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The dark cloud? The U.S. economy

BARRIE MCKENNA

From Saturday's Globe and Mail

Latest comment posted at 5:26 PM EST 23/09/07

The U.S. economy is faltering, a victim of its own excess – and its oil-rich friends are watching ...Read the full article

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  1. Tkk Z from Canada writes: Yes indeed the credit card has max out in the US. Informed observers have warned of the unsustainable excess, then predicted a painful collapse, for a couple of years already. But to no effect. Indeed, US high government officials in financial matters have simply shrug off the warnings, saying "When things are unsustainable, it won't." They too have been waiting for the day of reckoning.

    So this is not just another boom-bust, another 'business cycle'. For some 15 years, perhaps 20, the American debt society and all of its excesses have been culturalized. Entire generations of young and middle age have centered their lives on rampant consumption based on borrowed money, far far beyond their means. The time has come to force a change. But will it?

    My guts tell me not so fast. Culture doesn't change until a society hit the wall hard, and we haven't seen that yet. I expect the power-that-be is burning the midnight oil to figure out how to create another bubble. Yes, yet another bubble to celebrate the Culture of Bubbles. Trouble is, will there be enough foreign suckers this time around?
  2. Buffalo Bill from the cheap seats in, Canada writes: I am with the previous poster -- it takes a while before a society's psychological space gets its mind around what the facts are saying, be it climate change or the shift from financial superiority.
    I also imagine that the heavy arm twisters in Washington will be working hard against their 'friends' in the middle east switching off the dollar to the euro. Iraq talked of the switch and it found out this was not taken kindly to.
  3. Roy Smith from Mesa,AZ, United States writes: I am a Canadian living in the US. I agree with the previous posters and would like to add a couple of perceptions. One, there is virtually no discussion here about the value of the $US or of the current account deficit even among the well educated. Two, I believe that low interest rates are to the electorate what the circus was to the Roman Citizenry. This overindulgence will not be curtailed in America.
  4. Ric Hard from Toronto, Canada writes: I think it is important to remember that currency adjustments have a counter intuitive effect: the J curve. Any adjustment to the currency will not have an immediate impact but will rather exaggerate the existing trend. It takes time for economic behaviour to adjust. A downward price adjustment in the US$ will increase the US current account deficit. A decline in the exchange rate will worsen the situation and will only have a positive impact in the long term. It is sort of like: "If the cure doesn't kill you, you will get better". The problem for the US is that they have been avoiding solutions that will entail short term pain. This has two negative aspects: 1) it encourages complacency and 2) it will mean a stronger cure will be needed eventually.
  5. Pax Canadada from Canada writes: I think that when you lower interest rates by 50 points you are encouraging or growing a consumption bubble but like the housing bubble it will also burst. When you develope a consummerism bubble you are only delaying the enevitable. Sooner or later, everyone is broke. Remember the old tired line." Those who have the most toys Win." In my fathers house we had one tv, one radia, and one telephone. In my house we have three televisions, a disc player/radio in each room, five cell phones and one land phone. Two auto's, every conceivable kitchen gadgit, PS2 linage and the something cube or box. Every 123 of Nintendo. Dozens and ozons of games. Yes expensive silly games. Two computers and we throw out enough food daily to feed a you know who for a week or two. There are people on welfare who own a computer a tv and a cell phone. Wow. My family shops and shops. We have backpacks to fill a closet and shoes for each step we take. Not me, however, no not me. I get a nose bleed each time I go into a shopping Mall at Christmas time. I just can't believe these happy folks each carrying two or three shopping bags of junk/goods. Shop, shop, shop beause the Evengalicals are telling us that the end of the earth is coming soon along with the saviour. No problem. I think we should all buy little flags made in China with save me from myself dear lord. The Chinese have to learn to consmme more. It's not fair that they get to save. We should sell them things. What oh what do they need. Yes I got it. Diapers. Cheap maple leaf diapers with Aloe. Healthy and green.
  6. Dr Demento from Canada writes: This article simply reiterates what I have been saying for some time. Americans have been living above their means and increasing their consumer and government debts at unsustainable rates. Their credit cards are now maxed out and they can't afford to pay their bills.

    What may surprise both Americans and Canadians is that the median Canadian household income is now 25% greater than the median American household income: $60,600 vs. $48,000.

    The numbers, from Statistics Canada and the US Census Bureau are below:

    http://www40.statcan.ca/l01/cst01/famil108a.htm

    http://www.census.gov/hhes/www/income/income06/statemhi2.html
  7. ponce deleon from calgary, Canada writes: America cannot compete with the world in terms of commodities or commodity like goods (i.e. oil, gas, computers, textiles, autos). It does have high value goods such as F16 fighter planes, Boeing aircraft, Capterpiller heavy equipment. By lowering the US dollar, these higher value goods become more attractive to foreign purchasers.
  8. Gary Dare from Portland, Oregon, Canada, writes: Pax Canadada writes, "I think that when you lower interest rates by 50 points you are encouraging or growing a consumption bubble but like the housing bubble it will also burst." The Fed's rate drop will not such much as encourage new consumer debt but rather, put off mortgage or personal debt defaults. Many ARM's change rate by a factor of the prime so the 50 basis points could save some people a 2-3 percentage points increase, which may be hundreds even over a thousand dollars. Foreclosures have a corrosive effect on neighborhoods, see Neil Macdonald's piece on the CBC News site for an illustration of Cleveland, an extreme case.
  9. Alec Dubro from Washington, DC, United States writes: Barrie McKenna is probably right, although the U.S. economy has been written off more times than I can remember. In 1974, for instance, we Americans were assured that the era of cheap oil is over and to tighten our belts. You remember how long that lasted. For now, it seems like we'll be poorer. For those of us who didn't buy giant TVs, SUVs and sub-prime mortgages, it seems a bit, well, unfair. So what else is new?

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