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Monday, May 9

The Perfect Storm That Could Drown the Economy

Via M Parent:


May 8, 2005
The Perfect Storm That Could Drown the Economy
By DANIEL GROSS


WE seem to be living in apocalyptic times. On NBC's "Revelations," Bill Pullman and Natascha McElhone seek signs of the End of Days. In the Senate, gray-haired eminences speak of the "nuclear option."

The doomsday theme is seeping into the normally circumspect world of economics. In April, Arjun Murti, a veteran analyst at the investment bank Goldman Sachs, warned that oil could "super-spike" to $105 a barrel. And increasingly, economists are prophesying that the American economy as a whole may be sailing into choppy waters.

Just look at the many obvious and worrisome portents. The government each year spends much more than it brings in, and so the nation has a large budget deficit ($412 billion in fiscal 2004, and growing). Americans also import far more goods than they export, and so the nation has record trade and current account deficits.

As consumers, Americans personally spend significantly more than they earn. Worse, some imbalances are eerily reminiscent of conditions that helped touch off recent economic crises: Mexico in 1994, Asia in 1997, Russia in 1998 and Argentina in 2002. Throw in rising interest rates, warnings of a housing bubble and the potential for higher inflation and slower growth (a k a stagflation) - and you can understand why some economic analysts may be plumbing the New Testament for inspiration.

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