Americans paused at Thanksgiving yesterday for the traditional annual audit of
their blessings. If they'd been listening at all closely to the morose
lucubrations of their opinion leaders, however, it would have been pretty
slim pickings.
The pundits have finally run out of bad news to report from Iraq, where,
unmolested by the morbid fascination of misery-seeking reporters, the locals
actually seem to be belatedly enjoying the first fruits of their liberation.
So attention has turned again, as it has tended to do from time to time
these past 50 years, to the inevitable collapse of the American economy.
The declining dollar is for many an ominous indication that the long period of
US economic supremacy is at an end. In the past month especially, a nation
that usually remains in blissful ignorance of the daily fluctuations of the
foreign exchange markets has been repeatedly reminded that the dollar now
buys a fraction of what it used to — down 35 per cent against the pound in
the past six years and 40 per cent against that fledgeling monetary
superpower, the euro.
Much has been written about the eschatological symbolism of the dollar's fall
and the financial problems that have accompanied it. The apparent consensus
among commentators here in America and especially in Europe is that the US
has become a kind of Third World country, awash in debt and sinking fast
because of a collapsing housing market and a banking system in meltdown. And
all this is supposed to reflect in turn a seismic shift in the balance of
global economic power away from the US and towards Mighty Europe and
Emerging Asia.
Let me take a moment in this season of cheer to raise a few objections. The
first and most obvious point is that there are many reasons why currencies
move against each other, often in quite dramatic fashion. Seismic, epochal,
geopolitical shifts are not usually the best explanation.
Rather, more prosaic facts such as differentials in countries' short-term
interest rates, the rebalancing of temporary financial and economic
imbalances and sudden changes in demand for and prices of commodities such
as oil produced by particular countries — all of these help explain the
dollar's recent decline.
US interest rates are on a downward trend, while European rates are steady and
might even rise. The US still has a vast trade deficit, which is being
reduced by a continuing fall in the value of the dollar. Countries such as
Canada, which has seen the largest increase in its currency against the
dollar, have been beneficiaries of the steep increase in the energy products
they export. Another factor behind the current movements is the sensible
shift by the world's central banks to a more balanced portfolio of foreign
exchange reserves.
For the historically short-sighted, let's remember we have been here before.
Between 1985 and 1995, the dollar declined by 43 per cent against the
world's big currencies — somewhat more than it has in the past six years.
That period was also marked by dire proclamations of the end of US economic
power. But it turned out that in those years the foundations were laid for
the strongest period of US economic growth in the past 35 years.
If you're still sceptical, ask yourself this: is it probable that the shift in
the relative value of the dollar and the euro represents a bet by the
world's investors that Europe — strike-torn, productivity-challenged,
demographically doomed Europe — is the world's economic future, rather than
the US, or, let's say, China? All right, but this is different, say the
Cassandras. The US has been living on borrowing for years now. The world has
finally woken up to America's addiction to debt — all that growth has been
bought on the never-never and now, at last, the bill has come due.
The first thing to be said is that the level of public sector borrowing in the
US is very small. The fiscal deficit, at just over 1 per cent of national
income, is smaller than in most major European countries. It's true that
America faces a large long-term fiscal challenge from an ageing population.
But it's a smaller challenge than that faced by most of Europe, Japan or
even China.
So if government borrowing isn't the problem, it must be the private sector
that's neck-deep in debt, right? The general view is that Americans have
irresponsibly fattened themselves up on widescreen televisions and
gas-guzzling four-wheel drives, all paid for with easy credit.
If you look at a simple measure such as the savings rate — the proportion of
income that is saved rather than spent — Americans do look pretty
spendthrift. It is close to zero in the US, compared with 10 per cent in
Europe and much higher in Asia. But focusing on this one measure distorts
the full picture of America's household balance sheets. The reality is this:
why save when the value of the investments you own is increasing at rapid
rates? The total value of mortgage and consumer debt is indeed up by a
massive $5 trillion since 2001, according to the latest figures published by
the Federal Reserve.
But consider the increases in the wealth of Americans during that period. The
aggregate value of houses alone is up $8 trillion. The increase in the value
of stocks held either directly or through pension funds and other investment
instruments is higher by another $8 trillion. That's an increase in net
wealth of American households of $11 trillion in less than six years. That's
about $90,000 for every household in the country. As someone once said, 11
trillion dollars here and 11 trillion dollars there and pretty soon you're
talking serious money.
All right, but isn't the US going into recession, you say? Maybe, but so what?
The US is overdue a recession by the standards of the business cycle in the
past 60 years. It's possible the housing market and related problems will
tip America into another one. Provided the people responsible get policy
right, it doesn't have to be a depression.
