Outlook in US, UK, Japan and Australia

I have already addressed Europe today. So let’s look at the US, the UK, Japan and a few other economies based on the news flow.

First, in the US, the big story is not the economy at all, it is government espionage. What everyone is talking about is the NSA, where Obama has appointed Susan Rice as his national security advisor and placed Samantha Power in Rice’s former seat through a recess appointment similar to John Bolton’s appointment to the UN.

Just as these appointments were made Glenn Greenwald broke a story that the US government has requested and received all of the metadata of conversations of Verizon Wireless’ customers including IMEI numbers, length of call, telephone numbers, etc. Through cross-referencing, it is quite simple to determine who the individual parties are. The Obama Administration, which has gone to war with leakers, apparently has suffered another leak that demonstrates that Obama, far from being an advocate of strong civil liberties, has strengthened and furthered the government’s surveillance of US citizens.

The NSA data grab law relies on the so-called “business records” provision of the Patriot Act, 50 USC section 1861, which is supposed to apply to surveillance of communications originating or ending outside the United States. Here, however, the NSA has turned to surveillance of US citizens irrespective of whether communications originate within the country or overseas. Moreover, the FISA court order explicitly states, “IT IS FURTHER ORDERED that no person shall disclose… that the FBI or NSA has sought or obtained tangible things under this order”, meaning that this surveillance is to be done in secret. Finally, experts in US intelligence are saying this is a standard renewal of a long-standing data grab that the US has had for at least 7 years. So we should assume that all of the major phone carriers are receiving and complying with these requests and have been doing so on a continual basis since 2006.

So what we have here is unlimited US government surveillance of US citizens’ communications without a specific pretext. The NSA is currently building a giant data storage facility in Utah, the biggest in the world. The goal both there and in this specific data grab is to simply collect and store as much data as possible in the hopes that predictive analysis will catch up over time, allowing the US to connect the dots on terrorist activity. In the context of the just beginning trial against government leaker Bradley Manning and recent scandals over US Justice Department spying on journalist, it is clear that the so-called surveillance state is now well-advanced. There may be no turning back the clock on government surveillance in the digital age despite sentiments to the contrary expressed by Al Gore. Digital media facilitates greater government information discovery just as it is supposed to increase individual productivity. This is the double-edged sword that our always on, cloud-centric digital culture has created.

On the economic front, the Fed said US growth is modest to moderate. The numbers support about a 2.0% type of real growth scenario with non farm payrolls expanding by 200,000 per month. This will be enough for the Fed to taper by September. The US policy is very much geared to releveraging and underpinning asset prices as the housing market and stock market have rebounded. However, mortgage rates are creeping up, providing a headwind to growth.

In the UK, it’s similar regarding the reliance on house price reflation. Prices have expanded at the highest level in three years and the government are way ahead of projections in getting people into subsidized homes via George Osborne’s Help to Buy scheme.

The Australians have got into the swing of things with another 50 basis point cut by the Reserve Bank of Australia. This brings the policy rate down to a record-low 2.75%. Australia is busting because the commodities cycle has turned over. And that leaves them with no real economy private sector support for their inflated housing market. Monetary easing will not be enough and fiscal easing will not be a factor because of ideological opposition to it as Julia Gillard has already staked out a deficit and debt hawk position. We should expect Australia’s economy to disappoint to the downside as the full magnitude of this sinks in.

In Japan, reflation is also very much the policy aim. However, the Japanese are trying to use fiscal policy in addition to monetary policy. Abe has longed talked about the ‘third arrow’ in the reflation policy being structural reform. The Japanese introduced the outlines of that reform but the market was not impressed. It tanked nearly 4% on the news. This is the important part of the Japanese policy effort. We need to see changes on capital investment, immigration and labour policy that support sustainable longer-term economic growth, not just the fiscal and monetary-policy addled type of stop-go growth we have seen for the past two decades. If Abe cannot make the structural reforms work, his whole program will be a bust, deflation will continue and the Yen will drift higher, causing stocks to sell off. It is still early days.

Links below

Lawfare › The Verizon/Section 215 Order and the Clapper Mindset

Australia has huge deposits of shale gas – but it won’t come cheap | Environment | guardian.co.uk

Record equities highs are far from crazy – FT.com

Calculated Risk: MBA: Mortgage Refinance Applications decline sharply as Mortgage Rates Increase above 4%

Datenschutz : US-Geheimdienst sammelt Telefondaten von Bürgern – Nachrichten Wirtschaft – Webwelt & Technik – DIE WELT

$1 Trillion Debt Crushes Business Dreams of U.S. Students – Bloomberg

Monetary policy and US inequality, again | FT Alphaville

What have inventories got to do with QE? | FT Alphaville

Manning trial draws focus on to Obama’s security state – FT.com

At the Intersection of Rice and Power | TIME.com

US economy expanding at ‘modest to moderate’ pace – Telegraph