Global Economy Worsening, But America is on Top by Gary D. Halbert
FORECASTS & TRENDS E-LETTER
by Gary D. Halbert
November 18, 2014
IN THIS ISSUE:
1. Global Economy Worst in Two Years in New Poll
2. The Global Slowdown Goes Well Beyond Europe
3. Disinflation/Deflation Worries Continue to Intensify
4. Obama Immigration Threat – Will He Really Do It?
5. Obama’s China Climate Deal – Beijing Gets a Pass
6. Obama’s $3 Billion Climate Giveaway – Stop It
7. Obama Wants Uncle Sam to Regulate the Internet
With President Obama making controversial moves on several fronts this month, it is tempting to go all politics this week. The president is threatening to grant defacto amnesty to five or six million illegal aliens, via Executive Order, even though he knows this is unpopular among the American people. It’s as if he’s in full denial regarding the landslide midterm election results.
In addition, he signed a controversial climate deal with China that will hurt the US economy and allows China to continue building more coal-fired power plants and increase emissions annually until 2030. Obama and the media hailed it as one of his landmark accomplishments. It wasn’t.
At the Asian summit he attended last week, Mr. Obama pledged to give $3 billion of US taxpayer money to emerging countries to help them work toward clean energy and tackle climate change. Hopefully, Congress will block that pledge.
Last week he also threatened once again to veto the Keystone XL Pipeline if the Senate passes it and the bill gets to the White House, which could happen soon. Obama wants us to believe not only that the pipeline will harm the environment, but his latest ruse is that the pipeline will only benefit Canada and not the US. That’s hogwash!
And if you missed it, Obama announced last week that he wants the federal government to regulate the Internet. That would be a disaster! More details as we go along today.
But rather than devote the entire E-Letter to politics, let’s start with a new report on the slowing global economy. According to the latest survey from Bloomberg, the global economy is in the worst position in two years. Fears of deflation are growing in Europe and elsewhere.
Global Economy Worst in Two Years in New Poll
The world economy is in the worst shape in two years, with the euro-zone and most emerging markets deteriorating. As a result, the danger of deflation is rising, according to a new Bloomberg Global Poll of international investors.
A plurality of 38% of those surveyed last week described the global economy as “worsening.” This is more than double the number who said that in the last poll in July and the most since September 2012, when Europe was mired in a recession.
Much of the concern is again focused on the euro area. Almost two-thirds of those polled said the euro economy is weakening, and 89% see disinflation or deflation as a greater threat there than inflation over the next year.
Most respondents said the European Central Bank (ECB) and the region’s governments are making the situation worse by pursuing monetary policies that are too-tight, and fewer expressed confidence in ECB President Mario Draghi and German Chancellor Angela Merkel.
The euro has declined significantly against the US dollar since the middle of this year. The 18-country euro-zone eked out weak economic growth in the 3Q, only 0.6% (annual rate), underlining how Europe is still struggling to escape its six-year slump. Germany barely grew at all, while Italy fell back into recession in the 3Q.
The euro-zone economy has deteriorated this year and will likely get worse if there are no fiscal policy actions from core European countries, Germany in particular, many believe. However the ECB is well aware that monetary stimulus isn’t a silver bullet, so it has been reluctant to go there. It remains to be seen what will be done going forward.
The Global Slowdown Goes Well Beyond Europe
Europe isn’t the only source of concern in the global economy, according to Bloomberg’s latest quarterly poll of international investors, traders and analysts who are Bloomberg subscribers. More than 50% of those contacted said conditions in the “BRIC” economies – Brazil, Russia, India and China — are getting worse, compared with 36% who said so in July.
China’s economic slowdown worsened again in October as factory output rose at the second slowest pace since 2009, a government report showed last week. China’s juggernaut economy is definitely slowing down.
The sole bright spot in the latest Bloomberg survey was the US. Just under two-thirds said the world’s largest economy is steadily improving, albeit slowly. Roughly half said the US markets would be among those offering the best returns over the next year. China’s and India’s markets were a distant second at 22% each.
“In comparison to the other major economies, we are head and shoulders the strongest of them all,” said Brian Dolan, who took part in the poll and is chief market strategist for DriveWealth.com, an online investment broker in New Jersey.
