Intersecting Minds: Education, Business and Technology at the North Carolina State Jenkins Graduate School of Management

Good Day for the Economy | October 14, 2009

The Dow Jones Industrial Average opened near 9,960 today, and based on a strong earnings report from Intel, the most important stock index in America could cross the 10,000 threshold by the end of trading. This would be an important psychological milestone to cross for investors and for the American public. Along with Intel’s positive report, JP Morgan announced this morning that its profits grew more than six-fold on the strength of its investment banking activities.

Meanwhile the dollar continues to fall against most major currencies, hitting $1.49 against the Euro for the first time since mid-2008. While this kills my purchasing power here in Europe, it’s a sign that interest rates will stay extremely low, keeping demand for the dollar amongst foreign traders low. This should help the manufacturing sector and exporters of goods to foreign countries. The weak dollar is also helping the US to rectify its current account trade deficit. As we export more, and foreign producers appetite for selling goods in dollars decreases, the trade deficit should even out.

Additionally, the weak dollar should promote foreign consumer activity, particularly in Asia where its most needed to rebalance the world economy. China, Japan, Korea and India could all do the world a favor by using their current account surpluses to incentivize the consumption of cheap American goods. Hopefully, this will add more stability to the global system and reduce the likelihood of the financial collapse we saw late last year.

Of course, none of this addresses the core problem of the financial system at the moment. Those impossible-to-value toxic assets are still sitting on the balance sheets of major banks. And the commercial real estate bubble is still going to pop in a major way. How will recovering investor and consumer confidence react to these developments when they shake down? The answer to that question could very well determine what type (U, W, L) of economic recovery the United States experiences.


1 Comment »

  1. Hate to be there bearer of bad news or the dark cloud. but until we straighten out whats going on behind the financial institutions I fear that things are going to get a lot worst. we’ve put a johnson & johnson bandaid over a wound that needs stitches.

    Comment by Lisa — October 14, 2009 @ 2:03 pm

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