Today’s drama, however, is clearly in industrial production, and for all the right reasons. Let’s start by looking at the monthly percentage changes. As you can see, April witnessed a strong revival in this series, which is considered to be on the short list of proxies for the broad economy. The caveat is that the revisions lately have been relatively large and so today’s good news may evaporate next month. But given the numbers in hand, it’s a bit tougher to argue that the economy is headed for trouble.

The stronger evidence for seeing the macro glass half full comes from looking at industrial production’s one-year percentage change, which moved up to a robust 5.2% increase. If and when a new recession is imminent, history suggests we'll see a much lower growth rate. To the extent that some analysts have been using industrial production’s weakening annual pace of late to warn of a new slump ahead, today’s stats throw a wrench into that machine.

Any one number must be taken with a grain of salt, of course. Indeed, there are still several reasons to remain cautious about the business cycle, including the slowdown in payrolls growth last month and the ongoing deceleration in the growth rate for personal income.

But today’s industrial production news suggests it’s still too early to give up on growth, a message we heard two weeks ago in April’s IMN Manufacturing report.

This is a good time to emphasize that no one should confuse predicting a new recession at this point with making the case that a new downturn has started based on a preponderance of smoking guns in real time. There may be a downturn lurking in the near-term future, but that’s still a debatable forecast, and one with slightly less statistical support in the wake of the industrial production update. Everything may change tomorrow, but in the meantime you can’t rush the future. It's all a matter of how much confidence you're comfortable with when perusing the numbers. As such, the question I posed earlier in the week is still very much alive and kicking: Is That A Recession Or Just More Slow-Growth Turbulence?

Today's industrial production report brings "more positive U.S. economic news pointing to continued moderate growth," Jennifer Lee, a senior economist at BOMB Capital Markets, tells Reuters.

“Things are looking brighter than they were a few months ago,” opines Millan Mulraine, senior U.S. strategist at TD Securities via Bloomberg. “Auto production is doing well because consumers are buying vehicles, and consumers are buying vehicles because they feel more positive about their job prospects.”

If there’s a good reason to think otherwise, it’ll be conspicuous in the numbers. Until then, gloom is still a forecast. It may be an informed forecast, and it may even be right. No harm done, assuming you distinguish forecasting from profiling the economy with the data as it arrives.

Last month's fade in consumption may be a harbinger of things to come, or not, but the trend doesn't look ominous in terms of the year-over-year change. Retail sales jumped 6.4% in April vs. 12 months earlier. That's down moderately from the pace in recent months, but no one will confuse this rate of growth with a recession.

The concern is that the annual rate of retail sales has been falling, albeit gently, for a year. That may be nothing more than a natural migration to sustainable (i.e., lower) levels after the dramatic rebound from the depths of the Great Recession. Nonetheless, some analysts worry that the downshift has legs and so the outlook is clouded for the consumer-dependent economy.

"Growth is there, but it's not that convincing," notes David Sloan, senior economist at 4CAST.

Before we throw in the towel on consumption, let's consider the possible effects from falling gasoline prices. There's a lot of chatter this morning about the minimal impact from lower fuel prices on April's retail sales. Fair enough, but if gasoline continues to trend lower it may boost consumer confidence, which was flat last week but still higher than April's readings, according to Gallup. Does that suggest that May economic news will be brighter too?

The answer partly depends on how much green consumers spend at the pump. The national average retail price of regular gasoline fell again in the week through Monday to the lowest level since early February, according to the Energy Information Administration. Granted, prices are still high by historical standards and so a mild fall from extremes is hardly a game-changer. But if more declines are coming, there's a possibility that Joe Sixpack's consumption may hold up through the summer. On that note, today's news that the nuclear talks between the United Nations and Iran are "constructive" implies that energy prices may fall further as the geopolitical risk premium in oil retreats.

Lower energy prices generally last month kept consumer inflation flat in April, the Labor Department reports. Meanwhile, retail sales on a real (inflation-adjusted) basis rose on an annual basis last month to a 4.0% rate, the highest since last October.

None of this wipes away the concern that the consumer is wary, but it's a reminder that it's premature to yell fire in macro's theater just yet. There are a lot of moving parts at work these days and it's not at all clear how key events around the world (and within the U.S.) will play out.

"Greece is peanuts as far as the United States is concerned," says Uri Dadush, former economic policy chief at the World Bank. "But if Greece leads to the contagion of Spain and Italy, the euro could implode. This is big business for the U.S. We're talking trillions of dollars in direct and indirect exposure to the European banking sector."

While the world waits for clarity, let's see what the rest of the week's economic reports say before we pass judgment on April. Next up is tomorrow's update on housing starts and new building permits issued last month, along with April's read on industrial production. There's also Thursday's weekly update on jobless claims and Friday brings word of the Conference Board's leading index.

