Just checked in with America. I was surprised how many ideas I had that were out-dated.
I’ve got a bunch of interesting charts on the US for you today.
And for all the talk of China, or Russia, or Whateverstan, the US still remains the most important economy in the world – and definitely from Australia’s perspective. So it’s still worth taking an interest in.
The thing that piqued my interest in all this was learning that the US and Australian bond spreads had inverted.
That is, normally Australian government bonds have to pay investors more than US government bonds because Australia is seen as a riskier prospect.
But in recent years, that’s reversed and the gap is now the widest its ever been in Australia’s favour:
So are the prospects for the Australian economy really that much better than the US?
I mean, whatever happened to all that talk of a property market Armegeddon and all that?
It may be the case that investors just think that America is “due”. America is now approaching the longest business cycle expansion in history. If they make it to 2020, it will be the longest expansion ever.
So maybe investors are thinking, ‘what goes up, must come down’. The good times can’t last forever.
But then that’s the thing about this expansion. It sounds a bit tinny. Sure, the economy is expanding, and the US labour market is definitely looking peppier.
But inflation remains anchored to the floor. And as much as the Fed wants to get the economy off the QE juice – unwind it’s massive money-printing efforts – it just hasn’t been able to.
I mean, it did make a start. It did try to wind things back, but the markets didn’t like it, and it gave it up. Now, it’s not expected to even start cutting back again til 2021.
So while yes, America is currently enjoying one of the longest expansions on record, it’s hardly been one for the ages. It’s not a picture of a stallion in full stride. It’s a picture of a war-veteran, put into a plaster cast, and put back in the field.
There’s a couple of other interesting things I dug up. The first is that the US has recently become the largest oil exporter in the world, with oil exports exploding since 2010.
Did you know that? It was news to me.
Partly this is about greater domestic production, but it’s also about a more fuel-efficient economy that is freeing up oil reserves for export.
But anyway, the picture we used to have of the US economy – as one hopelessly dependent on the whims of OPEC – is past its used-by date. This has some very interesting political ramifications.
And it’s maybe why we’re seeing a more aggressive stance on US trade.
On that front, I thought this chart was interesting too. It’s authors titled it: “US Drug Deaths before and after China joined the WTO”.
That title is deliberately provocative, but it is still a disturbing picture. The left map shows 1999 levels. The right shows 2014 levels.
America is in the grips of a serious opioid crisis. It’s claiming millions of lives.
That can’t be entirely blamed on China, but the hollowing out of American industry, particularly as companies started ‘off-shoring’ production to China, is clearly playing a part.
Anyway, put it together, and it’s a mixed picture. The economy continues to ‘stumble through’, and large segments of the American economy are hurting.
But still, the economy is delivering, and America’s political clout seems to be actually increasing.
Interesting times indeed.