You can forward my comments to them.
"For what its worth, I think this debate overlooks a critical consideration: Europe and Japan are wealthy countries that have dragged their feet endlessly on reforms, whereas China is still a very poor country that has been aggressive in embracing reforms. Why should China be called on to compensate for adjustments that Europe and Japan are unwilling to undertake? "
Yes, the reactionary "reforms" comprised under the misnomered terms "neoliberalism" and "globalization" are at the crux of the extreme financial distortions, but Roachs' ideological blinders prevent him from seeing this connection.
So, Roach can't see that it is precisely to the extent that Europe and Japan have _not_ enacted "reform" that they have remained "wealthy" (which does not mean they aren't trying to 'reform' - they certainly are, but more slowly), which in turn enables them, precisely, to shoulder more of the burden of the dislocations. The US, on the other hand, as the epicenter and originator of the economic reaction, is predictably also the source of the global financial imbalances, as well as the locus for the concentration of the most extreme financial contradictions. It also follows that the more "progress" "reform", makes in Europe and Japan, the less able will they be to maintaind the burden, resultin in even more generalized financial instability.
The result is that Roach can see no "solution" to the "global labor arbitrage" problem, meaning that even if there is a "soft" resolution of the financial imbalances via gradual dollar depreciation, there won't be much of a productive, well-paying jobs recovery.
But what else would one expect from a deeply (and I do mean DEEPLY, DEEPLY) reactionay political economics that would have made Hjalmar Schacht - the first Economics Minister in the early years of the Nazi regime - proud. Schacht and Nazi military financial Keynesianism was the real forerunner and model for "neoliberalism", which is why this term is a complete misnomer. There is nothing "liberal" about it at all - Schact and Nazi economics, which is best described as the attempt to always ride the crest of the swelling chaos of capitalism, rather than to attempt a "resolution" - were the true pioneers of our own time.
So Doug ought to check his Keynesian proclivities. It's not going to be the New Deal for the US this time, but instead the highway to fascist hell.
-Brad
joanna bujes wrote:
>
>
> -------- Original Message --------
> Subject: [PEN-L] The coming global rebalancing
> Date: Mon, 22 Dec 2003 11:11:08 -0800
> From: Sabri Oncu <soncu at PACBELL.NET>
> Reply-To: PEN-L list <PEN-L at SUS.CSUCHICO.EDU>
> To: PEN-L at SUS.CSUCHICO.EDU
>
>
>
> This article by Roach appears to be related to my
> previous question as well.
>
> Best,
>
> Sabri
>
> ++++++
>
> Global Venting
>
> Stephen Roach (New York)
> Global Economic Forum
> Dec 19, 2003
>
>
> The world economy, as I see it, remains very much in a
> state of fundamental disequilibrium. A US-centric
> global growth dynamic has given rise to extraordinary
> external imbalances around the world. America, the
> worlds unquestioned growth engine, is facing
> unprecedented imbalances of its own; the national
> saving rate, current account, Federal budget deficit,
> and private sector debt ratios are all at historical
> extremes. And an increasingly powerful global labor
> arbitrage continues to keep high-wage developed
> economies mired in jobless recoveries. The result is a
> unique confluence of tensions that have left the
> global economy in a state of heightened instability.
> The venting of those tensions could well be the main
> event in world financial markets in 2004.
>
> The case for global rebalancing has been an
> overarching theme of our macro call over the past
> year. The urgency of such a realignment in the mix of
> world economic growth has never been more compelling.
> Over the 19952002 period, the United States accounted
> for 96% of the cumulative increase in world GDP
> basically three times its 32% share in the global
> economy. This was, by far, the most lopsided strain of
> global economic growth that has ever occurred in the
> modern-day post-World War II era. Two sets of forces
> have been at work in creating this unsustainable
> condition a US economy that has been living beyond
> its means as those means are delineated by domestic
> income generation, and a non-US world that is either
> unwilling or unable to stimulate domestic demand. As a
> result, an unprecedented disparity has opened up
> between those nations with current-account deficits
> (the United States) and those with surpluses (Asia
> and, to a lesser extent, Europe). Such an unbalanced
> global growth paradigm is not sustainable, in my view.
> The debate is over the terms under which the coming
> rebalancing occurs.
>
> The macro fix for a lopsided economy is very simple
> it mainly entails a shift in relative prices. For a
> US-centric global economy, that implies a realignment
> in the dollar the worlds most important relative
> price. In that vein, a weaker dollar needs to be seen
> as the principal means by which the tensions of an
> unbalanced global economy are vented. The broadest
> trade-weighted index of the US dollar is currently
> down about 11% in real terms over the past 23 months.
> History tells us that global rebalancing will
> undoubtedly require a good deal more dollar
> depreciation perhaps twice as much as that which has
> already occurred. That poses the important question as
> to who bears the brunt of the dollars adjustment. The
> Europeans and Japanese believe they have suffered
> enough and are pointing the finger at others mainly
> China to pick up the slack. US politicians are also
> sympathetic to this line of reasoning. Consequently,
> the role that China plays in venting global imbalances
> is also likely to be a key issue in the year ahead.
> For what its worth, I think this debate overlooks a
> critical consideration: Europe and Japan are wealthy
> countries that have dragged their feet endlessly on
> reforms, whereas China is still a very poor country
> that has been aggressive in embracing reforms. Why
> should China be called on to compensate for
> adjustments that Europe and Japan are unwilling to
> undertake?
