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  • Is the US Economy Really Looking This Good

    This a take from a British paper, but the data should be publicly available. Are things really this good? If so, who gets the credit? Traditionally the president does by virtue of its having taken place on his watch. As a conservative (5th degree out of a possible 10) I will admit this is positive news, and I would give definitely give Obama a chunk of the credit. I would also credit the GOP for its bulldog intransigence on spending bills and push for budget cuts. The Fed also comes in for a pat on the back for holding interest rates down and for its quantitative easing stimulus. We could also go back to Bush jr and the bank bail outs, but that might be a stretch. The final unsung hero--actually two--are first the energy sector for its innovations which swelled domestic oil and gas production and second the stabilization of the industrial sector thanks to China not being such a cheap labor market any longer.

    Views welcome:


    America has conquered its debt crisis with incredible speed - Telegraph

    America has conquered its debt crisis with incredible speed

    US Congressional Budget Office expects the budget deficit to drop to 2.8pc of GDP this year, and 2.6pc next year
    A sheet of uncut $100 bills is inspected during the printing process at the Bureau of Engraving and Printing Western Currency Facility in Fort Worth, Texas
    Five years after the Lehman crisis, US output is climbing to new peaks Photo: AP
    Ambrose Evans-Pritchard

    By Ambrose Evans-Pritchard

    12:06AM BST 24 Apr 2014

    Americans are purging their excesses one by one. Spending by the US Federal government has seen the steepest drop as share of national income since demobilisation after the Second World War.

    Claims that President Barack Obama is bankrupting America with a lurch towards hard-Left statism are for tabloid consumption only. Outlays have fallen from 24.4pc to 20.6pc of GDP in five years. Spending is roughly in line with its 40-year average. This fiscal squeeze has been achieved without driving the economy into recession or a Lost Decade, a remarkable feat.

    The US Congressional Budget Office expects the budget deficit to drop to 2.8pc of GDP this year, and 2.6pc next year. This is about the same as the eurozone but with a huge difference. The US economy is expanding fast enough to outgrow its debts.

    The US energy revolution is of course half the story. It has stoked booms across the Dakotas, Wyoming, Nebraska, Washington, Oregon, Utah and Texas.

    Francisco Blanch, from Bank of America, estimates that shale gas and oil have given the US economy an extra tailwind worth 1.9pc of GDP - what he calls the "energy carry" - with effects rippling through the chemical and plastics industries. New investments in ammonia plants are rising at an exponential rate, thanks to natural gas prices that are $4.40 (per BTU) in the US and $15 on Asia's spot market.

    The US transferred more than $3 trillion to oil exporters from 2001 to 2008. That chapter is closed. The US is back to where it was in 2000 with an energy deficit well below 2pc of GDP and improving every month, while the eurozone is at -4.4pc and getting worse, and Japan is at -6.3pc.

    The US has added 2.5m barrels a day of crude output over the last three years, almost as much as the next three countries combined. America covered a quarter of its oil needs in 2007. It covers well over half today. It has overtaken Russia to become the world's biggest exporter of refined petroleum products, and will soon be an exporter of liquefied natural gas aswell.

    For more than half a century the US has been losing part of its industry with each recession. A study by the International Monetary Fund found that the pattern has been very different this time. Manufacturing has recovered quickly, led by machinery, computers and electronics. America's global share of manufacturing has stabilised at 20pc. China's share has also stabilised, at exactly the same level. The two superpowers are competing toe-to-toe for factory dominance. China is no longer gaining.

    Yet the other half of the story is monetary stimulus a l'outrance - quantitative easing - to offset fiscal tightening and prevent a "pro-cyclical" downward spiral, which is what occurred when the European Central Bank jumped the gun and raised rates twice in 2011 before recovery was entrenched, setting off the catalysmic crisis that nearly destroyed EMU in mid-2012.

    This policy mix is no novelty. Britain pursued the same strategy with success after leaving the Gold Standard dollar-peg in 1931 and after leaving the ERM fixed system in 1992, and arguably again over the last five years though the jury is still out this time.

    America's public debt has peaked at 72.3pc of GDP (bonds held by the public). The CBO expects the ratio to fall gently for the next three years. Such is the magic of the denominator effect. Economies do not have to cut debt in absolute terms to whittle away debt. The Romanian dictator Nicolae Ceaușescu thought otherwise and assiduously paid off Romania's debts just in time for his own execution in 1989. Those shaping eurozone policy today sometimes seem to be in thrall to this same atavistic belief.

