Most economists will tell you that the real reason for the economic recovery in the United States over the last several years has been the shale oil boom across the country that was generated by the private sector, with no help from the U.S. government. However, that did not stop the Obama administration from taking credit for the recovery,anemic as it has been. Now as the price of crude oil has crashed, the American economy has slowed concurrently. This is not rocket science; but, I doubt the administration will admit this.
The real question is,when will the economy finally start to accelerate in a normal fashion as it has historically after such a severe downturn? I mean a real recovery, across all sectors of American economic activity? The answer lies in policy, not in some magic bullets from the Fed.
The American economy will take off when it sees greener pastures ahead in the fiscal policy arena and the U.S. regulatory environment. In short, it will take off when investors see rational economic policy out of Washington. That’s when they will spend money and that money will trickle down through the layers of American society, creating economic transactions, tax revenue, and jobs. It’s no secret that central planning and stifling policy from a federal government does not allow an economy to grow.
Right now, if you are a business with money to invest, you have several uncertainties. You don’t know what your energy costs are going to be, you don’t know what your healthcare costs are going to be, you don’t really know what your taxes are going to be. Why would you go out and build a new plant?
This uncertainty has to be removed before capital spending and the associated benefits will accelerate. Again, it’s not rocket science.
When will this happen? I believe the American people are finished with this cycle of their socialist tendencies. I believe they will elect a president that will have pro-growth policies and one that will exhibit strong economic and international leadership out of Washington. When investors see this prophecy coming true as the election in 2016 draws near, they will act. The market is a leading economic indicator. It focuses on the future, not the present. That is why I believe the stock market will keep rising. At some point, it will start to believe in what I am saying. Investors will follow.
At this point, the Fed will also have to react and they will start to raise rates, perhaps aggressively. The growing rate differential will impact the value of the dollar and provide support. There will be a period of further dollar superiority.
However, I don’t think we are there yet. The Obama adminstration is doing its best to leave a mark on the U.S. economy, negative as that may be. There is still a sense of, what’s coming next from these guys?
My guess is that once a clear Republican leader emerges from the primary spectacle, the economy will start to rise. Until then, we are very likely to see a sell-off in the dollar from these levels as justification for the Fed to raise in the near future will be lacking. That will be the time to buy the dollar.
L Todd Wood is a former emerging market debt trader with 18 years of Wall Street and international experience. He is also an author of historical fiction thriller novels. His first of several books, Currency, deals with the consequences of overwhelming sovereign debt. He is a contributor to Fox Business, Newsmax TV, and others. LToddWood.com