“This sucker’s going down,” was former US president George W. Bush’s pithy description of the US economy when the financial crisis in the autumn of 2008 threatened to bring down every bank on Wall Street.
Concerted international cooperation of a sort never seen before averted disaster that winter and, by the middle of last year, the world’s biggest economy seemed to be on the mend. US factories started to hum again, shares rallied sharply and growth resumed. The US was showing its traditional resilience when faced with adversity and all was right with the world.
That judgment now appears premature. The latest economic data from the US has been poor. Traditionally, the US’ flexible labor market has meant job creation in the aftermath of recessions has been robust; this time it was weak even when output was growing strong late last year and into this year. Recently it has gone into reverse.
The official unemployment rate in the US is 9.5 percent, but the real level of joblessness is far higher after part-time workers who would prefer to have full-time jobs are taken into account. In a country with a less generous welfare system than in Europe, unemployment acts as a brake on demand, making consumers save rather than spend.
That sense of caution has been reinforced by the state of the US property market, which is also going backwards after the expiry in spring of tax breaks to buy homes. Those states that enjoyed the biggest boom in house prices during the bubble years are now caught in a vicious downward spiral where a crashing property market leads to higher unemployment, rising foreclosures and further downward pressure on house prices.
Pressure on individual states to balance their budgets has made matters worse. Public sector workers are being laid off, leading to still higher unemployment and even lower house prices.
The risk of the US suffering a double-dip recession should come as no surprise given the profound nature of the shock caused by the seizure in financial markets two years ago. What happened then was that the flow of credit dried up as banks hoarded liquidity and became ultra-reluctant to lend.
Central banks and finance ministries everywhere rightly concluded that there would be a repeat of the deflationary slump of the 1930s unless they flooded the global economy with money. So they slashed interest rates, cranked up the printing presses and announced massive fiscal stimulus packages.
This process has worked, but only up to a point. Excluding China, the annual growth rate in the global money supply has fallen from 10 percent at the height of the financial crisis to zero. Without the action taken by the US Federal Reserve, the Bank of England, the European Central Bank and other central banks there would have been a collapse of credit every bit as disastrous as that seen in the Great Depression.
China’s stringent capital controls meant most of the benefit from its monetary and fiscal stimulus was felt domestically. Output rebounded quick and strong from the collapse in late 2008 and this in turn convinced investors that Asia could provide the engine for global growth while North America and Europe gradually recuperated. That explains why equity and commodity prices rebounded with alacrity from the spring of last year onwards, and why Germany — the world’s main supplier of the machinery to power industrial development in the emerging world — enjoyed an export-led boom in recent months. However, welcome as it was, China’s emergency action was not cost-free. The economy lacked the capacity to cope with the sheer scale of the stimulus and showed signs of overheating. Policy has been tightened and China is now showing signs of slowing.
Provided China has a pause for breath rather than a sharp retrenchment, there is still a chance that the global economy will muddle through. Factories in Germany and Japan will churn out manufactured goods for Asia, stock markets will take heart that a second leg to the global downturn has been avoided and cheap money will start to stimulate demand growth in the US once consumers have built up their savings to a level they consider prudent.
However, in the US, the Fed is starting to contemplate a much bleaker scenario in which the US and Chinese economies stall simultaneously, with knock-on effects on those countries (a vast number) seeking to export their way out of trouble. The fear, already reflected in global bonds markets, is of softer output, fresh trouble for the banks and deflation. James Bullard, the president of the St Louis Federal Reserve Bank, said last week that the US was closer to the deflation seen in Japan in the 1990s than it has been at any other time in its history.
This is a clear sign that the Fed is considering another dose of quantitative easing this autumn. It probably wouldn’t take much more poor economic news to trigger it. The mid-term elections for the US Congress are looming and plenty of the Democrats elected on US President Barack Obama’s coattails two years ago are fretting about losing their seats in November. Fed Chairman Ben Bernanke’s speech at the annual symposium of central bankers in Jackson Hole, Wyoming, tomorrow will be scrutinized for hints that the Federal Reserve chairman might be preparing to live up to his nickname of “helicopter Ben” and spray the US economy with more money.
