Great news for The Global Interdependence Center. It is an organization I support. -Mary

Philadelphia, PA, December 2, 2010 – The Global Interdependence Center (GIC) is pleased to announce the establishment of the Global Society of Fellows, which will comprise a group of accomplished scholars and practitioners who will convene leading policymakers, market participants, and academics from around the world to help foster dialogue and identify solutions to some of the world’s most pressing economic issues. The Global Society of Fellows will receive initial funding through a generous philanthropic grant of $1 million from the Morgan LeFay Dreams Foundation, the personal foundation of globally recognized investor and thought leader Paul A. McCulley.

Mr.McCulley is an authority on global markets, central bank policy and macroeconomics. He will also serve as the first Chairman of the Global Society of Fellows.

GIC, founded in 1976, encourages the expansion of global dialogue and free trade to improve cooperation and understanding with the goal of reducing international conflicts and improving worldwide living standards. GIC provides a forum for the exchange of divergent perspectives and initiates global partnerships. By engaging experts to identify emerging economic, social, and political issues vital to the global community, GIC enables world policymakers to find practical solutions. In recent years, GIC conferences have dealt with such topics as Food and Water, SARS, Avian Flu, Financial Market Crises, Global Health Challenges, World Trade, and Global Monetary Policy on nearly every continent. The Global Society of Fellows will further the mission of GIC by helping to develop and advocate policies to bring about constructive change.

For more information on The Global Interdependence Center, please visit www.interdependence.org

After years of hearing about (if not living in) a recession and after months of apocalyptic TV ads informing me that some incumbent has robbed my family of it’s future- it can be kinda tough feeling good about the world, my country and my own future.
Today I was reminded why deep down I am an optimist. A New York Times Op-Ed reminded me it is not “us against them.” The economic health and strength of the US is evolving not ending. Read it and weigh in.

November 8, 2010 The Crossroads Nation
By DAVID BROOKS
Bill Clinton used to talk about building a bridge to the 21st century. President Obama talks about laying down a “new foundation.” But Clinton was always vague about what the land on the other side of that bridge was going to look like, and Obama is vague about what edifice is going to go on top of that foundation.

They are vague because nobody is clear about what sort of country America is going to be in 2030 or 2050. Nobody has quite defined America’s coming economic identity.

In thinking about this question, it probably helps to start at the beginning. Five hundred years ago, agriculture was the major economic activity. One hundred years ago, it was industrial production. Now, of course, we’re living in an information age. Innovation and creativity are the engines of economic growth.

Howard Gardner of Harvard once put together a composite picture of the extraordinarily creative person: She comes from a little place somewhat removed from the center of power and influence. As an adolescent, she feels herself outgrowing her own small circle. She moves to a metropolis and finds a group of people who share her passions and interests. She gets involved with a team to create something amazing.

Then, at some point, she finds her own problem, which is related to and yet different from the problems that concern others in her group. She breaks off and struggles and finally emerges with some new thing. She brings it back to her circle. It is tested, refined and improved.

The main point in this composite story is that creativity is not a solitary process. It happens within networks. It happens when talented people get together, when idea systems and mentalities merge.

Now imagine you are this creative person in the year 2010, 2025 or 2050. You are living in some small town in Ukraine or Kenya or some other place, foreign or domestic. You long to break out and go to a place where people are gathering to think about the things you are thinking about, creating the things you want to create.

If you are passionate about fashion, maybe you will go to Paris. If it’s engineering, maybe it’ll be Germany. But if you are passionate about many other spheres, I suspect you’ll want to be in America.

You’ll want to be in the U.S. because English has become the global language. You’ll want to come because American universities lead the world in research and draw many of the best minds from all corners of the earth.

You’ll want to be there because American institutions are relatively free from corruption. Intellectual property is protected. Huge venture capital funds already exist.

Moreover, the United States is a universal nation. There are already people there with connections all over the world. A nation of immigrants is more permeable than say, Chinese society.

