US economy on thin ice

This is interesting reading. The US Federal Bank is beginning to take counter measures now that Bush has come back for a second term.

Bush's massive spending on Iraq coupled with massive reductions in tax for the wealthy end of town have placed a massive deficit burden on the US. Much like Australians, the US people are also borrowing as heavily as their government. As the credit begins to run out the cost of credit (interest rates) begins to rise. The US dollar is also falling in an attempt to slow consumer spending - because a lower US dollar causes higher prices on imported goods.

This article points out that while Japan and China have been able to keep their currencies from going up to much as the US dollar slides Europeans are - for some reason not explained - stuck watching their currency rise. German and French exports have collapsed because of the associated rising price to foreigners.

But what's most interesting is the threat of an interest rate rise or instability in the US dollar. It seems a very risky game Bush is playing - essentially valuing his tax cuts above all else - and it seems unlikely, despite his protestations, that Bush will do anything to change the us deficit. If the Federal Bank raises interest rates significantly that will have very interesting political ramifications. Especially here in Australia. The other possibility of an unstable currency or a recession could see an end to the permeanant boom doctrine that true believers preached from the end of the eighties onwards.

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