The Economist's Digest 10

America's vulnerable economy
(Originally from The Economist Nov.17~23, 2007)
Summary:
The economy in the USA must be going down. The main cause is the downturn of housing market. This time may be more serious than the one in 2001, which caused by stock market’s collapse. Moreover, the high price of oil will make things worse, and consumer confidence may collapse, which will reduce companies’ profits. The weak dollar (due to Fed’s rate-cuts) won’t help because it’s not much enough to rescue the down of consumer spending.
Europe and Japan are influenced by American downturn. Thus, look at new developing countries! It used to be dangerous to ask them for financial help when there was a recession (衰退).
Yet, they can help now! On the other hand, America has been stepping down the role as the head of the global economy. On the contrary, the new developing countries’ economy, such as China and India, are becoming stronger. Even though their financial contribution may not be much enough to make up the loss from the fall of America’s output, it still helps a lot for the next 30 years.
With the develop of those new industrial countries, the price of oil and dollar will be higher and higher, which makes developed countries uncomfortable, since they must consume a lot of them. In the past American recessions, the price of oil would go down, but this time is not so, and this will hurt Western countries. It may lead to economical difficulties in those countries, because they must face inflationary problems.
Furthermore, the weak dollar can’t get its support from developing countries! When the interest rate of dollar falls, Fed must let their dollar flow into the market, but as the dollar falling down, investors may want to give it out.
The downturn is good news for new developing countries, bad news for dollar, and America will be less important in world economy.

What I think:
It’s the best time, also the worst time. Those who want to buy dollars be careful! If you want to buy EU, be careful too! When a recession starts, assets of the world must reform. The situation may be more difficult for small investors, due to their limitation of buying currencies.
Funds are also a dangerous invest tool now! Because most foreign funds are count on dollars, the profits of them may be influenced, especially for foreign investors. If you want to grasp money in today’s chaotic economy, you must have some special access to the money in developing countries.