TIME Economy

The Left’s Opening Gambit for 2016 Is All About Your Paycheck

Elizabeth Warren
Elizabeth Warren Sen. Elizabeth Warren ponders the nation's problems at a Senate Banking Committee hearing on anti-money laundering on March 7, 2013. Cliff Owen—AP

The unifying value for progressives in 2016? Wages, if leaders like Elizabeth Warren and Richard Trumka have anything to say about it

See correction below.

If unemployment and slow growth were the central economic issues of the last presidential election cycle, wage stagnation and inequality are shaping up to be the focal point of 2016. The U.S. is now solidly in recovery, posting 5 % GDP growth in the third quarter of last year. But growth isn’t necessarily the same as shared prosperity. Inflation-adjusted middle class incomes have actually gone down for the last decade, something even the most rabid free market advocates won’t quarrel with statistically. And working class wages have been stagnant for much longer than that. (On balance, men with only high school degrees haven’t gotten a raise since 1968.) In an economy made up of 70 % consumer spending, that’s obviously an economic problem: no spending equals no business investment equals no jobs equals no spending…you get the picture. But inequality is increasingly taking on social and cultural dimensions, evident in everything from the debate over immigration to the killings that have rocked Ferguson and New York.

Put simply, chronically flat wages are no longer just about the lifestyle divide between the 1 % and everyone else. They’ve become an issue of social justice, democracy, and stability.

The question is, who has an answer to the problem? Liberals will be taking a first crack at it this Wednesday (Jan. 7) at the AFL-CIO-sponsored summit on Raising Wages. As Massachusetts senator Elizabeth Warren, who’ll be giving the keynote address, told me in an exclusive interview in advance of the summit, “Things are getting better, yes, but only for some. Families are working harder, but not doing better. And they feel the game is rigged against them–and guess what–it is!”

In her speech, Warren will be talking through numbers from a database compiled by French academic Thomas Piketty (author of the best-selling Capital in the 21st Century) showing that while 90 % of the workers in the US shared 70 % of all new income between the 1930s and 1970s, things started to change in the 1980s, with the 90 % capturing essentially zero percent of all new income since then.

Funny enough, that’s around that time that the laissez faire economic policies advocated by President Reagan, and later, President Clinton’s administration, took off. Former Treasury Secretary Bob Rubin was the one who lobbied Clinton to roll back the Depression-era Glass-Steagall banking regulation that many (like Warren) believe was a key factor in the financial crisis (which, in and of itself, greatly exacerbated inequality, particularly for African American and Latino families). He and other Clinton advisors like Larry Summers also crafted changes in tax policy that allowed for the growth of stock options as the main form of corporate compensation, a trend that Piketty, Nobel laureate and former Clinton advisor Joseph Stiglitz and many other economists believe has been a reason for growing inequality. I asked Warren if she blamed such Rubinesque policies for our current wage stagnation problem. “I’d lay it right at the feet of trickle down economics, yes. We’ve tried that experiment for 35 years and it hasn’t worked.”

Which will be an interesting challenge for Hillary Clinton, the presumed Democratic front-runner for 2016, and those in her orbit to overcome. Neera Tanden, the policy director for Clinton’s 2008 presidential campaign, now head of the left wing think tank Center for American Progress, will also be speaking at the AFL-CIO summit and, next week, CAP will be debuting a brand new report on what can be done about wage stagnation. The report was spearheaded by none other than Larry Summers. When I mention to Tanden that many people might not associate Summers with “inclusive growth,” she insists that the document is “quite progressive” and that “he’s been right there with it.” This echoes what I’ve heard from other economic insiders about Summers shift away from his historic (some might say infamous) work in financial alchemy and toward more populist concerns like worker wages.

If this conversion has in fact taken place it could be described as either Biblical, or, given current public sentiment around Wall Street, opportunistic. CAP’s report will focus on what the US can learn from other developed countries like Australia, Canada, and Sweden, which have managed to keep worker wages relatively high in the face of globalization and technological disruption. It’s worth noting that they also have much more sensibly managed financial systems than the US.