Fears of Greece EU exit rattle markets
MarketWatch | May 14
“It is generally accepted that the euro zone is better positioned now for a Greek exit than it was a year ago,” said Jane Foley, senior currency strategist at Rabobank International, in a note. “That said, it is widely accepted that any sign that Greece could be preparing to exit the system would still trigger contagion in the more vulnerable euro-zone bond markets.” The greatest uncertainty surrounds how much collateral damage a Greek exit would wreak on other vulnerable—and much larger—sovereigns, particularly given the already-weakened position of Spain, Foley said.

Greek coalition talks drag on as stocks tank on fears over fresh vote
Associated Press | May 14
For the ninth straight day, Greek party leaders were struggling to form a coalition government, riven by differences over the harsh austerity measures demanded by international creditors in return for rescue loans. The impasse means the debt-stricken country is facing the prospect of another national election next month after holding an inconclusive ballot May 6.

Greece and the euro: What's next?
CNNMoney | May 14
"The threat from Greece remains real, and Greece exiting the euro area would likely have contagion effects that cannot easily be addressed in the current set-up," said Bank of America Merrill Lynch analysts in a note Monday. "The next weeks are crucial."

Risk of Greek Euro Exit Rattles Markets, but Hints of More Talks Emerge
The New York Times | May 14
As gridlock among Greece’s political parties made new elections and another month of uncertainty there all but inevitable, European markets dropped significantly on Monday amid concerns that Greece’s departure from the euro was near, and right behind it a new round of financial instability for Europe and the outside world. Yet there were also indications emerging on Monday that the latest turmoil could as easily signify the beginning of a new phase of bargaining between Greece and its European lenders as it could a sudden Greek exit from the euro zone.

If Greece has to leave the euro, it will be because of the reckless decision to bail it out in the first place
Andrew Lilico (The Telegraph) | May 15
The reason Greece is likely to leave the euro is precisely because it was (or, more specifically, those that had lent money to it were) bailed out in 2010. Under the scenario above, official creditors (the IMF, the Germans, etc) would have lent money to Greece only after it had defaulted, much as a classic IMF package involves the IMF lending money to countries after they devalue. But what actually happened was that the official creditors lent money to Greece to try to stop it from defaulting.

A Greek default, a euro collapse?
Gwynne Dyer (The Spec) | May 15
The Greeks will probably be using new drachmas before long. The Spanish may also be back to pesetas and the Italians to liras before we are much older. Perhaps the euro will survive as the common currency of the rich and efficient economies of northern Europe, and perhaps not. But the demise of the euro would not mean the end of the EU or of peace in Europe.

For the last three months, year-over-year growth in real personal income has stayed lower than it was at the beginning of each of the last ten recessions. In other words, this is what personal income growth typically looks like early in a recession.

Has personal income growth ever remained this low for three months without the economy going into recession? The answer is no.

There’s a fine line between declaring that a new recession is a done deal, a certainty, and arguing that a trend will continue and unleash a fresh round of contraction in the future. If ECRI’s recession forecast is correct, and it may be, then we will soon see clear evidence that all but confirms the prediction.

I’ve been looking for that evidence ever since ECRI first made its forecast back in September. So far, the confirmation in the data hasn't risen to the critical level, a point I've been making all along. In January, for instance, I said that there was still enough forward momentum in the economic data to expect that recession risk in the immediate future was relatively low.

Has this basic outlook changed? Yes, but only on the margins, based on the numbers in hand. Trouble may be brewing, but there’s a strong case for arguing that the data through March still aren’t weak enough to compel the National Bureau of Economic Research at some point to declare that a new recession began in that month. We don’t yet have a full reading on the April reports, but what is available to date doesn’t look dark enough to expect that NBER will date last month as the start of a slump either.

When the next recession does arrive, what signs will provide unambiguous confirmation? Professor Ed Leamer of UCLA, in an NBER research paper from 2008, outlined a simple gauge for judging the major turning points in the business cycle: "Monthly US data on payroll employment, civilian employment, industrial production and the unemployment rate are used to define a recession-dating algorithm that nearly perfectly reproduces the NBER official peak and trough dates." By that standard, the economy isn't likely to be in a recession as of April. As the chart below shows, each of the three indicators continued to post year-over-year percentage changes at levels that are associated with economic expansion.

You can find a degree of confirmation for the chart above in various business cycle indexes. The Conference Board’s Leading Economic Index, for example, continued to anticipate growth through March. And while the Chicago National Fed National Activity Index weakened in March, its three-month moving average was still "above trend," which suggests that a new recession isn’t imminent. The Philadelphia Fed’s Aruoba-Diebold-Scotti Business Conditions Index also looks sufficiently buoyant to raise doubts about expecting a new slump in the immediate future.

