These are strong numbers for the quarter and June:

Unemployment Rate

4.5

Change in Payroll

132,000

CPI

2.0

PPI

-.2

We’re hearing mixed signals regarding the economy despite the rather strong showing of GDP at 3.4% for the second quarter; a lot of folks are antsy regarding the looming sub-prime issue which hasn’t totally come home to roost yet, and personal consumption is a concern at only .89% of GDP growth.  Meanwhile, Greenspan is warning that the cost of capital won’t stay low forever and oh by the way, it’s already masking the effects of a slumping dollar.

That analysis may be correct, but I’m not sure it necessarily means we’re headed for trouble in the next 12 months.  First, government spending isn’t going to let up any time soon.  The war and Katrina will take care of that, ready to fill in any vacuum that personal consumption leaves behind.  And by the time it does settle down, the dust will be settling with everyone’s personal finances, and who knows where personal consumption will be.   Second, until countries like China untie their currencies from the American dollar, I don’t exactly see how the slumping dollar is going to affect us as much as the graphs show.  The not so dirty little secret is that even in many countries with free floating currencies, where theoretically we expose ourselves to inflation as our dollar gets cheaper, often the dollar is the predominant currency on the street anyway.  So what happens to us happens to them. 

Incidentally, I believe everyone who is bashing Greenspan for his easy money strategy for the last decade tends to miss a point that has a significant dampening effect: many of those dollars are ending up in fallen iron curtain countries and other parts of the ‘third world’ acting as their actual national currency.  This tends to minimize the effects in the US; those dollars just aren’t here.  Now there’s a brain twister for you.

I’m a Greenspan fan by the way.  But he never was a very great forecasterIf you’re going to pay him $150,000 for his next presentation, you may want to remember that when you’re discussing topics with him.

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