One thing that all the VIP summit participants, including AFL-CIO president Richard Trumka, seem to agree on: the US is the outlier in developed economies in viewing workers as “costs” rather than “assets to be invested,” as Trumka puts it. It’s a philosophy that underscores America’s focus on the rights and profits of investors to the exclusion of everyone and everything else. It’s a mythology that will be under fire in 2016, as workers, business people, and politicians alike are beginning to question the viability of a system that encourages inequality-bolstering share buybacks rather than real economy investment, and a chase for quarterly profits over what’s best for the economy–and society—at large. On that note, Trumka will be announcing some big policy steps to put the wage issue front and center in the 2016 election conversation. “We want to establish raising wages as the key, unifying progressive value,” he says. “We want wages to be what ties all the pieces of economic and social justice together.” Sounds like a rallying cry to me.

Correction: A previous version of this story incorrectly stated the date of Hillary Clinton’s presidential campaign.

MONEY stocks

Why Main Street’s Gain Is Wall Street’s Pain

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Trader Joseph Mastrolia works on the floor of the New York Stock Exchange while wearing 2015 novelty glasses on New Year's Eve, the last trading day of the year, in New York December 31, 2014. Carlo Allegri—Reuters via Corbis

Monday's 331-point drop in the Dow shows that the tables have turned on Wall Street.

Up until now, the bull market seemed to defy the everyday experience of many Americans: As Main Street households struggled through a recovery that repeatedly fell short of expectations, investors on Wall Street rejoiced.

That’s because the economy was growing fast enough to justify higher share prices, but not so fast that inflation was viewed as a real threat.

This year, though, the script seems to be flipped.

As Main Street Americans finally begin to see the economy improving, it’s the stock market that’s falling short, as evidenced by Monday’s 331-point drop in the Dow.

Monday’s dive was driven by two major economic trends that on the surface should be a boon for U.S. consumers. First, oil prices continued their sudden and surprising slide, driving prices at the pump down with them.

Brent Crude Oil Spot Price Chart

Brent Crude Oil Spot Price data by YCharts

At the same time, the U.S. dollar is now at a nine-year high against the struggling euro. That bolsters the purchasing power of Americans traveling abroad and U.S. consumers purchasing imported goods.

^DXY Chart

^DXY data by YCharts

Thanks to both trends, auto sales last year reached their highest level since before the global financial crisis.

Yet none of this is moving the dial on stock prices so far in 2015.

Some analysts think this could be a recurring trend throughout this year. “Expect a good year on Main Street but a more challenging environment for Wall Street,” says James Paulsen, chief investment strategist for Wells Capital Management.

Why?

Before, lukewarm news on the economic front bolstered the hope that the Federal Reserve would keep interest rates near zero for the foreseeable future. Now, some investors worry that the forces causing oil prices to fall and the dollar to rise — the weak global economy abroad — may be too much for the Fed to tackle even if rates stay low throughout this year.

Moreover, falling oil prices and the strengthening dollar may be giving the market false hope about low inflation.

“Some have argued that lower oil prices give the Fed more room to maneuver. This is a mistake,” says David Kelley, chief global strategist for J.P. Morgan Funds.

While it is true that lower energy prices are reducing inflation in the near term, “falling oil prices are also a big boost for consumers,” Kelly said. “Even if gasoline prices were gradually to move up to $2.75 a gallon by the end of this year from $2.39 at the end of last year, consumers would spend roughly $90 billion less on gasoline in 2015 than they did in the 12 months ended in June 2014.”

Not only is this a financial boost, “it is also a psychological positive with sharp increases seen in consumer confidence readings in the last few weeks,” Kelly said. “This should power an increase in consumer demand which should, in turn, boost prices in other areas.”

