Archive for November, 2014

Land of the Setting Sun

Friday, November 21st, 2014

Let’s pretend that the United States economy is a football team.  The coach calls the play.  The running back runs right up the middle and is thrown for a loss.  What does the coach do on the next play?  Run the ball up the middle for a loss.  And the play after that?  Run the ball up the middle for a loss.  And the play after that?  Run the ball up the middle for a loss.

Other teams see what’s happening to the U.S. economy.  So what do they do?  Run the ball up the middle for a loss.  In Japan, in Europe and elsewhere the losses mount.  What’s the conclusion?

  1. Running the ball up the middle every play will result in a loss, or
  2. We need to run the ball up the middle more often.

JapanThe answer, if you’re paying attention to central banks and the actions of Japanese Prime Minister Shinzo Abe is, of course, B., as logic and politics rarely travel on the same highway.

Formerly the world’s number two economy behind the U.S., Japan’s future couldn’t have been brighter back in the ’80s, when “Japan Inc.” was all the rage.  Today, if there really was a Japan Inc., it would have long ago declared bankruptcy.  The “Land of the Rising Sun” has become the “Land of the Setting Sun.”

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Why It’s Called “the Almighty Dollar”

Friday, November 14th, 2014

It may be a good time to plan that European vacation.  The long-weak dollar is gaining strength again, which means you may be able to afford good food, good wine and a quality hotel if you visit the Old World.

During the Fed Reign of the past five-plus years, the dollar was like that elderly lady in the commercials who says, “I’ve fallen and I can’t get up.”  Other countries tried to help by weakening their currencies, of course, but the resulting currency wars appear to have ended along with quantitative easing and now the dollar is strong and getting stronger.

Dollar Index
The good news is that the strengthening dollar will make foreign goods cheaper for American consumers (so much for boosting inflation).  American companies may also reduce prices or keep them from rising to remain competitive.

As a result, Americans will spend less on essentials like oil and will have more money left to spend on other things, which should boost the economy.  A strong dollar will also attract foreign investors to American assets, such as U.S. Treasury bonds.

The bad news is that consumer spending on imports will increase the trade deficit – in fact, it already has.  American companies that rely on exports or that have multi-national locations will be hurt.

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“It’s the Economy, Stupid.”

Friday, November 7th, 2014

In this week’s election, Democrats attempted to label Republicans as “the party of ‘no.’ ”  Instead, voters labeled Democrats as the party of no jobs, no growth and no clue.

As a political strategist for Bill Clinton, James Carville coined the now over-used phrase, “The economy, stupid.” (which more commonly appears as “It’s the economy, stupid.”).  By focusing on the economy, Bill Clinton won the 1992 presidential campaign, defeating President George H.W. Bush. barack-obama

More than 20 years later, it’s still the economy, stupid.  According to Bloomberg, “The economy was voters’ most pressing concern as they cast their ballots in the midterm election, with seven of 10 rating conditions poor, preliminary exit polls showed.”

Apparently, voters didn’t realize that 2% annual growth and a workforce participation rate of 62.7% represent an economic boom.

In a Gallup poll, climate change, the Democrats’ raison de vivre, ranked 14th out of 15 in a poll about issues that worry voters.  It finished just ahead of “race relations” and just behind “the quality of the environment” – two other big issues for Democrats.  Meanwhile, in the real world, the top voter worries were “the economy,” followed by “federal spending and the budget deficit.”

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