Those with an eye on the financial pages (or with an interest in a fall vacation to Europe) will not have missed the dramatic shift in the dollar these last few weeks. As the oil price has come down, the dollar has moved up and at the same time the global economic scene has taken a significant shift in fortunes. To quote the UK’s Telegraph newspaper reporting on a Goldman Sachs report, US industry is now super-competitive, if small. Mid East funds are drawing up shopping lists of Wall Street takeover targets. Airbus and Volkswagen are shifting plants to America to escape crushing labor costs. US exports have risen 22 percent over the past year, outstripping Chinese growth. The US non-oil trade deficit has shrunk by two fifths since 2002. It is now running at $300 billion a year. This is 2.1 percent of GDP.
The currency strength is reflecting not so much that all problems are solved in America but rather that America is in much better shape than most other parts of the world. Japan contracted by 0.6 percent in the second quarter, Germany by 0.5 percent, France and Italy by 0.3 percent. Spain recalled the cabinet last week for an emergency summit. New Zealand and Denmark are in recession. Iceland contracted at a catastrophic 3.7 percent in the second quarter.
To be sure, we still have concerns about hte US economy. The housing market does not appear to have troughed yet and the credit markets remain in a sorry state. Any positive effects of the fiscal stimulus package implemented by Geoge Bush and the Congress last year will be brief. With the rest of the developed world struggling or even in recession can the US and Asia keep the global economy growing overall? Time will tell, but for now it is a welcome sign that the US economy is proving so robust in the face of what has become a global downturn.