The start of decline of the US powerhouse economy..?


Global oil sales are currently conducted in US dollars (so Spain buying oil from Nigeria has to do the deal in USD etc. etc.) - this means the global USD economy is staggeringly massive, and can sustain a huge US budget defecit, the US economy benefits from every oil transaction, even if the oil deal doesnt touch the US in any way.

However, some nations are moving towards using the Euro, is this a good trend? and what effect could this have on US global economic might?

Could be dangerous. Would an increasingly marginalised US lash out more with its military to try and keep its financial control on the world?

I'd quite like to see the US lose some of its grip on the international money markets, for too long its been reaping the rewards of 3rd party transactions but a wounded animal is a dangerous one and in the seat of captialism people would demand action, legal or not.
Let’s look at the numbers: Japan has $700B of accumulated Treasuries, and China $200B. They could afford to let them crumble to worthlessness because these levels of losses could be absorbed by these economies. On a relative basis the damage to the US would be worse. That is not a likely course, but it should be providing fear as an overhang to the value of the dollar. It is more likely that they will keep the flow supported at some level because they want to continue to keep their workforce busy producing goods for us for trade. That is a bigger deterrent to their pulling out of the vendor finance program than the potential loss on their Treasury holdings.

It is in the intrest of major markets to see a stable dollar. Being the biggest consumer in the world, a weak dollar would make imported goods into the US more expensive thus cutting into the profit margins of emerging powers like China. Virtually everything bought in the States is now coming from abroad. 35% of China's goods into the US pass thru one business chain (Walmart) the biggest non goverment employer and one of the major reasons the unemployment rate hovers at 4.5%.

A sinking dollar, would at this time not only have dire consequences for the US, but might bring the rest of the world down with it.

So long as the govt. has the freewill to keep borrowing from itself and from other countries, the mobsters running the show can continue hiding the symptoms of the deeper economic cancer growing under the surface.

Like everything else, time will tell but my gut feeling says, we are about to slam into the wall of stagnation.
The $725.8 billion deficit, announced Friday by the Commerce Department, was a 17.5 percent leap from 2004's then-record deficit of $617.6 billion. The 2005 trade deficit equaled 5.8 percent of this country's gross domestic product, up from 5.3 percent of GDP in 2004 and 4.5 percent in 2003.

The United States hasn't had a trade surplus since 1975.

How the hell the US economy manages to stay competitive is beyond me. If anybody ran their business along the same lines they would go broke in a heartbeat.
The American economy is skating on thin ice and has been for sometime.
As long as it keeps skating it wont fall through.
For this to happen America needs to control the ice space and not be impeded in the direction she wants to travel.

Whilst the most powerful nation on earth she could get away with it.
The U.S has had a success of sorts that easily beguiled less powerful poorer nations.
Which was her intention and an essential part of the game plan.
Confidence and trust, no matter how undeserved is necessary for business to continue.
But the success she has enjoyed for some time is as two dimensional as the Hollywood sign itself.

Like a driver who always tail gates but never suffers a front end shunt she lived in a fools paradise.
Its an old story. She was the runaway success, the market leader, forever expanding year on year, splashing out on all the trappings heedless of all the costs and the pain she was storing up for herself that one day must be felt.
In short America has become the Great Gatsby skating through a world of the unpunished error.

She remade Descartes well known maxim to read:
I spend, therefore I am rich.

Now, looming over the horizon appear some immovable objects that look likely to resist her irresistable force.

First is peak oil.
When it going to happen, has it happened already?
if, and its a big 'if' anyone actually knows they are keeping it close to their chest.
Now the Big Junkie heedless of her first fix lost back in time begins to fear that there will be a last one.

Secondly as has been pointed out by Ratcatcher her economy is also partly sustained by the sale of oil in dollars.
Saddam amongst others began to sell at least some oil in euros.
Even with him gone this trend will continue weakening the dollar.

So in order to give out stupid tax breaks to the already rich a plan to pay for them had then to be enacted.
(incidentally, the war in Iraq through the no bid Halliburton contracts has seen the largest ever sums of money transfer from the American public economy back via Iraq back into the hands of private American corporations.
To which one can only say - Smooth Move Ex-lax!)

