financial news and issues — world economy decoupling from USD/US Economy

Morgan Stanley threw down some economic forecasts that make for interesting reading, and probably should be read carefully by anyone in the US who uses money or buys and sells products and/or services.

We don’t pretend to have all the answers, but here are our guesses: Job gains have already slowed, and payrolls will continue to decelerate, but not fast enough to undermine consumer wherewithal. The housing recession is far from over, but strong global growth likely will sustain both output and employment. The productivity slowdown is cyclical, but the trend may also have slipped. We still think core inflation has peaked, but inflation risks are rising again. And margin compression implies that profits likely will stall in 2007.

If you live in the rest of the world and not the US, you should probably check out this report instead, which deals with the growing decoupling of the world economies from the US’, as the US begins to lose its unitary global economic superpower status.

On the surface, the latest global trends seem quite consistent with a decoupling scenario. America has slowed but the rest of the world has picked up. In particular, there seems to have been a meaningful shift in the mix of growth in the industrial world. The US economy has downshifted from 3.4% growth over the 2003-05 period to only about 2% over the past year while trend growth in Europe and Japan has accelerated from around 1.5% to 2.5%.

Looks like it is going to be an interesting time, at any rate.  I’m adding this to this blog because I want to give a closer idea of the sorts of things I read from day to day.  Currently, the economic decoupling of the rest of the world from the US Economy is a fascinating topic for reading.  After Breton Woods, most of the world used the US Dollar as the chief medium of financial exchange.  In the last several years, the USD has started to be replaced by the Euro for many things, and the US is no longer the unitary financial superpower.  What this means overall remains to be seen, and many apparently discount this ‘decoupling’ idea, but with the rest of the world’s financial indicators going upwards while the US’ goes down, there may be sufficient pudding for this proof in the next several years.

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