Tuesday, November 23, 2004

Economic Indicators= We're goin' down the toilet

Atrios has a few good ones here, here, and here.

His first link, to a talk given by Stephen Roach chief economist at Morgan Stanley bears repeating:

In a nutshell, Roach's argument is that America's record trade deficit means the dollar will keep falling. To keep foreigners buying T-bills and prevent a resulting rise in inflation, Federal Reserve Chairman Alan Greenspan will be forced to raise interest rates further and faster than he wants.

The result: U.S. consumers, who are in debt up to their eyeballs, will get pounded.

Less a case of ``Armageddon,'' maybe, than of a ``Perfect Storm.''

Roach marshalled alarming facts to support his argument.

To finance its current account deficit with the rest of the world, he said, America has to import $2.6 billion in cash. Every working day.

That is an amazing 80 percent of the entire world's net savings.

Sustainable? Hardly.

Meanwhile, he notes that household debt is at record levels.

Twenty years ago the total debt of U.S. households was equal to half the size of the economy.

Today the figure is 85 percent.

Nearly half of new mortgage borrowing is at flexible interest rates, leaving borrowers much more vulnerable to rate hikes.

And to that I'd add this gem from EE Times:

Government-funded research and development programs are likely to get the budget ax in the next federal budget cycle, observers predict.

Government agencies funding R&D programs were busy sorting through a massive spending bill approved by Congress over the past weekend trying to determine spending levels for individual programs. Sources said agencies like the National Science Foundation are likely to see funding remain flat for the remainder of fiscal 2005, with any increase absorbed later in budget maneuvers designed to fund the war in Iraq.

And, China flips the USA the bird:

In a mark of China's growing economic confidence, the country's central bank has offered blunt advice to Washington about its ballooning trade deficit and unemployment.

In an interview with the Financial Times, Li Ruogu, the deputy governor of the People's Bank of China, warned the US not to blame other countries for its economic difficulties.

“China's custom is that we never blame others for our own problem,” said the senior central bank official. “For the past 26 years, we never put pressure or problems on to the world. The US has the reverse attitude, whenever they have a problem, they blame others.” ...

“Under heavy speculation we cannot move [towards greater flexibility] and under heavy external pressure we cannot,” said Mr Li. “So the best environment for us to gradually move towards a more flexible exchange rate is when people don't talk about it.”

His comments will disappoint US, Japanese and European politicians. Pressure has mounted on the Chinese administration to revalue the renminbi or to increase the flexibility of the Chinese exchange rate over the past two years.

Mr Li said China could only permit greater renminbi flexibility after creating a domestic financial infrastructure, including reformed banks and developed markets, able to cope with a more liberalised currency mechanism; considering the conditions and the wishes of neighbouring Asian economies on any move towards a more flexible system; and educating people on how to deal with a new exchange rate system, teaching them how to hedge.

Mr Li, who spoke before a meeting of the Asia-Pacific Economic Co-operation (Apec) forum last weekend, said China did not want to run trade surpluses or accumulate foreign currency reserves. Its reserves stand at $515bn.

“If there is a small deficit, we are not concerned. But certainly we don't want to run into the US situation of having a trade deficit of 6 per cent of GDP,” he said.

“That is not sustainable,” he added. “The appreciation of the RMB will not solve the problems of unemployment in the US because the cost of labour in China is only three per cent that of US labour. They should give up textiles, shoe-making and even agriculture probably.

“They should concentrate on sectors like aerospace and then sell those things to us and we would spend billions on this. We could easily balance the trade

Oh, and oil futures are at a two week high. Right after the elections for some reason.

Gold is heading north too- to $450 an ounce.

Well, looks like the rest of the world doesn't agree with the announced election results. Who could blame 'em?

And who on the right cares? Dan Rather's leaving so they're happy, happy, happy.

Good for them. I'm crying all the way to the bank.

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