Dennis Redmond writes:
> Marvin Gandall wrote:
>
>> the fact that the US remains the central export market for the
>> rest of the world is the single most important factor underlying
>> its economic and political domination of the world economy.
>
> This advantage is slipping away fast. In 2005, the total trade (imports
> plus exports) of Europe (defined as the EU-25 plus Norway, Switzerland,
> the accession countries, etc.) with the US was only 4.1% of Europe's GDP.
> Japan's total trade with the US was only 3.7% of Japan's GDP.
>
> I wonder what will happen now that the US housing bubble, the major prop
> to this subpar expansion, is imploding. Some of the short-term indicators
> out there are scary. Nouriel Roubini
> (http://www.rgemonitor.com/blog/roubini/) thinks this will trigger an
> outright recession. We shall see...
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Erosion of the US advantage does look to be the long-range trend, especially
given the potential size of the Chinese and Indian domestic markets and
their economic growth rates.
Would a (mild) recession after the midterm elections - one which falls short of a fullblown housing collapse, sharply rising unemployment, and a wave of personal and corporate bankruptcies - be something the Fed necessarily fears? What it fears most, as Roubini and others have noted, is that it will overshoot on interest rates while energy-driven prices stay high producing a more "scary" stagflationary scenario. It does seem more uncertain now that at any time since it started hiking rates.