October 28: The uncooperative economy

In which, the American economy pulls an October surprise that may be too little too late, Putin walks back his nuclear tough talk, and China gets its hand caught in the cookie jar.

The uncooperative economy

No one is calling it an October surprise, but it seems President Biden and others have not been entirely wrong about the economy. After dismal first and second quarters of negative growth the American GDP returned to positive growth in the third quarter, posting a 2.6% growth rate.

So, why isn’t President Biden popping corks and toasting Janet Yellen? Well, that 2.6% barely eclipses the losses of the last two quarters, so that puts us just a little north of 0% for the year. 

Additionally, indicators in the housing and investment markets (not to mention inflation) are still not showing much signs of optimism. Finally, economists themselves are still plenty divided on the relative strength of the economy. Certainly in the short term, it still looks like recession territory, and with inflation still hitting American pocketbooks, the economy continues to negatively impact voters ahead of the midterm elections.

A (global) energy crisis?

With the US-Saudi impasse on global oil supplies and Europe preparing for a cold winter, some observers are saying that we’re in a first truly global energy crisis. I wonder what could be causing that? How could a single war, even with all its disruption to regional energy supply lines, have such an outsized impact?

Partially, it’s because of the size of the affected suppliers. Russia’s rerouting of the greater portion of an entire continent's oil and natural gas supply clearly has an outsized influence.

However, another aspect of this crisis is “man made” in terms of intentional policy choices (particularly in Europe and the US) that have sought to make an “energy transition” to sustainable fuels before the worst impacts of climate change become entrenched. Significantly, as world leaders meet in Egypt for COP27, there doesn’t seem to be much of an effort to revise that policy objective in light of the energy supply disruptions caused by the Ukraine war. In other words, for many European and North American leaders, climate change trumps the Ukraine war (and economic recession) as a policy priority.

Did Putin step back from the nuclear threats?

Last week, it was NATO running its nuclear deterrence drills Russia followed with drills of its own, followed by perceived threats of use of a “dirty bomb” in Ukraine amidst the deteriorating Russian positions around Kherson. As the week got started, it seemed like Putin was back to using nuclear blackmail… until he didn’t. 

In a somewhat surprising change of tone, Putin suggested yesterday that the use of nuclear weapons in Ukraine (in any form) was off the table. But, lest you think this heralds a more chastised Russia looking to de-escalate…