American prestige is now dependent on the swift feet and hard heads of its handicapped soccer team trying to pull off a “U-S-A/U-S-A” miracle in South Africa. Certainly, nothing substantial is likely to come out of the G20 or a subsequent meeting of the Big Boys, the G8, groupings of the world’s most powerful economies and hangers-on, convened as we go to press. That’s in no small part because the Obama Administration has abdicated the U.S. historic post-World War II economic leadership role as it pursues what the world sees as foolish economic policy.
Washington is, of course, too crises-ridden to take new international economic initiatives – or, in fact, to follow up old ones. The Obama Administration strategy which aims to produce recovery through pump-priming and government-subsidized alternative energy gets short shrift from its Western partners and Japan. They want to set their — and especially everyone else’s — budgets in order. Add that to the failure of Pres.Obama’s pre-conference letter to Beijing, again wheedling China to end currency manipulation. The Administration’s pleading – backed by a protectionist revolt among Congressional Democrats – was been met with confused official and semi-official signals, but in the end, stonewalling. Nor can America’s allies ignore Washington’s refusal to waive the Jones Act, purportedly protecting maritme labor and the desiccated U.S. ship industry, to welcome European skimmers and other help in the BP spill.
On the outer fringes of the world economy, Beijing reflects leadership and policy conflicts as confused if more secret than those in Washington. The Chinese first “vowed” [according to fawning media] to take action to permit its wildly undervalued currency to rise. But then after several days trading, it became obvious Beijing would not — and probably could not — take a disastrous short-term route to help rebalance the world’s currencies. [Beijing’s latest announcement of reduced export subsidies is only the reflection of growing inventories and saturated foreign markets.]
Meanwhile, longer term speculation on eventual massive Chinese reevaluation grows – evidenced by China’s real estate bubble and a casino stock market. Government infrastructure expansion — enough for the next century — absorbing most of the “stimulus” has reached its limits. All of these problems are intensified by all pervasive corruption. [Beijing claims more than 94 billion yuan, $14 billion, in misappropriated public funds was recovered from some 800 officials last year alone.]
Furthermore, as Pres. Obama presses a more and more reluctant Congress to pursue a policy that Maynard Lord Keynes would never have condoned despite the Greek chorus invoking his name, Europe’s relatively solid citizen, Germany, declines. Berlin will not dance with a partner carried away on the strains of unlimited expenditures for the public sector.Germany, itself, is hoisted on a dilemma: its export-driven economy has depended on pushing out goods for Euros which its customers, it turns out, had not actually earned. Greece is only the first of several Euro currency economies who will come a cropper over drunken sailor debt.
Even were Chancellor Angela Merkel to agree to pick up the burden, German taxpayers would not. And the Chancellor already has her hands full with a complicated political crisis over electing a new president. That’s why the Chinese are said to be worried more about the rapidly the deteriorating Euro than their vast hoard of devaluing dollars.
The only “bright spot” is with Britain’s new Prime Minister, David Cameron, like a proper Scotsman taking a meat cleaver to public expenditures. Throwing off suspicions he was “conservative light”, “a Rockefeller Republican”, Cameron has cut public expenditure 25% across the board. But will his Liberal Democrat coalition partners sweat it out long enough for the anticipated long-term results to come home?
With each passing week, world economic problems become more acute. Latest statistics show the bulk of recent international borrowing has been to prop up the Euro, not only against the Greek bailout but anticipating similar credit problems with the whole outer ring of the European Community. It was not for private sector recovery — and jobs, jobs, jobs. In Asia, Beijing’s East Asian partners depend on Chinese assembly operations using slave labor and increasing quantities of imported energy to cling to their export markets. It’s no wonder they have been hit by a wave of “illegal”, unprecedented strikes which Beijing leadership has tried to ignore – perhaps as long as they are foreign-owned firms?
Japan, South Korea and Taiwan, like China, are export-led. [Tokyo’s autos and other high tech exports have come back after a second drop last year; $60 billion in May, normally accounting for 10% of the gross domestic product for the world’s second economy.] For different reasons none of these yesterday’s vaunted Tigers are capable of quickly making the dramatic, painful and complex changeover all have promised: to expand their domestic markets reducing reliance on exports to the West. With each passing day, however, it becomes more and more clear that recovery [and return of once halcyon exports markets] in the U.S. and the EU is a lengthening process – and, indeed, the danger of the industrial economies slipping back into recession again is ever present.