TIME energy

Top Five Factors Affecting Oil Prices in 2015

The big question is when they will rise, and by how much

As we ring in the New Year, let’s take stock of where we are at with the oil markets. 2014 proved to be a momentous one for the oil markets, having seen prices cut in half in just six months.

The big question is what oil prices will do in 2015. Oil prices are unsustainably low right now – many high-cost oil producers and oil-producing regions are currently operating in the red. That may work in the short-term, but over the medium and long-term, companies will be forced out of the market, precipitating a price rise. The big question is when they will rise, and by how much.

So, what does that mean for oil prices in 2015? It is anybody’s guess, but here are the top five variables that will determine the trajectory of oil prices over the next 12 months, in no particular order.

1. China’s Economy. China is the second largest consumer of oil in the world and surpassed the United States as the largest importer of liquid fuels in late 2013. More importantly for oil prices is how much China’s consumption will increase in the coming years. According to the EIA, China is expected burn through 3 million more barrels per day in 2020 compared to 2012, accounting for about one-quarter of global demand growth over that timeframe. Although there is much uncertainty, China just wrapped up a disappointing fourth quarter, capping off its slowest annual growth in over a quarter century. It is not at all obvious that China will be able to halt its sliding growth rate, but the trajectory of China’s economy will significantly impact oil prices in 2015.

2. American shale. By the end of 2014, the U.S. was producing more than 9 million barrels of oil per day, an 80 percent increase from 2007. That output went a long way to creating a glut of oil, which helped send oil prices to the dumps in 2014. Having collectively shot themselves in the foot, the big question is how affected U.S. drillers will be by sub-$60 WTI. Rig counts continue to fall, spending is being slashed, but output has so far been stable. Whether the industry can maintain output given today’s prices or production begins to fall will have an enormous impact on international supplies, and as a result, prices.

3. Elasticity of Demand. The cure for low prices is low prices. That cliché can be applied to both the supply and demand side of the equation. Will oil selling at fire sale prices spur renewed demand? In some countries where oil is more regulated, low prices may not trickle down to the retail level. Countries like Indonesia are scrapping subsidies, which will be a boon to state coffers but will diminish the benefits to consumers. However, in the U.S., gasoline prices are now below $2.40 per gallon, more than 35 percent down from mid-2014. That has led to an uptick in gasoline consumption. In the waning days of 2014, the U.S. consumed gasoline at the highest daily rate since 2007. Low prices could spark higher demand, which in turn could send oil prices back up.

4. OPEC’s Next Move. OPEC deserves a lot of credit (or blame) for the remarkable downturn in oil prices last year. While many pundits have declared OPEC irrelevant after their decision to leave output unchanged, the mere fact that oil prices crashed after the cartel’s November meeting demonstrates just how influential they are over price swings. For now OPEC – or, more accurately, Saudi Arabia – has stood firm in its insistence not to cut production quotas. Whether that remains true through 2015 is up in the air.

5. Geopolitical flashpoints. In the not too distant past, a small supply disruption would send oil prices skyward. In early 2014, for example, violence in Libya blocked oil exports, contributing to a rise in oil prices. In Iraq, ISIS overran parts of the country and oil prices shot up on fears of supply outages. But since then, geopolitical flashpoints have had much less of an effect on the price of crude. During the last few weeks of 2014, violence flared up again in Libya. But after a brief increase in prices, the markets shrugged off the event. Nevertheless, history has demonstrated time and again that geopolitical crises are some of the most powerful short-term movers of oil prices.

This post originally appeared on OilPrice.com.

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TIME food and drink

Nearly 46 Million Americans Received Starbucks Gift Cards This Holiday

Starbucks coffee
Starbucks coffee Bloomberg—Getty Images

Coffee giant says 1 in 7 Americans received one of its cards

While much of the frenzy around the holidays invokes images of Wal-Mart door busters and Amazon warehouses, Starbucks is proving itself to be one of the kings of the season.

