Run­ning scared

Finweek English Edition - - Economic Trends & Analysis - HOWARD PREECE howardp@fin­week.co.za

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.

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