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Pastimes : Clown-Free Zone... sorry, no clowns allowed
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To: Mark Adams who wrote (62443)1/28/2001 8:55:15 PM
From: KyrosL  Read Replies (3) of 436258
 
The US saved the world in 1998 because it was able to absorb huge export increases from Asia. Who is going to be the importer of last resort if the US goes into recession? I think that Asia is dead if the US slowdown lasts more than a couple of quarters. They never corrected the structural problems that brought about 1998. They simply exported their way out of the problems.

What happens to the US economy if the savings rate jumps back to the post WWII average of 8% from the current 0%? The only way to avoid depression will be for the government to swing back to hefty deficits. I doubt that LT interest rates come down to 4% then. And what if the dollar weakens and foreigners stop financing the US trade deficit to the tune of $400 billion a year, or worse, start liquidating their hefty US investments. I don't think LT interest rates will fall under this scenario either.

The energy picture is very worrisome -- it may become the basis of a seventies style stagflation. Although oil is a smaller portion of the GDP as it was in the seventies, we now also have to worry about natural gas. NG prices have risen even more than oil, unlike what happened during the oil shocks of the seventies and early 90s. NG prices affect lots of stuff from electricity and heating bills to all kinds of chemicals. It seems almost every utility is building NG fired power plants at breakneck speed, and many peaking power plants will be burning NG this summer. This summer is going to get even uglier for the US consumer, just at the time the consensus says the slowdown will be over. I am not holding my breath.

Kyros
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