The coming recession in the US?

[Dinner]

Originally posted by DanS
The government deficit is on pace for a much lower reading than last year. Q1 was the lowest since 2002Q1. We'll have to see if the trade deficit has finally turned the corner as well.

Haven't you been announcing that we'd "turned the corner" for four or five years now? That's a lot of false corners.

[DanS]

On the government deficit, we turned the quarter at the beginning of 2004.

On the trade deficit, it has persisted longer than I thought it would, but I don't remember having thought the trade deficit was turning the corner until about 2 years ago. Normally, there is a delay of about half year to a year between when your currency declines and when the trade deficit declines. This time has been a lot longer.

[Ted Striker]

Since we've turned the corner four times, that would mean we came back to where we started.

[KrazyHorse]

Originally posted by Lancer
I've been expecting another big recession, like Carter's, for 20 years now. It just doesn't happen. It seems that the US can go on exporting dollars forever and not pay the price. I can't understand it but economics wise people like DanS say things are fine, soo...

Sten used to be a bit concerned iirc.

[chequita guevara]

Originally posted by Ted Striker
I thought you had gotten a job Commie?

Or was that just temporary?

It was just a two-week contract. Unfortunately, I'm so damn good, I completed it in three days.

[Lancer]

KH, so what's the big deal? Foriegners buy our busineses and I work for them instead of for Americans. Does this make one bit of difference to me? Also, that's money coming back, right?

Otherwise, what happens to all these billions going overseas? They invest it right back in the US, yes? This cycle seems endless, is it?

If the world economy does go south for good, what will replace it?

[Ted Striker]

A despotic Amazon dictatorship run by TED STRIKER

[Lancer]

"A despotic Amazon dictatorship run by TED STRIKER"

Why not a pilot? I ask you...

[KrazyHorse]

Originally posted by Lancer
KH, so what's the big deal? Foriegners buy our busineses and I work for them instead of for Americans. Does this make one bit of difference to me?

It makes a difference in that their income goes to other people.

Earned income is only one piece of the puzzle.

Right now the US as a whole is spending more money than it is earning. It's similar to a man who makes 100 000 dollars a year and who spends 105 000 dollars a year.

He started out owning his home, car etc. outright. Eventually he doesn't own anything. His house is mortgaged, there's a lien on his car and he has credit card bills.

American residents used to earn more money from foreign investments than foreigners earned from American companies. That has reversed itself now. The surplus, which used to put more money in the pockets of Americans than would be suggested by simple GDP is now a deficit. Americans do not see 100% of the money that is generated by their own economy.

If you want to talk about sustainable current account deficits, the limit is around the same as the average growth rate. Average growth rates are around 3% or so. Current account deficits are 5% and increasing. That's a level never before seen.

Americans are financing their lifestyles on credit. They're selling off the companies which used to bring them income above what they earned.

[KrazyHorse]

Originally posted by Lancer
Otherwise, what happens to all these billions going overseas? They invest it right back in the US, yes? This cycle seems endless, is it?

No, because the US only has so many assets to sell. Eventually the indebtedness of the US grows to so high a point that continued capitalisation of the US economy becomes unattractive. The value of American currency falls as demand for $US decreases and Americans can no longer afford to buy so many pretty baubles from overseas. The current account deficit drops. And Americans have to earn back all the money that they spent on credit.

It's a self-correcting system. The problem is that right now the US is headed towards a rather stiff correction instead of a soft landing.

[Lancer]

This could effect my planned retirement in the Philippines. How long before the **** hits the fan?

[DanS]

Eventually the indebtedness of the US grows to so high a point that continued capitalisation of the US economy becomes unattractive.

[KrazyHorse]

If I was an economist I'd give you an answer. Since I'm not, I'll tell you the truth and say that nobody knows. You'll probably see a further general weakening of the US dollar some time in the next 5 years.

The longer we go without the US dollar dropping further the worse it's going to be when it happens.

The timeframe is dependent both on government action (US, EU, Japan and China most importantly) and public perception worldwide

[chequita guevara]

Originally posted by Lancer
This could effect my planned retirement in the Philippines. How long before the **** hits the fan?

Well that's the million dollar question, isn't it? You might want to consider buying Euros, however.

[KrazyHorse]

Originally posted by DanS

Duh. I put the word in there on purpose. If tomorrow morning Americans woke up and started saving more and spending less, then the trend would be reversed. They will not do that without some sort of economic stimulus, though. The perception that living on credit is fine is rampant in this country. I see people around me buying **** they can't afford and feeling that it's perfectly fine.