Today’s report of 3.5 percent GDP growthfor the third quarter ending in September signals the end of the long recession.
Although there are glitches in the GDP story - including the one-time impact of Cash for Clunkersand the erratic bouncing around of disposable income from quarter to quarter (largely a result of government handouts), the fact remains that the economy is improving and that the big stock market rally is confirmed.
Wall Street economists like Joe LaVorgna and Michael Darda expect 4 percent growth in the quarters ahead. My own view is that this will be a business-led recovery, not only in terms of capital-spending investment, but also business-to-business transactions. Corporate cash flows are very strong and profits are improving. Economy-wide productivity is very high. And let’s not forget the Fed’s highly expansionary policies, with a zero target rate, a steep Treasury curve, and a growing balance sheet.
All of which raises an important policy point. As the economy recovers, where’s the exit strategy for all this stimulus? To protect the dollar, the Fed should be raising its target rate, or at the very least hint at raising it by changing the wording of next week’s policy statement.
Gold roared up today as the greenback fell again. Stocks are mounting a huge 200-point rally as of this writing. World markets are anticipating an inflationary recovery in the United States. And never-ending federal debt creation from more and more government spending adds to the greenback’s woes.
Restoration of King Dollar would be a tax cut for the whole economy. Think of it in oil terms: Crude oil jumped $2.40 today to $80 a barrel. If the dollar keeps sliding, oil is going to keep rising. And that’s a tax hike for the economy. It would block recovery. But if King Dollar were restored to its thrown, oil and other commodities would stay put, amounting to a de facto tax cut -- a spur to growth.