Another reason for keeping an open mind on the cyclical outlook until the data convince us otherwise is the message embedded in the output gap, or the ratio of real GDP to potential GDP (using a definition of potential GDP that's estimated by the Congressional Budget Office). "It is not a technical ceiling on output that cannot be exceeded," CBO explains. "Rather, it is a measure of maximum sustainable output—the level of real GDP in a given year that is consistent with a stable rate of inflation. If actual output rises above its potential level, then constraints on capacity begin to bind and inflationary pressures build; if output falls below potential, then resources are lying idle and inflationary pressures abate."

As such, when the ratio of real to potential GDP is above 1.0, that’s a sign that the economy is bumping up against its growth limit for the near term. On the flip side, readings below 1.0 are a signal that the economy has spare capacity. In the first quarter of this year, the ratio was far below 1.0, as the chart below shows. It’s also worth noting that nine of the last 10 recessions have started with readings above 1.0. A reading under 1.0 by itself doesn’t insure that the economy will remain recession-free. But a reading so far below 1.0, as it currently is, raises questions about anticipating a new downturn when the economy appears to have so much capacity sitting idle.

Ultimately, predicting a new recession and finding overwhelming statistical support for the onset of the event are two different things. This much is clear: if ECRI’s forecast is correct, we’ll soon see much clearer warning signs in the numbers scheduled for release in the days and weeks ahead, including tomorrow’s April update on retail sales, Wednesday’s release of industrial production for last month, and the Conference Board’s Leading Economic Index update for April.

The jury, it seems fair to say, is still out on what happens next for the economy. There are danger signs, but it’s not yet clear that the cycle is destined to succumb in the near term to contraction. Then again, maybe the data updates for the week ahead will disabuse us of this optimism.

● The Little Book of the Shrinking Dollar: What You Can Do to Protect Your Money Now
By Addison Wiggin
Summary via publisher, Wiley
The United States dollar is losing value at an alarming rate. According to the Organisation for Economic Co-operation and Development (OECD) index, the U.S. currency is 37 percent below fair value against the Australian dollar and 20 percent versus the Canadian dollar. The decline of the U.S. dollar is one of the biggest threats facing American investors today, but with the Little Book of the Shrinking Dollar: What You Can do to Protect Your Money Now in hand, you have the knowledge and the expertise you need to fight back.

● Quantitative Risk Management: A Practical Guide to Financial Risk
By Thomas S. Coleman
Excerpt via publisher, Wiley
The distinction I draw between risk management and risk measurement argues for a subtle but important change in focus from the standard risk management approach: a focus on understanding and managing risk in addition to the independent measurement of risk. The term risk management, unfortunately, has been appropriated to describe what should be termed risk measurement: the measuring and quantifying of risk. Risk measurement requires specialized expertise and should generally be organized into a department separate from the main risk-taking units within the organization. Managing risk, in contrast, must be treated as a core competence of a financial firm and of those charged with managing the firm. Appropriating the term risk management in this way can mislead one to think that the risk takers’ responsibility to manage risk is somehow lessened, diluting their responsibility to make the decisions necessary to effectively manage risk. Managers cannot delegate their responsibilities to manage risk, and there should no more be a separate risk management department than there should be a separate profit management department.

● The Road to Freedom: How to Win the Fight for Free Enterprise
By Arthur C. Brooks
Review via The Washington Times
In his revolutionary book “The Road to Serfdom,” German economist F.A. Hayek observed: “No sensible person should have doubted that the crude rules in which the principles of economic policy of the nineteenth century were expressed were only a beginning - that we had yet much to learn and that there were still immense possibilities of advancement on the lines on which we had moved.” Indeed, in the nearly 70 years since that book, scholars and “sensible” people alike have learned much about how a country can prosper and falter within the frame of a free-market economy. Arthur Brooks has learned a few things and, with a nod to Hayek, describes them in his new book, “The Road to Freedom.”

● The Taylor Rule and the Transformation of Monetary Policy
Edited by Evan Koening, Robert Leeson, and George Kahn
Summary via publisher, Hoover Institution Press
Twenty years ago, John Taylor proposed a simple idea to guide monetary policy. Quickly the idea spread, not only through academia, but also to the trading floors of Wall Street and the Federal Reserve's boardroom in Washington. Now, two decades later, the Taylor rule remains a focal point for discussions of monetary policy around the world. In The Taylor Rule and the Transformation of Monetary Policy, a veritable contributors' "who's who" from the academic and policy communities explain and provide perspectives on John Taylor's revolutionary thinking about monetary policy. From the Great Inflation of the 1970s through the Great Moderation of the 1980s and 1990s to the Great Deviation following the 2001 recession, the contributors analyze Taylor's influences on monetary theory and policy around the world. They explore some of the literature that Taylor inspired and help us understand how the new ways of thinking that he pioneered have influenced actual policy here and abroad.

