US economy

Dear Editor,

J.P. Morgan predicts that the United states GDP will shrink by 25% in the second quarter. Goldman Sachs estimate a 34% contraction and Evercore ISI predicts a 50% decline. I expect that the US will have negative growth for 3 years and less than 2% growth for at least a decade.

What the US Federal Reserve is doing with quantitative easing, low interest rate and the Federal Reserve buying up bonds is what the Bank of Japan did in the 1990s and has continued indefinitely. After the Asset Bubble burst in 1991and early 1992, in Japan, the ratio of public bond to GDP increase from 42% in 1990 to 191% in 2018.

For the period of 1995 to 2007, Japan”s GDP fell from US$5.33 trillion to US$4.36 trillion in nominal terms, real wages fell around 5%, while the country experienced a stagnant price level. Japan continues to struggle with its consequences.

There will be some differences with the United States economy because the US dollar is the world reserve currency. Japan economy is based on production while US economy is based on consumption (70%). Japan is the largest creditor nation (the largest external assets) but US is the largest debtor nation.

This is a likely occurrence and Guyana and the Caribbean should have a contingency plan. The future is uncertain but what is certain is you cannot have unlimited quantitative easing, zero interest rate, unlimited buying of bonds without serious negative consequences. This is what the US Federal Reserve is doing.

Yours truly,
Brian E. Plummer