Uncertain future for US economy

I love reading dated stuff ... some insightful writers make marvelous predictions, and thus, one comes to learn by watching the truth of past predictions of wise and qualified by people who have a right to speak. I think that Alan Ahearne is one of these. Here is something he wrote in 2006 which may have some bearing on today's economic events"

The following is taken from the Post.IE

Sunday, November 12, 2006 - By Alan Ahearne
The recapture of the US House of Representatives and the Senate by the Democrats last Tuesday represents an enormous defeat for Republican President George W Bush and his policies in Iraq.

The now lame-duck Bush is a deeply unpopular figure in many parts of the world, including, it would seem, here in Ireland. Republican losses have been greeted in some quarters with a degree of jubilation not seen since the Munchkins celebrated the demise of the Wicked Witch of the East.

But before breaking into a chorus of ‘‘Ding Dong, the Republicans are gone’’, we ought to consider that the shift in power in the US could have major implications for the world’s biggest economy - and therefore for Ireland, which is very reliant on the US.

Voters punished the Bush administration for its failure to win in Iraq, and the Irish economy may end up a victim of collateral damage.

The Democrats’ victory comes at a time when the outlook for the US economy is highly uncertain. After several years of heady economic growth, the performance of the US economy deteriorated markedly this past summer amid a dramatic downturn in the over-stretched housing market.

Hit by a series of interest rate hikes by the Federal Reserve - America’s central bank - which saw interest rates go from 1 per cent in 2004 to 5.25 per cent today, construction of new houses tanked, inventories of unsold houses soared to 40-year highs and house prices stalled - and, in some states, began to fall.

The crucial question for the US economy’s short-term prospects is whether the worst of the housing slowdown has passed. The concern is that the recent softness in the housing market may deteriorate into an outright housing market crash, plunging the US into a severe recession.

The fortunes of the US economy in the near term will be largely unaffected by the changeover in the House and Senate. The Democrats are expected to move quickly to push through a rise in the minimum wage to $7.25 an hour from the current $5.15, a roll-back in tax breaks for oil companies and possibly an increase in income taxes on the very wealthy.

None of these policy changes will matter much for the direction of the overall economy over the next few years. Financial markets, tellingly, hardly reacted to the election results.

Where the economy goes from here will be determined mainly by what happens to interest rates, which are set by the Federal Reserve, not by the newly-elected politicians.

Importantly, the same cannot be said of US economic policies in the international arena, like trade and foreign investment policies, which are expected to change, perhaps radically. ...more