Economists tend to have some doubt about what is really happening with the Chinese economy; they are not sure if the numbers put out by official Chinese sources are totally legit. China has been going through a growth slowdown for the past couple of years. Coupled with the threat of recession in Europe, the Chinese slowdown has led to economic estimates that tend to emphasize the threat of recession in the US.
However, the latest reading gleaned by some prognosticators has Chinese growth picking up speed again. This could be good news for trade in the Pacific area, in which the US participates via its "left" coast.
Some people are under the impression that if China is doing well, it must be bad for the US and that we should hope that they go into a slump. This is not true unless the terms of trade are so bad for us that we lose money whenever we trade with them. It is pretty certain that this is not the case.
We on the other coast sometimes tend to overlook the economic strength of the Pacific rim. We in the East may be suffering a little more from the crisis in the Euro area than is the rest of the country. We are on that great Atlantic trading highway that is not in the greatest of health at the moment.
Nevertheless, trade is truly international these days. Not all the ships that come from Asia dock in Los Angeles, San Francisco, Seattle, Vancouver, etc. Some of them go through the Panama Canal and all the way up to New York.
But in some ways, the strength or weakness of our trading partners are not our primary worry, since so many of our problems are of our own making. We are still the most powerful economy in the world, and if we could fix ourselves the rest of the world would follow behind us (for the most part).
Tuesday, December 11, 2012
Monday, November 19, 2012
Short-term ill-health?
Despite longer-term indicators of economic growth, the outlook for the coming year is not good. With or without the fiscal cliff, the economy could go into recession caused by recession in Europe and slowdown in China. Many large US corporations are pulling back on investment in new equipment, software and buildings.
Whether the large US budget deficits and the Federal Reserve's aggressive monetary policies will help or hurt are subjects of much debate. Most economists and other such experts feel they are needed.
Not all signs point down. Consumer sentiment is up, as is small business sentiment. Small business capital spending is up.
The consensus of opinion is that the fiscal cliff could be a tipping point.
Whether the large US budget deficits and the Federal Reserve's aggressive monetary policies will help or hurt are subjects of much debate. Most economists and other such experts feel they are needed.
Not all signs point down. Consumer sentiment is up, as is small business sentiment. Small business capital spending is up.
The consensus of opinion is that the fiscal cliff could be a tipping point.
Friday, November 16, 2012
Fiscal Cliff Conspiracy Theory
We all love a good conspiracy theory, and there are a number of possible scenarios available to the imagination regarding the so-called Fiscal Cliff.
At the witching hour of midnight on December 31, a wide range of taxes will go up and an even wider band of spending will be chopped. The consensus of opinion is that this is very bad, because it will probably cause a recession. The most serious effect will probably be that a lot of people who work for the government, or, even more likely, many who work on government contracts, such as employees of defense contracting firms, will lose their jobs.
The most widely expected alternative to this troubling outcome is that, after much posturing, shouting and fist-shaking, Congress will pass something that will swerve us away from the precipice at the last minute, and the President will sign it.
But what if they don't or he doesn't? And, more conspiratorially, what if they have already agreed that they won't?
Preposterous, you say?
Well, yes, you're right. It is preposterous.
But what if there are some factors in the backs of the minds of the participants that are saying to them, hmm, let's see how we can use this?
What if, as in the Benghazi cover story, a spontaneous demonstration of partisan bickering is hijacked by some players who have a serious intent to block the process?
Now, what could possibly motivate such serious intenders of harm?
First, it has been suggested by some Republican-leaning commentators that President Obama would not mind so much if no agreement were reached, because it would accomplish his objective of raising taxes on the rich. Then he could blame it on the Republicans. As for the spending cuts, he could re-establish the chopped spending the following year, after a public outcry against the cuts.
This seems a little far-fetched, too. But its logic does have a certain internal consistency--assuming Obama is the kind of cynical strategist it would take to go that route. (Or is that just politics?)
But that is just an example, and it is not the point I wanted to make.
The fiscal cliff was formulated a couple of years ago after failed negotiations on taxes and spending. The parties agreed at that time that on January 1, 2013 (a lucky year no doubt), taxes would go back to Clinton-era rates and spending would be drastically cut across the board. This deal kicked the can down the road and, it was hoped, gave the parties an incentive to come up with a more sensible solution before the clock ran out.
But now we are almost there, with no solution in sight.
Now, here's the point. The negotiators put this plan in place. In the backs of their minds was the thought that the deficit has to be brought under control somehow. But the participants also knew that the experience of centuries has shown that, in a democracy, budgets can only be brought under control by taking the process out of the people's hands. Sometimes the people realize they have to put the process into the hands of someone who will just do it. That is happening in Europe to some degree now. But it is not happening here. So, an alternative is: trickery.
We can't come to an agreement. Oh, no, we can't do it! So we will shout and posture and blame, but when the dust clears taxes will go up and spending will be cut. Oh well! It needed to be done anyway.