And now to Iraq itself.
Everybody thought that Uncle Sam only had eyes on what lay beneath the ground there.
Not So.

It hadn't been missed inside the beltway that lots of the profit in manufacturing had headed east to China and the pacific rim.

The 'Reconstruction' of Iraq was going to look after that.
Paul Bremmer introduced a law allowing foreign corporations to come in buy up all of Iraqis Nationalised Industries, renovate them and ship all profits free of tax out of the country.
Following them would have come the Nikes and Gaps of this world using Iraqi labour rather than Chinese.
Instead of working for the neighbourhood wise guy the average worker would now find himself working for the capo de capo.

But the plan didn't work.
Lawyers for the corps looked at the small print in the Geneva Convention and saw that an occupying force could not re appropriate and occupied territories goods and chattels.
An immovable object had appeared the irresistible force was stopped.
The corporations didn't come, reconstruction did not begin, but insurrection began.

Then Bremmer wished to take Iraq out of of OPEC refurbish the oil plant and turn on the taps full blast reducing the oil price and splitting up OPEC whilst the cheap oil price would boost the U.S. economy.
(incidentally there have been no metering devices on the lines since the Americans arrived so only god knows how much has been pumped out of the ground.)

But the oil companies looked twice at this arrangement and saw their shipping costs rising and profit margins dropping and the also didn't like a constant price fluctuation going on.
So they didn't go along with that and so the America economy didn't get the hoped for boost.

Another immovable object meeting an irresistible force causing heat friction and of course more war.

And soon China's home market four times larger than the U.S's will begin to mature then China will begin like Henry Ford in his day to make the largest profits selling to its own.
I read it on arrse that there shortly will come a time when Americans can no longer afford to shop at Wal Marts!
I believe this to be credible.

In the smirk of the chimp one can read America's nemesis and standing by its side the ever faithful idiot mute butler, the British Jeeves unable even to say
"Are you sure you want to do that sir?"

(on life in the U.S. financial smelting rooms read
'Liars Poker, Rising from the Wreckage on Wall st.' by Michael Lewis)
I think people will realise in future times looking back that the decline of the US economy is at least into the reving of 1st if not already into 2nd gear.

I reckon it will struggle on at this level for a while or at least until China sorts itself out and starts regulating its growth to a sustainable level. Once it does that, watch the crash happen
Spot on, SLRboy.
Personally, I have always hoped it would be the gambling syndicates known as Hedge funds. Totally out of control, fingers in every pie. I await the Apocalyse.

Good use of 'Gatsby' BTW. And 'Liars Poker'? Should be mandatory reading.

The crash of the early 90's happened within living memory of friends of mine, co-workers etc. And yet they put blind faith in the never ending credit whirl we find ourselves in.

We have sowed the wind...
SLR Boy - good post

The potential decline of global confidence in the USD might not be without precedent; thinking about it, although British industrial output was overtaken by the US in 1911, Sterling was, and remained, the global currency until WW2, when the USD presented itself as a more stable currency, and oil/gold was dealt using USD.

It could be argued that Britains recovery from the consequent devaluation of Sterling took many decades - our economy was left 'chugging-away' for 30 or 40 years, and where one pound sterling would buy $5 in 1945, it would only buy only $1.50 by the 1980's, and in that time we also went to No 6 global economy (the sick man of Europe).

Is the same about to beset the USA? I personally would like to see less global economic power in the hands of the US, but a powerful Euro will only increase pressure on the pound to join....

In every country of the world, a US $ will get you service. In most of them, tendering a £ or even a ¥ will get you noticed, but I've rarely found an immigration official interested in a 'euro'. That's not to say that it isn't a nice thing to have some of, of course, like chocolate cake.
Red Shrek said:
The decline of the US economy has been predicted like every year for a while now but here we are,still chugging away.
Yeah! SLRboy and others, don't hold your breath, waiting for this to happen! It's pretty 'Chicken little,' like the Sky is falling ... The Sky is falling!

A big BS! :?
Good post SLRboy; I've shared the same sentiment for some time.

