When the United States coughs the world gets a cold!!!
Hey guys,
You may have heard this saying before so I thought I would put some detail to it.
Now there are various ways of saying it, US sniffles..., the US sneezes..., the US coughs..., the world sniffles... but it all means the same thing.
You see whether you like it or not we live in a world economy where the state of one economy directly affects all the others, some of these affects are immediate, such as one country going to war, or the exchange rate or stock markets changing, some are delayed a few weeks or months, such as the price of oil and some are delayed for years such as Dubai realising its oil is running out so recreating itself as a tourist destination.
There are thousands of variables that affect each economy, the list would be too huge and complex, let's face it if it was easy you won't have 100s if not 1000s of economists every day getting their predictions wrong.
Anyway back to the United States. You see it's the world largest economy, even bigger than Japan or China. You see the size of your economy is not related to the number of people you have it's related to the production, consumption, value or any number of measurements.
The US are the greatest 'consumers' in the world around 30% of the global demand, so when times are good and the citizens have money in their pockets then the consume but when things slow down and they have less in their pockets then they buy less.
Now if everything was produced in the US then that would be fine but this where it gets fun. If let's say 14% of all goods were produced in the UK and consumption dropped by 50% then that drop would be felt in the UK.
Hence the term 'when the US coughs the world sniffles.' How much they sniffle will depend of the extent of trade and the ability to swap over that consumption to another country.
So now you can see why the whole sub-prime lending / credit crunch is affecting every country in the world. In particular, and this is a prediction, Japan. Up until now Japanese banks have only declared small meaningless losses, remember this is a country whose custom is to 'save face'. By the end of March I think we will see that a lot of that bad debt belongs to Japanese interests. Partly due to tough new auditing rules introduced in Japan which will expose these loses and also because the credit crunch will be coming to an end.
Remember that since the end of WWII the US and Japan have been economically joined at the hip, despite attempts to separate the two they are still very close.
So my predictions for the UK don't change sure we might end up with a cold or a runny nose but the outlook for us is still strong.
Live with passion,
Brett Wood