Hard Lessons & Hope for the Future: A Conversation with the Hon. David M. Walker

Justin Craft is a Registered Financial Consultant® and the President of Nowlin & Associates.

While we may be just beginning to understand COVID-19 on a biological level, every indicator we have to rely on has made it clear that the economic stakes of our response will be the greatest of the past century. Unemployment is rising precipitously, cash flow for businesses across the board has been impacted, and runaway fiscal and monetary policy have combined to create a perfect storm of issues in our new economy. If there's anyone in America who best understands these stakes and the steps we can take to get back on track, it's the Honorable David M. Walker, former Comptroller General of the United States. David and I recently hosted a conference call during which we put the threats of the new economy into context against the backdrop of the outbreak of COVID-19. Read on for a summary of the lessons we've learned so far, as well as David's takeaways for the future.

Firstly, even by late March of 2020, when our conversation took place, the ways in which the virus was impacting the new economy had already revealed some hard lessons to Mr. Walker. The first of which will be familiar to readers of John Donne—no man is an island. Mr. Walker described our economy as fundamentally global, interdependent, and interconnected. The purse strings have tightened for individuals and international firms alike for fear of what's to come. And unfortunately, in that regard, the economy is a zero-sum game. Every purchase passed up is a sale lost for someone else. While we all want to see a prosperous America, Mr. Walker argued we can't deal with a problem such as this one unilaterally. Cooperation is key because geopolitical borders mean nothing to a virus.

Next, we've already seen that proactive planning will be paramount to ensuring nothing like this ever happens again. Putting aside the public health aspect of the response, the slow-turning wheels of policy are a part of why the economic damage of the pandemic will be protracted. Mr. Walker described Congress as a "lag indicator," in that its response tends to come in the form of pounds of cure rather than ounces of prevention. Unfortunately, he's right. Our representatives in the Beltway more often act as crisis managers after it's too late to take preventative steps, rather than prudent planners beforehand. Not dealing with ballooning federal spending is a perfect example of kicking the can too far down the road during easier times. Now, in the middle of a real, unprecedented national emergency demanding trillions of dollars in response, our only option is to pile more resources onto the trillion-dollar deficits that have already been par for the course for some time.

Finally, even in the early days of the outbreak, it was already clear to Mr. Walker that the Federal Reserve had no "magic bullet" in the chamber, so to speak. He explained that suppressing the federal funds rate to historic lows for so long means that when a crisis emerges from outside of the financial system, there's little room left to manipulate interest rates to stimulate economic activity. He went on to address the long-term consequences of recent extraordinary debt-buying trends by the Fed, explaining that in the long-term, these practices are likely to drive up inflation and interest rates.

While the above may be hard to swallow, our conversation wasn't all doom and gloom. I'm glad to say that Mr. Walker shares my view that America's economy is uniquely resilient and prepared to rebound in time. As we recover and regain the economic ground lost over the past few months, the former Comptroller General shared a few takeaways with us that will serve us and our leadership well if we only take them to heart.

Mr. Walker led by declaring that America had done too much offshoring of resources and talent. He made it clear that while we can't put the genie of our global economy back in the bottle, our elected and business leaders need to be smarter about concentrating too many interests in one global market. He suggested that we ought to explore repatriating some of our talent and interests, or at least diversifying them in an effort to "take our eggs out of China's basket."

Continuing, he and I also agree that there will be significant investment opportunities as the economic landscape continues to rapidly change. Of course, there's always inherent risk any time you allocate resources to vehicles tied to market performance. As we well know, the market thrives in times of stability and suffers in uncertainty. The unpredictable nature of responding to a new viral pandemic has, naturally, heightened the risks and rewards associated with pursuing those emerging opportunities. Mr. Walker laid the responsibility of choosing whether that risk made sense or not at the feet of the individual. Only you can speak to your comfort level with your investment strategy, given the volatile swings we've seen recently.

To that point, we rounded out our discussion by exploring what each of us can do at our household level to prepare for what's to come. Especially after observing the upheaval associated with COVID-19 so far, Mr. Walker remains confident that, sooner or later, our government will have to make tough choices that will affect us all. Continuing to tack trillions at a time onto our national debt will mean that the tax revenue just won't be there to sustain our path as it is. In his words, we've been fortunate, not smart, in avoiding paying the piper up to this point. As such, you need to be prepared to see your taxes rise over time. The other side of the revenue coin that will affect us is necessary benefit program reform for institutions like Social Security and Medicare. Demographic trends have driven an explosion of spending on these programs, particularly. And while countries like Italy and Japan may have worse demographic projections, to quote Mr. Walker, "there's no pride in being the best looking horse at the glue factory." You need to be prepared for the ages of eligibility for these programs to increase, for benefits to be reduced, or some combination of the two.

These emerging challenges apply to all of us. And while we're all in the same boat in many ways, no two responses should necessarily look alike. In uncertain times, the support and guidance of an experienced financial advisor is key to realizing your best outcomes, seizing opportunities at your comfort level, and protecting your hard-earned wealth for the long-haul. If you haven't already, reach out to any member of the Nowlin & Associates family to learn how to stop hoping things go your way and build certainty in the best financial future for you and your family.