Treasury Secretary Tim Geithner has gone to Europe to visit the finance minister of Germany, Wolfgang Schaeuble, and European Central Bank (ECB) chief Mario Draghi. His hosts often do not welcome Geithner because he uses his time in Europe to lecture the leaders of EU countries about the shortcomings of their banking systems and bailout approaches. The Europeans hate it and want to know why Geithner has done so little to fix similar problems in the United States. But Geithner has a good motivation to go to Europe. Draghi wants to help the European nations that have to pay high yields to raise money through the aggressive purchase of their sovereign debt. The Germans have said they are skeptical and may try to slow or block the plan. Even if the Germans go along, no one knows whether the ECB can buy enough of the sovereign paper of nations like Spain, should capital markets continue to dump it.
Another Problem with Boeing’s Dreamliner
Boeing (NYSE: BA) and Airbus continue to have trouble designing and manufacturing large airplanes that do not break. The Airbus super jumbo A380 has had wing crack problems. The Boeing 787 Dreamliner production was delay seven times because of parts and labor problems. The Wall Street Journal reports:
Boeing Co. and U.S. safety officials are investigating the engine problems that saw debris from a new 787 Dreamliner spark a grass fire at Charleston International Airport in South Carolina during a preflight test.
The incident is probably isolated, but that does not help Boeing’s case that the Dreamliner is finally a perfect airplane.
Japan Slouches Toward Recession
The recovery of the Japanese economy, which was supposed to be supported by huge investments in infrastructure damaged by the huge earthquake that ruined much of the northern part of the country, has not materialized. Japan’s Trade Ministry reported that industrial production fell 0.1% in June from May. Production should ramp up as large Japanese plants like those owned by the car companies come back online. International and domestic demand for Japanese manufactured goods, however, is not rising. The positive rebuilding effects of Japan probably have been offset by the recession in Europe and the rapid slowing of the economies of China and the United States. Japan’s own economy is not robust enough for internal business and consumer demand to offset a lack of exports. So, Japan joins the long list of major economies headed toward recession.
Gasoline Prices on the Rise
The drop in gasoline prices is over again for now. Both the Lundberg and AAA Fuel Gauge show that the price of a gallon of regular has moved higher recently. Lundberg reports it at $3.50, up nine cents in two weeks. Fortunately for the economy, the number is well below the nearly $4 price reached in early spring. It is not certain that high gas prices hurt the economy or that lower ones have helped much. Economists have had trouble coupling the price of gas with gross domestic product or consumer spending. When gas prices were high, GDP and employment were improving. Now that prices have fallen, so has job creation and GDP improvement. It is tempting to try to pair prices with growth, but the link may not even be a coincidence.
Douglas A. McIntyre