Understandably all eyes in this country are on tonight’s world cup opener and in the US it is on the opening of their football season between the Green Bay Packers and the New Orleans Saints.
Before both of these there was the address to the American people by President Obama. This is not likely to captivate the public as much as either football game that follows but it is covering a crucial issue for most Americans and that is jobs.
Last week saw the release of a dismal US jobs reports with zero jobs created in August and an unemployment rate staying stubbornly high at 9.1%. The rate is much higher for younger people with the unemployment rate for 16-24 year olds in the US currently being 18%.Combine this with a US housing market that is over 30% off its 2006 peak and it is not hard to see why the US consumer (and therefore the US economy) is struggling.
The answer to solving this is difficult and if a “silver bullet” solution was available it would have been fired by now. The policies in Obama’s speech are aimed at lifting job creation but at the heart of the issue is the US debt mountain. It seems that Obama’s proposed policies will not lift the growing unease in the American population that their debt levels are getting out of control and that the US political system is struggling to deal with this crisis.
The risk is in trying to avoid a repeat of the Great Depression of the 1930s the US is going to be consigned to a “lost decade” of low/no economic growth as Japan has experienced. This could occur if US consumers have an on-going loss of confidence about the future and therefore consistently maintain a higher level of savings than usual.
For a nation based on consumption this “paradox of thrift” is a real issue. The parallels with Japan are becoming greater with Obama’s speech evoking memories of the Japanese Government’s attempts in the mid-1990s to spend money on infrastructure projects that ultimately proved futile.
The markets are understandably starting to adjust to the reality that there will be consistently lower US growth for some time whatever the politicians or central bankers try to do.
Anthony Quirk