The U.S. Economy
The dichotomy during the last two years between the private and the public sectors of the U.S. economy will continue because the private sector has become lean and mean and is increasing profitability while the public sector has become bloated and inefficient and is running deficits.
While the private sector is poised to increase both its capital spending and its hiring, the public sector will be forced to make operational cuts, to shed businesses, most likely through privatization and to lay off employees.
The result will be a shrinking of the public sector piece of the economic pie which is good in the long run for economic growth and for profits and thus for the stock market. However, in the short run it will only prolong the major economic and social problem in this country, namely unemployment. The downsizing by many towns, cities and states over the next several years will have a negative impact on the rate of GDP improvement in the country. I expect that the economy will average only modest growth in 2011 – on the order of 2 – 3%. This is well below its potential.
Unemployment
Last year at this time I predicted that yearend unemployment in December 2010 would be over 9%. I make the same prediction for December 2011, and I hope that somehow I will be wrong.
The cause of the sustained and unacceptably high level of unemployment will be from the required cuts in public sector spending, as cities and states are forced to deal with budget deficits and runaway pension costs. Increases in fees and local tax rates will not be sufficient to close the gap between income and spending.
Inflation
Despite the rising price of oil and a number of industrial and agricultural commodities, inflation will not materialize in 2011. Rising material prices will not have a spillover effect on either total production costs or on pass-through pricing. As a little aside, it is interesting to note that the actual cost of the agricultural commodities in food is only 5% of the price of the final product.
Labor costs (in the private sector at least) are not rising in a meaningful way. Home prices are continuing to fall overall, and while there are cities in the country where housing is stable and improving, it is apparent that there is still massive oversupply of housing stock, significant foreclosure activity ahead in the coming year and no incentive for new construction.
Energy prices will likely continue to rise and that will act more as a deterrent to economic growth than as a stimulant to inflation.

The Markets
I believe that 2011 will be a good year for the U.S. stock market, reflecting another year of solid growth in profits. The path of the stock market will likely be volatile as it was this year, but stocks in general are not expensive and growth in earnings will be reflected in rising prices.
Volatility will likely result from headline events that sound scary but ultimately will not bring the market down. Included in the ‘scary headline’ category will be the fears of insolvency on the part of some states and cities. Bankruptcy and bailouts will be debated and opined upon, but I do not foresee any rush by the U.S. Government, i.e. the taxpayers, to resolve the financial problems facing the public sector of the economy. Nor do I envision their problems to cause a repeat of the financial crisis that hit the world in 2008.
Outside the U.S., the challenges facing many members of the European Union will continue to be headline news that will add volatility to the market, but in the long run, the strong countries will bail out the weak countries, and Europe will remain a slow growth sector of the world with an increased layer of debt. It must shrink its public sector share of the economy, but that process will be much more laborious and painful that in the U.S.
Global economic growth will continue as countries with large populations – formerly known as ‘third world economies’ and now referred to with far greater reverence – become the engine for demand that will benefit more mature economies – the U.S. and Western Europe. That will be good for markets around the world.
The bond market will face greater challenges. The inflation/deflation argument will continue to pull in both directions. Low yields actually have a deleterious impact on consumer incomes and therefore spending, and a rise in yields might actually be advantageous to consumer spending and the economy. In an expanding economy with rising profits, high yield bonds may do very well, while low yielding long term Government debt is likely to be an underperformer. Without inflation as a serious problem, it is hard for me to see interest rates rising sharply enough to impact economic activity in a negative way.
Gold
Two of the smartest people I know have diametrically opposite points of view on gold. I suffer from having witnessed the meteoric rise in the price of gold during the 1970’s, followed by its collapse over the next twenty years, and followed once again by a second decade of meteoric rise. I think the gold bulls are right, but it scares me when I hear the plethora of radio and television ads luring unsophisticated investors into putting their life savings into gold. All commodities peak out at some time. So will gold this time around.
Summary
The fallout from the global crisis of 2008 will continue to impact economies around the world, but the amplitude will be lower, allowing for a return to a more normalized environment for growth and profits. As health returns to economies, so will investment returns.

