Economists have been reporting low rates of inflation all year – the annualized rate has been below 2.1 percent right through 2014, and has even dipped below 1.2 percent – but for many Americans it doesn’t feel that way. If inflation is so low, why is it a basket of groceries seems to cost so much more than last year, and why is there never any money left at the end of the month? The answer is that inflation isn’t really a good measure of what’s happening to the cost of living. To understand what’s really going on we need to look in a bit more detail.
The Ebola epidemic is fast becoming the lead story in the news, as the death toll mounts – it’s already killed more people than every previous outbreak combined – and cases start to appear in the USA and Europe. Most of the attention is focused on the spread of the disease and the steps being taken to contain it, but behind the scenes many financial analysts are concerned about the effect it could have on the markets.
It looks like we could be seeing a major direction change in the markets right now. For the past couple of months equities have been gaining strength, pushed up by generally positive news about the US economy. The past week has shown some hints that might be changing, though. The Dow Jones Industrial Average started the week with a series of rapid up and down movements before settling on down as its direction of choice, whereas the FTSE 100 just sank steadily. The result was a significant move from equities to gold.
Anyone with an interest in finance keeps track of the growth and unemployment figures, and according to those the US economy is finally recovering from the damage done by the 2008 banking crisis. Job creation figures are especially reassuring with more than 200,000 new jobs created every month in the year to date. As for growth the picture isn’t quite as good, with the economy actually shrinking alarmingly in the first quarter, but the trend is now heading in the right direction again.
The USA’s national debt has become a talking point recently, as commentators start to realize exactly what we’re storing up for future generations – and, if we don’t halt its seemingly inexorable acceleration fast enough, for ourselves. Right now the federal government is spending more than it earns to the tune of about $550 billion every year. There’s no mystery about where this trend is taking us – the Federal reserve are open about the fact that this “improvement” in the situation (for a couple of years after the 2008 crash the deficit was over $1 trillion a year, and by that abysmal standard today’s spending counts as an improvement) should last until about 2020, at which point steadily rising social security and Medicare costs will push the debt curve back up again.
If you’re a US citizen, right now you’re saddled with close to $56,000 of debt that you didn’t choose to take out, that you can’t walk away from and that has to be paid back someday at a cost that could ruin this country. That debt is close to double the average wage. It’s the cost of an imported luxury car or the deposit on a small apartment in the most expensive cities in America. And it was run up on your behalf by the federal government.
It’s a long time since Sterling gave up its place as the world’s leading currency to the US dollar, but it’s still the third most held reserve currency round the world and the fourth most traded on the currency markets, after the dollar, Euro and Yen. That means the performance of the pound can still have a big effect on financial markets, and thanks to the close links between the US and British economies that can have implications at home.
For the second time in two weeks the world has been shocked by the sight of an American journalist being beheaded on video by what appears to be a British Islamist. The Islamic State, also known as ISIS, hold an unknown number of western hostages and now we know what they plan to do with them – brutally murder them as a propaganda tool. It’s time for the US government to make it clear in the strongest way possible that this isn’t and never will be acceptable, and that means using our military to strike at ISIS. This is no time for “surgical” strikes either. There are good arguments for minimizing “collateral damage” when fighting a real nation state – why kill innocent citizens for the actions of their leaders? – but none of them apply here. ISIS isn’t a nation state; it’s a gang, and everyone who’s in that gang joined it voluntarily. Most of them even traveled to Syria specifically to join. There’s no need to use precision weapons against ISIS troops and positions – a B52 is accurate enough.
Sometimes it seems like our politicians spend all day looking for excuses to impose new taxes, so it’s always nice to see some movement in the other direction. It doesn’t happen very often, but when it does it’s worth encouraging. Now it looks like New Jersey’s Republican governor Chris Christie plans to do something about his state’s crippling estate tax.
New Jersey is one of only two states that has both estate and inheritance taxes, so dying there is a pretty expensive business. It’s especially hard for small businesses and the middle class, who can easily slip into the bracket where estate tax becomes payable. It’s not much of a reward for a lifetime of building up assets – having the government step in and confiscate a big chunk of them. It makes it even worse when another chunk is seized from anyone who inherits what’s left. Now Christie is proposing raising the exemption, hopefully bringing thousands of NJ residents out of the bracket, and there’s pressure on him to go even further and scrap it altogether.