Saturday, April 29, 2006

The US economy

There is good news and bad news.

There are 'good productivity figures'.

The economy is 'a low tax economy'.

There was 'strong growth' in 2005.

Interest rates are 'historically low'.

US property prices are about half the level in the UK.

Consumer assets have been growing as fast as consumer debt. Most consumers are 'not very stressed financially'.

The trade deficit is not a problem so long as money continues to come in from Asia.

But

Companies such as General Motors and United Airlines are having problems.

The Japanese and Europeans 'produce better cars' than the Americans.

Oil prices are soaring. This hurts parts of the economy.

Worldwide, there is allegedly some reluctance to buy American products. This is the Iraq-effect.


There have been scandals at Enron and WorldCom.

There is a growing gap between rich and poor. Executive pay has soared.

There may be a housing bubble in certain areas.


According to economic commentator Kurt Richebacher, the cause of the trade deficit is the low levels of savings and capital investment in the USA.

If money stops flowing in from countries such as China and Saudi Arabia, then there is a big problem.

Writing in the Financial Times in December 2004, Barry Eichengreen pointed out that at current exchange rates the US current account deficit was on an “explosive path” and set to widen from its current level of between 5 and 6 percent of US gross domestic product (GDP) to 8 percent by 2008 and 12 percent in 2010.

Eichengreen suggested that deficits of this size could not continue to be financed indefinitely through the inflow of foreign capital. At some point foreign investors “would pull the plug, and the dollar and the US economy would come crashing down.”




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