I've been saying for a while that the US economy is in deep doo. They're just in denial and despite the US$700 billion dollar rescue package (more on that below) I think the worst is yet to come.
And of course, our government is running around saying that we're fine. That's odd because our dollar is still dropping against the US dollar. And if they're in bad shape and we're in good shape, shouldn't our dollar be going up? Clearly there is something I don't understand here. Duncan Riley has a more intelligent and eloquent post about it.
If you think about it a little bit - the US is China's major export market. There are a lot of cheap goods that make their way across the Pacific. If (ok, that's not an if - when) the US economy tanks totally China's economy will take a small dip. China still has a lot of growth internally (althought that is slowing as well) but if their economy takes even a 0.5% drop that is a lot of money.
And what does Australia do? What does the lucky country do? How smart are we? For those that aren't paying attention we ship a lot of raw goods offshore and then buy back the finished goods. Smart. Nicely done. Yes, I know there are a lot of reasons for that but still...
And where do we sell lot of stuff to? China. So, if the Chinese economy takes a tiny dip and doesn't require quite the same level of raw materials from us then we're going to have a bit of a hard time as well. Bear in mind we have a large dependence on the US economy as well (in ways that I don't understand but there you go) so that's going to hurt us too.
When is this going to happen? No idea. I have pessimistic friends who say it will happen by the end of 2008. And we have our optimistic friends in goverment who say it won't happen. So, it will be somewhere in between. Me - I don't have an educated guess by I'd say we'll start feeling the pain sometime in the next 18 months.
This is a good time to start cleaning up your finances and making sure you're capable of weathering the storm. I'm sure things will come back eventually but it will be different world. IMHO the US economy isn't going to bounce back any time soon. I'm slightly optimistic that the electronic world that we live in will mean that we won't enter into a depression like in the 1930s but I'm not entirely convinced.
Back to my comment about the $700 billion dollar rescue package. While I appreciate that it had to be done - a lot of ordinary people would have been hurt it the US government hadn't stepped in to rescue the banks - but I'm sure that you could spend that money in different ways to make the situation better. After all, you're giving the money to the people that got you into that situation in the first place. Not really that smart.
So what is it about the US - they talk about a free-market economy but when it comes down to the crunch they privatise the profit and socialise the debt. I wish I could get in on that - that way I could build a company, make a squillion dollars and then run it into the ground and have the government give me a get-out-of-jail-free card. Lovely. How does one get a gig like that?
What amazes me is the never-ending cycle of monetary magicians that come along to tell us that there is a new way of making money, only to have it blow up a couple of years down the road. I'm old enough to (just) remember to S&L scandals in the US, followed by the 1988 stock market crash, the Asian financial crisis and the 2000 dot-com bubble. Oh, and of course the Enron scandal (which brought us some great US-based leglislation that affects the whole world - Sarbanes/Oxley) and the US housing bubble.
In particular, the 2000 bubble amazed me - so many businesses with no way of making money burning through cash like there was no tomorrow. It was the new economy - it was the new way of making money. I remember asking people to explain to me where the money was going to come from. No-one could tell me but I was assured that it didn't matter. It was the new economy - the way things were going to work from now on. Right.
So if I'm just a lowly geek and I can see that there are problems, surely the eonomist types can see that too, right? And surely someone has better ideas than me about how to fix it, right?
While I'm not a fan of big government I think that the answer is more regulation on the financial sector; better investment by the government in social programs such as social security, health and education; and a watchful eye on the rest of the economy - none of this letting the fox run the hen-house stuff that goes on in the US. Now, even I've got to admit these are lame ideas with very little specifics but I'm an IT guy. I don't do macro or micro-economic planning.
Finally, while I'm having a rambling rant let me jump back to socialising the debt for a second. I wonder what'd be wrong with making all the shareholders in a company responsible for the debt of that company. After all, they're sharing in the profit in some way - why not make them share in the debt to the same percentage? It has a downside - it would stifle economic development for the exact reason it is a good idea - it would force people to only invest in things or only start companies that have very little risk. But again, I don't do that economics stuff. I just don't understand it.