So the dollar is falling for good, sound reasons that do not require a
millenarian view of the global economy. It is yet another thing Americans
should be thankful for.
Oh, but this columnist is sooo positive ! Sounds like a happy-faced Wall Street stockbroker .....................
pay littel heed to very recent reports by Real Estate experts who presage about a 7-10% drop in residential property values in 2008. That means for the woefully underfunded, over-leveraged, typical US Homeowner ( or one of the millions of real estate prospectors who were sure to make a killing by investing in real estate WITH LITTLE OR NO MONEY down) have a lot of grief in store once they try to refinance OR sell their prestigeuos investments. The people who purchased property with the intent of making a quick buck are in for a rude awakening, Buckwheat !
We bailed in late 2005, sold our US properties and bought up Euros .
Tim in Berlin ( which is separated from the fantasy island of Great Britain)
tim brugan , berlin , germany
Hmm , again....considering the number of homes that are unihabited, and more on the way, I would not put much 'stock' in the 8 trillion 'worth of new houses'---which will, now, be more albatross than accolade for American economy [ and world in general...just ask the little town in Norway how deep this fiasco goes]...But, as Henry Paulsen said, today, on the Housing Forum, "HOPE IS ON THE WAY"...Americans, watch your mailboxes...Santa Clause is coming to town...What is perspective???? Merry X-mas...ho, ho, ho...
Lynn Farthing, Chicago
lynn, chicago, IL
I thought it was funny that a Brit pointed out that the entire EU combined had a slightly bigger GDP than the US. Some comparison. Have a peek at the 100 biggest companies in the world and note how many are American.
Timmy Thomas, Tampa, FL
Well put! However it's very scary stuff; as viewed from my lowly position as one of the billions of Mr. Averages who have to pick up the bill for this very expensive game. The players are members of the exclusive Greed and Political Brigades and the 'pieces' are all the various monitory denominations, Banks,
Stock Exchange members etc., etc. There should however be severe penalty points for players who continue to encourage irresponsible borrowing. It is still going on, as players, chameleon-like change their approach to achieve the same end game. I live in Portugal, receive my pension in devalued pounds converted to euros and save in UK£. 'Oh what a wonderous web we weave!'.
Jim Currie, Portugal
Jim Currie, Funchal, Portugal
"The aggregate value of houses alone is up $8 trillion".
Hmmmm. Does that mean that Americans have built $8 trillion worth of new houses? Or does it mean that the dollar has become worth much less, so the same houses (which obviously still have exactly the same value as houses) are now worth more dollars?
If the latter, the royal road to national wealth is plain: print trillions more dollars! Good luck with that.
Tom Welsh, Basingstoke,
Hooray for a dollop of perspective! When all is said and done, some thousands of homeowners will lose their homes (not millions), some mega banks will have a few bad quarters of returns, and Americans will perhaps tighten their belts a notch for a year or so. In the meantime, US businesses will become more competitive in the global economy, the deficit will shrink, and the world will perhaps adjust to an American consumer less profligate. The yuan and euro will continue their rise (one hopes). Likely, however, neither China nor Eurozone will tolerate the ongoing shift much longer, and will move to support the dollar to protect their own economies, delaying the longed-for correction and re-equilibration.
Happy Thanksgiving!
Michael Kleinman, Houston, Texas
EU GDP exceeds that of the US. Fact.
Jon Kingsbury, Southampton, UK
The aggregate value of American housing stock has increased by
$8 trillion.
You are absolutely correct. I have some mortage backed CDOs worth about $40 billion , would you like to buy some.
S O'Neil Merrill Lynch ( departed )
Douglas Maxwell, Richmond, North Yorkshire
I am a self-employed artist and craft maker. I sell my work online and the currency I sell in is dollars, as I sell via a site called Etsy. (90% of my customers are American). It makes a big difference to me if the dollar is weak. I get less money. I don't earn much and am a single parent attempting to work rather than rely on benefits. The writer of this article may smirk about the 'big picture' but many individuals like myself are affected by the dollar slump.
kate, London,
I think Mr Baker isn't telling the whole story. Such as the shrinking of America's manufacturing base which has largely been shifted to the Far East. Or, indeed, the unreported rate of inflation which is far higher than the figures the FED report. Or the fact that the US National Debt is running at over $9trillion and growing. Or that the bubble that is about to deflate -- or maybe even burst -- has been driven by unparalleled levels of consumer debt that is secured on 'equity' derived from rapid rises in house prices. Or that the banks are finding it difficult to secure liquidity to sustain the housing and economic boom. Or that the NASDAQ is suffering huge losses. And the virtual worthlessness of T-bonds? It's looking very shaky. Are you paid a retainer by a US organisation to propagate disinformation, Mr Baker? Probably not, but some people will wonder.
