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Thursday, January 11, 2007

How Much Effect Will US Housing Have on the Global Economy?

If you've been reading any of the stuff written by my colleague Mike Larson, you know the US housing market is not in good shape. Every now and then I walk into his office with what I think is potentially good news for housing, and he just shakes his head and opens up another can of gloom-and-doom, backed up with stats, facts and figures.

Since I write about commodities, this worries me a lot. So, I found it interesting to read this...

The Associated Press reports on the US dollar and world economy. "An expected dampening of the world economy in 2007 after three years of healthy growth has the weakening U.S. housing market primarily to blame, a U.N. flagship economic report released Wednesday said. The World Economic Situation and Prospects 2007 predicts a reduction of world economic growth to 3.2 percent this year, from the all-time high of 4 percent in 2005 and an estimated 3.8 percent in 2006."

"The waning U.S. housing market is a 'major factor' in the slackening economic prospects, the report said. The end of the housing boom is expected to depress U.S. consumer demand, slowing the growth of the country's economy to 2.2 percent this year, it said. 'The economic recovery in Japan and Europe is not strong enough to replace the U.S. as the engine for growth of the world economy,' the report said."

"A continued widening of the U.S. deficit could erode 'confidence in the dollar as the world's main reserve currency,' the report warned."

"The U.N. report also warned that if the U.S. housing market falls at a dramatic rate, the global economy could become unhinged, 'enhancing the risk of a major upheaval in financial markets.'"

Does the UN have it right? I don't know. But if you've been a reader for awhile, you know that I expect surging economic growth in China, India and other parts of the world to pull the global economy along even if the US starts to sputter. The UN seems to agree with me. I guess that makes them geniuses (LOL!)

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