    Growth does the job so much faster. US household debt has plummeted from 98pc to 81pc of GDP in four years. The ratio of debt payments to disposable income fell to 9.9pc in March, the lowest since the Federal Reserve's modern data series began in 1980. Most mortgage debt is locked at fixed interest rates so this will not change fast when the Fed tightens in earnest.

    Charles Dumas from Lombard Street Research -- author of the America Phoenix in 2011, before it was fashionable -- says the mix of "soaring household wealth" and lower debt burdens leaves the US poised for a surge in consumer-led growth. He predicts a mini-boom, lasting until 2016.

    The numbers of mortgages in negative equity have dropped to 19.4pc from 31.4pc two years ago, according to Zillow Real Estate Research. Over 4.8m households have been liberated. This is accelerating as US home prices claw back most of the 35pc drop from peak-to-trough.

    Much of the debt has been cut by defaults, chiefly by home-owners throwing in their keys. You can do this in most US states, and rightly so. America's bankruptcy doctrines evolved with the injustices of colonial debt servitude still in the collective mind.

    James Madison argued in the Federalist Papers before the American Revolution that treating debtors as criminals impeded risk-taking and commerce. A series of bankruptcy laws in the 19th Century gradually broke the lockhold of vested interests, levelling the playing field between debtors and creditors, with powerful effects on US economic dynamism.

    Much of Europe still clings to late Medieval notions of debt sanctity, with laws to match, though a spate of suicides is forcing reform. In Spain the banks can sieze all your current and future assets if you cannot pay the mortgage - which tends to happens when the jobless rate jumps from 8pc to 26pc - adding the legal costs of foreclosure for good measure. Leaving aside the morality of state coercion to uphold the interests of creditors alone, this practice is inefficient. It blocks the cleansing process of boom-bust cycles, trapping economies in excess debt.

    Data from the OECD show that the varied effects of Europe's debt laws, contractionary policies, and a needless double-dip slump, led to jumps in public and private debt (non-financial) by 30pc of GDP in Spain, 33pc in Holland, 34pc in Italy, 51pc in France, 71pc in Portugal and 151pc in Ireland, between 2008 and 2012. Europe's harsh methods have been self-defeating even on their own terms.

    It is true that bond yields have tumbled to record lows across the EMU debtor bloc this year but that is not in itself sustainable recovery. What these yields reflect is that EMU is close to deflation and unlikely to grow vigorously for a long time. German Bunds used to be the barometer of such macro-economic judgments. Club Med debt has become a proxy too now that German Chancellor Angela Merkel -- though not the German constitutional court -- has allowed the ECB to back-stop Italian and Spanish debt as a lender-of-last resort.

    Five years after the Lehman crisis, US output is climbing to new peaks and unemployment is 6.7pc. Euroland has yet to regain its 2008 output, and the jobless rate is stuck at 12pc. Austerity is not the variable. The US fiscal squeeze has been just as draconian. The Fed kept nominal GDP on an even keel. The ECB did not.

    You might say that QE is just a beggar-thy-neighbour policy by stealth, an allegation made by India's central bank governor Raghuram Rajan in a speech this month. The Fed fought back against China and the mercantilist powers by driving the dollar down to a tolerable level, and the US is now enjoying a devaluation windfall. Europe opted instead for a hard-euro policy regardless of circumstances, and has allowed the industrial core of Southern Europe to be hollowed out as a result.

    America still has a lot of debt to clear. The errors of the pre-Lehman boom and the fifty year cycle of rising leverage that preceded it have left a debt burden comparable to the effects of a major war.

    Yet predictions of inevitable American decline that had such resonance five years ago already look oddly dated, a misreading of underlying economic and geopolitical power. The concept of the BRICS no longer has any economic meaning. Brazil and Russia fell by the way side long ago. India is decades away from any real challenge. Only China counts.

    History is full of such false declines. Informed opinion thought Britain finished after losing America, but it was actually France that was ruined by the costs of the Revolutionary War. Britain was just about to embark on its greatest days.

    The Roman Empire seemed beyond saving by the start of the Second Century. It was instead the precursor of the Antonines, almost 80 years of stability and wealth. America's governing institutions still work remarkably well. There is no necessary reason why America cannot enjoy its own Antonine revival until the middle of this century.
    To be Truly ignorant, Man requires an Education - Plato

  • #2
    Generally an excellent analysis, although a bit generous in its thinking on EuroZone austerity failure, and wholly lacking in any mention of the fourth wheel, Japan and Abenomics.