Michael Anthony, Birmingham, United Kingdom
I just can not believe that anyone can be so blinkered as to the possible outcomes of the declining value of the dollar and the vast national deficits. Any country that continues to print banknotes and lower interest rates as the only way to get out of the incompetence of it's financial administration is only going to go, in the end down the drain. They should let those greedy financial institutions stew in their own greed, instead of protecting them from the results of their own mistakes and incompetence. There have already been murmerings amongst other nations that America is in danger of loosing it's status as a world reserve currency. Who wants to trade in a medium that is visibly declining every week?
Once that status has gone there is only one way for the dollar to go - a continued downwards trend. The inflationary consequences would be great. Certain other nations would soon be making large purchases of dynamic American enterprises and assets on the cheap. Not good!
Diddly Do, Liverpool,
Dr. David Hill of the World Innovation Foundation:
"Innovation" typically requires the innovator to have a systemic viewpoint. The systemic viewpoint necessarily requires insight into dynamic processes that control any given issue or problem. Capitalism's world economy, herein called free-markets is one such process. You fail to appreciate the dynamic forces that cause free-markets to fluctuate over time. Indeed, I believe you think the dollar’s decline signifies the collapse of the free-market concept and practice. Rather, it is simply an adjustment given the current market forces. This too will be seen as yet one more "bad" that the American economy overcame when forces move it back into some balance.
Energy is indeed a dark cloud brought on by increasingly modernized societies worldwide. However, free-markets utilize energy more efficiently then command-economies (socialism, is that the other form of economy you refer to?).
--continued--
Edmund Fraser, San Diego, California
Look at the environmental devastation left behind after the fall of USSR. Look at Chavez's cheap gas given to his countrymen and comprehend that this simply will lead to wasteful over-use. Free-markets allow more people to operate at an equivalent energy level as that of a command-economy. This is true due to much higher efficiencies. For this reason, free-economies cause less environmental damage then would command-economies.
Innovation rarely happens in command-economies (except in wartime when survival quickens the mind); while innovation is the centerpiece of free-markets. Without innovation, companies fail and personal incomes are at risk. If innovation is important for mankind’s survival, free-market innovation is certainly preferred to wartime innovation!
--continued--
Edmund Fraser, San Diego, California
The future energy situation that you rightfully mentioned requires innovation. Our only hope is that innovators such as you can stretch their minds to see the dynamic natures of systems and processes, so that innovation will continue.
Edmund Fraser
San Diego, CA
Edmund Fraser, San Diego, California
The UK and the USA have between them nearly half of the world's external debt. Money owed to other countries should the receiver be called in. The UK's turnover is about one sixth of the USA but has nearly the same level of external debt.
Which would you bet on in a downturn?
The US have their own natural resources, and with Mexico and Canada as partners - who when all said and done do stick together they are a force to compete. Has anyone seen Europe 'really' sticking together? No - and in reality it never will.
The triple union of North America will stand shoulder to shoulder with China, India and Brazil and will leave Europe in the dark ages - when 'it' was the true super power.
Paul, London, Canada
I'm not sure how this will all play out, but I do know one thing. For the time being I am moving as many of my investments as I can out of dollar denominated securities and out of the US economy. In the near term the Euro, Sterling and even the Rand seem like safer bets, at the moment, than the Yankee Dollar.
For the long term, Gerard, you are probably right but so was Keans: "In the long term, we're all dead"
Jim Walton, Washington DC,
Your argument that Americans have seen a drastic increase in their assets, housing and stock market, while their savings went down is a positive is flawed. That a small two bedrooms house is valued at $US 700,000 in California while all the materials and work force to build it nowadays is demanding $US 150,000 and when a public company like Google is valued at more than $US 210Bn while with annual revenue of only $US 14Bn , there is only one conclusion: Overblown assets and paltry savings. Sorry, the American mighty power looks more like a hot air balloon than at any time before.
Paul, Schreiber, Sacramento,
Nothing is wrong with the US economy. It's going great. every day and every way getting better and better, just like the war in Iraq and Afghanistan.
If there is another PC explosion out there to replace the subprime implosion and steady war bleed of $5,000,000,000 a week we can sell everything OPEC or Japan doesn't own to the Chinese.
Tom Baxter, Tallahassee, Florida
Some of G. Bakers arguments are not as sound as he pretends.
That "the level of public sector borrowing in the US is very small" is irrelevant in a country without public sector worth mentioning. Baker also sees a rise in private wealth, mentioning a rise of 8 trillion (declining) dollars in each houses and stock values: a bit sour to say in a period of "a collapsing housing market ", and every investor knows that stock gains are immaterial unless you can sell. America's only insurance for the future is that China has to hold on to it's dollars, because no one else would want them.
