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HI Friends,
It is yet another week of political posturing both here and around the world. At home, the President has taken steps to appear as though he understands the American voters and has announced a pay freeze for government workers (assuming congress will approve – it is required). It is the first of his steps to stop blaming past administrations and to position the incoming congress as obstructionist if they hold out for more draconian measures. It put the Tea Party/Republicans in the same spot President Obama was in. It is easy to campaign and much more difficult to govern. Still the pay freeze, though largely symbolic, is a step in the right direction when one in 10 has no pay to freeze. It is tricky for the Democrats because labor is a major constituency of theirs and an easy target for the Tea Party activists.
Economically speaking, it is likely to result in nothing. The slight pinch that government workers will feel if they don’t get another 3-5% to spend over the next two years isn’t big money. It isn’t going to stop them from purchasing anything they really want. A tax increase, which is what will happen if the current tax rates are allowed to expire, will bite into them and everyone more.
Then there is WIKILEAK. 250,000 pages of classified documents were somehow given out from the State Department. Makes the Obama administration look as inexperienced as it is. Really going to upset some people we count on. It’s kind of like telling your friend something unflattering about your Mother-in-law only to find out she is standing behind you. It will take a while to re-establish harmony and trust. Not a good thing especially in the Middle East where we have few friends to begin with.
And North Korea. What is up with that? Mr. Kim (the elder –Jong IL) is setting up a power transfer to his youngest son Mr. Kim (Jong Un). It is the youngest son that has to establish his power base, especially with the military and in the past bad behavior has been rewarded by the world nations. So he throws a hissy fit and expects that the homies will think him brave and maybe ruthless and the world community, lead by the Chinese, will give him rewards to behave. Maybe not this time. China needs the USA and Europe to buy its goods. The USA needs China to help finance the USA debt structure.
Economically speaking, the more dependent China is on the rest of the world the better. It serves their self interest to keep the brothers Kim (I couldn’t resist the easy play on words), under control. If China was to ally itself with South Korea the North would be toast in days.
All in all with Ireland getting an EU bailout, and Spain and Portugal closely watched, the giant USA economy still sputtering we may find that no one wants to hold currency...of any denomination. If this happens, if international confidence craters then watch gold, silver and other hard assets rise. That would probably not be a good time to be holding lots of cash of any denomination. But, if we somehow manage to keep things from coming apart, then I’d bet on the US dollar before the Euro as the world reserve currency.
A war in the Far East would really complicate matters and even China doesn’t want this. It would like the world to behave as it assumed in its most current 5 year plan. I expect they will do whatever they can to make that a reality.
At home, the unemployment rate is slowly becoming the new norm. The spread between the haves and have not’s is widening and expect that to be the case for the foreseeable future. The jobless benefits are running out and we will be an under performing economy for the next 5 years.
