Saturday, January 08, 2011

Economic Outlook for 2011

Hopefully this will be the longest post I make all year.

Here is a list of subjects I will cover:
  • Markets and Jobs
  • Gas price forecast extension
  • Governments roll in our current economy
  • Biggest holders of our national debt
  • A dismal future

Markets and Jobs

I heard on the first day of trading this year (3 Jan) that if the markets move upwards by at least 1% on that day, it will be a good year. By the 5th, they were congratulating themselves on how good the payroll numbers would look. Payroll numbers come out on the 7th of this month. I have news for them. The good or bad of a year does not revolve around the markets, but around good jobs for the masses. Payroll numbers, especially manufacturing payrolls are the key.

At first, it looked pretty good. The manufacturing sector expanded on several fronts, and orders for durable goods were up. But remember, the indexes were above the waterline most of 2010, and yet the manufacturing jobs numbers were not so good. I think, to be good, the ISM manufacturing index must be above 55, instead of the 50 we normally associate with improvement. That goes along with the need to add more than 200,000 jobs a month to the economy, and 20,000 must be manufacturing jobs. This month's numbers are just over 100,000 jobs and only 5000 in manufacturing. The manufacturing number is the most sobering.

Gas price forecast extension

The current market forces indicate gas will be over $3.50 in May, and over $4 by Christmas. And my numbers are for the areas of the gas price map that show green.

Governments roll in our current economy

The biggest drags on our economy are renege prices and expansion of government. In the past year, the Obamacare legislation, and the gifts of bailouts to bankers and unions were the biggest government drags. And the many moratoriums on energy production, both before and after the BP spill (and still today) are one of the biggest factors driving up energy prices.

So, currently, the Obama administration is the biggest cause of our economic problems. But it is not even close to being alone as a culprit. We have a fun and games mentality that will snap up anything shiny (I believe it was Dave Ramsey who called it a "culture of bass"), will not defer pleasure and is centered around instant gratification. This is the same mentality that led to the demise of both the Greek and the Roman empires. And we have more of it than they did.

Add to that the idea that government is supposed to be all to everyone (the builders of a perfect law and order society for the republicans, and the santa clause of the democratic party) and it is a recipe for disaster.

Biggest holders of our national debt

Just as a side note, here are the biggest holders of our national (government) debt. The website I got this from only lists about $3T of the reported $14T national debt. I suspect the disconnect may be the $14T is obligations (contracts have been signed) and the $3T is what is already payed out, but I am not certain of this.

Who holds how much of our federal governments debt - in Billions
  • Total 2845.8
  • Country or entity Oct 2010
  • China, Mainland 906.8
  • Japan 877.4
  • United Kingdom 477.6
  • Oil Exporters 213.9
  • Brazil 177.6
  • Hong Kong 139.2
  • Carib Bnkng Ctrs 133.7

Oil exporters include Ecuador, Venezuela, Indonesia, Bahrain, Iran, Iraq, Kuwait, Oman, Qatar,Saudi Arabia, the United Arab Emirates, Algeria, Gabon, Libya, and Nigeria.
Caribbean Banking Centers include Bahamas, Bermuda, Cayman Islands, Netherlands Antilles and Panama.

A dismal future

To make this clear, I don't think we will pull out of this. If we see any prosperity at all again, it will be a short and very hollow economic upswing. The only questions is when and how suddenly will we slide into desolation. The numbers lately (look at the third chart) are looking more and more like the slide is imminent, but I am no expert at this, and it could be months or even years away.

After repeated warnings by Moody's that they might be "stretching" the AAA credit rating of US Treasury bonds, many others around the world broke with Moody's and downgraded our credit rating last Spring. Of course, in my own personal opinion, Moody's also kept many bond ratings too high in the past, becoming part of the problem that led to the recession and bailouts. I once said we could know when the recession was ending by the interest rates on T-Bills going up, but at the time I could not visualize our national debt becoming so large we might pay higher interest rates because investors are unsure if we will slide into such an economic abyss, of unemployment and inflation, that the T-Bills would be nearly worthless.

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