There is an awful lot going on in the world right now. It’s hard to find any one thing that is worth writing about, given all of the news. So let’s run down everything all at once.
The best news comes from the Congressional Budget Office, which last week issued its updated budget outlook for the US. After the tax increase in January and the sequestration, the budget deficit is projected to fall to just 4% of GDP in 2013, down from 10.1% in 2009 and 7% in 2012. It’s a remarkable achievement, especially since it was done without any broad agreement on anything at all. The problem with deficits was definitely over-stated and not worth the drama we went through to get here.
Note also that Gross Domestic Product (GDP) grew at an annualized rate of 2.5% in the first quarter of 2013. Part of the reason the debt is going down is that we are growing into the government we have. There’s no better antidote for debt than growth, no matter what anyone says. That’s why austerity is such a bad idea in this current economic climate.
Speaking of austerity, it’s very dead. The success of Japan under Prime Minister Abe’s new plan cannot be denied. Their GDP expanded 3.5% in what’s called a “wealth shock” that has awakened the nation form a 20 year plus nap. How did they do it? The Yen has fallen 35% against the US Dollar so far this year, making their exports much cheaper. That’s a change of 25 Yen to the dollar, from 80 to 115 – and each extra Yen it takes to make up a buck is estimated to bring in $2.7B in corporate profits back to Japan, according to business newspaper Nihon Keizai Shimbun.
That was quite a lever Abe pulled to bring such wealth back to Japan, wasn’t it? Why don’t we do that? For one thing, that extra income comes at the expense of other nations, notably South Korea, Malaysia, and the rest of Asia. They will respond with a currency war in time as they work to lower the value of their own paper to match Japan. This is only the first salvo in that war, so we don’t exactly know what will happen. It’s not going to be pretty, but it’s something to watch for in 2013. Expect a lot of toilet paper to be printed if this heats up.
The currency war to spur exports is in many ways the flip-side of the tariff war that marked the deepening of the Great Depression from the late 1920s into the early 1930s. At least we all learned something from that era, although we could all be making very different mistakes.
The less said about Europe the better, but an awful lot of awful news comes from there. The entire continent is sinking lately, largely due to a terrible credit squeeze for small and medium businesses. There is no engine for growth in the Eurozone, meaning that even as they ease up on austerity there is still no way for them to grow into the debt they’ve accumulated. A real currency war will require the European Central Bank to start printing Euros like crazy, and so far they plead that they don’t have the authority to do that. If Germany starts to sink, and it is, that may suddenly change. Chancellor Merkel is up for new elections in September, after all.
Here in the US, everything seems remarkably quiet by comparison. We’ve turned our attention away from economic news to a constant barrage of scandals alleged against President Obama. So far they have … well, if anything, increased the President’s popularity. There isn’t a thing in there that ordinary people seem to care about – it’s still the economy, stupid. Look for a big change in strategy by the Republicans, especially now that the Benghazi Distraction has proven to have nothing significant behind it.
Perhaps we can even talk about the economy again. Or even a more permanent fixes such as our tax system, bloated by deductions and exemptions. Hahaha! Sorry, had to put some comic relief in there.
Here in Minnesota, the Legislative session is winding down in the way they usually do – a terrific panic and many sleepless nights. The budget gap was closed pretty much as I expected back in December, with an income tax hike on the very wealthy. They even had a bit left over for property tax relief and more money for schools. That and Marriage Equity made for a pretty good session for the DFL.
Meanwhile, there are many other bizarre things happening at the start of summer. North Korea keeps whining for more attention and Syria keeps burning. The world remains a dangerous and unstable place as we work through the restructuring we knew had to happen.
Anything else you’d like to discuss? Feel free to add your concerns here, too!