The past couple of months have given US economy bears like myself plenty of cause for reflection. Is there more life in the old dog than we thought?
There are several reasons to think so and this has caused me to reconsider another article of faith: the US and UK economies are in a similar dire state for similar reasons and share similarly gloomy outlooks. In reality Americans have far more grounds for optimism than Brits. These are, to boil them down to bullet point form:
Growth – the US is growing at 2.8% on an annualized basis in sharp contrast to the flatlining or declining economies of Europe
House prices bottom out – After 5 years of misery and falling property prices there are signs of improvement. Getting prices down to their long term average levels was painful but necessary to squeeze out the excesses of the boom.
Falling debt – unlike most developed countries the US has actually seen overall debt levels fall. The US government might still be running up the national debt but the private sector has cut indebtedness faster. See this chart comparing rich country debt levels.
Trade – the official trade gap has been shrinking and research suggests the American trade position is not as bad as the raw data suggests (the import of a manufactured good like an iPad is counted at its full value but a lot of that value actually belongs to the US multinationals who make the profit and provide the design and technology).
Reserve status retained – The dollar has benefited from not being the Euro, or the Yen or the Pound for that matter, and is once again the undisputed reserve currency giving the US plenty of scope to continue its low interest rate policy and even splash out some QE if the Fed feels the need.
Fiscal light at the end of the tunnel – at the height of the debt ceiling crisis last year the US looked like a fiscal basketcase but there are signs that the politicians will start to reduce the deficit. They are helped by not being overtaxed. Unlike the UK and Europe they could cut a lot of the deficit just be closing some tax loopholes and raising taxes on things like fuel.
Energy – the US is now a net exporter of fuel thanks to the boom in shale gas production.
Corporate giants - corporate profits are at record highs. The results from companies like Apple and Caterpillar took the breath away this week.
The contrast with the UK couldn’t be clearer. Britain is stagnating and looks horribly overburdened with taxes and debt. The house price boom excesses have never been unwound. Bank and even business generally are under siege from protesters and EU regulation. The challenge of energy security is being made harder by self-imposed green targets. The trade deficit is as bad as ever.
I may not a fully-fledged US bull but there is no doubt that it is looking a lot better bet than the UK right now.
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