You guys all know that economics make my head hurt, but this seemed pretty important.

Bottom line

We may have seen an inflection, rather than a turning, point on US growth. Depending on the extent of the deceleration in US growth, global growth will be affected. A gentle slowdown in the US that still permits the rest of the world to recover is perhaps the most USD-negative scenario, as a sharp collapse in US demand could trigger a safe haven run into USD assets. In a global slowdown scenario, we believe that the CAD will be vulnerable against EUR, CHF and USD.

Gentle? Who here thinks it’ll be gentle? Other people are also chiming in.

In short the US has used a spiral of borrowing to fund consumption, this has left the US in a bind. If it raises interest rates to strengthen its currency, then it will have a longer period of lower growth, because this will crowd out investment for debt service. If it does not, it will see a spiral of inflation, which despite being masked in the official statistics, will be visible to Americans. Dr. Gros’ thesis puts the day of reckoning - when the US will have to make radical adjustments in the distribution of effort - closer, rather than farther away.

I’m a little weak on the theory, but neither of these sound like good news to me.