The Economy and The World
“All around me are familiar faces. Worn out places, Worn out faces.
Bright and early for the daily races. Going nowhere. Going nowhere.
Their tears are filling up their glasses. No expression. No expression.
Hide my head I want to drown my sorrow. No tomorrow. No tomorrow.
And I find it kind of funny, I find it kind of sad.
The dreams in which I’m dying are the best I’ve ever had.
I find it hard to tell you, ‘cause I find it hard to take.
When people run in circles it’s a very, very,
Mad World.
Mad World.
Mad World.
Mad World. ”
So, the economy and the world are pretty big topics. But hey, we are not shrinking violets here and we take on the hard stuff. Here goes the status of two more of our five areas of chaos.
International: We are all very much aware of the wars in Ukraine and the middle east and how those have the potential to spread beyond their current boundaries. We also know the tension between Taiwan and China and how that could erupt. Or how the “cold war” between China and the U.S. could move into a “hot” war. These are all significant risks on the world stage. But those are not the only places where chaos could deepen.
If you are in the United States, as most of my readers are, you look around and see unhappiness and unrest and a desire to change the course of the country and its leaders. Well, the rest of the world is not that different.
In communist and other totalitarian countries, the political waters seem smooth. That’s because in China, for example, opposition is not allowed and so the existing government gets “reelected” with 100% of the vote. Of course, there is lots of dissent, but the dissenters are either killed, imprisoned or they just stay quiet to avoid the first two fates. In spite of the façade of quiescence, there are lots of problems in China and Russia and North Korea and Cuba and Venezuela, just to name a few. Totalitarians, however, can keep on keeping on as long as they have the money and the military force to do so.
But everywhere else where some form of democracy exists, people are restless. We have already seen the affects of the election of Milei in Argentina. There will be elections in Britain in July during which the Tories will likely be thrown out in favor of the Labour Party. Labour will not fix anything but when people anywhere are unhappy, they vote for “change” wherever they may find it. Macron just called an election in France where change moving to the right may occur. There was the first assassination attempt of a European leader in decades when Slovakia’s leader survived such an attempt in May. The extreme “green” agenda adopted in Germany has the natives very restless there. There is increasing talk in the U.S. of a “civil war” since the states are diverging so greatly on matters of policy. Now look at Europe where the EU is in danger of splitting apart over the same kinds of disagreements. Immigration and “climate change,” the economy and taxes are issues for people everywhere.
Mexico is about the only country where recent elections did not change the government. There were 171,000 people murdered or missing in Mexico during the previous president’s term. But that was apparently not enough for voters to want change there. Turkey, which was secularizing, has now reverted to an Islamic theocracy.
The point of all this is that there are a lot of places in transition. They may be moving from right to left or left to right. They are abandoning old “friends” and making new alliances. Immigration is an issue because there are so many people who don’t want to be where they are and moving to another continent is now easier and cheaper than ever. But the natives receiving such populations see their culture changing and they don’t like it. The world is also mired in debt. Some of that debt is owed to a country’s own citizens. Other is owed around the world. There is so much that it can never be paid back. Will some be forgiven, defaulted, restructured or what?
It is impossible to predict how all of this will turn out. An easier prediction in my view, is that the world will look a lot different five years from now than it does today. Keep an eye on it.
The Economy: The U.S. economy has thus far managed to avoid a technical recession. I forecast this back at the beginning of the year. The reasons now, as then, are the same. There is a ton of cash out there. Some of it has been spent (or lost) since the peak in 2023 but it is still more than twice what existed (adjusting for inflation) prior to the massive pandemic money printing. And, of course, the Biden administration and the Federal Reserve are providing nearly $3 trillion a year in fresh money due to deficits and liquidity actions. This has an enormous stimulative affect and will do so until the Treasury has trouble selling its debt. There have been a few small hiccups, but otherwise such a problem has not yet occurred.
And the federal government keeps throwing debt-related incentives to try to hold the economy up through the election. They are releasing more oil from the strategic petroleum reserve to try to keep gas prices down. The government is about to start guaranteeing second mortgages on houses, something they have not done since it contributed to the 2008 financial crisis. (a terrible idea, by the way) And of course telling college graduates that their debt will be forgiven, even when the court said it cannot, is intended to get them to borrow and spend.
In spite of all that stimulus, there are many troubling signs. When Nvidia ( a chip manufacturer) gains more market value in 30 days than Warren Buffett and Charlie Munger created in 50 years at Berkshire Hathaway, something is wrong. When the stock of Game Stop soars after reporting an even deeper loss and declining sales, it is evidence of what Fed Chairman Greenspan once called “irrational exuberance.”
The value of your home is up, but the number of people who can afford to buy it at that price is way down. People with a lot of assets are seeing their net worth rise but people trying to build assets are being crushed by inflation. There are cracks in certain corners of the commercial real estate market, as well as in the institutions that finance them. We are not in recession, but the rate of growth is declining and the unemployment rate is ticking back up.
I still believe that the massive government stimulus along with the cash still out there will keep the economy’s head above water through the election and probably into 2025. But, it can’t go on forever. If companies were to cut back and unemployment rise above 5%, that probably triggers a downturn. If at some point, either the government or the private sector can’t sell its debt, that probably sends us down. Obviously, there can be an international event that has everyone running for safety.
I keep a close eye on that cash hoard in people’s hands because if that runs low, spending will drop. I have also been closely watching housing and cars. Those are the two biggest purchases that people make. We never go into recession without those two leading us there, and we never come out without their sales recovering. Car sales are currently holding up fine, albeit with increasing discounts and incentives from manufacturers and dealers. We all know well how housing prices are still strong due to lack of inventory. So, there are no recession signals from either of those markets. If car sales start to falter even with increased incentives, manufacturers will start to idle plants. If more housing inventory comes on the market due to sales of Air B&Bs or loss of a job or decisions to reduce costs and sell the second home, prices may have to come down to move them.
The seas are generally calm right now. But these are the things I am watching for early warning of a storm on the horizon.
Next week, culture and society.
Until then, I remain respectfully,
Congressman John Campbell
Drive Fast & Live Free