Could Europe's loss be the U.S.'s gain? University of Oregon economist Tim Duy thinks so, and his opinion has given new life to the debate over how European instability and chaos might affect the American economy. The signs are hard to read, though. Here's how Duy interprets them, and why two top business bloggers are skeptical.

  • This Will Not, Contrary to Popular Belief, Send Us Into Recession  Tim Duy recalls JP Morgan's recession prediction following the Asian financial crisis, assuming a "drop in net exports." But "while a drop in net exports did occur, domestic growth more than absorbed the impact. The US recession was delayed until the impact of tighter monetary policy, higher energy prices, and the popping of the tech bubble all came home." Duy thinks he "can see a similar pattern of events evolving now," and explains why.
Bottom Line: The European crisis, by keeping US interest rates in check and oil prices low, may do more to help the US recovery than hurt it. In the process, however, we would expect the flip side of the resulting capital inflows into the US to emerge - namely, a rising external imbalance. Arguably, this simply shifts the ultimate adjustment to sometime in the future.
  • Might Not Boost Us, Either  If this crisis were "good news for America overall," argues The Economist's Ryan Avent, "we'd expect to see American markets rising, and that clearly hasn't happened." He also thinks "it seems unreasonable to expect personal consumption to power recovery all the way back to full employment, no matter what interest rates or oil prices do. Household balance sheets are simply too stressed." Furthermore, while the Fed might delay tightening for a little while because of the European situation, the increased money demand from European "volatility" will ultimately have the same "contractionary effect." Ultimately, "the European crisis is a blow to one of the world's largest economic areas"--it's not going to be good.
  • Hard to Say  Reuters's Felix Salmon likewise pokes doubtfully at Duy's argument about interest rates: "Interest rates can hardly be any lower than they are, so for the time being they're exactly where they would be even if there wasn’t a European crisis," he says. "As for the price of oil, again I think the influence of European news is marginal, and only secondarily due to fundamentally lower demand from Europe." He agrees that "if global liquidity embarks on another flight-to-quality trip to the US, that's a nice short term boost on this side of the pond. But it's not at all sustainable."