Perhaps 2015 will be best remembered as the year we realized that modest growth and slight deflation are most laudable economic goals. Robust growth usually is followed by robust crisis and slight deflation means that each of our dollars goes slightly farther every year. This may be the only way we can moderate the disaster that inevitably follows excessive printing of money.
The U.S. economy will surprise slightly to the upside in 2015. Modest employment and wage growth will continue. GDP growth will exceed 3.5%, driven by lower fuel and energy prices in the U.S., Europe and emerging markets. Oil will stabilize, probably between $50 and $65 per barrel by mid-year. Natural gas prices will hold, or perhaps increase if we can accelerate exports.
Lower oil prices will unequivocally help the U.S. We are net importers of energy. In addition, comparisons of extraction costs in the U.S. vs. elsewhere are distorted. Costs quoted to extract oil by state owned enterprises substantially understate the cost of capital and leases. Change in focus in the U.S. from high production to cost control will result in more competitive costs. We will be amazed by how many well-capitalized producers in the U.S. can extract oil at variable costs comparable to the Saudis. There will be some casualties, especially leveraged drillers. Yet we will see this year the great blessing of a free society where production decisions are made for each well individually by its owner, not by a central government driven by subsidy commitments. We should also remember that natural gas is a huge component of our fracking output. Market prices for natural gas will hold or perhaps rise.
Lower oil prices and more natural gas supply will deliver a staggering and sustained blow to three of the worlds worst troublemakers. Russia, Iran and Venezuela each need over $100 per barrel oil to sustain their current budgets. The regimes in these three nations will struggle for survival. Oil and gas production are now our most potent foreign policy tool. Even so, we will not see a satisfactory agreement to contain Iran's nuclear program.
Excessive printing of money, first in the U.S. and now in Japan and Europe increases the specter of inflation, but we will see stable prices and interest rates at least through this year. There will be currency instability and turmoil, because of overactive central banks, and the dollar will continue to be strong. This will be a drag on our exports, but will also be seen by American consumers in lower import prices. The result of this turmoil, probably not in 2015 but the inevitable result, will be a new international currency regimen. This new regimen will not be based on gold or the dollar. There is simply not enough gold in the world to provide reserves for the massive amounts of currency in circulation. The dollar will still maintain a leading role, but our monopoly as the world's reserve currency is ending. When economies fully recover and monetary velocity returns, inflation and higher interest rates will present a daunting challenge. That hopefully is a problem for the next administration.
The stock market will continue both its volatility and its climb, with shares rising selectively and corporate profits about up 10% to 12% at year-end. Price-earnings multiples will remain roughly where they are, extending the discussion about how long the bull market can last without reaching "bubble" proportions. It will be a good year for many stock pickers and traders.
Gridlock in Washington will be less strident and only slightly less effective. There will be more bi-partisan discussions in Congress. These will result in many more bills getting to the President's desk. Only a few bills heralding change will be signed into law. President Obama and Congress will both remain un-yielding and un-compromising.
The President has set the tone and the agenda. He has forced a rear guard action on immigration and Cuba. He only considers tax reform to mean increased revenue and expenditures. He has no interest in reform of entitlements or in the value of private investment. He continues to advocate more federally mandated and supervised expenditures by states for Obamacare, education and infrastructure. He continues to preach the benefits of poverty over carbon. He brags about the deficit going down in 2014, but ignores the fact that expenditures will not. Unsustainable increases in interest from the Fed on paper printed for quantitative easing account for more than the total deficit reduction. None of this will change.
Conversation about repeal of Obamacare will subside, evolving into substantial reforms enabled by court decisions and veto proof bi-partisan legislation.
The 2016 Presidential lottery will be more wind than substance. By year end the Democrats will be without a leading candidate. If Hillary were really loved, we would never have nominated Obama. By the end of 2015 she will be loved even less and less listened to, no more popular than her recent book! Many Republicans will also be looking for a fresher face, hopefully a governor, with success governing but without excessive baggage.
Radical Islamic Terrorism will continue to flourish. More U.S. troops will be deployed in Afghanistan, and elsewhere. We will continue to play defense. There will be little leadership or impact from the U.S. as long as our president refuses to even articulate the name of the enemy. There are hopeful signs that Europe is awakening to the danger within. An existential threat is finally perceived, especially in France, Netherlands and Belgium. These nations have 5% to 9% of their population isolated from society and the law, believing in the merger of (their) church and state, and tolerant of violence. The comfortable sanctuary that danger finds within those populations has become too obvious for national leaders to ignore. Growing numbers within the middle-east also recognize existential threats. The Saudi's principal oil pricing motivation is to strangle the flow of Iranian money to terrorists in Yemen and elsewhere. Saudis will not allow oil to reach $70 this year or next.
For all the turmoil, hand wringing, cries of doom and applause for turning the page, 2015 will end much as it began.
Author of Granddad's Dictionary: Reflections on Life in America"
Terrorism and The Reformation of Islam
By Michael Moffitt
Jan 21, 2015
There are signs that leaders of Islamic countries are coming to realize the threat to their existence from radical Islam. Christianity was once cruel and corrupt. Most Christians were not cruel. The teachings of Christ were not corrupt. The Christian Reformation was a rebellion against the power of The Church. It was only complete when Christian governments recognized they could not have domain over the thoughts and beliefs of their people. The Law of the Realm that once governed our beliefs has evolved to its proper role of governing only our behavior toward each other.
Immigration, The Red Cape, The Bull and The Master of The Bulls
by Michael Moffitt
Nov 25, 2014
How can we be surprised that the President plans to continue a unilateral program that has met with so much success and so few consequences? How can a "reasonable" Congress object to expanding this prosecutorial discretion regarding citizens born in this country? How could we be so cruel as to separate these child citizens from their illegal biological parents? This "red flag" may be in defiance of the Constitution, but Republicans are already painted into a corner, hardly able to slow or stop practices already in place. What they must do is to not allow the "red flag" of executive action divert us from the real danger of a neglected border and a failure to identify and track millions of anonymous illegals already among us.
Fair Taxes and Free Time for CPAs
by Michael Moffitt
Sep 28, 2014
Most of our discussions of tax rates and tax fairness lack fundamental honesty because they ignore what people actually pay and why. Consider three married couples, each supported by one income earner. All three earn $60,000 in a year and after exemptions and deductions have taxable income of $50,000. The first, an entrepreneur or self-employed earner pays $15,791 in federal taxes or an effective rate of 26.3%. The second, an employee whose ...
Michael Moffitt is the author of Granddad's Dictionary: Reflections on Life in America. In addition to being an author and grandfather, Michael Moffitt has been an inventor, entrepreneur and community leader. He received a bachelor's degree from Northwestern University and an M.B.A. from the University of Chicago.
Rather than accepting partisan stances, Moffitt encourages Americans to reflect on how they can come together as "We the People" to make real change happen. He believes that by coming together and looking to history and the values of our Founding Fathers, we can revitalize our nation.
I want to make a real difference in the way people think about the relationship between morality and politics and the need to focus on "We the People" versus the government and what it needs to do for me. "Granddad's" reflections is meant to inspire younger generations of Americans to think independently and rationally about events and trends in their country. I encourage readers to investigate current events and policies and come to their own conclusions through rational discussion and independent thinking, rather than letting others think for them.
"Granddad's Dictionary: Reflections on Life in America"
by Michael Moffitt
ISBN: 978-1-4908-2916-6 (sc)
Published April 7, 2014