The US Economy

Brian Wesbury had a great article over at Real Clear Politics about inflation. I should admit that my interest in politics stems in large part from my indulgence in economics. I'm also an independent because both the left and the right fail miserably when it comes to understanding macro economics. Or rather they understand it but their constituencies don't.

We are headed for a rude awakening this year, a friend sent me this list of countries current account deficit and I think it sums up the major problem facing the global economy. Namely that the US buys more than it sells. Obviously it can't go on forever and at some point the dollar has to fall and everyone else's currency rises. I predict, this will happen in 2008.

Certainly it's happened a little over the last year examples include the euro and the looney however it's been on a small scale and offset from the massive ammount of foreign reinvestment into America. This year we have reached a point where America is in recession and will no longer be buying items that are not really needed. They will still eat, drink, and be merry but a more minimalist future is in the works. Who does this harm? The nations that trade with the US, suddenly not only is there a lack of a US market but the US has very little goods to sell. This brings about a rapidly declining dollar as countries pull out of their US investments so that they can actually buy manufactured goods. I see this lasting till 2010, assuming the US government doesn't mess up and interfere with economics. It'll take 2 years for the US economy to create the manufacturing economy that we've been unable to support for the last 10 years due to the strength of the dollar.

By 2012 the global recession will start to fade and the dollar will again gain strength. America's downturn will end in the spring of 2010.