Exclusive — Europe’s Role in Your 401(k) Slump

Europe is relevant to consumers tending a retirement account.  After wild 500-point Dow swings in early August, US Stock prices stabilized somewhat. We can attribute that to many reports of good earnings and a few large mergers.  Price levels are suppressed partly by the dismal US outlook and partly by fears of European Union troubles.  The EU and especially Germany were growing acceptably and were helping peripheral members such as Greece, Ireland and Portugal handle excessive sovereign debt through loan guarantees and purchases of their debt in the marketplace.  Recently Italy’s and Spain’s bonds rose to 6% yields – close to the point where they could not pay interest due or refinance.  Now it appears Germany’s export-fueled economy slumped to 0.1% in 2Q11.  Germany is not alone (UK 0.2%, France 0.0%).  The EU’s situation was already perilous because members’ sovereign debt could default and worse – drag down large banks and other nations.  Absent growth, the EU loses political will in the most solvent nations to continue bailouts.  A hobbled EU will depress US exports, undermining some earnings of our multinational companies.  That slump in earnings will erode one of the few reasons for consumers to expect a 401(k) or IRA to perform better. 

 

The gloomy EU situation is paralleled in the US.  Low-growth drains enthusiasm for paying government to bolster entitlement excess.  Excessive debt is expected to rise until it crowds out hopes for meaningful economic growth.  To thwart that outcome, both in the EU and in the US, unaffordable “entitlements” need to be reined in – here at the Federal level, in EU at the nation level.   Stirring speeches, demagogic zings, and back-loaded budget cuts will not get the job done, and nor should they be allowed to defend the road to economic ruin.  

 

Fixing the US trajectory requires creation of private sector jobs, not “stimulus jobs” purchased by government at hideous prices for each.  More challenging, it will take a class of politicians dedicated to igniting growth in the US economy and right-sizing the scope and scale of “entitlements.”  Too often the right politicians in both parties are drowned out by camera hounds. It’s worth finding those dedicated to fostering private sector growth. 

 

Alan Daley is a retired businessman living in Florida.  He follows public policy from the consumer’s perspective

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