Yesterday, we talked about the big picture and why the longer-term outlook for the U.S. is actually quite bright. I mentioned in passing that there are some shorter-term risks between here and there, and I wanted to spend some time today catching up on those.

The big one in the papers today is China. As you know, I’ve been very concerned about China for a long time. Most recently, I wrote about the decline in wage competitiveness and about some of the risks to the financial system, discussing in both posts the increasingly tense regional security environment in Asia.

Many of my posts over the past several weeks have focused on immediate, here-and-now issues—or, at most, ones we’ll be seeing over the next couple of months. With summer here (finally!) and sunshine cheering me up, I thought I’d take another look at the medium- to long-term future—which was good the last time I looked, about two years or so ago, and which has since gotten even better.

Two years ago, when I first gave a presentation on the longer-term outlook for the U.S., I identified several key issues: capital, raw materials/resources, manufacturing, energy, geography, markets, and labor. The U.S. was in a relatively superior position compared with its competitors in all of those areas, except for capital.

This is the last piece (for the moment) on the reemergence of price discovery in the market and what it means. We have talked about how market-based pricing of interest rates may affect the fixed income and stock markets, but what about other areas? And what about the wider effects of the retreat of central banks from economic manipulation?

Yesterday, I wrote that rising interest rates are the result of investors trying to discover what the real, market-set interest rate levels might be once the Fed starts pulling back from its stimulus program. Rate-setting by the Fed will be replaced by rates set by the market—and no one knows what they will look like.

What we do know is that rates will be higher. After all, if you remove a significant buyer from the market, demand will go down and so will prices. Lower prices for bonds will mean higher interest rates. What no one knows is exactly how much higher.

— Guest post from Peter Essele, senior investment research analyst

After the strong sell-off recently in the closed-end market, I figured it’s a good time to revisit an ongoing theme we’ve covered.

There have been two big stories in the markets recently: rising interest rates and stock market volatility. I think these two themes are actually connected by a deeper factor—the reemergence of price discovery in the financial markets—and it is that we should be focusing on, as the underlying story will drive future developments.

Price discovery is the prime function of markets. The idea is that, in a free market with willing buyers and sellers, the price that emerges will reflect the actual, most economically efficient allocation of resources. When markets are not free, the price that emerges won’t necessarily result in economic efficiency.

One of the sectors that investors are looking at closely now is financial services. The idea is that, as the economy recovers, banks and other such companies will be well positioned to profit. In fact, the argument goes, they will be well positioned to return to the profit levels of the mid-2000s.

It was a year ago that we launched this blog, and I thought it would be interesting to consider how the world has changed since then. Day to day, changes may be small, but, over a year or more, they can add up to something much bigger. (I’m going to try something different with this post and say it mostly with charts. Let me know what you think in the poll at the end of the post.)

Employment and wages

I really like Amsterdam. I’m not sure exactly what it is, but I’ve never taken to a city like I have this one. Part of it is just that the city seems to work. The trams run on time and have an easily understood layout. The streets and canals are reasonably clean. The people are all clean and healthy, at least as far as I saw. They are also, by and large, courteous and helpful to the traveler.

Another plus was the weather. We really lucked out—it was sunny, warm, and pleasant the whole time. There were lots of very nice playgrounds, which got the five-year-old-boy vote. And there were small boats for rent on the canals, another bonus for Jackson.

— Guest post from Sean Fullerton, investment research analyst

Every so often, articles surface about the rising level of student loan debt and the risk it poses to the economy. The implication is often that the crisis brought on by excessive mortgage lending could be echoed by a similar crash in education-related debt. To examine these claims, let’s first look at some scary figures surrounding student loan debt.