With their newly won power, Republicans in Congress have the opportunity to exert pressure and hopefully exact cooperation from Democrats. But they must keep in mind that the voting public is watching with a distrusting eye, and can withdraw that power in two years if it is not exercised to the advantage of their own wellbeing. Mostly that means to them more jobs, more prosperity and lower unemployment, all of which are very definable.
The factious Congress can and must pull together and reach bipartisan resolutions regarding critical issues facing the economy. The Democrats are not in the driver’s seat any more and they will be best advantaged by finding common ground with Republicans over these last few weeks of the year before they lose their majority in the House.
Newly elected Republicans seem, in many cases, to be persuaded by their victory that they have a moral obligation to carry out every detail of the ideology they believe put them in power. They are wrong. Approval ratings for Republican legislators are no higher than their Democrat colleagues, and if they assume power with an air of hubris, they do so at their own peril. There will be another accounting in just two years’ time.
President Obama made a smart political move by jumping the gun and proposing a Federal wage freeze for two years. Good politics; good economics. Republicans in Congress should reciprocate and agree to extend (yes, once again) unemployment benefits, without requiring the Government to ‘find the funding’ for it. We are still in a serious employment drought, and the vast majority of people who are unemployed do not wish to be so. Cutting off their weekly pay check is both unethical and unhelpful for the economic growth. Republicans, when they are bashing the ‘unsuccessful stimulus plan’, are hasty to point out that the ‘real’ unemployment rate is somewhere above 15% , but they seem to forget or minimize that fact when they are dealing with extending unemployment benefits. The benefits to society and the economy far outweigh the costs associated with those relatively few malingerers who want to subsist on the dole.
It somehow seems misguided to rail on about the economic evil of a tax hike for people actually employed but to ignore the economic fallout of depriving those without a wage the essential minimum level of income until they can find employment.
Which brings me to the tax hike/freeze issue. Republicans would be wise to work with the President and the Democrats in Congress to find a solution, even if that involves compromise. The other side has as much as indicated it is willing to delay any tax increases on incomes below $250,000. Republicans want more, and they are right in that regard because raising taxes will undoubtedly impede economic growth. But Republicans could well end up doing more harm than good if they are not willing to engage in some compromise on this issue. They can make the politically astute move by negotiating a higher floor than $250,000 – more like $500,000, which would incorporate the vast majority of income earners in the country. The optics matter here. It is difficult to argue that those making more than half a million dollars are not somehow in the middle class. If that is too unpalatable for Republicans, they could go one step further and raise the level to $1,000,000 before applying an incremental tax. That would benefit all but the tiniest percentage of earners.
Republicans have the opportunity to display true leadership, to engage in genuine compromise for the greater good. More than that, they have the obligation to achieve the economic results they decried their Democrat counterparts for failing to achieve. The burden is on their shoulders. They won the victory they sought and now I repeat, “Caveat victor”.

The new buzzwords – Quantitative Easing – have been added to the alphabet soup of remedies for our still ailing economy. The quick fix “QE” recipe consists of the Fed buying bonds and flooding the economy with the proceeds in the hope that more money will inspire the recipients to spend the dough and thus get the economy off its rump.

But will this round of quantitative easing achieve the desired result?

First, the problem with our economy at this time is one of demand – there is not enough final demand for goods and services. The consumer, the primary driver of demand, is a wary buyer these days and for good reason. Unemployment is high and seems to be stuck there. That does not inspire confidence in spending even if one has a job, particularly with all the headline news about Governments – Federal, state and local – needing to cut back spending, which means laying off employees or foregoing projects.

Secondly, consumers are still engaged in the process of trying to pay down their own already too high levels of debt. While the numbers show some good progress on that score, both with regard to credit card debt and mortgage refinancing that is taking advantage of the lowest rates in half a century, consumers’ balance sheets are still far from secure.

So who will be the beneficiaries of this impending QE?

It seems to me that first and foremost it will benefit the big banks and financial institutions, including hedge funds, which have already benefitted handsomely for two years under the easy money policy of the Federal Reserve. For the lending institutions, the wider the spread between their borrowing costs and the interest rate they can charge on loans, the more profitable they are. Admittedly, many of the large banks still need desperately to continue to improve their own balance sheets, and if that were the only objective of the Fed, QEII would be a good idea.

As for the hedge funds, there is no dearth of nearly free money for them to leverage into gargantuan profits. But that provides little stimulus for the economy as a whole.

There is nothing inherently wrong with either banks or hedge funds benefitting from QEII, but that won’t bring the consumer into the business of spending, which must take place in order to goose this slack economy.