● The Submerged State: How Invisible Government Policies Undermine American Democracy
By Suzanne Mettler
Review via Foreign Affairs
Over the course of the past century, the American state -- the sum of all government programs and policies -- has grown dramatically larger and more complex.... All this activity has generally improved and become intricately embedded in citizens' lives -- which is why attempts to cut the government back tend to be unpopular and unsuccessful. Yet many also feel that the government has started to overreach and that its costs and burdens are becoming unsustainable -- which is why bemoaning the extent and growth of the American state is also a perennial feature of political debate. This tension between the fact of a large, active state and doubts about its value is a distinctive feature of the American political scene. One consequence and driver of the contested legitimacy of the American state is the degree to which so much government work has gone underground in recent decades, far more than in other advanced industrial countries, which is the subject of the political scientist Suzanne Mettler's important new book, The Submerged State.

● Restoring Trust in Organizations and Leaders: Enduring Challenges and Emerging Answers
Edited by Roderick M. Kramer and Todd L. Pittinsky
Summary via publisher, Oxford University Press
The sinking public trust in contemporary institutions is a multifaceted phenomenon with political, sociological, economic, and psychological antecedents and consequences. Restoring Trust in Organizations and Leaders is the first volume to adopt the multidisciplinary approach required to understand this decline and to propose and assess remedies. Editors Roderick M. Kramer and Todd L. Pittinsky have assembled contributions from leading psychologists, sociologists, economists, and organizational theorists. In response to such blows to public confidence as the scandals in the Roman Catholic Church, numerous corporate accounting frauds, widespread retirement insecurity, the inadequacy of many school systems, and the failure of politicians in the United States and Europe to come to grips with the economic crisis, Restoring Trust offers a compelling and mind-opening mix of theory, examples, and practical prescription for the critical social problem of restoring public trust in organizations, institutions, and their leaders.

OPEC Says ‘Plentiful’ Global Oil Supplies Outpace Demand
Bloomberg | May 10
The Organization of Petroleum Exporting Countries said that global oil supplies are outpacing demand levels, keeping its forecast for world consumption this year unchanged. OPEC, scheduled to meet next month, is producing 8.3 percent more crude than it considers necessary this quarter, data released today by the Vienna-based group show. This has helped inventories in developed nations to reach “comfortable levels,” equivalent to about 59 days worth of consumption, according to an e-mailed report.

Oil futures fall in electronic trading
Marketwatch | May 11
“With Chinese gross domestic product set to improve over the coming months, as the government continues to ease lending requirements, we would expect oil demand growth to pick up, although the apparent consumption figures may remain depressed in the short term due to lower runs in the second quarter,” said commodity strategists at Barclays Capital.

CBO study examines policy options to reduce oil price volatility
Oil & Gas Journal | May 10
Policies that reduce the US transportation system’s heavy reliance on petroleum products would more effectively shield consumers from volatile prices and supply interruptions in the long term than simply increasing US production, a new Congressional Budget Office study concluded. Higher vehicle fuel efficiency requirements and increased motor fuel taxes might be easier to implement than developing alternative fuels and their necessary distribution systems, it suggested.... Increasing US production would put downward pressure on global oil prices once projects were operating, but several overseas producers, particularly members of the Organization of Petroleum Exporting Countries, likely would respond by trying to reduce their exports, the study said. More US production also would take pressure off consumers to move away from petroleum products for motor fuels, it added. A study by the Energy Security Leadership Council at Securing America’s Future Energy, which was released on May 8, reached a similar conclusion.

Domestic Oil Production Is Irrelevant To Oil Prices
Matthew Yglesias (Slate) | May 10
Gasoline is made of oil, so it sounds to a lot of people like if the United States produced more oil domestically that gasoline would get a lot chaper. But a new CBO report on gasoline prices contains this nice chart which shows that it's not so. Canada is a net oil exporter, Japan produces no oil, and the United States is a middle case. But it's Canada, not the US, that's in the middle case for retail gasoline prices. Why? The issue is that oil is a globally traded commodity, so oil isn't really any more expensive in importing countries than in exporting countries.

It’s also encouraging that the unadjusted year-over-year change in jobless claims continues to fall at a strong pace. Using last week’s numbers, claims are roughly 15% below the level from 12 months earlier. That’s near the biggest decline rate for the past year. The fact that the annual retreat continues at a robust pace implies that the labor market will continue to heal and so there's a case for arguing that the latest seasonally adjusted number can be dismissed as short-term noise.

“Part of the reason we’ve seen consumer spending hold up is because we’ve stopped seeing a large amount of layoffs,” Drew Matus, senior U.S. economist at UBS Securities, tells Bloomberg. “The general trend in jobless claims is lower.”

There's some reason to argue the point based on today's update, but the year-over-year decline rates largely trumps those worries. Nonetheless, the recent inability of the weekly seasonally adjusted numbers to poke down to new lows feeds concerns that the labor market's healing process is slowing.

