The U.S. debt crisis: Is it more severe than Europe’s?
The euro sovereign debt crisis overshadows the serpentine debt that is growing across the U.S. and taking a serious shape in this global economic depression. However, economists opine that the U.S. debt problem might be a bigger worry. The debt management effort on the part of the U.S. is still to bear fruits and the current recession is just aggravating the crisis.
The financial experts and economists have congregated to hit a discussion on the U.S. at a Federal Reserve level. The U.S. has 50 states out of which near about 48 have large budget deficits. Therefore, focusing on the US debt crisis is crucial to recover the economy dexterously.
After the dissection of debt in the U.S., the situation seems to be similar, if not worse than the Euro zone crisis.
The most remarkable thing that is predicted over the next five to 15 years is that there will be a transition in the economic scenario of the West. There will be a switch from a structural growth economy to a cyclical economy in the Economy of the West whereas the East is going to have a structural growth. The basic reason behind this is that the multiples that are paid for cyclical stocks are comparatively less than what is paid for growth stocks.
To attain the estimated GDP growth of 3% there has been exceptional amount of stimulus that has been spent in to the US market. But skepticism surrounds the success rate of the QE2 policy. This policy is bizarre as more debt is created to resolve the debt crisis. The real intention behind it is to keep a check on the soaring interest rate to control the accumulating debt.
The QE2 and stimulus packages have managed to boost the inflation and as the prices increase it fuels the cost of production. As a result, it becomes essential to highlight the impact on companies.
The market growth is stagnated if the companies try to acquire the production cost from the consumers. These good margins are unsustainable as they last for just 12 to 18 months. Thus stable stocks are preferred with the boring cash flow companies like pharmaceuticals and healthcare.
Libya is currently going through a span of economic crisis but opportunity accompanies crisis. 14% of the oil production in Libya comes from ENI, an Italian Company. During this time the stock market discounts and there is a remarkable fall in the stock price. With the rise in the market the conditions of the stock prices will also plummet creating more opportunities for the consumer.