The stock market will likely respond favorably to QEII. In fact, one might argue it has already discounted some of the incremental money that will flood the system. One might argue, too, that is good for the consumer, and it certainly will help rebuild the devastated 401(k) plans of many working Americans. But unlike the era of the 1990s when consumers spent freely as they watched the assessed value of their house and the market value of their retirement accounts rise, this time I believe consumers will be careful not to return to their old spending ways. Instead they will take heart from any improvement in the value of their assets and will safeguard their nest egg.

Unfortunately for consumers, the easy money will have little if any positive impact on the usurious rates on their credit card debt. Despite the law passed earlier this year which provides some new protections, it does nothing to lower existing rates for past debt, rates that in many cases are well over 20%. That is a serious impediment to growth, because existing credit card debt is an economic millstone around consumers’ necks.

QEII will allow large corporations, which undeniably comprise the healthiest sector of our economy, to finance long term projects at very favorable rates. This is good news as it will add to productivity and corporate earnings. But it will do nothing to stimulate consumer demand or add to jobs.

The banks remain tightfisted in lending to small businesses. Until and unless the money spigot opens up to that all-important sector of the economy, the sector that in fact creates the large majority of new jobs, QE II will not spark growth.

In last week’s blog, I asked that question and then provided the issues facing a buyer, without supplying a firm answer. So let me directly answer my own question this week.

YES, I say emphatically, now is indeed an excellent time to buy a house in this country. Seldom in the last fifty years has a potential homebuyer been given the opportunity to take advantage simultaneously of both low prices in houses and low mortgage rates.

Under “normal” conditions, when housing prices are weak, it is generally during periods of high interest rates. This is logical because the mortgage interest rate is the key variable in determining the monthly mortgage payment. As interest rates rise, a buyer is forced to “trade down” i.e. find a less expensive house because of the cost of financing. The other side of that coin is true also – during periods of low interest rates, the buyers of houses can afford to pay up somewhat because the cost of financing is advantageous.

However, as I noted last week, these are not “normal” times. The glut of housing is keeping prices exceptionally low despite the extremely favorable interest rates that mortgage seekers can obtain.

But fair warning – interest rates will not stay at this level forever. In fact, I believe it would actually benefit the economy to have rates rise somewhat. (But that’s a discussion for another blog.) That won’t happen just yet, but the process of finding the right house and getting the paperwork done to get a mortgage can take months and months. The sweet spot for homebuyers is now and it may not last that long.

Getting one’s foot in the door (pun intended) of home ownership is still a worthwhile long term goal. The unfortunate experience of too many homeowners over the last several years is the exception, not the rule. Owning one’s own home is still a legitimate part of the American dream, and the equity built up over twenty to thirty to forty years can be of great value in retirement.

Even if the home available today is not one’s dream house, it can still be a good investment. The “average” home is sold every seven years – we are a country on the move, scaling up and scaling back, depending on our circumstances. In that way, we are different from many other cultures. We are a mobile country. And under normal conditions, and normal conditions will come back again, selling a house is not a difficult transaction.

There is always the “caveat emptor” aspect. Do your homework! Some real estate markets may be so overbuilt that prices are still too high. Shop around and don’t be forced into anything. But get out there and hoof it; drive and walk and talk. Put energy into a search. You are making a long term investment that should serve you well.

That is the question for many potential homebuyers. (Apologies to William Shakespeare) But it is complicated by two other questions that must be answered by two other related parties – (1) the seller: To sell (at a distressed price) or not to sell (and wait till the market improves) and (2) the bank: To finance or not to finance.

In “normal” times (i.e. such as existed for most of the last half century) when interest rates were low, it was an opportune time for eager homebuyers to fulfill their dreams. In “normal” times, prevailing mortgage interest rates are the critical element in determining the price a buyer is willing to pay, because the interest rate is the fulcrum in the transaction.

In “normal” times, low interest rates give house prices an upward boost that sellers are happy to meet and that buyers know they can afford. In “normal” times, banks’ mortgage business thrives when interest rates are low and the arithmetic for approving a mortgage is straightforward and logical.

But we are not living in normal times. Interest rates are as low as they have ever been in the lifetime of this country’s baby-boomers. Even most of our parents never had a mortgage at rates as low as can be realized today. So why isn’t the mortgage business booming? Why is there still such a glut of housing inventory aching to be bought and hoping to be sold? Why does it take a Federal Government tax credit to move the inventory?

