Wednesday, September 12, 2007

US Overexposure

Countries in Asia are rapidly growing in today’s world; with rapidly growing economies, rapidly increasing wealth, and of course, huge export to the US; this begs the question as to what are they doing with all their money or where is the inflation? The US is notorious for being spender and not saver. On the average, individual in the US only save about .4% of their income compared to countries in Asia that save up to 30-50%. The US trade balance is also in the negative which indicate that we are sending a large amount of US dollars oversea, which again beg the question as to what those dollars are being us for? For the most part, they aren’t being stored away in mattresses and under beds, but instead, they are being reinvested into the US economy; either through investment or buying up US treasury.

There are some serious implications to this situation as this could potentially undermine the US economy, as well as US national security. US consumption has, for the past decade, been fuel by easy credits. It seem that people never asked questions as to where these credits are coming from if US consumer are not saving. The answer is oversea. Imagine then that with the currently weak US market, what if oversea investors - especially governments oversea - decided that keeping their money in the US just isn’t worth it anymore? Or just imagine what it would mean if China suddenly decided to sell off their US bonds. In other word, the world has been loaning the US money to buy their goods, and the US has just been willingly spend, spend, and spend.

In the faces of easy credits, easy financing, and a housing boom; the US has been on a no holds bar spending spread the past decade. Now, with a poor housing market, tightening credits, unstable stock market, huge foreign debt, huge trade deficit, and the list go on, the US economy has dug itself a hole that it might not be able to climb out of. And don’t expect foreign investors to keep pumping in the credits to keep the US afloat, especially since they are losing so much thanks to thing like the subprime mortgages and loans that are causing countries like China a fortune. The US has overexpose its market, and like a kid with a credit card, it has really done it big this time around.

Is there still hope? The US economy is big and growing, our unemployment number is low, and a lot of market is directly tied to the US; hence, no one want to see us crash and burn, so, yes, there is still some hope. However, we have to look at the situation for what it is. Our growth has been pretty unimpressive, our unit labor cost has been on the raise, and we’re are facing a bad credit crunch. Then, we have to worry if our unemployment number will be able to hold up. The unemployment statistic from the BLS shows that participation rate has drop for the month of august 2007, and the number of individual that are force to work part-time are rising. Things really look very dismal for the US from almost every prospective. So do we have hope? Very little if at all. There need to be some serious changes fast, if it isn’t already to late. We need to buy back our debt, balance our trade, and re-evaluate our financial sector. Or, maybe, the only way we’re going to fix this now is through a recession. Let all just hope that it would not turn into a depression.

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