If you can think of two things no one would like to do in Russia at the end of January, standing around in a line and fighting a war come to mind pretty easily. But that’s exactly what seems to be in the cards for far too many Russians as the Ukraine and economic crises continue howling like a bitter wind that never ceases.
The acceleration of both appears to be assured right now, especially if the West continues to link aggression in Ukraine with more economic sanctions – which at this point will have to be severe to be considered “new”. The new Cold War is definitely on, but there are no assurances that it will continue to be cold much after the freeze of midwinter.
The stock market is tanking. It has to bode poorly for the economy, yes?
If we’ve learned one thing over the past six years, it’s that what is good for investors is not necessarily good for workers – and vice versa. As Herman Miller, an accountant friend of the family told me as a child, “Never forget that the stock market is only a market for stocks.”
So what is the future for stocks? In the short term, not good. For workers? That may be a better story. And if the fortunes of these two classes cross each other it’ll be the story of this year as the ups and downs and devilish details read something like a novel.
For all the thousands of words forming complex observations, theories, and predictions it takes a really simple question to stump Barataria. Buried within just the right blank stare of a few words is often hidden some basic wisdom that questions the assumptions long taken as unprovable facts. Isn’t the Emperor naked after all? Such a question came in response to a recent post, as posed by “kikila”:
Finally (I hope) someone who can explain why the economy is important to me!
It’s less of a question than a question about the fundamental underpinnings of our world. Why does economics matter? He elaborates, “I have a theory that this is intrinsically linked to ideology and the false concept that a free economy = freedom (the mainstay of the neo-liberal line for decades). Moreover, that ideological systems have coopted the notion of democracy, linking the idea of political involvement directly and indelibly with the idea that one day, eventually (you say 2017) the economy will begin to benefit (the) people.”
More like centuries of not-so-neo liberal thought, but let’s dig in. Why should we care?
Last Friday the ongoing “Currency War” claimed an unlikely casualty – Switzerland, a nation best known for being solid in money and neutral in war. The central bank had to remove the ties to the Euro under pressure from foreign investors and the result was an upward explosion of 39%, before settling in at 15%, in the Swiss Franc (CHF, known by its French name Confédération Helvétique).
That may sound like good news for the alpine nation, and it is if you are holding a lot of CHF in a bank account. But if you make precise equipment or other things that the Alpine nation is known for, your stuff just got 15% more expensive. Managing this situation is going to be a tough one for the Swiss, certainly, but it’s a disaster for those who borrowed money from their famously solid and discreet banks.
It’s also an earthquake that rattles our whole idea of “globalism”.
How will the economy perform in 2015? In many ways, it’s a lot like the weather. The first guess is that we should expect more of the same from 2014, which is to say a steady improvement. Last year was a turning point for many people as the bottom hit five years ago was finally shaken off. Progress was made overall – it’s really a question of who benefited and who will continue to benefit.
But when putting together an economic forecast for the coming year something stands out that is quite remarkable. There are hardly any trends for 2015 that should not be important in 2016 as well. Understanding why takes Barataria back to the fundamental principles, theories really, that have guided our understanding of the economy and where it is going.
After years of low interest rates and quantitative easing that amounts to more or less printing $4.5T, it would be easy to predict that inflation is bound to rise eventually. More dollars means, by supply and demand, that they have to be worth less, yes?
But the opposite is happening as the US economy charges ahead as the strongest economy in the developed world. While we have stopped stimulating our economy, Japan and Europe are only accelerating their programs. The US is poised to lose the currency war with the strongest currency standing – and a guarantee of lower prices for a lot more than just gasoline in the near future.
If you had to sum up 2014 in one short sentence, what would it be? Barataria is a blog of social commentary and observation in the largest sense, which naturally includes a lot of politics and economics – the places where the citizens of this great nation express their true values. So for the the purposes of this humble effort, one thing comes clearly to mind for this year:
The system largely works.
That may sound horribly pro-establishment, especially with the terrible failures of the system that made the news this year. Police brutality went unpunished as many people came to fear that there is an open season on their families simply for having the wrong skin color. The Republicans took the Senate easily with a record low turnout, an expression of apathy more than direction.
But this points to the power of the systems we have as much as the successes do, and why the goals looking ahead have to be about getting control so that these mechanisms do what we need them to. The systems work – as they didn’t at all in 2008 and sporadically after that – but for whom?