The American Economy

The Big Picture examines the article by Floyd Norris and agrees that the Index of Spot Metals now reflects trends in the global economy, rather than the direction of the American economy, as Asia and China have become the marginal buyer of these metals. I would basically agree with Ritholtz and Norris, but caution that China has yet to go through it’s first globalized-style recession. Remember the example of Japan which is only just recovering from their first major recession of this type, and future economists should keep their eye on Taiwan and S. Korea. A secondary consideration is the changing format of the American economy; the expected poor performance of the American economy in 2007 could only set the stage for expansion of American manufacturing to come. I fully expect American manufacturing to increase by 17% by 2010-12.

Dean Baker states it is foolishness to worry about whether Oil is valued in Dollars or Euros. I would basically agree with his argument, but would continue to stipulate my own desire for the Transfer to Euros. Why? The Answer comes in the marginal discount Americans must pay for the greater volume of transactions conducted in Dollars. The entire World, except for Oil Producers, want cheaper Dollars to buy Oil. Baker has already explained why Oil Producers are not impacted by the cheaper Dollars. Foreign suppliers of Goods to American markets are willing to underprice their Goods (an expected 2-3%) to obtain Oil-trading Dollars. American Manufacturing suffers as consequence (think somewhere around 9% of their Profit line). American Consumers seem to gain advantage from this situation, but Consumer Debt mounts as they lose American Pay Raises and Hours Worked. The Dollar used as international Currency does not aid the American economy. lgl