prognoses and prescriptions for the year

If you bothered to read the text of the speech which I was invited to deliver in the Autumn at the Arizona Council on Economic Education, you will not have been surprised at the upturn in the US economy since then: US economic data has performed in line with my expectations and ahead of what was generally expected. As a result, stock markets are generally up, and even European sovereigns have borrowed money successfully in spite of the propaganda barrage against the Euro emanating from the US, with consequent fears about the Euro on the part of the deceived or ignorant.

In that speech, I pointed out that the biggest factor holding back the US economy was lack of confidence.

That lack is primarily due, I said, to uncertainty regarding the rules of play. The result is that big companies are still reluctant to hire, and have huge amounts of cash doing little (though some smaller companies have begun to move). Purchases of capital goods are stalled even though the cost of borrowing is so low, presumably because of expectation that prices will fall lower. Consumers are not splashing their money about either.

In a more recent post, I pointed out that people were paying the Governemnt of Denmark to keep their money for them. This is also true of US, where 10-year indexed bonds are at present losing investors about 15 basis points.

In other words, some investors are putting at least part of their money to the most secure place they can, because they think they will lose MORE money by putting their money elsewhere.

In Britain, the situation is even worse: some people are giving at least part of their money on a loss-making basis not for 10 years but for 30 years.

So, is real growth going to resume this year? Am I right or are the doomsayers right? Actually, both are right. The economy IN THE U.S. has begun to turn around BUT everyone knows that is not because the basic issues have been addressed. Nor is it because the ground rules are now clear. It is only because money has flowed back to safe havens from emerging markets since the Autumn.

The good news, for the US, is that money will continue to flow back to the US (though of course there will be blips along the way).

The question continues to be how well the US will use this opportunity. At present, I see little sign that the US is using the opportunity well.

However, as long as the US does not do anything silly, the opportunity will continue to be open - at least till the next set of elections when an improving economy will help the Democrats, though a long period of only slow improvement, if it makes America impatient (and America is probably the most impatient country in the world), may make the election anti-incumbent. I suppose the outcome depends on the extent of the recovery in the US, as well as on what hits the world and the responses to those hits (foreseeably in relation to China and Iran at present, though there are always unforeseeable things). Sphere: Related Content