2008: Year of Reckoning in the US?- by Ernesto Zedillo
The remarkable expansion in World output since 2003 has existed in tandem with so-called global imbalances—huge current account deficits in the U.S. matched by surpluses practically everywhere else.Admittedly, the American propensity to swallow other people’s savings—its role as the chief engine of global growth notwithstanding— has troubled many analysts.A slowdown in the U.S. economy for 2008 now appears inescapable. And the probability of a serious recession cannot be ignored. At this point the best possible scenario would be one in which a mild reduction in GDP growth—in conjunction with a cheaper but not collapsed dollar—brings about a sufficient correction in the U.S. current account deficit, without investors running away from dollar assets en masse. The fundamental policy challenge for the U.S. will be to avoid a more traumatic adjustment. American authorities will have a tough job, considering that their policy margins are truly narrow.
Comment EU-Digest: "Very important to avoid economic catastrophe is that the US consumers will need to realize that they will have to cut down on spending more than they are earning."
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