    It also seems to have over looked the fact that with Congress on strike, the Fed had to do all the heavy lifting alone, which isn't optimal and certainly has slowed the recovery. Call it good politics, bad patriotism.
    Trust me?
    I'm an economist!

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    • #3
      Originally posted by DOR View Post
      Generally an excellent analysis, although a bit generous in its thinking on EuroZone austerity failure, and wholly lacking in any mention of the fourth wheel, Japan and Abenomics.

      It also seems to have over looked the fact that with Congress on strike, the Fed had to do all the heavy lifting alone, which isn't optimal and certainly has slowed the recovery. Call it good politics, bad patriotism.
      Articles of this sort rarely bat 100%, but I thought this one got most of it right. Seeing the positive earnings reports of most major US corporations and the uptick in new housing starts, among other signs, the economy definitely seems to be moving in the right direction. This could spell trouble for the GOP this fall, as Obamacare as an GOP issue may be a tired horse by then. On the other hand, the GOP might spin the recovery in its favor if it frames the issue astutely. All in due time...
      To be Truly ignorant, Man requires an Education - Plato

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      • #4
        the US has a debt -problem-, not a debt -crisis-. it's amazing how many people don't understand the difference, including i suppose the person whom thought of that title, because it is contradictory to the rest of the article. a good 40% of the article is dedicated to why an extreme focus on debts, both public and private, is bad under the current conditions.

        however, i do agree with the overall gist of the article- that the US has recovered faster than her peers, and reports of her economic demise are premature.
        There is a cult of ignorance in the United States, and there has always been. The strain of anti-intellectualism has been a constant thread winding its way through our political and cultural life, nurtured by the false notion that democracy means that "My ignorance is just as good as your knowledge."- Isaac Asimov

        Comment


        • #5
          Originally posted by astralis View Post
          the US has a debt -problem-, not a debt -crisis-. it's amazing how many people don't understand the difference, including i suppose the person whom thought of that title, because it is contradictory to the rest of the article. a good 40% of the article is dedicated to why an extreme focus on debts, both public and private, is bad under the current conditions.
          You know how it is. The reporter does the article and the editor writes the headline.
          To be Truly ignorant, Man requires an Education - Plato

          Comment


          • #6
            I expect the U.S. debt problem to be a receding one as infrastructure is built to take advantage of the new abundance of shale gas. Between export terminals for LNG, and a retooling of more domestic energy infrastructure to take advantage of low natural gas prices, I expect to see U.S. industrial output rise, and energy imports fall. Apparently deficits in petroleum trade accounted for about 40% of the U.S. deficit between 2000 and 2012. This should go a long way towards reducing the debt problem, regardless of Washington's spending habits. I also expect the low natural gas prices to have a side benefit of reducing carbon emissions as power generating stations switch away from coal.

            Here is an interesting article about the likely impacts of a reduced dependence on foreign oil sources for the U.S.

            Implications of Reduced Oil Imports for the U.S. Trade Deficit - Council on Foreign Relations

            Comment


            • #7
              Short-answer: yes, and you ain't seen nothing yet
              Long-answer: Most of the macro-economic indicators show a steadily improving situation. Unemployment has been trending down, mortgage rates are trending up. Industrial production is expanding, profits are healthy, etc. If anything, we should be poised for a strong up-swing, since consumer debt is the lowest it has been in years, and capital expenditures by businesses are starting to trend up too.
              There are some head-aches that concern me. Student debt is not levelling off, and the household formation rate has not really improved all that much, IIRC. The long-term unemployed are not really re-integrating into the labor force, but are instead dropping out altogether. The baby boomer generation does not appear to have enough saved for retirement, the real estate markets seem to have undergone a permanent shift towards high rents and low home-ownership in some large municipalities, and health care spending might be ticking up again.
              We can't really crow too much about government successes. We definitely did a LOT better than I expected, but we cut a lot of funding out of the discretionary budget, and we might be benefitting from a lull in medical spending. We may not get so lucky moving forward.
              "The great questions of the day will not be settled by means of speeches and majority decisions but by iron and blood"-Otto Von Bismarck

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              • #8
                I wonder how many of the people dropping out of the employment force are really unemployed. Purely anecdotal, I laid off a couple of guys a ways back; both ran out their unemployment benefits and are now working under the table and making decent money. It's not uncommon, but just how widespread seems unmeasurable.

                Champ, just why should student debt level off, or do I miss your meaning? It seems to be ever expanding. Why is it a negative?
                To be Truly ignorant, Man requires an Education - Plato

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                • #9
                  So looking around at how trashed our infrastructure is how much should we plow into that?

