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American Economic Recovery Is An Illusion

Posted by: : Paul EbelingPosted on: January 31, 2014 American Economic Recovery Is An Illusion

American Economic Recovery Is An Illusion

Financial markets and the surrounding cheerleaders are broadcasting the US economic recovery, but it may be an illusion, according to Stephen Roach, a Yale University economist and former Morgan Stanley Asia Chairman.

Mr. Roach said the good news is that GDP appeared to grow in 2-H of Y 2013, the official jobless rate is down and the US Fed feels confident enough to taper back on its mountain of monetary stimulus.

“But my advice is to keep the champagne on ice,” he said. “Two quarters of strengthening GDP hardly indicates a breakout from anemic recovery. The same thing has happened twice since the end of the Great Recession in mid-2009. . . . In both cases, the uptick proved to be short-lived.”

Mr. Roach suspects most of the “growth” the nation has experienced is derived from inventory re-stocking by companies rather than actual sales. In reality, he said, the nation is caught in the vice of a continuing “balance-sheet recession” among consumer households.

“In the past, when discretionary spending on items such as motor vehicles, furniture, appliances and travel was deferred, a surge of ‘pent-up demand’ quickly followed.

“Not this time. The record plunge in consumer demand during the Great Recession has been followed by persistently subpar consumption growth.”

Roach compared the American consumer to Japan’s corporate “Zombies” aka, companies that have been rendered essentially lifeless by balance-sheet problems for years on end, but which are still in business.

He noted the debt/income ratio for American households is now down to 109%, but is 35% higher than the average of recent decades.

According to Mr. Roach, lower interest rates are “nothing more than a temporary subsidy from the Fed,” and if the number of jobless who have given up looking for work were factored into the unemployment equation, the true jobless rate would be over 11% and not the official rate of 6.7%m it is fake, and not even a college degree guarentees a good job in the USA.

HeffX-LTN shares Mr. Roach’s pessimism. But, Olivier Blanchard, chief economist for the International Monetary Fund (IMF), said economic growth has arrived both in the United States and at the global level.

Mr. Blanchard concluded that both the developed and the emerging market nations should experience growth in Y 2014.

While the global recovery is “weak and uneven,” Mr. Blanchard said it is stronger in the United States than in Europe, and that emerging markets (EMs) should also participate in the uptick this year.

He described the threats to the IMF’s Y 2014 outlook as being the possibility that efforts to return to normal interest rate policies among sovereign states could go awry, and that deflation could gain a foothold in Europe.

Stay tuned…


Paul Ebeling

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Paul Ebeling

Pattern Recognition Analyst, equities, commodities, forex
Paul Ebeling is best known for his work as writer and publisher of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly-regarded, weekly financial market letter, where he enjoys an international audience among opinion makers, business leaders, and respected organizations. Something of a pioneer in online stock market and commodities discussion and analysis, Ebeling has been online since 1994. He has studied and worked in the global financial and stock markets since 1984.

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