The Real State of the Economy - Good or Bad?

By: Stephen Morgan
Submitted: 2007-01-17 16:25:28
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There is something about the US Economy at the moment that I for one don’t get. Now it may be that being a brit, I am a little slow on the uptake; this has been known to happen every now and then but at the moment I cannot fathom several things out.

Firstly, the UK economy, despite the Chancellors proud claims, is not in exactly the best of shapes but in the US, the Government is technically, if not practically bankrupt. By this I mean fiscally and this is not meant as some value moral judgement on the standing of George W and the rest of the White House.

It is a fact that the US Government has an overall National Debt of in excess of $8 trillion dollars.

Secondly, the United States has become a country where almost anyone despite their financial background or credit record can get a line of credit.

Now in sound economic times this is fine and without these sorts of arrangements whole economies would disappear over night but it seems to be getting slightly silly at the moment with bankruptcies and bankrupts getting younger and younger as the months go by.

It used to be that credit was reserved for the privileged few and though I wouldn’t want to go back to the days of the late 19th or early 20TH Centuries it would appear that more and more Americans (and us Brits too it would appear) are relying more and more on “the old plastic” sitting in our wallets!

No longer do we save what we earn and again not to countenance a return to the days of prudence and thrift whereby nothing was bought until you could go in with the cash, this “live for today and hope for a better tomorrow” ethic could be bringing more problems than we reckon.

One of my worries about the economy is the absence of real, meaningful and independently verifiable statistics. If we trace back through the history of the Federal Reserve, we can see that it has continually devalued the currency by expanding the money supply. This practice is still in use but the problem we have at the moment is that since they stopped reporting the M3 Money supply numbers, no one knows exactly how and what they are doing.

If you check carefully and read between the lines of the financial press it would seem that most foreign nationals are looking for ways to withdraw from US Currency holdings into something more stable.

As an aside of how volatile things are the moment, anyone who has any experience of dealing online in eCommerce would be well advised to check out how expensive their transactions are at the moment. For example, anyone outside of the US who has a web site that is getting any form of advertising revenue via Google’s Adsense Programme at present has suffered a real time drop of revenue of about 3% in the last month or so.

This is not down to anything that is going on at Google. Just over a month ago the exchange rate between the dollar and sterling was approximately 1.80 / 1.81 dollars to every UK pound. Last weekend most online transactions and exchanges were looking at a rate 1.865 dollars to the pound.

Great if you want to buy fixed price items that were calculated in dollars but a real downer if your ad revenue was fixed in dollars.

Lastly, and this is the point that I can’t reconcile. The US Government has an organisation called the Government Accountability Office, this organisation is warning of impending economic disaster. The Secretary to the Treasury, Hank Paulson has now increased the frequency of the President’s Working Group in Financial Markets to meetings of every six weeks; this outfit is known informally as the “Plunge Protection Team”.

Now the question I have is that would they be doing these this if things were that well?

Now before any readers accuse me of some form of “jingoistic US Bashing” on the part of a “lippy opinionated Brit” let me state right here and now that things are actually far from “rosy this side of the pond” either but that is the subject of part two of this series of commentaries.

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