PLANS BY THE OBAMA administration to promote a major new spending spree in the United States for economic stimulus purposes are running into several major road blocks. Most vitally is the fact that American consumers are “running scared”. The Wall Street Journal reports: “Americans are saving more of their pay cheques than at any time since February 1995. This shift towards thrift could prolong the recession but it would also strengthen the financial health of US households and the overall economy if it lasts.”
Many American consumers have belatedly realised just how excessively they have long been borrowing and buying too much.
However, the entire issue presents a massive dilemma for President Barack Obama and his economics team. Sure, this kind of situation has happened before. But there’s one crucial difference – the US has currently far less room to manoeuvre financially than ever before.
The US is hugely dependent, in some vital respects, on enormous capital inflows from overseas. Those inflows have been particularly supplied in recent years by China. So the US needs for some further indefinite time ahead to keep the Chinese, especially, willing – not necessarily comfortably – to continue pumping a hefty chunk of their savings into the US.
Without those immense capital inflows the US dollar could implode and the US economy could run into real depression. Of course, the consequences of that would be disastrous.