And what about the economy? Won't it suffer?
The interesting thing there is that the economy is showing signs of getting off the mat. If it wasn't for that factor, there would be very little thought of letting us go over such a cliff. But the signs of recovery (a real one now, not the wimpy breath of foul air we've seen so far) may give the participants another thought in the backs of their minds that maybe we won't go into a recession. Or maybe it won't be so bad, and we can blame it on each other, and oh well! But look, the deficit has been cut! It had to be done, and maybe everything will be all right in the long run.
Crazy, huh? Yes it is crazy, and after all it is just a conspiracy theory, an exercise of imagination. There are a million of them. We don't know what goes on behind closed doors. We just hope that the checks and balances, plus the scrutiny of the press, plus the threat of the next election will prevent anything really wacky from being hatched in the dark.
At the witching hour of midnight on December 31, a wide range of taxes will go up and an even wider band of spending will be chopped. The consensus of opinion is that this is very bad, because it will probably cause a recession. The most serious effect will probably be that a lot of people who work for the government, or, even more likely, many who work on government contracts, such as employees of defense contracting firms, will lose their jobs.
The most widely expected alternative to this troubling outcome is that, after much posturing, shouting and fist-shaking, Congress will pass something that will swerve us away from the precipice at the last minute, and the President will sign it.
But what if they don't or he doesn't? And, more conspiratorially, what if they have already agreed that they won't?
Preposterous, you say?
Well, yes, you're right. It is preposterous.
But what if there are some factors in the backs of the minds of the participants that are saying to them, hmm, let's see how we can use this?
What if, as in the Benghazi cover story, a spontaneous demonstration of partisan bickering is hijacked by some players who have a serious intent to block the process?
Now, what could possibly motivate such serious intenders of harm?
First, it has been suggested by some Republican-leaning commentators that President Obama would not mind so much if no agreement were reached, because it would accomplish his objective of raising taxes on the rich. Then he could blame it on the Republicans. As for the spending cuts, he could re-establish the chopped spending the following year, after a public outcry against the cuts.
This seems a little far-fetched, too. But its logic does have a certain internal consistency--assuming Obama is the kind of cynical strategist it would take to go that route. (Or is that just politics?)
But that is just an example, and it is not the point I wanted to make.
The fiscal cliff was formulated a couple of years ago after failed negotiations on taxes and spending. The parties agreed at that time that on January 1, 2013 (a lucky year no doubt), taxes would go back to Clinton-era rates and spending would be drastically cut across the board. This deal kicked the can down the road and, it was hoped, gave the parties an incentive to come up with a more sensible solution before the clock ran out.
But now we are almost there, with no solution in sight.
Now, here's the point. The negotiators put this plan in place. In the backs of their minds was the thought that the deficit has to be brought under control somehow. But the participants also knew that the experience of centuries has shown that, in a democracy, budgets can only be brought under control by taking the process out of the people's hands. Sometimes the people realize they have to put the process into the hands of someone who will just do it. That is happening in Europe to some degree now. But it is not happening here. So, an alternative is: trickery.
We can't come to an agreement. Oh, no, we can't do it! So we will shout and posture and blame, but when the dust clears taxes will go up and spending will be cut. Oh well! It needed to be done anyway.
And what about the economy? Won't it suffer?
The interesting thing there is that the economy is showing signs of getting off the mat. If it wasn't for that factor, there would be very little thought of letting us go over such a cliff. But the signs of recovery (a real one now, not the wimpy breath of foul air we've seen so far) may give the participants another thought in the backs of their minds that maybe we won't go into a recession. Or maybe it won't be so bad, and we can blame it on each other, and oh well! But look, the deficit has been cut! It had to be done, and maybe everything will be all right in the long run.
Crazy, huh? Yes it is crazy, and after all it is just a conspiracy theory, an exercise of imagination. There are a million of them. We don't know what goes on behind closed doors. We just hope that the checks and balances, plus the scrutiny of the press, plus the threat of the next election will prevent anything really wacky from being hatched in the dark.
Monday, November 12, 2012
Big changes in energy
The International Energy Agency (IEA, based in London) released a report today that projects that the United States will become the world's largest energy producer by the year 2020. By that year it is expected to be a net exporter of natural gas. By 2035 it is expected to be "almost self-sufficient" in energy.
The common belief in the 1970's that the world was running out of oil now appears to have been a bit premature. One wonders in hindsight (which is always 20-20) how we could get so worked up over something that was so far off base. And what else are we far off on today, one wonders? Now we can say, well, we have to run out of oil soon at this rate, don't we? Apparently we have a few more years left.
This development has profound implications for the balances of international economics and power. While the Middle East will continue to be important for oil--and indeed Saudi Arabia is projected to re-take the lead from the US in the 2020's--the US, and North America in general, will be in a strong position. North America is expected to become a net oil exporter. Most international flows of oil are expected to go to Asia, with China being the largest recipient.
