Indeed, rising consumer demand for goods and services has been a > key element of U.S. economic growth. But its current level is > unsustainable.
Manufacturing jobs was the key industry in America, Its the blood of our country, and its been slowly drained. Unless America gets a blood transfusion very quickly, she will never survive. On Dec 21, 10:49 am, "[email protected]" <[email protected]> wrote: > http://news.xinhuanet.com/english/2008-12/17/content_10517447.htm > > BEIJING, Dec. 17 -- Recently productivity in the United States rose > more than forecast, while labor costs increased less than anticipated. > Usually, that is a good sign. But these are no ordinary times. More > than 1.5 million jobs have already been lost this year, and there is > worse to come. > > In the next few weeks, aggregate demand will decline significantly > in relation to supply. Companies are reducing capacity feverishly in > housing markets, durables, the car industry, and in others. As the > U.S. negative demand shock spreads internationally, it will reinforce > the worldwide downturn. > > The writing is on the wall. Historically, world trade has been > driven by the decline of transportation costs and tariffs. However, > the Doha Round collapsed this summer, while the Baltic Dry Index > (BDI), a barometer of global trade, has fallen 93 percent. Even the > price of oil has plunged from 150 U.S. dollars to less than $50. In > the past, cheap oil was a blessing; today, it reflects the decline of > world trade - for the first time in 30 years. > > The U.S. economy entered a recession in December last year. > Although the official confirmation came recently, the facts have been > known since summer last year. After the housing bubble and the credit > squeeze, Dow Jones has declined by 40-45 percent from its peak. > > In the 1970s, the energy crisis pushed the world economy into > stagflation; in other words, slow growth plus inflation. Today, U.S. > recession is pushing the world economy toward redeflation, or > recession plus deflation. > > The severity of this crisis is now comparable to the explosive > threats - the mix of recessionary forces and deflationary pressures - > that were seen last right before the Great Depression in the 1930s. > > How did we get here? > > The global financial crisis does not originate just from the US > subprime mortgage crisis. It stems from the 1980s, when deregulation > of financial markets contributed eventually to the savings and loan > debacle, and the 1990s, which provided a powerful catalyst to US > productivity and growth but also gave rise to low interest rates and > the explosive growth of the unregulated derivatives - or the > "financial weapons of mass destruction", as the investor Warren > Buffett called them. > > After the collapse of the tech bubble in the early 21st century, > the economy needed a stimulus. However, the Bush administration's tax > cuts did not benefit the U.S. > > As fiscal policy stepped aside, monetary policy had to step in. > The Federal Reserve (Fed) responded by flooding the economy with > liquidity. In the past, that might have contributed to the growth. > After the burst of the Internet bubble, however, excess funds were not > put to productive use, but flew into the next big bubble - the housing > market. > > The original objective of the subprime market seemed well-founded > - to ensure that home ownership was not just the privilege of the few, > but the promise of the many. Similarly, securitization was hardly > something negative; it made markets more efficient and contributed to > consumer welfare. And so it was with the Internet, which facilitated > and globalized these efficiencies. > > Still, in the early 21st century, deregulation, securitization and > Internet-driven transactions led to massive distortions, while giving > rise to an unregulated and shadowy world of finance. > > Low interest rates and easy access to funds encouraged reckless > lending, which led to the subprime mortgages that allowed home buyers > to be afforded mortgage for a house they were never qualified for and > would never be able to pay off. Behind the facade, bankers were > talking cynically about Ninja-loans (no income, no jobs, no assets). > > Initially, the subprime mortgage crisis was a US problem. In a > less globalized world, it might have remained so. However, it was > disguised into derivatives that were misunderstood as "safe", as > investment banks sliced and packaged the risks worldwide, which then > spread - like a pandemic. > > Soon thereafter the multi-billion dollar write-offs ensued as some > of the world's largest investment banks, from Bear Stearns to Lehman > Brothers, had to acknowledge that the derivatives they were holding > proved almost worthless. > > The subprime mortgage crisis morphed into a credit squeeze as > these assets then forced the banks to deleverage quickly. Soon the > crisis finally affected inter-bank lending worldwide and morphed into > a global financial crisis. By mid-October, the world financial system > was - as the International Monetary Fund chief Dominique Strauss-Kahn, > noted - "on the brink of a meltdown". > > Through decisive, coordinated and international action, the > meltdown was averted after the world's industrial leaders convened in > Washington. Although these G7 nations still govern the world economy, > growth is primarily now in the large emerging economies and oil > producing nations. > > The initiative thus shifted to these G20 nations, while French > President Nicolas Sarkozy outlined the need for Bretton Woods II. But > much has changed since 1944, when the international financial > architecture was created for the postwar era. > > After World War II, the Bretton Woods conference was prepared for > months and led by the U.S., which, at the time, accounted for half of > the world GDP and was the world's greatest creditor. Ironically, last > month, the G20 conference in Washington lasted two days and was hosted > by the U.S., which now accounts for only 23 percent of the world GDP > and is the world's largest debtor. > > The participants agreed to cooperate, and formulated lofty > objectives and will meet again in April next year. However, the > markets live in real time and will not wait. Despite multiple massive > bailouts worldwide, policymakers have failed to get credit flowing and > to prop up spending. > > In Washington, Obama is putting together a large stimulus plan, > which is rumored to amount to 4-5 percent of the U.S. GDP, or 600-700 > billion dollars. The capital provision is perceived as necessary to > restore the ability of banks to lend and unfreeze the credit markets. > The goal is to stimulate consumption, which accounts for more than 70 > percent of the U.S. GDP. > > Indeed, rising consumer demand for goods and services has been a > key element of U.S. economic growth. But its current level is > unsustainable. > > Between the 1960s and 1990s, personal spending, adjusted for > inflation, tracked the overall growth of the economy. During the past > decade, that pattern has changed. > > Before the onset of recession in December last year, the 10-year > growth rate for consumption was 3.6 percent, versus GDP growth of 2.9 > percent for the same period. This difference represents an enormous > gap. Between 2001 and last year, the extra spending amounted to about > 3 trillion dollars. Much of that money was spent in the housing > market. > > Global growth has been driven by the U.S. consumers who have been > living beyond their means, and by banks that are now falling apart. > The past level of U.S. consumption is no longer sustainable. > > Typically, the impact has been felt first on imports, which is now > exporting the U.S. redeflation worldwide - while causing the demise of > export-driven growth. > > The ongoing worldwide recession is not the result of cyclical > fluctuations. It reflects the structural transition of the world > economy - from global growth driven by U.S. consumption to a new kind > of growth driven by multipolar economies. > > In the past, global growth had been too dependent on one nation; > in the future, it will be more diversified and less risky. But the > transition is wrought with peril. --~--~---------~--~----~------------~-------~--~----~ You received this message because you are subscribed to the Google Groups "World-thread" group. To post to this group, send email to [email protected] To unsubscribe from this group, send email to [email protected] For more options, visit this group at http://groups.google.com/group/world-thread?hl=en -~----------~----~----~----~------~----~------~--~---
