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September 6, 1991
This morning's August employment report was a tad weaker than the consensus estimate, and interest rates are falling back to lows of the year. August NonFarm Payrolls grew by only 34,000, and the July figure was revised down. However, the Unemployment Rate held steady at 6.8%.
The three point jump (to 54.8%) in the August Purchasing Managers' Index is good evidence that a manufacturing recovery is underway, and likely to spread.
By yesterday's vote of the Congress of People's Deputies, the name "Union of Soviet Socialist Republics" will henceforth be found only in history books.
It would be nice if they would get around to a new name: it's hard to talk about what's going on in "Nine of Sixteen Except Maybe Four of the Other Seven." For now, an inaccurate "Russia" will have to do.
What will recent events in Russia do to the American (and world) economy? Since Russia is in chaos, how can you even make a guess?
Don't guess. Just pay attention to the things already baked into the borscht.
We are going to have to feed Russia this winter, for sure, and maybe for several. Western gifts of tens of millions of bushels of grain in coming months will generate inflation pressure. It doesn't matter whether they buy it (1970's inflation), or we buy it and give it away.
The peace dividend in our budget will be larger than anyone hoped good news for interest rates. However, the savings will come over several years, mostly from cancellation of new weapons programs and a gradual demobilization. There will not be some immediate pot of gold for redistribution.
In the short run, oil will be scarce, as Russian production falls. In the long run, investment in Russian energy resources will dramatically increase world supply.
Though we may write some checks to various pieces of Russia, cash will not go there until it has investment purpose. Investment won't make sense until Russia arrives at some legal basis for contracts and property rights. No American budgetbusting here.
The big unknown (and the budgetbust risk): how far will the Russian economy collapse? The guess here holds that most of the collapse has happened. Statistics showing a continuing decline are meaningless if most of the Russian economy has long since moved underground, to barter, or to subsistence in the countryside.
In sum, a little inflation, and the best news of my lifetime.
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