Rising Again?

The best bet for economic growth in the US comes from simply looking around the world. Japan is in a recession, Europe appears hopeless, and China is struggling. Where else can you put your money?

The answer appears to be the developing world, or emerging markets. Granted, whenever someone talks about “emerging markets” they usually wind up focusing on China – which definitely carries a lot of risk in terms of both currency value (fixed by the still communist government) and slowing growth. But throughout the rest of the planet there is opportunity. Lots of it, in fact.

While the US still looks great as a “safe haven” there is plenty of reason for cash to start flowing back to the developing world. But that investment is almost certainly going to be led by US investors given the strength of the US dollar.

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Money Down a Hole

It’s long been Barataria’s position that energy independence, followed closely by a decrease in reliance on limited resources, is a very wise policy. The key question is resilience, which is to say the economy’s ability to weather any storm and still provide basic services. Food and energy should not become expensive overnight because of political concerns or currency shifts.

Getting to this point is a bit more controversial, however. Even the paltry $29B spent in 2013 as subsidies for renewable energies has become a political football. That amount comes to $236 per household, which is to say about 5% of what we spend on defense. Nevermind, it seems like a lot.

But according to a new study by the Overseas Development Institute (ODI), that’s almost exactly what we spend in subsidy to fossil fuels. And by global standards we’re actually doing far more than our share.

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Not so Fast …

It’s been week since a blowout jobs report set fire to financial markets and signaled that everything is about to change. Barataria predicted a good report, if very timidly, and gave everything a week to shake out. So where do we stand a week from the first clear signal liftoff is occurring?

The short answer is that markets have absorbed the reality of a rising Fed Funds Rate. The long answer is that it sure doesn’t look like it for a lot of reasons which are complicated and confusing. In an increasingly smaller world there is nothing that confines money to one “market”, meaning that pressure is on from all directions.

The upshot is that after an initial spike there is reason to believe a rise in interest rates by the Fed may yet trigger a net medium-term fall in interest rates paid by consumers, as predicted. It’s worth explaining further.

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Ready for Liftoff?

Another first Friday of the month, another jobs report. By the time you read this the Bureau of Labor Statistics’ (BLS) monthly Employment Situation Summary for October may have been released diligently at 8:30AM Eastern Time on the appointed date. The stock market may be reacting and everyone will turn their attention to the Federal Reserve.

It’s a strange ritual which keeps financial writers busy. But does it mean anything?

If all goes as it should this one should really move the markets. Exactly which direction is hard to tell for a variety of reasons – but that is what will matter more than anything else if this report comes in as “good” (in quotes) as it should be.

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Failing “Facts”

As I prepare for a seminar on economics for today’s progressive, this particular post has come back to haunt me.  It’s a bit subtle but hurts like a sledgehammer if you think about it.  The bizzy whirl of my life as I prepare to announce my plans requires a repeat – and this one is standing out.  Enjoy!

Back in the 1950s, people who studied complex things like economies felt they were making real progress. The general belief was that by understanding how it all worked we could even things out and usher in a new era of continuous prosperity that would benefit everyone.

Some of the underlying “facts” that were identified at this time have been accepted as simple truths. Growth is always good, and economic growth always flows to workers, making their lives better generation by generation. There’s only one problem lately – some of the “facts” appear to not be as true as they used to be. That means that the underpinnings of modern economic theory are all being questioned and, perhaps, if we don’t keep our eyes open the new era of prosperity will be far more elusive than anyone thought.

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Too Much Credit?

If you’re like most people, you probably think that you can never have too much access to credit. After all, you never know what might go horribly wrong or when an opportunity to really follow your dream might come up. A little scratch ready in the background might be the difference between the good life and something much less.

Then again, a lot of credit has a corrosive effect. In a world saturated with borrowing everything is judged against the expected return if the money was simply loaned out at market rates. It seems reasonable that where a little credit is a good thing a lot of credit, defining everything in the world, is the biggest enemy of both long-term thinking and a society looking to maximize happiness and human potential.

Logic says that where a little credit is good a lot could be bad, meaning there is an optimal point. Where is that? Where are we with respect to a good level of credit? It turns out that train left the station a very long time ago – and this may explain a lot of the problems in this economy.

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Credit Cards – Still Failing?

Have you received your new chip-protected credit card yet? The new cards are supposed to eliminate fraud by requiring a PIN, stored in the chip, at every purchase. As Barataria reported last year, the credit card system has to be considered completely compromised after a large number of security breeches at nearly every retailer. The largest ones are reported, but we it is wise to consider every use of the traditional “swipe” credit cards which are easily duplicated once the numbers and names are stolen.

That’s why the new cards were mandated to be in use by 1 October. But the system is plagued by delays at all ends – and may not be as secure as promised. That’s a big problem for merchants who, as of the deadline, assume responsibility for a lot of credit card fraud.

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