You also observe that America hosts the right kind of networks — ones that are flexible and intense. Study after study suggests that America is one of those societies with high social trust. Americans build large, efficient organizations that are not bound by the circles of kinship and clan. Study after study finds that Americans are not hierarchical. American children are raised to challenge their parents. American underlings are relatively free to challenge their bosses. In this country you’re less likely to have to submit to authority.

From this story you can see that economic power in the 21st century is not going to look like economic power in the 20th century. The crucial fact about the new epoch is that creativity needs hubs. Information networks need junction points. The nation that can make itself the crossroads to the world will have tremendous economic and political power.

In 2009, Anne-Marie Slaughter, now director of policy planning at the State Department, wrote an essay for Foreign Affairs in which she laid out the logic of this new situation: “In a networked world, the issue is no longer relative power, but centrality in an increasingly dense global web.”

Slaughter’s essay was titled “America’s Edge.” That is apt. Americans are now in a depressed state of mind. As China and India rise, nearly two-thirds of Americans believe their nation is in decline.

In fact, the U.S. is well situated to be the crossroads nation. It is well situated to be the center of global networks and to nurture the right kinds of networks. Building that America means doing everything possible to thicken connections: finance research to attract scientists; improve infrastructure to ease travel; fix immigration to funnel talent; reform taxes to attract superstars; make study abroad a rite of passage for college students; take advantage of the millions of veterans who have served overseas.

The nation with the thickest and most expansive networks will define the age. There’s no reason to be pessimistic about that.

AP Economics Writer

WASHINGTON (AP) – The longest recession the country has endured since World War II ended in June 2009, a group that dates the beginning and end of recessions declared Monday.

The National Bureau of Economic Research, a panel of academic economists based in Cambridge, Mass., said the recession lasted 18 months. It started in December 2007 and ended in June 2009. Previously the longest postwar downturns were those in 1973-1975 and in 1981-1982. Both of those lasted 16 months.

The decision makes official what many economists have believed for some time, that the recession ended in the summer of 2009. The economy started growing again in the July-to-September quarter of 2009, after a record four straight quarters of declines. Thus, the April-to-June quarter of 2009, marked the last quarter when the economy was shrinking. At that time, it contracted just 0.7 percent, after suffering through much deeper declines. That factored into the NBER’s decision to pinpoint the end of the recession in June.

Any future downturn in the economy would now mark the start of a new recession, not the continuation of the December 2007 recession, NBER said. That’s important because if the economy starts shrinking again, it could mark the onset of a “double-dip” recession. For many economists, the last time that happened was in 1981-82. To make its determination, the NBER looks at figures that make up the nation’s gross domestic product, which measures the total value of goods and services produced within the United States. It also reviews incomes, employment and industrial activity.

The economy lost 7.3 million jobs in the 2007-2009 recession, also the most in the post World War II period. The NBER normally takes its time in declaring a recession has started or ended.

For instance, the NBER announced in December 2008 that the recession had actually started one year earlier, in December 2007. Similarly, it declared in July 2003 that the 2001 recession was over. It actually ended 20 months earlier, in November 2001. Its determination is of interest to economic historians – and political leaders. Recessions that occur on their watch pose political risks.

In President George W. Bush’s eight years in office, the United States fell into two recessions. The first started in March 2001 and ended that November. The second one started in December 2007.

NBER’s decision means little to ordinary Americans now muddling through a sluggish economic recovery and a weak jobs market. Unemployment is 9.6 percent and has been stuck at high levels since the recession ended. Many will continue to struggle.

Unemployment usually keeps rising well after a recession ends. Four months after the 2007 downturn ended, unemployment spiked to 10.1 percent in October 2009, which was the highest in just over aquarter-century.  Some economists believe that marked the high point in joblessness. But others think it could climb higher – perhaps hitting 10.3 percent by early next year.

After the 2001 recession, for instance, unemployment didn’t peak until June 2003 – 19 months later.

