US Economy, the risks and its resilience

One of my friends, let’s call him "V", had written this analysis in an email to me in reaction to my question to my friends on the danger to the US economy.  I thought he had done a good analysis and wanted to share with every one else.  Read this thought-provoking piece and share your thoughts on his evaluation.

The US economy is currently at risk. However, this risk is offset by the fact that the US economy has tremendous underlying resilience due to technology capability and permeation (on strength of US-based companies), world-leading intellectual and other property laws that attracts producers (not just workers) from the world over, control of Saudi Arabia and the middle-eastern OPEC world (Oil is still an unbelievably-great make-or-break lever in the world economy.).

The US is also helped by

  1. huge oil reserves
  2. a military that can seize limited resources anywhere in the world, disregarding all legitimacy.
  3. very high education rate and constant talent rejuvenation via immigration
    Low education rate in the general population actually serve as growth-retardants in the Asian countries (in-part because they perpetuate corruption). High education rates do the opposite as evident in Ireland.
  4. minimal internal conflicts compared to Asian contenders
  1. a growing population (due to immigration). Note: population is shrinking in most of Europe.
  2. the continued use of the dollar as a trade standard due to US political power (Iran is the only country that by policy wants trade in euro instead of dollar; also note: Iran is a net IMPORTER of gasoline even though it is a near nuclear power and a major crude exporter). This in-turn allows the US government to influence policy around the world in its favor. Also, venture-capital and investment-capital flows around the world in US dollars and the owners of that capital have a vested interest in averting a collapse of the dollar because they want to keep their power in the most liquid of all currencies.
    (Yen, Yuan and the Euro are nowhere near as liquid as the dollar because a) they cannot buy oil and b) they cannot buy arms c) they cannot buy technology EVERYWHERE in the world).
  3. Huge natural resources (incl food production) per capita. It is not by chance that air and drinking water is cleaner in US than in China, Russia or India. If the US were to simply (unilaterally) reduce their wheat, corn and meat exports by 50%, the price of food would shoot up so much that the MIDDLE classes in the rest of the world – including India and China – would find it hard to afford food. Effectively, the US controls the price of food worldwide. What a lever to have besides oil !
  4. The US has tremendous indirect power over countries of the developing world through its control of organizations such as the World Bank (the US has an unchallenged right to nominate its President who sets policy). This is in-turn used to control resources way beyond the US borders such as those of the resource-rich countries of Africa.

Non-US economies lack these long-term advantages and are heavily dependent on US. If the US economy falters, so will they – India and China included – and dramatically so. That is why the Chinese are keeping the Yuan still pegged at 8.x to the dollar and are desperately looking for ways to break this dependence – making trade pacts from Brazil to Africa, doing deals with worst dictators like Mugabe and the head-man in the Congo.

In a rosiest scenario, it will perhaps take another 20-25 years for the rest of the world to be able to stay relatively unscathed from a US economy crash.

The risks for the other countries of the world unravelling are much much greater than the US. India has a population and natural-resource crisis looming. China has a political and social upheaval in its future. Europe has morbid ingrained-socialism and shrinking populations which retard growth. The few pockets of hope (which don’t have these risks) are too small or insular (like Singapore and South Korea, Japan) to be places you want to live.

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