Posts Tagged ‘post-crisis’
The Descent of Finance
Will Chimerica end in a divorce? Will the USA be a shadow of its former self?
Niall Ferguson, who co-invented the term Chimerica, asks what the post-Chimerica world might look like in 2013 in the latest HBR issue (full article below). He starts with the US in crisis (high public debt, digesting toxic assets, who wants to buy US bonds?) and then moves on to the economic marriage between the USA and China. Chimerica could end in a divorce if China relies less on exports for growth, resulting in a shift in the balance of power. Yet US global economic power is not undermined as there is no real alternative to the US dollar. Ferguson reiterates a point he made before, that the global economy’s breakdown hurts other nations more than the US. Other countries, including China, will be more weakened by comparison with the collapse in world trade and industrial production. This results in a world of low US growth, and lower growth for other emerging nations. What Pimco has termed ‘the new normal’.
The economic crisis will spill over into politics. In this crisis, US allies (East Asian exporters, newly democratic Eastern Europe) have been hurt more than US rivals. We see new outbreaks of instability in emerging markets that previously looked stable, such as Thailand and Ukraine. The world’s increasing instability reinforces the US as a safe haven. But the US may not want to be global policeman much more, and both new and old unstable spots are left to fester.
It is in this world that Ferguson revisits 2013. It is an assymetric world where everywhere else seems more dangerous and unpredictable than America, where the actual consequences of the crisis are less terrible. The USA’s financial power has been diminished, but its economic power is still stronger than all others.
Power after all, is relative.
Cocksure
From New Yorker’s Malcolm Gladwell, an article on overconfidence, full article worth your few minutes reading here. Winning sometimes brings hubris, we say, and we guard against this as a deadly personality trait. This is especially so for those who make decisions that affect a society. The article points out that overconfidence is a state as much as a trait. Ability makes a difference in competitions of skill, and we make the mistake of thinking it must also make a difference in competitions of pure chance. As novices we don’t trust our judgement. When we get to the top of our game, we succumb to the trap of thinking there’s nothing we can’t master.
The article uses the example of bridge and the real world. In bridge, there are rules and boundaries and situations that repeat themselves and clear patterns that develop – and when a player makes a mistake of overconfidence he or she learns of the consequence of that mistake almost immediately. In other words, it’s a game. But running a society is not, in this sense, a game: it is not a closed world with a limited set of possibilities. It is an open world where one day a calamity can happen that no one dreamed would happen, and where you can make a mistake of overconfidence and not personally feel the consequence for years.
The world post-crisis feels the same on a day to day level, but the quality of it is different. You can feel it in the fringes. Many things don’t make sense. My worry is that we have existed in a Chimerica world and one-way globalisation for so many years that it’s become a game. We come up with the same solutions of productivity, talent topping up etc almost automatically. It’s not so much that I am saying those solutions are wrong or misguided. But I am uneasy that we are not approaching this with a novice’s mind and watching with great concern and dread how the new world emerging in front of us truly is.
I am good at globalisation 3.0 doesn’t mean I must be good at globalisation 4.0, too.
Video: Crisis Guide
Fantastic use of media to illustrate the crisis, especially the moving charts on section III. From Council of Foreign Relations, click here. h/t to FJ.
Too much debt
Nassim Taleb on the real evil of the current crisis …. too much debt, the article here deserves to be read in full.
Some quotables “Bubbles and fads are part of cultural life. We need to do the opposite to what Mr Greenspan did: make the economy’s structure more robust to bubbles.” and “the complexity created by globalisation and the internet causes economic and business values (such as company revenues, commodity prices or unemployment) to experience more extreme variations than ever before. Add to that the proliferation of systems that run more smoothly than before, but experience rare, but violent blow-ups.”
The imbalances from Chimerica that led to the current crisis have not really been solved, just papered over with lots of hot money/stimulus. The ‘rise of the rest’ continues as the west is propped up for now, but are they able to withstand the violent blow-ups that are to come? Resilience is an overused word, but it bears repeating that in wounded beast scenario, how does Singapore cream the top of the globalisation wave, while dampening the lows? Specifically, are our social systems strong enough to handle the more extreme ups and downs to come?
Last quote “Asking the economics establishment for guidance (particularly after its failure to see the risk in the economy) is akin to asking to be led by the blind – instead we need to rebuild the world to make it resistant to the economist’s mystifications.”
Book: China’s new place in a world in crisis
Found this through our horizon scanning colleagues, a book by ANU on China’s new place in a world lurching from crisis to crisis. Makes me think of the unfinished conversations we are having on a China-centered Asia (ChiAsia) and the different flows and how the hell Singapore should be placed on these new flows. Anyway, here’s a brief grab on what the book is about:
The world and China’s place in it have been transformed over the past year. The pressures for change have come from the most severe global financial crisis ever. The crisis has accelerated China’s emergence as a great power. But China and its global partners have yet to think or work through the consequences of its new position for the governance of world affairs. China’s New Place in a World in Crisis discusses and provides in-depth analysis of the following questions. How have China’s growth prospects been affected by the global crisis? How will the crisis and China’s response to it impact China’s major domestic issues, such as industrialisation, urbanisation and the reform of the state-owned sector of the economy? How will the crisis and the international community’s response to it affect the rapidly emerging new international order? What will be China’s, and other major developing countries’, new role? Can China and the world find a way of breaking the nexus between economic growth and environmental sustainability — especially on the issue of climate change?
You can download the entire book here.
Can Asia help the World Economy?
Great overview of what Asia can, and cannot do. Prepared by Shirley. While the talk of decoupling has been shown up as premature, the trends of urbanisation, rising middle class and innovation point to decoupling by about 2025.
Post-crisis: Why do Chinese save?
Excellent post on the high savings rate of Chinese by M Pettis. Notable excerpt “I would argue that policies aimed at generating high levels of investment and at running trade surpluses must also, by definition, cause high levels of savings. In that sense the policies associated with the so-called Asian development model are policies that implicitly or explicitly cause high savings rate. if this is true, as I have written elsewhere, high Asian savings rates may be threatened in the future by rising savings rates in the US, since in the aggregate consumption and production must balance. The US trade deficits required for the success of high-savings policies in China may no longer exist.”
Post-crisis: Avoid prolonging the W
From yesterday’s Singapore Business Times, copied in a .pdf below for easy reading. This is by Joergen Moeller, a warning not to be seduced by the ‘green shoots’ and ignoring the hard work of correcting the imbalances that led to the near death of Chimerica. To quote “what we have seen so far in the financial sector is the consequences of the original financial crisis emanating from sub-prime and related exuberance, but not yet the consequences from the economic downturn coming in with a time lag.” The second bump of the ‘W’ will be prolonged, and deepened, if the imbalances are ignored.
I’m monitoring these articles as I expect there will be requests to update the Future of Global Demand paper soon.
Post-crisis: Future of capitalism
Martin Wolf’s latest post on the FT’s future of capitalism series is intriguing, some thots below…
….emerging markets will conclude that accumulating massive foreign currency reserves is a good thing, imbalances will continue and future bubbles will pop. This is wounded Beast.
….Finance is already deglobalised with massive govt fund injections, and in return for the large public debt to GDP ratios incurred, nations will intervene in the market. Welcome to nationalism mixed with slow growing G3 economies, a bad mix. This is Chasm with nationalistic characteristics. Would this lead to capital/talent flight to emerging Asia? Is emerging Asia able to engineer their own domestic economies with this managerial talent?
…. there is no talk of Abyss, thank goodness. Governments are still holding their own.
