To nawawimohamad: I am not sure where you are getting your figures, but the US annual GDP is curriently running about $13 trillion USD and the entire global GDP was about $59 trillion USD in 2006 according to the World Bank. Multi-trillion USD bailouts are hardly insignificant. US pension funds alone have lost $2 trillion since the start of the market dip.That's about $6700 for every person in the US, including children and adults without pensions. I have seen total US equity losses at $20 trillion at one point recently. Panic selling only turns unrealized losses into realized losses. One trillion = 1 million million or 1 thousand billion.
The US has thrived above all other countries based on 'too much freedom'. In this case the deregulation of the past few US Presidents was a major contributor to the market drop, but with regulation the market wouldn't have risen high enough to have the fall. The US 'too much freedom' will alllow the US to bounce back. When I look at the overall US economy, since housing prices are now lowered, there isn't much weakness beyond the credit crunch. Unemployment is still relatively low and with a boost to employment people will be able to keep their houses and credit cards. Commodity prices are back down, so inflatioin is under control. House prices are so low that it shouldn't take too long to blow off the oversupply once credit starts working again.
As far as savings rates go, remember that economies grow when people spend money, not save it. The low US savings rate is what makes the US such a strong economy. We put our money to work for us. The long term annual growth of the US stock market is 10% per year, compounded. Compare that to savings rates, and figure in compounding, and you will see why the US is so far ahead of countries with high savings rates.
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‘This Makes No Sense’
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The scale of the crash is already promp-ting ominous warnings. For decades, notes Peter Tasker, a consultant at Dresdner Kleinwort, Asian countries have fueled their exports by lending to the United States. The problem: capital spending—like building export factories—tends to be much more subject to boom and bust than consumption. So even though the Japanese and other Asians have been "good boys, working and saving," the coming slump could hit them even harder than the "spendthrift" Americans. "You could have a deflationary bust in Asia driven by overcapacity and no customers being there anymore."
Long term, the crash in Tokyo could signal an even more fundamental realignment, says R. Taggart Murphy of Tsukuba University. "If over the long term this crisis means the end of American hegemony over global finance, and the end of the dollar's role as the primary international settlement and reserve currency, Japan will have to restructure its economy and its politics." That could prove to be true. But if it's the birth of the new we're witnessing in Tokyo, so far it's not exactly a pretty sight.
With Akiko Kashiwagi
© 2008
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