Is America still the world's locomotive?

[Shane Baker]

I recently had an interesting conversation with my financial planner regarding the general health of the world economy (this was before the recent downturn). I suggested that the US economy may have some real structural issues to address and that a recession was on the cards given the info I had available. He trotted out the usual Macquarie line regarding the global economy and how if the US failed it wouldn't matter to world growth.

I made the usual points regarding the fact that the US imports a huge percentage of the world's exports and that if the US consumer shut up shop we would all feel the effect due to flow on from decreased exports etc.His reply was that consumption in Europe and Asia was enough to pick up the slack.

I thought that this was quite erroneous and refer to this recent article showing the domestic consumption/GDP of Europe and Asia. I thought that others might find it interesting to read especially if they are being fed the same line by their financial planners

Cheers

Shane

 

[wayneL]

Nice find Shane.

His reply was that consumption in Europe and Asia was enough to pick up the slack.

Now I am incredulous how a supposedly educated man could believe such nonsense.

* If the US slows, the self same factors that caused that slowdown would cause Europe at least to slow down, prolly Asia too... depending.

* For Europe and Asia to "pick up slack" would require them to increase their spending even as US spending was slowing! Snowflakes chance in hell of that IMO.

It is my observation that these type of folks base their economics prognostications based on the hope for their own position, rather than any intelligent modeling. We're all a bit prone to that, but it would seem to be prudent to consider alternative scenarios.

 

[uhu]

Yes. This is a fact.

Compare total GDP of USA and others. USA = Japan + Germany + China + GB + France
See the list of the top 100 company: half of them americans.
Everyone want to sell their products in USA....and if there is trouble, f.e. John Smiths or Cathy Black from Arizona or Kansas can't buy the new car or cell phone because something....yes, this would be the end of the 10% growth in Eastern Asia etc.

I think I have to say I am not an american.

 

[bvbfan]

The majority of the Top 100 companies derive the majority of their income outside the US. If you looked at the profit results, the results above estimates were due to the drop in the US dollar.

The real question is if China can start to produce internal demand to replace any shortfall from the US consumer if the US economy tanks.

 

[OK2]

Not according to Chip from BHP, of all our commodity exports to China 94% of the end product remains in the country for domestic use and not export. He went on to say in the interview that the world today is very different from 10 years ago and that the evolving markets were China and India for decades to come.

The interview was on last night, a pretty cluey guy. Should be interesting to see his replacement, big boots to fill!

 

[OK2]

oh and he also went on to say that as a result of Global consumers looking to reduce spending that China would benefit even greater as a reult of the type of products China produce (cheap) and export

 

[kitehigh]

Not according to Chip from BHP, of all our commodity exports to China 94% of the end product remains in the country for domestic use and not export. He went on to say in the interview that the world today is very different from 10 years ago and that the evolving markets were China and India for decades to come.

The interview was on last night, a pretty cluey guy. Should be interesting to see his replacement, big boots to fill!

Well I think you will find that most of BHP's exports to china is in the form of Coal and Iron Ore. So yes both of these products are used domestically to produce power and steel.

I was in china recently for a couple of months and the middle class are big time consumers. It was quite scary really as all I could think about was how unsustainable it all is.
Currently China is going around to a number of different countries (eg Sudan, Saudi Arabia, Iran, Kyrgyzstan,Turkmenistan, Russia) and shoring up energy supply deals.

If you follows the news lately you will also see the increased co-operation between Russia and China on a number of issues. As far as I can see this is a bid to try and be a strong counter weight to the US.

The US is the biggest energy consumer in the world by far, with China's energy needs growing quickly they are on a collision course with the US.