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Economic Review |
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3/30/09 Sometimes it takes a major crisis to identify how important an economy is to the world. Over the past few months, a majority of analyses have involved a consistent and severe criticism of US business and financial market policies that led to the chaotic economic downturn that is affecting not only the US but also the world. This week the Market Doctor team will try to ease up on the negative pounding and highlight a positive that many are overlooking in the midst of this turbulence, and that refers to the importance of the US as a source of growth to the entire global system. As the almost unbelievable news of the demise of many US investment banks hit the tape along with the massive proposed bailouts that ensued, global market players were scratching their heads as to which currency to swap US$s in to. The first knee jerk reaction and darling of media mouthpieces was the Japanese Yen as many (not the market doctor) considered it a safe haven. However, this was miserably incorrect, as the Japanese economy is now showing its true colors and that is its dependence on the strength of the US. Recent statistics have shown drastic declines in Japanese exports, production and growth in general. The fact is that despite all the inexcusable policies that led to the US economic bust, global economies depended on the continued robust growth and consumption of the once mighty US economic machine for their own growth and prosperity. It is this time of incredible uncertainty that will identify which global economic zones, if any, can withstand the weakness of the US system and continue its stability. Some have mentioned that China’s vast currency reserves and investment in infrastructure could keep it afloat in a stable manner, while the jury is still split on the EUROZone, with some voicing the potential of a more severe recession than the current US situation and others asserting a more stable scenario to that of the US. We’ve all seen the mighty Japanese system…sorry, once mighty about 20 years ago when they had a land and real estate bubble. Time will tell. The answer will probably lie in the relative amount of consumer debt a particular system has and the stability of that system’s central bank to maintain a strong currency. I think I smell a Zone out there.
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| Stephan Kudyba (MBA, PhD) THE MARKET DOCTOR |
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