Monday, July 1, 2013

China Slows

Asia is beginning to weaken.  Given the stagnation in the western economies, this is not good news.  Unemployment in the Eurozone remains above 12 percent and US unemployment rates have fallen only because of the massive shift of workers out of the work force.  Growth in the West is so slight as to be within the margin of error for measuring the data.  The only real global economic strength has been Asia and that may be ending.

Granted there are bright spots in the US -- fewer in Europe.  US housing is stabilized and there are pockets of feeding frenzy here and there in the residential market.  But, overall, there is still weakness.  Now with Obamacare looming and the unleashing of the EPA, things could easily deteriorate in the US.

While everyone watches the Fed, the real story is a micro story.  The mass of regulation, rules and additional costs that businesses face, even if demand were to increase, will keep a lid on economic expansion.  Debt problems will also limit the future of Western economies.  Too many promises, too few resources to deliver on those promises.

Fed activity is mainly important for inflationary expectations and pressures.  With a sick economy (made sick by federal policies since 2008), there isn't much inflation.  But there will be.  That's what the recent uptick in treasury rates is all about.

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