Meanwhile, two large risk factors of late offer mixed messages these days as well. Oil (West Texas Intermediate) has fallen under $100 a barrel for the first time since February and that's helping to pull gasoline prices down. All things equal, lower fuel costs are always helpful for juicing the economy. The question is whether all things are equal these days. In particular, are the growth-boosting benefits of lower energy prices offset by the revival of euro risk.

One step forward, one step back.

“The initial-claims numbers are consistent with the notion that while the labor market is not as robust as December-February data suggested, neither does it appear to be in the process of falling apart,” says Joshua Shapiro, MFR's chief U.S. economist.

This relationship is clearer in a scatterplot graph of the two sets of GDP changes. The next chart illustrates how one-year percentage changes for NGDP fare against RGDP. It's not a perfect fit, but you'd be hard pressed to dismiss the connection as random.

For another perspective, the third chart looks at quarterly changes in the two series and the result shows that the connection is even stronger, as indicated by a slightly higher R-squared reading vs. the one-year comparison.

The message in history is that higher (lower) levels of NGDP are linked with higher (lower) levels of RGDP. On its face, this relationship appears quite robust. Why the debate? In a word, inflation, which determines the difference between NGDP and RGDP. Everyone recognizes the relationship between nominal and real growth, but there are questions about whether a central bank can push NGDP higher and what that means for RGDP. Actually, there's little doubt that the Fed's ability to engineer a higher NGDP. Thinking otherwise is to question a central bank's powers to raise inflation. Presumably, that point isn't in doubt. What is unclear, at least in the minds of some (most?) economists is the connection between a central bank's overt policy to push inflation higher for the express purpose of raising RDGP. The fear is that with a policy to raise NGDP, the Fed will unleash a permanently higher level of inflation.

There are also questions about whether NGDP that's "artificially" raised can meaningfully lift RGDP in the short term. David Andolfatto, a vice president at the St. Louis Federal Reserve, recently asked on his blog Macromania: "What is the theoretical underpinning for NGDP targeting? And what is the empirical evidence that leads them to believe that an NGDP target right now is a cure for whatever ails us right now?" Economist David Beckworth responds that "David Andolfatto Can Feel More Confident About NGDP Targeting" by reviewing the case in favor of the policy as outlined by Beckworth and others of his persuasion.

Meanwhile, James Hamilton considers the possibilities with targeting a higher NGDP, but is still worried about the "logistics" and so he is "convinced that it is a mistake to ask too much from monetary policy." Scott Sumner counters that Hamilton's concerns are misguided.

And so it goes. But it's all academic unless Bernanke and company undergo an attitude adjustment. On the surface, it seems like the Fed chief would be a natural supporter of NGDP targeting. As Paul Krugman recently reminded, Bernanke wrote papers in favor of the idea. Of course, it's one thing to explore monetary policy as a professor and quite another to weigh the pros and cons of a given policy as the head of the central bank for the planet's largest economy. Noah Smith explains:

I think Bernanke is dealing with a severe case of model uncertainty. Think about it. A professor's job is to say "Here is a way the world might work." A policymaker has to say "OK, I am going to act as if the world works this way." The latter requires a LOT more faith in the model's correctness than the former. It seems highly likely to me that Fed Chairman Bernanke does not believe in Professor Bernanke's theories enough to make big bets on them.

Empirical facts, it seems, only go so far in monetary affairs. "The more I read about monetary policy," Smith writes, "the more convinced I become that humankind does not really understand it very well." Smith continues:

The fact is, we just don't know what monetary policy is the best. Maybe QE is a good idea (I think it is!). Maybe a rule like NGDP level forecast targeting is a good idea (I am skeptical but it doesn't sound too bad). Or maybe the amount of QE needed to produce a noticeable movement in employment is so huge that it really would cause serious inflation. Maybe monetary policy operates with "long and variable lags," as Milton Friedman suggested, meaning that it's very difficult for the Fed to know the consequences of its actions. I am not economically illiterate. I can easily find, read, understand, and explain a paper supporting any of these contentions. But at the end of the day I'm willing to bet you that I won't really know how right the paper is. At best, my opinions will probably only have shifted slightly. I am guessing this because I've never read a monetary policy paper that convinced me that "OK, this has got to be how the world works."

So I think that Ben Bernanke has been paralyzed into inaction by the realization that, his academic papers aside, he doesn't really know if QE would be good or bad.

That may or may not be true, but until (if) Bernanke changes his mind about policy, it's (still) all academic.

Optimists will say that the stock market has yet to confirm the recent drop in inflation expectations. Although the S&P 500 has fallen from its recent highs, there’s nothing particularly ominous about the mild retreat, at least so far. But viewed through the prism of rolling one-year percentage changes, the market’s behavior looks less reassuring.

As a quick digression, negative returns in the stock market on an annual basis tend to be associated with recessions. It’s a flawless relationship in the sense that the onset of every recession in the past 50 years has been a) preceded by a negative annual return or b) the market’s return sinks into the red early on in the economy’s downfall. The problem is that the market sometimes goes negative on an annual basis without a new recession.

