Economic recovery

Happy St. Patrick’s Day to you,

The US economy is beginning to recover maybe even a little better than I thought. We still have major issues, too much government debt, partisanship, and too much of the private sector owned or heavily influenced by the government. That said, there are some positive signs of the recovery getting legs.

Producer Price Index shows a 4.6% increase over last year. This suggests that raw materials costs are rising, and that says that worldwide demand for those items is growing. Mostly the gains are in the area of Food and Energy, the former may be a result of the crazy weather that we have had limiting crops and the dominoes fall throughout the food chain. Energy is, however a better gauge of growth. Everything made uses energy to produce and transport. Even online services use energy. So rising energy costs are a sure sign that the world economy is in recovery.

The bad news is the US dollar is losing value by the bucket load against other currencies. Import prices are up 11.2% year over year. IF PPI is up 4.6% mostly due to energy and food (both of which are large imports) and import prices are up 11.2% we can infer that the dollar has lost considerable purchasing power on the world stage. The Euro has had its own problems of late but the dollar has dropped from $1.29 per Euro to $1.37 per Euro since this time last year. That is a 6.2% decline in relative value. That is a big decline in one year. Measured against the Swiss Franc the dollar has declined 12.8 % in the same time frame. As I said earlier the Euro has had its own issues. As for the dollar vs. gold, the comparison is even more stark, with gold rising 22.3% in the same time frame. People around the world are looking to gold as a store of value rather than any countries currency. The dollar is still regarded as the best currency overall, but its continued weakness is making investors seek alternatives.

The US will not likely lead the recovery since we have such strong headwinds. When you and I have a reduction in income we cut spending. We may even get draconian about it, cutting spending on everything except bare necessities. Governments don’t do that and a case can be made that they shouldn’t. Their spending actually increases in bad economic times. Unemployment costs skyrocket. Other social programs increase and money is spent to make work (Stimulus and jobs bills). These help to spur recovery. Unfortunately we add to this spending on Iraq and Afghanistan (the latter the longest War effort in 100 years, surpassing even Viet Nam at 8.5 years). We then add a long history of deficit spending all adding up to a massive debt of $12.6 Trillion, an unemployment level of 9.7% (official – some argue it is much higher) declining tax revenues resulting from the economic downturn and the outlook isn’t rosy.

What will it take to get the economy moving in the right direction? Time and fiscal restraint. Like you and me, the government will have to accept that it can’t do everything and certainly not all at once. We need to rein in spending where we can, slow the growth of spending virtually everywhere and bide our time. It is said that time heals all wounds and in this case it may be the very best salve. We can’t borrow our way to recovery. We can do this and have a bright future, but we need to start now. We can’t afford to wait because the problem is growing by the minute. Democrat and Republican, Independent and whatever, we must all stop doing what we are doing and take stock of ourselves and of our situation and decide if we care what kind of life we are leaving to our children. Or have we become so self centered that it is only about us and we don’t care about future generations. I sincerely hope that is not the case.

While it is convenient to blame the other political party for current ills, remember that this country has run a continuous deficit since the Revolutionary War. It has never been paid off, just refunded. Both Parties have had opportunity to add and detract from the deficit. Neither has ever accomplished a significant reduction in the overall debt and now it is so large that it will take generations to accomplish. Remember also that Congress has been there virtually the whole time. And while members of Congress come and go the Congress as an institution has failed to address this issue successfully. And those who have been there the longest bear the most blame.