Dashed Expectations: Economic Growth Eludes Us

Dashed ExpectationsWe’re all victims of dashed expectations.  At every point in life we expect certain things to happen and they don’t.  In fact I suppose you could say life is like a box of chocolates but maybe that means it’s about adjusting dashed expectations.  I can remember many times in my life thinking certain things were going to happen but then it didn’t happen.  It was only later on in life that I learned dashed expectations in some ways could be a constant.

I bring this up this week because of what’s currently going on in our global economy.  Here in southwestern Ontario we want more jobs and development and we all know how difficult that is to get, despite our wonderful climate and location.  However it is completely obvious that investors and other Canadians don’t have the same expectations that we do for southwestern Ontario. We’ll just have to keep working.

Expectations certainly have a lot to do with the problems that we have in Southwest Ontario.  I say that because if our US and greater global economy were doing better, we would too.  The problem lies right now in the burgeoning debt situation in Europe and the United States.  Capital moves to areas, which are the most friendly.  So with Europe having several sovereign debt problems where countries cannot pay their debts, all financed by European banks, the flight of capital is palpable.  It makes for an economic skittishness, which is hard to harness.

It all has to do with expectations and consumer confidence.  There has been the expectation that things will get better, especially since 2008 when we had the Lehman Brothers meltdown.  However, despite how much we want that, its just not happening. Credit is freezing up in Europe and despite record low interest rates the American economy just doesn’t get better.  While we might’ve had great expectations for an economic recovery way back in 2008, we find ourselves now with dashed expectations.

So it is what it is.  We can talk about these dashed expectations and how it applies to these great lofty ideals in our economic world.  However, it also happens at the micro level where investors are looking at their RRSPs may have a hunch on some great rates of return.  Everything may be working out for you then some European bank makes a move or Germany can’t decide what to do with Greece and your expectations are dashed.  In today’s economy it seems to be everywhere.

It is a difficult thing because dashed expectations affect consumer confidence.  As a public, all of us have experience with having our expectations dashed.  You may have had expectations at your school that didn’t quite work out or maybe it was back in your dating days. That girl or boy that you dated may have not quite liked you, as they should.  Yes, it happens all the time.  However, when you get a winning streak together, it makes you feel like spending money, which drives economic activity.  Somehow we have to get the snowball rolling down the hill.  At the present time everybody has their hand in their wallet afraid of having their expectations dashed.

What’s incredibly interesting about these economic times is the low cost of capital.  For instance it might be more difficult to get a loan than a few years ago but if you can get a loan it’s much cheaper than it’s ever been.  I know many of you may not want to hear about it but back in the day the expectation of paying high interest rates severely impacted the availability of credit.  I know I paid for many of my farms with interest rates over 12.5%.  Tell that to a young person today and they will find it almost unbelievable.  Tell them that my 1st demand loan at a bank was 23 1/4% and they would think that I was from Mars.

The expectation of paying those loans off back in those days was very large.  In fact it kept me from borrowing more money.  The difference in 2011 is the cost of credit is a fraction of that and we still can’t get the economy moving.  For instance the US Federal Reserve has said that they will not raise interest rates until 2013 in the hope people would borrow money and create jobs.  I think it’s a great stimulus, not so sure it’s going to work.

So do you remember that 1st date where you actually got to kiss the girl goodnight?  Heck of an idea at the time, wasn’t it?  Well, right now in economic terms, you’re getting slapped in the face.  And as much as you want to get kissed again, your expectations keep getting dashed.  One of these days, we’ll hit pay dirt.  The hard part is keeping those expectations in line.