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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

Category: Macro/Big picture
October 8, 2012 at 10:30 AM

October, beyond the election

Whatever happens in the American electioneering over the next month, here are a few things to watch that touch only peripherally on the campaigns:

1. Slowing in Asia. The World Bank today lowered its growth forecast for East Asia and the Pacific region, chiefly because of China’s ongoing slowdown and lack of effective stimulus. This will have a direct effect on the Pacific Northwest because of our trade dependency on Asia (China is Washington’s No. 1 export destination).

2. The eurozone. Yes, this is getting old, but it’s not getting better. Greece is still in the monetary union, barely. Germany continues to resist more aggressive measures to restart growth. Austerity is causing a deep recession in many eurozone nations. It’s amazing how far they can kick the can down the road. But the best outcome on this trajectory is a long downturn complete with social unrest. The worst: A sudden crisis that causes all the dominoes to fall down.

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Comments | More in China economy and business, Debt ceiling debate, Dollar, Eurozone, Federal Reserve, Interest rates, Macro/Big picture, Oil prices, Outlook, Pacific Northwest economy, Politics and the economy, Stock market

April 19, 2012 at 9:30 AM

A spring slowdown? Chances are strong

Jobless claims are moving higher and new reports show weakness in manufacturing and (continued) problems in housing. The Wall Street Journal wonders if the economy faces a “spring stall.” You can’t count on it, but you can’t count it out.

The European crisis is getting worse again. China has slowed down. At home, one of the biggest problems is continued job cuts by government. The closest event to the Great Recession was the 1981-82 recession. But coming out of that, the Reagan administration spent big to raise public-sector employment. States hadn’t been hobbled by 30 years of tax cuts and tax limitation measures. This time, the public sector has lost nearly 200,000 jobs and, the Economic Policy Institute argues, those “these extra government jobs would have helped preserve about 500,000 private sector jobs.”

A housing recovery won’t come until at least 2020, one more reason to pivot the economy away from its dependence on this sector. Another problem: The jobs that have been created since the end of the recession have disproportionately gone to those at the top and bottom of the income range. Those in the middle have been left behind.

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Comments | More in China economy and business, Eurozone, Income/living standards, Macro/Big picture, Outlook, Real estate, Recovery

September 6, 2011 at 9:33 AM

Stormy September

Today’s selloff on Wall Street is only the beginning of what we should expect from September. The global economy is slowing. The American economy is close to a double-dip recession or is still in one, the old-fashioned metrics no longer useful. Europe is a mess: Behind the so-called sovereign debt crisis are big banks that made bad bets (sound familiar?), and a monetary union on the brink. As the nest-eggs of average Americans evaporate, there’s only so far they can max out the credit cards to keep the vaunted consumer economy going.

Austerity will only make things worse, as has been happening in Europe. Nobody expects a bold move on jobs from President Obama, who is looking more and more like a one-termer no matter what outrageous things are said by the GOP field, especially the front-runners. Obama, a creature of Wall Street and Robert Rubin’s obsession with pleasing the bond playerz, will only add to the rolls of jobless as public-sector jobs continue to be eliminated.

None of these issues can be addressed quickly anyway. That is, even if our leaders were speaking truth to the American people and taking serious measures.

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Comments | More in Deficit, Federal debt/deficit, Federal Reserve, Great Recession, Income/living standards, Macro/Big picture, Recovery

February 15, 2011 at 9:25 AM

Resident evil: Is it the deficit — or irrational fear of the deficit?

It’s almost pointless to get too deep in the weeds of the Obama budget, because whatever emerges from the congressional sausage factory will look far different. That said, we can make some assumptions. The Obama budget is probably the high end of scenarios for those who, say, are as concerned about upward economic mobility, the middle class and social justice as propping up the too-big-to-fail banks. It’s also likely the best hope for investments in infrastructure and education that would enhance economic productivity, and thus the tax base, in the future. And in all these areas, it’s middling at best.