In any case, the market is still positive relative to its year-earlier level, but not by much. No one will be encouraged by the sharp descent of late in the S&P’s annual performance. As the second chart below shows, the market is moving dangerously close to the zero mark. For the first time since January, the S&P 500’s year-over-year price change is under 2%.

The antidote is stronger economic news. Unfortunately, that’s been in short supply lately, judging by last week’s update on U.S. jobs growth. But the case for thinking positively isn’t doomed yet. The sharp drop in jobless claims at the end of April holds open the possibility that the labor market will strengthen this month. We’ll know soon enough, but for the moment there’s a bit more doubt about what comes next.

Bremmer is the president of the Eurasia Group and a keen geopolitical analyst. In his latest book, he argues that the world is headed for a period for a "tumultuous transition" that's bereft of the leadership that used to prevail when the U.S.-centric club of nations—the so-called G7, which evolved into the G20—kept the international system humming and put out the fires, or at least kept them from burning free. But those days are gone and "we have entered a period of transition from the world we know toward one we can't yet map." He writes that

This is not a story of the decline of the West or the rise of the rest. In years to come, none of these players will have the power to bring about needed change. The G20 doesn't work, the G7 is history, the G3 is a pipe dream, and the G2 will have to wait.

Welcome to the G-Zero

What's the G-Zero? "A world order in which no single country or durable alliance of countries can meet the global leadership."

Bremmer's argument is laid out in breezy fashion, covering the waterfront of macroeconomics, politics and international relations. It reads like an extended op-ed than with footnotes. But his view is certainly persuasive, in part because he provides numerous examples of how the geopolitical world order is evolving and what it means for the future.

For instance, the prediction by some that the rise of emerging markets will fill the vacuum left by a debt-laden U.S.-Europe-Japan power system may be expecting too much. As Bremmer explains, "the BRICS [Brazil, Russia, India, China, South Africa] countries now hold summits and talk publicly of shared interests, but there is much less to their partnership than meets the eye."

These countries don't have much in common beyond a shared desire to increase their international influence and to limit the ability of established powers to impose their will on everyone else. China and India are among the largest energy importers. Brazil and Russia are among the world's most important energy exporters, giving them a very different view of policies and events that push crude oil prices higher. China and Russia are authoritarian countries that face internal ethic and religious challenges to their territorial integrity, while India and Brazil are genuine multiparty democracies with governments that must weigh the need for sometimes painful reforms against frequent fluctuations in public opinion. China and India are rivals for influence in South Asia. China and Russia compete for influence in Central Asia—and in Russia's Far East. Brazil is the only BRICS country that lives in a relatively stable region. China, India, and Brazil each have far more trade with Europe and the United States than with Russia. South Africa, admitted to the group in December 2010, has virtually nothing important in common with any of them.

Do you see the obvious implications that flow from that multi-dimensional matrix of incentives, conflicts and challenges? Neither do I, and I suspect that it's going to be hard for most folks to figure out what's relevant, what's not, and how to tell the difference. In fact, real-time events only strengthen Bremmer's argument. For example, the latest political upset in the "revolt against austerity, cuts" in Europe is yet another sign that the rise of G-Zero world has momentum. Indeed, the triumph of Francois Hollande in the French presidential election threatens to complicate the tension between Paris and Berlin as the Continent struggles to solve its ongoing euro crisis and balance Germany's preference for austerity with France's new-found preference for fiscal stimulus. A similar conflict looks set to roll on for policymakers in the U.S., where divided already government reigns supreme and the possibility (likelihood?) of an extended run awaits after the November elections.

To the extent that geopolitics influences markets (and it does), investing isn't going to get any easier in the years ahead. Geopolitical risk is almost certainly on the rise, and for lots of different reasons. True, it's a different type of risk compared with the Cold War, but it's a risk nonetheless. More importantly, it's much more of a multi-faceted risk, which means that there are probably a lot more unknown unknowns out there.

The fact we live in a multi-polar world is no surprise at this late date. But as Bremmer's book reminds, the multi-polarity may be even more nuanced and byzantine than we thought just a few years ago.

It's easy to see a G-Zero world as favorable for investment opportunities, but it's also a world filled with new and uncertain risks. That's good news for talented managers who have the brains and the resources to navigate the shifting landscape. Well-run global macro strategies, for instance, may be well-positioned to exploit the world ahead. But history suggests that most investors (and institutions) will still have a tough time beating a benchmark of all the major asset classes. That's been true for the past decade, as my recent review of the Global Market Index vs. multi-asset class mutual funds shows. Bremmer's books implies that we should expect more of the same. In fact, if his worldview is correct, and I think it's largely on the money, then the competitive profile of broad-minded asset allocation with simple rebalancing rules is going to remain a tough act to beat. Perhaps that's the only constant you can count on when it comes to investment strategy.