The coffee giant has announced that one out of every seven Americans received one of its gift cards this holiday season. That’s up from one in eight Americans in 2013. Doing a little math (based on the U.S. Census Bureau’s population clock of about 320 million Americans), that implies that nearly 46 million received Starbucks gift cards in 2014 versus about 40 million in the year-earlier period.

It isn’t exactly a surprise that Starbucks would do so well when it comes to generating gift card sales during the key retail shopping season. A National Retail Federation survey recently reported that one in five had planned to pick up coffee shop gift cards this holiday season, one of the most popular choices for gift cards.

A Starbucks spokeswoman told Fortune that nearly 2.5 million Starbucks cards were activated on Christmas Eve alone, implying the coffee company benefits greatly from those looking to scoop up a last-minute gift. And more than $1.1 billion were loaded on the company’s cards in the U.S. and Canada throughout the most recent holiday season. To add some perspective, Starbucks generated $16.4 billion in revenue globally in the most recent fiscal year.

Gift cards are a popular strategy employed by retailers to generate more traffic to their stores, and Starbucks is particularly good at incorporating those dollars into its loyalty program. The value of a gift card can be uploaded and combined with a java lover’s Starbucks card, which offers broader rewards and discounts, as well as promotions (including the recently announced “Starbucks for Life” promotion).

This article originally appeared on Fortune.com

TIME Economy

Euro Falls to a 9-Year Low on Greek Fears

Euro Money Greece
Getty Images

The euro fell to its lowest level against the dollar in nine years Monday, driven by fears of political turmoil in Greece and hopes for more monetary stimulus from the European Central Bank.

By lunchtime in Europe, the single currency had fallen to $1.1914 and has now fallen over 2c against the dollar since the start of the year.

It had already lurched lower on Friday, the first trading session of 2015, on the back of comments by ECB President Mario Draghi in an interview with a German newspaper saying that the risks of it undershooting its inflation target had increased. That added to speculation that the ECB will announce a bigger program of bond-buying, or so-called quantitative easing, at its first policy meeting of the year on Jan. 22.

The ECB is keen to play up that fact that its policy is getting easier even as the Federal Reserve prepares to tighten monetary policy in the U.S.. That outlook will keep the euro cheap on foreign exchange markets, helping the area to boost growth through the export channel.

Hopes for QE, coupled with pessimism over the Eurozone’s growth outlook, have already driven bond yields to unprecedented lows. Yields on German bonds are negative all the way out to 2019, while even Italy’s 10-year bonds yield only 1.79%.

The other factor weighing on the euro is the fear that the radical left-wing Syriza party will win Greece’s parliamentary elections at the end of January, starting a process that may lead to Greece leaving the Eurozone. The German magazine Der Spiegel reported at the weekend that Chancellor Angela Merkel was confident that the Eurozone could cope with a Greek exit.

That confidence is far from being universally shared by financial markets. Marc Ostwald, a strategist with ADM ISI in London, called a Greek exit “the ultimate example bar none of why the Euro project is doomed to failure if no progress on moving to some form of fiscal transfer union is made.”

The euro’s decline is only side of a general rally in the dollar. The dollar index, which measures the greenback’s strength against a basked of major world currencies (although, importantly, not China’s), is also at a nine-year high, after rising over 12% last year.

This article originally appeared on Fortune.com

TIME Economy

Minimum-Wage Increases Go Into Effect Across the Country

The wage hikes in several states and D.C. are expected to affect 3.1 million people

Roughly 3.1 million workers across the United States woke up to a little New Year’s Day present on Thursday, January 1, when increases in the minimum wage took effect in 20 states and the District of Columbia.

The recent bumps brought the total number of states with a minimum wage above the federal wage floor to 29, the New York Times reports. The federal minimum wage is $7.25 an hour.

