US economy is "on its own"

Graham_Devon

After the dissapointing news from the US economy today, economists are now saying that the US economy is now on it's own.

What's meant by that is there isn't much appetite (or indeed would be very diffcult) for QE3.

Debt has hit the ceiling. Obama tried to get the ceiling lifted, but failed (I believe, listening to the news).

Interest rates are at 0.25% and can't really go any further.

So, will be interesting, considering the US is usually one step ahead of us to see what happens in the US from now on, with no capabilities to do anything, and in the words of the commentator "those running the country are just watching the aftermath of the car crash, can't help out, and are just waiting to see what happens".

Anyone got any thoughts on what may happen from here on in with all of the cards having been played?

Really2

QE3 is very likely

They could try austerity, like the measures the republicans are asking for?

America are behind us this time as they have found out spending more and not cutting did F'all but rack up more debt.

globalds

Graham_Devon wrote: »

Anyone got any thoughts on what may happen from here on in with all of the cards having been played?

The card of not spending so much of the money you have not got, has not been played yet.

Loughton_Monkey

globalds wrote: »

The card of not spending so much of the money you have not got, has not been played yet.

A novel idea! It never occurred to Brother Brown. Is Obama any brighter?

Kohoutek

Given Bernanke is a historian of the Great Depression, I would imagine he will be loath to repeat what happened in 1937.

http://www.economist.com/blogs/freeexchange/2011/06/americas-recovery

At the New York Fed, Gauti Eggertsson says the Fed won't repeat the mistakes of 1937:

What we call “the Mistake of 1937” was, in broad terms, a decision by the Fed and the administration to implement a series of contractionary policies that choked off the recovery of 1933-37 and brought on the recession of 1937-38, one of the worst on record. What is particularly noteworthy is that the inflation fears that triggered the Mistake of 1937 were largely driven by a rally in commodity prices. These circumstances invite direct comparison with our own time, when a substantial recent rise in commodity prices (which now seems to be abating somewhat) stoked inflation fears and led some commentators to call for an increase in the federal funds rate.

So what might the Fed do? Jon Hilsenrath recalls Ben Bernanke's statements at his April press conference:

Fed Chairman Ben Bernanke signaled in April that the hurdle to more "quantitative easing," as it is known, is very high and Fed officials have done nothing to indicate that Mr. Bernanke's guidance has changed as economic data has worsened in recent weeks.In an April news conference, Mr. Bernanke said the tradeoffs that would come with additional purchases were becoming unappealing. "It's not clear we can get substantial improvements in [employment] without some additional inflation risk," he said.

Perhaps there will be QE3, but not pre-emptively, only after it become abundantly clear that the US is tipping into recession (i.e. big decline in US equity market).

Given that the US is beginning to warm up for another election, there will also be huge political pressure on Bernanke to quickly reflate the economy in the event of a recession. If he didn't, he would be effectively handing victory in the 2012 election to the Republicans.

Thrugelmir

Graham_Devon wrote: »

Anyone got any thoughts on what may happen from here on in with all of the cards having been played?

Raising taxes perhaps? In the US too easy to avoid sales tax (VAT).

sabretoothtigger

QE3 is very likely

Its not their intention to start QE3. The main thing I keep hearing is if they stop QE2 it will all reverse or come to a stop. Oh no deflation! It wont, this is an active situation. The natural velocity of an economy is not zero

They are supposed to buy back all the printed money, that is the end of QE2 and instead we are talking QE3.

The real question is will they end QE2, no they will never end it



The circumstances not people will dictate what occurs next, not QE3 not any 'scheme'
Regardless of what they intend, its more a case of what is already in motion, can they jump back in the car and put on the hand brake.
All the political words will be secondary to other news and pressures, thats the dynamic Im expecting to accelerate


If I hear on the news tomorrow the budget is cut in half and there is to be no more deficits starting from August then that is deflation otherwise the talking is a sideshow.



They cant put the brakes on and any more pushing is irrelevant to current inertia

Raising taxes perhaps? In the US too easy to avoid sales tax (VAT).

I always thought USA was low taxes. So if they screwed up its no problem as they can just double taxes in an emergency
But I hear their effective tax is similar to us with over 50% of income taken at the extremes.

Ive no idea what the average rate is and I know they pay much less tax on petrol, surely plenty of space to raise taxes but maybe not..

Thrugelmir

sabretoothtigger wrote: »

I always thought USA was low taxes.

Sales tax is a classic avoidance issue. If you buy in shop then you get charged around 8%. But if the same item is shipped out of state then you pay no sales tax. So with lots of retailers offering free delivery inter state the 8% is easily avoided.

sabretoothtigger

But then delivery is not actually free to provide. USPS is part of government and other companies would be taxed

In the digital age there is nothing physical to deliver in some cases so yep.

I guess theres leeway there to add on 17% (20 even) tax like we have, this would be a substantial shift in policy though away from retail. It would encourage home produce and other off the radar type activities.

In Japan its similar, they dare not tax the consumer because they see this consumption as vital demand leading to employing people

worldtraveller

The economy has weakened in recent weeks, Federal Reserve Chairman Ben Bernanke noted Tuesday. But he stuck with a message he's delivered since April: The slowdown from high gas prices and Japan's crises is temporary, and growth should pick up later this year.

Personally I don't see the growth that Bernake expects and I still expect QE3 (it won't necessarily be called that due to it's taboo status) in Q4, possibly even earlier. What's more, a massive boost will be required, possibly into the US$ 1 Trillion+ level, not just a few hundred billion, to have any chance of helping the unemployment figures, in particular, if Obama is to have any chance of re-election at all next year.

sabretoothtigger

I think the main point is QE doesnt help unemployment. It alters other things, lowers the cost of debt to companies, I realise that is supposed to have a knock on effect

I think its helped the wrong things to accelerate ahead and faster then the average companys recovery. Net result being unemployment is not increased its still cheaper to employ in foreign countries?

Until I hear speeches along the lines of 'this is wrong, we will do it different now' Im not optimistic for western internal growth

In Mr Ben's speech there was a long list of all the bad debt. The sub prime, he never admitted to failing to stop or warn on it before it was a problem or even realised that could be his job. He isnt about to take actions with foresight now either