Last week, after much angst and indecision, the 17 nations making up the core of the European Union (which fully utilize the euro as their common currency) agreed to a framework to resolve their financial crisis. In a nutshell, the countries involved needed to address three core issues.
It’s amazing what a difference a few weeks makes. Just a little more than a month ago, the nation’s economists seemed to have turned decidedly pessimist, with a few indicating the U.S. economy had already entered a double-dip recession. Even those who were not quite so bleak in their assessment were throttling back on their GDP forecasts for the second half of this year, with many suggesting economic growth in the 1 to 2 percent range.
The economy stinks and we’re not going to take it any longer. While this may not be the official message of Occupy Wall Street (OWS) participants, it seems to come pretty close to understanding why the movement was born, blossomed and now searches for a unifying message to policymakers. Had the U.S. economy experienced anything like a normal recovery from the Great Recession, it seems unlikely the movement would have developed. But with an unemployment rate in excess of 9 percent and nearly 14 million people unemployed — and many more millions underemployed — it is little wonder that some people have taken to the streets to protest.
Last week in a procedural vote to move along a piece of legislation, the U.S. Senate voted by an overwhelming margin of 79 to 19 to establish a mechanism to retaliate against countries that consistently and intentionally undervalue their currencies. While the legislation may seem evenhanded in its treatment of every currency manipulator, it is squarely directed against the Chinese government which is, to the surprise of nobody, keeping the yuan undervalued so as to encourage both production and employment in their domestic export sector. Needless to say, if the yuan is undervalued, then the U.S. dollar is overvalued, and if the Chinese artificially expand their export activity, then the U.S. will see its export sector unfairly restrained.
Apparently never believing themselves incapable of providing much-needed medicine for an ailing economy, Federal Reserve officials acted last week to reinvigorate lending activities in the U.S. In a move dubbed “operation twist” the Fed will attempt to bring down longer-term interest rates while possibly slightly increasing short-term interest rates.
Republicans primary politics are moving front and center, and claims made by various candidates are being heavily scrutinized for their accuracy. Hopefully, most are factually correct while some are patently absurd, such as Michele Bachman’s claim that she can bring back $2 per gallon gasoline. Still others are of questionable accuracy, such as Texas Governor Rick Perry’s claim that Social Security is a Ponzi scheme and an outright lie to this nation’s young people, that is, the system will not provide them the benefits guaranteed under current law. Some other Republican presidential wannabes have stated this is totally untrue — particularly Mitt Romney — while others seem to waffle on the issue. So, who seems to be correct on this issue as it relates to Social Security?
In what appears to be an annual ritual, a president has proposed yet another stimulus plan to reinvigorate economic growth and put Americans back to work. This seemingly never-ending series of quick-fixes began in the final year of the Bush administration with temporary tax rebates (at $150+ billion), followed by a huge fiscal stimulus package in 2009 (with an approximate cost of $830 billion), an end-of-the-year measure in 2010 (with an estimated 10-year price tag of $850 billion), and now the latest jobs proposal of 2011, which will set the nation back another $447 billion. All told, these four efforts to pump life into an ailing economy come in well north of $2 trillion.
Every week the U.S. government releases a flurry of reports that are supposed to provide a snapshot of economic activity, with a similar series of data releases being provided by other governments. It is hoped that all of this information will provide analysts some clue as to where the economy is headed. Sometimes these releases are decidedly optimistic, sometimes quite the opposite, and often times the various reports seem contradictory in nature. Data provided by the U.S. and European governments over the past week or so have been largely depressing, with a few glimmers of hope.