There is no firm estimate yet of the number of people who will lose jobs in the United States. After all, nobody assumes right now that the current economic (and not just financial) has already bottomed out. And nobody is hollering that recovery is just around the corner.
The property bubble has burst in the US. Together with a high level of personal debt done through the use of plastic cards, it has ravaged the whole economy and dragging the rest of the world with it. As they say, when the US sneezes, the rest of the world catches cold. And the current crisis seems more than a sneeze.
The plan of President-elect Obama to create 2.5M jobs is commendable. But I wonder how he will do it. Is he hoping for a recovery soon?
I remember that when the property bubble burst in Japan in the ’80s the Japanese economy sagged. It has not really recovered after that and it has to be content with a 2% annual growth for years on end. After being the world’s engine of growth in the ’70s, it has not able to regain its former lofty role.
The US was lucky in the ’80s when the ICT (Information and Communications Technologies) sector boomed and they happened to be the world’s leader in this field. “Junk bonds” and similar instruments pioneered by the likes of Mike Milken made capital available to start-ups and fueling the boom that followed.
The US also earned big in its China investments. As they say, the early bird gets the worm. US companies were able to negate the loss of competitiveness at home by shifting factories to China.
But the trouble with this relation is that is it China which earned more. Proof of this is their mammoth foreign exchange reserves which is estimated to be $1.9 trillion dollars as of last September and growing. Most of this was earned through a big trade imbalance with the US. US investments in China actually worsened this imbalance.
The US was not immediately “impoverished” since China invested the bulk of its foreign exchange reserves in the US. It has to because it is the quid pro quo for maintaining its open door to the US. This “easy money” further fueled the boom in the US. Its system was awash in cash and interests were low. Actually, bankers and investment houses were fast devising new (but dubious, it turned out) instruments to invest this money. Soon this “sub-prime” thing shot down the balloon.
China’s US investments will be severely burned by this crisis. Will they again invest as heavily as they did in the past? This is the future dance that is worth watching. Lord Chris Patten, the former Hongkong British governor, former European Commissioner for foreign affairs and now Oxford University Chancellor, has said that in the future he sees the US and China acting together to solve some of the world’s problems. And he said this even before the current crisis became full-blown.
What will be the US next engine of growth after ICT and China? I will be interested in the answer because ultimately the answer to that will determine the US’ recovery. I cannot predict if the US will hit the doldrums like Japan or it will discover a gold mine like what unified Germany found in Eastern Europe after the fall of the Berlin Wall.
Observers and planners needs to understand that the US bit the dust after its profligate Indochina wars which negated its undisputed status when Eisenhower relinquished office. I fear the US will be brought down by the after-effects of its wars in Iraq and Afghanistan. And if Nixon and Ford has the oil shock to contend, Obama now has this full-blown crisis to deal with.
Quo vadis, US?