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The moment when people start saying that a country is “doomed to decline” is generally a good time to buy its stock – or, at least, to become optimistic. France is certainly not doomed to decline. And the fact that after the first round of voting the country looks most likely to choose Nicolas Sarkozy as its next president is pretty good evidence for that proposition.
The dollar’s weakness just a temporary market blip? Are you joking?
The United States provided the trigger for an extraordinary credit crunch in August, thanks to the troubles in its subprime mortgage market. Merrill Lynch has just announced $8.4 billion of write-offs, and Citigroup is leading a (probably doomed) effort to put together a $75 billion bail-out fund for the snazziest, most incomprehensible and unpriceable securities. American house prices are falling nationwide, the first time such a national drop has taken place. The economy has slowed, by a full percentage point in the past year. To meet the payments on its international current account, the country has been borrowing the equivalent of more than 6% of GDP each year. The Federal Reserve has begun to cut interest rates, and is widely expected to cut them further. In such circumstances, wouldn’t you expect the dollar to be falling?
The Current Discussion: If countries around the world are doing so well economically, why are they still catching a cold when the United States sneezes?
They aren't: this metaphor is now entirely wrong. It is America that has a cold, though the Federal Reserve's dramatic interest-rate cut this week suggests that Ben Bernanke thinks it is getting pneumonia rather than just a cold. Since America accounts for 30% of the world economy and is most countries' single biggest trading partner, a slowdown or even recession in America is bound to affect everyone else as well. So while America has a cold, or perhaps pneumonia, everyone else is getting a slight sore throat and a few irritating sniffles. Those symptoms are worse in Europe than in Asia, but they aren't severe yet anywhere outside the United States.
Those symptoms aren't yet actually severe in the U.S. either, by the way. There has been just one month of rising unemployment. There's gloomy talk in Britain, too, yet here unemployment has actually been falling recently. Still, presumably the Fed can see something rather worse ahead for America than has yet been revealed in the economic data.
The Current Discussion:The global economy is quaking. Are we heading toward a global recession? Who's to blame?
The world economy has grown faster in the past four years than at any time since the 1960s. So virtually any slowdown is likely to seem alarming by recent standards. But actually, there's no need to panic.
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