Here's my take on the current tittering global economic elephant.
US is obviously in dire straits, although technically they aren't in recession yet, but most commentators seem to think the technical stuff is old hat. Things look grim. (Still, don't forget, the low US dollar is giving a huge boost to US exports.)
Nonetheless, the US economy is huge, and has weathered this kind of downturn before without too much trouble. One thing this time is consumer confidence is very low, but that may just be because of how high it was before the property bubble burst.
The issue that has occupied the minds of many non-US commentators, esp Aust ones, is whether the world economy is going to see the US economy sink with little or no impact on the global scene. If so, this would have global-political consequences, as the US is no longer seen as the power influence in that area it once was.
So in Aust, we watch China, where we sell all our minerals and other resources, which is causing big problems in Aust, as we are getting inflation not from internal factors, but because all this money is pouring in through mining companies, and generally not getting into the pockets of the masses. And the Govt is unable to distribute it's growing surplus because that would increase inflation and mortgage interest rates.
Europe looks to be going from strength to strength, and Asia is taking off like a rocket. China sells most of its product within its own country, and when you add the rest of Asia to that, it really doesn't need the US, except the Chinese have all their money stashed in US equities - they don't want to see the US go down.
So all that looks fine, till you add in the oil price. This is the second wild card, the first being the sub-prime property rupture. Oil prices affect everyone, but it is exacerbating the US recession, which currently expected to be mild, could escalate - eg we have trouble with the big three motor car companies, GMH, Ford and Toyota, with GMH about to go bankrupt. I don't think we have seen the bottom of the US recession yet.
Resources in Aust took a hiding on the stock market a few days ago, precisely because of the oil price - the cost of doing business, as well as everything else, is going through the roof, and the hit on resources is the first sign that the market sees the whole US insulation paradigm as a possible fantasy.
Will oil continue to climb? And what will the US Government do about it? I cannot see them sitting back with all their power, while their own country collapses due to oil - I mean that is a material good, that one you can take with weapons.
The scare over oil is having one good outcome - US is growing very vocal against Israel's intention to bomb Iran. Not sure how much that will affect the Israelis, who see Iran's nuclear ambition as much more than an economic issue. I can't see Israel doing nothing, no matter what. Before or after the US election? Obama recently made some overtures to Israeli gitters about what will happen after the election, but I gather they see Bush as their best buddy in a very long while, and unlikely to be repeated for some time, which may mean they will act sooner than later. But even Bush has the gitters over what an Iranian attack will cause.
This leaves us with the big wild card - the climate. It's impact is unpredictable. But one super blow to a major city, will really test the whole ship's bones, to say nothing of the coming north-hemisphere summer's water and food issues. The UK Guardian has released a suppressed UK Government report showing the bio-fuel industry is to blame for about 80% of the recent rise in global food prices. Suppressed because they didn't want to embarrass the Bush administration which has been placing the effect at 3%.
onward we plod ... into the valley of death, one way or another.
