I'm getting fed up with this. Everytime I make a forecast about the Yanks based on wide reading, sound intelligence and the acute brain with which I have been endowed the rotters prove me wrong! If I was embarrassable, I would be embarrassed! I mean, how can a government keep on printing money like a demented sorcerer's apprentice on coke whilst at the same time borrowing ever more and more and more - and not only live to tell the tale but to do so in increasing prosperity? "Only in America", I suppose is the answer, or at least, close to it according to Daniel W. Drezner in this week's Spectator:
Predicting the decline of the United States has been in vogue since the birth
of American hegemony. Sputnik, Vietnam, stagflation, budget deficits, trade
deficits and even the end of the Cold War all triggered predictions of the end
of America. With the 2008 financial crisis, however, there seemed to be a sense
that this time was different. Tomes with titles like The Post-American World
and The End of Influence began to appear on bookshelves. Germany’s
finance minister confidently predicted that the United States was entering its
last days as a financial superpower. Serious commentators [er, that's me, I assume!] spoke about how a ‘Beijing consensus’ would supplant the ‘Washington consensus’. America looked as if it would disappear in a vortex of debt.
Fast forward to this year, and a funny thing has happened to American
influence — it’s unbowed. The very suggestion that America may be strong enough not to need quantitative easing sent global financial markets into spasm last week. If America was coming off life support, then the subsidies for all kinds
of financial packages would end. As one financial strategist told the New
York Times, ‘The Fed isn’t just the US’s central bank. It’s the world’s
central bank.’ This point was not lost in Britain, where government borrowing
costs surged. It’s said that when America sneezes, Britain catches a cold. But
even as America gets better, Britain can remain ill.
It gets worse, well, 'worse' if you're a pontificating micro-brain like me, but better if you're American:
Contrary to conventional wisdom, the United States has actually been
deleveraging from the bubble years of the past decade. Yes, millions of
households were in foreclosure in America three years ago — but taking the pain
then has allowed recovery now. While commentators have focused on rising
government debt, US households and companies have been tackling their own.
According to the OECD, the debt-to-income ratio for American households has
fallen from a pre-crisis 137 per cent to 116 per cent by the end of last year.
That figure is now lower than European household indebtedness. Britain is at 160
per cent.
And, despite my unsound impression, the Federal government, unlike ours, is actually cutting spending with genuine ruthlessness:
The US federal budget deficit has declined more dramatically in the past three
years than at any time in postwar history. The Congressional Budget Office
projects the federal budget deficit to fall to 2.1 per cent of economic output
by 2015 — an astonishing turnaround from the 10.1 per cent figure four years
ago. By the same year, Britain’s deficit will still be at 6 per cent of GDP
— the highest in the western world. [My emphasis]
Of course, there is a certain amount of 'luck' involved. Their potential rival, China, has suddenly hit some overdue problems with their own banks and also with their own increasingly demanding work force. There has been a small story hanging around all week concerning an American entrepreneur who wished to down-size his Chinese manufacturing plant in order to move to India or somewhere where the wages are cheaper. The Chinese workers promptly held him prisoner for several days until he changed his mind. Also, despite their green-black president getting all weepy over global warming he has signally failed to impede the race to extract oil and gas by fracking which has reduced gas prices to a third of their European rivals. Now foreign-owned factories are relocating back to the USA. Mr. Drezner summarises the changed circumstances thus:
There is no denying that the relative power of the United States is less now
than it was a decade ago. And yet, five years after the start of the Great
Recession, US power does not appear to be on the wane. If anything, the
trendlines suggest the opposite. Even Arvind Subramanian, the author of
Eclipse: Living in the Shadow of China’s Economic Dominance, has changed
his tune a bit. In a recent paper he paraphrased Mark Twain, concluding:
‘Reports of the decline in American economic power appeared to have been
exaggerated.’
So, wrong again, but at least this distinguished blog can rest its reputation on its consistency! I almost forgot to add one last observation by Mr. Drezner who pointed to the gridlocked, bickering Congress which has struggled to pass any legislation since the midterm election in 2010 split the body politic in half. He quotes an astute comment by Larry Summers, "The great mistake of the gridlock theorists is to suppose that all progress comes from legislation and that more legislation consistently represents more progress." There-in lies a truth!