Dirk Bosmans, Bazel, Belgium
As a long-term, bullish investor, I always look forward to the naysayers who give in to the gloom and doom of the business and news cycle. We need the sky-is-falling bears to capitulate so us bulls can shop for the bargains they create as they panic sell.
Though, I do get the feeling that the naysayers in this thread aren't stock owners, just "market watchers", which explains the economic ignorance. I especially like the pessimist who writes from Las Vegas of all places. Now that's a real bastion of technological advancement...not.
Any, have your day bears, that's how us bulls prosper.
Never bet against the American economy.
Rob Gladstone, Houston, TX, USA
The US Savings Rate is VERY MISLEADING. NOT COUNTED: 401Ks, 403Bs, Cap. Gains, house appreciation, etc. Personally, my net worth is up over $500,000. the last 4 yrs. NONE of this is counted in this system. Doesn't show the true picture.
John Saunders, San Mateo, Ca
I can only hope that the lunatics like Gerard Baker don't try to bury us before we're truly dead! The news of our death is greatly exaggerated.
Europe's economy is in the pits and he's crowing about the good news that America is falling? Hopefully, he will get a refill on whatever it is that has been keeping him in blissful ignorance. In simple truth, anyone taking the time to read AMERICAN Internet financial news knows that our economy is far stronger than anything in Socialist Europe and we expect to keep it that way!
Ignoramuses think Europe will survive if America falls. But it won't. It cannot. Better get the truth!
B. Lee Pemberton, Sarasota, FL U.S.A.
Hey Ricky, As a soldier with two tours to iraq, I would vote for Bush again tomorrow. Maybe you don't like him but doesn't really matter to me. I have seen the mass graves, I have seen the Iraqi's all kurdish, shiite and sunni thank us. Keep believing what the left tells you. But do some research and you will see Bush is playing the dimowits and anti-american party like a fiddle. Mr. Baker great article serving overseas I have watched my rent rise and fall, and all the so called everyone hates america, I rarely see. Treat people like you want to be treated.
Sean, Overseas, Afghanistan
Nev -
" ... remember at some point we must pay back the debt we created."
That is simply not true.
In a growing economy, we can pay back 3% of the debt (~ current interest rate), borrow more if we need to (we should be borrowing as much as the Chinese/whomever will lend us), and invest in productivity, assuring that American growth and jobs continue. That, and American entrepreneurship, is exactly why America is consistently the fastest growing developed economy in the world.
There have been some laughable/cryable misstatements on the debt on this thread. For the record:
Total debt - $9.1 trillion
US Government owns - 45%
US Private sector owns - 28%
Foreigners own - 27%
Japan owns - 9%
China owns - 5%
The deficit has been falling since the Bush tax cuts corrected the Bubba Bubble.
The debt/GDP ratio has been falling since the Bush tax cuts corrected the Bubba Bubble.
Economic illiteracy/innumeracy is rampant.
Iago, Houston,
The US savings rate is very misleading. NOT counted: 401Ks, 403Bs, cap. gains, etc. Personally, my net worth is up over $500,000. in last 4 yrs. None of this is included in this rating system.
John Saunders, San Mateo, Ca
Thge US savings rate is VERY MISLEADING. NOT COUNTED:401Ks. 403Bs, cap. gains, etc. My net worth is up over $500,000. the past 4 yrs. NONE of this is reflected in this system. SAVINGS rate: NOT a good indication of anything.
John Saunders, San Mateo, Ca
The 'market forces' dogma that pervades the developed world is fine at the start when you have the world at your feet to exploit, but not later on when the 'Market' cannot sustain the system itself. Therefore although the 'Capitalist' system has made much of the wealth of the developed world, there are not enough physical resources for this system to pervade the whole world. In this respect, as more people become affluent, the capitalist system has to give more back, but where in reality the system itself is finite in what is physically possible and available. Consequently as a further 5 billion plus and counting aspire to the same living standards as we in the West, this system cannot provide the necessary year-on-year increases to do this through the sheer lack of natural resources that the capitalist system is so totally dependent upon. Ultimately therefore the market forces and capitalist system cannot satisfy demand.
Dr David Hill
World Innovation Foundation
Bern, Swiss
david hill, bern, Switzerland
I regret not acting on my impulse to buy Euros when they were 80 cents on the dollar. To my European friends: Buy dollars while they're cheap. You'll enjoy the fruits of your investment within a few years.
Currencies go up. Currencies go down. Take advantage of the your opportunities.
