Tuesday, July 08, 2008
The Big Question: Stumble or Fall?
|The inexorable torrent recently of bad news has the stock markets reeling, with the Dow-Jones index almost in the bear territory. Housing market blues show no sign of going away in the short run. And, the consumer sentiment is quickly descending from mere nervousness to downright pessimism.
There are also concerns about the longer run U.S. economic dominance that we have enjoyed at least since World War II. These arise as much from our overextended military operations, continued weakness of the dollar, high energy prices and the steady rise in commodity prices as from the rise of China, India, and other powers.
If the over-indulgence of our financial sector led to the current turmoil in the credit markets, it is the auto industry that now has become the poster child of failed strategic vision in a world of high energy prices. In fact, the U.S. economy’s overall growth is significantly more dependent on cheap energy compared to those of other countries. As a result, we are likely to be hit much worse compared to the rest of the world if high oil prices persist in the long run.
There is little doubt that we have a prolonged spell of weakness ahead of us and it will take substantial effort to reverse the current trends. But there are reasons for optimism as well. The U.S. has repeatedly faced difficult odds only to recover stronger because of its innovative spirit, flexible markets, deep financial base, and prudent economic policies. Therefore, whether the economy will merely stumble or fall this time depends on these same factors.