Is the U.S. Economy Toast?

Economics / Double Dip Recession
Aug 08, 2010 - 09:44 AM

By: Brian_Bloom

Marc Faber thinks the US economy is toast. Richard Russell’s interpretation of the technical behaviour of the US market is that we might just be entering a new Primary Bull phase. (Although he remains wary because of the generous P/E ratios that still prevail).

Last week, this analyst had an interesting chat with an associate who happens to be an extremely well connected Institutional player in the currency markets. He meets regularly with central bankers in various countries in this part of the world and, last month, the year-to-date returns on investment of 11% of the fund by which he is employed was halved. He was not a happy chappie.

Is anyone out there bullish? Is there a reason to be bullish? Are the bears stubbornly holding onto their bearish calls for ego reasons?

Recently, another friend was kind enough to send me a link to a YouTube recording of Niall Ferguson giving the Stavros S. Niarcos Foundation lecture. It is well worth watching. Readers can access it – and the Q&A session which followed – at http://www.iie.com/events/event_detail. ... =152&Media

Ferguson is an historian as opposed to an economist. If you want to see more of his credentials, go to http://www.niallferguson.com/site/FERG/ ... x?pageid=1 and http://en.wikipedia.org/wiki/Niall_Ferguson

During the Q&A session, some interesting observations emerged and, for ease of reference, I have summarised them below:

The ratio of sovereign debt service payments to tax revenues seems to be the single most important indicator of a coming market crisis in today's financial world.

Complex systems are fragile and are extraordinarily vulnerable to "sudden" deterioration

European Integration is very likely history. One cannot have monetary union without fiscal union and voters (particularly in Germany) will not likely sanction a European fiscal union

A Geopolitical crisis can be the catalyst to the demise of globalism – as happened once before in history around the time of World War I following Britain’s global exploits which preceded that time.

India is a more trustworthy international trading partner than China

Fiat currencies may give way to commodity based currencies

In this morning’s media, it was reported that Fidel Castro is still worrying about a nuclear holocaust and he believes that a failure of the US to recognise the dangers of provoking Iran and/or North Korea may be the catalyst to such a holocaust. This attracted my interest given the fact that I am now fairly deeply into writing my second factional novel, which has nuclear energy and its associated issues as one of its primary themes. I’m not sure if I agree with Castro that America (or any other advanced nation) holds the key. To me, the risks flow from a convoluted matrix of issues which devolve, ultimately, to ego and testosterone. It is not only capitalists who are possessed of testosterone. And it is not only men who suffer from inflated egos.

When I look for what may be positive on the horizon, I find myself focusing on the following:

Like Ferguson, I think that the entrepreneurial spirit that went into making the United States a powerhouse should not be underestimated. When the going gets tough the tough get going.

Out of entrepreneurialism flows innovation and out of innovation flows improved productivity. “Productivityâ€