The Case for North America

By: Geir Kokkvoll Engdahl

There is a lot of USA-bashing going on these days. A lot of comments on Norwegian and other forums degrade the USD, as if it is going to sink into oblivion shortly. Currency analysts follow suit, and predict the USD trading at 5,50 NOK in a year. I must admit that I, too, was in that group not long ago. You can’t be right all the time, so it is important to be able to change views and admit that you were wrong.

There are in fact arguments that North America will perform better than Europe in the coming months and maybe years. First, Europe has it’s own subprime-mess: Eastern Europe. European banks have lent trillions of Euros to emerging economies that can probably never repay the loans. The European banking system has more leverage than the US: In the USA, banks are required to keep 10% of the deposits on hand as reserves. In most of Europe, the reserve requirement is only 2%. That means base money supply can be multiplied 50 times in Europe, but only 10 times in the USA. Guess which economy is more stable?

The American bailout packages have gotten the most press, but the European rescue packages have in many cases been much larger. Take Norway as an example. The bank packages I + II total NOK 450 billion, roughly NOK 100 thousand per citizen. The American bailout package is less than one fifth of that, even though our politicians tell us that Norway is much less affected by the finance crisis. While the rescue package generated a large debate and was first voted down in the US Senate, there was no meaningful public debate around the Norwegian rescue package. Not a single member of parliament (stortingsrepresentant) voted no to the package, even though it was of unprecedented scale and the representatives had only one week to think about it. Is the US fiscal policy perhaps more strict than our own?

Europe is short on energy and natural resources. Norway and Great Britain are the only large producers of oil in Western Europe. The UK recently turned into a net importer of oil. Norwegian oil production is declining at a 10% annual rate which is poised to accellerate in the future. Russia has large oil reserves, but production is declining, and it is increasingly often using oil a geo-political tool to increase its influence. In the USA and Canada 330 million people share an oil production of almost 12 million barrels per day. In Western Europe, 500 million people would have to live on 5 million barrels per day without imports. USA and Canada are the world’s grain-baskets. Canada is the largest uranium producer in the world. The USA and Canada have a population density of roughly 16 heads per square km. Europe including Western Russia has a population density of 70 people per square km. In Western Europe, that number is considerably higher.

The US govt. is by far the largest single owner of gold in the world, with reserves of 8000 tonnes. The Norwegian central bank has 3 tonnes. The US + Canada mine several hundred tonnes of gold per year, while Europe produces virtually nothing. If we were to see a reversion into gold as a base for wealth, Norway would be an extremely poor country. We’re not even on the list. How is that for you gold-bugs?

When it comes to national debt, all of the US national debt is denominated in dollars. They can print exactly the amount they owe, and be done with it. Other countries have their debts in foreign currencies. Any attempt to print money to satisfy such debts will only lead their own currency to demise, since they need to exchange that money into – you guessed it – US dollars! The US is not even one of the most debt-ridden countries in terms of public debt to GDP ratio.

No doubt that things are ugly in the USA, but could they be considerably uglier elsewhere? It’s good to see things from several perspectives, and I invite the readers here on Farmann to debate whether Europe or North America will do better in the coming depression by posting comments to this article.

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