July 1, 2015 Patrick Oliver-Kelley

US Zone

The US economy is more robust than it appears, but it is sending out mixed signals. Beginning of the year, signs were encouraging. Then March and April were bad. In early June, the good news returned. Hourly wages were increasing and employment was too. Economists began to fear the US would not get back to the pre-crisis growth rate of 3%, instead may be caught in a slow growth rut. If true, this is a bad sign not just for the US, but for the global recovery as well. Optimists have the better case. Having absorbed the fall in oil prices, and the strength of the Dollar, there is nothing to prevent the expected surge. The supply of funds is plentiful. Borrowing is booming; America’s debt is going smoothly. American households are in fine shape. The labor market is rosy- employment is increasing and unemployment is falling. Neither is showing signs of slowing.

World GDP

There are reasons for hesitation: Labor productivity is stalling, but up 11% in the last five years. Evidence seems to show that aggregate figures are being held back by regional differences. Low rates can lead to asset bubbles. We think the Fed will take the middle path. In any case, markets can stall and the prudent investor should act accordingly.

Asia Zone

Do not mess with America! The case is not as compelling as it once was. Our dominance can no longer be taken for granted. What is needed is a new generation of military technologies. China is becoming more assertive in its territorial claims in the western Pacific and Russia is intent on re-establishing its influence in what it refers to as ‘near abroad.’

China Real GDP

China is keen to make It too dangerous for American aircraft carriers to operate within the first island chain and being able to threaten US military bases in South Korea and in Okinawa. Russia is, too modernizing its forces and armaments. But questions persist of Russia’s technological capability.

The US needs a strategy. It needs to overcome critical vulnerabilities in five areas: Carriers need better protection than they presently enjoy; defending close to regional air bases; aircraft operating at the outer limits of their operational range, must be better able to identify and target mobile missile launchers; modern air defenses can shoot down non-stealth aircraft; finally, cyberspace warfare is not a matter of fact, it is now a matter of time.

America, to state the obvious, is not defenseless. It has unmanned combat systems, stealthy aircraft, undersea warfare, and complex systems of engineering. It no doubt is developing unmanned combat aircraft stealthy to penetrate defenses and have the range and endurance to pursue mobile targets. Some of these technologies could be introduced to unmanned underwater vehicles.
The technological and financial challenges are enormous, but we met such challenges twice before: In WWI and in WWII. We must pull our socks up, and we must enlist help from our allies everywhere. For sure with madmen like Vladimir Putin to contend with, the smell of nuclear brinkmanship is in the air.

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