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or the past several years I've been sharing my annual economic commentary, I've predicted that interest rates will likely remain low. Even while several other famous economists said they would rise, I looked at some deeper factors and said we can expect low interest rates for a very long time. Why? Well because the three drivers of low interest rates will be around for years: debt, deleveraging, and demographics. Don't get down though because there are some changes to expect in 2018 as well.

The Three D's of Deflation

        I summarized the three D's at  the end of 2017, but here is the abridged version. The world is faced with $60 trillion of debt; that means that $60 trillion of the world’s future has already been spent. This will likely lower growth for decades. Combine this debt with most governments' deleveraging strategies that will eventually require raising of taxes and spending cuts, and you'll probably see a deflationary environment for decades. The demographics of the world aren't getting any younger so even as more money is printed (which usually causes Inflation), we are not seeing money velocity since old people tend not to borrow and spend like younger people. This can cause  further deflation.

This is a New Year Though!

        So what can we look forward to? The new administration in office is reducing regulations left and right. Don't get me wrong, some regulation is needed for businesses, but previous administrations were strangling businesses which prevented growth. Growth is the positive alternative to governments raising taxes and cutting spending, so it's good to see the economy growing again. 

        Tax reform is also afoot. Change takes time in Washington, and every action has a reaction. My comments here come from the simple math involved in taxes. Even if the current administration lowers taxes, our financial problems are so bad that  taxes will HAVE to go up in the future. If they do go down though, they will probably be the lowest tax rate you ever see for the rest of your life and you should be converting IRA’s and 401(k)’s into Roth IRA’s!

        Lastly, with markets continuing to rise together, there are not many places to diversify anymore. The truth is, when everything goes up together, it will likely all go DOWN together, and it isn't going to be pretty. Life insurance and annuities on the other hand are NON CORRELATED ASSETS which makes them a great place to diversify. I don't sell products, and I don't predict markets. But adding Life Insurance, Annuities, and Long Term Care Insurance to your recommendations would be prudent.

In a Nutshell

        Growth is a good sign, but don't expect interest rates to go up much. Plus, when the markets crash, interest rates will plunge even lower than before. The United States is still the cleanest shirt in the dirty laundry so keep an eye on older countries' economies like Japan's, Greece's, and China's to see the warning signs of what we will face.

        See you on the road,

-Tom Hegna