All Is Well...

Down But Not Out

After a long hiatus, I am back…

So, Is America doomed?

Are the world renowned financiers, economists, journalists, historians correctly predicting the end of the Superpower that has shouldered the world’s economy since the beginning of the last century?  Marc Faber, Jim Rogers, Nouriel Roubini and countless other famed commentators (including my friends & colleagues), are they placing the right bet by shorting on the US economic future?

I for one don’t think so. US economy is hurt and a little down, but definitely not out. Let’s take it point by point:

Federal Spending

I definitely share their concern with regards to the debt burden and its unsustainability. But given the situation that we are in, I think this is the ‘only’ way out. I am not asking the federal government to expand the social welfare programs, NO. I only ask for investments in two sectors. I am hoping that the federal government’s spending goes towards infrastructure, which is much needed and with that you will have jobs for the people. Follow the lead of the most successful developed nation, Germany and invest in the workers training programs. Make them more efficient and educated so that they can face the ever changing world of technology. US can’t fight against the low cost labor, but they can always become more productive.

Austerity measures

I had said this in one of my blog’s last year. It’s about math. Consumer, Business & Government makes up the national GDP (for now don’t focus on EX-IM).  We are very well aware that Consumers and Businesses are going through a rough patch since last four years and it seems that the status quo will remain for couple more years. So, now if you ‘still’ want to grow, who do you think will have to take the lead? Right, the Government. Of course financing the future with Debt is not a prudent move, but as long as the world trust’s the all might dollar and falls heads over heals to buy the Treasuries, you do not need to worry. US have about $15 Trillion of debt (almost as much as GDP) and still the yields on Treasuries are at a historic low. Why? Because US is the best place in the worst neighborhood. UK had taken strict austerity measures couple of years back and look where it is now. It’s still teetering at 0 to 0.5% growth, add to it the increasing unemployment and a whole lot of other domestic issues.

China syndrome

Enough with the China scares. China needs us more than the other way round. China needs to keep Yuan undervalued, to keep the manufacturing sector running which in turn keeps the domestic population employed. 20 million Chinese move to the cities every year. They need to be employed. China’s economy unlike US is not based on consumers, but on exports to the ‘rich’ countries like US, EU & Japan. If they don’t keep their currencies undervalued, the trade favorability will increase the value of Yuan, which won’t be good for the manufacturing sector, which will lead to job cuts, which will lead to innumerable social and domestic issues for the Communist party.

The world might not like US government printing more Dollars, but they don’t have any other alternative. And this is what US should take the advantage of. Issue debt but make sure it’s ‘invested’ for the future.