Both the US and Japan are now creating jobs. This will provide enough wage income to sustain the excesses of the world economy a bit longer. President George W Bush and Federal Reserve chairman Alan Greenspan have succeeded in doing what I once thought they could not do ? push a monetary string stiff as a drive shaft, linking free money to jobs.
Free money and profligate fiscal policy have also inflated financial assets and kept housing bubbles bulging. And low interest rates have made household debt mountains sustainable in the short term. The consumer has responded by spending tax refunds and borrowing some more. So demand has grown.
The missing link was always whether wage income ? the product of job creation and hourly rates ? would recover. Given pricing pressure from China and India, I thought it would not. Without the wage income link, the whole Bush-Greenspan strategy would ultimately have to fail. In the final analysis, more income is needed if households are to finance more borrowing and more consumption.
But now the jobs are there. And so too is a lot of other bullish stuff like US disposable income, which is rising nominally by more than 4%, excluding tax rebates.