My Two Cents On The Economy

I was going to leave a comment to chicagodudewhotrades' post, but my comment got longer and longer, so I decided to turn it into a post of my own. And lets face it, I haven't had the time to post in a while, so this was a good opportunity.

First, I want to say, that this was a great first post, and welcome to the team. I think this is the power of the blogs that you can bring in so many different point of views and different areas of expertise into one forum in a way that traditional media cannot, or has not. So, personally, I am glad to see posts just like this and hope that we can expand on this and not make it a one shot deal.

Ok, so here is my take. To start off, I agree with your conclusion. The American economy should not be written off. The fundamentals of the American economy are still strong. We have a strong federal reserve that while maybe they were late to react, understand what needs to be done, what the problems are, and are not afraid to react when they feel it is in the countries best interest (contrary to Jim Cramer's "they know nothing" rant.) The proof of this is that while the economy has turned downward we have not seen a corresponding rise in corporate bankruptcy's. Not long ago, Bear Sterns would of had to file for Bankruptcy protection. Instead, the government bailed them out and worked out a sale of the company, rather than let it fold.

Everyone mentions China in connection with the economy. China is this decade's Japan. I remember in the 80s and 90s, everyone was complaining that Japan was buying America. What happened with that? China's economy is strong because we buy their goods. Their own population cannot support their economy, as it is mostly agrarian. They manufacture goods that they sell here. They need us, as much as we need them. We are the reason that China is strong, and despite all of China's rhetoric, China needs us as much, if not more, than we need them.

As for Africa, I agree completely with you. They have taken major steps forward, followed by multiple major steps backwards. How countries can sit on the largest gold and diamond mines in the world and be below even the worst imaginable poverty, is incredible.

The Middle East is a mixed bag. Yes, the have the oil, but with the world attempting to move away from oil, and as oil runs out (don't we keep hearing about peak production?) where will they be? The smart ones, like the UAE in Dubai, will move their economy away from oil into something else. Others, cannot because of the political climate (no one is going to make Iraq into the playground of the Middle East, like they are doing in Dubai.) Their sphere of influence declines as oil quantity decreases and new deposits are discovered, or old deposits become economically feasible to explore.

The problem with the American Economy is that we still look at the market using indicators that are out dated. Manufacturing in this country is a past sector. We are not a manufacturing company. Many reasons for that, not the least of which is the destructive force that the Unions became (yes, they were necessary once upon a time, but now they are the primary reason for the manufacturing decline.) Yet, the market lives and dies on the manufacturing reports that come out on CNBC every month.

The American economy is in transition. We were a manufacturing economy that turned to a service economy, but now we are outsourcing that. America's economy will come back when we, as a business nation, decide what our identity is.