Global Fallout from America's Post-Bubble Shakeout

Essay by Stephen Roach at Morgan Stanley - It's hard to imagine that a US-centric global economy wouldn't be at risk in the aftermath of a bursting of the US housing bubble. Lacking in internal support from private consumption, the non-US world remains heavily reliant on selling exports to wealth-dependent American consumers. As the United States now comes to grips with the aftershocks of another post-bubble shakeout, so, too, must the rest of the world. There's no consumer in the world like the American consumer. In 2005, US personal consumption expenditures totaled $8.7 trillion.  At market exchange rates, that was about 20% higher than consumption in Europe, a little more than three times that in Japan, nine times that in China, and fully 17 times consumption levels in India.  The comparisons are equally striking when private consumption is expressed as home-currency shares of each economy's respective GDP -- 70% for the US in 2005, 54% in Europe, 57% in Japan, 38% in China, and 64% in India.  Putting it another way, one measure of America's "excess consumption" -- defined in this case as the difference between growth in consumer outlays and disposable personal income -- was about $210 billion in 2005, or almost half of total consumption in India.

The rest of this essay is excellent and well worth reading. We have some problematic, but by no means catastrophic economic times ahead of us.