Some of the increases are relatively tiny—a few cents—while some, of a dollar or more, could have a more significant impact on the economy. Minimum wage hikes in more states are set to take effect later in the year, according to the NYT.

The minimum wage hike is expected to impact 3.1 million of the 3.3 million Americans who earn the minimum wage.

[NYT]

MONEY Economy

Economy Delivers a Last-Minute Gift to Wall Street

141223_INV_Party_1
Getty Images/Purestock

The U.S. economy isn't exactly partying like 1999, but it came pretty close in the third quarter, growing faster than it has since 2003.

It’s time to stop describing this economic recovery as being “tepid.”

A new report from the Commerce Department Tuesday morning revealed that the U.S. economy had grown at an annual rate of 5% in the third quarter. Not only does that represents a major jump from earlier estimates of 3.9% growth, it marks the economy’s best performance in 11 years. And it’s the second straight quarter in which U.S. gross domestic product grew at or near the historically high mark of 5%.

Wall Street reacted as you’d expect, pushing the Dow Jones industrial average up another 60 points in early morning trading Tuesday to above the 18,000 mark. In just the past week, the so-called Santa Claus rally has now lifted the benchmark Dow up nearly 1000 points.

Most of that rally, however, centered on the bad news surrounding the global economy, as the slowdown overseas is putting a lid on inflation and allowing the Federal Reserve to keep interest rates near zero for some time.

Today’s bump, though, was all about the surprising health of the U.S. economy in general and American consumers in particular.

Earlier reports showed that consumer spending, which represents more than two thirds of total economic activity in the country, had grown a decent 2.2%. But today’s new report updated that figure to 3.2%. “The boost to personal consumption was much stronger than we had expected,” noted Michael Gapen, chief U.S. economist for Barclays Research.

This would imply that the improved job market and rising net worth due to improvements in the stock and housing markets are finally being felt by American households—just in time for the holidays.

TIME Economy

U.S. Economy Notches its Best Performance in Over a Decade

Dow Rises Over 400 Points Day After Fed Signals No Rise In Interest Rates
Traders work on the floor of the New York Stock Exchange in Nwe York City on Dec. 18, 2014. Andrew Burton—Getty Images

The improved reading was a result of an increase in personal consumption

The U.S. economy’s third-quarter performance is the strongest the nation has recorded in more than 10 years, as consumers continue to spend more as they feel emboldened by a stronger job market, a stronger housing market and rising stocks.

Gross domestic product for the third-quarter leapt a better-than-expected 5% according to the Commerce Department’s “third” estimate. That growth exceeded the prior quarter’s 4.6% increase. It also was the greatest advance since the third quarter of 2003, according to Bloomberg.

Economists had projected a 4.3% jump in GDP for the latest reading of the economy, according to a poll conducted by Bloomberg. And no economist polled by Bloomberg had expected a revision as high as the Commerce Department reported: the consensus range was between 4% to 4.5%.

The improved reading was a result of an increase in personal consumption that was more than the Commerce Department had initially reported, as well as greater federal, state and local government spending, an increase in exports and residential fixed investment. Imports, however, decreased.

There had been some indications the economy was performing well even before the Commerce Department report. Retail sales leapt a better-than-expected 0.7% in November, the strongest growth the Commerce Department has reported since March of this year. Fortune earlier this week reported that U.S. shoppers spent a record $42 billion on Saturday and Sunday, the final weekend before Christmas and signaling Americans are perhaps more willing to open up their wallets as they enjoy savings from lower prices at the pump and feel emboldened by a stronger stock market and improves in housing and employment.

This article originally appeared on Fortune.com

MONEY Economy

Dow Races Past 18,000

141222_INV_Humbug
Jeffrey Coolidge—Getty Images

But is this "Santa Claus" rally in the stock market being driven by an economy that's naughty or nice?

The Dow Jones industrial average climbed above the 18,000 level for the first time ever, shortly after the government released a report showing the U.S. economy grew at an annual rate of 5% in the third quarter—much faster than was initially thought.

