11/04/2009, 00.00
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World economy on the brink of a new crisis

by Maurizio d'Orlando
Upbeat news about positive markets and GDP trends are the result of government stimuli, especially in the US and China. However, they are only tranquilisers, when their effects end, markets could collapse and societies will be in for a rough ride.
Milan (AsiaNews) – Good economic news from Asia and the United States are leading some to think that the worse is over and that the world has just turned the corner around its crisis. Today the World Bank announced in fact that China’s economy will grow by 8.4 per cent this year, higher than the psychological (and good luck) barrier of 8 per cent, mentioned by Prime Minister Wen Jiabao last March. Similarly, the US happily announced a few days ago that its economy grew at a healthy 3.5 per cent, boosted by third quarter consumption.

In reality, the situation is far from improved. A Bloomberg survey released on 29 October indicated that investor confidence actually dropped from 35 per cent in July to 31. Even an eight-month, 68 per cent rally in global stocks failed to convince investors and analysts that it’s time to take on more risk or dispel their concerns about US economic policies and its banking system. Most fear that recent growth is not driven by real demand but rather by the stimulus from the Federal Reserve and government spending. The risk is that the injection of thousands of billions of dollars into the economy (what Bloomberg calls the biggest government intrusion into the economy since World War II ) will leave the world saddled with huge debts after the stimulus ends. For this reason, Chinese Commerce Minister Chen Deming was quick to warn his country and the world against withdrawing economic stimulus measures, citing the risk of another world slump. “There are increasing signs that the global economy is heading in a positive direction, but there are still many uncertainties,” Chen said at a forum in Shanghai today. If countries “withdraw the stimulus measures now, the global economy will plunge.”

For investor George Soros, another recession is likely in 2010 or 2011. Here is expert Maurizio d’Orlando’s take on the issue.

China seems to be better weathering the economic crisis for well-known reasons, namely an exchange rate that has undervalued the yuan for a long time against the US dollar, and Chinese leaders’ plans to restore national grandeur on the backs Chinese workers and the world’s middle classes with the complicity of small Western and transnational oligarchies, something that applies to a great extent to other emerging countries as well.

Given its overall imbalance, the global system has generated huge amounts of mostly dollar-issued securities (in yen and, to a lesser extent, Euros as well) that are without adequate coverage but can still boost share values on the short-term, thus creating an impression of wealth.

Like a good anti-depressant, this has eased a deep malaise. People have been able to tell themselves that the situation is indeed bad, but not as bad as they actually thought.

It is as if the US economy and the world were taking unprecedented doses of acetaminophen to remove the immediate and most obvious effects of the malaise without providing any long-term solution to its underlying cause.

Still, the strategy might even work, but on two conditions. First, the system needs to be treated on long haul, and, second, the patient must overcome the crisis on its own.

Indeed, everything might still run smoothly as long as Chinese workers, especially those at the bottom of the ladder, continue to suffer rather than rise up, and Western middle classes remain befuddled as a group by sex, drugs and rock ‘n roll and other trifling distractions, their sense of responsibility clouded, unable to see the decline of democracy and freedom.

The system is currently outpacing itself. It is inconceivable that world standards of living can rise without innovations but simply by shifting production to low cost areas (like China and other emerging economies).

Large multinationals or China cannot succeed in technological innovations or scientific breakthroughs, the former because they are organisationally costly, lack coherence to innovate and vision to plan strategically, the latter because its “successful” model relies on counterfeiting.

When the two aforementioned placebo mechanisms stop working, the lack of treatment will mean that underlying imbalances will blow up big time.

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