Rebuilding Year For the Greenback! The U.S. dollar might be our home team, but when I look at the upcoming season I don’t really see many positive signs! Our dollar is weakening and the US is left to suffer for it!
As was evident by a housing and credit collapse, the U.S. economy finished off last year on a major slide. Analysts were expecting a rough journey for the world’s largest economy going into 2008 . And now, after a poor and sad first quarter, we need to just face the fact that “we are in deep trouble mister”; we should go back to the drawing board…It’s a rebuilding year for us.
After all, you can’t expect much success when your offense is slumping, and your defense is full of holes.
What’s affecting our game?
1. Consumer Spending
You’ve heard about it I’m sure — consumption makes up nearly three-quarters of U.S. gross domestic product (GDP). When consumers are buying, the U.S. stands head and shoulders above all other major economies.
But today that dynamic is shifting. Regular John Consumer Smith has dug himself quite a hole. Debt as a percentage of GDP has spiked to around 130% — talk about being behind in the count!
Plus, tightening credit and surging inflation are barreling down on consumers like a fastball.
Week after week, we get new word of financial institutions increasing their loss estimates to cover their exposure to bad debt, and mortgage companies owning up to hundreds of millions of dollars in subprime-related losses.
The end result: Fewer and fewer institutions are willing to lend money while they try to shore up their balance sheets. That doesn’t bode well for consumers, who need loans to spend.
1. A Weakening Employment Outlook
A healthy labor market is necessary for a successful economy! No Doubt! That’s because steady job growth surges consumers’ spending power and positively impacts an economy’s bottom line.
Without the working class driving production, earning money and pumping it back into goods and services, the economy risks spiraling out of control. It becomes a vicious cycle.
The latest numbers look bad:
- Average weekly jobless claims figures are running 20,000 units higher than last year’s average …
- The U.S. economy lost 17,000 jobs in January …
- And on the 7th we learned that February was an even bigger let-down, 63,000 jobs!
It only gets worse when you look at workers’ wages. Factoring in rising consumer prices, real average weekly earnings fell 0.5% in January and changed very little in February. We will be getting new information regarding the Consumer Price Index that will be something the Fed will look at next week when they meet. The CPI tends to be a good measure for inflation. Michigan state will also come out with the report of Consumer Sentiment so we get a feel for what consumers confidence levels are.
3. A Flimsy Federal Reserve
When your offense is powerless and your pitching is demoralized, you can’t expect your defense to seal up a victory all by itself. Nevertheless, they at least need them to stop the bleeding.
That’s what the Federal Reserve is there to do — respond to incoming growth and price data and do their best to keep it all under control.
Monetary policy must be “strong up the gut,” but this Federal Reserve is anything but strong. As the data comes flying at them, they remain inflexible and flat-footed.
Heck, Ben Bernanke is out there in left field creating a comedy of errors!
He’s lowering rates even though banks have no desire to lend it back out to consumers …
He’s ignoring inflation concerns along the way …
And he’s showing a complete disregard for the health of the country’s currency!
So for goodness’ sake, Ben, grit your teeth, patch up the weak spots, and do what’s best for the economy in the long-run!
Don’t drag us slowly from the grips of recession and then straight into the mouth of inflation. Give consumers the opportunity to save, let the job market work out the kinks, and the dollar just might conquer the global economy once again.
It’s a rebuilding year for crying out loud! Or at least it should be!
Note:
My Next Article Will Tackle What the Government and Federal Reserve Can And Should Do To Help The Issue Of Inflation Which Is, In My Opinion, Our Greatest Threat Today.
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