Candidates for public office often pose that question, and with almost half the citizens in the world heading to the polls in 2024, that query will be reverberating in their ears.
The question is rather general. The answers are always uniquely individual. Some folks are financially better off. Some aren’t. Government decisions and policies don’t always play a positive or negative role.
However, the strategies that central bankers worldwide have applied to restrain inflation, and the control they wield over interest rates, will be major factors in determining whether 2024 will be a year of recession or a year of slow growth with low inflation — or whether a decades-long spending binge in world capitals has created a bubble that might yet burst.
In 2023, the global banking system proved immune to contagion despite the collapse of major banks, including Credit Suisse, Silicon Valley Bank, Signature Bank, and First Republic Bank. There was no repeat of the financial market collapse of 2008.
Investors and speculators who stuck with Bitcoin were richly rewarded as its price doubled, despite shocks to the system following the arrest and ultimate fraud convictions of Samuel Bankman-Fried, the disgraced boy wonder of the cryptocurrency world.
In the US, major indices such as the S&P 500, the Dow Jones Industrial Average, and the Nasdaq hit record highs in late December. In Israel, investors overcame their bouts of self-doubt over the now-shelved judicial reforms and the 10/7 terror attacks to send major indices to near-yearly highs on the Tel Aviv Stock Exchange. The value of the shekel — which traded with high volatility for most of the year — looked to close out 2023 smack in the middle of its trading range.
The $5-a-gallon gas price of mid-2022 in the US is ancient history, with prices at the pump dipping to an average of $3 a gallon nationwide this week, thanks to international oil prices trading near their 52-week lows.
There are still many yellow and red lights flashing for the global economy as we enter 2024.
The 20-member countries of the Eurozone are technically in a recession, with negative or no growth plaguing the continent.
Japan’s “lost decade” of the 1990s has extended itself to its third decade of stagnant economic growth. Earlier this year, Germany took over Japan’s third-place position in the global GDP standing, behind the US and China.
China’s quest to overtake the US economy is on hold as its slumping real estate market and flight of capital threaten to topple the country into a full-fledged recession.
In an attempt to answer the question we posed above — are you better off now than four years ago — a World Bank blog that first appeared in Barron’s in August noted that 30% of the citizens who live in countries defined as developing economies are poorer than they were before the COVID-19 pandemic.
Having said that, as any investment advisor will — or should — tell you, past performance is no indication of future results. So, let’s take a look at a few economic trends likely to dominate the financial headlines in 2024.
Raising the Roof on Debt
High ceilings are a luxury feature of fine homes and apartments, but when it comes to national debt, it’s a major distress signal. Total US debt is nearing $34 trillion.
Congress voted to suspend the debt ceiling until January 1, 2025, which is absurd timing considering that if President Biden should lose the November 2024 election, it would be up to him as a lame duck to keep the government afloat for his successor. However, certain government agencies are only funded until January 19, or February 2, 2024, which means that Democrats and Republicans will continue their war of attrition over spending once again early in the new calendar year.
The Rate of Rate Reductions
When Federal Reserve Board chairman Jerome Powell talks, people listen and try to discern his every nuance. Virtually every central banker in the world follows his lead. While the mantra of interest rates remaining “higher for longer” is still the catchphrase of the financial world, Powell indicated two weeks ago that the Fed has room to lower interest rates three times in 2024, perhaps starting sometime in the spring.
Some of the more bullish Wall Street firms believe Powell will be more aggressive with rate cuts to stimulate economic growth, but the markets are always ahead of the Fed. Considering how the Fed lulled itself to sleep with the conception that inflation was transitory, only to raise rates fast and furiously when the data proved them wrong, they might err on the side of caution when reversing course. Lower interest rates are good news for borrowers and investors; however, the current year-end celebrations might be premature.
Soft or Hard Landing
The term soft landing applies to a scenario in which the economy grows at a modest pace, while the lagging effect of higher interest rates dampens demand and keeps inflation in check. A hard landing would imply that the full impact of Fed rate hikes will just appear in mid-2024, leading to a painful recession, sharply higher unemployment, and a dramatic drop in consumer spending.
It’s too early to tell which scenario will play out, or if we will experience something in the middle. Weak economic growth means that tax revenues will decline and governments will have fewer resources to meet the various needs of their citizenry, not to mention paying the higher interest rates on national debts, which is a global economic problem.
Trend
AI: Bigger but Maybe Not Better
AI powers everyday apps including Waze; Google Maps; virtual assistants, such as Alexa, which assists Amazon shoppers; and Siri, which many Apple users find to be a great resource.
As a relatively new technology with unknown potential, AI is also frightening for the ethical dilemmas it poses and the fears that one day it will morph into a monster that its creators can no longer control. Governments worldwide are seeking solutions to get a grip on AI developers to harness the upside and minimize the downside, but if you look at their failures to regulate or rein in harmful content on social media, there is a real and present danger that the technology will outmaneuver the bureaucrats.
Counter-Trend
De-Growth: A Woke Economic Religion
In a recent essay for Foreign Policy, freelancer Jessi Jezewska Stevens described this year’s ninth annual International Degrowth Conference in Zagreb, Croatia, as “a big tent, one that attracts graduate students, activists, Marxists, feminists, de-colonizationists, and in more recent years, elected politicians.” Doesn’t sound like a welcoming crowd for a nice Jewish boy.
But de-growth is a real economic movement whose central tenets presume that promoting GDP growth is undesirable, because growth results in more economic inequality and in greater ecological damage, including global warming. De-growth adherents also claim that economic advancement doesn’t contribute to people’s “feelings of well-being.”
Lest you consider this to be just another fad, know that the European Parliament held a conference in Brussels earlier this year called “Beyond Growth,” attended by 7,000 people. The conference embraced some of these de-growth causes, in one form or another. Major universities worldwide have also taken up the cause, grouping it with coursework in political ecology and environmental justice.
The question they need to be asked is if they can prove that their economic theory will make people feel they will be better off than they were four years ago, and why.
