Economy

-- This is a guest post by Jay Pelosky, Principal, J2Z Advisory, LLC --

The economic and investment outlook for the second half of the year is rocky.  The European debt crisis, U.S. fiscal woes, and inflation in emerging economies remain a problem, and in some cases have taken a turn for the worse. Risks are rising of a major drop in stocks and possibly bonds (resulting in rising yields). The implication could well be a shrinking world economy.

The American economy can produce decent jobs. We know this to be true because it has happened before. Getting back to a decent-jobs economy will require a commitment on the part of policymakers to creating many more middle-skill, middle-wage jobs. While there are important reasons to support the incomes of those at the bottom of the wage distribution, we will not improve the lives of working families without improving and increasing job opportunities in the middle.

The nationwide decline in house prices has created a vacuum in the U.S. mortgage market. Private financing for home loans has all but dried up and the U.S. government is now guaranteeing almost every new mortgage.

A report released today by the Pew Research Center finds that the Great Recession has worsened an already-widening gap in net worth between Whites, Latinos, and Blacks. Using data from the Survey of Income and Program Participation (SIPP), researchers found that between 2005 and 2009, in percentage terms, “inflation-adjusted median wealth fell by 66% among Hispanic households and 53% among black households, compared with just 16% among white households.”

The economic environment in America today is more dire than most of us have ever known. We are in the midst of an unemployment emergency, in essence a jobless recovery: notwithstanding recent marginal upticks in official U.S. jobs numbers, there will be no fundamental improvement in the unemployment picture unless major new national economic strategy initiatives are taken. Who will step up to drive them forward?

The global economy is suffering from severe shortage of demand. In developed economies that shortfall is explicit in high unemployment rates and large output gaps. In emerging market economies it is implicit in their reliance on export-led growth. In part this shortfall reflects the lingering disruptive effects of the financial crisis and Great Recession, but it also reflects globalization's undermining of the income generation process.

The global economy is suffering from severe shortage of demand. In developed economies that shortfall is explicit in high unemployment rates and large output gaps. In emerging market economies it is implicit in their reliance on export-led growth. In part this shortfall reflects the lingering disruptive effects of the financial crisis and Great Recession, but it also reflects globalization’s undermining of the income generation process. One mechanism that can help rebuild this process is a global minimum wage system. That does not mean imposing U.S.

This is by far the most jobless of recent recoveries. Allen Sinai, a man known for describing numbers carefully, already wrote in November 2009:

“Never has business shed so many workers so fast, so many people failed to find work who are looking for work, and so many dropped out of the labor force as in the current circumstance.”

By that time, the stock market was already recovering but payrolls were not. Sinai wrote:

For many Arabs across the Middle East and North Africa, the so-called "Arab Spring" will bring a cold bout of economic uncertainty and decline. This is the grim truth of revolutions: they do not yield economic benefit in the short-run.

Rather, they usually make things worse.

It is one of the most oft-used clichés of globalisation: "When America sneezes, the world catches a cold." Amid the 2008-2009 American financial crisis and recession, commentators and pundits dusted off that favourite saying as global markets felt the pain of America's storm.