Tammy recently attended a Financial Planning conference in Seattle and wanted to share with you some thoughts from a well known Pacific Northwest economist, Michael Parks.
Globally
Parks stated that globally the main apparent risks are Europe and China. The Eurozone with its high debt, low growth, giant public sectors, early retirement, and untaxed informal sectors is struggling. This is disconcerting since European banks are larger than US Banks. Banks and governments - too big to fail - are inter-dependent and both at risk. He was concerned about the 2 bank failures of Belgium Bank and MF Global. He said that Greece is just a side show, and that Italy, but also Spain and France, share the center ring. He also said that the European Union is very connected to emerging markets which can go from boom to bust. The problems in Europe pose three contagion risks for the US: Merchandise trade, Banking, and the Stock market.
China is the second largest economy and next to India and Brazil it has had good growth rates. However, Parks said that China's growth slowed to 8.8% in the 4th quarter of 2011. This was mainly due to slow exporting to rich economies such as ours. China's debt is accumulating quickly with its boom of investment into its own infrastructure, namely the real estate sector. Sound Familiar? Here is an interesting article about China's Ghost Towns. http://www.economywatch.com/economy-business-and-finance-news/Chinas-Ghost-Town-Overdevelopment-in-the-Real-Estate-Market/22-08.html
United States
We all know about the dysfunction in Washington, D.C., but Parks said that it is inhibiting the necessary structural reforms. He believes that our country needs to work on its infrastructure while interest rates are low. He says that monetary policy is constrained as interest rates are zero bound. Bernanke has limited options for stimulus. The forecast for US economic growth for 2012 is an improvement from 2011 according to data from the Bureau of Economic Analysis. As I write this, the Dow sees its highest close since 2008 because of positive jobs data.
Washington State
Parks said that the Boeing-IAM agreement is great news. The Labor peace plus a bulging order book should provide high levels of employment in this sector. He said the weakness of the dollar is good with our close proximity to Pacific Asia although the US and Canadian dollar are about par. Parks reminded us about the feeble recovery we have seen so far in housing which is the sector that usually leads the economy out of a recession.
All in all, Parks feels that even though there are some wildcards still being played out globally, the United States is seeing some recovery and making the tough climb up in the typical business cycle, albeit more slowly this time than in decades before. It all comes down to human behavior which is unpredictable and yet we all know how much our country loves to prosper. Parks believes we will continue to see a strive towards prosperity in our country, whether bad or good.
Sincerely,
William T. Morrissey and Tammy Prouty
Sound Financial Planning Inc.
wtmorrissey@soundfinancialplanning.net
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