Fight the Gloom and Doom

It’s a cat chasing-its-tail scenario. Or maybe a Catch-22. Chicken-and-egg? Whatever it is, it’s a mess.

The scenario is this: The economy takes a nose dive, so the government lowers interest rates to nearly zero to jump-start the economy. Large corporations borrow that money for next to nothing, but instead of using it to purchase goods and services, or to create jobs, they sit on the cash waiting for the economy to rebound. But it won’t rebound until businesses start spending that money and hiring again.

The New York Times reported recently that U.S. corporations together have stockpiled some $1.6 trillion dollars, or a little more than 6 percent of their total assets. The large corporations can borrow that money at bargain basement rates because they have clout and lots of money already in their coffers. But they’re apparently not moving that money in a productive way, at least not in an economy stimulating productive way.

William R. Berkley, founder, chairman and CEO of W.R. Berkley Corp., said the lack of confidence is constraining businesses from making investments and hiring. And the recovery process will be slow, until there is a general “confidence that things are going to move forward,” he said.

Many corporate interests say that economic uncertainty is to blame. Businesses don’t know how their business will be doing in the short term, so they don’t do anything at all. And the insurance industry is not immune to the fear of the unknown. A recent survey by KPMG LLP of U.S. insurance executives shows that despite improving market conditions industry, leaders remained concerned about their company’s performance and the industry’s ability to generate underwriting profit in the current economy. Uncertainty over how the Dodd-Frank financial services reform package will be implemented heightens those concerns.

The survey, conducted at KPMG’s 22nd annual Insurance Industry Conference, found that many executives do not anticipate much brighter prospects ahead, and some 22 percent predict another downturn/double-dip recession before the economy begins to significantly recover. Another 64 percent believe the recovery will not occur until 2012 or later.

Yet, despite the gloom and doom, the Dow Jones Industrial Average on October 8 climbed above 11,000, up 5.5 percent in 2010. Granted, the market has experienced some mighty peaks and valleys since the economy crashed in 2008, but the trend has been steadily up. Many of those who predict such things attribute the October 8 spike to the fact that the economy lost an unexpected 95,000 jobs in September, a sign that the Federal Reserve will take even more steps to bolster economic recovery. In addition, it hasn’t been easy but many industries, including insurance, have remained profitable despite the tough economic times.

The economic stalemate leads one to wonder: Where are the leaders, the risk takers, and the entrepreneurs? Life, if it is anything, is uncertain. The recovery will not be led by those who are ruled by gloom and the fear of doom. I’m no expert, but it seems like job creation in the private sector would go a long way toward getting the U.S. economy back on track. So, if you are able, hire someone.