Wednesday, January 04, 2006


One resolution is to blog more this year.

Last year's New Year's post doesn't need much change., but I'll update. Maybe if I do this every January for 30 years this will seem substantial.

1.Unemployment has dropped slightly, but real wages remain stagnant or falling (same as January 2005). Payroll numbers have not gone up very much and it's a mystery as to why so many have stayed out of the labor force (labor force participation is up, but nowhere near pre-Bush levels). GDP appears to continue to grow at a 3-4% rate without producing many new jobs.

The labor force numbers appear to be improving except we are now some five years into the current recovery and it's not apparent what will sustain this recovery through next year. A recession could easily drop employment below the peak of the last business cycle which is a unique experience.

2. The federal deficit was 318 billion this year. It can't go on, but when will it stop? (the size of the deficit has been cut, but significant structural problems remain) Social security reform didn't happen and the debacle known as Medicare part D has been revealed for what it is. At some point, the grownups will have to cease the credit card and act responsibly.

Again, things look better than last year, but that's not saying much.

3. I would have lost money on Euro futures in 2005 and the Chinese made a barely perceptible nod to revaluation. When the Chinese will revalue for real is anybody's guess and why they haven't yet is another mystery. It probably has something to do with the huge amounts of dollars they are holding although they have started to make adjustments and are trying not to add new dollar holdings. We have an inverted yield curve which is likely due to this seemingly insatiable desire by foreign institutions to hold dollars propping up our exchange rate and financing the current account deficit.

What will the Chinese eventually buy and what will we let them buy. There was a great deal of opposition to the announcements of Chinese intentions to buy Unocal and Maytag and both deals never happened.

Overall, I have to say that the sense that things could explode in very nasty ways which I had in January, 2005, I don't have now. I do think that recession is a real possibility in 2006. I also think that the 2006 midterms could be disasterous for the Republicans if this were to happen. I would actually be willing to trade a mild recession for change in control of one or both houses of Congress. That's how bad I think this administration is for the long-term health of this country, both economic and political.


This page is powered by Blogger. Isn't yours?