We’re well into January, but 2014 demanded a bit of reflection before commenting. Was it a good year or a bad year?
We still don’t know. We’re calling it the Year of “May,” although that title could have gone to 2013, 2012, 2011 or even 2010.
Using “may” in a sentence illustrates why 2014 was the Year of “May.” The economy may be improving, but it may not be improving by much. Interest rates may go up, but they may stay put for a while. The Federal Reserve Board may be done with quantitative easing, but it may be using other easy money measures to keep the stock market lovefest going. Europe may also begin quantitative easing.
In 2015, we may find out what Fed Chair Janet Yellen means by “macroprudential supervision.” During 2014, we may have joined the rest of the world in moving toward deflation, or, if the economy really is improving, we may soon be meeting – or even exceeding – the Fed’s inflation expectations.
See how useful that word “may” is? It sums up a year in three letters. It’s so noncommittal, so indefinite, so milquetoast … so 2014. We may be at war with the Islamic State, Russia may be taking over eastern Europe and the Middle East may be in worse shape than it was before the Arab Spring. Then, again, it may not be.
More of the Same, More or Less
Even in the Year of May, tangible changes were taking place, but the net result was underwhelming.
QE ended. The dollar strengthened. The stock market went higher. Interest rates didn’t.
Europe remained Europe, stuck in a recession with rampant deflation, as jobless rates remained high. Few can now afford luxuries, such as food, clothing and shelter. But the government continues to provide, as Europe is not a welfare state, but a welfare continent.
Scotland almost voted to break away from England in 2014, but it would have been smarter to break away from Europe, which has replaced Atlantis as the Lost Continent.
Janet Yellen replaced Ben Bernanke as chair of the Federal Reserve Board in 2014. She didn’t turn out to be the “QE Queen,” as we predicted she would be, but she’s been dovish/hawkish enough so that no one really knows what she’s doing and when she’s doing it. That may be part of the plan, as investors can think what they want to think and no one will panic. For the Fed, it’s better to appear to be doing something than it is to actually do something.
2014 also saw the return of economic growth above 2% in the U.S. Sort of.
The Bureau of Economic Analysis said the economy grew by 3.5% in the third quarter. No, wait … make that 3.9%. No, wait … make that 5%. Of course, it’s still an “estimate.” If the BEA would just keep issuing revisions, sooner or later the economy would be booming – on paper, anyway. They’re estimates, so they “may” not be accurate. Check the fine print.
Even if you believe that 5% growth estimate was accurate, the BEA reported that the economy shrank 2.1% in the first quarter … another one of those estimates that was revised (or fudged, if you want to be cynical) … so overall, the rate of growth for the economy will turn out to be pretty close to the 2% it’s been at since the recession allegedly ended.
Then there was the 113th U.S. Congress, a Seinfeld episode in which nothing happens, except with pathos replacing comedy. Senate President Harry Reid’s idea of leadership was more dictatorship than democracy – no votes, no budget, no problem. Reid’s theory was that voters would have no reason not to re-elect Democrats. Except that their inaction and their alliance with an increasingly unpopular president cost the party control of Congress.
So will the 114th Congress be any different? It may be. Or it may not be.
Full Employment for Regulators
Inaction by Congress is not necessarily a bad thing. But even with Congress accomplishing little, new regulations continued to pile up. A record was set in 2013, when the Federal Register grew by 26,417 pages. We don’t know if 2014 beat that record, but search “2014 regulations” on the Federal Register and you’ll get 23,663 results, including, as a few examples, “Migratory Bird Subsistence Harvest in Alaska; Harvest Regulations for Migratory Birds in Alaska During the 2015 Season,” “Coastal Migratory Pelagic Resources of the Gulf of Mexico and South Atlantic; 2014-2015 Accountability Measure and Closure for Gulf King Mackerel in the Florida West Coast Northern Subzone” and “Access by EPA Contractors to Information Claimed as Confidential Business Information (CBI) Submitted under Title II of the Clean Air Act and Related to Code of Federal Regulation Parts and Subparts.”
Insomniacs can rejoice.
Executive Actions
While little happened in Congress, plenty happened in the White House, as 2014 was a year of “executive actions.” Democracy, after all, can be so inconvenient.
Gun control alone yielded 23 executive actions, including universal background checks on anyone trying to buy guns, restoring a ban on military-style assault weapons, and cracking down on straw purchases of guns by people whose intention is to resell them to criminals.
There were executive actions and executive orders giving new rights to illegal immigrants, lifting economic sanctions against Cuba and, of course, altering the Affordable Care Act. Wikipedia acknowledges that its list of executive orders is incomplete, but the 26 it lists for 2014 cover everything from “Non-Retaliation for Disclosure of Compensation Information” to “Combating Antibiotic-Resistant Bacteria.”
Expect more in 2015. Next up will be cybersecurity executive actions.
More ZIRP, Please
And finally, 2014 brought us more ZIRP, or “zero interest rate policy.” 2015 is likely to bring even more – or even N-ZIRP, which is negative interest rate policy.
Will the monetary policy that has had so little positive impact on the economy in past years have a breakthrough year in 2015 and finally turn around the economies of Europe, Japan and other countries? What do you think?