The report also pointed out that consumer spending increased faster than expected, a sign that the improving labor, stock, and housing markets are finally being felt by American households.

Given this fact, conventional wisdom says the market is enjoying a normal Santa Claus rally. But conventional wisdom is wrong. Here’s why:

At the end of most years, stocks tend to surge for reasons of good tidings and good cheer. This year, however, the bulk of the near 1,000-point rise in the Dow that began a week ago has really been driven by bad news around the world.

As economies in Europe, Asia, and Latin America have all slowed more than expected, expectations for global growth have sunk, driving down oil and commodity prices. In fact, crude oil prices have tumbled by nearly half, to around $61 a barrel since the summer.

Brent Crude Oil Spot Price Chart

Brent Crude Oil Spot Price data by YCharts

For American consumers, this is an early present from the North Pole. The average price of regular-grade gas in the U.S. has fallen to $2.47 a gallon, the lowest point since 2009, which leaves more money to stuff into Christmas stockings at this time of the year.

Yet for large parts of the rest of the world, falling oil prices and the slowing economy spell trouble.

Falling energy prices, for instance, are wreaking havoc on the budgets of emerging economies that are dependent on oil revenues to maintain their finances. Russia, Algeria, Iraq, Iran, Nigeria, and Libya all require oil prices above $100 a barrel to keep their debt/gross domestic product ratio from rising, according to a recent report from Goldman Sachs.

Even Middle Eastern oil producers such as Kuwait, the United Arab Emirates, Qatar, and the Saudis need oil above $63 a barrel to maintain their financial health, yet oil is barely over $60 a barrel now.

As global economies start to sputter, investor faith has faltered, as seen by the flight of cash away from global currencies into the U.S. dollar. In recent months, the value of the dollar has jumped nearly 13%, which strengthens the buying power of Americans but hurts the finances of most of the rest of the world.

^DXY Chart

^DXY data by YCharts

To keep their currencies from losing even more value, central banks around the world are now in the unenviable position of having to raise interest rates even as their economies crave rate cuts to boost growth.

The U.S. Federal Reserve is the one big exception.

While Fed chair Janet Yellen has denied that global economic worries are influencing the Fed’s decisions on setting U.S. interest rate policy, the consensus on Wall Street is that they clearly are a factor.

Last week, just before the Santa Claus rally ignited, the Fed’s Federal Open Market Committee (FOMC) announced — as expected — that it would keep short-term rates near zero. The committee, however, threw Wall Street a curve ball when explaining its decision. For months, the Fed said that it expected that rates could stay near zero for “a considerable time.” Investors were bracing for that language to be removed from its December press release since the U.S. economy was starting to get into gear.

As it turned out, “the phrase ‘considerable time’ was not dropped from the latest FOMC statement as was widely expected. Instead, it was reinforced with a new phrase stressing that the Fed can afford to be ‘patient’ before starting to raise interest rates,” said Ed Yardeni, president of Yardeni Research.

In so doing, “the Fed didn’t remove the punch bowl; they spiked the punch,” says Sam Stovall, U.S. equity strategist for S&P Capital IQ. “Akin to lighting the tree at Rockefeller Center, this response to the Fed’s actions may have signaled the start of the Santa Claus rally.”

Why did the Fed cling to this “patient” sentiment?

Because the global slowdown allowed it to.

The U.S. economy is clearly gaining momentum, as Tuesday morning’s GDP report clearly showed. But cheap oil caused in part by a global slowdown means that consumer prices in the U.S. should be stable. That means even as GDP is rising at a brisk pace, the Fed can keep stimulating the economy with low interest rates without fear of inflation.

In other words, what’s bad for the world is good for the U.S.

Merry Christmas.

