In my view, any definition of a "hard landing" for the US economy in the face of a major adjustment on its current account has at the very core a reduction in real consumption. This is not simply a reduction in the growth rate; I mean an absolute decline. With the CA balance a whopping -6.3% of GDP in 2004:IV and surely sinking to well under -6.5% in 2005:I, there is no avoiding the pain now.
Stephen Roach thus hits the nail squarely on the head today when he says,
It is only a matter of time before America�s external deficit is rebalanced. When that happens, the US will need to reduce consumption � undermining the major driver of China�s externally led growth dynamic.The last time US personal consumption expenditures fell in real terms for two quarters in a row was 1990-91; before that, we're all the way back to 1980; and before that, 1973-74. These are the days the US is going to have to relive.
The hard landing scenario is inevitable. The only question is "how hard?".