 (Copyright 2010 by The Associated Press. All Rights Reserved.)

By JEANNINE AVERSA
AP Economics Writer
WASHINGTON (AP) – The Federal Reserve has little power left to
lift the economy out of its rut. Congress, with an election
looming, has no appetite for more stimulus. Shoppers are reluctant
to spend, and businesses are slow to hire.
Let’s face it: There is no easy or imminent fix for the flagging
recovery.
The sluggish economic summer wore on Friday with news that
Americans spent less at most retail stores in July. Earlier this
month came word that the trade deficit is ballooning and companies
are not adding jobs fast enough to bring down unemployment.
Typically, the Fed can lower interest rates to encourage
Americans to borrow money and spend it, invigorating the economy.
But the benchmark interest rate controlled by the Fed has been
almost zero for more than a year now.
The Fed this week took a new step by announcing it would use the
proceeds from its huge portfolio of mortgage securities to buy
government debt. The idea is to make cheap credit a little cheaper,
particularly for things like mortgages.
The problem there: Americans who are worried about their jobs,
not to mention volatility in the stock market, don’t want to
borrow. They saved 6.2 percent of their disposable income this
spring. Before the recession, it was more like 1.2 percent.
“You can’t force people to take out a loan or spend money that
they don’t want to spend,” says Alice Rivlin, who served as the
Fed’s No. 2 official in the late 1990s.
Sure, the Fed still has options. It could launch another
trillion-plus-dollar program to buy government debt or mortgage
securities like it did when it was battling the recession and
financial crisis.
Or the Fed could cut to zero the rate it pays banks to keep
money parked there, a move aimed at getting banks to lend more. But
banks are not exactly feeling free with their cash, either.
“It’s a pervasive level of uncertainty that people and
businesses feel about their economic futures,” says Ken Mayland,
president of ClearView Economics. “It’s frozen them into
inactivity.”
Congress has the power to regulate the economy by adjusting tax
rates and passing stimulus programs – the side of the equation
known as fiscal policy, as opposed to the Fed’s monetary policy.
But there is little interest on Capitol Hill to undertake a
major new stimulus effort. The midterm elections are less than
three months away, and Republicans and Democrats alike fear voters
are worried about the federal budget’s $1.4 trillion – and rising -
deficit.
A scholar of the Great Depression, Fed chief Ben Bernanke has
warned Washington policymakers not to repeat mistakes made during
the Great Depression by pulling in government stimulus too quickly.
Bernanke also suggested recently that extending the Bush tax
cuts, at least for a while, would be “one way” to “maintain a
reasonable degree of fiscal support – stimulus – for the economy.”
But Democrats and Republicans are divided on what to do. Most
Republicans want to make permanent the tax cuts enacted under
President George W. Bush in 2001 and 2003. That would amount to
nearly $3 trillion over the next decade. Democratic leaders want
the cuts for the wealthiest Americans to expire.
That leaves the work of jump-starting the economy for the time
being to everyday Americans and businesses, who can spend money and
accelerate the cycle of growth. But both are in a frugal mood.
Mortgage rates have sunk to record lows: Rates on 15-year
mortgages dropped to 3.92 percent this week, 30-year mortgages to
4.44 percent. Still, people aren’t scrambling to buy homes or
refinance the ones they already have.
Businesses, meanwhile, are sitting on a record $1.84 trillion
pile of cash, according to the Fed. They aren’t using the money to
expand operations or hire new workers because they, too, have
doubts about the strength of the economic recovery.
The economy grew at a 2.4 percent pace in the second quarter,
about half as fast as it was growing late last year. And it may
turn out, as the manufacturing sector is hurt by declining exports,
that growth right now is even slower than we think.
And the stock market, which had managed a significant rally in
July, is now absorbing the blow of the economic pessimism. The Dow
Jones industrial average fell this week from about 10,700 to about
10,300.
The key, says former Fed governor Randall Kroszner, is making
people feel more comfortable and confident that their jobs are
secure, and that the values of their homes and 401(k) accounts will
stabilize.
It’s just that no one is sure where that confidence will come
from.
“There is certainly no magic bullet to immediately turn thing
around,” he says.

