Wednesday, October 16, 2013

Personal reflections on the US economic crisis

Most Wednesdays I focus on some aspect of Australian life. Instead, tonight a brief comment on the US spend and debt crisis.

As I write, the crisis drags on. This New York Times article provides a good description of the current position.  You can see why the Chinese might be miffed. One interesting feature is that the proportion of China's international reserves held in US dollar denominated securities is apparently down to 60%. That's actually a huge shift. Meantime, some of the risk money seems to have shifted to Australia, pushing the Aussie dollar back up.

The problem will sort itself out through some form of compromise, although this may not happen until after the critical deadline. The biggest global risk now is summarised in some of the Armageddon headlines that are around. Yes, there are structural features build into the financial marketplace that risk triggering not very sensible responses. But beyond that, the real risk lies in individual and organisational responses driven by short term reactions.   

Whatever happens, the damage done to the US's economic dominance will be permanent, accelerating the search for alternatives. Actually, that's no bad thing.

All this does, however, give me an immediate personal pain. I have an economics column due now, a 2,500 word lead economic outlook article due next week. And I'm damned if I know what to write!


A Wall Street Journal view.


Evan said...

My worry is that our new 'great and powerful friend' will be China. And we will be the dutiful flunky of the new global bully - whose human rights record makes the US and Australia positively ethical.

Jim Belshaw said...

I think that concerns a lot of Australians, Evan. But how then do we manage all this?

Evan said...

I wish I knew.

It would have to be balancing forces in a project from which everyone benefits.

So the US + Aus + Indonesia + ? to balance China while enlisting all players in a common project (say sustainable wealth that doesn't rely on non-renewable resources).

I'm not saying this is likely. I'm saying the likely alternative is appalling.

I think the lack of response to climate change shows that our national and international governance agencies have comprehensively failed.

Rummuser said...

I agree that it will not be a bad thing. Leaving aside all conspiracy theories, reverting to the gold standard may be a good idea for the world.

I think that the current moves by Japan, Korea, Australia, NZ and India, not very public, but certainly taking place, may turn out to be the answer to Evan's concerns in the long term.

Evan said...

I sure hope so Rummuser

Anonymous said...

Just imagine the imagine the poverty and unemployment that a reverting to the gold standard would precipitate.


Jim Belshaw said...

DG, I have to agree with you.

Rummuser said...