Unemployment in the US dropped to 5.8% in October, the lowest level in six years, and employers added more than 200,000 workers to payrolls for a ninth consecutive month, based on figures released on November 7 by the Labor Department.
Disinflation/Deflation Worries Continue to Intensify
While the US economy may be the best performer among developed nations, America hasn’t been immune to the growing nervousness among investors about disinflation or deflation unfolding. Almost half (47%) said that disinflation and deflation are a greater risk for the US than inflation over the next year, up from 31% in July.
Inflation was only 1.4% (annual rate) in the US in September, as measured by the Personal Consumption Expenditures Index (PCE) that the Federal Reserve prefers to gauge inflation. That was the 29th straight month that the PCE was below the Fed’s 2% target.
Yet concerns about disinflation and deflation are much more serious in Europe and Japan and other foreign countries.
The European Central Bank is having more difficulty than the Fed in meeting its inflation objective. Consumer prices in the euro area rose only 0.4% from a year earlier in October, up modestly from a five-year low of 0.3% in September, according to data from the European Union’s statistics office. That’s less than a quarter of the ECB’s target of just below 2%.
A plurality of 43% of respondents in the Bloomberg survey described the ECB’s monetary policies as “too restrictive,” up from 31% in July. ECB President Mario Draghi’s popularity with investors took a hit in response. Less than 60% viewed him favorably in the latest poll, down from 74% in July.
Mr. Draghi has said frequently this year that he will enact monetary stimulus (QE) similar to what our own Fed has done in recent years. Earlier this month, he promised to step up efforts to boost inflation to the ECB’s goal, suggesting the central bank will buy about 1 trillion euros (US $1.25 trillion) of securities. But like earlier promises, that remains to be seen.
Some 57% of those surveyed by Bloomberg believe the austerity measures enacted in the euro-zone have been too severe. French and Italian officials agree and want it to pursue more stimulative budget policies, despite the long-term consequences.
German Chancellor Angela Merkel’s approval rating plunged in the latest Bloomberg poll. Almost half, 45%, saw her policies as favorable to investors, but that was way down from 72% in July, and her lowest rating in almost three years. European investors were the most pessimistic about her policies.
In addition to the euro-zone, Bloomberg survey respondents also worried that Japan’s economy faces the danger of disinflation and deflation. Almost three-quarters viewed that as a greater threat to the Asian nation than inflation over the next year, up from 58% in July. Japan’s economy is now officially in a recession based on a government report issued yesterday.
In conclusion, the US economy seems to be the strongest among the developed nations, even though growth is well below the long-term averages. Europe continues to struggle, as does Japan and the BRIC countries, and China is seeing a rapid deceleration in its economic juggernaut.
Disinflation/deflation is threatening numerous developed countries around the world. The question is whether or not it will visit our shores as well. Time will tell. I’ll keep you posted.
And now some comments on President Obama’s latest flurry of controversial proposals, despite the drubbing he and fellow Democrats took on Election Day.
Obama Immigration Threat – Will He Really Do It?
President Obama has wanted to grant blanket amnesty to some five to six million illegal aliens ever since he was elected in late 2008. The question is, why didn’t he pursue this in his first term when Democrats controlled both houses of Congress?
The answer is that he chose to aggressively pursue Obamacare instead in his first term. Now, even after suffering a crushing loss in this year’s midterm elections and losing Democrat control of the Senate, he is reportedly about to unveil his amnesty plan before the end of this year.
Most Americans are not aware of what this means for our nation. If President Obama gets his way, some five million or more illegals not be deported and eventually will get not only defacto amnesty (path to citizenship), but also government-issued ID-cards, the right to work in this country – and some fear eventual access to Social Security, which is already on the road to being bankrupt.
If the president forges ahead with this very unpopular plan via Executive Order, it could be devastating for Democrats in the 2016 elections. The question is at this point, does he really care? I’m not sure he does.