(Copyright 2010 by The Associated Press. All Rights Reserved.)

The Global Interdependence Center Welcomes David Kotok,  Erin Arvedlund and John Authers

GIC is delighted to welcome three distinguished experts to discuss their recent works. Presentations and discussion will be moderated by Mary Caraccioli, Host of Mary Talks Money.

David Kotok:  Invest in Europe Now!: Why Europe’s Markets Will  Outperform the US in the Coming Years.

David Kotok is the cofounder and Chief Investment Officer of Cumberland Advisors-with over $1 billion under management. He currently serves as a Director and Program Chairman of the Global Interdependence Center. Kotok’s articles and financial market commentary have appeared in the New York Times, the Wall Street Journal, and Barron’s, and he is a regular contributor to CNBC programs such as Morning Call, Power Lunch, Squawk on the Street, Squawk Box Asia, and Worldwide Exchange.  Kotok lives in Sarasota, Florida.

Erin Arvedlund: Too Good to Be True: The Rise and Fall of Bernie Madoff

Erin is an investigative journalist who has written for Barron’s, The Wall Street Journal, The New York Times, TheStreet.com, and Portfolio.com. In 2001, she wrote the first skeptical article about Bernard Madoff for a major publication. This is her first book. She lives in Philadelphia.

John Authers: The Fearful Rise of Markets: Global Bubbles, Synchronized Meltdowns, and How To Prevent Them in the Future.

Investment editor for The Financial Times, Authers serves as its main commentator on international markets. In this role, he has become one of the world’s most influential financial journalists, with bylined columns on display pages of the FT five days each week. Authers speaks worldwide, and appears frequently on major US and global media, including the BBC, CNN, MSNBC, NPR, and PBS. He was recently honored as the UK’s Investment Journalist of the Year for his ft.com coverage of the early days of the financial crisis. The Victim’s Fortune, co-authored with Richard Wolffe, earned the prestigious Best of Knight-Bagehot Award.

Mary Caraccioli, Host, Mary Talks Money

Mary Caraccioli, MBA, is an EMMY™ award winning financial journalist who is the host and lead reporter for a new national money show Mary Talks Money produced by 6ABC WPVI-TV, airing daily on the LiveWellHD TV network and weekends on ABC owned and operated stations in the nation’s top television markets.   She has a track record for creating award-winning programs for broadcast, cable and digital mediums.

This event is open only to GIC Members and their guests.

Please register for this event by calling Jillian Fornito at  GIC at 215-898-8453 or emailing jfornito@interdependence.org Books can be ordered in advance on our website . Seating is limited, please reserve your space soon. Thank you!