I have been pondering those questions for some months and not coming up with a truly intelligent conclusion in my own mind. But a very recent encounter with refinancing a mortgage myself has opened my eyes. Getting a mortgage has now become hugely complex and banks have been maneuvered into making it difficult.

The old rule of “monthly take-home pay of three times your mortgage payment” is no longer applicable. The old rule of providing statements proving the value of all your financial assets to the bank is no longer sufficient to satisfy the mortgage lenders. Now that statement is given a 30% haircut by the bank as it tallies up your assets. Given the volatility in the stock market, I can understand that application to a portfolio of stocks. But triple AAA rated bonds, yes, even Federal Government bonds, are being given the same 30% haircut. Who made that edict – the Federal Government itself or the banks? In either case, it says something about the state of fear in lending. Banks appear unwilling to take any risk at all – two earners are deemed no more secure than one earner (or so it seems).

“Houses, houses, everywhere, Nor any one to buy.” (Apologies – this time to Samuel Taylor Coleridge) So what can be done to end this logjam?

As a machinery analyst for years, I watched the inventories at major capital goods manufacturers. When they got too high, there was only one thing to do – give incentives to potential buyers to get rid of the inventory. The same is true every January in the retail industry. And today, that is what is needed in the glutted housing industry – a major incentive to get rid of the inventory. Without that, there will be no new housing built, and the industry will remain endlessly morbid.

My solution may sound like blasphemy to fiscal conservatives (of whom I consider myself one) but I would bring back the Federal Government’s tax credit for first time home-buyers and keep it in place until the inventory of housing is down to a level that will allow for new homebuilding. Like extending unemployment benefits, this is a temporary solution that will have benefits for the private sector and ultimately for the government.

A tax credit may give the buyer that extra edge to accept a slightly higher bid, and coax the seller into parting with an illiquid asset. Financing will still be a problem, but one can only hope that if the demand for mortgages starts to pick up, the banks will see green (there is no doubt that they make nice money in the process) and will figure that the odds of every new mortgagee defaulting are mighty slim.

The Government will really not be out money in the long run because the increased economic activity will ultimately generate revenues – something it dearly needs to count on. It is a bit of a supply side argument – and I don’t mind that at all.

With unemployment standing at 9.6%, it has been anything but a joyous Labor Day for workers in the U.S.

Economists, pundits and market watchers are making much of the desultory job creation in this (to date) lackluster economic recovery.

Numerous factors are at work, hindering new job creation, including (1) continued inventory reduction in the housing sector (2) ongoing deleveraging of consumers’ balance sheets (3) shrinking tax receipts and growing unfunded pension and other liabilities of Government – Federal, State and local, forcing spending cutbacks (4) the reluctance of the banking system to lend to worthy customers because of their own concern about existing loans on their balance sheets and, perhaps the most worrisome of all (5) the high cost of labor relative to capital.

Recessions almost always result from correcting excess inventory in the economy. During the last recession, about a decade ago, the glut was focused largely in the technology and telecommunications industries. The recession that we are now having such difficulty exiting was fomented largely by an excess in consumer debt levels. Much of that excess leverage on the consumers’ balance sheets represented mortgage debt, which created a secondary bubble in residential housing. Thus, we have experienced a major double whammy, resulting in a deep recession simultaneously in two very large sectors of the U.S. economy – finance and housing.

Many of the jobs created to support the expansion of those two industries during the ‘good times’ have now been lost permanently, or a least far enough into the future to seem permanent. Three years after the start of the recession, there is still far too much housing stock for sale and too few buyers willing or able to absorb it. In the world of finance, as financial institutions have reduced their own levels of debt, they have shed jobs that will not likely return for another decade.

The shortfall in tax revenues created by the recession has thrown Governments, most particularly many State and municipal governments which cannot simply print money, into their own recessions. Their fortunes will not turn until economic growth has rebounded significantly from current levels. In the meantime, they have no option but to cut spending, which means to lay off employees. It is a vicious cycle.

In the world of economics, the two main factors of production are capital (i.e. equipment) and labor (i.e. manpower). How those two are combined to generate output is a function of their cost. If the cost of capital is high relative to the cost of labor, management will choose to buy labor, and the converse is true as well. When capital is cheap versus the cost of labor, investment in equipment will increase to replace costly manpower.

