According to a number of reports the clock is ticking on the US economy and the dollar before it goes into meltdown.
The key factors for consideration according to the Asian Times article ‘Crisis towers over the dollar’:
- The total US public national debt now exceeds 7 trillion USD
- When Social Security, Medicare, Medicaid, military and government pensions are added in, the total national debt exceeds 51 trillion USD, according to Fortune magazine – that’s nearly five times the gross domestic product (GDP)
- The current year’s deficit alone approaches 1 trillion USD when you add the off-budget items
- Derivatives (highly leveraged and enormously risky instruments such as interest-rate futures, options and swaps) now total 180 trillion USD, 17 times the GDP. Even government-sponsored enterprises such as Fannie Mae (the Federal National Mortgage Association) and Freddie Mac (the Federal Home Loan Mortgage Corp) use derivatives heavily
- The total US consumer debt is more than 8 trillion USD
- The US government funding gap is some 54 trillion USD
A leading proponent of this bearish assessment is Morgan Stanley’s principle economist Stephen Roach. Roach is said by the Boston Herald of having given the US economy no more than a one in ten chance of avoiding a meltdown. You can read the article here.
In Morgan Stanley’s own Global Economic Forum digests, the thinking of their global team of economists is distilled for fund managers. The digest of November 26, 2004 highlights Fed chairman Alan Greenspan’s belief that the world is not likely to continue to fund US debt.In a recent webcast Roach warned of a possible ‘disorderly’ correction to the imbalances in the dollar and a possible trade war with China.