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US Economy: Why Obama's economic recovery is impressive

We can easily identify some huge differences between the conditions that Obama inherited and what Reagan inherited.

Fed keeps interest rates near zero until 2014

The Federal Reserve does its part to help the US economy. Again.
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The US Federal Reserve Building in Washington, DC, on Oct. 28, 2008. (Win McNamee/Getty Images)

The Federal Reserve is doing its best to do nothing.

That's the quiescent word out of Washington, D.C. today, as Ben Bernanke and team said they would leave US interest rates at "exceptionally low levels at least through late 2014.”

While noting some improvement in the overall labor market, the Fed gang pointed to a still-high unemployment rate, as well as the weak housing market and slowing business investment.

So it'll try to keep things going in the world's largest economy, by keeping rates low.

Here's the money quote, pulled from the latest Federal Open Market Committee notes:

To support a stronger economic recovery and to help ensure that inflation, over time, is at levels consistent with the dual mandate, the Committee expects to maintain a highly accommodative stance for monetary policy. In particular, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.

But, as usual, I prefer my economic arguments in easy-to-digest rap form.

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Obama SOTU speech connects on the economy

Swing voters liked the economic fairness message, anyway.
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US President Barack Obama addresses the nation on Jan. 24, 2012. (Screengrab)

President Barack Obama's State of the Union speech last night was clearly designed to kick off his 2012 reelection campaign by framing his eventual Republican contender — whoever that might be — as a heartless economic Darwinian. (Check out this smart New York Times analysis by Mark Landler that expounds on the point). 

But by making economic equality the centerpiece of his address, Obama was a hit last night with swing voters — those people critical to his success or failure in November.

That's the read, at least, from Democratic pollsters Democracy Corps.

Check out this chart, which shows what swing voters thought of last night's message.

Source: Democracy Corps

Those are some pretty good results, no matter how you cut it. The 24-point swing on the middle class point is particularly arresting. 

Of course, economic fairness is a theme that loyal Macro readers will find familiar.

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America leading the world in debt deleveraging

The US is leading its peer countries in cutting total debt. Here's why that matters.
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(Bay Ismoyo/AFP/Getty Images)

The United States is cutting its debt. Well, the private sector is, anyway.

That's one key takeaway from an interesting report released today by The McKinsey Global Institute on how economies around the world are handling their debt problems that resulted from the 2008 global credit bubble and subsequent financial crisis. 

The US now leads the world's 10 largest countries in cutting its total debt, the report states. South Korea and Australia are the only two other countries where the ratio of total debt (private and public sector) has fallen relative to GDP.

It's an important stat, as McKinsey points out, because lower private debt often clears the way for economic growth, which in turn allows for public debt levels to eventually come down, too.

Here are the report's money quotes on how things are shaking out in debt-ridden America:

Debt in the financial sector has fallen back to levels last seen in 2000, before the credit bubble, and the ratio of corporate debt relative to GDP has also fallen. US households have made more progress in debt reduction than other countries, and may have roughly two more years before returning to sustainable levels of debt.

Two risks remain that could derail the deleveraging trend, McKinsey warns:

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Orange juice prices hit record high

Cold weather in Florida and safety concerns about juice from Brazil are driving the price of orange juice to a record high.

US auto industry expects profits in 2012

At this week's Detroit auto show, experts say the American auto industry is on the road to recovery

Decoding Ben Bernanke and the Fed: What is money, anyway?

The answer is not as simple as you think.
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(Bay Ismoyo/AFP/Getty Images)

Hooray for Jon Hilsenrath, the Wall Street Journal's chief economics correspondent.

Hilsenrath has done the world a favor by writing this must-read story on the Journal's excellent Real Time Economics blog: "What is Money and How Do You Destroy It?"

It's 2,129 smart, well-researched and deeply-reported words that anyone who's interested in how the economy really works should read.

In it, Hilsenrath deconstructs the many Republican presidential candidate criticisms of Fed Chairman Ben Bernanke's policies, which Newt Gingrich calls "the most inflationary and dangerous in history."

But he also delves into deeper historical, philosophical and economic questions such as:

What is money? (It's a medium of exchange).

How much money is out there, and what's it worth? (It's complicated as the vast majority of money in the US economy isn't paper or coins, but rather "a bunch of zeroes and ones, electronic accounts in computer systems that tally who owes what to whom," Hilsenrath writes).

How to know whether all the new electronically generated money is destroying the dollar? (The dollar's value has been "on a roller coaster" since the 2008 Great Recession, and today it's worth just about the same as it was just before the collapse of Lehman Brothers). 

How has inflation fared under Bernanke's Fed? ("Inflation might take off and wreck the purchasing power of a dollar. But official statistics suggest it hasn’t yet happened," he writes).

The piece ends on a cautionary note about the dollar's more recent value, and as the point bears remembering I'll quote Hilsenrath in full:

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US-China: Hints of a trade war?

China will impose punitive duties of up to 22 percent on large cars and SUVs exported from the US.
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A model relaxes her foot beside a Buick during the Auto China 2008 show April 20, 2008 in Beijing, China. (Feng Li/Getty Images)

This is not what the fragile global economy needs right now. And it's certainly not what fragile Detroit needs, either. 

China's Commerce Ministry today said that it is imposing tariffs on large cars and SUVs exported from the United States.

Those duties could be as much as 22 percent, Reuters reported. And they will be tacked on to an existing 25 percent tariff that's imposed on US auto exports in China.

Reaction by US lawmakers has been, not surprisingly, swift:

"China relentlessly breaks international trade rules and seeks to gain an anti-competitive advantage over our companies and workers. America must be equally relentless in fighting back," said Sen. Debbie Stabenow, who represents Michigan.

Stabenow wants the USTR to take action. Four US House of Representative members agree, and called Beijing's move "unjustifiable" and "one more instance of impermissible Chinese retaliation against the United States and other trading partners," according to Reuters.

This latest trade mash-up comes at a particularly bad time for Detroit as US automakers have been aggressively targeting China, the world's biggest market for autos.

More from Thomas Mucha: Can China save General Motors?

But auto sales in China have slowed dramatically, so Beijing is stepping in to protect its homegrown industry.

“The move shows that China is always capable of intervening politically in its markets,” Urgent Pepper, an analyst with Bankhaus Metzler told Bloomberg. “The automobile industry is very dependent on China for growth, and there's doubts about the pace of future expansion.”

Today's spat is also part of a longer-running auto trade fight between the world's two largest economies.

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Federal Reserve leaves US rates unchanged

Will they? Won't they? They won't.
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Federal Reserve Chairman Ben Bernanke on Capitol Hill July 21, 2010, in Washington, DC on July 21, 2010. (Brendan Smialowski/Getty Images)

Forget Europe's pending euro meltdown, China's manufacturing slowdown and the general economic unease spreading across most of planet Earth.

It appears that the US economy is doing just fine. 

That's the signal, anyway, from the US Federal Reserve, which today decided against cutting interest rates or doing much else to stimulate the US economy. 

The nation's employment and inflation watchdog says it is leaving short-term interest rates at near zero.

Why?

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