Slowing Economy In America To Result In Global Distress

America remains the world's largest economy and a slowdown here is likely to spread grief across the globe. It is amazing so many people simply don't understand the dire implications America's slowing economy will have on the world. Considering much of the global economy is dependent on exports to the US, the world should expect more problems ahead. These problems will not only be economic but take a toll on society across the world.

Other countries manufacture the goods Americans buy which makes America a key component in their economies. Without the American consumer, factories across the world will see orders slow. Any such slowing in orders reduces the need for raw goods from developing nations in both South America and Africa. This causes a lot of stress on their economies.

Since World War II, America has been the economic locomotive or engine pulling the economy forward. As we look back to the time following the 2008 financial crisis, we find China sidestepped the major slowdown by over-stimulating its economy. This resulted in a great deal of malinvestment. Currently, China is pumping money into its economy however, the law of diminishing return has taken hold.  

Today any claims China was taking over the role of the world's economic engine have been tarnished by the recent revelations its economy is in shambles. Much of China's economy has been an over-hyped illusion. Its economy has proven to be more of a paper tiger built on a foundation of ghost cities, more factories than it needs, debt, and wasteful overbuilding.

In recent years, the EU has mistakenly shifted towards the East hoping China would act as a spark and revitalize growth. Instead, it has seen its trade deficit with China only grow larger. Some German observers are now saying the economy has reached crisis proportions and the reason is due to what the US economy's weakness is doing to the rest of the world. Rather than supporting a recovery, the situation in Germany, Europe's largest economy has turned ever more grim due to the growing negatives flowing out of America.

It is difficult to underestimate the role of the American consumer in the overall scheme of things and we have the trade deficit to prove it. This highlights the flaw in a system based on people buying stuff they often really don't need. What is deemed as demand tends to be a squishy area made up of waste and poor judgment. This is the first place consumers cut their spending.

Not Much Has Changed Over The Years - America Is Addicted To Imported Goods

The fact is that America with its massive trade deficit is carrying much of the world on its shoulders. This includes not only China and Mexico but countries such as Japan, Germany, South Korea, and even Germany. These countries are sucking the wealth right out of us.

Sadly, for those living off exporting to America, this spells trouble. When the US consumer falls into a state of protracted economic funk their priorities will take a hit. In times of financial duress expect American consumers to turn towards keeping a roof over their heads, food, and basic transportation rather than buying much of the junk we have been importing.

In a recent video, Robert Kiyosaki talks about what he sees as a looming global economic downturn. Best known for his book "Rich Dad Poor Dad" Kiyosaki's unique approach to personal finance and wealth-building has earned him a loyal following. While I believe in many of his views, I feel that Kivosaki often fails to point out that other fiat currencies are far worse than the dollar. Currencies are where many people store much of their wealth and even if they are debased and lose much of their value this is likely to continue. This is because currencies act as a primary medium of exchange in the modern world. 

Short of America suffering a massive military defeat, it is difficult to see any rival ripping away the dollar's role as the world's reserve currency anytime soon. As American consumers cut their spending, the combination of more wasteful government spending, more debasing of currencies, and a slowing of global economies has the potential to usher in a major "inflationary" global slowdown. While the East and West may be decoupling, the world has not decoupled from the American consumer.

 

(Republishing of this article welcomed with reference to Bruce Wilds/AdvancingTime Blog)