Few economists deny that the global economic order that dawns following the financial crisis will be different from the pre-crisis order.

And a key difference is likely to be consumption patterns -- namely the development and expansion of middle classes in younger economies as a source of demand.

The export economy's downside

Emerging market economies have learned/are learning an all-too-painful lesson regarding the vulnerabilities -- or the downside -- of an export-based economy: if for some reason that foreign demand wanes or dries up, your economy has a problem. A big problem.

New York Times (NYSE: NYT) columnist and Nobel Prize-winning economist Paul Krugman argues that the recent statistics on consumer spending offer disappointing news for those who believe U.S. economic growth will resume via spontaneous generation.

Growth, Krugman argues, will not magically appear and the consumer pull-back provides testimony: real consumer spending fell at an annual rate of 3.1% in Q3, with major declines in durable goods purchases.

Further, as Krugman notes, the last time consumer spending fell as sharply was 1980, when the economy was enduring a severe recession with double-digit inflation.

Foreboding consumer spending

Consumers are in pull-back mode, Krugman states, and that fact, combined with general economic slowness - - U.S. GDP contracted in Q3 by 0.3% - - and the lending constraints stemming from the credit crunch, creates a climate that's not for the squeamish: consumers are belt-tightening for justifiable reasons, individually, but their collective belt-tightening could lead to a disaster - - a deeper recession.

That's because, as economist John Maynard Keynes taught, a savings rate is required for a productive, healthy economy, but if every citizen saved everything he/she could all the time, it would be a disaster.

With a home near the capital of the world, decades ago the parents of yours truly were able to locate and purchase the best and most effective books for their children during their grade school development years.

Dad usually chose books that emphasized cognitive development, while Mom emphasized books and exercises that stimulated creativity, and that had happy endings.

To be sure, Morgan Stanley economist Stephen Roach's macroeconomic reports would not have met Mom's requirement for happy endings.

Roach's post-bubble world

Roach, who now also serves as Morgan Stanley's (NYSE: MS) Asia Chairman, takes the pulse of the U.S. and global economies, the housing slump, the credit crisis, and the financial system, in his most recent report. (pdf)

And, consistent with Roach's reputation for sobering analysis, his economic forecast for the quarters and years ahead is not pleasant, and it differs markedly from the current consensus in financial circles.

That current consensus argues that the U.S. Federal Reserve's recently-established liquidity facilities, combined with the U.S. Treasury's back-up measures, will enable banks and others with bad mortgages and bad mortgage-backed bonds to muddle-through, slowly working-off these debts as revenues increase as the U.S. economy recovers. Likewise, the U.S. housing sector and consumer demand also will recover, as home prices stabilize and consumption returns to more-normal levels as U.S. GDP increases. It's a sort of 'end to the banking and housing crises by a growing U.S. economy better-able to service those bad debts' argument.

The financial sector, like the politic arena, can sometimes yield more heat than light, particularly during doldrums or other challenging economic periods. In economist Glen Langan's view, there's no better example of this than the current idea in financial circles that with a period of higher inflation likely ahead, commodities will become the world's new reserve currencies, displacing the U.S. dollar.

Commodities fascination

"Commodities are not reserve currencies, and never will be," Langan said. "Historically, the most precious, widely-traded metal, gold, has served as an inflation hedge, but even that has been cyclical, with major, long down-periods for the metal."

Langan recognizes that emerging market growth, particularly in Asia and Latin America, has created a long-term bull market in oil, commodities, and raw materials, and these are likely to outperform both inflation and selected investment classes, short-term, but to equate them as the new 'reserve currency' is an argument with little empirical support.

American consumers, the pivotal factor in the consumer-dependent U.S. economy, may have modified their spending philosophy, The New York Times reported Tuesday.

Stung by the housing market correction, stagnant wage growth in certain job segments, above-average debt levels, and a slowing economy, Americans are saving more and using credit less -- a shift that some analysts argue is a cultural inflection point of sorts, with huge implications for the economy.

Economist Steve Affinito told BloggingStocks Tuesday that while The Times' interpretative report did not "cite a large enough sample size to meet my fancy," it nonetheless provided data points that support what macroeconomic indicators are saying about consumer choices.

"We know that the savings rate has increased in the last six months, and retail sales are sluggish, at best. Take these and combine them with much tighter credit terms for home equity loans and other credit and what you get is a pull back in purchases, particularly purchases on credit," Affinito said.

