Health of the U.S. Economy Dec. 06/07
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Regarding the sub-prime mess, much of the financial system is not working. More demands are being placed on bank capital, sources of funding are shrinking, liquidity is thin, term finance is illiquid, and a number of markets are closed. Regarding the health of the U.S. economy, the U.S. Conference Board’s consumer confidence index is now 22 per cent off its July peak. With consumer spending expected to grind to a halt, a recession could be in the offing. Consumer spending constitutes approximately 70% of the U.S. economy. (A recession is defined as two consecutive quarters in which economic output shrinks.)
In terms of sheer size, the United States accounts for roughly half the world’s stock market capitalization. For those who think the end of American hegemony is nigh, hark back to the 70s and 80s, when the greenback suffered similar problems. The commodities boom will inevitably give way to bust, and the Canadian dollar will suffer as a result. The Canadian economy will invariably follow the U.S. into slowdown, and then the race will be on for the Canadian dollar to fall more than the greenback.
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–Peter
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