With so little serious forewarnings about the economic situation being signalled by our governments, as they continue their desperate attempts to encourage us to spend, spend, SPEND, it is essential we pick up the signs from wherever they come.

This article in the Times tells you clearly what is to come.

Yet beneath this rosy gloss, there was a tone of edginess to the G7 conclusions, and a palpable sense of unease seemed to have infected the Washington gatherings. Despite their avowed confidence in the outlook, the G7 ministers called for “vigorous action” to tackle global imbalances.

An outbreak of jitters is well justified, and the G7 delegates are not alone in their sudden apparent nervousness. It is shared by some of the more influential and authoritative observers of the world economy.

Paul Volcker, the former Chairman of the US Federal Reserve and one of the most respected figures among international policymakers, is among those who are deeply worried. In a recent analysis in the Washington Post, he wrote: “Circumstances seem to me as dangerous and intractable as any I can remember, and I can remember quite a lot.”

Get ready to run, duck, hide and eat loads of lentil soup.

The world is dependant on you increasing your debt. It is up to you Americans to jeapordise the future of you children. This is what Mr Bush and the world needs you to do:

The core problem is the divergent performance of the world’s big economies, with the present global expansion dependent on the continued robust growth of the US and China, while the eurozone struggles and Japan’s latest revival threatens to stall.

This uneven pattern of growth has left world prospects dependent on a US expansion fuelled by America’s extravagant consumers and fiscally lax Government. The world is reliant on an America that is living far beyond its means, with national spending exceeding income by more than a fifth over the past five years.

The result has been that the US has now gone from being the world’s biggest creditor to its biggest debtor in just two decades, with an annual current account deficit expected to reach 7 per cent of GDP by the end of this year, and annual government borrowing of more than $400 billion (£210 billion).

This American profligacy can be sustained only by the continued confidence of investors in the US economy, and their willingness to keep accumulating American IOUs.

Yes, it is up to Mr Bush to sell you his story and up to you to buy it. And buy it big.

And up to your  great friends China to keep bailing you out. And if they don’t? Read on:

Economists acknowledge that the Asian-American quid pro quo could perhaps carry on indefinitely. But the nagging fear is that it could unravel abruptly, with grave repercussions.

If markets were to decide that the situation were unsustainable, triggering a collapse in the dollar, Wall Street would be hit hard, and US Treasury bond prices would tumble, driving US market interest rates upwards.

The result would almost certainly be an American recession, and perhaps an outbreak of protectionism.

And why is Europe not helping to fuel the economy? Well you see Germany and France, in particular, are reluctant to give up their public expenditure on schools, hospitals and social security. Good liberal stuff but with a serious downside. When these two nations blocked proposals a couple of weeks ago for measures to give their economies a kick start from their current slow growth, they opted to retain the status quo.  The vote was for social cohesion.

As one exasperated European Commissioner, Gunter Verheugen, said “I tell people everywhere ‘You can have a strong economy without social cohesion, But you cannot have social cohesion – whatever that is -without a strong economy”.

Not good news for the ears of European liberals and the left. Sometimes there are hard choices for us.

On the other hand we did not in Europe face the lack of choice George Bush is giving the citizens of his country. No social security and decent free health care but instead bombs spreading American Values across the world and a domestic economy about to implode.

Start digging your vegetables in your back garden, folks.

(Cross posted from New European Times)

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