When America sneezes, the world catches a cold.
But from where I sit, the land of the free appears to be in good shape, so no need to worry, right? Not if you read or listen to many of the talking heads who dominate what is left of political discourse in the U.S.
If they are to be believed, the end is nigh.
Their professional pessimism seems misplaced to me, I see more sunlight than shadow in the current circumstances.
The strength of the dollar and the reach of her mighty corporations into pretty much every sector of the global marketplace makes true the American claim to be the world’s biggest economy, bar none.
When your commercial and trading operations account for about a quarter of global GDP, a fifth of Foreign Direct Investment, a third of the value of the world’s stock markets and you are the most important export destination for more than 1 in 5 nations, that’s a pretty strong position to be in.
But dominance on Wall Street, the Dollar and being the World’s Bank isn’t the only reason.
The U.S. has a wealth of arable agricultural land too. America has around half a billion acres of cultivated land, capable of providing 99% of the nation’s food and around $40billion in food exports.
And huge timber and mineral reserves are available from Alaska in the north to Texas in the south, and billions of barrels of oil are stored in caves and underground reservoirs, just in case.
But perhaps most significantly, the nation’s success is buoyed by the American people being entrepreneurs. They embrace risk more willingly than anyone else, the barriers and bureaucracies to start new businesses, introduce new products and services seem lower than elsewhere, and failing first time just means try again.
That is why the current utterances from the White House and Federal Reserve are so intriguing.
Forecasters have been shouting about recession for a couple of quarters now. Sure, the explosive growth in property prices and stock market valuations which made everyone feel so good over the past couple of years have slowed, and COVID, Ukraine and other worrying global issues – ie. China – have persisted, but other measures tell a different story.
Consumers are spending, businesses are investing, and employers are hiring.
And while all these are good things, what economists are worried about is inflation. When demand outstrips supply prices rise, higher energy prices push prices up, and labour shortages mean salaries rise and prices go up too.
Demand for new things, demand for workers, demand for energy and raw materials is higher than it’s ever been – partly because after 2 years of lock down and very generous Federal cash giveaways, American’s are rich, rich, rich and want to go spending it, buying things, going places, eating out.
But will that lead to a recession?
Despite what the economists’ algorithms tell you about consecutive quarters of decline etc, the reality of a recession for most Americans is when factories close, workers get laid off or there are no jobs around.
In an economy where businesses can’t find enough people to hire for the jobs they have today, it seems unlikely that in a few weeks they will be shedding the employees they do have or slashing their wages.
The Fed and the policy wonks seem fixated on driving down inflation even if it means slamming on the brakes of America’s economy and all the shuddering discomfort that provides.
Instead, they could sip a little of my liberal elixir and look at some of the positives of our situation and use their political and monetary policy magic to nurture more growth.
Low unemployment is a good thing. Rising wages, especially in the notorious low pay, low job security sectors like hospitality, janitorial services and warehousing, is a good thing.
If America was truly interested in levelling up, these outcomes would be seen as things to celebrate not be painted as the evil reason the price of your hamburger deluxe meal has gone up 50 cents.
And while jobs are more freely available, unemployment amongst black and minority communities is still twice as high as it is for white Americans. So still some work to be done there.
Yes, growth will slow – no more free money, credit is more expensive, supply chains are exhausted – but if we can maintain the current better pay rates for the millions who are currently benefiting from their labour being in demand, then that is a good thing.
Economists fear there is more demand for homes, cars and jobs than available supply to provide them. While there are inflationary challenges to this, having demand is far better than not having it.
As COVID restrictions retreat, more people are already re-entering the workforce. These extra bodies will help plug some of the gaps, but they will be in the roles and with the employers who set attractive working conditions at the expense of those who see labour rights and pay as a ‘cost’ to be minimized. Again, that’s a good thing.
Much of the crazy gain in property prices was fuelled by wealthy speculators and investors using their free federal dollars to invest in rental homes, eliminating much of the available housing at the lower end of the market, particularly homes eligible for Veteran Loan and FHA programs. As these new landlords borrowing rates rise with inflation, they pass on that cost and up the rent they are charging their tenants.
People want more housing. We need more inventory especially at affordable levels. The invisible hand of the free market isn’t providing them
Perhaps sanctioning the building of new homes just for people to own and live in rather than as part of a ‘property portfolio’ could be our housing policy? ‘Rent to Buy’ programs, First Time Buyer Loans, Lifetime Mortgages could all be borrowing products promoted and developed to help meet demand for new homes now.
And if you own dividend paying stocks in energy, oil or pharma companies, you will be pleased with the regular check they keep sending you. While inflation has pushed prices up, spiralling costs have been passed to consumers, seeing corporate profits soar. Maybe we could follow the UK’s lead and introduce a windfall tax on those excess profits to discount fuel bills this winter, easing the burden for all consumers?
America’s debt reliant economy is always susceptible to a sneeze or two, but it seems to me, that with some more creative thinking, the economists and policymakers could cool the economy without having to put the nation into a policy-induced coma first.