The meme that has successfully taken over the debate is the deficit. For example, a story today reports that the deficit represents the largest share of the economy since 1945. It adds, “And within two or three years, economists fear the result could be sharply higher interest rates that would slow economic growth.” Well, maybe. The high deficit has done nothing to dampen demand for Treasury debt and interest rates remain quite low. Nevertheless, even the Obama administration is on board with deficit mania. America won’t “be running up the credit card anymore,” the president said. Republicans promise to slash $100 billion this year to appease Tea Party activists.

Amid the deficit hysteria, it’s important to remember its two major causes: The worst recession since the Great Depression and two wars, along with many other military commitments, that have lasted longer than World War II. As in 1945, the year the war ended and the deficit was even higher. Such was one of the reasons that taxes were above 90 percent on the rich in the 1950s: To pay off that debt.

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Comments | More in Deficit, Infrastructure, Macro/Big picture, Politics and the economy

December 31, 2010 at 11:00 AM

Markers for the economy in 2011

Before I wobble-off to the martini-infested precincts of New Year’s Eve, here are some things to watch in the coming year. It’s not a forecast, but rather some important focal points that will have an outsize bearing on how the economy performs. Add your own in the comments section, and have a great New Year.

1. Will growth in gross domestic product translate into robust job creation and better wages for more Americans? One forecasting firm sees growth next year at 4.4 percent, a rate that traditionally would have caused large spurts of hiring. In recent years, GDP and the Dow have told less about the condition of average Americans. We’ll see how offshoring of jobs and much leaner, and more profitable, companies affect the old GDP-jobs calculus. Little in the forecasts indicates that the relatively stagnant average wages of the past three decades will change. And even the most optimistic GDP forecasts still mean years of high unemployment?

2. Will the stimulus of extending the Bush tax cuts, including for the richest Americans, offset or even outweigh the falling off of the real stimulus enacted in 2009? If history is a guide, they will, at best, make the rich richer but not produce many new jobs. But maybe this time is different. Still, it will be fighting the headwinds of states losing federal stimulus money, projects winding down and the end of Census hiring,

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Comments | More in Banking, Deflation, Dollar, Energy, Eurozone, Federal Reserve, Global economy, Great Recession, Income/living standards, Jobs/Unemployment, Macro/Big picture, Outlook

November 23, 2010 at 10:20 AM

Danger signs in the heart of Asia’s economy

Today’s artillery duel between North and South Korea involved some 175 shells, according to the New York Times. That’s no mere border incident, and a reminder that the world’s atomic-armed crazy aunt lives in the attic atop one of the epicenters of the global economy. Surely no rational nation would escalate its grievances into a world war — but is North Korea rational? Its masters have refused to join Asia’s dynamic prosperity, letting their people starve in the service of an ideology.

And China. Surely this rising world power will restrain North Korea, which depends on Beijing as its only ally. Yet China has been reluctant to accept the responsibilities that come with its growing power. And great powers, even with huge economic stakes to lose, can miscalculate, often when small, hot-headed players are also involved (See Germany, Austria-Hungary, Russia and Serbia, 1914).

So who knows what might happen, especially with North Korea apparently rapidly improving its nuclear technology. This is probably just another North Korea feint, hoping to be bribed to stop, the son coming to power. That’s what the experts say. And we know the experts are always right.

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Comments | More in China economy and business, International economy, Macro/Big picture

November 10, 2010 at 10:15 AM

A new gold standard? Another brick in the wall

You can read World Bank President Robert Zoellick’s opinion piece in Financial Times to see if he really urged a return to the gold standard. Many readers did, forcing Zoellick to walk back from the statement/misunderstanding. Any student of economic history knows that the world suffered more panics and longer depressions under the gold standard. Even convertibility of dollars-to-gold proved unsustainable and was ended by President Nixon.

It’s also not how business is done today, which is mostly in dollars with elaborate currency hedges built into the workings of major corporations. Zoellick’s deeper message was the need for a new world financial system, including coordinated exchange rates to ease imbalances and increase growth. Yet how would that work when China holds a huge advantage as a creditor — and as a currency manipulator to keep its manufacturing/export edge?

