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Technology Stocks : How high will Microsoft fly? -- Ignore unavailable to you. Want to Upgrade?

To: David Howe who wrote (65811)	3/7/2002 9:54:40 AM
From: Baldur Fjvlnisson	Read Replies (1) \| Respond to of 74651

Reports of recovery are much exaggerated; Be very sceptical of predictions of a strong US economic resurgence, warns the Observer's economics editor, William Keegan Wednesday March 6, 2002 Signs that the US has embarked on a strong economic recovery are great news for Europe, as it needs a bit of a lift. Indeed, to read much of the economic analysis of recent weeks you would think it's all over bar the shouting. Why, the US treasury secretary, Paul 0'Neill, reportedly claimed yesterday that it "was now quite clear" that the US had never even suffered a recession and was on course for rapid recovery. Well, I wonder. Can this be the same US economy that has a balance of payments deficit of 4% of gross domestic product and rising, where there is no sign whatsoever of a recovery in business investment after the 1990s bubble, where General Motors says it has about 1m units of excess capacity in North America, and where protective tariffs on steel imports of up to 30% are about to be imposed? There was bound to be some better news for the US economy as the initial shock of the recession (sorry, Mr O'Neill) and September 11 wore off, and corporations started to rebuild their inventories. Even a slowdown in the rate of inventory reduction has a positive impact on GDP. And, clearly, US consumers have carried on spending. But does this justify the near euphoric reaction to the recent comments by the federal reserve chairman, Alan Greenspan, and to patchy survey data suggesting the worst may be over? Even Mr Greenspan felt it necessary to say: "An array of influences unique to this business cycle ... seems likely to moderate the speed of the anticipated recovery." (Note that word "anticipated", which strikes a cautionary note whatever meaning of "anticipate" the great man had in mind.) The fact of the matter is that the US economy experienced a huge speculative bubble for most of the 1990s and the beginning of the new millennium, and the economy is still suffering from the huge imbalances built up during that period. Imbalance number one is the huge amount of excess capacity in the economy - not just in so-called "new economy" industries, but in old economy industries such as steel and automobiles. Imbalance number two is that US consumers have not come to terms with the huge pile of debt and the depletion in savings that kept the boom going for so long. Imbalance number three is the vast and growing trade deficit: the US is continuing to rely on inflows of other people's money of no less than $1bn (£700m) a day to sustain the supposed consumer recovery. The fact that the dollar has gone from strength to strength only serves to emphasise the underlying vulnerability of the "recovery". The US currency is now almost as high, on a trade-weighted basis, as it was in 1985, when there were serious worries that the economy was threatened with deindustrialisation because of the serious impact of the overvalued currency on US industrial competitiveness. There is a connection between the strong dollar and the US steel industry's yelps for help. People say the US bestrides the world like a colossus, and there is no one to rival it in military might. But this has been true for decades. US superiority did not stop serious economic and currency crises in the early and late 1970s, and the overvalued dollar was considered such a serious problem in 1985 that the Reagan administration embarked on action to get it down. Mark my words: there are turbulent times ahead for the US and world economies as the foreign exchange markets gradually begin to question the American economy's insatiable appetite for overseas finance, and those imbalances begin to unwind - as all historical experience suggests they must.