Aug 28, 2008 6:04 pm


The effort to hide the good news about the US economy continues regardless of the obvious difficulties presented by the need to revise growth numbers upwards. Consider today's FT article entitled: Weak Dollar leads to US import gloom

Why? Because Americans have the chutzpah to"stun" economists by doing what economists have been telling them to do. They are exporting more and importing less. Indeed, there are signs that"the US could emerge out of the global economic downturn ahead of other parts of the world." To add insult to injury, the dollars has been strengthening by the day. All this, while Barack's European role models are sinking deeper and deeper into an economic morass.

Why this should stun economists is beyond me as it could have been expected by anyone with a grade level education in market economics.

Still, if you wish to understand the reason for the global displeasure, you have to read Larry Summers' piece on The global consensus on trade is unravelling in which he explains that post War World II global growth engine is that much despised voracious American consumer:

Global growth has depended on US growth, which has depended on the US consumer; and the US consumer has depended on rising asset values first of stocks and more recently of real estate. With falling house prices and a challenged financial system, US consumer spending is falling.

The US is no longer in a position to be a net source of demand for the rest of the world. Indeed, with the drop in value of the dollar, US growth – which had been focused on imports and which had enabled the export-led growth of other countries – is a thing of the past. Already, Europe and Japan are in or are very close to being in recession.

In other words, America has been transferring it's wealth to the rest of the world in the belief that it serves it's strategic interest of promoting freedom. It worked during the Cold War but it has not worked in the last decade.

Summers explains:

The current distribution of regional economic power is unlike anything that was predicted even a decade ago. The rise of the developing world, its growing share in global output and far greater share of global growth, is perhaps a quantitative but not a qualitative surprise. The qualitative surprise is this: with almost all the industrial world in or near recession, much of the momentum in the global economy is coming from countries with authoritarian governments that are pursuing economic strategies directed towards wealth accumulation and building up geopolitical strength rather than improving living standards for their populations. China, where household consumption has now fallen below 40 per cent of its gross domestic product – which must be some kind of peacetime record – is the most extreme example. Similar tendencies, however, can be seen in other parts of Asia, Russia and other oil exporting countries.

He notes that these developments get little attention in these highly politicized times. He does not mention the Sovereign Wealth Funds which exacerbate the dangers to which he alludes. The latest scary news, engineering giant Siemens is courting SWFs.

I keep listening the the candidates and their laundry lists of problems and solutions with less and less patience. The truth is that the times when our security concerns could be isolated are over. The transfer of wealth from democracies to autocracies must end and so must the sale of democratic assets to the representatives of various thugs.

Economic freedom made us amazingly productive and resilient. We should commit suicide by squandering it's benefits in the mistaken belief that such squandering would produce a"fairer" world as Barack Obama urges us to do. For the result as Larry Summers has demonstrated will be a more dangerous, less free world.

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