Agenda

4:00 PM-4:30 PM – Registration

4:30 PM-6:00 PM -  Program

6:00 PM -7:30 PM – Reception and Book signing

South America Room, International House Philadelphia ·

3701 Chestnut Street · Philadelphia, PA 19104

Mary Caraccioli: The last decade has been this period of bubbles and busts. Have these cycles changed your investment philosophy at all?
Steve Forbes: I think it underscores that you cannot do, what they call, rearview mirror investing. And that is assume that was is in the present is going to be in the future, or what is past is going to be in the future. I remember in the 1990’s the average return on a stock was 11.x% but between the mid-1960s and the early-1980s stocks actually in the real term went down 60 or 70%. Then you have this enormous surge upwards. Where in a period of 20 year, something like the Dow went up almost 15 fold.
So a lot of volatility. And in terms of investment strategy, you have to learn to be disciplined. Everyone says they are a disciplined investor until the market goes down. Then it’s “It’s too late to get out” or the market surges and it’s “oh is it too late to get in.” You see that attitude this year. “oh I’ll wait for the next turn then I’ll be sure to get in.” You get whipsawed. For younger people, the key thing is Mary, they put in a certain amount each month into several low expense mutual funds and keep doing it and don’t get caught up on the day-today.
And in terms of strategy…yes you have to be diversified around the world with companies that have a good overseas presence. The dollar is in one of these weak periods. So you have to be diversified, but don’t over manage it. But if you don’t have time to do it, go with the mutual fund…let others babysit your money for you.
MC: How do you structure your own personal investing? Are you more aggressive than the average person or are you more conservative?
Forbes: It’s probably aggressive in the sense that most of my assets are in company. So if that does well, I’ll do well. If not, what I do on the side isn’t going to much help me. So yes. But I do also have life insurance which is probably the most conservative investment you can have. But with a good company, it doesn’t look so bad in the last two or three years. So there’s balance, but I do like mutual funds again because if you are going to do individual securities you have to have time to really examine the thing. And if you don’t, don’t do yourself a disservice. Get someone with brains to do it for you
MC: Makes sense. So you like managed mutual funds as opposed to index funds, that are not actively managed.
Forbes: Yes and sometimes if you think there is a certain sector, you can try to get and exchange traded fund or an index fund to cover it. That’s fine. But in terms of the market as a whole, realize that you are not going to beat it. And also have a realistic expectation of what it is you want. Everyone wants capital gains, but what is your time horizon. What is your true tolerance? And then you can go beyond equities and take bonds.
Who ever would have thought two years ago that treasuries would be given at fantastic returns. That you could buy a thirty year treasury at a time when the dollar is going be weakened and you get a positive return. That’s the kind of crazy environment we’re in. But you’ve got to be ready for it.
MC: Being ready for it means that you don’t have the knee jerk reaction. It’s about essentially getting a plan and sticking to it. When do you get off of that plan and say, I’m going to divert from this. It’s obviously not to the news of the day, right?
Forbes: Right and it depends on where the money is. If it’s a 401k or an IRA and you’ve followed the rules of fiduciary responsibility to yourself, that is you’ve diversified, and not put too many eggs in one basket as they say, then you can ride a storm through. If you’re not going to need the money for a few years, ride the storm through.
And you saw that very graphically after the huge hit from late 2007 to early 2009, where a typical stock went down 60%. A lot of people got out. They said I can’t afford this. I can’t stomach this. I gotta put some stock on the side. Then March comes around and you have a huge snap back on the market. Now the same thing happened in the 30’s. Even though it was a dreadful decade, a horrible decade economically, you saw these real whipsaws. Same thing in the 70’s. 75, 76 fantastic for the market, even though it was a dreadful decade.
So yeah, especially for retirement, don’t try to hit homeruns. There was a money manager in Connecticut years ago that said “For certain kinds of money play it like you should tennis.” You like to play tennis Mary. And he advised, “realize you are not going to be playing Wimbledon. ” And a sensible tennis player focuses on just get the ball over the net. Leave the fancy stuff to others. Just get the ball over the net. Same thing with investing…just get the ball over the net and you will do just fine.
MC: So when the market goes down a lot of people get in that mode that they want to play catch up. But that’s where you can get yourself into a trap, because that’s taking you off your plan for the wrong reason.
Forbes: Yes and simple things. The miracle of compound interest does work if you let it. Dollar cost averaging, and that is so simple. That is, especially if you are a little younger. When a market goes down, that is your opportunity, because if you are putting in a certain amount of money, a hundred or two-hundred a month you’re in effect buying more shares. So when the thing comes back you will get a much bigger hit.
Reinvesting dividends and basic things like that. Again…stay away from the cocktail chatter. Don’t think of yourself as a Goldman-Sachs executive, you’re going to make $100 million. No, if you get that mentality, you are just going to frustrate yourself, and hurt yourself.
MC: That’s right, because it really is about your personal situation in the long run. And it’s hard sometimes to tune everybody else out and to tune out all of the noise. There is a ton of noise out there. But it really is an understanding of what your needs are.
Forbes: And if you at parties, and if we get in an environment again, which we might someday if you live long enough, where people start to boast about what investment genius’s they are. You are going to participate by citing the example of some others. “Oh yeah. Ed at the office, what a jerk, but he really hit a homerun on that.” Fine so you can participate in the conversation. You have to try to go out there and it the homerun. Let others try to swing. Most of the time they’ll strike out. They won’t tell you.
MC: And you know we have seen this cycle over and over again, where it’s the paper boy, the dentist and everyone giving you stock tips. That’s pretty much the call to get out right? When everybody else is telling you to buy. That’s when you bolt or at least have some sort of conservative position.
Forbes: Or the recent housing bubble when everyone becomes a real estate tycoon. You know something is probably wrong. And of you have that urge to be mad, to do crazy things, have a certain portfolio and money where you can play with it. But don’t do it in your IRA. Don’t do it in your 401k. those are things that you just want to be able to sleep on. If you lose your mad money fine, but your not jeopardizing something fundamental in the future. And as you get older, again, be disciplined on your retirement. Jack Bogle, created Vanguard, his rule of thumb is your age. If you’re 50, half of your investment, 50% of your investments should be in bonds, short term instruments. 60, 60%. So if something goes wrong with equity markets or the bond markets you have cover.
MC: And that I think is the best rule of thumb is to know that you have the conservative investment for a reason. If you have to take distribution on it, cash it in…you cash in the conservative investment. You don’t worry about if the stocks are up or down. If you they are down you can hopefully hold until they come back up again. You’re not forced to sell in a time you don’t want to. And I think that’s where people think well it’s just because bonds have a certain return. It’s gives you an out if you need money.
Forbes: And as you get older you have to look at things like annuities. Again, you don’t put everything in an annuity. You have to look at expenses. And a lot of them hit you pretty hard on expenses, so you have to do some basic homework. But having an annuity is not sexy, but it does give you some balance and a bit of an anchor if the storms rise up. And so be true to yourself and be realistic about what are you cash needs? The worst thing that can happen, and people went through it, and they are going to go through it again is…the market goes down and you need to raise cash.
It is a hideous feeling and you feel bad doing it. Then when the market comes back you say “oh my God I missed it” and you’re tempted to do something you shouldn’t do.