TIME Economy

Here’s the Big Problem With America’s Economic Recovery

Janet Yellen
Federal Reserve Bank Board Chairman Janet Yellen Chip Somodevilla—Getty Images

Yes, the U.S. is roaring back—especially compared to competitors—but that doesn't mean we're out of the woods yet exactly

If you could write one headline to encompass the past six years of economic history, it would probably be “U.S. Leadership Is Over.” The financial crisis, the Great Recession and the tepid recovery that followed seemed to mark a permanent decline in American market hegemony. But the past few months of economic data are calling all that into question: U.S. gross domestic product and jobs growth are the strongest they’ve been since the crisis. CEO surveys are predicting a new era of business spending. And the effect of the dramatic fall in oil prices since last summer will likely mean the equivalent of a $100 billion tax cut for U.S. consumers.

For an economy made up 70% of consumer spending, that could mean the beginning of that virtuous, job-creating consumption cycle that we’ve been awaiting since things went to hell in 2008. What’s more, with trouble in developing markets like Russia, India and Brazil as well as most of Europe, the U.S. is suddenly no longer the epicenter of market trouble but rather the best hope for global prosperity. The question everyone is asking now is, Can the U.S. lead the world again?—-economically, at least.

Times have changed since the U.S. last found itself in a similar position. Then, back in the late 1990s, when the Asian debt crisis had everyone predicting the end of a great run of global growth, the worst-case scenario never came to pass. Even as China and the other big Asian markets tanked, U.S. growth powered along at nearly 4%, helping the rest of the world maintain a respectable 2.5% average.

But now China represents four times as much of the world’s growth as it used to, having swapped places with Europe in terms of importance. The debt crisis and major economic slowdown happening in the world’s most populous nation are big reasons that oil prices have fallen—Chinese businesses and consumers are using much less energy these days. That creates a contagion effect in countries like Brazil, Nigeria and Russia and in parts of the Middle East, which have economies that are increasingly driven by China. No wonder experts like Morgan Stanley’s Ruchir Sharma are proclaiming that the next global recession will be “made in China.”

What does all that mean economically for the U.S.? While the fall in oil prices is great short-term news for middle- and low-income Americans—who are already buying more gas, cars and big-ticket appliances as a result—it also makes it tougher for American energy producers to pump out of the ground all that homemade shale oil and gas we’ve been hearing about for the past several years.

Unlike the Saudis, who can practically dig with a teaspoon and hit oil, we have to frack for it, and that’s expensive. Saudis need about $25 a barrel to make money on oil. We need at least $70, and most of the energy development and production happening in the U.S. now was set up at a time when prices were over $100. Currently they are hovering around $60, thanks not only to a sluggish China but also to the unwillingness of Saudi Arabia to cut production in order to boost prices (which may be part of a complex geopolitical strategy by the Saudis to put pressure on rival petro-autocrats in Iran, as well as Putin’s Russia).

All of this matters, and not just because energy is the de facto scoreboard for the global economy these days. If U.S. energy producers decide that they can’t afford to stay in the game with prices so low, that could hurt American manufacturers who were basing their expansion plans on cheap power. They might cut jobs, which cuts consumer spending, which cuts jobs … head-spinning, I know. The bottom line is that the evolution of the global economy over the past couple of decades blunts the ability of the U.S. to carry the rest of the world economically in the years ahead.

While it’s an amazing thing that the U.S. is likely to outgrow many emerging markets this year, the crucial question will be how robust the U.S. recovery will remain in the face of the global slowdown. At the risk of being a Cassandra, I’d feel better if I thought the U.S. recovery had been built on a firmer foundation, like a strong housing recovery or a real pickup in wages. Neither is the case. Rather, this recovery is genetically modified—it was engineered by the Fed’s $4 trillion money dump and interest rates that are still near zero. As they begin to rise—as they almost certainly will toward the middle to end of 2015—the monetary scientists in Washington will step back from the petri dish and see if the economy can sustain what they kick-started. Only then will we be able to gauge whether the U.S. has regained its position as the driver of the global economy.

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