Scott: One of the biggest faults of modern media is failure to connect the dots. This article came out the same day as the announcement [see Reuters] that the US trade deficit exceeded projections by a few billion last month.
Essentially the European and Japanese economies seem dead in the water. Demographics, structural problems...whatever. They are essentially going nowhere. US economy is the engine of world growth via taking in $3 in imports for every $2 in exports. Of course this amounts to effectively dollarizing the world economy. Essentially the US is allowed to provide world liquidity via fiat money with zero backing [no specie, zero willingness to endure any domestic economic pain to defend the value]. Forget the birth of the Euro. The fact of the last decade is not the rise of China [that is in many ways a ripple effect of the US economy anyway] or the creation of the Euro but the reduction of the world economy to trading goods and services for dollar denominated T Bills. To a degree greater than even 1928-29 the mechanisms of the world economy turn totally on the US. If Wall Street melts down it takes the planet with it. If the US consumer stops spending ditto.
Now it could keep working. However a wise person might consider that we are constructing an ever more elaborate house of cards. The T-Bills and dollar have external value because others will accept them as having value. Were anyone to make a serious attack on the structure the US would be hit hard but Asia would implode. A meltdown of Japan-China-Taiwan-HK on the level with the southeast Asian meltdowns in the late 90's could take down every financial institution in the First World. Financial liberalization has left the governments without the trip wires, delays and regulatory mechanisms to cope in a time scale that matters. The secondary markets [currency, bonds, derivatives] are so much bigger than the underlying real economies that everyone could be left in transactions without partners. The whole thing could implode in hours instead of months as 1929-33. We avoided disaster in 1987 and at intervals ever since. We have managed to unwind the Japanese bubble [although at the cost of Japan undergoing a depression now a decade long] and part of the US dot com bubble [values are still out of wack]. Interesting times.
http://news.bbc.co.uk/2/hi/business/3266263.stm
Eurozone giants return to growth
Firms are feeling more positive
Germany and France, the eurozone's two biggest economies, returned to growth in the second quarter of the year.
New figures show that Germany's economy expanded 0.2% in the three months to September, after slipping the same amount in the previous quarter.
France managed 0.2-0.3% growth in the same period, meaning it escaped the traditional definition of recession as two straight quarters of contraction.
Germany, in contrast, had been shrinking throughout the year to date.
In another sign of European recovery, Thursday also brought news that the Netherlands grew 0.1% in the third quarter, bringing the country out of a nine-month recession.
Back on track?
Germany's nascent recovery was the product of a growing trade surplus on the back of a resurgent US economy, the German Federal Statistics Office said, and came despite flagging domestic demand.
The end of the recession there comes as little surprise, following a string of reports indicating expectations of recovery.
Late last month, the well-respected Ifo index showed German business confidence rising well ahead of expectations and marking its sixth monthly improvement in succession.
Still, recent performance has injected a note of caution.
The problems in Germany and France have hampered the 12-nation eurozone as a whole, since - together with Italy - the two contribute 70% of the zone's output.
Reform
The federal government in Berlin is hoping its shake-up of welfare and taxation will help cement the return to growth.
Chancellor Gerhard Schroeder has staked his career on winning a parliamentary vote in October on the controversial measures, which included cuts in unemployment benefit.
He won a vote in the lower house, but still has to steer the bill through other parliamentary stages.
But the opposition-controlled upper house of parliament rejected plans to speed up 15.5bn euros ($18bn) of tax cuts, and vetoed new labour laws as well.
posted by scott 10:28 AM