USA & EU - Both have very different 2011 strategies

When the financial crisis first hit in 2008, the economic and political collaboration between Europe & America was unprecedented. That isn´t happening anymore.

Europe´s citizens (UK included) are now enduring massive spending cuts while the USA is still stimulating its economy.

Or, to put it another way, Europe has checked itself into rehab while the USA wants to inject steroids a little while longer.

Why?

Setting aside the theoretical pro´s and con´s, a big part of the reason is that the US Dollar is the world´s reserve currency and the USA is the only country that can print it. A very large portion of global imports and exports, including crucial commodities like oil, are all based in dollars.

On the one hand, that makes quantitative easing a lot easier, but on the other, countries that hold US dollars (particularly major oil exporters and China) are not too happy about how those actions are diluting their existing reserves.

In the short term however, these tax breaks and stimulus packages should ensure the US Economy has a healthy 2011. It might even continue to be fine in the medium term, but they´ll have to address the debt situation eventually, because it is clearly unsustainable.

Real long term recovery does not involve the US government pumping money into the economy for years on end - that is a once in a generation activity. It is far more important that the private sector figures out new ways to produce goods and services that US citizens and other countries want to consume.  

Warm Regards

Colin