"Kee" Points with Jim Kee, Ph.D.

Greek voters chose the conservative New Democracy party on Sunday (led by Antonis Samaris) over far left candidate, Alexis Tsipras of Syrizas. This was essentially a vote against a Greek exit from the European Monetary Union, although a strong impetus to renegotiate the timing of austerity measures remains. Markets in the U.S. are giving a “ho-hum” response today. I take from this that markets saw through the fog of the headlines and were not expecting a Greek exit (or the nauseatingly trite Wall Street lingo “Grexit”). Of related importance is the Group of 20 nations (G-20) meeting in Mexico this week. Key topics will be ongoing efforts to backstop the European financial system, and how to achieve both growth and austerity, because economic growth is the immediate answer to Europe’s problems, just as it is to those of the U.S.


On June 7th, China announced the first cut in interest rates in over three years, and the government has lowered bank reserve requirements (which increases the reserves that banks can loan out, fostering credit expansion and growth). More analysts are stating that China’s growth numbers will bottom this quarter (2nd) and be stronger in the second half of the year. According to People’s Bank of China (PBOC) advisor Chen Yulu, “The second quarter should be the lowest point this year,” and overall growth for 2012 “should be able to hold up above 8 percent” (Bloomberg). Most of the numbers I’m seeing from Wall Street strategists are just below 8 percent (e.g., 7.9%). Let’s just say the best bet is that China’s growth won’t be a barn-burner (9%+) for 2012, but it won’t be a hard landing (5%) either. China and Europe are not decoupled: Europe is China’s largest export market, ahead even of the U.S.


The Federal Reserve’s FOMC (Federal Open Market Committee) meeting will be held this week on Tuesday and Wednesday (June 19-20). There are eight regularly scheduled FOMC meetings during the year, the main purpose of which is to vote on (monetary) policy. In my opinion, these meetings are increasingly over-hyped by the press. I don’t think the game right now is Fed policy. The Federal Reserve was certainly culpable for allowing the banking system to collapse during the Great Depression (1930s) and for the inflation of the 1970’s. But beginning with Fed Chairman Paul Volker in 1979 and continuing with Alan Greenspan and current Chairman Ben Bernanke, the Fed has done an increasingly admirable job of ensuring price stability and providing liquidity in times of crisis. Bernanke has made it crystal clear that the Fed will not be a hindrance to recovery, and he is increasingly vocal about the fact that our current problems reside mostly on the fiscal (tax, regulations, spending) side. He has stated that the Fed will continue to be accommodative, but that monetary policy can only accomplish the monetary side of the growth equation. Confidence will come from clarity and permanence on the tax, regulatory, and spending side of the equation.


And growth in the U.S. is sorely needed. All of the data from consumer and producer prices, to retail sales, to factory (manufacturing) data, to employment data, suggest moderate (sluggish) economic growth. Much stronger growth is what’s needed to fulfill everybody’s wish list…from more jobs to more tax revenues.