By: Pervaiz Lodhie
Present second term US administration's over-reaction and over-correction to the tragedy of 9/11 may have given America some temporary military wins globally but major economic losses that are here to stay for a long time. I am surprised to read recent article in Newsweek from a financial expert talking about million reasons and quoting the Fed Chairman why the $ is getting weaker, why deficit is growing etc except the real reasons. Commerce between the rest of the world is starting to heat up. South Asian countries Like Pakistan are becoming a hotbed of global visitors grabbing big financial deals. Next generation of Innovators and Entrepreneurs that used to come to America daily to make America technologically most advanced are now going elsewhere.
1 comment:
Not to underestimate US economy. The subprime mortgage turmoil will not drag US down, a la Japan 1990-2000 liquidity trap. Recession always possible, esp. if oil prices continue high, but once Iraq spending trends down this fall/winter the dollar will rally.
Recession can only occur in US if, over 3-4 months in succession, unemployment rises significantly. A 4.4%-4.6% rate is not showing recession, but possible inflation.
Stagflation seems nearing 50-50 chance as of today however, as corporate earnings look to flatten/sag in USA itself. But global growth cycle still seems in buoyant stage. USA/EU/Japan/ROW proportions changing. [Earlier 50-25-25.] USA must necessarily become less % as ROW growth accelerates beyond rates possible in US/EU/Japan.
Note: Trap in analysis can often be use of 'PPP'. I ignore for most purposes this IBRD creation.
PRC needs to gradually eliminate dual currency structure. Effect of this transformation is likely to weaken US$ temporarily.
Danger does exist in large hedge fund blow up. Most likey in commodities.
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