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The myth of a superior US economy

The pressure from politicians and the media and the fear of a banking meltdown make it all but inevitable that the Fed will go on onto the path of interest rate cuts.
It is becoming increasingly clear that this path will also lead the US economy into its next crisis.
Paul de Grauwe, Eurointelligence 18.02.2008

The subprime crisis that erupted in August last year laid bare a number of unsustainable developments in the US economy. Credit and liquidity were allowed to expand at unsustainable rates by the US monetary authorities during the past seven years.

This fueled an unsustainable consumption boom in the US that had already started at the end of the 1990s. During the last ten years US consumption expanded yearly by 3.6% while GDP grew by only 2.9% per year. Had consumption been growing at the same pace as GDP during the last ten years, US consumption would have been lower by $600 billion last year.

The yearly gap between consumption and production growth has created an ever increasing current account deficit. Thus the rest of the world helped to finance the richest consumers on earth in their frenzy to accumulate new consumption gadgets. And these consumers were rushing to the shopping malls paying with IOUs that are now coming back with a vengeance.

What we experience today is also the crash of a myth. The myth of a superior US economy; dynamic and flexible, producing wonders of productivity growth and material welfare. The truth is that most of the above average growth experienced by the US during the last ten years was the result of an unsustainable consumption boom that must now come to an end.

Is it wise for the US authorities to give them renewed incentives to start spending again and thereby postponing the necessary reduction of household’s debt position?
My answer is negative.

Full text

Kan man undvika recession i USA när man måste minska importen med 600 miljarder dollar?
Rolf Englund på Nationalekonomiska Föreningen 30/11 2004

"USA har ryckt åt sig ett stort försprång och har världens mest framgångsrika ekonomi"
Klas Eklund på SvD:s ledarsida 2000-08-11

"det ekonomiska språnget i väster"
USA har upplevt en ekonomisk framgång av historiska mått över de senaste decennierna. Trots flera börschocker, av vilka vi sannolikt inte har sett den sista, förefaller den amerikanska modellen överlägsen den svenska och den europeiska.
SvD-ledare 2000-03-02