May 28, 2011 Patrick Oliver-Kelley

US Economy- Sluggish, Sluggish, Sluggish

Next month marks two years since the end of the Great Recession, the worst economic downturn in 75 years. Americans are dubious that the economy is performing well. Big businesses, big banks, wealthy households have done better than small business, small banks, and you and me. It still feels like a recession. American unemployment rate was 9 percent last month. Home prices have fallen 30 percent since 2006. There is a three year inventory of homes in foreclosures. Meanwhile, gas prices are topping out at $4.00 p/gal. The President’s failed stimulus package now must be paid for. US GDP has averaged a growth rate of 2.78 percent over the past seven quarters – much slower than after most recessions. Consumer spending slowed last month, rising only 0.4%, a sign that gas and grocery prices squeezed the economy. Commodity price rises are a drag on economic growth. While Government revenues grew, the deficit widened. This must stop.

Eurozone- Almost As Bad

MARKETS are losing confidence in the European Union’s ability to keep the single currency intact, as we have been writing for the last twelve months. They are also demanding higher returns to hold the debt of Greece and Ireland today than when they were bailed out by the EU last year. Finance ministers hardly even pretended to agree on how to deal with the endless problems of the euro zone. Private sector growth slowed to its lowest rate 30 months. Portugal’s 78 billion euro bailout plan demands austerity, like those for Ireland and Greece, few believe the country capable of carrying forward. For all that, they broke two taboos:

      That you must always be polite to Greece. The ministers told Greece that its reform programs off course. Greece’s promise to sell €50 state assets had not raised a single euro. Greece was told, bluntly and publicly, immediately to embark on a radical program of privatization;
      That there can be no restructuring of government debt. Ministers are now talking openly about restructuring. Albeit they are suggesting a “soft” form, involving creditors voluntarily stretching out the maturities on their loans to Greece, rather than imposing losses on creditors.

    The European Commission and, particularly, the European Central Bank had been opposed even to this, for fear of unleashing financial chaos. The Netherlands claims to have won some support for creating an external EU agency for selling the assets.

    The euro area is suffering a sovereign-debt crisis that goes from bad to worse. But from another vantage-point the euro area is confounding the sceptics and doing remarkably well. After a dull performance in the second half of last year the single-currency economy has put on a burst of speed, GDP grew by 0.8%, comfortably above the 0.6% generally expected, and a marked improvement on the dull performance in the second half of last year when it rose by 0.4% in the third quarter and 0.3% in the fourth. That acceleration pushed the annual growth rate up from 2% in late 2010 to 2.5% in the year to the first quarter of 2011.

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