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U.S. shopper: from muscleman to weakling


Americans shoppers have not only been the driving force behind the U.S. economy. They are also a kind of international public good.

The $10 trillion of U.S. consumption is not just 70 percent of the U.S. economy. It is around 16 percent of the global economy.

In short, American mall-junkies are hard to replace. So today’s reminder of the fragility of the consumer — courtesy of July’s retail sales figures — is not just bad news for the United States [nN13227479].

Through most of the past decade U.S. consumers resembled Arnold Schwarzenegger’s unstoppable robot in the Terminator movies. They seemed capable of taking blows that would have floored lesser consumers. Shoppers powered through business downturns, stock market collapses and even the 9/11 attacks.

Latvia: hold that peg!


 Latvia’s currency peg to the euro has become a punchbag for economists convinced that the Baltic state is inflicting unnecessary pain on its citizens. But devaluation of the lat risks mass defaults by citizens and companies. Four-fifths of private loans are in euros, and large-scale default would cripple the banking system. The Swedish banks that have lent billions of euros in Latvia would also be vulnerable.

Latvian devaluation would unleash a chain reaction around the Baltic and beyond. Lithuania and Estonia would face huge pressure to follow, and the knock-on effect could hit Bulgaria, which also has a currency board, and put pressure on other central European currencies. Devaluation would wreck any early prospect of Latvia joining the euro zone, which the former Soviet republic sees as a safe haven of financial stability and political independence. 

IMF undermines EU fight for Lativa peg


 Just when it looked as if Latvia’s currency peg to the euro had weathered the storm, the International Monetary Fund has raised fresh doubts by withholding funds for the Baltic European Union newcomer. 

 The IMF is right to demand a credible medium-term strategy for budget reform, but it would be wrong to risk contagion in eastern Europe by questioning the currency board. If one thing
could undermine the EU’s bid to avoid a wave of devaluations around the Baltic states, with knock-on effects for Swedish banks and potentially for central and eastern Europe, it is conspicuous differences between the IMF and Brussels.