The only man to be named three times by The Wall Street Journal as “the most accurate forecaster” gave a presentation titled Assessing the Global Economy at Leadership Asheville Forum.
Dr. James Smith, chief economist for Parsec Financial on Wall Street in downtown Asheville, addressed the group for the third time in recent years with his usual humor, aplomb and dramatic flair. Accurate as his predictions are, he commented, “a cardinal rule of forecasting is he or she who lives by the crystal ball must learn to love the taste of broken glass.”
Smith began with good news about Australia.
“From an economic perspective, Australia is the only developed country in the world that has not had a recession since 1991.” He said the continental island is geographically the same size as the United States’ lower 48, and has a population of about 25,000,000 people. “Some of my Australian friends like to point out that they have cattle stations larger than Texas.”
Smith’s further comments were prefaced with the announcement that his prognostications included some “not-so-good news” about other countries, “good news about the United States, really good news about North Carolina, and even better news about Asheville.”
Smith said we might be giddy with the Dow Jones Industrial Average’s stellar performance, but everyone in the world who pays attention to global news is also suffering from PTTD. He clarified that “Post Traumatic Trump Disorder” is an expression coined by Peggy Noonan, a former speechwriter for Ronald Regan, and Op-Ed page columnist for The Wall Street Journal.
Smith said the U.S. has an insufficient labor force to accomplish President Trump’s plans. “The president has goals for construction that are incompatible, and he’s going to find out very, very quickly.” He said the government keeps data about unemployed people whose last job since 2000 was in construction. Last month, that number was the lowest ever recorded, and the number of job openings in construction was the highest ever.
Smith said that based on research by George Shultz of the Hoover Institution at Stanford University, the North American Free Trade Agreement should reopen in such a way as to enable citizens of any NAFTA country to get a work permit in any other NAFTA country.
It’s a little-known fact, he said, “that Asheville is truly a microcosm of the United States. For every $10 increase in economic output in Asheville, the U.S. level of economic output goes up by $10,000. Asheville is at almost exactly 1/1000th of the United States.”
According to 2015 statistics (the latest available until September 2017), Asheville’s economic output is about $18 billion per year, with a national economic output of $18 trillion.
Put into perspective, this means that if the Asheville Metropolitan Statistical Area was a country, it would be larger than 80 countries that belong to the United Nations, and if North Carolina were a country it would economically be the 24th largest in the world, between Sweden and Belgium.
“I told you two years ago. I told you four years ago, and I’ll tell you again, Japan is doomed. Debt and demographics have doomed Japan. The population has been shrinking since 2011, the labor force has been shrinking since 1990, there are way more people over age 65 than under age 16, and the national debt is triple its economic output,” he said.
Smith identified an unlikely solution to Japan’s crisis as either merging with or entering into a free trade agreement with the Philippines, which is poorer with an overall younger population.
“All the western European countries are aging in place, and the only way around that is to increase immigration. What happens when you increase immigration is that you tick off large parts of your population. That’s why the Brits voted for Brexit, and why Dr. Angela Merkel, the prime minister of Germany, has brilliantly allowed over a million immigrants in to keep the labor force growing,” he said.
Smith revealed a crucial indicator for Americans to monitor.
“Interest rates in the United States are going up, and up, and up, and eventually they’ll go up so much that short-term (91 and 180 day) treasury bills will have a yield higher than ten year U.S. Treasury Notes. When that happens and it lasts for four months or longer, you can bet your bippy a recession is coming.”
That “inverted treasury yield curve” has happened 17 times since 1900, and on all 17 occasions, a recession has followed. In that time, due to unique circumstances, we have also had four recessions that were not preceded by an inverted treasury yield curve.
The rising value of the dollar will be great news for people who travel to foreign countries. Smith anticipated the next inverted treasury yield curve in late 2020, with a recession to follow in the middle of May 2021. If true, the state is currently in the beginning of the longest expansion of business cycles in the history of the United States.
By Mark-Ellis Bennett