Date: 07/03/2023
Author: Mr. X
Warren Buffett famously said, “Don’t bet against America.” “I have yet to see a time when it made sense to make a long-term bet against America,” he wrote earlier this year. “And I doubt very much that any reader of this letter will have a different experience in the future. We count on the American Tailwind and, though it has been becalmed from time to time, its propelling force has always returned.”
There are many reasons to doubt this, even make fun of it. The federal deficit is skyrocketing to ludicrous proportions, and it will eventually exceed GDP. American infrastructure is suffering, as we can see from the frequent notices of train derailments or problems at airlines. American cities are plagued by crime and filth, with sprawling slums of tents and dangerous and dirty mass transit systems. American politics is hardly inspiring right now, and the next presidential contest is likely to be a contest about which party is going to nominate the more unpopular candidate.
Yet, somehow, America is still better than the rest of the world right now when it comes to the economy. Perhaps this is simply an indication of how bad the rest of the world is – if everything is declining, the country that is declining the slowest remains on top. Call it whatever you want – the fact remains that America remains on top.
While the eurozone is now in a recession due to unexpectedly weak figures from Germany, the American economy is still growing. The latest forecasts from the Atlanta Federal Reserve suggest that the American economy may grow as much as 2.2% in the second quarter. S&P Global suggests that the American economy may grow at 1.8% at an annual rate.
Experts are also quietly backing away from predictions of a recession. There were 339,000 jobs added in May – far more than any major forecaster predicted. The two previous months also had their job totals revised upwards. “The market has told us – no recession, no correction, no more rate hikes,” said Amanda Agati, chief investment officer for PNC Financial Services Asset Management Group. Joe Brusuelas, chief economist at RSM, told CBS Moneywatch that the r-word Americans need to be using is “resilience,” not “recession.”
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The Commerce Department says that consumer spending is higher than previously reported. “Narrative on growth shifts, again,” said Diane Swonk, chief economist at KPMG. “Signs of slowing scant.” Gregory Daco, Chief Economist at EY, said that the so-called “soft landing” where “inflation falls to a sustainable 2% pace without a recession” may actually be possible.
Last week, the Conference Board reported that consumer confidence rose to 109.7 in June, compared to just 102.5 in May. It’s now at the highest level since January 2022. The expectations index, which looks at consumers’ six-month outlook for income, business, and labor conditions, is now at 79.3, compared to 71.5 in May. Though any reading under 80 usually signifies an upcoming recession, the trend is moving in the right direction. The ”misery index,” which is determined by adding up the unemployment rate and the inflation rate, is remarkably low, at just about 7.7.
America is also witnessing a true manufacturing boom, especially when it comes to semiconductors. Since the CHIPS Act was passed, prioritizing semiconductor manufacturing within the United States, more than 50 new facility projects have been announced. Private companies have pledged more than $210 billion in investments. The biggest problem American companies face is a labor shortage, which is a good problem to have if your goal is to increase wages.
The Biden Administration is feeling confident and is preparing to wage a re-election campaign built on the president’s economic record. “Bidenomics Is Working” claimed the White House in a recent press release.
While our work isn’t finished, Bidenomics is already delivering for the American people. Our economy has added more than 13 million jobs—including nearly 800,000 manufacturing jobs—and we’ve unleashed a manufacturing and clean energy boom. There were more than 10 million applications for new small businesses filed in 2021 and 2022—the strongest two years on record. America has seen the strongest growth since the pandemic of any leading economy in the world. Inflation has fallen for 11 straight months and has come down by more than half. And we have done it all while responsibly reducing the deficit.
What could change? The assumption that there will be no more rate increases from the Federal Reserve is dangerous. In his most recent comments, Federal Reserve Chairman Jerome Powell sent a hawkish signal. “Although policy is restrictive, it may not be restrictive enough and it has not been restrictive for long enough,” he said at the European Central Bank.
There is also a danger that the United States is simply kicking the can down the road. Bank of America CEO Brian Moynihan suggests that a recession could come early next year, economists at Vanguard have a similar prediction, and JPMorgan Chase suggests the possibility of a “synchronized global downturn sometime in 2024.” It is fairly easy to keep the economy strong in the short-term when you reopen an economy that you forcibly shuttered, immediately began spending like crazy, and impose sanctions on your biggest competitor when it comes to high-tech industries and jobs.
Nontheless, President Biden may want to think twice before running for re-election on his economic record. Just 34% of Americans approve of his handling of the economy. His approval rating is just 41% – which means that some people approve of him despite his handling of the economy. The New York Times token “conservative” David Brooks somehow manages to blame this on the trauma to our national psyche caused by Donald Trump – which, bluntly, may be the stupidest thing he’s ever written in a deeply stupid career.
The truth is that the economy is doing well now, but we’re simply recovering from the COVID-19 catastrophe, which inflicted massive damage on small businesses around the country. People may be better off now than they were a year ago, but few may feel they are as well off as they were in 2019. What’s more, the prosperity that exists now is dependent on spending that may not be sustainable for the long-term.
Yet despite this, Buffett may be right – not because America’s picture is so sunny, but because it has no real competitors. Japan and South Korea face crushing demographic issues. China has the ticking time bomb of a real estate valuation crisis and its own looming birth rate crunch. Russia is frozen out of the global economy. The eurozone is stagnant, and France is burning even as this is written. The UK is dealing with major inflation and is also in recession. India’s long-term future looks strong, but it’s nowhere near competing with the United States. Indeed, it may not compete with the United States at all – both the Trump and Biden Administrations have succeeded in turning India into if not quite an ally, at least a partner. The BRICS group is largely a non-starter – there’s no alliance system where China and India are on the same side.
America faces many problems. But this Fourth of July, Americans can take some solace that, if our best days aren’t quite before us, we at least have better prospects than the rest of the world. Warren Buffett is right, and so was Otto Von Bismarck. As the Iron Chancellor himself put it, “God has a special providence for fools, drunkards, and the United States of America.”
Mr. X is an investment analyst working in the Washington DC area who specializes in the intersection of business and public policy. After fifteen years working in politics, he writes on a classified basis for RogueInvesting.com to bring you news on what those with power are debating, planning, and doing
