aware of their testimony. In fact, almost 60% of Americans will spend at least one year below the poverty line at some point between ages 25 and 75.

The idea that chronic homelessness is isolated to the “big cities” could not be further from the truth and the data shows that large and small communities suffer from a growing homeless population. In my local area of Forsyth County, well over 2,100 different people experienced homelessness in the last year and 1300 families with 2400 children were recorded as being homeless in the state of North Carolina during 2010. There is no city or county anywhere in the United States where a worker making the minimum wage can afford a fair market rate one-bedroom apartment, and then consider the cost of rent and utilities for a typical two-bedroom apartment increased 41% from 2000 to 2009.

In 2009, my grandfather and best friend past away, so I created the Wharton Gladden Foundation in honor of my grandparents. The foundation has a strategic mission to help change communities across the world by providing existing non-profits with financial and technical support to enhance programs devoted to serving the homeless, domestic violence victims, and substance abuse patients.
 
Recently, the Wharton Gladden Foundation produced a documentary about three homeless people in Winston-Salem, and we have been screening the short film to create awareness of this insidious cancer eroding the social capital of American communities. Our goal is to help others become more aware of the true causes of chronic homelessness and to encourage donations of time, talent, and treasure to the foundation’s special causes.

I invite you to take four minutes and learn more about Joanna, Mary, and Romanlus…