Obama’s China Climate Deal – Beijing Gets a Pass
President Obama and the mainstream media heralded the latest surprise agreement with China on carbon emissions as a landmark accomplishment of his presidency. Obama pledged (again) that the US will cut its carbon emissions by 26-28% by 2025. In the unlikely event this happens, it will be bad for the economy since American businesses will bear the associated costs.
China, on the other hand, didn’t agree to cut carbon emissions at all and will continue building coal-fired power plants at whatever pace it chooses. This means its emissions will continue to go up every year at least until 2030 when it pledges that its carbon emissions should peak. That will cement China’s spot as the world’s largest polluter for another 15 years!
Noting that Beijing made no binding promises whatsoever, the non-profit, non-partisan Institute for Energy Research (IER) said President Obama “got swindled” during his appearance with Chinese leaders last Wednesday. “The president is making costly promises that will hurt Americans in the long run.”
Rules already enacted by the US Environmental Protection Agency will shut down 72 coal-fired power plants across the nation over the next decade. This EPA move, if allowed to happen, will eliminate enough gigawatts to power 44.7 million US homes. That’s what Obama offered to the Chinese, while allowing them to increase emissions annually until 2030.
So there was really nothing new on either side in this supposedly “historic” agreement. Of course, the mainstream media failed to mention that.
Obama’s $3 Billion Climate Giveaway – Stop It
In Brisbane, Australia last Wednesday, President Obama pledged a new $3 billion US contribution to the United Nations Green Climate Fund that facilitates poorer countries’ investments in clean energy.
Administration officials claim the contribution will promote sustainable economic growth while preserving stability and security in some of the world’s most fragile regions. The contribution, they say, demonstrates the need to reach across traditional divides to tackle climate change. Yet they failed to say who will keep track of how the money is spent.
The large size of the proposed US contribution took climate policy watchers by surprise and doubles what other countries had previously pledged for this effort. Fortunately, this huge contribution must be approved by Congress, which will hopefully kill it. However, it remains to be seen if Obama will push for its authorization by the Lame Duck Congress before the end of this year. My guess is that he will.
Obama Wants Uncle Sam to Regulate the Internet
So much for the will of the voters. Before last Tuesday’s elections, President Obama said that while he wasn’t on the ballot, his policies were. Now that the American people have rebuked those policies, Mr. Obama is attempting yet another huge federal power grab to regulate the Internet.
On November 10, he urged the Federal Communications Commission (FCC) to apply to the Internet 80 year-old telephone regulations designed for public utilities. In a video posted on YouTube, Obama endorsed the regulation of Internet access providers under “Title II” of the Communications Act of 1934 (yes, 1934).
When the FCC floated this idea in May, the Wall Street Journal called it “ObamaCare for the Web,” but now says that was too kind. The Obama Internet plan would treat cable, telephone and wireless broadband networks as “common carriers” subject to federal price controls and a myriad of other regulatory restrictions.
Obama said he is promoting such regulation to preserve “the idea of Net Neutrality,” which he claimed has “unleashed the power of the Internet and given innovators the chance to thrive.” This is upside down logic. The Internet has thrived in large part because policy makers and judges have rejected nearly every attempt to regulate the Internet.
Instead, a bipartisan consensus has allowed the Internet to grow relatively unmolested by Washington. The result has been intense competition among phone, cable and wireless companies to provide consumers with ever faster speeds, which in turn has allowed the US to lead the world in digital innovations.
Obama is trying to exert in his final two years in office the same political control over the Internet that he has already imposed on the healthcare and banking industries. If the FCC caves under White House pressure, Congress has every right to defund this regulatory overreach before it becomes a clear and present danger to the US economy and global freedom.
In closing, I have been surprised at how many observers have admitted to being stunned by the latest wave of new Obama proposals and liberal initiatives, just since the midterm elections. Numerous commentators, and even Republican Senator Mitch McConnell, have said they expected President Obama to “move to the center” after the crushing defeat on November 4.
I never saw it that way. I expected exactly what we have seen. And it’s not over.
It should be clear to all that he is the most ideological president we have seen in decades. He doesn’t care about the will of the American people; he doesn’t care how much damage he does to his own party; and unfortunately, he may only be getting started. Let’s hope I’m wrong!
Very best regards,
Gary D. Halbert