E. Solvang, Hatton, USA/North Dakota
I have been making very good money here in America by asking myself, "what would I invest in if I believed the dollar is headed for a collapse?". Gold and silver ETFs, oil drilling, short positions in banks and construction companies. I'm up 160% compared to last year. That doesn't mean the dollar is really in collapse, but it makes me cautious enough to keep my savings in euros and precious metal ETFs. The more people believe it, the better I do. And if it does collapse, I still make out alright.
Allen, Chicago, Illinois
"The reality is this: why save when the value of the investments you own is increasing at rapid rates?"
I believe the reason you save is to help weather the storm when the investments you own aren't increasing at rapid rates. It's not like your Ipod, Mercedes, and Miami condo are things you can liquidate quickly at "market" prices.
It's not like America is the only place where people's investments have been increasing at rapid rates. They have been in Europe and Asia as well, but they save a lot more than Americans so when hard times hit, they won't be hurting as much as Americans.
Finally this statement brought a smile to my face: "Provided the people responsible get policy right, it doesn't have to be a depression." Who are these people?
What is the right policy? You can't magically change the policies of the past 20 years.
As for the people advocating this weak dollar to get ourselves out the trade deficit, remember at some point we must pay back the debt we created.
Nev, USA,
The Imminent Death of America(tm) has been a parlor game of the elites for at least the last 100 years, probably since she was founded. Oddly enough everything that was *supposed* to take her down has itself perished over time.
In truth a falling dollar simply makes our exports more valuable and shores up our manufacturing industry. This improves our employment rate, which directly reduces the Deficit. Except for the cost of the long-term war on terrior, of which Iraq is the major expense (though not the only one), our budget would be in surplus now. Betting on the Death of America(tm) is, at it has always been, a very poor bet indeed.
Orion, LA , USA
What a good article. Mr Melvin King, Mr Gordon Brown, oh -and who ever replaces Mr David Cameron take note; - no one can buck the markets and democratic free market dynamics really do increase individual weath, freedom, and happyness - it also makes for rich and powerfull nations. The acid test for me- In a little while, after things settle down I think I will put around 40% of my pension fund in USA assets of one type or another.
regards
BWC Redditch
BWC, Redditch, United Kingdom
Buy dollars.
Rob Louis, Knoxville, US/TN
Oh ST, America is very much an empire! Have you travelled much of the rest of the world, and seen it work on the day to day? Not much goes on anywhere without a say-so from US representatives on the ground, be they 'advisers', ambassadors, soldiers or businessmen. If America isn't an empire, then there have never been any empires. And, as Mr Baker implies, it's day is far from done. Meanwhile we can all go shopping in NYC with great satisfaction.
Alastair, London, UK
I think America will eventually turn into a country quite like some of the Asian 'tiger' economies. The writing is on the wall here- lower value of the dollar, high R&D spending, young work force, inviting to immigrants,etc. I do not understand why Europeans think that the value of the Euro at present is good for them. All it does is make it cheaper for European tourists. However, I do not think that most people would want to stay tourists all their life. Eventually - Inward looking Europe will be hit hard by their over valued Euro, their old age, their resistance to immigration and their ever declining military power. Most Europeans think that America is hated by the rest of the world. I can assure you that the goodwill earned by America will far outlast any temperory ill feelings. One just has to look at public opinion in a country like India. America is the promised land! I personally remember the aid we all recieved from American charities and this will last a few generations.
Ricardo d'Souza, goa, india
What percentage of the increase in home values and, more important, stock portfolios, is claimed by the top 10% of U.S. population, by wealth? My guess is that less than 40% for that increase goes to 90% of the population. The majority of people feel like they are growing less affluent each year. Too bad that $90,000 average per household is not reality.
Gerard Croce, chester springs, PA
Can someone explain the justification for the exchange rate BP 1 = $ 2.06, when in the UK 1 BP buys about what $ 1 buys in USA? Wouldn’t be advantageous to spend all my money in the US?
Dave, Rutland,
I have a friend here in the USA who refused to move the manufacturing of his product, and his employees jobs, to China.
He was, and still is concerned about the quality problems in China because his product is related to the cooking of food.
He recently told me the dollar value is helping him sell his product in Europe, and therefore, keeping his people on the payroll.
Bob, Marco Island, USA/Florida
If we could somehow have predicted to Americans of the 50s and 60s that, by early 2007, a quarter of our workforce would be earning less than the minimum wage of the late 60s (approaching 10$/hr in today's money), the only explanation they might have been able to think of for such an astoundingly bleak economic future might have been a small atomic war, multiple depressions or even a mini-ice age.
