US economy

This week marks the one-year anniversary of the Lehman bankruptcy. The media struggles to say something meaningful about it. Here at The Daily Reckoning we will not even attempt meaningfulness. We’ll be satisfied with a few snide remarks.

What is most remarkable about the world a year after Lehman fell it is that so little seems to have changed. Even the papers have noticed.

We are entering a period of record deficits and debt. And there are other more potent forces that have the potential to murk the future of US economy and unless the government policies do not firmly and intelligently address these issues, we are in for a long dark period of economic blight.

Economic analysis - Federal Reserve governor Ben Bernanke and Bank of England governor Mervyn King both used to be teachers. I’m glad I wasn’t a student in their classes.

In recent memory, the stakes have never been so high, and the global economy has never been so imbalanced. Accordingly, the Fed and the Treasury must be careful that in treating the economic crisis, they don't inadvertently damage the very foundation of the US economy.

This is no ordinary downturn. After the biggest credit bubble in history, we face a correction on an unimaginable scale. Make no mistake about it: This is a credit-cycle bust that the government cannot stop. The losses are already catastrophic. And the massive unwinding is nowhere near finished yet…

Keith Fitz-Gerald says the recession that is now inevitable in the US and Eurozone will not necessarily evolve into a worldwide contraction. US influence in the global economy is waning, while China’s is growing rapidly. Keith says countries with high cash reserves and low external debt should bounce back strongest in the long term.

Data released this week show that China is still flying in the face the global economic slowdown. Retail sales there soared 21.6% year on year in May, despite a devastating earthquake and stock market slump. Exports for the same month surged 28.1%, even as demand in major western markets faltered.

The ballooning US trade deficit is good news for the world’s sovereign wealth funds (SWFs). Current assets controlled by Sovereign Wealth Funds are estimated to be $3 trillion. They are expected to reach at least three times this amount over the next five years.

U.S. consumers barely had time to get used to the idea of $4 a gallon gasoline before prognosticators started talking about $5 a gallon fuel. And unfortunately for the U.S. economy, the worst is yet to come.