On Tuesday morning this week, Ed Yardeni had an amusing twist on the phrase used by Gwyneth Paltrow to describe her divorce as “conscious uncoupling”.  Mr. Yardeni said the United States and Europe were economically “unconsciously decoupling”.  The reason for this was interesting, particularly for those of us concerned about excessive government regulation, and the way it can stifle growth and innovation.

Can the US continue to grow if the Eurozone’s recovery continues to stall? It is doing a good job of doing just that so far. Debbie and I think it may continue to do so. The question is, why are the two economies decoupling? The short answer is that the social welfare state remains too big in the Eurozone. There are too many government regulations and regulators, and not enough startups and entrepreneurs. Labor markets remain too rigid. Too much credit is provided by bankers, who aren’t lending, while capital markets remain relatively limited sources of capital. The region depends too much on Russian gas, and isn’t doing enough to find domestic sources of energy. It may also be more exposed to terrorism perpetrated by homegrown Islamic jihadists.

 The latest evidence of decoupling between the US and the Eurozone’s economies is Germany’s IFO business confidence index. It dropped to 106.3 during August, down from a recent cyclical peak of 111.2 during April, and the lowest since July 2013. The expectations component, which is highly correlated with Germany’s M-PMI, fell from 107.2 to a 15-month low of 101.7 over this period. Flash estimates show the German M-PMI fell to 52.0 this month, while the US M-PMI rose to 58.0.

 Credit remains amply available in the US capital markets and from US banks. The same cannot be said of the Eurozone’s capital markets and banks. Over the past 12 months through May, nonfinancial bond issuance totaled $750.5 billion. Short-term business credit rose to a record-high $2.0 trillion in mid-August. In the Eurozone, bank credit is down 2.2% over the past 12 months through June.

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by Marilou Long on August 26, 2014 in Economic Indicators

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by Laura Ehrenberg-Chesler on July 31, 2014 in equity market

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Q2 GDP Expands at 4.0%

by Marilou Long on July 30, 2014 in Economic Indicators

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This clever bird can teach us all about foregoing a small treat today for a larger payoff later.

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