What’s Next for the United States?


After one of the most chaotic weeks in Wall Street history the worst may still to come. Indeed, although GDP growth in the second quarter of 2008 was better than expected, one should put more attention to what will happen with U.S. economy in the next two quarters.

Some years ago, only single events similar to the bankruptcy of Lehman Brothers, AIG nationalization” or the takeover of Merrill Lynch by Bank of America would have been called disastrous for the global markets.  However, looking with more detail into the U.S. economy there are more signs of coming recession. Unemployment rate is rising faster than at any time since the early 1980s. House prices are still declining and retail sales and industrial production are already negative, on an annualized basis. The only reason why GDP growth has been positive so far is the recent surge in exports, caused by a substantial depreciation of the dollar. But, how long the week greenback will spawn the export growth if the rest of the world slows down?
 
Also, many investors are starting to question the effectiveness of the new U.S. regulations and recently proposed bailout plan for troubled banks. For instance, it is unlikely that crude bans on short-selling introduced all over the world will prevent declines in asset-backed securities and financial stocks if their owners want to get rid of them. Furthermore, high indebtedness of U.S. government may influence the future economic growth, affecting foreign investors' willingness to hold U.S. assets.


Anna Fedec, contact@tradingeconomics.com
9/22/2008 12:26:45 PM