The built-in-to-industrialization race to the wage and benefit bottom hit American labor sporadically -- most recently in the early 70s -- and never as harshly as it hit Europeans very steadily -- beginning in the early 1800s (I'm sure if Adam Smith had lived to experience industrialization he would have left behind a splendid examination of the race to the bottom for us to read).
Europeans being trapped into a steady diet of said race have put a simple anti-dote (sector-wide labor agreements or some equivalent) to the race into practice for half a century now -- USA not even waked up.
Denis Drew, Chicago, USA
It is about time to read somebody who understand economy.
I was amazed by the comments of the "best economist in the world (Ahmadinejad of Iran)" that he will help destroy the US currency value. You understand that I am joking! This guy is now destroying Iran's economy.
Having been in banking business for nearly 40 years, I have a good knowledge of financial markets and money and I fully support Mr. Baker analysis of the situation.
I would just add that markets are drived by confidence.
Jacquelin Ouellette, Montreal , Canada
Yet more panglossian nonsense from Gerard Baker, who will keep denying there are any problems with the world economy until he is blue in the face.
The song "always look on the bright side of life" was a quirky end to an excellent film, but shouldn't be the basis of every single article by an objective financial journalist
rick, melbourne, australia
Last week I decided to stock up on new hand tools to replace the broken, the lost, and the permanently borrowed. My first stop was Ace Hardware, for the most part, a seller of American made tools. I checked the prices and then headed to my next stop, The Tool Emporium, a seller of Chinese and EU produced goods. A few years ago the Emporium would have won the price comparison hands down, not this time. Ace Hardware won the price battle easily, and I stocked up on screwdrivers, pliers, a laser level and a wrench set, all made in America. Goods made in America are flying off the shelves, while inventories of goods made in other countries collect dust in warehouses due to their higher price. Someone in America's government is betting on EU pride , over EU common sense.
Mike, Seminole, Florida
Here is something that everyone seems to have missed. The decline of the dollar could be a deliberate move as a lesson in a Market Economy to China.
Since the Chinese refuse to float their currency like other countries, but instead peg it to the value of the Dollar. By driving down the value of the dollar it also has the effect of driving down the value of the Renminbi. The Chinese are soon going to faced with a big Problem. Float or watch their buying power erode.
They are about to get another lesson as well from the most powerful economic force in the World. The US Consumer.
Poor quality & recalled Chinese products are about to face a backlash. The US Consumer doesn't trust Chinese made products and considering that the US economy is 2/3 made up by the US Consumer. Bigger Problem.
Add the falling value of the Renminbi to a rejection of Chinese products by the US Consumers, and the Chinese are about to learn a very hard lesson in Capitalism and a Free Market Economy.
JC, Hershey, PA, USA
If America remains at the top in science and medicine, it will be on much imported talent. Our schools are now in complete control of an industrial union(NEA). And its' focus is grabbing more money for less work for the membership and electing more Democrats. The end product is inferior. Someting tells me that being the world leader in fast food, credit card debt and sports entertainment is not enough.
Jack W, Franklin, KY
We (some of us) have learned a great deal about the way economies work since the days of the Great Depression. For example:
* Restricting trade at any time makes things worse, as happened in the 1930s.
* Raising taxes in a time of economic slowness makes things worse, as happened in the 1930s.
* Inflation is a disaster, as in the late 1970s.
* Economic bubbles are a potential disaster, as bubbles are followed by recessions or depressions as in the 1920s and the late 1990s/early 2000s.
* Deficits are marvelous things if you use the capital to maintain productivity and growth. If you can borrow money at 3% and invest it with a 10% return, borrow all the money people are willing to loan you, and use it for infrastructure and education.
* Productivity and growth can solve all economic problems.
* The first priority of the US government should be to maintain US jobs and growth, both of which are at record levels.
Dimocrats disagree with all these points. So sad.
Iago, Houston,
Like others I am old enough to have heard the prophets of US doom before - several times in fact. Russia was supposed to be winning the Cold War (the cost of which dwarfed any current obligations), the US was supposed to fall after Vietnam, riven by internal civil war, and I recall being told many times how Japan was going to do economically what her army and navy failed to do in early 1942. And they are still here and will still be here 30 years from now, long after the EU will have collapsed under the weight of bureaucracy and lack of any democratic mandate.
Harry Truman, London,
Oh PJ. we aren't an empire and our day, as a republic, is far from over. have you visited the states? watched us on our day-to-day? all we do is work and work and look forward to working harder, albeit for less than altruistic reasons. Americans may be addicted to oil and easy credit and supersized-plates; but we're also addicted to the american dream and the work that will get us there. so dearest PJ, go join the chorus of doubters sitting in the sidelines while the rest of us go on with the business of living. cheers!
ST, Minneapolis, MN, USA
.
