"Some economists claim there is no way the USA can escape the downturn now being seen across Europe. I’m not so sure this is correct."
"There has been one very clear difference in Europe and the USA over the last few years. Although both regions have suffered from balance sheet recessions and sizable real estate bubbles (some parts of Europe more than others) the response has been entirely different. Europe, as a result of the flawed single currency and lack of political unity has imposed austerity on itself for the better part of the last few years. In many countries this has resulted in an environment that never even remotely resembled the recovery seen in other parts of the developed world. In fact, many of these countries are in full blown depressions."
The difference is the structure of the Euro zone where they are both two unified and not enough. What they need to do is one of two things-either come to greater unity and have the ECB assume the role of a true lender of last resort or truly scrap it.
The advantages that the U.S. enjoys by the way are also enjoyed by Britain which right now looks to have dodged a bullet by not joining the Euro. Yet the joke is on them as they have implemented Eurozone austerity while they are not a Eurozone country and like the U.S., Switzerland, and Japan, have their own fiat currency. For one thing British bonds have the lowest yields except for the U.S. so their "borrowing costs" are no more in peril.
Yet as people like Roche and the MMT people tell us, as fiat money systems there is no danger of bondholders even disciplining us, the British or any country with its own paper currency.
To be sure the fact that ours is the worlds reserve currency may give us a further advantage as well. But Britain has all the advantages of a fiat system and yet is acting like it's Greece. Indeed part of what is serving us well for Roche is our 10 % budget deficit. Far from being a problem that's what been what has boded so well for us:
"The United States, on the other hand, has been running steady 10% budget deficits throughout the last 3 years – there has been no real austerity. This has helped the private sector de-leverage without crushing economic growth. I’ve maintained an unpopular position over the last few quarters that the USA would “muddle through” as opposed to falling into recession. This position has been based on my idea of a continuing balance sheet recession in the USA combined with a government that, despite its inability to agree on most things, has not torpedoed the economy via austerity."
"I think it’s too early to break out the victory cigars and proclaim that the United States has avoided a double dip. As I’ve long maintained, trying to forecast the double dip misses the bigger point that the USA is still very much in one long recession – a balance sheet recession (no victory cigars for that). It’s just been offset by continuing government spending. The difference in Europe is that austerity has exposed the balance sheet recession for what it really is."
"So, while the USA isn’t out of the woods in terms of a double dip I do think it’s safe to say that, given the 2012 budget projection of 10% deficits, any downturn in the USA is likely to be meager compared to the disaster that is Europe. One thing is for certain – despite continual bickering in Congress, the lack of austerity during a balance sheet recession makes American politicians appear infinitely more capable than the political mess now unfolding across the pond…."
http://pragcap.com/is-the-united-states-decoupling-from-europe
This unpopular position has been mine as well, it's nice to see someone else with it. In addition while I understood about our advantage vs. the Euro based on what Krugman calls the Rubicon Effect, it is the virtue of Roche and the MMT school to point out that deficits are exactly what we need right now as opposed to the deficit hawks.
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