Could Europe's loss be the U.S.'s gain? University of Oregon economist
Tim Duy thinks so, and his opinion has given new life to the debate
over how European instability and chaos
affect the American economy. The signs are hard to read, though. Here's
how Duy interprets them, and why two top business bloggers are
- This Will Not, Contrary to Popular Belief, Send Us Into Recession Tim Duy
recalls JP Morgan's recession prediction following the Asian financial
crisis, assuming a "drop in net exports." But "while a drop in net
exports did occur, domestic growth more than absorbed the impact. The
US recession was delayed until the impact of tighter monetary policy,
higher energy prices, and the popping of the tech bubble all came
home." Duy thinks he "can see a similar pattern of events evolving
now," and explains why.
Bottom Line: The European crisis, by
keeping US interest rates in check and oil prices low, may do more to
help the US recovery than hurt it. In the process, however, we would
expect the flip side of the resulting capital inflows into the US to
emerge - namely, a rising external imbalance. Arguably, this simply
shifts the ultimate adjustment to sometime in the future.
- Might Not Boost Us, Either If this crisis were "good news for America overall," argues The Economist's Ryan Avent,
"we'd expect to see American markets rising, and that clearly hasn't
happened." He also thinks "it seems unreasonable to expect personal
consumption to power recovery all the way back to full employment, no
matter what interest rates or oil prices do. Household balance sheets
are simply too stressed." Furthermore, while the Fed might delay
tightening for a little while because of the European situation, the
increased money demand from European "volatility" will ultimately have
the same "contractionary effect." Ultimately, "the European
crisis is a blow to one of the world's largest economic areas"--it's
not going to be good.
- Hard to Say Reuters's Felix Salmon
likewise pokes doubtfully at Duy's argument about interest rates:
"Interest rates can hardly be any lower than they are, so for the time
being they're exactly where they would be even if there wasn’t a European crisis," he says. "As for the price of oil, again I think the influence of European news
is marginal, and only secondarily due to fundamentally lower demand
from Europe." He agrees that "if global liquidity embarks on another flight-to-quality trip to the
US, that's a nice short term boost on this side of the pond. But it's
not at all sustainable."
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