Occupy the Philly Fed!
Keystone Politics | May 2
[Charles Plosser] is the President of the Philly Fed, and he has used this position to stop the Federal Reserve from taking more action to get the economy back to full employment. The good news is that Plosser’s 5-year term is up at the end of 2012, so there’s *some* chance his replacement will care more about full employment. The bad news is this chance is very small, since the new President will be appointed by a Board whose members are mostly selected by the banks in the district.

Federal Reserve draws legislative fire from both sides of the aisle
The Hill | May 6
Along with Paul’s bill to eliminate the Fed, two other Republican measures to be discussed are being offered by Reps. Brady and Mike Pence (Ind.). Pence’s bill, which he also introduced in the last Congress, would cut the Fed’s mission in half. Since 1977, Congress has handed the Fed a dual mandate of maximizing employment while controlling inflation. Recent steps taken by the Fed in pursuit of the former goal, like near-zero interest rates and two rounds of “quantitative easing,” have earned recriminations from Republicans, who worry the moves could be encouraging inflation.

How the Next President will get to Re-Shape The FED
LearnBonds | April 2012
If Mitt Romney is elected President, his appointments to the Federal Reserve Board will likely be far more hawkish than Obama’s. Two of his leading economic advisers, Glenn Hubbard and Greg Mankiw are both seen as hawks. Mr. Mankiw wrote an academic paper in 2001 which laid out a formula for an ideal fed funds rate. According to RBS, his formula would indicate that the Fed Funds rate should rise to 0.8% by the end of 2014. This would be an increase of ⅔ percent from the current target of 0.0 to 0.25%.

● Every Nation for Itself: Winners and Losers in a G-Zero World
By Ian Bremmer
Adapted excerpt via The Wall Street Journal
We have entered what I like to call a "G-Zero" world: one in which no single nation (not even the U.S.) or alliance of governments (certainly not the G-7 or G-20) possesses the political and economic muscle to drive an international agenda. In this new decentralized global order, growth isn't enough. A country also must have resilience—the power to pivot. Which countries are best positioned to pivot deftly in this emerging world order? Brazil, which recently surpassed Britain to become the world's sixth-largest economy, has many promising advantages. With a middle class of more than 100 million, it is home to Latin America's largest consumer market. Its government, led by a party of the left, has established a national consensus in favor of market- and investor-friendly economic policies. Though huge offshore oil discoveries in 2007 ensure that the country will become a leading energy exporter, its economy is well diversified.

● MoneyShift: How to Prosper from What You Can't Control
By Jerry Webman
Excerpt via publisher, Wiley
What has changed? What was so aberrant about the Great Moderation that today we can understand it as an anomaly and be pretty sure that it will not come back—at least not where and how it once resided? What went on in that quarter century that made it so very easy for so very many people to become financially successful in a way that was simply not possible before or since? The answer is that there was a financial vaccine that kept the Great Moderation going, and now, like an antibiotic up against a resistant strain of bacteria, that vaccine has lost its potency. The vaccine’s name? Debt. The doctor administering the vaccine? The Federal Reserve.

● The Big Win: Learning from the Legends to Become a More Successful Investor
By Stephen Weiss
Summary via publisher, Wiley
In his first book, The Billion Dollar Mistake, author Stephen L. Weiss showcased the biggest blunders of some of the world's legendary investors—which lost them billions of dollars on a single investment. Incredibly, the mistakes they made were the same mistakes made by everyday investors but for the magnitude of the loss. Weiss's second book, The Big Win: Learning from the Legends to Become a More Successful Investor, highlights financial successes, explaining how the world's most successful investors make a fortune and how you can do the same. As with the missteps Weiss profiled in his first book, the strategies used by these legendary investors are available to all, regardless of size or sophistication.

"It’s a pretty sluggish report over all," Andrew Tilton, a senior economist at Goldman Sachs, tells The New York Times. Julia Coronado, chief economist for North America at BNP Paribas, opines that “the labor market is gradually improving, but I wouldn’t want to call it strong by any stretch. I don’t think this is reassuring for the Fed, though it’s not catastrophic either."

Meanwhile, government employment continued to decline, shrinking by 15,000 after March’s 12,000 retreat. Some analysts worry that the ongoing contraction in the public-sector workforce is becoming a substantial economic headwind.

As for the trend in private payrolls, today's update offers no reason for celebration but there's nothing unusual in today's report relative to recent history either. Granted, payrolls growth is at the lower end of the range for the past year or so. That may be a sign that the economy is weakening, although it's not beyond the pale for arguing that the last two months are just statistical noise and that better news is coming. Indeed, yesterday's large drop in new jobless claims feeds hope on that front.

In any case, analyzing the labor market requires a sober dose of managing expectations these days. It's crucial to distinguish between an unrealistic outlook that disappoints and recognizing that the economic recovery is mild relative to recoveries in decades past. It's hard to tell the difference sometimes, but clarity is coming.