MC: The biggest knock to Wall Street…and as you know when everybody is getting rich no one is complaining about Wall Street, but when everybody is loosing money that is when they are complaining. The concern that I hear so often is that it is not just that they are doing something and are getting paid handsomely for it…it’s they are inventing the rules as they go and they have that unfair advantage. And therefore, when they fail, they should have been allowed to fail. Then there is this bailout where the small business man can’t be bailed out. And while the government did what it had to do in a tough situation, we didn’t want a global meltdown, there seems to be a lack of fairness in how the big banks are treated that they have unfair advantage. When the times are good, they make lots of money, but when times are bad — they don’t fail, they get bailed out.
Forbes: Well, they could not have done what they did, if the government hadn’t done what it did in printing the money or guaranteed the kind of paper that no banker would tolerate. And normally with a mortgage, you put 20% down. The government said 0% down. Well, don’t be surprised you are going to get some problems. Ignore somebody’s income, well that is something that you wouldn’t normally do. So…
MC: But where is the accountability?
Forbes: Well the accountability is…one, the government’s got to do its part. But having created the problem, then don’t compound it. Yes, we had to take emergency measures last fall, but that did not mean that the government had to come up with this too big to fail doctrine, which takes a handful of banks and makes them bigger…guarantees their paper in the marketplace to the disadvantage of somebody else. That’s profoundly wrong.
And there are some who see it. Paul Volker, former head of the Federal Reserve, now in his 80’s said this is ridiculous. This is distorting the system. So no…no too big to fail doctrine. And if that means you are not going to be able to make an acquisition because the government is not going to back stop you then so be it. So yes, the government has made it worse guaranteeing a lot of paper it shouldn’t have guaranteed and continuing to do so. Too big to fail…so if you are a certain size, government’s going to always be there to make sure you are alive. Whereas somebody else who is smaller…well sorry. No, stop it.
It’s like a natural disaster. A hurricane comes along, so you throw in the food, throw in the water, throw in the medicine, throw in the temporary shelter. Then you pull back as people start to get back on they feet. You don’t do it permanently. Well government’s got to pull back on that and too big to fail…is one of the biggest mistakes of this administration is going along with the too big to fail doctrine. No. You’ve got to know if something goes wrong, if the government won’t let the system collapse, but you as an entity will face the music broken up. And if that means creating a special bankruptcy law for financial institutions…You create it. But you don’t say…you’re too big to fail. No way.
MC: Any predictions for 2010?
Forbes: I think we’ll have some growth in 2010, but it is going to be a turbulent year. The dollar I think will be strengthened. Not because Washington suddenly sees the light, but the markets are going to force it. And so it is going to be a better year than 2009. But it should have been a much better year. So if the government immediately stabilized the dollar…oh that would go a long ways. Realizing healthcare with these 2000 page long bills…start over. Try to get some true entrepreneurship where people can create more healthcare.
You know in any other market…if there is a demand. If people want more software, Silicone Valley will turn out more software. Software writers will turn it out. Why can’t you have an environment where you do the same thing in healthcare and make it more affordable? As you did with cell phones. 20 years ago, these things were as big as shoe boxes, clunky. Hard to work. Today they are sleek, small, and everyone has them, even in the furthest reaches of Congo and Haiti…India. People do have their cell phones. So that’s the kind of environment we should encourage.
So 2010, better than 2009, or better than the fall of 2008, but it could be better. Like in sports…it’s like a ball player. Instead of hitting .150 he gets it up to .225. Better, but hey how about .300, .350.

