US economy in Perpetual Recession; short US dollars!!

US economy in Perpetual Recession; short US dollars!!

The word “recession” definitely is nothing alarming when we talk about the current state of the world’ largest economy. Indeed many well known economists predict that the US economy may likely fall into a deeper recession and into a great –er depression in the years to come. However, a consensus, as it appears, is that the US economy would revive following this down turn. Well, this is precisely where I differ in my opinion and introduce what I call is a “Perpetual Recession”. (PR). Yes, US economy is entering a mode of perpetual recession.

Well I know that petty bold to make a statement like that and it would be quite unfair without stating the reasons as to why I believe that the US economy is in Perpetual recession. Well the rule of globalization has made tectonic shifts in which the world operates. Lets us go back to our economic textbooks. Economic foundation of any state is build upon two factors – Labor and Capital. This good old concept of “engines” of economic progress indeed took a new direction off late – thanks to US again when a new dimension was added – technology. The US strived and stood in the forefront of making innovative technology that saw businesses change the consumer livelihood. Innovation and technology progress swept through the 50’s through 80’s. With Computers in place fast penetrating the global economy, the US successfully drove the “engine” across end consumer markets. However, there was this widening gap being created - between the pace of development of new technology and the pace of transfer of existing technologies. Now I am calling this the “T – Factor”. While global firms continue to operate in oligopolistic environment, making sweeping changes in trade practices, absence of protectionist strategies and government focus on complying with global trade, the rule of the game is slowly shifting back to the roots of economic success– Labor and Capital.

This is where the competitive advantage of an economy exists, unfortunately pushing behind the world’s largest economy. The model of consumerism has failed, capitalistic philosophies are faltering, and access to capital (bank inability to lend, capital markets) is drying and technology progress ailing. Now what else is left in US if not what the consumerism model and technology! For if I can get a Chinese product at 1/5 th cost of what I pay for in USD, or perhaps make one at ½ the cost, Why then should I look into a market where there is no Capital and no consumer and of course the “T – Factor”. Add to that the worsening demographic situation in US (labor), what this essentially means is that the US economy is slowly losing out its competitive advantage to other economies like China and India. The US economy is slowly set to enter a perpetual economic recession of a de-growth path.

Now, the way out from this indeed should boil down to the exchange rate. Yes the USD has to weaken to that extent that the competitive advantage is realigned. This would mean the producing the goods and services in US should be profitable for global companies! A scenario which will return only if the currency gets revalued. This surely will create economic imbalances in the near term, but if US economy has any route left to its former glory – the USD should be revalued, making a short candidate – the US dollar.