Today, the cost of capital is far lower, and therefore relatively more attractive, than the cost of labor. With interest rates near zero percent, capital is as cheap as it was fifty years ago. The same cannot be said for labor, despite the high unemployment rate which logically should act as a catalyst to lower its cost.

We know why the cost of capital is cheap – the Federal Reserve is attempting to stimulate economic growth and is thus pushing money into the system, in the hopes that cheap money will be incentive enough for investment and spending. As companies take advantage of low interest rates and invest in capital equipment at the expense of hiring more people, they are enhancing productivity, and thus reinforcing the rationale for replacing labor with capital.

So why is the cost of labor so high? In part it is because, relative to a cost of near zero for capital, it is hard for labor to compete. So despite the fact that hourly wage rates received by workers have barely grown at all over the last several years, compared to the price of capital which has fallen dramatically, labor is in an unfavorable competitive position. In addition, the cost of labor is rising in real terms because of the growth in non-wage costs – those costs associated with health care, retirement funding and increased government regulation. When weighing the costs and benefits of spending money on capital or labor, it is little surprise that managements are choosing capital in favor of labor. It is cheaper and there are no hidden or unknown costs.

A generation ago, many economists subscribed to the Phillips Curve theory, which espoused the notion that there was a direct link between employment and inflation. Specifically, it stated that if unemployment fell too much, the cost of labor would soar leading to inflation. The ‘danger rate’ of employment was deemed to be 7.5%. That theory was almost universally discarded when during the 1990s unemployment in the U.S. fell below 4% without any negative impact on inflation. What the economists seemed to have overlooked was the beneficial impact of productivity gains which allowed wages to increase without impacting inflation.

So what will it take to get back to 7% unemployment? Will we ever see the ‘good old days’ of 4% unemployment again? Or will the U.S. be stuck with chronic high levels of unemployment such as seem to have become a part of the economic fabric of Europe today?

Despite the painfully slow decline in our domestic unemployment rate, I believe that the U.S. economic system still provides the raw ingredients for dynamic growth. Notwithstanding the rising costs imposed on the private sector by Government, the spirit and drive of entrepreneurism remains unabated in this country. There is a magnetic appeal in our way of life that lures aspiring entrepreneurs and capitalists from around the world. The opportunity and the freedom to follow one’s own dreams are still an integral part of the structure of our economy.

Unfortunately, it will take more time this go round to get back on our feet because restructuring the balance sheet of the consumer is a long and arduous task.

The Wall Street Journal’s weekend editorial “It Isn’t Working” lamented that “three years of spending and monetary stimulus haven’t helped jobs”. While making a number of valid points about lack of confidence and concern over costs as factors inhibiting firms from rehiring, it failed to point out that the Federal Government has provided a significant amount of valuable and essential stimulus to the economy with an important part of the stimulus program – namely, in refurbishing the highways.

All across New England (and I hear from friends around the country that the same is true in almost every state) there are thousands of private sector companies and individuals employed in long overdue construction and maintenance of our vast highway system. It is astonishing that it took an unprecedentedly deep recession to act as the catalyst in this matter. It is in fact a duty of our Federal Government, as the overseer of matters of interstate commerce, to keep our interstate highway system in proper order.

So it is fair to say that the stimulus program has indeed had some very salutary impact on both employment and on the transportation grid that is vital to the health of commerce in this country. The problem is that this critical obligation of the U.S. Government was funded only as an emergency measure in response to an attempt to provide temporary funds to tie the economy over until the private sector could get back on its feet. But in fact, the private sector on its own initiative does not and cannot undertake the indispensable maintenance of our roads and bridges. This spending which supplements the Highway Trust Fund should be a core element of the appropriation voted on by Congress each year. It should not be part of an emergency stimulus bill.

Highway construction, maintenance and repair are obligations of our government, just as the maintenance of capital plant and equipment are the obligation of private sector companies who produce goods. Since the invention of the wheel, successful economies have understood the unbreakable linkage between transport and safe roadways. It is a disgrace that the last several congresses and numerous administrations have declined to address the growing backlog of crumbling interstate infrastructure in favor of other spending.