As I’ve written, a new world financial system is coming into being whether we like it or not, and it won’t be to our advantage. Yet so far, the dollar remains strong and the world’s reserve currency. Lucky for us.

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Comments | More in Global economy, Macro/Big picture

November 4, 2010 at 10:00 AM

The limits of monetary policy

Imagine if Herbert Hoover had won re-election in 1932, along with commanding majorities of conservative Republicans and Democrats in Congress. Or if Franklin Roosevelt had followed his true inclinations to balance the budget instead of being a shrewd experimenter? That’s about where we are now.

The tragedy of the Federal Reserve’s quantitative easing is that it can’t overcome the new orthodoxy of “austerity” in Washington (but, of course, not in defense and “homeland security” spending). The private sector is broken as a jobs machine for now. And the only way out is deficit spending on infrastructure and cutting-edge industries, which would repay themselves. This, by the way, is not the path President Obama took with his stimulus, which was largely wasted in small tax cuts and backfilling state government crises. It’s not going to happen, so the Fed is left as the stimulator of last resort.

But merely flooding the system with dollars translates into hot money bouncing around the world’s capital markets (that’s what’s driving the stock rally today). And the Fed already wasted precious resources bailing out the big banks, which in the Depression had to eat their bad bets and swindles.

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Comments | More in Bailout, Banking, Deficit, Federal Reserve, Great Recession, Jobs/Unemployment, Macro/Big picture, Outlook, Stock market

August 2, 2010 at 9:45 AM

The shuns of August: Why the economy is defying a traditional rebound

August is often a slow month for business news. It’s also a month when historically wars begin or are set to begin. I’m hoping for the former, so barring major news you won’t hear much from me this month. In the meantime, we now know a few painful truths about this so-called recovery.

We know that America faces a deep and structural jobs depression. Most statistics show unemployment pain more severe than at any time since modern statistics began to be kept in 1948. This isn’t 25 percent unemployment of the worst year of the Great Depression. But it defies any comparison to other post-World War II cycles, including the previous worst, 1981-82.

We know that although the largest non-financial companies are sitting on $1.8 trillion in profits, they aren’t hiring. They are uncertain about whether the economy faces a double-dip. They also know America and much of the world remains hugely over-leveraged. But many have found ways to do much more with fewer people and offshoring of work continues. Small businesses, meanwhile, continue to have trouble getting credit while start-ups and expanding tech firms face a very stingy environment for angel and venture capital. The flush capital markets remain detached from funding productive work and new jobs.

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Comments | More in Federal Reserve, Global economy, Great Recession, Housing, Income/living standards, International economy, Jobs/Unemployment, Macro/Big picture, Outlook, Politics and the economy

July 21, 2010 at 9:45 AM

Some essential Web sites for navigating uncertain times

Recently I offered some good reads to understand the causes of the Great Recession and the hole we’re now in. The Internet also provides a wealth of information, some good and some not-so-reliable. Here are a few worth bookmarking.

— In the shameless self-promotion department, you’ll find the most complete coverage of the Northwest economy and business on the Seattle Times’ business & tech page. This includes special reports such as the Northwest’s top companies and the WaMu saga. Be sure to check out Brier Dudley’s Blog, Sharon Pian Chan’s Microsoft PriO, Melissa Allison’s Coffee City and Kristi Heim’s The Business of Giving. You may follow many of these blogs on Twitter (including Sound Economy).

— Some of the best analysis and commentary on the financial crisis comes from The Baseline Scenario. Here you’ll find Simon Johnson of MIT, who has consistently been several steps ahead in dissecting the troubles on Wall Street and in Washington.

Zero Hedge does a great job of getting at the news behind the news. For example, the latest installment by Tyler Durden digs deeper into those sobering estimates of a four-year slog before the United States recovers the jobs lost in the recession. The more realistic date: 2021.

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Comments | More in Global economy, Great Recession, Macro/Big picture, Outlook

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