We can do this the nice way ...or the Nasty Way (UKGuard)

[katty]

We can do this the nice way ... or the nasty way

Larry Elliott, economics editor
Tuesday September 27, 2005
The Guardian


Two hurricanes in a month, petrol prices at $3 a gallon, a current account deficit of enormous proportions, a housing market that defies gravity: little wonder that the mood in the United States is a little edgy.
The International Monetary Fund made it clear last week that it saw the world's largest economy as an accident waiting to happen. The US could not continue to live beyond its means indefinitely, and there were only two ways to deal with the unsustainable imbalances in the global economy: the nice way or the nasty way.


The nice way, according to simulations by IMF staff, would involve a gradual slowdown in the pace of consumption in the US, accompanied by slightly higher real interest rates and a modest 15% devaluation in the dollar over a few years.
The US current account would decline from 6% of GDP to 3.5% of GDP by 2010 and to 3% over the long run. The other main component of the soft-landing scenario would see a 15% appreciation of currencies in the developing countries of Asia - China, for the most part - which would result in their current account surpluses shrinking to 2% of GDP.

The nasty way involves a much sharper contraction in US activity. Under this scenario, the overseas investors who have been funding the American trade deficit by buying US assets decide they have had enough. The result is a large and sudden devaluation of the dollar, which adds to inflationary pressure and forces the Federal Reserve to raise short-term interest rates aggressively. Protectionist pressures mount and this, together with the big appreciation of China's currency, leads to much slower growth. With both the world's two big growth engines - the US and China - faltering, Europe and Japan also suffer. Financial markets suffer hefty losses, adding to the gloom.

continues at:http://www.guardian.co.uk/business/story/0,3604,1579037,00.html

[malaise]

1. Well having directed the IMF

and other multilateral lending agencies to destroy most of the developing country economies with this failed structural adjustment model, the chickens have come home to roost. Put simply this model wipes out the poor, denies basic social services and makes the rich richer and the poor poorer.

The elderly middle class who receive pensions on salaries earned before massive devaluations, depend on their children or sell their homes to survive. Having been dedicated civil servants, teachers and professionals for 30 to 40 years, they lose their basic standard of living. I see this every day.

I think I will opt for early retirement and collect my hard earned pension money. The world economy is heading for a crash.
Thank you Reagan, Thatcher, Bush et al. Fugg all of you.