Like most people in the US, I am always surprised to see others outside the US rooting for our fall. We might be a bit provincial over here, but we generally try to do the right thing--even the Invasion of Iraq can best be characterized as naive altruism, rather than an act of greed--I mean, if were only about the oil, we could have taken the French/German approach and purchased it from the UN. By the way, for good or ill, given the global attitude toward the US (i.e. we are cowboys and imperialists), I can assure you there would be little enthusiasm over here for such altruism going forward--particularly in light of the fact that we are going broke.
Charles, Harrisburg, PAUSA
The US will be able to 'export' its way out of its current problems. It drives the worlds 'knowledge' industries from banking, medical to computing. Its ablity to scale and then dominate is unparralled. Think CISCO, HP, Google, all the big banks, the pharmactical giants. So they use China as their factory - the dollars still all flow back to Washington (and at twice the rate at the moment !)
My worry is that as a Brit/European what have we got to stop our economies from sliding backwards in the face of a very competitive US. Especially in the UK we are a 'service' based economy and at $2/£ all our services are very expensive to the rest of the world. France have thier own structural problems - just look at what Sarkosie is dealing with. Germany is too scared to even contemplate this path. We may be pleased with the exchange rate today - but should be deeply worried about what the future holds for jobs, house prices and the impending social upheavel.
NH, london, UK
Remember that the Puritan work ethic still prevails here in America, though we still have more than a few bums on permanent relief living off of our output, and I'm not talking about the infirm and feeble minded whom the Gospel of Jesus Christs instructs us to look after.
The Europeans with their 6 week long vacations compared to our two week averages can and never will catch up with our productivity. Besides, the Eurodollar is probably largely resting on a house of cards of inflated real estate prices, similar to the Japanese yen of the eighties before it went bust.
Yank, Warrenton, Missouri
"As happens with all great empires, the US has had its day, as difficult as this might be for some people to accept."
Evidence please!
It looks to me like you are projecting.
john Samford, Mamphis, TN.,
Congress doesn't care who the President bombs as long as he doesn't shine the light of day on their pork spending and other misdeeds. I always get a kick out of those who blame Bush for our problems; for dragging us into eternal war, or everlasting debt, or what-have-you. The truth is that we have been at war almost constantly since we, supposedly, won our freedom from the British, and we have been in debt as long as I have been alive. We had a make believe "surplus" --entirely based on projections-- when Clinton was in office. But everyone felt great about it. So if appearance is more important that reality, sooner or later, we'll have a democrat in the white house again and everything will be peachy in the NY Times. I certainly hope so, my tiny American brain is tired from all the bad news.
kajando, keepemshut,
Why has no one blamed the Federal Reserve (& Benanke) for this current crisis? There was plenty of evidence going back to Sept 2006 that housing was slower too quickly in the US and rather than help and reduce rates, he arroganly spoke about 'not bailing people out'. If he had reduced rates when is was needed in a sensible manner, the US would have been thru this mess and rates would be holding. He left it too long as he was naive and inexperience in his new job to know the impact of housing on an economy that now had many homewoners with variable rates. Quite simply the Fed got it wrong.
C Gold, Georgia, USA
What happens if America runs out of money and can't buy Asian and European products anymore?
What if we no longer have the money to defend them?
We will all be driving around in Fords and Chevies. and have to drill for oil in the Carribean just like everyone else.
We will have to bring our soldiers home and just defend the US.
America faces a grim future indeed.
Joe Deegan
Philadelphia, Pennsylvania
Joe Deegan, Philadelphia, Pennsylvania
A writer from the wall street journel made some of the same points. He also cited history in regaurds to interest rate fluctuations, three times interest rates have increased in unison world wide and all three times the major economies went into recesion shortly thereafter. Fluctuations in economies in opposite directions are a good thing they tend to prevent all of them going down at the same. (duh!)
A for ltm from las vegas, the u.s. government has spent a million dollars a day on average to date and is still approving new money for Katrina victims. You sound like a typical liberal all atack with no facts. The real failures came from local and state polititians who faile to organize evacuations. remember all the school buses parked and under water? that is just one example there are more. So we do take care of our own from the federal level, we are winning in iraq and the u.s. economy really is pretty good all bad news for left leaning power hungry polititians.
red, detroit, mi
Let me see, the US owes 9 trillion to 'foreigners' and the value of those dollars have fallen 35%. This means that the US has reduced its obligations by 3 trillion. What a disaster for the US!
An old banking trope is "I owe 1,000 dollars and can't pay, my problem. I owe 1,000,000 dollars....the Bank's problem.
bill reeves, St. Louis, MO/USA
"Excellent piece of reality. Euroland is Mickey Mouse stuff by comparison."
yes in terms of large territory ,military and R§D but...right now,slowly and surely, the US $ is becoming a monkey money!