                  Would public debt to pay for rebuilding infrastructure, which brings a lot of well paying construction jobs into the economy...how will that help?
                  “Loyalty to country ALWAYS. Loyalty to government, when it deserves it.”
                  Mark Twain

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                  • #10
                    The prospects for future infrastructure work on bridges & highways is bleak. The Federal Highway trust fund will be out of money by this fall. There's talk of raising the Federal gas tax 15 cents or dropping a few billion into the fund. Congress will have to act soon. Modernizing our transportation system would be money well spent. Jobs and better roads and bridges...who could be against that?
                    To be Truly ignorant, Man requires an Education - Plato

                    Comment


                    • #11
                      Modernizing our transportation system would be money well spent. Jobs and better roads and bridges...who could be against that?
                      Barack Obama Floats Transportation Bill But Republican Balk - TIME
                      There is a cult of ignorance in the United States, and there has always been. The strain of anti-intellectualism has been a constant thread winding its way through our political and cultural life, nurtured by the false notion that democracy means that "My ignorance is just as good as your knowledge."- Isaac Asimov

                      Comment


                      • #12
                        There's another bill with bipartisan support earmarked for bridge rehab that the GOP apparently prefers. It could be expanded to include highway construction. I believe the bill calls for a budget of $30 billion.
                        To be Truly ignorant, Man requires an Education - Plato

                        Comment


                        • #13
                          So again, it is arguing over who gets the creedit and money.

                          One Congressman's pork is another's vitally needed project to improve (insert KEY PROJECT here!)

                          Saw a report on Sunday in the Richmond paper that would have been making laugh if it wasn't so sad.

                          The DEPT of STATE is funding the construction and expansion of a Diplomatic Security Training Center at FT Pickett in Blackstone, VA. It will pump $385 million into the economy of several Southside Virginia counties who are in dire need of help since the collapse of the entire textile industry. The paper was full of quotes from two members of the Virginia House about how this federal PROGRAM would help LOCALleaders grow VIRGINIA jobs.

                          Yet these same 2 worthies are fighting tooth and nail against the Medicaid expansion under the ACA which will be funded with Federal dollars because it FEDERAL dollars are bad. Never mind the that plan is a Repuiblican Senators plan backed by the Virginia business community. It has its issues, sure. But meanwhile tens of thousands continue withour healthcare.....many in the very districts these 2 represent.
                          “Loyalty to country ALWAYS. Loyalty to government, when it deserves it.”
                          Mark Twain

                          Comment


                          • #14
                            JAD,
                            Student debt is already pretty damn high, and saying "not levelling off" means "getting even higher." That's bucking the trend of decreasing debt burden for practically everyone else. It's also not just an issue of more people going to college...the average debt burden is getting higher, too.
                            That's not necessarily a problem if people can get jobs that can pay those debts. They can't. The job market is really bad, and according to the NY Fed, the "true" delinquency rate for student debt is probably close to 30% (!!!!!!)
                            That's a pretty big overhang for people.
                            In combination with the low household formation rate (running at 200k, lower than last year, much lower 1 million historical average), it means that the economic engine is crippled for a lot of young couples. Also see the number of kids still living at home.
                            Basically the next generation got face-shot and it hasn't recovered (and might not ever).
                            That's a huge economic head-wind.
                            One stat alone doesn't tell you the whole story, all of them in total provide a bleak narrative. Anecdotally, the people in my age group are STARTING to recover, but I come from a rather wealthy background.
                            "The great questions of the day will not be settled by means of speeches and majority decisions but by iron and blood"-Otto Von Bismarck

                            Comment


                            • #15
                              Unfortunately a lot of the people I went to college with are currently putting their degrees to use by serving coffee or bar tending. Not much of a return on investment there. When I graduated and realized how horrible the job market was, I stayed in school and got a Master's. Luckily I found a good and interesting job, but much of my peer group is severely underemployed despite a college degree and general competence.

                              I think that a lot of the challenge for young adults looking for work has to do with the baby boomers not retiring. When the markets crashed, a lot of people lost big chunks of their savings, and as a result they are staying in the workforce longer than they anticipated. In addition to the private sector's slow hiring, the sequester and draw down of military forces, means the public sector isn't bringing in much new talent either.

                              I expect the situation to improve when the baby boomers all retire in a few years. Yet, when that occurs, companies may not be able to fill all the recently vacated positions with qualified people, as a fair percentage of my peers have dropped out of the workforce entirely.

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