China, which has kept its currency, the yuan, artificially low in order to keep the cost of its exports low and promote a domestic economic boom as its nation develops, is finding that the strategy has a negative effect: domestic inflation.

Unlike market-based currencies characteristic of the foreign exchange, China's government sets the yuan's value -- allowing it to trade in a tight band, currently at about or near 7.2730 yuan to the U.S. dollar. China argues that the yuan/dollar peg is necessary to promote economic growth and protect young, developing businesses and sectors.

And the strategy is working: China has registered +10% GDP growth for more than four years; has the world's third-largest economy, in purchasing power parity terms, behind the European Union and the United States; and has generated massive trade surpluses, particularly against the U.S.

Still, the U.S. counters that the peg keeps China's goods at artificially low prices and hence gives China's companies an artificial competitive advantage in trade. China has turned aside those and other U.S. concerns, particularly the trade deficit, arguing that if the U.S. wishes to lower its trade deficit, its citizens should save more and consume less, and the U.S. government should eliminate its budget deficit.

Consumers spent more than they earned in November 2007, returning to near-decade long characteristic that has been responsible for driving a considerable portion of U.S. economic growth, the U.S Commerce Department reported Friday. Meanwhile, nominal income rose just 0.4% in November 2007, below the 0.5% estimate, the department announced. Nominal income gained 0.2% in October 2007.

Consumer spending rose 1.1% in November 2007, above the 0.9% estimate. Spending on durable goods -- such as autos, furniture and appliances -- increased 0.6%, after a 0.1% decline in October 2007. Non-durable goods spending also rose 0.6%, and services spending gained 0.5%.

What international transaction perhaps best symbolizes the U.S. dollar's rough year of 2007?

Giddy British tourists with more money to spend in New York than, seemingly, Donald Trump?

How about an international attraction that won't take dollars? In November 2007, India's Taj Mahal, one of the seven wonders of the ancient world and India's most popular shrine, announced it would no longer accept the dollar, citing the greenback's weak currency status, and accept only rupees, Bloomberg News reported Thursday.

Since January 2001 or during the past six years the dollar has fallen about 55% against the euro, 35% against the British pound, and about 10% against the Japan's yen. On Thursday the dollar was mixed against the world's major currencies. The dollar gained 0.62 cents to $1.4320 against the euro and 1.50 cents to $1.9831 against the British pound, but fell 0.25 yen against Japan's yen.

When a currency, such as the dollar, declines versus another currency, that means the purchasing power of those holding the dollar declines - - a sort of 'non-legislative' tax increase. It goes without saying that most citizens, and institutions, don't like to hold currencies that decline in purchasing power.

The dollar rose to one-week highs against the world's major currencies Wednesday, as currency traders took profits following extensive dollar declines over the past 10 weeks.

Traders said Abu Dhabi Investment Authority's $7.5 billion investment in Citigroup (NYSE: C) contributed to the trading session's pro-dollar sentiment, on the belief that deep-pocketed, patient global investors may be able to provide capital to help keep key credit markets liquid in the quarters ahead.

The dollar improved to $1.4768 against euro, to $2.0681 against the British pound, and to 109.70 yen against the Japanese yen.

Currency trader Andrew Resnick, formerly of Next Capital of New York, told BloggingStocks Wednesday that the dollar's rise should not delude one into thinking there's been a fundamental change in currency conditions:

"I see nothing changing structurally. We've got the U.S. trade deficit, a slowing U.S. economy, and the possibility of another rate cut by the Federal Reserve, so pressure will resume on the dollar," Resnick said. "We may not see as many players in the carry trade, but the long-term bias remains dollar-lower."

In the weeks ahead, BloggingStocks will take an in-depth look at the U.S. dollar's decline, its impact on the global and U.S. economies, as well as on job creation, trade, and investment.

Remonstrations about the weak U.S. dollar are getting to be a little bit like what Mark Twain said about the weather:

"Everyone seems to complain about the weather, but no one ever seems to be able to do anything about it," Twain said.

Similarly, everyone seems to complain about the weak U.S. dollar, but no one ever seems to be able to do anything about it.

This time it was former U.S. Treasury Secretary Robert Rubin, who Tuesday told Bloomberg News that relying on a falling currency to increase exports isn't a "sound approach" and said policies should be implemented to strengthen the dollar.