Thierry, Paris, France
Planet earth to Mr Baker....I'm not sure whether you believe the fantasy inflation figures put around by the Fed, but in reality (as in the UK) actual rather than pretend inflation figures are far higher. Bernanke's decision to cut rates and thereby devalue the dollar in order to get the US out of this mess will simply act to stoke this inflation further at a time when oil is at an all time high. I guess they could always take oil out of the CPI basket but I do find it hilarious to watch the US practising the kind of banana republic economic policies that they spent many years berating small countries about from atop their high horse. As happens with all great empires, the US has had its day, as difficult as this might be for some people to accept.
PJ, London, UK
I could not agree more with the views expressed by Gerald Baker. This whole scenario is simply a passing anomaly. Who on earth would bet against America in the long term?
Dr John Cameron, St Andrews, UK
Baker I think you need a reality check, though the US is having it's issues, most of that is temporary and is due mostly because that idiot president. Bush is as dumb as a bag of nails, and as soon as he is gone things will change back. It has happen before, Remember Bush Sir? After he was gone things grow very fast and the US was the powerhouse that it should be. I think the US need to get it's clueless people to see whom they choose as the president, and don't make that mistake again.
Ricky, London , GB
Excellent piece of reality. Euroland is Mickey Mouse stuff by comparison.
Michael Farquharson, Aberdeen, UK
Previous doomsday scenarios had different mitigating factors which were'nt compelling enough to force America to its knees. This time, Iraq, peak oil, outsourcing to India & China, public sector debt which eats up 65% of GDP, the declining innovation, "hollowing" industrial infrastructure and last but not the least, the impending retirement of the baby boomers within the next 3 years, I foresee are way too much to bear for the US. Increasing taxes or printing more money to finance all these problems will only result in hyperinflation with disastrous consequences. Borrowing more at a time when a lot of investors are bailing out on the dollar can only be solved by higher interest rates which would only worsen the weak housing market. Between a rock and a hard place as they say.
Jules, CA, USA
If a country that's 9 trillion in debt ( with China owning 40% of it), and is so bogged down in a war to the point that it can't even afford to continue to pay for its own infrastructure, has turned it's back on it's own disasters ( Katrina anyone ), has a housing market that is taking the rest of the world down with it and due to a complete dunce of a Republican leadership has taken the country in a direction of becoming completely marginalized in the bigger global picture and you think we're a nation in great health here. What kind of Rose colored glasses do you own? Try living here on a day to day basis and you'll see what this once great nation has become; a shadow of its former self. Fantasy accounting numbers don't give you the real picture. This country is imploding from within and you only have to spend some quality time here to see what a selfish idiot of a leader and his lackies have done to the heart of America. You think all that's going to change any time soon?
LTM, Las Vegas, Nevada USA
This is the third time in my lifetime, and I'm 38, that the imminent doom of the U.S. has been predicted. We're still here. .(Makes your bets and takes your chances.)
Fernandez, San Francisco, California
Hi,
The decline of the dollar is of global concern but we are dealing with an academic strategy of the American finance instructions. The dollar is a tool almost universal to replace it would amount to buying and selling with potatoes and cabbages .The dollar a gladiator of time has and retains it’s place.
Regards Dr. Terence Hale Zandvoort
Terence Hale, zandvoort, Holland
Very good dose of realism Mt Baker, let's hope the congressional Democrats read it too as they seem determined to talk down the economy at every turn.
Stan(expat), US, USA
And I guess a low dollar means they can sell Boeings more cheaply than Airbuses (and other exports products) whilst imports from China and elsewhere become more expensive - that will help create more jobs, the trade deficit will improve etc etc and thus the US economy will strengthen again and as confidence increases the dollar will once more rise. The usual cycle and nothing to be afraid of ....
M Graham, Penang, Malaysia
Thank You...My thoughts as well...With 18000 tons of Gold in the 'vault', and France nbr 2 with 7000 tons, I think the U S of A is OK...Housing Market over blown...Banks, laughing "all the way to the bank'.....Jobs not in decline, and I love it ....PS ..'BOO' to the naysayers.......
Mr Tim, San Marcos, U S of A /Ca
Winston Churchill once said that (to paraphrase) that "Democracy is the worst form of government, except for all the rest". The same can be said of the U.S. economy. While people worry about the dollar and other tweaks, one thing is certain, that the U.S. is at the center of the technology revolution. From medical, to Computers. The U.S. will continue to attract the intellectual capital from around the world. The only concern should really be can Americans with a slow to react education system produce worthy students for those jobs of the future?
David, Cohasset, USA/Massachusetts