Global Imbalances

The IMF World Economic Outlook notes that the desired process of rebalancing global demand from countries with large trade deficits (notably the US) to countries with large trade surpluses (notably China) is not going very well.

Relatedly, it points out just how difficult it is for increased demand in developing economies to offset stagnant or falling demand in the much slower growing advanced economies.

At pages 29-30, the report notes that the advanced economies – North America, most of Europe, Japan – now count for about 50% of global demand, measured in GDP at purchasing power parity. However, if one looks at consumption measured at current exchange rates in terms of US dollars – which they argue is the relevant metric for looking at needed trade re-balancing – the advanced economies still account for about 70% of  global demand.

Following this line of thought, it is estimated that consumption in China would have had to have increased by 17% in 2009 to offset the impact on world demand of the fall in US consumption compared to pre recession levels.

In short, part of the reason that the global economy is slowing so alarmingly is that the positive impact of emerging country growth on global demand is not  sufficient to offset the impact of consumption stagnation in the advanced economies.

Put even more succinctly, if growth cannot be revived in the US, Europe and Japan, the world is in deep doo doo.

 

2 comments

  • A great post as it has been on my mind very much lately as to the prospects ofsolving these demand issues. Looking at a couple of charts today, the US housing stats, and car sales in the US is as far as one needs to go to see just how in trouble demand truly is.

    Both fell off a cliff in ’08 and are nowwhere near recovery. (housing especially, but car sales are in a deep slump as well, basically anything that a consumer typically needs credit for in the US is showing distress- housing sales in teh US by cash were at almost 20% last month, uber high)

    So it gets us back to what is to be done about demand. Stimulus notions are dead and the only twisted help (appropriately titled) in the form of monetary pushing on a rope backed up by austerity in the midst of a liquidity crisis is about as helpful as hitting oneself with a hammer in the forehead.

    So where to- well if one is to fix a demand problem I think we have to look at the real cause. A 30 year assault on workers is a good place to start. Collective bargaining powers have been tipped since the day Reagan fired air traffic controllers, and now our own PM is ripping apart collective bargaining with his goon like behaviour of back to work legislation threats.

    Or how about restoring transfers to the less fortunate, they consume and do not save, like the well to do record number of millionaires.

    There are a myriad of collective efforts that could be accomplished, however, this assumes some kind of system that could function.

    AND THAT IS WHERE WE MUST LOOK

    The system has been broke for 20 some years. It starts with looking at how productive brick and mortar investment started taking a back seat to the finanicalization of the economy. Capitalism is dead, it died I would say 10 years ago. It is too difficult to make obscene profits like that within the financial economy. Productive investment of the traditional economy is still a part of the economy, but it is a hinterland now, it is the shadow banking, the speculation and all that has been hidden away that a majority of the fictitious value has been created. All the while starving the productive economy of investment, and beating on middle class workers, through increasingly precarious work and off shoring what cannot be feasible automated.

    Like David Harvey points out in his latest book, late capitalism had to grow because of the giganticism of wealth that had been created and a new terrain for transforming the surplus. The only easy route through it all was a massive financialization of the economy. And along the way, the dot.com bubble and then the housing bubble would keep the peace and lubricate the class tensions by bringing into the fold a surrogate for declining wages. It was the only option a finaicalized developed economy could offer up. What else could it do, let unions empower workers? I think not!! So instilled is the investment, everybody for themselves dot.com bubble and then when that ran its course, the housing bubble and the ultra low rates to stoke the assets and hand in hand a massive re-regulation of the mortgage rules. Anybody could own.

    The question I have- the financial elites must have seen this all coming at some level- but they must have known the debt wall and the asset bubble would burst. What then would they do.

    It is disturbing- as I realized now, we have had 2 world wars in less than a 100 years, and both precipitated by an economy gone bad and social rot caves in.

    I can actually feel now, how civilized modern man, could dissolved into the mass murderers we all were during two wars. Where peace was not an option, where civility meant killing because everything was under threat- your job, your income, your family- your house- everything under threat because of an utter destruction of the economy in the hands of the wealthy and powerful who sat back in there fortresses, and profited handsomely. How- did we let it happen is a question I have had since i was a kid looking up at my grand father’s M1 Garand, never talking about that rifle, but always on display.

    How did we let it happen, well just keep following the yellow brick road that we are currently are on, and Dorothy, you just will not be in Kansas anymore.

    From the rise of the tea party, and austerity, to democracy failing in the face of exceptional times, to the cannibalism of the EU, to the sharpened edges cutting through the less developed countries.

    It is all happening right before our very eyes. And sadly I can see why it happened. Nobody with the power to stop it. No infrastructure in place. Just the rotting carcass of both capitalism, and communism and all points in between. I think I would rather wander the north of Canada and Russia exploring the various cultures of the frozen, maybe somebody has a solution up there or maybe the dreamer peoples of the Amazon. Potentially they will have a solution.

  • I kind of got a bit carried away in terms of global instability, but it is fascinating to realize how potentially we could be within a quite similar cultural economic space, in terms of facing such an extended economic crisis and resulting pressures on instability, as those in the 30’s. This time however the volume of people are much greater- the unemployed, the starving, those that lost their homes, etc the volume of people are tragically huge.

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