Waxing and waning lower than ever crude oil prices; conflict in the Ukraine with Russia; a Greek exit from the EU possibility; a strong US dollar with talks of a Fed interest rate hike; international currency wars; and the threat of ISIS now aiming its internet propaganda towards Rome. Has there ever been a more volatile time in history?
The worries of globalization which at first seemed like a good thing, one I could imagine Barrack Obama dreaming about ever since he finished reading that book “The End of America”, now seems like a complex mess threatening the U.S. economy on all fronts including our ability to maintain a stronger dollar.
Today Janet Yellen again proclaimed a wait period on raising interest rates just as many have suspected would happen due to slow wage growth and other indicators. Also a stronger dollar and global instability in emerging markets which would cause for a devaluation in some currencies including the China market.
The variables involved in economics today are mind boggling. Jim Rickard’s, an analytical economist and author, mentioned the complexity theory in his book, “The Death of Money” as the new concept on US economics due to globalization. The older economic theories just will not work for managing future economic adjustments. There are too many switches and buttons that need to be evaluated and tweaked in order to maintain a healthy global economic model. So how do we determine if we are on the right path? Is the economy headed for a boom period or a bust?I don’t believe the EU will let Greece go or vice versa. That would be a huge mistake that would cause markets to tumble. Oil prices are slated for a possible devaluation before they rise and that could take a while. With the effects of the oil bust already rippling through the U.S. oil industry (layoffs are continuing in the mega thousands even now) gas prices at the pump have already lost their savor as the price is creeping upwards and could reach 3 to 4 dollars by December. Even with off shore storage and a huge surplus demand, prices could still rise.
Although the global economy seems like a house made of cards and the failure of one of these areas could send everything crashing down, I don’t really foresee a major global bust. What I do foresee is a continuing assault on the middle class of America with anemic growth (more US business closings than openings) and low wage job creation. Middle class Americans are being taxed to death while job wages remain largely stagnant and inflation, which has risen 13% since 2009 pushes those middle class Americans holding on with one finger off the cliff.
Even with slight wage increases middle class Americans can’t keep up. We are seeing a re-shaping of the classes which will result in damage to the U.S. Economy. If we don’t fix this problem, and I honestly don’t think this administration has a plan to do so, we will see a bust at some point, if not for all, for the ones who actually pay the majority of the taxes, the real working class.
To balance the scale, we need robust job creation that pays good wages, lower taxes for the middle class and incentives to increase small private business creation which is at an all-time low. Also getting interest rates back up so that those that save can stop paying for those that don’t. The middle class is our only hope at maintaining our past prosperity as a nation.
The periods of time in which we have experienced a boom in our economy involved a prosperous middle class. This administration will continue to adjust numbers to lead people toward some kind of hope that we are really recovered which is expected but means nothing. Work force participation is at the lowest since the 1970s. Our working age population has been growing in leaps and bounds since 2009 yet less people are participating than ever before. The stock market continues to grow with a P/E of around 26 to 27 which is simply not attached to reality (reports suggest consumers did not spend what they saved at the gas pump last month). Wealth creation and keeping pace with inflation are both served and hindered by low interest rates. How long can we sustain current stock market activity especially in the face of an interest rate hike. We could be in for a rude awakening with stocks this year though let’s hope for the best.