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Taper Hits Bonds and Stocks But Growth Accelerates

12:00 AM, Jun 22, 2013 • By IRWIN M. STELZER
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In the longer run, reckon Zelman & Associates researchers, population growth will create a need for 14 million new housing units this decade, fewer than six million of which will be built by 2015. So for the rest of this decade there will be a market for two million homes per year, far more than the current rate of completions.       

Perhaps even more important to anyone trying to decide whether America’s best days are behind it or lie ahead is the nation’s new-found energy affluence, due to the much reported and, to environmentalists, the much detested fracking process that is releasing large reserves of oil and natural gas from hitherto inaccessible shale formations. A funny thing happened on the way to President Obama’s fossil-fuel-free future. So much oil and gas has been discovered in the United States that crude imports are at a 15-year low, and by the end of the summer we will be producing more oil than we import, reversing a 20-year trend. Fears of running out of oil have been replaced with what is now called a "supply shock," an almost 50 percent increase in domestic oil production in the past five years. Daniel Yergin, who won a Pulitzer Prize for his book on the oil industry, points out the fracking revolution has already created 1.7 million jobs in America. And likely to create still more as the manufacturing sector is boosted by the availability of cheap natural gas. The onshoring of manufacturing is not on a scale that will restore it to its previous relative position in the economy, not a bad thing given its cyclicality and the tendency of leading manufacturing companies to seek hidden subsidies such as a ban on the export of natural gas. But cheap energy can now be weighed against lower labor costs by corporations wondering where to plan the next round of expansion.

Then there is Silicon Valley, increasingly a generic term for the areas in which creative geniuses tend to congregate in the nation’s cities. These concentrations of talent produce teenage billionaires and a steady stream of innovations. A great intangible asset that countries such as the UK are attempting to emulate and countries such as China are attempting to steal, both with some success.

The recovery has survived the tax increases that conservatives predicted would doom it. It has survived the cuts in government spending that Obama predicted would slow it. It has survived the deficit-reducing austerity that the International Monetary Fund—the once-proud parent of austerity—says is “excessively rapid and ill-designed.” It will survive the tapered return to a more normal bond market.

The Brookings Institution’s George Perry sees no reason that “we cannot today be starting an expansion like that of the 1990s,” which lasted eight years and drove the unemployment rate down from 7.5 percent to 4 percent. That would be a nice capstone to Bernanke’s career as an innovative central banker.

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