Mephisto and all,,
This could be the reason for the strength,,
<< U.S. Economic Strength Continues Unabated
This ongoing geopolitical process is taking place against the backdrop of unparalleled
American prosperity. The United States is, without a doubt, in an economic golden age.
Given where the international system was ten years ago, it is odd to say that American
economic power is today greater than its political power. Nevertheless, it is true. The
most dramatic feature of the international system is the robustness of the American
economy. We do not expect the American economy to weaken materially. American
exports represented only about 8.5 percent of Gross Domestic Product in 1997. Total
exports to Asia represented about a quarter of this total. If the U.S. lost twenty percent
of its exports to Asia, this would represent a loss of less than one-half of one percent.
Assuming a multiplier effect of decreased sales to Europe due to the Asian decline, it is
still hard to believe that a complete
disaster in Asia would slice more than one percent off of America's GDP. Since the
economy is growing faster than this, the worst case scenario would be that Asia will
cause a slow- down in the American market. In an odd way, the lack of Asian leverage
on the United States is due to its own policy of aggressive exports and protection
against imports. These policies mean that the U.S. is not very vulnerable
to Asia's problems and not likely to do much to solve them.
Even the worst case scenario is counterbalanced by a benefit to the United States from
Asian troubles -- capital flows. As Asia has melted down, money has fled Asia. This
includes not only Asian money, but U.S. and European money being held back or pulled
out. This money has tended to gravitate toward safety, which is represented by the
American capital markets. This process is not over by any means. The tendency of the
conventional wisdom to underestimate Asian problems
has meant that many investors have tried to hold tight to their positions. Successive
crises have shaken loose more and more of this money, but there is plenty left and it is
flowing toward the U.S.. This makes up for lost trade in very positive ways.
Fleeing Asian money has facilitated new capital formation. This means that while labor
shortages are a real problem, interest rates are extraordinarily low for this stage of a
business cycle, and the Federal Reserve Bank has had no problem maintaining a
positive net reserve situation. We see no reason to expect the U.S. economic expansion
to end in the next quarter or even this year. Thus, our
prediction in our 1998 Annual Forecast stays in place: "The United States has become
the safe haven for investments as well as the lender of last resort on a global basis. As
Asian economies weaken, the flow of money into the United States increases... This
flight to safety will serve to cushion weaknesses in the American markets and limit the
negative phase of the U.S. business cycle." It has worked thus far and will continue to
work.
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the rest is here.....
Message 5184773
russell |
