The US is sitting on a huge house price bubble, caused in large part by
low interest rates, and also a distrust of Wall Street following the
scandals of the past few years. To many people, bricks and mortar seem a
safer investment.
Low interest rates were of course brought in to stimulate the economy
after the Wall Street-hyped Dot.Com bubble burst.
Most of the new jobs created in the US in the past three years are in
housing construction and related industries. When the housing market
slows, as it must, these jobs will disappear, and the economy will falter.
In normal circumstances, the response to a slowing economy is to lower
interest rates. But they are already so low that there's not much scope
there.
Another option is to lower taxes, but Bushy has already lowered taxes so
much that the country is running a huge budget deficit.
The US has been on a spending spree in the last few years, buoyed up by
rising house prices. Household debt is at an all-time high. This has
been paid for by foreign governments buying dollars. Places like China
have dollars coming out of their ears, and at some point will cry: Enough
is Enough! The dollar will then dive, creating massive inflation, because
the US now imports so much from abroad.
A characteristic of all bubbles is that they gain a certain momentum which
propells them onward even after people realise that a crash is
inevitable. I personally contributed to the British housing bubble of
1988/89 by buying a house when logically I knew prices were bound to
fall. As indeed they did!
So when the US will start heading downward nobody knows. It should, if
logic ruled, have started doing so already, but logic doesn't rule, and it
may blunder on for another year or two.
And when the US sneezes, the world catches a cold.
This of course is a rather bleak view of things. There is always room for
optimism. All it would take to turn things round would be for an
inspiring leader, who enjoyed the full confidence of his countrymen, to
take firm action and with sound planning set the nation on a course to
recovery. After all, the world is awash with such men at the moment:
Bush, Blair, Putin, Chirac, M'beki, Mugabe, Berlusconi, Sharon; fine
fellows all.
My advice is to find employment in a recession-proof industry, like
cardboard coffin making (there'll be no market for the nice oak ones).
Ultimately, inflation caused by the collapse of the dollar will enable
Americans to pay off their mortgages (which will have lost value in real
terms). Then the recovery will begin, and we'll realise that the
boom-bust economic cycle never went away.
John
On Sun, 06 Nov 2005 07:57:01 -0000, Rob Studdert <[EMAIL PROTECTED]>
wrote:
On 6 Nov 2005 at 6:52, John Forbes wrote:
I understood what you were saying. My point is that the Japanese
economy is
improving, and there are still nearly five months of the second half
to go.
Exchange rates may look very different in a few months time.
And what is the trajectory of the economy in one of its biggest markets,
the
US?
Rob Studdert
HURSTVILLE AUSTRALIA
Tel +61-2-9554-4110
UTC(GMT) +10 Hours
[EMAIL PROTECTED]
http://members.ozemail.com.au/~distudio/publications/
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