Fred Bergsten - Oped in Economist
Out of respect for the Economist, I will post only the first couple of paras. For those with strong stomachs and a desire for truth read the rest of the article.
FIVE major risks threaten the world economy. Three centre on the United States: renewed sharp increases in the current-account deficit leading to a crash of the dollar; a budget profile that is out of control; and an outbreak of trade protectionism. A fourth relates to China, which faces a possible hard landing from its recent overheating. The fifth is that oil prices could rise to $60-70 per barrel even without a major political or terrorist disruption, and much higher with one.
Most of these risks reinforce each other. A further oil shock, a dollar collapse and a soaring American budget deficit would all generate much higher inflation and interest rates. A sharp dollar decline would increase the likelihood of further oil price rises. Larger budget deficits will produce larger American trade deficits, and thus more protectionism and dollar vulnerability. Realisation of any one of the five risks could substantially reduce world growth. If two or three, let alone all five, were to occur in combination then they would radically reverse the global outlook.
There is still time to head off each of these risks. Decisions made in America immediately after this year's elections will be pivotal. China, the new growth locomotive, is key to resolving the global trade imbalances and must play a central role in future. Action by a number of other countries will be essential to maintain global growth and to avoid deeper oil shocks and new trade restrictions.
The most alarming new prospect is another sharp deterioration in America's current-account deficit. It has already reached an annual rate of $600 billion, well above 5% of the economy. New projections by my colleague Catherine Mann (see chart 1) suggest it will now be rising again by a full percentage point of GDP per year, as actually occurred in 1997-2000. On such a trajectory, the deficit would exceed $1 trillion per year by 2010.
So, to the anonymous who do not seek truth, read again…
FIVE major risks threaten the world economy. Three centre on the United States… Realisation of any one of the five risks could substantially reduce world growth. If two or three, let alone all five, were to occur in combination then they would radically reverse the global outlook.
Does that paint the picture clear enough?
It does not matter WHO wins the White House in a week or so (or months after the Supreme Court sorts out the electoral mess). Bush or Kerry or Nader or Mickey Mouse; top of the new President’s shopping list must be the impact that current US fiscal and economic policy is having on the global scale.
In terms of raw probabilities, the US will suffer the consequences of at least one of the major risks outlined.
Whether the oil price goes beyond USD70 is, in my humble opinion, a relative minor. The oil shocks of the 1970s would equate to current prices in excess of USD100. If we (the world) see prices like that again then no one will land softly.
The impact that China might have – that is I think problematical.
How many times has GWB insisted that deficit economics is good for the US, good for the rest of the world? Every time he mantions the word “capitalism” I suspect. How did the USSR collapse? Not from capitalism or anything like that. The collapse of those economies came from decades of internal deficits; they got to the stage where internally the nation was insolvent. Even then they pressed on, using current income to pay arrears in coal miners wages so that there was coal to manufacture steel.
Believe me, anonymous, I (we in NZ) know what it means to wake up one morning with the head of state appearing on national television, under the influence of two or three bottles of whisky too many, to announce that the nation is “technically insolvent” and that we may default on loan payments due at the end of the week? Believe me, anonymous, that is something that you do not want. Believe me, that is something that the rest of the world does not want either.
Think for a moment... what do you imagine the words "radically reverse world outlook" might mean in the context of the present?