I have noticed an interesting trend as the nation continues to claw out of the ugly recession.  While the job picture remains bleak, those who do have jobs seem to be ready to exhale and do a little shopping.  The financial collapse of a year ago triggered a period of uncertainty that lasted thru most of July. Even if you had a job, you probably knew someone who lost theirs, or you looked at your retirement savings and saw 10 years worth of growth wiped out. That alone can rain on a shopping spree parade.  But as the stock market has improved (the Dow up 28% over the past 6 months. It saw a 15% jump in the 3rd Quarter alone – its best quarter since 1939) that has helped those who aren’t looking for work– feel better. As a result– they are cautiously loosening the purse strings and giving into that pent up demand to shop. Many economists have asked whether we can have a sustained recovery with such high unemployment? It is a good question, but one of the best things the people with jobs can do to help those without jobs, is to  dip their toe back in the water and spend a little. I don’t mean the out of control, over-extended spending we saw in the boom that led to the bust. Most of us couldn’t do that today, even if we wanted to. What appears to be happening is that rational spending is once again taking place. As businesses and consumers invest their cash in worthy products and services– more people will be needed to meet that demand.

Most forecasters say the recession is over, and their focus now is on the future. How can we have sustained growth, that creates jobs, that does not lead to runaway inflation? Consumers are starting to do their part, and so are some businesses (more need to step up). It’s also time for rational spending to return to Washington, in this case– it’s reigning in the purse– not loosening it. A case was made at the height of the crisis, that huge spending was needed to right the ship. That appears to be happening. If those in-charge want to end up as heroes in the history books, they need to show a smart strategy for deficit reduction that keeps the U.S. competitive in the global economy.  Smart programs that will pay dividends to our children are worth the investment. But spending to spend– can no longer be justified. The American consumer  appears to have learned their lesson.. lets hope our lawmakers have too. -Mary

BTW here is Economist Joel Naroff’s take on today’s August Spending and Income Report. Joel’s commentary has been right on this year. He is the President of Naroff Economic Advisors.

INDICATOR: August Spending and Income

KEY DATA: Consumption: +1.3%; Disposable Personal Income: +0.1%

IN A NUTSHELL: “The wallets were dusted off and it wasn’t just to trade in the clunkers for cash.”

