I believe the US is at or approaching a turning point. So are many other parts of the world, in particular Europe, Japan, China and much of the Middle East. Three years from now, in the mid-summer of 2016, as we move into the final leg of the 2016 elections here in the US, there will be, I predict, some big changes from where we are today. Here's a short list of predictions:
- The Republican Party will be in disarray. They will have barely held the House in 2014 and did not retake the Senate. They look on track to nominate Sen. Ted Cruz, who is way behind Hillary in the polls.
- After the near disaster of November 2014, GOP leadership in the House finally pulled together and pushed through Immigration Reform, with a path to citizenship. Hispanics are wildly enthusiastic about their place in the US, and it looks like they will show up in large numbers at the polls in November, mostly to vote for Hillary.
- Obamacare is working, and working very well. 20 million people have signed up in the Exchanges, most of them previously uninsured. An additional 10 million -people have been added to Medicaid. Every state except Texas that refused to set up an Exchange or accept the Medicaid expansion have caved in and are actively in support. Employers did not dump employees from their existing plans. Young and healthy people did sign up, contrary to GOP expectations. The employer mandate was waived permanently, so the 30 hour part-time issue disappeared. And the 2009-2013 cost moderation in overall healthcare costs has continued through 2016, making it very clear that providers, by adopting Electronic Medical records and moving away from Fee for Service, are learning how to make healthcare delivery more efficient. Turns out that the GOP was wrong on every single prediction they made about Obamacare, and it looks like they will be punished for it at the polls in November.
- With healthcare costs under control, the talk of long term budget and debt disaster - primary GOP talking points - has almost completely disappeared. The economy has been strong, supported by the continuing energy investments, the stimulus infusion from healthcare transfer payments, and the amazing exuberance of the Hispanic community fully emerging from the shadowlands, where much of it had been residing. CBO projects 4.5% nominal GDP growth, with a modest 3% deficit. Inflation, despite the robust growth, is still under 2.5%. The Fed has moved short rates to .75% and 10 year Treasuries are about 3%, way under what inflation hawks had forecasted.
- The Eurozone has broken up, overloaded by the weight of its austerity programs. The Eurocrats, under German leadership, never relented, insisting on continuing budget cuts, doing nothing to stimulate demand. Italy, under Beppe Grillo's Five Star program, was the first to leave. Spain, Portugal, Italy, Greece and Cyprus soon followed. With their own sovereign currencies back again, Southern Europe looked poised to be back in the growth column in 2017. Germany, Austria, Holland, Belgium and Finland have stayed together in a Northern European bloc, and their trade sectors have struggled with the newly appreciated Euro, after Southern Europe's departure. France, after considerable soul-searching has stayed with Germany and the northern bloc.
- Japan under Abenomics has boomed. Nominal growth continues to top 4%. Inflation has moved up to 1.5%. 10 year JGBs are near 2%, well below inflation hawks' expectations. Government deficits have been in the 10% range; debt has increased; yet most are not worried, saying, "How can we go broke when we have our own currency?" The success of Abenomics, with its aggressive government-directed demand stimulation, combined with the utter failure of austerity in Europe, has put a large puncture wound in neo-liberal, high austerity, low government engagement economics. Keynes is ascendant again.
- China, on the other hand, has had tough sledding. Growth is averaging 3.5%, as it becomes clear that rebalancing the economy away from exports and investment and towards the consumer and consumption is a longer, harder road than many had thought. Michael Pettis has clearly won his bet with The Economist, who bet that China would catch the US in 2016. At this point it does not look like China will ever catch the US, while more and more pundits are making the case that the 21st Century, far from being a time of decline for the US, will be The American Century.
- One of the truly unforeseen positives from the Trans Pacific Partnership Trade Pact, that has just been signed, is that China and Japan are using its requirements to mediate their maritimes disputes, and it looks like the waters of the Western Pacific and the South China Sea are mostly peaceful, with no great power confrontations.
- Two other breakthroughs have changed everyone's War/Peace calculations: Iran has agreed to thorough and intrusive inspections of their nuclear program to demonstrate there will be no weaponization, and sanctions are in the process of being dismantled. China has finally decided to rein in North Korea, and an agreement has been reached on eliminating their nuclear capability. In the Middle East, although Syria is still unstable (living under international peace treaty with peacekeepers from a variety of Arab states), negotiators are cautiously optimistic about an Israeli-Palestinian peace deal.
- Finally, in the US, with the collapse of neo-liberal, austerity economics, and the reemergence of Keynesianism, new macroeconomic approaches are being adopted on an experimental basis. Specifically, Modern Monetary Theory, which argues that the US, as a sovereign currency issuer, always has enough money to invest in important public policy priorities. The constraint on spending is not deficits, per se, it's what are the economic resource constraints that would cause new spending to translate into higher prices, instead of higher output. Under MMT policy input, the US is beginning to experiment with a Job Guarantee program, where everyone willing to work is given a basic wage in the new Infrastructure Redevelopment program, backed up by self-selected on job training in crafts and skills useful for the future. Through programs like this and the stronger regulatory focus in the financial sector, folks are beginning to be hopeful about redressing the enormous income inequalities that developed before and after the Great Crash.
These are some of the areas and issues I will be following. As you can see, I'm an optimist (although if you're a Republican, a European, or a Chinese, you might disagree with that characterization). I think many things are about to move in a defining direction. I look forward to sharing my musings and analysis as we go forward.