And now for a good word about the economy
I’m getting tired of headlines that claim “Deficits Up,” when they’re really down or “Hyperinflation Coming,” when our slow-growth economy has been holding inflation at historically low levels. Supposedly, we’re wrecking America for our grandchildren, not to mention ourselves.
So I thought I’d share a positive view of the economy, from Allen Sinai, chief global economist for Decision Economics.
Sinai is betting on several years of expansion in the United States. Stronger growth next year, at 3 percent, still might not match that of other upturns. That’s because government purchases (adjusted for inflation) will continue to decline, cutting maybe 0.75 percent off gross domestic product, he says. Growth in the private sector, however, could reach 4 percent. An improving U.S. economy will drag the global economy with it.
Sinai’s reasons for optimism? Europe appears to be bottoming out, Japan is finally growing again, the Federal Reserve says that it will keep short-term interest rates near zero, inflation remains low and stable (it could rise a little, but without harm), unemployment is declining, consumers have lowered their debt and increased their spending, construction and housing are heading up, and corporate earning should speed up. In fact, he says, “non-financial corporations are arguably in the best financial shape ever.”
Naturally, there are risks. Sinai’s list includes uncertainties in China, the potential for a new crisis in the Eurozone, damaging fiscal policies in Washington, and a widely spreading war in the Middle East, bringing higher oil prices and a spurt of inflation. But there are always risks in any economy. Investors awaiting a risk-free moment will never act.
Sinai’s outlook leads to a forecast of new and repeated stock market highs, on rising corporate earnings and relatively low interest rates. Higher stock values and home prices will improve consumer balance sheets and support a higher pace of spending. We’re in an era of “tight-fiscal, easy-money policies,” last seen in the early 1990s, Sinai says.
A rerun of the early 1990′s? That would be just fine.