Economies Will Change:

Rebalancing the world’s economies won't happen overnight, that will take far more time.

A Headline in The New York Times says: "Americans stop buying; trade deficit declines"

"For the first eight months of the year, the United States trade deficit with China is down by about 14 percent or $20 billion, compared with one year ago. The nation's trade deficit with Japan has shrunk by almost 20 percent, and its deficits with Mexico, Canada and the European Union are down more than 40 percent.”

"The huge shift stems mainly from the staggering collapse in trade. With credit markets frozen and Americans facing the highest unemployment in more than 30 years, the United States suddenly stopped shopping overseas at anywhere near the volumes that had become normal."

Meanwhile the feds are trying to get consumers back to spending again. Providing tax rebates, incentives, loans, and bribes. As a result the federal deficit is run three times higher than the previous record. It is estimated to be a $1 trillion deficit, "as far as the eye can see." Putting up at risk a sum of money almost equal to the entire US GDP.

If the consumer credit party is over, and the Baby Boomers are retired, is it possible for US businesses to grow, and prosper again?

Indeed this is possible. America has great businesses with great brands. As the dollar falls it should be able for them to gain global market share in some sectors. However 70% of the economy is consumer spending. Until that changes, the US economy is hostage to US consumer spending. But as long consumers stop consuming, the US economy will not grow. The economy has to be rebalanced to a consumer spending part of around 50% or below.

“America has less than 5% of the world's population. But it consumes more than 20% of the total world's output - as measured by GDP.” Clearly, Americans have done more than their fair share in shopping. Why not let others take the shopping over?

Indeed in time others will spend more. But rebalancing the world's economies won't happen overnight. Nor even in a couple years. It will take a long, long time and a lot of investment in innovations, new tools, new training, and new technologies and techniques. Until that happens, there won’t be any new economic growth.

Every time finance ministers and heads of state get together they talk about "rebalancing the world economy.” They promise to take steps to make it happen. But so far, the market is doing all the rebalancing work on its own.

And instead of letting nature take her course, allowing Mr. Market’s hand of capitalism to direct capital to where it is actually needed, the heavy hand of government blocks the process of correction.

Credit is still contracting. As Reuters reports that "small US firms face credit squeeze."

In theory, a genuine recovery in the United States could be led by exports. A cheaper dollar, and a cheaper workforce, expressed in global terms, would make the United States a better competitor.

But even a cheaper dollar is not guaranteed. Consumers may have stopped borrowing, but the US government borrows more than ever. This borrowing, in US dollars, increases demand for greenbacks and may actually sustain the dollar at a higher level than it should be. The feds' appetite for borrowing could also force up interest rates, further restricting small businesses' access to easy credit.

There is a big difference between selling a few more Harley Davidson’s overseas and a real export-led economic growth for the US economy. The latter would require hundreds, thousands of Harley Davidson enterprises, selling billions worth of goods and services to foreigners. And right now, those enterprises don't exist. And they may never get off the ground if they can't get financing.

The boomers are saving. They put their money into the safest possible place - US bonds! That is, they lend it to the government. They're the feds' biggest single source of financing - even bigger than the Chinese.

Meanwhile, the feds pump billions into the banking system. They supply the banks with capital for expansion and consumption. But instead of making loans to the private sector, the banks take the feds' money and lend it right back to them. They can borrow at a negligible rate, and then use the money to buy long-dated T-bonds yielding over 4%. Result: banks make money; the private sector has no money to create new businesses.