1/28/2005

Is the U.S. the greatest threat to the world economy?

In this article, by Adam Davidson, the United Nations warn that the greatest threat to the world economy comes from the United States. Even though the global economy grew by 4 percent in 2004, the largest increase in years, the U.S. economy could cause an abrupt and globally damaging correction.

There are many reasons for the U.S. to be in this position, namely the huge tax deficit, which exceeded 600 billion dollars in 2004, the largest in history. Next, is the increasing Government debt that also reached record highs last year. Finally, we have the ever weakening U.S. dollar. This was the meat of the article. It stated the U.S. dollar is the primary reserve currency for most foreign countries. This is a concern because when the dollar is weak; all countries that rely on it will have less money to spend. The article goes on to state the treasury will ask for help from European and Japanese leaders to strengthen the dollar.

I agree with the European bankers when they remarked that the U.S. Government should help itself by encouraging savings and reducing the nation’s debt.
http://www.npr.org/templates/story/story.php?storyId=4467938

3 comments:

Dale said...

There are many problems with deficit spending. One of these problems occur with foreign investors. America depends heavily on foreign investors and governments to buy the government debt. A new government concern is that the rest of the world will soon lose confidence in America’s fiscal management, which will cause interest rates to increase dramatically. Despite the countries heavy deficit spending, foreign investors are still supporting the economy, but America’s fiscal credibility is at risk.

homer said...

Professor Tufte explained to our class that the deficit probably wasn't as big of a deal as most people portray it. If I remember right it is because the assets the U.S. government own far outweigh this liability. But I do believe this country is the world's biggest threat economically only because of what we bring to the table. What would the Chicago Bulls have accomplished if Michael Jordan had faltered?

Dr. Tufte said...

-1 on Rex's post for a poorly formatted link (waived)

The sky is not falling. The U.S. is only the greatest threat to the world economy in the sense that, since it is the biggest component, it is the biggest everything for the world economy.

The U.N., as currently constituted, is not a friend of the U.S. They have a lot of reasons to bad mouth us (the oil-for-food scandal, their inability to enforce their own edicts on Iraq, a human rights commission dominated by serial abusers, a track record of permitting genocide, and so on). They don't appreciate being shown up by the Bush administration, and this is just one way to retaliate.