Huge deficits are the real threat to US economy
Take away spin and delusion and the reality is, unfortunately, frightening.
To be sure, there are green shoots of recovery in certain sectors of the US economy, but that is due to fertiliser provided by the “Baghdad bounce” and the delusions of credulous US consumers.
In reality, since George W Bush came into office nearly three million jobs have been lost, a significant amount of which have disappeared in the recent “recovery” phase. This is to be compared with an average of 2.8 million created over the first 20 months of previous economic recoveries.
The meagre rate of US growth also stands in stark contrast with the average real GDP increase of 5% recorded over the past six cyclical upturns.
More troubling is that senior US executives seem unconvinced of economic recovery, as they are dumping shares in their companies at record levels, all of which bodes ill for any prospect of future dividend growth and company profits.
Housing and car purchases are up, but consumers are merely spending today what they will have to repay tomorrow, at a much higher rate of interest.
Many, however, are already experiencing problems, as the increasing rates of property foreclosures and mortgage defaults across the US indicate.
The greatest danger to long term recovery is, however, the level of government indebtedness, as the deficit soars to an estimated $450 billion.
The total US debt burden now stands at $7 trillion.
Higher taxes? Not until 2005; crafty Dubya will learn from his daddy’s “read my lips” gaffe. Worryingly, the benefit of the Bush tax cut has already been eaten into by higher utility and energy charges to consumers.
As the level of US indebtedness increases, there will be upward pressure on interest rates, as happened during the Carter and Reagan years; major cutbacks in consumer spending will follow, and the economy may end up in even worse shape due to stagnating domestic and international demand.
In the best-case scenario, the climb out of this recession will be shallow, and take much longer than expected.
Tom Butler,
Courtbrack,
Blarney,
Co Cork.
