HEADED FOR A BIG FALL

This year's conference of the World Economic Forum is not saying much good about Bush economics.

But most expressed skepticism that the Bush administration would reduce the trade and budget deficits, which have fed those imbalances. Some said they doubted that China, which is financing much of the American debt, would bow to pressure to allow its currency to rise against the dollar this year.
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"The U.S. current-account deficit is a problem for the whole world," Jacob Frenkel, an economist and former governor of the Bank of Israel, said. "I don't see the budget deficit being taken seriously."
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"There's nobody home on economic policy in America right now," said Stephen Roach, the chief economist at Morgan Stanley. The twin burdens of household and public debt in the United States, he said, are unsustainable. He described American consumers as "an accident waiting to happen."
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With the dollar trading above $1.30 to the euro, near its economically tenable limit for Europe, Roach said, the United States could not rely on currency markets to right the imbalance with the Asian countries that finance American deficits by buying Treasury bills.
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The answer, he said, was in the hands of the Federal Reserve, which he said would have to raise rates aggressively to curb the spending binge. Whether it could do that without triggering a recession is an open question, especially given the impending retirement of its chairman, Alan Greenspan.

I heard someone say in the past day or so, "If you haven't sold your stocks and bought property in Italy, you better get it done right now."

UPDATE: Robert Kuttner has a good article about the situation here.