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Far from absolute decline, it is more useful to think about what is happening in America as an era of a Great Reinvention, says ipac chairman Arun Abey. Here is an extract from his notes on his recent trip to the US.

“America in the era of the Great Reinvention has a quite different mood.  Landing in Los Angeles with my younger son last month, I recalled it was 25 years since my first visit. Compared to my previous visit a year ago when the mood was dire, the economy was now clearly in recovery mode.

But the mood was one of cautious pessimism, rather than the cautious optimism that I’ve found in the first phase of a recovery of the five previous US downturns. Yes the Americans feel that they have dodged the economic holocaust that the GFC could have become and they are relieved that the downturn was much shallower and shorter than expected. But there is an uneasy sense that around the corner lurks hidden dangers that will plunge the economy back into the depths of recession, or worse.

So consumer sentiment remains muted and businesses, despite having balance sheets that are awash with cash, have gone on an investment strike.  The main driver of the recovery therefore has been government stimulus spending. But the resulting deficits  are clearly not sustainable, at least to the extent that the spending has been consumption oriented. Even where the spending has been oriented towards infrastructure, the efficiency of this spending has been mixed.

To the average American, the dangers of the situation are obvious while the upside at best seems limited. My son and I visited Los Angeles, Yellowstone National Park in northern Wyoming and then meandered down the length of Wyoming to Denver Colorado.  Wherever we went people reported that business was OK, but was far from booming. Yes people are eating out, but the average spend had fallen. Holidays are shorter. Cheaper options in most things were being  pursued.”

To read the rest of the extract click here