There are many who hold pessimistic views about the US growth outlook, with some even predicting a recession (see Nouriel Roubini’s article, page 38). A large part of their pessimism comes from their characterisation of this whole upswing as one built on an artificial foundation. They say the upswing was kick-started by an ultra-easy monetary policy that fuelled a housing bubble that, in turn, boosted personal consumption as well as residential construction.
With the housing bubble popping now, the pessimists say the US economy is heading for major trouble. Economist Paul Krugman summarises his view of the current situation nicely in one of his regular columns in the New York Times: “The Federal Reserve successfully replaced the tech bubble with a housing bubble. But where will the Fed find another bubble?”
