Why fiscally, financially and economically, America is an accident waiting to happen.
The American ‘recovery’ that seems always to be round the corner just disappeared around another corner as 2015 Q1 draws to and end. Estimates for GDP growth have been halved (from 0.6% to 0.3%) and investment in new business premises cut by a third…from -13.3% to -19.6%. Or put another way, growth is stalling again, and 50% more ‘not expanding’ has occurred than initially thought.
So yet again, we see a ‘result’ – the soaring value of the $US – that bears no relationship at all to a very sick US economy. And still jobless numbers come in to suggest that the unemployment rate is down again at 5.5%. That doesn’t compute either….especially with the country still edging down towards deflation. The Fed’s view now is, on balance, that unemployment will stop falling “pretty soon”. My simpler view is that the figures disguise the real situation.
Janet Yellen is bit by bit dampening expectations of significant rate rises, but she’s kicking at an open door: the market bets on rate futures show that investors don’t believe the Fed can pull it off either. But the optimistic “sometime between June and September” timing remains in place. Carefully chosen euphemisms abound: “the central bank will have a tougher time nudging longer-term rates up. That would complicate efforts to return the economy to a normal footing.”
A huge proportion of the ageing, privately investing sector in the States has now been staring down the barrel of Zirp for six years. With uncertain or zero returns on commodities, bonds and gold – and near nought per cent deposit rates – the more lunatic banking firms and funds are already including dodgy “investments” in packaged portfolios: these include African currencies (always a favourite), third world stock markets, and speculative south American mining gambles. Already, regulators are calling for enhanced monitoring of Totally Madcap Syndrome in financial firms operating outside of the traditional safety net available to deposit-taking banks.
But it is inevitable that – when all income forms have been manipulated away for the Silvers – their investment managers will take on more risk in their frantic search for some level of worthwhile return.
“We are wandering into uncharted territory that’s subject to uncertainty and mistakes,” said Erik Weisman, a Boston-based money manager at MFS Investment Management, which oversees $430 billion globally.
Uncle Ben the former central banker, however, seems relaxed. Or sedated, you can never tell with Bernanke. He reassured everyone before last weekend that new regulations may act to make the next crisis much more containable than the last. The rest of us are left wondering exactly what these new regulations are, and why a stronger verb than “may” isn’t available.
Behind the words are the real meanings: without QE, the US economy splutters, and South American economies remain likely to tank. With rate rises looking less of a cert, risk is on the increase. The investment numbers and growth data show that the current US bourse levels are completely without foundation. Strong Dollar or not, the deficit is still going up. Fiscally, financially and economically, America is an accident waiting to happen.