For an economy to run properly, certain expenditures must be made by the government. Currently, government spending encompasses infrastructure investment, research, defense, education, etc. There is a lot of heated debate about how much a government should spend as an overall percentage of the economy. Some argue that more government spending is needed during bad economic times. Of course, this spending must be reined in and cut during good economic times. Unfortunately, this rarely occurs and massive government debt ensues; at this point, much of the spending is conducted through borrowed money.
In a few days, we will see how America really doing; with the second estimate for the second-quarter real gross domestic product (GDP) due out on Thursday, we will soon see if the 1.7% advance reading holds.
There has been speculation and talk about how well the economic recovery is faring, but I really don’t believe the economy is at a stage where we can say the worst is over. Now, I don’t believe the U.S. economy will re-enter a recession unless the rest of the world does.
My concern is that you never know. When the easy money stops flowing and interest rates edge higher, the economy will be tested, and we’ll see if it holds.
So far, based on what we have seen with the economy, sluggish consumer spending, lower government spending, and the slow revenue growth in corporate America, I wouldn’t be surprised to see a softer reading for U.S. GDP growth.
Regardless, the GDP growth will be soft this year and could stall in 2014, depending on not only how America does but the progress of the global economy as well. Don’t forget: there are still issues in the eurozone, and China is not exactly firing on all cylinders, either, which could impact GDP growth.
The recent flat retail sales reading of 0.2% growth for July was below the 0.6% reading in June. The core reading of 0.5% growth was better, but it’s nothing to get excited about.
GDP growth depends on four components: consumption, investment, government spending, and trade (exports-imports).
As you know, with a national debt approaching $17.0 trillion, the government has to reduce … Read More
It seems like every day we’re seeing the stock market advance higher, which makes me wonder if traders are just trigger-happy and trading on the momentum in the market—and, trust me, there’s plenty of it.
Whether you are a day, swing, or longer-term trader, there’s easy money to be made. The Federal Reserve has provided you with this great opportunity, so take it.
The only issues that continue to cast a cloud over the situation are the state of the country’s finances, namely the national debt and the many municipalities and states experiencing economic hardship. Recall my previous commentary on the colossal financial crisis in Detroit. The city is burdened by a massive debt load, declining revenues, and a rapid decline in population migration that has spanned across more than three decades. But Detroit is not an aberration. There are other regions across America that have fallen into the same financial abyss.
What really puzzles me is that the stock market is acting as if everything around us is faring well—which is far from the truth.
The U.S. economy is not expanding at a pace that I would deem acceptable, given the reaction in the stock market. The media harps on about the fact that the growth of China’s gross domestic product (GDP) growth was only 7.5% in the first quarter, but that’s pretty darn good versus America’s GDP growth.
The scary part is that the Federal Reserve, in all of its great wisdom, has been downgrading the country’s GDP growth as Chairman Ben Bernanke and the other Fed members clearly realize that the economy is in trouble. That’s why … Read More
In their attempts to stimulate economic growth, more countries are looking at the possibility of devaluing their currencies. The latest to fall into this pattern is Venezuela, which has just devalued its currency, the bolivar, by 32%.
No one should be surprised by the latest move from the Venezuelan government, since this is the fifth currency devaluation in nine years. The net result has been stagnant economic growth and a very high inflation rate.
The annual inflation rate in Venezuela was approximately 22% in January, and it’s certainly set to move above 30% following this latest devaluation. (Source: Devereux, C. and Pons, C., “Chavez Devaluation Puts Venezuelans to Queue on Price Raise,” Bloomberg BusinessWeek, February 11, 2013.)
Considering 70% of the goods consumed in Venezuela are imported, this will have a huge negative impact on its citizens.
Unless the government is willing to tighten monetary policy to prevent a runaway inflation rate, which is unlikely, look for a significant decrease in consumption of foreign goods within the country.
While the official exchange rate has now moved from 4.3 bolivars per U.S. dollar to 6.3 bolivars per U.S. dollar, the unofficial exchange rate is even weaker at more than 20 bolivars per U.S. dollar.
Venezuela’s repeated attempts at trying to stimulate economic growth while increasing the amount of U.S. dollars available for foreign purchases has led to a decline in purchasing power by the average citizen and a pathetic economic growth rate.
Foreign companies selling into that market will be hurt by the higher inflation rate, since the government imposes some price controls. Venezuela’s President, Hugo Chavez, previously seized retail stores … Read More
With the outlook for the U.S. and global economies looking more encouraging, we have seen a corresponding upward push by oil prices on the chart.
An issue for us is that oil prices continue to be largely dictated by the folks in the Middle East, namely the 11-member oil cartel Organization of the Petroleum Exporting Companies (OPEC). At this time, OPEC feels oil prices of $100.00 a barrel are reasonable, and $80.00 is viewed as the low point that is acceptable for oil prices. This might be fine with OPEC, as it adds to their rich coffers; but with the average price of gasoline at $3.54 a gallon, consumers aren’t happy with these high oil prices. (Source: U.S. Energy Information Administration web site, last accessed February 8, 2013.)
But unless we see a massive flow of new oil from the controversial tar sands in Alberta, Canada, and a move back to offshore drilling in the post-BP era, oil prices will continue to be dictated by OPEC. I think it’s wrong to be held hostage by a group of oil-rich countries.
The U.S. has agreed to allow oil from the tar sands to be delivered to refineries in Texas, but the process to retrieve the oil from the tar sands is not considered environmentally friendly. Europe, at this time, is looking at placing the tar oil on the “no-go” list.
The government must continue to look at ways to reduce the country’s insatiable appetite for oil and reduce the impact of high oil prices on the U.S. economy.
Oil magnate T. Boone Pickens continues to push his view to cut the … Read More