Global Economy: The U.S. will have to lead the world out of recession.
U.S. Economy: Recovery may mean self-fulfilling prophecy of inflation.
Business Costs: USPS will go high tech and yet rates will rise anyway.

Global Economy
The U.S. led the world into a recession.
And it will have to lead the way out as well. With a few notable exceptions, everyone else is waiting. That’s a vicious circle that prolongs the slowdown here.

Consider hard-hit Canada and Mexico, which are the U.S.’ two biggest customers. Four-fifths of the exports from these two neighbors are bought by the U.S., their big partner in NAFTA.
Their only hope is for U.S. demand to recover.
Canada depends on the U.S. to buy its oil, natural gas, electricity, timber, and other raw materials.
And Mexico relies on money from the U.S.:Cash sent home by family members who immigrated and tourist dollars … both down significantly this year. Many companies in both countries depend heavily on cross-border supply chains for manufacturing.

Europe is even worse off, with many nations stuck in recession until late 2010. Germany’s economy won’t show growth until the global trade slump ends. The U.K., France, Spain, Ireland, and others still suffer from burst housing bubbles, which hurts consumption. Unemployment will be even worse than in the U.S. And it’s far from clear that banks in Europe have cleaned bad debts from their books. A bank crash in eastern Europe is still a risk, with big consequences for parent banks in the euro zone and beyond.
For Russia, this could very well be the tip of a long-term decline. Due to its over-reliance on energy exports, its failure to develop its infrastructure, and frequent Kremlin interference in the economy, Russia’s finances are a mess. Bad loans paralyze its banks, and despite recession, double-digit inflation persists. Russia’s working age population will drop by 1 million a year over the next decade. Its sustainable growth will be much lower coming out of the recession than before.
Japan’s nascent recovery may only be leading to a double dip recession. It depends on consumption that will dry up when its stimulus runs out in December.

A few nations … China, India, and Brazil … have already turned the corner.
China is now growing rapidly because government spending is paying off, with lots of rail and rural construction. Beijing’s low debt also allows more stimulus if needed, and banks, which are state controlled, have no choice but to keep lending.
China’s hunger for parts and raw materials will help emerging markets in Asia, Africa, and Latin America, but imports are too modest to help the U.S. much.
India and Brazil will jump ahead soon, too. Tax reforms will boost spending, strengthen revenue collection, and reduce the cost of doing business in both nations.
Plus, in India, spending on rural infrastructure will increase, adding to GDP growth.
But these limited gains won’t be of much help to the U.S. anytime soon. Neither exports nor foreign direct investment will speed up America’s recovery.

U.S. Economy
There’s no great worry about inflation, at present, despite the 0.7% jump in the June Consumer Price Index … a whopping 8.4% on an annualized basis. It reflects a big gasoline price hike that actually began in May but didn’t show up then because of the way the index is adjusted to account for seasonal buying trends. That’s also why, despite a drop of about a dime a gallon in the national average price of gasoline in two weeks, the July index may register another energy induced surge.
For the rest of the year, consumer prices should be essentially flat, though, leaving inflation for the year at about 1.5%, measuring Dec. 2009 over Dec. 2008.

Not so, next year. With the economy coming out of recession in 2010 and a federal budget deficit soaring over $1 trillion, inflation is sure to worsen.
Consumer and investor expectations of inflation are of even more concern. They’re already on the rise: A recent University of Michigan survey found consumers expect 3% inflation a year from now … well above the Federal Reserve target of 1%-2%.
The fact is, anticipating inflation can actually bring about the real thing … a self-fulfilling prophecy. When businesses expect costs to rise, they hike prices. When workers figure household bills are headed up, they seek raises. And investors who fear that inflation will erode their bond values insist on higher interest rates.
That’s why the Fed is determined to dampen expectations of inflation, assuring all who will listen that it will act quickly and decisively to curb price hikes. For now, while the economy is weak, the Fed wouldn’t dream of raising interest rates. Down the road, when the economy starts to pick up a good head of steam … count on it.

Business Costs
Are we headed to a high-tech e-postal service? It’s at least a fair bet, with the U.S. Postal Service facing a $7-billion loss for this fiscal year and little or no prospect of pulling itself out of the sea of red ink anytime soon.
USPS may be forced to scan and send mail electronically within a few years. That’s what the Swiss do now, and apparently most mail recipients and senders like it. With mailers’ approval, the Swiss Post scans in letters and bills, then delivers them via secure electronic mailboxes. Delivery of hard copies can be requested. At a cost of just a fraction of a cent per scanned piece, the model has a lot of appeal, especially for businesses that rely on snail mail now … either because their volumes don’t justify taking on e-billing themselves or their customers aren’t interested.

Postal unions would squirm, fearful of losing thousands of jobs. But ... they also know that year after year of deficits would doom the union to a slow death.
In the meantime … another big hike in the cost of a first-class stamp, to 50¢ from 44¢ now. Better than even odds that regulators will approve an emergency jump next year, as USPS mail volumes continue to slump and revenues continue to shrink.