The Sunshine Empire

I’ve been watching several disparate economic trends across the globe that have me interested. In the United States the economic recovery has been progressing for several months, but job growth has hit a stumbling block, and European debt concerns have the bull market being beaten back all of the sudden by a rather surely bear. Those debt concerns have set off protests in places like Greece and Spain, but also curiously reach the top of the English Premier League. Also, in China the era of cheap labor seems to be coming to a close according to The Huffington Post.

In the world’s largest economy, the Great Recession that had ravaged the United States ended some months ago according to all accepted economic indicators. Yet the Obama administration is not able to reap the political rewards for such growth due to the lack of job growth. Even conservatives now admit that the President’s economic stimulus plan saved or created roughly 2.5 million jobs. Yet with the gigantic hole that had already existed this was hardly the remedy to have us back to pre-recession levels. Now, after moderate job growth the past month, we’ve seemed to come to a screeching halt. The government reported close to half a million jobs created in May, but everyone understands that most of that is Census worker puffery. So what is the commonly accepted reason for this halt and the dip in the Dow? Confidence pure and simple. The credit markets have by all account unfrozen for most large businesses and demand is growing, but everyone is terrified of a double dip recession. This terror in an expected double-dip could ironically end up causing a double dip recession.

Much of the blame for this lack of confidence, the financial talking heads tell us, is the growing debt crisis in Europe. Toward the end of the Great Recession we were told that Europe was fairing much better than we here in the United States. That turns out to be wrong. Europe seems to be suffering through the same house of cards debt issues that plagued the U.S. in 2007-2008, but for some reason it was delayed. Economic uncertainty in Europe has bled through to the American stock markets and their fantastic gains of the last months are quickly being erased. An interesting microcosm of this European debt crisis is the over-leveraged franchises in the English Premier League. Reading a story from the BBC on the debt levels of EPL teams showed that leveraged buyouts have teams collectively billions of dollars in debt and barely staving off bankruptcy. All of this seems to show that globalization has cause the entire world to over-leverage against itself. The inter-connectivity of the global economy has the collapse of Lehman Brothers two years ago affecting English soccer clubs today.

Beyond English soccer many seem to point to the Chinese as the master creditor nation, yet the days of rising China may be coming to an end as well. China’s staggering growth has been fueled by cheap labor, free trade, and devalued currency. Yet the growth has caught up to this trend, as more and more Chinese workers are fighting for higher and higher wages and rights. An end to the cheap Chinese labor market could upset the economic playing field even more in the years to come, just as things probably will look like they are settling down again.