The changing balance of power in the world economy has seen China replace a faltering United States as the biggest contributor to global growth in an “uncertain and potentially difficult period”, reports the International Monetary Fund.
Unveiling its half-yearly forecasts, the IMF said the world was increasingly dependent on the strong performance of the three leading developing countries – China, India and Russia – at a time when the west was struggling to cope with financial market turmoil. The IMF’s world economic outlook said that growth rates of more than 11% in China, 9% in India and almost 8% in Russia meant the three nations “alone accounted for one half of global growth over the past year”.
“Like a forest that has not seen a fire in many years, a benign financial environment had built up a sizeable ‘underbrush’ of risky loans, relaxed lending standards and high leverage in certain areas. When problems ignited in the US sub-prime mortgage market, the fire ‘jumped’ in somewhat surprising ways to other areas.”
Nice turn of phrase. And permits for housing starts dropped another 10% in the last month.
We can look ahead to the Bush Administration and their 19th Century experts guaranteeing that the catchphrase for the 2008 election will be – once again – “It’s the economy, stupid!”
If you measure the national debt in Euros, then under George Bush, the debt as shrunk considerably!
I’m seriously befuddled by those trying to justify that the plummeting dollar is actually a good thing. Sure, maybe it reduces the price of our exports and makes them more competitive– at first glance. But in fact it hurts us much more in other ways, mainly b/c the tanking dollar also makes oil much more expensive (and much less expensive to Europeans using the Euro for example, who aren’t hit nearly as much by the oil rise). The increase in oil prices also factors into manufacturing costs, which more than wipes out any price advantage from the falling dollar.
Plus, imports become a lot more expensive for us and remember, US manufacturing consists of parts made in a half-dozen other countries! All American manufacturing requires these imports– widgets from China, high-quality machine tools and Roentgen scanners from Germany, semi-finished products from El Salvador or the Philippines or Vietnam that are, then, finished in the USA. So the plummeting dollar also makes these more expensive and, in turn, boosts up the price of the manufactured finished product.
It’s a big reason why I’ve been seeing more highly-trained professionals these days, learning a language like German or Dutch– especially German, associated with a Eurozone manufacturing power and tech hub– and simply emigrating. Just this act alone, moving to a Continental European city and actually working *fewer* hours in a week, massively boosts their income due to the Euro’s strength. Especially if they take on entrepreneurial pursuits, and remember, North American corporate taxes are actually *higher* than much of the Eurozone! German especially is surging as a technical language again, for various electronic, basic science and engineering fields, just like 80 years ago and those of us in engineering are having to be on top of it again– much of the best technical literature in the field is again in German papers.
All of these shifts have everything to do with the Euro’s strength and the taking dollar, both as cause and correlation. If you think about it, if you’re a highly-trained engineer, with bitter memories of over $100,000 in college debt going to an American university to get your engineering degree and then being greeted with the wonderful welcome of your job being outsourced and your income plummeting as your field is outsourced to India– with you in the hamster-on-the-wheel role, working ever-longer hours every week for diminishing pay and less job security even as your tuition debts continue to gather interest– you’re already getting fed up.
Then the dollar plummets, your already diminishing real earnings plummet with it and you’re screwed even worse than before. So you see your buddies from college getting German language software, moving to a relatively cheap tech center like Leipzig, Bochum or Karlsruhe in Germany or Austria, getting a salary in Euros while sending their kids to high-quality public schools that are also nearly free, even into professional schools– naturally you’re going to tend in the same direction.
IOW as the US policymakers tend to debase our own currency and depreciate the value of our workers, this naturally tends to push our best and brightest abroad, either to a fast-growing economy like China (for those with roots there in particular), or especially to the Eurozone, with its strong currency alone providing a major boost to one’s earning power. All the better for those starting businesses.
Sorry Ollie, but you’re right.