The Economy Will Decide
The Economy Will Decide
The Economy Will Decide
As in the theater, the second acts in politics are more difficult to write.In addition to the U.S. returned to the path of economic growth after the biggest financial disaster in eight decades, the president Barack Obama has closed the first half of his mandate with the passage of more laws throughout the fruitful period of the Great Society in the sixties, under President Lyndon Johnson. stimulate the economy ,health reform and financial system , guarantees of fair pay for women, extending the Bush tax incentives the list is long and varied. In addition, Obama has accomplished in just two months put back the setback suffered in the November elections at the hands of the opposition. The strike, which is close to 10%, is the great stain on the history of these two years and perhaps the greatest obstacle in the way for re-election of the first black president in U.S. history.
But what will happen in 2011 and 2012? This week Obama will give his State of the Union with a new balance of power in Washington: Republicans control the House of Representatives and may exercise the blocking minority in the Senate. For the Democrats, the key to the next 22 months will be whether the electorate will be able to feel the economy is improving, and that forces you to redirect its strategy toward the center.Technically, the great recession ended in the summer of 2009, but the recovery is so slow that the ordinary citizen just the note.
There will be, therefore, two years easy, and these first few weeks will set the tone of the second half of the mandate. Public spending clearly dominate the legislative agenda until the 2012 elections.That's where Obama will side with the opposition, which soon begin to negotiate the budget to take effect in September.
Democrats and Republicans must also deal together another dark spot on the economic and political future of the U.S.: the degradation of the country's finances during the Great Recession.U.S. gross debt is now at 14 billion dollars, equivalent to over 90% of GDP and is expected to exceed April from the ceiling of expenditure of 14.3 billion set by Congress. That is, the government will run out of money if not extended by that margin. Ben Bernanke, Federal Reserve chairman, is a year asking for a plan to let the deficit continue to fatten the account. Current year, Bernanke said, is "unsustainable."
Before leaving for Hawaii for Christmas vacation, the president said it is "vital" to invest in "things that create an innovative economy" and "cut programs that do not work." Go back to the struggle between the two parties: the Republicans have already shown their muscle by passing a motion in the House of Representatives to dismantle the health reform adopted by the Democrats. The vote, which was delayed because of the tragedy in Tucson (Arizona) , was symbolic, because the move can not succeed in the Senate, and if you exceed this step, the president would veto it.
Republicans seek roughly cut spending to 2008 levels, about 100,000 million, with 20% cuts in education and transport.But the problem does not end there. The White House also needs to make proposals to change the tax structure to raise revenue and make the collection more efficient combating fraud and abuse. Washington, naturally, stands for division. And although the ultimate goal may be the same, Democrats and Republicans differ on how to achieve it. This becomes even more evident with respect to taxes.
A Barack Obama will be playing, therefore, traversing a hostile political climate, as did Ronald Reagan and Bill Clinton, and should put on the agenda items that pass the bipartisan border, such as reducing the tax burden to businesses. Obama, however, faces a more delicate economic situation. Therefore, from the bank Wells Fargo will believe that any important decision until after the presidential election of 2012.
Socit Gnrale claims that the problems come from then because the decision to extend the tax incentives is not accompanied by measures to reduce the deficit. In contrast, only serves to increase it. And that, he says, increases the uncertainty. The recommendations of the bipartisan commission to deal with debt, he says, are a starting point for future decisions.
Obama, like Reagan, is known for its ambition and for being an ideologue. But it is also a pragmatic politician, which helps to adapt to circumstances. This explains the profoundremodeling is carried out in his team of advisors , veterans of the Clinton Administration and a profile more favorable to business interests. They are Gene Sperling, Jacob Lew, Austan Goolsbee and Jason Furman, as well as centrist William Daley as chief of staff.This week they were joined by the chairman of General Electric (GE), Jeffrey Immelt, who is responsible for the new Council for Employment and Competitiveness, a government agency to replace the Economic Recovery Council, headed by former president Federal Reserve (Fed), Paul Volcker.
Employment, housing and the deficit will set the pace of the Federal Reserve during the next two years. In principle, it is expected that the central bank remains active until June of repurchasing debt. But as economic data improve, the pressure will be increased to reduce stimuli. Regarding interest rates, inflation gives leeway to keep close to 0% until 2012.
The price of money can also rising sharply if investors lose confidence in U.S. ability to put their accounts in order, and if Democrats and Republicans opt for the next two years to throw things at the head instead of compromises. "And that can be potentially harmful," alert from the Council on Foreign Relations.
At this point, Bernanke was clear two weeks ago in the Senate. The cost of this situation, he said, is "severe economic and financial markets if left uncorrected." Or to put it in reverse, "the prompt adoption of a program to reduce future deficits will strengthen the growth and long-term stability and will leave rates low for an extended period."
Both Wall Street and Washington are hoping that this year the economy will show that it is able to sustain itself without the aid adopted following the earthquake triggered by the collapse of Lehman Brothers in 2008 . There are signs that, finally, growth is gaining strength in the U.S.. Private consumption, which depends on two thirds of its Gross Domestic Product (GDP) advanced at the end of 2010 at a rate of 4%.
They have also picked up orders in industry and manufacturing. For Goldman Sachs, both data suggest that "domestic demand steadily advancing." Nine of the ten leading indicators compiled by the Conference Board, which help predict the evolution of the economy are positive for months. The only one that remains red is for the real estate sector.
The crisis has forced Americans to review how they spend, has reduced its debt and high savings. The level of personal debt compared to disposable income is around 11.9%, according to the Federal Reserve, the lowest level since 1999 and less than 14% just before the recession. "A significant improvement," the Economic Outlook Group, but the hole remains deep.
