US on the brink of ression

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BASEL
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US on the brink of ression

Post by BASEL » Mon Mar 24, 2008 12:19 am

Can a 'decoupled' world cure a sneezing US?



By Adam Plowright AFP - Sunday, March 23 06:44 pm

PARIS (AFP) - A looming recession in the United States poses a vital question about recent changes in the global economic landscape: has the rest of the world broken its dependency on the US motor?

Put another way, and to use one of the most familiar rhetorical questions in economics, when the US economy sneezes does the world still catch a cold?

Most private sector economists believe the United States is heading inexorably towards a period of contraction, with financial market turmoil and weak data for jobs, housing and consumer spending painting an increasingly bleak picture.

Last week, US Treasury Secretary Henry Paulson referred to a "sharp" economic downturn, the OECD said the US economy was "essentially going sideways" and former Federal Reserve chairman Alan Greenspan warned of the worst financial crisis since World War Two.

Amid a hailstorm of such dire forecasts, the fast-growing economies of Asia and the still-dynamic European area represent the best hope of avoiding a severe global slowdown or, in the worst case scenario, a global recession.

The outcome is likely to depend on the extent to which the rest of the world has "decoupled" from the US economy, which makes up about a fifth of world gross domestic product according to 2007 IMF figures.

For proponents of decoupling, the world economy is now less dependent on the United States than before because of development in China and India, increased intra-Asian trade and a more vigorous European economy.

"In practice, the world has tended to follow the US," John Williamson, a senior fellow at the Peterson Institute for International Economics, told AFP, recalling how the most recent recession in the United States in 2001 pulled Europe down with it.

The idea of a complete decoupling, in which a US slowdown had no impact on the rest of the world, is clearly implausible given the interdependent, linked-up nature of the world's modern globalised economy.

It was in reference to this latter idea last week that IMF managing director Dominique Strauss-Kahn stated that there "is no decoupling between emerging economies and developed economies."

OECD secretary-general Angel Gurria, speaking at the same conference in Paris, said he didn't "believe in decoupling."

Williamson stressed that decoupling can also refer to the idea that the rest of the world, albeit growing at a slower rate, would be able to pull along a contracting US economy rather than being dragged down with it.

This idea implies a fundamental change in the gravitational forces that shape the world economy.

"It's very important to recognise that decoupling can be used in two different senses," Williamson said.

He believes the growth of Asian economies provides an autonomous stanchion for the world economy that did not exist in the same way in times of previous economic difficulty.

This time, with help from Asia, "any US recession is going to be much shorter and shallow," he added.

Charles Wyplosz, a professor of economics at the Graduate Institute of International and Development Studies in Geneva, says the "change from the past is the emergence of Asia and right now it has been doing well in mitigating the US slowdown."

He added however that "the question is not whether coupling or decoupling exist, it's how much is the US going to affect the rest of the world."

"It seems to be pretty obvious that if the US goes into recession the rest of the world is not going to go unhurt."

The dollar, which has fallen to record lows against other currencies, is also set to hit Asian economies and is part of the "coupling" effect, Wyplosz said.

The weak dollar makes US exports more competitive and reduces demand for foreign-made products in the United States.

Overall, "the good news is the autonomous source of growth in Asia," he added. "It (Asia) is going to be a locomotive, but a tired one."

Given the importance Europe and Asia have now assumed in powering the global economy, economists and investors will be scouring the horizon for any sign of contagion from the United States.

Acting chief OECD economist Jorgen Elmeskov said last week that there was no evidence yet of a slowdown in non-member countries of the Organisation for Economic Cooperation and Development.

The OECD counts all of the world's developed industrial powers as members, but not China, India or other emerging giants.

Elmeskov cautioned however that there "must be limits as to how long" this could continue and whether the non-OECD could really decouple from OECD.

The subject of decoupling was a hot topic at this year's World Economic Forum in Davos, Switzerland, where optimists and sceptics faced up during an early round-table discussion.

"There can never be a decoupling from the US economy but the magnitude of the impact will not be what it was in the past," said Indian Trade Minister Kamal Nath, pointing to the two "engines" of India and China.

Stephen Roach, head of investment bank Morgan Stanley in Asia and a known pessimist, countered that he was optimistic about growth in Asia for the future, but the idea they could power the world economy on their own could "turn out to be a fantasy."



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Post by Rossco » Wed Mar 26, 2008 3:59 am

it's so that the American dollar is about as much use as bog roll. check out what the German money was worth when Hitler came to power with the Nazi party. history repeating itself once again
Well you may throw your rock and hide your hand
Workin' in the dark against your fellow man
But as sure as God made black and white
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Post by BASEL » Wed Mar 26, 2008 11:14 am

You will soon need a wheel barrow full of dollars just to buy a loaf. The pound is also very weak against the euro
To resist the influence of others, knowledge of one's self is most important.

Draw from your past....... but don't let your past draw from you

Yama, The world is changed. I feel it in the water. I feel it in the earth. I smell it in the air. Much that once was..... is lost. For none now live who remember it.

For all your Computer needs www.btlogic.co.uk

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