>
> America must also bear its fair share in the coming
> global rebalancing. And the problem is that the US
> economy is not in the best shape to cope with the
> requisite adjustments. Thats because it has a record
> low saving rate, sharply elevated debt burdens, and
> massive trade and current-account deficits. Nor is
> growth alone likely to be a panacea for Americas
> shaky fundamentals. In fact, there are good reasons to
> worry that another surge of US economic growth could
> well exacerbate many of these imbalances The pivotal
> tension point in this regard is Americas anemic net
> national saving rate the combined saving of
> households, businesses, and the government sector
> adjusted for depreciation. This key gauge measures the
> saving that is left over to fund the net expansion of
> productive capacity the sustenance of any economys
> long-term growth potential. Unfortunately, in the case
> of the United States, there isnt any Americas net
> national saving rate fell to a record low of 0.6% of
> GNP in the first three quarters of 2003. To the extent
> that domestic income generation continues to lag
> precisely the outcome in Americas lingering jobless
> recovery another burst of private consumption, such
> as that now under way in the second half of 2004, can
> only push saving lower. That, in turn, puts greater
> pressure on foreign saving to fill the void giving
> rise to increased trade deficits and private sector
> indebtedness.
>
> Such an outcome only heightens the tension already
> bearing down on the US economy. A lasting recovery
> cannot be built on a foundation of ever-falling saving
> rates, ever-widening current-account and trade
> deficits, and ever-rising debt burdens. These tensions
> must also be vented if Americas nascent upturn is to
> make the transition to sustainable expansion. The bond
> market, in my opinion, offers the principal means by
> which this venting can occur. And the outlook for
> bonds is not good. A confluence of three bearish
> forces are at work the Feds eventual exit strategy
> from a 1% federal funds rate, a weaker dollar, and
> Americas fiscal train wreck. Ironically, under these
> circumstances, you dont have to be worried about
> inflation to be negative on bonds. At the same time,
> if financial markets ever did get a whiff of
> inflation, a real rout in bonds might ensue. Higher
> long-term real interest rates do not temper all the
> imbalances that are on Americas plate. But they could
> help possibly a lot. The key impact would be a
> reduction in the growth of the credit-sensitive
> segments of aggregate demand. That would enable a long
> overdue rebuilding of domestic saving, which would
> then act to reduce Americas current-account and trade
> deficits. A lower pace of consumption growth would
> also go hand in hand with a reduced expansion of
> indebtedness. A tough bond market may be just the
> medicine an unbalanced US economy needs.
>
> The global labor arbitrage is a third major source of
> tension bearing down on todays global economy. The
> accelerated pace of replacing high-wage jobs in the
> developed world with low-wage workers in the
> developing world reflects the interplay of three
> mega-forces the first being the maturation of
> outsourcing platforms in goods (i.e., China) and
> services (i.e., India) on a scale and with scope never
> before seen. The second factor at work is the Internet
> providing ubiquitous real-time connectivity between
> offshore outsourcing platforms and corporate
> headquarters. In goods production, the Internet
> forever changes the efficiency of supply-chain
> management. But for services, the Internet is a
> transforming event effectively converting the once
> non-tradable sector into a tradable global
> marketplace. With the click of a mouse, the knowledge
> content of white-collar workers can now be delivered
> anywhere in the world on a near-real time basis. The
> unrelenting push for cost control in a
> no-pricing-leverage world is the third leg to the
> stool of the global labor arbitrage. Such
> environmental imperatives only heighten the incentives
> for IT-enabled
offshoring.
>
> While the global labor arbitrage continues to push
> costs and pricing lower, it does have its dark side.
> Significantly, it continues to put pressure on job
> creation and income generation in the high-wage
> developed world. Largely as a result, consumers in the
> high-wage developed world end up defending their
> lifestyles by drawing increasingly on alternative
> sources of purchasing power, such as asset-driven
> wealth effects, increased indebtedness, and tax cuts.
> In my view, vigorous consumption cannot be sustained
> in the context of the profound income leakage that
> stems from the global labor arbitrage. That
> underscores yet another source of disequilibrium that
> must be vented. In this instance, the venting appears
> to be exacerbating the pressures bearing down on an
> unbalanced world. Thats because it has taken the form
> of heightened trade frictions and growing
> protectionist risks developments that only intensify
> pressures on the dollar and the US bond market.
>
> The means by which this confluence of tensions gets
> vented will likely be key for global economy and world
> financial markets in 2004. There are two conceivable
> paths to resolution, in my view the benign soft
> landing and the ever-treacherous hard landing. Macro
> is not good at making the distinction between these
> two modes of adjustment. Instead, it basically
> identifies the forces that have given rise to
> disequilibrium and then depicts the possible
> adjustments that must take place to reestablish a new
> equilibrium. As always, the outcome is more dependent
> on exogenous shocks. In the current instance, the
> shocks that worry me the most would be those that
> might shake foreign confidence in dollar-denominated
> assets; intensified protectionist actions from
> Washington would be especially disconcerting in that
> regard. Equally worrisome is the magnitude of the
> current state of disequilibrium and the distinct
> likelihood that these unprecedented imbalances can
> only be vented by big movements in asset prices. My
> deepest fear is that the longer the venting of these
> tensions is deferred, the larger the ultimate
> adjustments and the greater the chances of a hard
> landing.
>
>
>
>
>
-- /**********************************************************************/ Brad Mayer Technical Support Engineer, DPG CIS Sun Microsystems, Inc. - Sun Developer Platforms Group Home Office: (510) 522-1928 Direct: (650) 786-4884 Fax: (650) 786-8858 Email: bradley.mayer at sun.com ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ NOTICE: This email message is for the sole use of the intended recipient(s) and may contain confidential and privileged information. Any unauthorized review, use, disclosure or distribution is prohibited. If you are not the intended recipient, please contact the sender by reply email and destroy all copies of the original message. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ /***********************************************************************/