2007 in Review: The United States
The US is in trouble, and the trends are not good. The question is, with the mega-trends
that are firmly in place – rapid economic expansion across Asia, a rapidly
depleting supply of fossil fuels, a global threat to sustainable growth, and an
aging population – is the US on an inexorable path downward that can only be
checked and not stopped? A home-grown mortgage crisis and its worldwide ripple
effects, together with a slowing economy, inflationary pressures, a war and a
plummeting greenback now severely challenge American policy-makers.
The US is caught in
a vicious cycle that impacts the economics, politics and foreign policies of
its allies and its enemies, and poses a crisis for not just itself but for the
world. With its house in fiscal disarray, the US has precious few options for
stabilizing a weak and much-derided dollar. Raise rates, and it threatens the
domestic economy, a gravely-damaged banking sector and further hastens the
downward trend of housing prices. Drop rates, and it threatens foreign investment
in dollar-denominated assets, may not jump-start domestic consumption and, in
fact, further weaken the dollar in the process. There are no easy answers for a
country with a deficit measured in the trillions, spending hundreds of billions
annually on unproductive military activities, suffering its worst banking
crisis in a generation and nearing the end of a 25 year bull run.
It wasn’t
that long ago that observations of a “flattening world” dominated the US discussion, offering both risks and opportunities for a productive, (seemingly) healthy US economy bent on capitalizing on
its culture of innovation. China, India, Russia and others offered deep pools of intellectual capital that could be tapped by US innovators to move their ideas forward in a highly flexible, cost-effective
manner. Two years hence and the US dialog with the world has changed markedly,
reminiscent of the 1970s when rocketing energy prices, rampant inflation,
crushing interest rates and its conflict with Iran cast a pall upon market
sentiment and the mood of the entire nation. Question such as “Are the Arabs
going to buy the US?” and “Is the dollar ever going to recover?” were the issues of the day. Just
like today.
As bad as things seem, the US is a tough, resilient country of
innovators. It will take hard work to get the US back on track. Restoring
confidence in its financial institutions. Taking the bitter pill of a real
estate correction that will provide a healthy base off which to resume growth.
Committing to addressing the politically-sensitive overhang of Social Security
and health care costs, which if left unchecked will cost its children and
grandchildren a chance at economic prosperity. Fixing its own house is the only
way for the US to restore its position as a credible, thoughtful, and respected leader in an
increasingly balanced global stage. The time for painful change is now, for the
betterment of the US and the rest of the world.
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COMMENT:
AUTHOR: Mark Harrison
EMAIL: Mark@yourpropertyexpert.com
URL: http://markharrison.wordpress.com
DATE: 12/27/2007 01:48:14 PM
Apologies if you’ve answered this in a previous post (I only started subscribing to your blog yesterday), but your comment about “health care costs” has left me realising the depth of my ignorance about the US (I’m English, BTW, so obviously come from a place where at least a “basic safety net” of health care is provided to all out of general taxation rather than costed at the point of delivery.)
I have heard “policy claims” that having social medicine reduces economic competitiveness of a nation by increasing labour costs.
I have heard “policy claims” that high job mobility within an economy improves economic competitiveness of that economy.
I have heard “anecdotal” stories of US employees feeling they were effectively stuck in a job, because during that employment they were diagnosed with medical conditions that would remain covered provided they stayed with the same insurance policy, but by excluded were they to switch jobs, because at that the start of that policy they would be “pre-existing”.
I guess my questions are:
1: Is the “anecdotal” stuff really true (and if so, what information is there about how widespread it is.)
2: If it is true, has anyone done any hard analysis of how MUCH social medicine IMPROVES economic competitiveness, and whether this improvement is sufficient to offset the drag it causes.
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COMMENT:
AUTHOR: Dave
EMAIL: frieddave@gmail.com
URL:
DATE: 12/27/2007 02:08:43 PM
So, lemme guess….you’re a “glass is half empty” kind of guy?
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COMMENT:
AUTHOR: Roger
EMAIL: roger@informationarbitrage.com
URL: http://www.informationarbitrage.com
DATE: 12/27/2007 02:30:55 PM
Uh, guessed wrong, Dave. I am actually a passionate optimist. But there is profound difference between being optimistic and being delusional. As an investor and a market-watcher hope, per se, doesn’t really enter into the equation. I call it as I see it, and what I hope to see really doesn’t impact my assessment. Sorry if you find that depressing. I am optimistic about our ability as a people and as a country to wake up, but I am also impacted by the empirical facts which are that the current administration has done little to build fiscal health or discipline and our Congress hasn’t done the hard work of tackling either the health care problem or the entitlement system. And until these things happen we are, quite simply, destined to screw our children. And that is not an issue of optimism or pessimism. It is one of objective reality.
Mark, great questions. I’ll tackle them in a separate post. I don’t have all the facts and data but I feel confident in saying that the US system is terribly broken and is neither providing the best care the world has to offer nor providing it broadly enough. But a cocktail conversation answer does not do your question justice. Another time.
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COMMENT:
AUTHOR: Tim
EMAIL: tim.ludwig@gmail.com
URL:
DATE: 12/27/2007 02:50:14 PM
Roger,
I agree with your analysis and conclusions, but I’m left wondering what role you would ascribe to individuals in the U.S. to help ensure a safe and prosperous future…surely better government isn’t the only lever that can be pulled?
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COMMENT:
AUTHOR: Sid
EMAIL: s@s.com
URL:
DATE: 12/29/2007 08:30:47 AM
I was a little thrown by one sentence in the first paragraph: “…that can only be checked and not stopped?”
Since “checked” means - To arrest the motion of abruptly; halt. - I read that line as “…that can only be stopped and not stopped?”
I assume you mean slowed.
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COMMENT:
AUTHOR: Agoracom
EMAIL: Georget@agoracom.com
DATE: 12/30/2007 01:41:47 PM
“The time for painful change is now, for the betterment of the US and the rest of the world.”
Unfortunately, politicians run the country and their time for painful change is when the next guy comes to office.
As such, the market will decide when the time for painful change occurs. The sooner the better…and it will be sooner.
In the meantime, I’d love to hear your ideas on how to profit from the pain. Gold? Puts? Cash?
Best,
George
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2 years ago
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