Economist Buchholz Sees Signs of Financial Hope

He also noted that the Euro fell too far, and that despite the financial chaos in the Eurozone right now, the Euro is still a very strong currency. “Try taking your family out for a burger and fries in Paris right now,” he said. “It will set you back $30.” But what makes bad news for American tourists makes good news for American exporters, and heavy manufacturers such as Caterpillar, John Deere and Boeing are all enjoying increased shipments, even to the point of considering relocating some operations back to the United States. The longer the dollar/euro imbalance remains, the more it strengthens American industry to power a recovery.

But despite such indicators, Buchholz stressed that it was just as important for people to maintain a clear outlook on other factors. He felt that economists’ concerns of a double-dip recession were overdone, just as he disagreed that there was a risk of returning to the stagflation that made the 1970s such glum economic times. “Inflation is not baked into the cake,” Buchholz said, “and interest rates are bound to go up.”

Consumers are tired of not spending, after three years of forced austerity, and signs that restaurants and hotels are enjoying increased business point to signs of a larger recovery. Sales of pickup trucks, a subjective indicator of the health of small entrepreneurship, are also creeping upward, a hopeful sign. And household debt and other financial obligations are looking better overall as people have paid down debt and begun to save.

A big concern is still the job market, which is showing some signs of improvement, but the problems there are deeply uneven along skill lines. Buchholz praised the Clinton administration’s focus on creating 20 million net new jobs during the 1990s, many of them skilled white-collar jobs while shedding blue-collar manufacturing jobs. Now, while unemployment is only 4% for college graduates, it is more than 20% for those with no high school degree. Investing in education, Buchholz said, is the single most important initiative the country can take to ensuring long-term economic recovery and sustainable prosperity. “If you don’t have skills in this economy,” he said, “then you’re competing with the last guy to put down a rickshaw in Shanghai, and that’s no way to live in a modern economy.”

But as part of a global economy, challenges to U.S. prosperity are also tied to challenges abroad. China, for example, cannot be counted on to save capitalism, as Buchholz put it, because it has deep, fundamental problems with its own economy, starting with demographics. In 25 years, Buchholz said, China “will look like the Old Country.” Meanwhile, the “one child” policy has left a huge gender mismatch; “tonight, there are 65 million men in China who cannot get a date,” he said.

In the Eurozone, The PIGS – economies of Portugal, Italy, Greece and Spain – remain a flashpoint, but none so much as Greece, which is insolvent, but there is no consensus over whether to bail the country out, let alone keep it in the Eurozone. As Germany and France dither and delay, Buchholz said, it worsens a sense of uncertainty, but at the same time, the Eurozone needs to put some kind of protective barrier around Italy, which is a much larger economy, and simply cannot be bailed out by the likes of Germany. The most likely agreement, Buchholz said, is that Europe will have to buy more bonds from its central bank while bondholders will take a 60% to 70% haircut, and even then, it still might not work. In the long run, this might not be such a bad thing, however, Buchholz pointed out. Iceland, for example truly went insolvent, but it has already re-entered the financial sector, proving that the free market is indeed a forgiving one.

In closing, Buccholz recapped the major challenges facing today’s workers and businesses, but he also noted that historically, times of trial are also rich with opportunity for those brave enough to seize them.