Stephen Roach in his latest essay paints a sobering picture of what is just around the corner for the US economy and, by extension, the global economy.

And this time it's personal.

The housing bubble is deflating fast in the US. In Australia we have been watching flat prices for several years now – and hoping that it doesn't get any worse.

The problem is, as Roach says, that we have an unbalanced global economy. For that read an economy that is far too reliant on the US consumer. Or, as I noted in an earlier piece, too reliant on distant events that are off our radar screens.

This is going to be a bubble that is going to be hard to pick though in my opinion. It comes with rising petrol prices, a massive tectonic shift in media – with advertising fast reaching the tipping point of dollars moving from traditional to online properties. Seems to me that the real hurt may continue to be masked by sectoral ebullience that will hide some of the pain, and give the politicians something to crow about regardless.

And then there is the middle east war. How long can the US economy tolerate the drain on funds that cycles round to a few fat corporations?

Its going to be Mr Toad's Wild Ride alright. And the real question that arises from this is will we hit the big D word?

My sense is that when you hear the US talk about recession, what they will really be talking about is an economy that is heading into deflation. And when that happens, watch out for the dollar, watch out for everything – the US will be in trouble.

This entry was posted on August 25, 2006 at 9:02 pm. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

Posted in Economics Main Page by Chris Gilbey No Comments Yet