Global inflation or deflation?

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While the long arm of the grinding, deep financial crisis continues to haunt the global economic recovery, the big question, debated by the world’s pundits, is whether the decades-long disinflation will be followed by an equally lengthy return to a ’60s, ’70s or early ’80s-type intensifying inflation. The preliminary answer might lie in the factors that underlie the genesis of these economically debilitating phenomenon:

During a solid 20-year, post-World War II recovery, the United States experienced a switch to its greatest economic growth ever, reversing all the losses of the Great Depression and then some.
With America’s multibillion dollar Marshall Plan helping to rebuild Europe and assisting Japan’s dynamic economy, a domestic U.S. reconstruction effort used the millions of college-educated military veterans (via the GI Bill of Rights) to fill all types of jobs, buy new houses and form families. This not only created the greatest U.S. economic prosperity ever, but spread it among the 150-million strong population in wages. Most businesses utilized their increased profits to expand, upgrade and acquire new companies.

Although deterred by the Korean “police action” in the early 1950s, America’s unimpeded economic expansion did not hit a brick wall until President Lyndon B. Johnson employed a disastrous “guns and butter” policy that included a major debacle in Vietnam, as well as a costly “war on poverty,” both of which turned out to be multibillion-dollar losses.

This precipitated a surge of intensely rising costs, exacerbated by major union wage demands in leading industries, such as automotive, to which America’s big business agreed to due to their bulging books. Since they were able to pass on rising prices, they acceded to inflationary double-digit demands and a roaring inflation was on.

With long-term interest rates imposing skyrocketing mortgages, as well as other commercial labor demands, U.S. inflation peaked during the 1977-81 Carter Administration, subsiding only two years after the election of President Ronald Reagan. After 25 years of this high interest rate reversal, goods prices dropped precipitously.

Currently, with the changing of the guard at the Fed and the rising prices of such necessities as milk, bread and other staples, there is concern that a new wave of inflation may be in the offing; especially with unemployment slowly improving and industrial production booming, especially in energy development.

However, a strong inflationary return is highly unlikely, neither in the United States nor the world’s leading nations — Japan, Germany, the United Kingdom, France or Canada. The ravages of recession, even though mild, indicate a surplus of available employment, commodities and record corporate bottom-line monetary positions. With supply surpluses exceeding demand, at least in the intermediate term, a lengthy disinflation scenario, worldwide, is much more likely.

Individual, small-business tax shelters

As individual taxpayers and several hundred thousands of small independent businesses brace for the impact of stealth taxes charged against them to offset the cost of Obamacare and other misspent federal government subsidies, it’s incumbent on millions of Americans to be updated on the writeoffs and deductions available to them.

Several professional polls indicate the average American is either not familiar with, or uses the maximum deductions without itemization allowed by law, to take advantage of this meager but meaningful offset to hard-earned individual income.

Large, publicly-held corporations have a bevy of experts, financial advisers and lobbyists on their payrolls to back the sustenance of their massive bottom lines. Independent businesses and high-income individuals are left to seek out the best certified public accountants available to advise them as to what deductions and tax offsets are available under the ever-changing laws and supplements, constantly updated by the U.S. Internal Revenue Service.

In my own contact with both individual and independent businesses, I’m surprised at the number of otherwise knowledgeable individuals who do not take full advantage of the substantial variety of tax offsets available. Some of the most common that tend to be missed are:

Business-related transportation and entertainment, plus lodging expenses permitted under the law.Since this is periodically intertwined with personal expenditures, some of those interviewed about this deduction are often remiss to avoid an IRS investigation, in which the government always comes out ahead, according to those who admitted to hesitation to use such tax deduction privileges.
Home office use.Many thousands of Americans today are working out of homes, fully equipped with the latest computer technology, to transact businesses requiring extensive communications skills and advice. Here again, latest Internal Revenue interpretations indicate allowances for expenses incurred in such business expenses.
Investment loan interest.For decades, the U.S. government has encouraged individual loans to invest in liquid assets (stocks and bonds) as well as real estate. This is being helped by making interest on such loans deductible. This has recently been abetted by encouraging personal investment in such renewable energy opportunities as solar panels, supported also by utilities, which have high mandate levels imposed by the government to encourage consumers’ renewable energy electrical usage.
Home sales.Although reaching the stratospheric profit of $500,000 on most home sales today, which is devoid of capital gains up to that figure, is rare under current circumstances, just about any profit made on the sale of the home’s original cost under most transactions will be free of capital gains taxes.
Capital losses.Although prior to the mercurial top brackets of ordinary incomes up to the mid-1980s, which could be offset by capital losses, this write-off is now only available for coverage of contemporary capital gains, plus $3,000 of ordinary income, although it can be carried forward.

$300 billion infrastructure bill

After President Obama’s signing of a $1 trillion farm bill without a negative “peep” from the GOP, will a stealth $300 billion infrastructure initiative be next? It seems such an expenditure was the primary reason for the $875 billion “allocation” passed by a Democratic Congress a month after the incumbent president was inaugurated in 2009.

That was before the president’s hand-picked chief of staff Rahm Emmanuel convinced his boss “not to miss the historic opportunity of health care,” an achievement which had eluded a number of hopeful presidential predecessors. However, with both political parties being mesmerized by the current Nov. 4 mid-term elections, neither wishes to hand a “controversial confrontation” issue to their opponents.

That’s why America’s business/industrial juggernaut is increasingly optimistic. They believe they have relatively clear sailing this year as growth opportunities present themselves — especially in all aspects of construction and development. However, it’ll be up to the private sector to generate the infrastructural priorities. These are urgently waiting to catch up with the debilitation of past decades.

It’s becoming increasingly obvious that a combination of electrical grid inadequacy, as well as worn-out bridges, dams, railroads and highways, makes “catchup” in all these sectors way overdue. Ironically, an industrial/construction export surge, approaching a 4% gross domestic product growth potential, could play havoc with a national infrastructure straining at the leash of expansion.

Based on conversations with top executives at major utilities, as well as some of the leading shakers and movers in hydraulic fracturing (fracking), the availability of key employees may be lacking for the jobs that strong growth opportunities are offering.