The Amazing Dollar

Even if most people don’t believe it, the economy is certainly improving for some people. The Federal deficit has declined to $415B, or 3% of Gross Domestic Product (GDP), from a high of over 10% as recently as 2009. This has been fueled by a large increase in tax revenues combined with a drop in spending on unemployment insurance, mortgage assistance, and so on. Our trade deficit with other nations is also dropping rapidly due to lower imports of fuel, and now stands at less than $400B.

That’s good news all around. The only problem is that the US economy is borrowing money or sending it overseas at anywhere near the rate that the world needs it as trade expands. That is putting upward pressure on the US Dollar, meaning that while imports are likely to become cheaper there is little hope that US manufacturing is going to get a break anytime soon – despite remaining one of the big casualties of the depression so far.

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Resurrection

“How good it is for us when the Lord unsettles our lukewarm and superficial lives.”
- Pope Francis, tweeting as @Pontifex, 7 April 2014

Palm Sunday is the start of Holy Week. This is the day Jesus rode into Jerusalem on a humble donkey, a hero to the adoring crowds.  His subsequent challenge to the authorities who were jealous of his popularity got him tortured to death in just five days. It is a day meant for this new People’s Pope, now with a full year under the simple skull cap (or yarmulke) he is usually wears in public in place of the pointy miter of authority. But this Holy Week is a special one, and not just for this pope’s anniversary.

One week after the Easter celebration of resurrection Popes John XXII and John Paul II will be canonized as saints, recognizing their work as reformers of the Church to be the hand of God himself. They make a formidable pair, one more liberal and the other more conservative. Together, along with Francis’ year of tumult, this event will probably mark the start of a major leap for reform and reinvigoration of the Church. This is a good day to question authority and the “superficial lives” that coast along in need of renewal, and Pope Francis appears to have a plan.

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The Case for Optimism

A short time ago, I asked my friends on facebook if they were optimistic about the economy. Scratch that – I insisted that the negative case for this slowly improving economy was bunk and got an eyeful of responses. Needless to say, my friends aren’t in the mood for Mr. Sunshine, as some of the commentators here have called me. Talk about fundamentals improving? Show them the money. Building a strong foundation for the next economy is nothing compared to a strong roof overhead and comfortable home inside.

So it is time to make the case for optimism, which is to say why I feel that things are going to get better in 2014. Either I’m ahead of the curve or I’m just plain wrong – you get to pick. All I ask is that whichever you pick now you file away, with this piece, and evaluate the decision for keeps later. But this is the case for the economy finally picking up this year and developing strong momentum into 2015 and beyond – into 2017 when I still think good times will be had.

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Velocity and Inflation

Since 2008, the Federal Reserve has more or less printed over $3.2 Trillion in three rounds of “Quantitative Easing”, now tapering off to zero. Many have speculated that this has to result in inflation for the simple reason that there are more US Dollars out there than ever before. That’s based on the most fundamental principle of any market, supply and demand –more of these things called “Dollars” around and the value has to drop, meaning it takes more of them to make a reasonable exchange with something real.

It hasn’t worked out that way. Inflation remains less than 2% per year as it has since the financial crisis that started in 2007. How on earth can that be?

The answer is that the number of US Dollars in the world is only one part of the equation. The “velocity of money”, or the number of times they turn over in the economy, is equally important. Data since 2007 shows what every freelancer and job seeker knows – it’s a tough world out there, and people are pretty slow to let go of the dough they have.

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Enough Work?

Income inequality is certainly the rallying issue for many progressives these days. Paul Krugman goes as far as to call it the one issue, the only important one. “Inequality is, indeed, the defining challenge of our time. Will we do anything to meet that challenge?” he asked last December.

Whether or not that is overstating the issue, the debate over inequality is not going away soon. Solutions are often elusive, largely because the root of income inequality is far from obvious. The free market system in the US has not always had high levels of inequality, after all. It’s a new feature to anyone who lived through the 1950s, for example.

What caused the problem? Perhaps it is the simple law of supply and demand meeting a limit to the paying work available in a developed economy.

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Jobs: Back to Even!

According to ADP, the largest payroll processer in the US, the total number of private sector jobs made up the net loss in the last official recession last month. In January 2008 the total number of jobs stood at 116.0 million in January 2008, falling to 107.2 million by February 2010. The net loss of 8.8 million jobs was finally regained in March 2014 when we hit 116.1 million total. That includes 491 thousand gained so far in 2014.

If that’s not a good reason for a party, what is?

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Markets’ Big Day

The S&500, the broadest measure of stocks, hit a new high of 1884 today. The stock market celebrated by stopping trading for a moment to watch a debate on the future of the market unfold on CNBC.

It was a strange spectacle that also lit up twitter when IEX’s Brad Katsuyama took the challenge verbally shoved at him BATS Global Markets president William O’Brien and explained, in detail, how the market is rigged. Volume on the market noticeably dipped during the course of the debate and twitter lit up. It was a big moment in this history of the market.

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