This also points out the benefits of our entrepreneurial system, which has been able to lead the way, through innovation and risk-taking, to re-inventing the entire energy sector. Despite obstacles erected by government agencies the efforts of private companies and entrepreneurs have resulted in solutions that were, to say the least, unexpected.
It also means that while the future may still (eventually) be in renewable energy, that future appears to be much further off than we thought. Most reports indicate that we have enough natural gas to last 100 years. It is also probably very premature for our Federal government to invest in such things as solar and wind energy, because these technologies would seem to have a much longer runway to self-sufficiency than is currently practical. (There are markets for such things, but a lot of it has been subsidized.)
But this new vision of the future does merit a grain of salt and a word of caution, for, as with the estimates so poorly performed in the 1970's, these projections are not guaranteed to come true. Nevertheless, some of these trends have already been gathering steam for a few years and will probably continue for at least a few more years.
The report also says that gains in energy efficiency are expected to be another important factor in the use of energy in the coming years.
The common belief in the 1970's that the world was running out of oil now appears to have been a bit premature. One wonders in hindsight (which is always 20-20) how we could get so worked up over something that was so far off base. And what else are we far off on today, one wonders? Now we can say, well, we have to run out of oil soon at this rate, don't we? Apparently we have a few more years left.
This development has profound implications for the balances of international economics and power. While the Middle East will continue to be important for oil--and indeed Saudi Arabia is projected to re-take the lead from the US in the 2020's--the US, and North America in general, will be in a strong position. North America is expected to become a net oil exporter. Most international flows of oil are expected to go to Asia, with China being the largest recipient.
This also points out the benefits of our entrepreneurial system, which has been able to lead the way, through innovation and risk-taking, to re-inventing the entire energy sector. Despite obstacles erected by government agencies the efforts of private companies and entrepreneurs have resulted in solutions that were, to say the least, unexpected.
It also means that while the future may still (eventually) be in renewable energy, that future appears to be much further off than we thought. Most reports indicate that we have enough natural gas to last 100 years. It is also probably very premature for our Federal government to invest in such things as solar and wind energy, because these technologies would seem to have a much longer runway to self-sufficiency than is currently practical. (There are markets for such things, but a lot of it has been subsidized.)
But this new vision of the future does merit a grain of salt and a word of caution, for, as with the estimates so poorly performed in the 1970's, these projections are not guaranteed to come true. Nevertheless, some of these trends have already been gathering steam for a few years and will probably continue for at least a few more years.
The report also says that gains in energy efficiency are expected to be another important factor in the use of energy in the coming years.
Friday, September 21, 2012
Future :-) or :-( ?
Economic predictions are all over the compass these days, from rosey to totally catastrophic. In regard to the catastrophic side, there are always people predicting the end of the world, and all we can say about that is, we are still here. (At least so far.)
People who have a lot of assets to protect generally understand that they need to diversify sufficiently to cover all scenarios, or at least as many as possible. Many of them, depending on where they fall on the optimism/pessimism scale, forget to provide for the possibility of an unexpected spurt of wild growth, which is one of the possibilities--albeit not a high percentage one.
Many persuasive voices are calling for sustained gloom. A few pollyannas see housing getting off the floor, the fracking revolution leading to lower energy prices, and they even point to some states that are getting their budgets under control. Hope springs eternal.
Whatever happens, probably somebody will have guessed right and will try to claim credit for it.
As for the fate of the nation, it has been a popular phrase for generations to say that the country is going to hell. But, just as the world has not ended yet, neither have we arrived in hell yet. We did go through hell in the mid-20th century, and we came out of it. What we have gone through recently is nothing like that, and with any luck, things will continue to improve. Nothing is certain, but we are keeping our fingers crossed.
Monday, September 3, 2012
Mass real estate sales on the rise
Single family home sales have been rising steadily for about a year now, according to statistics released by the Massachusetts Association of Realtors. Prices have shown some stability as well.
Wednesday, June 27, 2012
More Signs
May’s 6% jump in signed contracts to buy existing homes is a welcome sign of returning blood flow to the housing market, which has been on death’s door for a few years now. It may be too early to say “the recovery is nigh,” but since I am basically a Pollyanna, I will say it: “The recovery is nigh!”
In case you are not up on your archaic English, nigh means near or almost. So you can still take it with a grain of salt if you wish, but it is my fond wish and belief that it is nigh.
You can also take note that the archaic definition of “fond” is foolish or silly. Be that as it may, a number of signs and portents point in the direction of recovery. New home sales are up, affordability is up, mortgage rates are at record lows and inventories are down to a point where home builders may actually have to increase production to keep up.
Signed contracts were up 14.5% in the West, driven in large part by investors buying distressed properties. Many will convert them to rentals. The rental market is strong. Many investors, no doubt, hope to have a capital gain in the future, figuring prices will rise. This is known as the “bottom-feeding” play.
Difficult days are still ahead for real estate. But it is my fond assessment that the worst is behind us.
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