Continental Capital Advisors, LLC May 4, 2012
The US Economy Will Not Decouple
During the past couple of years, we have written about the debt situation facing both Europe and theUnited States. The economic data coming out of Europe has rapidly deteriorated
yet the USeconomy has been resilient. This scenario has caused investors to believe that the US can decouplefrom the troubles in Europe. However, the US is as indebted as the countries in Europe (Figure 1).Instead, the key difference between the economies of Europe and the US has been the USGovernment’s and US consumer's continued access to cheap credit while credit has tightened inEurope. Therefore, it is only a matter of time until the contagion from Europe spreads to the US.Figure 1. 2010 US Debt/GDP Relative To European Countries (USD)
Sources: Eurostat, Continental Capital Advisors
Since 2010, commentators have argued that Greece was an isolated incident. However, what startedin Greece has now spread to Italy and Spain. Despite the efforts by the ECB and IMF to supportEurope’s banking system, the 3
largest economies in Europe have contracted forconsecutive quarters and their stock markets are nearing 2009 lows (Figures 2 and 3).