Of course addressing the issue now begs the question of where the funds will be found. For starters, Congress could take all the stimulus money it earmarked for future projects that will do nothing to get us out of the current economic malaise and reallocate those funds to the here and now, making a significant down payment on our obligation by allowing highway refurbishment to continue well beyond its current scope. Those private sector jobs include architects, structural and transportation engineers, surveyors, construction workers and all manner of hi-tech modeling and planning operations that utilize the skills already developed in all fifty states. Many of these should be permanent jobs, not the whimsical beneficence of a nervous congress as a one-time event.

Fiscal stimulus is an important and valuable economic remedy that should indeed be employed by the Federal Government during periods of recession: the element of its timing makes it far more valuable to the national economy than routine discretionary outlays. Moreover, any addition to the existing deficit resulting such an investment is not inherently harmful to either the long term health of the economy or to the Government’s balance sheet.

During the recent recession and its timidly emerging recovery, I would argue that the Government has taken some very specific and importantly appropriate stimulative steps, and I would argue also that it should both extend that spending, particularly infrastructure spending and offer incentives – mainly through tax relief to small businesses – to enable them to grow and create new jobs.

Our gargantuan and staggering Federal budget deficit is a problem of a different nature, tied to gigantic issues as financing two wars with borrowed money, an aging population whose health care costs will increasingly fall on the shoulders of a younger and smaller workforce, and a social security system that urgently needs adjustment. Tackling those problems is essential if we are to reduce much less eliminate the deficit.

In the meantime, the roads and bridges that comprise the backbone of our continental economy must continue to be restored.

Patricia W. Chadwick

President

Ravengate Partners LLC

August 10, 2010

Some of the smartest and most successful investment brains are on opposite sides of that question. The right answer matters a whole lot.
A simple definition of inflation is too much money chasing too few goods. That’s easy to understand. If lots of people want the same thing and they all have money to buy it, then the seller is in the catbird seat. Looking at the action of the Fed, there is ample evidence that they are keeping monetary policy easy and flooding the system with money. There hope is that all that cheap money will encourage people to go out and buy things. But it is simply not happening.
In fact, the response to the monetary stimulus reminds me of Japan twenty years ago. The country was in a recession (something unknown in that country since the end of World War II) and the Government was literally giving money to people and asking them to spend it. But they wouldn’t. They put it under their mattresses (literally) and saved it. The Government’s plan to encourage the Japanese consumers to spend their way out of recession was a failure.
It was hard for us Americans to understand the response of the Japanese consumers. Not spend gift money? Unheard of! However, that response should not have been a surprise because the culture in Japan for generations was one of saving, not spending. The Japanese had a 20% savings rate at that time and the insecurity associated with the recession only encouraged them to save more, even when it was free money.
So let’s turn to the U.S. today. We have been a population of spenders, not savers. Heading into the recession from which we are only now emerging, we were spending more than we were saving, i.e. we had a negative savings rate. Then came the recession, with the highest unemployment rate in over a generation, and spending slowed sharply. In response, Congress acted enacted an enormous stimulus program to flood the economy with money. In addition, the Federal Reserve logically opened the money spigot to accommodate spending and hopefully to stimulate demand. With our propensity to consume instead of save, that should have been an easy solution. But nothing happened – or at least very little happened.
What is wrong? Why aren’t we, the greatest spending nation on earth, spending? Why is all that cheap money not chasing the goods and consuming them and forcing the prices up?
Because we, the biggest spending nation on earth, are broke. We owe too much money from the good old days when we borrowed and overspent and nobody told us we had to save. Now we are having to mend our ways by simultaneously paying off our debts and increasing our saving. Those two priorities are overriding our want and instinct to spend, and that is good. Well it is good for our financial health in the long run, but it is dreadful in the near term because it acts as a drag on consumer spending which is what this economy needs to gain more momentum.
So despite all the cheap money around, Americans are not, or better said, cannot take advantage of it, which means that there is not too much money chasing too few goods. Instead, there are too many goods – all the things consumers are NOT buying – chasing the few dollars left in consumers’ hands after they have paid their debt and tried to save. That is the opposite of an inflationary environment. That is deflation. And that is certainly what it appears we are experiencing now and will continue to face in the short run. Unfortunately, there is a positive correlation between paltry demand and high unemployment.
On the positive side, the American consumer appears to have accepted the necessity of restructuring his/her balance sheet and once the savings rate has increased and the debt has been reduced, there will be a significant amount of pent-up demand. Then and only then will the spectre of inflation raise its ugly head. That may be years from now.
Patricia W. Chadwick
President
Ravengate Partners LLC

August 3, 2010