October 1, 2014 Patrick Oliver-Kelley

US zone

Commerce Department revised second quarter economic growth to 4.6 percent increases confidence that the economy is coming out of its torpor. Unemployment claims filed were lower than expected, putting the indicator back on levels last seen before the Great Recession. Thus we hear of the Fed openly debating when the next rise in interest rates might come. If only President Obama could free up trade, enhance tax reform and overhaul the entitlements programs, thus freeing money for infrastructure programs.

Euro zone

Brush fires created by Russia’s sudden assertiveness in Ukraine, Crimea and in the Baltic States are keeping everyone on their toes. Around the area, Russian troops are in countries against the legitimate will of the governments. The EU seems unable to control the internal political dynamics. The technocrats have been overwhelmed by domestic forces. Even though, European and Ukrainian parliaments ratified Ukraine’s association agreement, Russia was able to strong-arm a delay in its implementation. The Baltic States are openly worried that this weak kneed European response to aggression in Ukraine has emboldened Russia and its pugnacious leader Putin.

All 28 EU members are expecting to grow in 2015. Laggards like Italy and France struggle. The real threat is deflation but the ECB is taking decisive action to avoid a deflationary spiral. But national governments must push forward painful and unpopular structural reforms. Confidence continues to rise. Europe’s skilled workforce, strong infrastructure, mature financial markets and political stability help maintain its importance and relevance in the global economy.

Asia zone

Xi Jinping is the strongest single leader in China since Mao. Is that good or bad? Depends on how he uses his power. The signs are not encouraging. China seems to hanker for a strongman who can break up the SOEs and establish the rule of law. Xi is ‘talking the talk’, but can he ‘walk the walk’ for sure?
Given the rise of a club of authoritarians, the Shanghai Co-operation Organization (SCO), a Chinese NATO, aims to be the dominate security institution in the region. Russia, Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan, with India, Pakistan and Iran breathing heavily to get in, China seems to be controlling all the levers. Explicitly, the group is targeting the three evil forces of terrorism, separatism, and extremism. Each country has suffered with worsening ethnic unrest.

America’s leading role in Asia is based on a plethora of inclusive multilateral organizations, membership to which China need only apply. All of China’s organizations, including SCO Is that China has a big dominant role and the United States is NOT a member. China seems to be building its own world order.

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