It would be a controversial move. Some would argue that the excesses of the bubble years have to be purged from the system and that any attempt to avoid the necessary adjustment merely prolongs the Great Reckoning and threatens a burst of inflation. Others believe that the problems of the US economy are too deep seated and intractable to be solved by regular doses of cheap money.
Giovanni Arrighi in his book The Long Twentieth Century argues that there have been four major phases of capitalist development since the Middle Ages, starting in Genoa and moving on to Holland and Britain before the start of US dominance during the Great Depression of 1873-1896.
It was during this period, Arrighi argues, that commerce started to play second fiddle in Britain to finance, just as it had in Genoa and Holland when their phases of pre-eminence were drawing to a close. The financialization of the US economy in turn can be traced back to the mid-1970s, so by this interpretation of history, the dotcom collapse of 2000 and 2001 and the financial crisis of 2007 and 2008 (with the military entanglements in Iraq and Afghanistan sandwiched in between) are part of a much longer-term development. According to this thesis, the concentration of economic power on Wall Street, the stagnation of incomes for all but the rich, the structural trade deficit, the military overreach, the switch from being the world’s biggest creditor nation to its biggest debtor add up to a simple conclusion: We are in the twilight years of the long US century.
Such a conclusion is contested in Washington, but may help explain why, as Albert Edwards of Societe Generale puts it: “Unprecedentedly strong monetary and fiscal stimulus has led to unprecedentedly weak recovery.”
This will worry Bernanke, who made his name explaining how policy makers could avoid repeating the mistakes made during Japan’s lost decade and can anticipate the dire consequences of a period of deflation for a nation wallowing in debt.
Despite rising commodity prices, core inflation in the US is low. The Fed still has levers to pull and if there is the remotest possibility of this sucker going down again, it will pull them.
In a meeting with Haitian Minister of Foreign Affairs Jean-Victor Harvel Jean-Baptiste on Tuesday, President William Lai (賴清德) vowed to continue providing aid to Haiti. Taiwan supports Haiti with development in areas such as agriculture, healthcare and education through initiatives run by the Taiwan International Cooperation and Development Fund (ICDF). The nation it has established itself as a responsible, peaceful and innovative actor committed to global cooperation, Jean-Baptiste said. Testimonies such as this give Taiwan a voice in the global community, where it often goes unheard. Taiwan’s reception in Haiti also contrasts with how China has been perceived in countries in the region
On April 13, I stood in Nanan (南安), a Bunun village in southern Hualien County’s Jhuosi Township (卓溪), absorbing lessons from elders who spoke of the forest not as backdrop, but as living presence — relational, sacred and full of spirit. I was there with fellow international students from National Dong Hwa University (NDHU) participating in a field trip that would become one of the most powerful educational experiences of my life. Ten days later, a news report in the Taipei Times shattered the spell: “Formosan black bear shot and euthanized in Hualien” (April 23, page 2). A tagged bear, previously released
The world has become less predictable, less rules-based, and more shaped by the impulses of strongmen and short-term dealmaking. Nowhere is this more consequential than in East Asia, where the fate of democratic Taiwan hinges on how global powers manage — or mismanage — tensions with an increasingly assertive China. The return of Donald Trump to the White House has deepened the global uncertainty, with his erratic, highly personalized foreign-policy approach unsettling allies and adversaries alike. Trump appears to treat foreign policy like a reality show. Yet, paradoxically, the global unpredictability may offer Taiwan unexpected deterrence. For China, the risk of provoking the
Starting this month, young women in Denmark would be subject to conscription on the same terms as men. All Danes, regardless of gender, would be required to register for military assessment, and eligible individuals would be selected through a lottery-based draft. In addition, service time would be increased to 11 months, and conscript numbers would grow to meet national defense targets. Denmark is not alone. In the past few years, several European countries, most notably Sweden and Norway, have adopted gender-neutral conscription systems. Latvia is moving in the same direction. The war in Ukraine has accelerated this trend. Faced with the
RSS