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The U.S. Recovery Bucks International Headwinds

12:00 AM, Apr 2, 2011 • By IRWIN M. STELZER
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That would be less of a problem for the resilient, flexible U.S. economy but for two policies of the Obama administration. The first is to inhibit the development of domestic oil production, a process that pre-dated the offshore oil spill by BP. The second is to make the shift to other fossil fuels more costly. The administration seems to believe that the wind blows and the sun shines all of the time—and in places where consumers of electricity live—and is therefore placing its bets (well, taxpayers’ bets) on renewables that can at best provide energy on a sporadic basis. Meanwhile, the Environmental Protection Agency has just made it more costly to use coal, which is in abundant supply in America; environmental activists are unhappy with the effect of exploiting shale gas deposits, and nuclear power cannot expect a genuine renaissance so soon after the disaster in Japan. Until some form of carbon tax is imposed, the administration has license to continue to tinker with the energy sector, picking “winners” that in its view will reduce carbon emissions.

The fallout from Japan’s stricken nuclear plants further darkens the outlook. Vital links in the global supply chain have snapped, disrupting supplies of vital components, and causing the shutdown of auto factories and some manufacturers of electronic goods. In addition, Bloomberg estimates that over thirty large U.S. companies have been getting over 15 percent of their sales from Japan. Not now, and not soon.

Final proof that the world is too much with us comes from Europe. The European Banking Authority has launched a new round of bank stress tests. If properly done they will reveal that it is not only banks in troubled Greece, Ireland, and Portugal that are seriously undercapitalized. German banks are under-capitalized and are heavily laden with the IOUs of countries and companies that cannot pay them back. Britain’s regulators are demanding even thicker layers of capital than are needed to satisfy international regulators, while more relaxed regulators here in America are allowing banks to bite into their capital by paying dividends. Yes, it is Europe’s banks that are shakiest, but if we have learned anything in recent years it is that financial disasters somehow fail to respect borders.

So, one cheer for the jobs market, and a second for the politicians if they agree on a deficit-reduction package But hold the hooray in hip-hip-hooray until Japan recovers, the Middle East cauldron and U.S. inflation cool, and eurozone policymakers find ways not to add to America’s economic problems. 

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