The dire predictions for the US economy from the British papers are interesting, if you are into disaster scenarios. But they do seem extreme. Why would the global economy shift to slam the dollar when so many economies rely on the dollar for value? And when they have much of their wealth in dollars?
A lot of economic and political stability depends on the strength of the US economy, and especially the spending habits of the American public. That spending heyday lifted the world from what could have been a serious depression.
Another angle is where else will people put their money, if not the US? What other currency or country provides the solid and stable investment environment that people can put their money in?
The real estate market is so obviously overvalued that even t.v. commentators are noting it. How will it steady itself? In DC, the last real estate boom was followed by stagnant prices for 12 years. That's not so bad. A halting of the market would put a damper on US consumer spending,
but not cause a recession-like contraction. However, the foreign suppliers of our goods would feel the pinch. Further, if our national savings rate gets back to where is used to be, there would be a further decline in US consumer spending.
But the party has to end sometime. US consumers are NOT saving. They are debting badly. And that debting is being financed by other countries' willingness to buy US bonds. What can change this in a way that won't cause dangerous repercussions for everyone?
As a note: Econo-Girl has been getting complaints about neglecting the Chinese currency valuation issue. I don't see any changes coming in that arena soon. China is getting the benefit of US consumers buying its goods. Why would they do anything to alter that? So they won't. They will hem and haw, and sometimes feint to give us false hope, but they will do nothing
because no one is making them do anything. And no one will for some time.
1 comment:
Thanks econo-girl for writing another entry. I liked what you said about the British predictions and the real estate market. I hope that you will be writing in a more regular manner from now on :)
Your prediction about China is risky and goes against conventional wisdom. However, you had done that in the past and you were right.Thanks econo-girl for writing another entry. I liked what you said about the British predictions and the real estate market.
Your prediction about China is risky and goes against conventional wisdom. However, you had gone against conventional wisdom in the past and you were right. There is already a bill circulating to impose trade tariffs if China doesn’t do so. So you really think that China will ignore the U.S. demands for them to float their currency?
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