It will take more than a recovery in housing to reignite inflation in the U.S. economy, a state of play that argues for the continued threat of deflation and a Federal Reserve that is pinned to the mat, unable, even if willing, to raise interest rates.
The Great Debate
That whole Age of Frugality thing didn’t last long, did it?
U.S. real personal consumption grew in February at a respectable 0.3 percent clip, the fifth straight such monthly rise, a fact widely greeted as news that the recovery is on course. The fly in this tasty soup, however, is income, which in real terms didn’t increase at all, not even by one tenth of a percent.
Managing the rise of China’s vast economy and healing the U.S. trade deficit will require a new willingness and capacity to boost U.S. technology exports at affordable prices. More importantly it requires a new language from policymakers and a new mindset.
Today’s bleak consumer confidence number is undoubtedly bad news for the economy. The bigger than expected drop suggests that consumers have lost confidence in the recovery, which will drive down home prices and consumer spending.
In these days of renewed gloom about the future of Europe, a quick test is in order. Who has the world’s biggest economy? A) The United States B) China/Asia C) Europe? Who has the most Fortune 500 companies? A) The United States B) China C) Europe. Who attracts most U.S. investment? A) Europe B) China C) Asia.