Taking a Holiday from Austerity
Over recent weeks, as we have visited and reviewed a number of seemingly quite disparate economies around the globe, one of the features that has stood out most clearly has been the extent to which implied labour productivity rates have tumbled of late in many countries around the world.
A quick trip to the US last month revealed numerous points of interest. Firstly, and least positively, the horse-trading, politicking and general level of nastiness surrounding the budget process for the various financial bailouts that have so far been mooted is at least as severe - and downright Machiavellian - as at any other time in recent history and it is now clear that Capitol Hill has little more stomach or ability to pass further 'bailout bills'. It seems that the much hyped Obama fiscal response and the various Paulson and Geithner rescue plans have exhausted not only the country's ability to finance these programmes but probably the politicians' ability to pass them as well. The US private sector is, therefore, effectively now on its own with regard to deciding its own future - it seems that Uncle Sam is now running out of money despite the Fed's efforts at "printing more", as the rather twitchy behaviour of the Treasury bond markets has been signalling for some time now. Despite signs of potential price deflation in the economy and the Federal Reserve's promise to start buying bonds, government bond prices are drifting lower at present, a rather worrying trend that will potentially increase borrowing costs across the economy at a most inopportune moment.
As for the situation within the US private sector itself, we find two quite opposing trends at present. In the short term, US households are evidently pleased to have simply survived the tumultuous events of the final quarter of last year and to have succeeded, despite the awful economic environment, in the task of raising their cash flow into positive territory for the first time in over a decade. After years of deficit spending (i.e. total expenditure was well above post tax income receipts), US households are now in aggregate saving once again, although the cost of this transformation in their financial position was of course an unprecedentedly weak level of consumer spending in the economy during late 2008.
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Andrew Hunt, Tyndall