If to take a look at those multiple articles written by Western media, it seems like the US economy has finally recovered and is on its way to show some growth. It seems like the USA has a bright economic future while the US Dollar will keep dominating the world despite all the doomsday scenarios predicted by numerous foreign experts.
Still, the latest shocks connected with the US draft budget and debt ceiling have remined the USA and the rest of the world that the problem isn't solved yet. Governments, economists and experts around the world are concerned about the status of the US Dollar as the global reserve currency. Indeed, USD accounts for 60% of the cumulative currency reserves held by other nations.
At the same time, some experts say recessions occur in the US economy every 6-7 years while every 8 years on average the USA is subject to major crises like the Great Depression. This adds fuel to the fire.
So, what is the real state of affairs on the American economy? Will there be a new depression accompanied by a collapse of the US Dollar.
Going Back to the Bottom Again?
At this point, most economists are sure that the USA won't be able to avoid a recession. Moreover, they assume the next recession will break out much earlier than expected, somewhere between 2015 and 2018. Yet, this is the most optimistic scenario, given the USA will be able to avoid a default.
More pessimistic scenarios say that in 2017 the USA will eventual have to announce a default on its debt, with the US Dollar being washed away by a wave of hyperinflation.
Some experts say that they are looking forward to the collapse of the dollar, which will eventually make gold prices skyrocket to the levels they really belong to.
Well, actually there are many of factors to worry about since they indicate the likelihood of this scenario.
Firstly, it is about the USA's huge external debt. The pace of growth petrifies. In 2008, it was $11300bn. At this point it is somewhere around $17000bn. The chart below, courtesy of Masterforex-V Academy reflects the dynamics of the US debt:
This is an unprecedentedly high debt coupled with the world's biggest external trade deficit (in absolute terms). Both the factors make the USA extremely vulnerable to unexpected defaults. Still, most experts treat the USA as the world's most reliable borrower. However, if the USA is deprived of the access to credit markets, the US reserves will be enough to exist for 17 weeks before crashing.
There are some other issues to worry about. In particular, the pace of the economic growth in the USA is slowing down. In Q3 2013, the GDP growth slowed down to 1,9% from 2,5% in Q2 2013.
At the same time, the consumer spending in the USA has shown no growth so far. Consumer spending is a major economic indicator anywhere, especially in the USA since its economy is 70% reliant on consumer spending.
The US Dollar has been getting cheaper since 2008. The chart below, courtesy of Masterforex-V Academy reflects the current state of affairs in the USD index ($DXY):
Apparently, the temporary solution in the debt ceiling issue is unable to comfort and reassure traders, investors, politicians, economists, consumers and analysts worldwide.
Expert Opinion
According to Eugene Olkhovsky, Masterforex-V Academy’s leading expert in financial markets from Canada, we should keep in mind that the US economy is the heart of the entire global economy. If the US economy crashes, this will «kill» the global economy. In other words, this will be the biggest and deepest depression in the history of the humankind.
At the same time, the world can have a break since the near-term economic forecast are not as gloomy. They say the US economic growth may well accelerate from 2.6% up to 3,1% in 2014. At the same time, the rate of unemployment in the USA is predicted to drop down to 7.5% this year to see a further decline to 6.9% and 6.5% in 2014 and 2015 respectively. This looks reassuring. Another major factor that may comfort us is the fact that 90% of the USA's reserves are stored in gold…
