Economic Concerns

There is a rising level of evidence that the short term policies that have been stoking the economy under the current administration are starting to run out of steam.

The tax breaks didn't translate into a lot of high paying jobs and the deficit has grown.

The FED has interpreted the flare up as a potential inflation indicator and has started raising the cost of money.

The elimination of some regulations have enabled some companies to make extra profits but once again this has not led to an explosion of new jobs and taxes so the deficit continues to grow.

Further dampening the economy is the terrible trade policies which will result in higher prices and less exports for the economy.

What is important to note is that the developed countries are, well, developed, meaning that they are nearly at the maximum for consumption.  They have had the most money and were clearly the most important markets, and will remain important markets for a long time.  However they are not where the dramatic growth is.

The most growth is going to be in the countries that are still developing as they increase their per capita incomes and become greater consumers.  American companies need to capture some of those markets to have the sort of growth that ultimately creates jobs.

If the components needed to complete products get more expensive because of tariffs, the end products produced here will be non-competitive.  The reason the components are made elsewhere is because the costs are significantly less than here and increasing the cost in this market is not going to change that for the rest of the world.

So America needs a trade policy that allows us unrestricted access to these markets and one that keeps our products competitive.

The spiteful nature of our current policies may hurt others but it is going to be more harmful to us in the long run as we lose market share in developing markets that will be hard to recapture.

This is all pointing to an economic downturn that may have already started.  The market seems to think so.

Fed circus?

One of the great benefits of living in a country like the United States is the great entertainment value that political maneuvering can provide. Yesterday, we watched an oversight committee attempt to get Fed Chairman Ben Bernanke to admit to some sort of wrong doing in regard to the Bank of American takeover of Merrill Lynch.

I didn't intend to watch the whole thing, but it was so silly and amusing that I couldn't help myself, although I did leave from time to time to do some yard work. Luckily, the proceedings were so limited and redundant that I never felt I missed much.

What did we find out? Well since most of us already know that most politicians are secretly clowns, not much. Apparently they are surprised by the following.

1. People who work for Bernanke or the Fed write e-mail that express opinions.

2. People trying to negotiate high level deals use all sorts of tactics.

3. There is reason to question the competence of Bank of America business executives (and in fact most of the banking industry).

4. Just because you blurt out a stupid question doesn't mean you will get a stupid answer.

5. When all else fails ask for every document that might have ever existed about the deal.

6. If you are hoping to get any press or TV time from a silly hearing like this, make sure you don't conflict with the death of a Pop Superstar.

7. If you are going to make allegations based on old e-mails, have your staff check to see if the author has written or said anything more recently that contradicts your point.

8. The hearings may have contributed to the stock market and bond rally that were going on at the same time, so from that perspective they may have had some value.

9. Since it is generally accepted that the deal ended up being a good thing, diving into the process that led to it has little to no benefit if you can't demonstrate some law was broken.

10. Clueless people aren't even very good at 20-20 hindsight.