Debt in the United States

The NY Times takes a look at the US Debt and what it looks like in the future.

The Debt Buildup

Our federal debt is almost 100% of our GDP, which has not happened since WWII and will be a significant headwind to growth for the next decade. Fiscal discipline needs to return Washington.

Chimerica

Recent articles discussing the status of China - America relations:

The Great Wallop - NY Times Op-Ed By NIALL FERGUSON and MORITZ SCHULARICK

China has now become the biggest risk to the world economy - Telegraph By Ambrose Evans-Pritchard

Developing Economic Statistics

This article from the NY Times shows how economic statistics are misrepresenting the economy.

Grappling with these blind spots, nearly all of the 80 experts at the conference, which was sponsored by the Upjohn Institute and the National Academy of Public Administration, agreed that the statistics now published tend to overstate the strength of the economy. That view was shared by those who attended from the Bureau of Economic Analysis, the Bureau of Labor Statistics and the Federal Reserve, all big players in measuring economic performance.

The article primarily discusses how work done by foreign workers inflates the productivity gains of the U.S. workforce.

States are Finally Fed Up with Banks

Look for more litigation and states asserting more power over banks. States are pondering fraud suits against banks after the Supreme Court decision last June in Cuomo v. Clearing House. Banks will experience 50 states enforcing regulation against them, like the article below identifies, look for the states hardest hit by the housing crisis to take legal action first.

States Weigh Fraud Suits Against Banks - NY TIMES

I am eager to see how this plays out, the bankers cannot be happy about this.

Consumer Confidence Remains Low

The New York Times shares the latest reading on the state of the consumer:

Consumer Confidence Declines in the U.S.

Retail holiday sales numbers will be very interesting to watch, will the consumer really keep spending low to match their mood.

Small Business Owners Rate Economy

Here is the latest sentiment numbers from Discover's Small Business Watch:

55 percent of small business owners rate the economy as poor, up from 53 percent in September and 48 percent in August; 36 percent rate it as fair and only 8 percent say it is excellent or good.

For small business owners only 8% say the economy is good or excellent in October, when will this group start to feel the recovery. For more information go to the Small Business Watch survey.

From Joseph Kalish, a senior macro strategist at Ned Davis Research, the institutional research firm. Quote from Mark Hubert's article at MarketWatch, link below:

Kalish provided several reasons to expect inflation risks to be low over the intermediate term of less than five years:

• Excess capacity. Kalish says that any of a number of factors point to high levels of excess capacity in the economy right now -- everything from the unemployment rate to industrial capacity utilization rates to commercial real-estate vacancy rates. Those factors put "downward pressure on the inflation rate," he points out.

• Cyclical factors. Kalish points out that "following every recession in the postwar period, the inflation rate has fallen."

• Slower debt growth. The federal government's total debt may have mushroomed over the last couple of years, but this has been more than counterbalanced by deleveraging in the private sector. "Historically," Kalish points out, "when debt growth has been below trend, the inflation rate has declined."

• High real interest rates. Nominal interest rates may be low, but real interest rates (the difference between long-term Treasury yields and the consumer price index) are at abnormally high levels right now, according to Kalish. High real interest rates "tend to discourage the use of debt and, therefore, excess consumption and investment, which puts downward pressure on the inflation rate."

Based on this analysis we should expect to see inflation in 2012-2013. I would add to these points rents will remain constrained in the near term, putting further downward pressure on CPI.

Why inflation could stay low for awhile Mark Hulbert