What happens to the rest of the world if the US economy crashes?

[DAVOUT]

Foreign pension funds would buy all US assets in $ for peanuts and Americans would rebuy them at premium price when the economy recover; and all foreign retirees would enjoy lavish pensions financed by american work.

[Agathon]

The USA is a major source of demand for the entire world, and so a complete crash of the US Dollar would sent demand for foreign good plummeting,

A lot of this is due to the dollar's functioning as a reserve currency. If it went down, it would no longer do so, and the Euro or a combination of other currencies would take its place and the demand would shift.

This is going to have to happen sooner or later for political reasons: you're just too profligate and untrustworthy.

[Dr Strangelove]

Re: What happens to the rest of the world if the US economy crashes?

Originally posted by Lancer
Lets say the dollar drops like a rock, everyone starts calling in loans to the US and not giving any more. So what happens then?

As the world economy plummets the leaders of the world gather in meetings to decide what can be done. Agreements are made to bolster the US economy, essentially granting the US more power and control.

[Lancer]

"Any number of countries have set themselves up on the export to America model of economic growth, they are all thusly boned."-Whoha

This is kind of what I figured...but it's interesting to see that many think otherwise. I hope the world could go on without us...

I wonder what the US government would do?

[Drogue]

Depends how quickly the Chinese and Japanese stop supporting the dollar. If they stop immediately, then not that much. Many exporting countries lose quite a bit, but don't go bankrupt. Worldwide recession, but not a particularly serious one.

If East Asia tries to prop up the dollar, they lose a *lot*, so probably half the banks there go bankrupt, the government has to bail out and their economy suffers seriously. Slightly larger knock on recession.

Either way, Europe doesn't do too badly. Less trade, sure, but not much change in the balance of trade.

[chequita guevara]

Same thing that happened last time, the world economy crashes.

We buy more than $60 billion a year more than we export. You can't afford to let us go under, and you need us to keep borrowing. Yer kinda screwed either way.

[KrazyHorse]

60 billion a month. 60 billion a year would be peanuts.

[KrazyHorse]

The US trade deficit with europe is only ~120 billion p.a.

That's only slightly more than 1% of europe's GDP...

[Agathon]

Depends how quickly the Chinese and Japanese stop supporting the dollar. If they stop immediately, then not that much. Many exporting countries lose quite a bit, but don't go bankrupt. Worldwide recession, but not a particularly serious one.

If East Asia tries to prop up the dollar, they lose a *lot*, so probably half the banks there go bankrupt, the government has to bail out and their economy suffers seriously. Slightly larger knock on recession.

Either way, Europe doesn't do too badly. Less trade, sure, but not much change in the balance of trade.

That sounds about right. It seems to me that dumping the dollar is increasingly the path of least resistance. I think the Japanese would be more reluctant than the Chinese to dump it.

[Agathon]

We buy more than $60 billion a year more than we export. You can't afford to let us go under, and you need us to keep borrowing. Yer kinda screwed either way.

But you also export dollars and receive goods back in exchange. Europeans pay you in goods for the privilege of holding dollars. If the Europeans stop buying dollars and buy Euros instead, then that will just mean that they are no longer giving you guys a freebie.

[Kidlicious]

Originally posted by Agathon
Not as much as people think. Canada will be screwed. People will just find other countries to swap stuff with.

There's a tremendous amount of drag that you are ignoring. Something like that would take at least a decade to occur if there were any movement in that direction at all.

[KrazyHorse]

asia and canada, on the other hand, might be in trouble.

[Agathon]

There's a tremendous amount of drag that you are ignoring. Something like that would take at least a decade to occur if there were any movement in that direction at all.

Sure, but it will be worse for the US than for the other countries. If your dollar sucks, and your government is trying to use it to freeload off of the rest of the world, what's the point in trading? You no longer have what they want.

[Kidlicious]

Originally posted by Agathon

We buy more than $60 billion a year more than we export. You can't afford to let us go under, and you need us to keep borrowing. Yer kinda screwed either way.

But you also export dollars and receive goods back in exchange. Europeans pay you in goods for the privilege of holding dollars. If the Europeans stop buying dollars and buy Euros instead, then that will just mean that they are no longer giving you guys a freebie.

The purpose of exporting to the US isn't to hold dollars. It's to create growth and stability in their own economy because their domestic economy isn't strong enough.

[Agathon]

I don't understand anyway. If China moves to Euros as a reserve, then the Europeans will have to spend the money they receive for the Euros (I can't see the point of sitting on a pile of yuan), so the goods that went to the US will now go to Europe, since the Europeans can now afford them.