by Scott Grannis:
The recovery is not limited to the U.S. Global equity markets have rallied significantly in recent years (up almost $30 trillion), and are now only 11% below their pre-recession high.
Adjusted for inflation, retail sales are well into new high territory, having risen 3.2% in the past year.
Of course, there are still many problems the economy has to contend with. Monetary policy could become excessively easy if confidence returns and the Fed fails to take timely and aggressive steps to tighten policy. Fiscal policy continues to burden the economy with a very high level of spending relative to GDP, very high marginal tax rates, and the highest corporate tax rate in the developed world, although things are improving somewhat on the margin. Regulatory burdens are extremely high, with Dodd-Frank placing heavy burdens on the financial industry and the implementation of Obamacare threatening jobs and health coverage for millions of people across the country. Unemployment is still very high, and the labor force participation rate is disturbingly low. The unfunded liabilities of our major entitlements programs (e.g., Social Security, Medicare) are gigantic, and the current pace of spending growth is unsustainable over the long run. Public sector unions enjoy benefit packages that are bankrupting cities nationwide. Geopolitical tensions are rising in the Korean Peninsula and in the Middle East. Our federal deficit is still a shocking 7% of GDP and total debt held by the public is approaching an astonishing 80% of GDP.
And yet the private sector has dealt with the shock and disruption of a major recession and has survived, and is slowly but surely rebuilding the economy in spite of all these negatives.
It never pays to underestimate the ability of the U.S. economy to overcome adversity and grow. That’s why I remain optimistic, especially because I see that markets are still obsessed by the negatives…