Business News

No double dip

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by Peter Switzer

The battle at the G20 meeting over the weekend got down to — to spend or not to spend — and the US, the country that has the best spenders in the world, want to keep on spending. Good on you Obama, I say, but you have to be careful. Spending your way out of debt relies on a lot of things going right.

What was good out of the G20 get-together was an agreement to cut their deficits in half by 2013 but the timing might be hard to achieve and frankly I hope the nations of the world fail by half!

A 25 per cent reduction might be better because if every country gets responsible at the same time then global demand will gurgle down the plughole.

That’s why I liked hearing Obama virtually say: “Yes, we can reduce the deficit but I don’t want to do it right now.”

Softening recovery

The US recovery is softening but that often happens when you have a big slump followed by a big bounce-back. This looks like a soft patch but still a positive one.

“There is a risk that synchronised fiscal adjustment across several major economies could adversely impact the recovery,” the G20 concluded but they didn’t end there. “There is also a risk that the failure to implement consolidation where necessary would undermine confidence and hamper growth.”

Overnight on the economic front, personal income rose 0.4 per cent in May, while spending went up 0.2 per cent, which was better than expectations. On the flipside, there was a ‘high-ish’ four per cent savings rate, which made some think the US consumer will remain on strike. Consumption makes up 75 per cent of US economic growth and so this raises double-dip fears.

However, Abby Joseph Cohen, the legendary Goldman Sachs market guru, says the US economy is slowing from recent fast growth rates but she’s in the ‘US won’t double dip’ camp. And I believe her.

Good news vs. bad news

Now if US company earnings can kick in better than expected, we could see the good news stateside counter the negative stuff out of the Eurozone.

Given how slow Europe has been in getting its economic act together being slow to cut interest rates, slow to tackle its debt problems and slow to mount the debt rescue plan, it could be tagged — Eurodrone.

For advice you can trust, contact Switzer Financial Services.

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Published on: Tuesday, June 29, 2010