WHAT IT MEANS: The iceberg is melting. Consumers had given the malls the cold shoulder but that seems to have changed. In August, spending grew at the fastest pace in eight years. Yes, “Cash for Clunkers” played a major role in generating the huge increase but it was not the only reason people parted with their hard-earned cash. They also went out and spent a lot on soft goods. In addition, demand for services rose solidly. In other words, we shopped ‘till we got tired. Can households keep up this level of spending? That is not clear. Incomes rose only modestly. However, one good sign was that wages and salaries continue to post gains despite the declining number of jobs. As the payroll losses ease, we could see income growth improve and that would put a floor under spending. In the interim, people are drawing down their savings, which fell for the third consecutive month. As for inflation, there was a large rise in energy costs that pumped up the rate but excluding food and energy, prices remain well contained.

MARKETS AND FED POLICY IMPLICATIONS: Instead of restraining growth, consumption is likely added solidly to GDP in the third quarter. While government policies, especially “Cash for Clunkers” hyped spending, the good news was that people are out buying lots of other things. However, as I have warned in my discussion of the coming “head fake”, don’t expect the solid growth we should get to be repeated. Ultimately, income growth will drive consumer spending and businesses seem to be intent on watching their wage costs carefully. Thus, while new claims for unemployment insurance are generally edging downward, they are doing so only slowly. It will be quite a few months before we see job increases rather than losses and even then the increase could be modest. That argues for minimal income gains and sluggish consumption growth. Still, it is nice to see that there are ways to get people to buy, even if it takes taxpayers dollars. Now they have to start standing on their own. The Fed is taking this all in but so far is in no hurry to start raising rates. But I still believe that once they start, they will do so with “alacrity”, as Dallas Fed President Fisher recently stated. Maybe that limb I am out on is not that thin.

That is higher than economists had expected. However the number of jobs lost, while high, continues to be “less-bad.”  What does it all mean?  As someone who went through the unemployment process this year and who knows lots of other people in the same boat, consumers don’t spend when they aren’t employed. They also don’t spend as much if their friends and neighbors continue to get pink slips, because they fear they could be next.  I don’t want to make too much of today’s 9.7% figure. Since last December I have heard the smartest forecasters predict 10% unemployment.  So it some respects, the number is baked in the cake. But it is worth noting that unless Americans have jobs, they won’t be the world’s spenders. If we aren’t demanding products and services, who will?  Without that demand, how do you sustain a healthy economy?  -Mary

Ellen Hughes-Cromwick made the case for Ford to concentrate on the emerging markets of Brazil, Russia, India and China (the BRICs) almost a decade ago. Her forecast was right on. Ford, the only major U.S. automaker to make it through the recession without filing for bankruptcy, is fighting the good fight for market-share in the BRICs. In her lecture before a Global Interdependence Center audience, Hughes-Cromwick cautioned that investors need to treat the BRIC nations as separate entities with very different issues and needs. I spoke with her just before her lecture. Here a re-cap of that conversation. -Mary Caraccioli

Note: For more on the Global Interdependence Center visit their website: http://www.interdependence.org
I am a member and a big fan of the high quality programming they offer.

Enough with the search for green shoots. The Financial media is missing the point in its constant banter about green shoots. Yes there are green shoots, brown shoots, verdent pastures and drought-choked fields, but that isn’t the point. It is the landscape that has changed. You won’t see that shift if you are obsessed with a single shoot. Reporting on how the changed landscape affects the flow of commerce in different industries is the real story and the more beneficial one to anyone following the financial news. There are so many new twists and turns to navigate and to project – regulatory, geographical, sovereign, and economic, just to name a few.  Rules change here and elsewhere, economies are better some places than others, some businesses are loving the opportunities presented to them, others won’t exist next year.  Until the coverage dives just a little deeper — we won’t see the landscape for the shoots. – MC