SLRboy said:
The American economy is skating on thin ice and has been for sometime...
People have been wondering about what would happen to the Yanks for a while. Empire after empire has exhibited the S curve, peaking and troughing, and many have expected the US to follow this pattern. Usually, China is tipped as the next No 1.

That said, there is another school of thought that reckons the Yanks are on top for good, that the US will face new challenges but not challengers Proponents of this view reckon the modern US is different from empires past because of a unique capacity for self-renewal, based on immigration, that will allow it to go for 'second curve' thinking and escape the S curve.

Personally, I don't know but reckon the evidence presented here might mean we're close to finding out if c21 will be the Chinese Century or another American one. Unfortunately, I can't seem to get excited about either prospect...
The Mighty Dollar creaking! Bah humbug. Wishful propaganda by europeans and others.
BoomShackerLacker said:
The Mighty Dollar creaking! Bah humbug. Wishful propaganda by europeans and others.
Yes, I can't help noticing that all the spam bashers, pinkos and europhiles start rubbing their hands in glee any time a prediction on the impending demise of the US empire is uttered.
SLRboy said:
The American economy is skating on thin ice and has been for sometime.
Unfortunately for you most long-term economic forecasts like those by Deutche Bank and the IMF disagree. The US economy is one of the few predicted to continue growing in the next 25 years, along with that of India. The Chinese face a huge predicament in the next 15 years when their post-Mao generation begins to age without replacement workers available to continue their rate of growth (the legacy of their one-child drive).

EDIT: I should add here that the continued annual growth of the US economy makes it's markets a more lucrative investment then the economy of the EU as a whole. The argument has been made that the EU's slow growth makes the current high-value of the Euro vis-a-vis the dollar non-tenable in the long run.

You've given no real economic data to predict any decline, just a nudge at Euro-dollars and slamming US participation in Iraq (the sum cost of which is still a small fraction of the US Federal Budget). In real terms per capita income is in the top five. Productivity per worker is still the best in the world per top ten economies. Inflation is relatively marginal, unemployment is under 5% (full employment per economist's definition) and the national debt is, per capita, the same as Germany's.

Please indicate, in real economic terms, how this 'downfall' is to happen.
Cash flows dear boy, cash flows.

National economy is like any business. If the cash is flowing debts are almost immaterial.
"If the cash is flowing debts are almost immaterial."

And there I suggest is a man talking who has already been at the Xmas sherry bottle.
Try and leave some for the others Boomskaker, do remember you have guests who would also like to express charmingly idiotic notions at this merry time of the year.

Debts are never ever immaterial.
Which reminds me, don't you owe me a fiver?
SLRboy said:
"If the cash is flowing debts are almost immaterial."

And there I suggest is a man talking who has already been at the Xmas sherry bottle.
Try and leave some for the others Boomskaker, do remember you have guests who would also like to express charmingly idiotic notions at this merry time of the year.

Debts are never ever immaterial.
Which reminds me, don't you owe me a fiver?
Bizarre and shocking as it sounds you can run a business on net liabilities (that is, greater net liabilities than net assets). Technically you're insolvent but if the business has good cash flows you remain solvent. One of those paradoxes that stumps the lesser spotted accountants the world over. America has crushing borrowings but look at their 'national business model' and the strength of the 10+ trillion dollar economy. And why is Britain the largest source of FDI in the US?

Conversely you can have money in the bank, net assets, lots of customers, but if you have poor money flows, you're nothing.

It's beeezness my boy, beeezness.
FFS, I get tired of saying this! Demographics. DEMOGRAPHICS! DEMO-FCUKING-GRAPHICS! The US is in a WAY better position than China, Japan or any EU country demographically.

People never tire of predicting the decline of the US, they've been doing so since at least 1776 and guess what, it still hasn't happened. Didn't happen after the Civil War. Didn't happen after the Great Depression. Didn't happen after WW1/WW2/Vietnam/whatever.

Boom makes a very good point re debt. If you owe the bank £1,000, the bank has you by the balls. If you owe the bank £1,000,000,000, you have the bank by the balls...

Some people claim China's ownership of vast amounts of US debt gives China a position of strength viz the US. In fact, it's the other way around. China is virtually compelled to continue buying US debt. Other wise US$ declines, China's exports decline, leading to about a billion very unhappy peasants.

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