Mohan:
At this time, the macro-economic weaknesses of US are compensated by the foreigners' love for US$. Whether or not this love for US$ will fall sufficiently to exacerbate the macro-economic weakness is difficult to predict; only time will tell.
Policy makers have been saying that SE Asia will hardly affect the US economy. [Mahathir was making similar statements in the wake of Thai bhat's fall.] But, the frantic (war-like) action by the same US policy makers portray a very (potentially) gloomy picture of the US economy if actions are not taken immediately.
The problem is not a decrease in US exports -- this is a very cursory reading of the real undercurrent. There were talks about the puny Jakarta market not affecting even the rest of SE Asia, let alone US and Europe. But, alas! when rupiah fell below 10000 per US$, pandemonium broke loose everywhere with massive program selling of financial assets. Again, a stock market crash may not affect the economy if it is isolated (post 1987 US). But, a global market devaluation will very likely impact the spending habits of consumers in the very markets that look so strong now. A rapid devaluation of assets could ensue. Federal budget deficit would then soar due to a fall in corporate income taxes. The love for US$ may no more be able to compensate for deteriorating US fundamentals (such as consumer optimism, budget deficit, trade deficit, soaring current account deficit and political backlash). I am not wishing this to happen. I am merely articulating that the US economy may face a potential disaster if the SE Asian problem (panic-driven currency devaluation, precipitated by misconceived IMF policies) is not tackled.
Sankar |
