Just one more time

Recent statistics show that growth at an annual rate is more than eight percent, corporate spending on equipment is at its highest for five years, total operating profits have jumped by 30 percent over the past year, stock prices are up 30 percent since March and consumer spending is up by six percent over the year. Earlier this year, the U.S. Federal Reserve had lowered interest rates to a record all-time low of near one percent. And the longest U.S. hiring slump in more than 60 years finally appears to have ended.Businesses also added tens of thousands of more posts in August and September than the government originally estimated, bringing the total number of jobs created to more than a quarter-million over the past three months. It was the strongest job growth over three months since late 2000. Therefore, it seems the economy is climbing out of its deep hole and looking good - so much the better for Bush who faces elections in less than a year. Obviously the White House has credited the three tax cuts passed since 2001 with softening the economic slump and it predicted that they would eventually lead to job growth. But for both the economy and the 2004 presidential campaign, a central question becomes whether hiring will accelerate in the coming months to a level typical for an economic recovery. The economy must add about 150,000 jobs or more to keep up with population growth and bring down the jobless rate over a long period of time. The New York Times says the Federal Reserve indicated that low rates will remain for a “considerable period“, revealing a degree of unease about further falls in inflation and a lack of unease about overheating. In other words, economic growth may falter again. The economy is nowhere near capacity, because companies still have much slack they can use up. And when prices have risen slowly for such a long time, it will take time before inflation picks up. So can President Bush start planning his election party? Not yet. History shows us that Presidents of the United States who lead their country into war tend to pay a heavy price at the polls - whatever the economy is doing. The US Federal Reserve has stated its intention to maintain the record low interest rates well into 2004. The latest surge in American economic growth would likely correct itself in 2004, before the Federal Reserve begins raising interest rates. They may have little leeway left to re-stimulate the economy by lowering interest rates. A period of deflation (market self-correction of malinvestment combined with dropping market prices) may be followed by a long period of economic stagnation in the U.S. economy. The likely scenario may parallel Japan“s recently ended 10-year hiatus with near-zero interest rates and massive government (public works) expenditures. The American government has indicated that it will engage massive deficit spending over the next few years, much of it allocated to the Iraq debacle. A few politically well-connected industries will benefit from this initiative. Their sales would have contributed to the recent spectacular rise in the American GDP, which was not accompanied by new job creation. Political opportunists may now be tempted to create or save American jobs through trade tariffs or by only letting few countries participate in re-building Iraq.The bad news for the U.S. economy and the administration is: World markets are giving Washington economic policy-makers a vote of no confidence. That is the only way to interpret the dollar's recent sharp decline, says the New York Times. America's economic performance would ordinarily translate into an appreciation of its currency, but the dollar has been trading at all-time lows against the euro. That is partly because foreign investors are alarmed by the lack of credible economic stewardship, as evidenced by the reckless U.S. deficit and opportunistic protectionism. America's debt-ridden society has long lived beyond its means, and gotten away with it, because foreigners are eager to stash their money in the United States. America needs roughly $50 billion a month in capital inflows to make ends meet. This situation cannot be sustained forever, and a lack of confidence in Washington's economic policy-making could hasten the day of reckoning. Lisi Fille

Just one more time

Will a recovering US economy get Bush re-elected?

Südtiroler Wirtschaftszeitung

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Just one more time

Will a recovering US economy get Bush re-elected?

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