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The recession of the last four years has been abnormal in many ways but one sign of normality is appearing – the US recovery being the beacon of wider global recovery.
The US approached the recent crisis in the same manner as Europe, with such things as TARP (Trouble Asset Relief Programme – for buying up bad debts such as Freddie Mac and Freddie Mae), ultra low interest rates and large amounts of quantitative easing.
In fact the US QE1 was $1.4 trillion, QE2 in 2011 was $600billion and a QE3 is a strong possibility. UK QE by comparison has been £275 billion so far which in relative terms is 50% larger than the US QE – this shows how parlous our finances had become.
But there is a rub. The UK and much of Europe sees the long term recovery coming from austerity, not spending. For the US there is an ideological aversion to this which is widespread. I don't hear Americans speaking wistfully of George Osborne's pronouncement that 'we are all in this together'.
The US just does not see it like that plus which since the mid terms there has been political paralysis in Washington only compounded of late by the campaigning already under way for this year's election.
I am of the firm belief that the US four year presidential term model is not fit for purpose and should be five years or more.
So the US economy has not succumbed to the levels of austerity that are approved of in Europe and many are saying that this is why the economy is now recovering faster than most. The problem remains that the deficit is huge and their debt is now at $15.6trillion and rising at $4billion a day making it $50,000 per us citizen. The deficit is 9.5% of GDP, matched by Japan and Ireland but Greece is in fact only 7%.
The silver lining to this is that the US economic indicators are now showing a consistent and probably sustainable up-tick. Unemployment continues to fall and is now at 8.2%. A major new theme is 'on-shoring' of jobs. GE has notably opened up a new washing machine plant in the US. Only a few years ago this would have been off shored – likely as not in China. But US efficiency methods have improved and Chinese have not – indeed their costs are rising.
US retail sales are up; car sales are at a five year high and even housing is showing positive trends. All of this of course has had the crucial effect of increasing confidence in the economy on the part of consumers, investors and producers.
Despite all this good news the US economy is fiscally stressed and long term growth is far from certain. How the US government handles taxation and how the economy does in international trade will govern its 2-4 year growth after that. The debt will remain a headache for many years to come.
The dollar remains somewhat in the doldrums but this is convenient for the US now with its trade growth requirements. That aside, the dollar has been looking threatened as the global reserve currency. Even if and when the US is overtaken by India and China as the world's largest economy the greenback will hold many trump cards to keep its reserve currency status. This is an extraordinary claim given the US level of indebtedness. But for sheer scale, manufacturing ability, legal security, strong democracy and lack of corruption the US will take a lot of beating. The democratic and corruption angles are proving awkward elements for the Indian and Chinese economies right now.
The tradition always used to be that the UK economy would follow the US economic trend by two years. This came down to one year with tighter globalisation and even with the risk of our austerity measures we will see the benefits from the US upturn reach our shores by the end of 2013.