There is optimism among managers of small and medium enterprises and among executives of large corporations, which stood at levels close to pre-recession. "Step by step", said since the conglomerate General Electric. Also, consumers seem less burdened than last summer, judging by the polls at the University of Michigan and ABC.
"The legs are stronger economy," said PNC Financial experts are convinced that the activity is on track "toward a more durable recovery." The two-year extension of tax incentives for George W. Bush will have a positive effect this year and next.The Goldman forecast, based on these data is that growth up to 3% in the fourth quarter of 2010 compared to 2.6% in the third, and maintain that pace in 2011.
Socit Gnrale as 3.3%. The question is whether growth is translated into prosperity for what Americans call Main street , that is, for ordinary people. The answer is that the situation is improving but is still far from out of the hole. Conference Board data show that although most households have a healthy balance and are willing to spend more, caution dominates. In fact, the confidence index is at 52.5 points away from the 90 that indicate the economy is healthy and not achieved since 2007.
Wells Fargo economists believe this year will be "turned the corner", that people will notice that things are better than in 2010. But that point does not mean that there will be a return to normal. "There will be progress, yes, but not to the point where friends, family and colleagues are satisfied with the job prospects and their future."
The city of Los Angeles, Chicago and Albuquerque does not need a political analyst in Washington or New York to tell you how things are going, and has reason to believe that things will go better in the short term. Nor is it true that the Dow Jones closed 2010 with an increase of 11% and scored his second consecutive year in green.
And is that just a year ago at this time in the U.S. are breathing the same sense of optimism. What did Wall Street, Federal Reserve, the White House and international agencies. Until it all fell apart so abruptly with the outbreak of the crisis of European sovereign debt and it was feared a relapse. The IHS Global Insight analysts say this year will be different. To support his argument are set on four things: increasing business investment in equipment, computers and communications employees work more hours, more money is circulating in the system and the values of the S & P 500-stock index's largest companies is at levels seen before the fall of Lehman. Shall, in the best case scenario, "a mild rebound."
The Conference Board notes that there are still clouds over the medium term and that will cause the average citizen still see things differently. "It is the dual reality" that, according to the Economic Policy Institute, "will continue to dominate in 2011." All analysts agree that the biggest problem, the cloud is the persistently high unemployment rate is at 9.4%. Are about 14.5 million Americans, 44.3% of them long term.
The Federal Reserve itself admits in the minutes of the last meeting. The recent strength of economic indicators "not enough" to justify a change in its strategy of stimulating the economy. In other words, there are still risks that push in the opposite direction of growth and, in the words of Ben Bernanke, will be five years until things normalize. The slowdown in growth, he says, prevents the recruitment exceeds 100,000 new jobs a month, which makes the great concern over the medium term future is the job market. The unemployment rate in the IHS predict, will continue at over 9%.
If for the 2012 elections has not fallen below 8%, it will be difficult for the tenant in the White House will be reelected. There are, however, good news. The private sector added 297,000 net jobs in December, the biggest on record, perhaps driven by a more favorable tax climate. CareerBuilder is anticipated that more companies are able to sign more full-time permanent contracts in 2011 (24%) than in 2010 (20%) and 2009 (14%).
There are also those who intend to continue reducing staff (7%), but less than last year (9%) and anterior (11%). The rest expect no change (58%) or unsure (11%). Manpower believes the hiring plans of companies are "most promising" in two years. "The momentum in hiring is imminent," Barclays added.
At Mesirow believe that there are better prospects since 1983. That is, if expectations are met, the economy could generate about 200,000 jobs per month in 2011. "If sales are better, there is no reason why the job does not follow the same trend," he added at Credit Suisse. What about salaries? The modest increase is expected there, at around 3%. To fit all the puzzle pieces will not be easy after the mess lived for the past three years. The house will be another point of attention in this second act. After signs of recovery in the spring, the price falls back. There are about 10 million homes "under water" (with a larger mortgage than they are worth today) and 1.2 million at risk of eviction.
Although home sales rose 5.5% in November, the activity remains depressed, at levels not seen since 1981. The end of the tax incentive to buy housing sector got the brink of a second recession, as indicated from S & P Case Shiller. All this explains, according to IHS, prices fall 10% more for excess supply. And if home values fall, people feel poorer.
The evolution of employment, not only by the unsustainable rate of unemployment, but also by the perception of safety in the workplace and salary, will be key to real estate out of this spiral to which output is not seen at the earliest, until next spring. And economists are clear that while they remain stuck there will be no real recovery.
Meanwhile, core inflation (which excludes volatile items like energy and food) is at 0.8%, its lowest level in half a century.And with the current unemployment level, prices could go even less, 0.5% in 2011 and remain at that level in 2012. That, in principle, it gives leeway to the central bank to keep rates near 0%, says Goldman.
But some prices are rising, such as food, clothing and transport, and this is reflected in bills later this month and forcing families to pay more attention to what you put in the basket. And the picture is now added the rise in oil prices, which threatens to become an "additional tax" for consumers.
This year is also significant for being the first in which the impact will be felt a wave of retirements among the generation ofbaby boomers. The pension system is literally insolvent in its present structure. The reform, therefore, is urgent. Here again, the ideological division in tackling the debate on how to update a system designed to protect the elderly is abysmal.
And it will also key to bring the paper to reality of financial regulation, aimed at solving the problems that led to the Great Recession. So far it has been more talk than action.One of the real changes will start operating when the new consumer protection agency, which will be addressed in the shade by Elizabeth Warren.
With the uncertainty and volatility in 2010 and in the rearview mirror, Obama says it's time to look ahead. The challenge will be to convince politicians of both parties together to underpin recovery. "There will be time in 2012 to campaign," he said.The first act ended. Now you need to consolidate what has been done if you want to secure his reelection.
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