Let the new US Treasury Secretary Henry Paulson speak for himself:
The global demand for oil is outstripping supply and we as a nation have a long-term structural problem. We consume much more oil than we produce, we are too dependent on foreign sources of oil and too much of it comes from troubled parts of the world.
In his debut speech, Paulson whipped up a lot of hope, based on the innovative forces driving the US economy long-term, but gave little in terms of near-term improving perspectives.
While Fed chairman Bernanke failed to remind Congress on fiscal deficits, former Goldman Sachs CEO Paulson, in his recent speech to Congress, ignored inflationary dangers and the housing bubble entirely.
And don't think your troubles are over after the gas pump issue is resolved. Paulson cited social expenses as the biggest problem to tackle, which makes two long-term structural problems in my count.
The biggest economic issue facing our country is the growth in spending on the major entitlement programs: Medicare, Medicaid, and Social Security. The cost to the federal government of these three programs, without fundamental reform, is projected to more than double, from the current level, 8 percent of GDP, to nearly 17 percent by 2060.
More long-term challenges? Here's another serving:
From the position of strength we enjoy today, we can address the longer-term challenges that will face our economy in the years to come. These include:
* Reforming entitlement programs.
* Advancing energy security.
* Maintaining and strengthening trade and investment policies that benefit American workers.
* And addressing issues of wage growth and uneven income distribution.
I count 4 long-term structural problems by now.
Paulson will not be a hands-off Treasury Secretary, as he said:
I have always tried to live by the philosophy that when there is a big problem that needs fixing, you should run toward it, rather than away from it. That is one of the reasons I decided to come to Washington, and that is the reason I admire the President's political courage and willingness to address entitlement reform. The entitlement challenge is difficult, but it is fixable. And given our expanding economy we can approach the issue from a position of strength.
Paulson may find himself in a marathon race that starts with a cow-tow to Bush and his tax cuts. His optimism on the rejuvenating forces of the American people was not shared by former Fed chairman Alan Greenspan, who did not tire in warning that the current educational system no longer provides the economy with the number of skilled workers it needs.
Don't Worry, Be Happy
Earlier, Paulson had described the economic slowdown as a return to more sustainable growth rates. No reason to worry in Paulson's opinion:
We have to be careful not to put too much emphasis on any one quarter, and remember that this was an advance estimate that will be revised.
As this is true to a certain extent, I still cannot see any improvement as all economic indicators are in a negative trend. One abysmal quarter may be followed by another and another ... and pretty soon we may find the USA in a recession ignited by a drastic slowdown in consumer spending that will come on the heels of higher mortgage rates.
Gold Shoots Up While the Dollar Shoots Down
Precious metals markets read the same negative tone. Gold advanced $13 to $647 an ounce and silver raced from $11.37 to $11.70, scratching the resistance on the weekly chart. On weekly charts, it looks as if gold could see one more down-leg before the Indian wedding season will offer physical support as it does every year.
Paulson's commitment to a strong dollar may backfire. "Currency values determined in open and competitive markets" are not exactly what the ailing greenback, propped up by mysterious 800-pound Treasury buyers operating out of Caribbean offshore havens, needs. And a good dose of inflation would save the Treasury a lot of real money when trying to pay US debts.