The United States was for so long the economic superpower that it seemed that it would continue forever.
Then came sub-prime mortgages, Lehman Brothers and the rise and rise of China.
It became fashionable to say the US hold on the winner’s podium was precarious or worse – economists calculated the time before China grabbed the gold. For the first decade of the new millenium, Wall Street and Chicago were going nowhere fast while emerging markets shot ahead in terms of growth. Investors had begun to doubt that America would ever be a market to trust again.
But now there are signs that the US is back on track as the world superpower, offering investors potential opportunities. At the same time as the problems in the eurozone have continued to hold back stock markets there, investors have also felt increasingly nervous about investing in emerging economies. China is no longer a one-way bet, at least in the short to medium-term.
There are several factors which suggest that the US recovery will be stronger and longer than elsewhere.
The US corporate sector is growing profits faster than the rate of economic growth and companies are extremely competitive; today there is $1.3 trillion of cash on US balance sheets.
This widespread balance sheet strength serves as insurance in a downturn, a turbocharger for growth in an upturn, and as a support for business confidence. There is limited Asian competition for Apple, Facebook, Google or Microsoft. While basic manufacturing has often migrated, America has the ability to innovate and re-invent. So far, the Emerging East has largely copied rather than created technology.
US consumers are benefiting from easier credit terms and demand is in better shape to weather global economic shocks than it has been previously. Housing appears to have found a bottom, and while employment remains challenged, it should improve as macro-fears abate.
The Federal Reserve is able to offer more consistent support to the economy than central banks in the UK and Europe. Its mandate to control inflation and encourage economic growth makes it a more benevolent influence on the economy than the Bank of England and the ECB which are more limited.