“People say the economy is broken,” James Paulsen, chief investment strategist at Wells Capital Management, tells Bloomberg BusinessWeek's Peter Coy. “It’s not. This is the New Normal. And the New Normal is 25 years old.”

Economy's Biggest Drag Right Now Is Government
Eileen Appelbaum (CEPR) via US News | April 27
The economy needs to grow by at least 2.5 percent just to keep unemployment from rising. Thus this latest figure on GDP growth does not auger well for the job market, which has seen a steady rise over the last few weeks in initial unemployment claims. In the face of weaker demand, Investment spending by business is slowing. Cutbacks in government spending at the federal as well as state and local levels are already hurting GDP growth. In the absence of federal revenue sharing with the states--the first time the federal government has not had such a program when unemployment is above 7 percent--state and local government expenditures have fallen for seven consecutive quarters.

Economy's Biggest Drag Right Now Is Government
CNBC | April 27
Government has become its own worst enemy when it comes to the economy, with public spending putting a damper on growth that otherwise continues at a steady if unspectacular pace.... Before anyone starts thinking that Washington suddenly has gotten religion on spending, the bulk of the federal government cuts came from defense spending, which plunged 8.1 percent.... Government policymakers, then, face a dicey dilemma: Continue spending and risk falling further into the fiscal abyss, or cut back and deal with a prolonged future of uninspiring GDP numbers. "The dagger (from the GDP letdown) came from a second straight steep drop in federal government spending due to plunging defense outlays," observed Pierpont economist Stephen Stanley. "Boy, wait until these budget cuts start to kick in."

Defense Spending Plummets under Obama’s Budget
Heritage Foundation | May 2
Last night, President Obama visited Afghanistan and stood on the shoulders of the U.S. military to trumpet his foreign policy. But that military is being eviscerated under the president’s budget cuts, creating a hollow force and exacerbating today’s readiness crisis. Since President Obama took office, more than 50 major weapons programs at a value of more than $300 billion were cut or delayed. On top of this, the Administration told the military to cut almost $600 billion more over the next 15 years. And that’s before any cuts under the Budget Control Act take place.

Economy in U.S. Grew Less Than Forecast in First Quarter
Bloomberg | April 28
Gross domestic product, the value of all goods and services produced in the U.S., rose at a 2.2 percent annual rate [in the first quarter] after a 3 percent pace, Commerce Department figures showed yesterday in Washington... Government spending fell for a sixth straight quarter.

Economy slowed to 2.2% growth rate in Q1
USA Today | April 27
The economy grew at a 2.2% annual rate in the first quarter, the government said today, as a pickup in consumer spending was partly offset by shrinking government spending and sluggish private investment... If government spending had been unchanged in the quarter, the economy would have grown at a 2.8% rate, [said Joel Naroff, president of Naroff Economic Advisors] said.

Real Government Consumption Expenditures & Gross Investment
St. Louis Fed/U.S. Department of Commerce: Bureau of Economic Analysis

The fact that exactly one year ago there was a similarly outsized decline in new claims implies that the seasonal adjustment factor for the series may be misleading us. But this charge is softened considerably when we look at the raw, unadjusted figures on a year-over-year basis.

As the second chart below shows, new claims fell last week by more than 20% compared with the year-earlier week--the steepest retreat since February 2011.

The overall message is that the labor market isn’t on the precipice of disaster. The slowdown in job growth reported in the March payrolls report, and a repeat performance in ADP’s estimate of employment changes in April, can’t be dismissed. But today’s jobless claims news is a reminder that it’s premature to say that the labor market is doomed.

The encouragement is timely as it will help us interpret tomorrow’s payrolls report for April from the government. Analysts are expecting a relatively weak rate of growth, which isn’t terribly surprising after yesterday’s ADP estimate for last month. But the jobless claims news holds out the promise that the May payrolls report will show stronger growth.

“The [jobless claims] numbers allay some concern that the labor market is deteriorating,” says Brian Jones, a senior U.S. economist at Societe Generale.

"This offsets the concerns from yesterday's ADP number," advises Phil Flynn, a senior market analyst at PFG. "You're getting mixed signals...It might not be as bad as we were thinking after ADP."

Overall, the case for expecting moderate growth still stands. The trend has been a bit wobbly lately, and it wouldn't be a shock to see more of the same in limited doses via the economic news in the weeks ahead. But the weaker-than-expected data was never broad enough, or deep enough to throw optimism out the window.

"The question is where is the trend going forward?" notes Brett Ryan, U.S. economist at Deutsche Bank. "We think the labor market continues to remain healthy and we expect claims to edge lower."

The bottom line: we've yet to see widespread, sustained deterioration in the economic data generally, which suggests that Ryan's moderately bright outlook sounds about right. The numbers may eventually tell us otherwise, but for the moment there's no overwhelming case for thinking that moderate growth has been hijacked.