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Useless-Knowledge.com
Dwayne Hines II
The Perfect Growth Storm
Feb 28, 2004
As the Presidential race starts to really heat up, many pundits are starting to point fingers at the budget deficit that the Bush Administration has allowed to accumulate. Many note that under the Clinton Administration the talk was on potential budget surplus, but now that possibility has evaporated. Recently Alan Greenspan noted his concern going forward, pointing out that Social Security and other programs may have to be trimmed. What many fail to point out is that while the budget deficit is large in terms of total dollars, as a percentage of Gross Domestic Product (GDP), it isn’t that bad. The Bush Administration is obviously banking on strong growth in the economy for foreseeable future. And they may get it.
The Federal Reserve has dropped rates to historic lows over the past few years. Recently the dollar dropped sharply against foreign currency, most notably the euro. There was significant talk about foreign investment pulling out of the United States markets due to the low return. This would put pressure on the Fed to raise rates, which in turn could cause the stock market’s nice run to come to a screeching halt in the near future. Many have been talking about rate increases coming later in the year.
Something nifty has occurred along the way, however, that may change the mid-term perspective. The high currency rate in Europe has caused European leaders to call for efforts by the United States to curb the drop of the dollar – primarily wishing for an increase in United States interest rates. With no strong showing of inflation, the Fed has not given in to this pressure. The European economy is hard hit by the higher euro, which makes their exports more expensive while American imports become less expensive. European leaders are being forced by this situation to lower their interest rates and in fact two of the bigger players, France and Germany, now look to do just that.
The lowering of the euro will take some of the pressure off of US interest rates as foreign investors will be less likely to pull their money from the US (which is seen as a safer haven) and to put it into Europe, due to lower rates.
The overall effect of Europe lowering interest rates will strengthen the dollar and let the air out of some of the reasons the Fed may have to hike interest rates. And a small hike may not be that bad anyway. A wall street analyst noted just this week in the Wall Street Journal that a small increase in the interest rate may actually help US stock markets.
Consumers are getting more in their pocket from the ongoing tax cuts and recent data shows that the money coming back into the tax payer’s pockets in the spring of 2004 is more than the previous year.
Adding to this pleasant scenario is the arrival in the US tech sector of significant forces for growth. Intel, AMD and various other players are putting together packages that will allow significant leaps in computing power. New technology in the telecommunications sector is also arising, and other related tech fields are seeing growth as well. Add to this the development of higher levels of software in the next year or two, and the next “killer app” is just around the corner. In fact it may be a mix of applications benefiting several companies.
It appears that the Bush Administration could be looking at a perfect storm for growth, with no real reason for interest rates to rise for some time, and no real negative effect if they do rise minimally, and a nice level of growth in the tech arena starting to take place. For the mid-term, the strong growth of the past year may not be coming to an end, but merely a precursor of super strong growth ahead. Bush’s supply side approach to economics may have a rare opportunity to show what it can do.
Although many are decrying Bush’s approach to economics, what appears to lie ahead in the near to mid-term future may surprise a lot of people with a surge of growth from a perfect economic storm.
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About the author: Dwayne Hines currently has 12 books selling in major bookstores and writes for major magazines such as Physical and FitnessRX. Email Dwayne Hines: dhines@3dinet.com
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