Now We Get to Worry About Geo-Political Risks Too
- Turmoil in the Middle East.
- Protests in Tunisia led to the government collapse, while Egypt called out the military in response to 12 days of rioting by Egyptians seeking to oust President Mubarak and his regime.
- Flight to Safety
- Geo-political risks in the Middle East pushed up crude oil prices, treasury, and the value of the United States dollar as royal investors rushed to safer investments.
- Gold also jumped 2%.
- Stock Market
- News of unrest in Egypt and Tunisia, and protests in Yemen and Jordan also caused the stock market to suffer its first weekly loss in 8 weeks.
- New claims jumped by 51,000 for the week according to the Department of Commerce.
- Wages and benefits increased just 2% in 2010, the 2nd worst showing in 30 years.
- Economic Recovery
- Gross Domestic Product (GDP) rose to 3.2% in the 4th quarter, up from 2.6% in the 3rd quarter.
- Consumer spending showed its biggest gain in over 4 years.
- Federal Policy
- The feds left rates unchanged and indicated that they would remain exceptionally low for an extended period of time.
- The feds also indicated that it will continue with stimulus spending with additional purchases of Treasury notes.
- The Deficit
- The deficit is expected to increase by $1.5 trillion in 2011. This could have a significant impact on future inflation.
- Moody’s is talking about downgrading AAA-rated US debt, which would have significant impact on the costs to fund the debt.
- Standard & Poor’s just downgraded Japan’s sovereign wealth debt causing the value of the Japanese Yen to tumble. The same thing would happen in the US if Moody’s downgrades the US credit rating.
- State of the Union Speech
- President Obama announced in the State of the Union Address that the government’s primary focus would be to:
- Cut corporate taxes.
- Spend on infrastructure projects education.
- Increase exports.
How come, if we should be increasing tax revenues and decreasing spending to reduce the deficit, we’re doing the exact opposite? This is just another example of the government’s masterful willingness to “kick the can down the road”.