One of the great features of this global economic slowdown, which I call a Depression, is that it has not been genuinely global. The developed world – US, Europe, UK, and Japan – have been mired in slow growth and dogged unemployment for at least four years. While Europe enjoyed a small boom when the Euro took hold in the 2000s, much of it was fueled by government debt. The US has not performed well since 9/11 despite an ocean of red ink from Washington. But the BRIC nations – Brasil, Russia, India, and China – have enjoyed reasonable growth and a net improvement in resilience and stability.
Until now, that is. The slowdown is finally hitting everyone. What this might mean is very hard to tell.
One of the features of this “Managed Depression” has been that the entire developed world has seen only small increases in permanent capacity for employment since about 2000. This marks the start of what could better be called a “Winter”, or a secular bear market in business cycle terms. Growth has come on the fringes of the developed world, especially in the poorer nations of the Eurozone like Greece, Spain, and Ireland – in areas like construction and general government spending that have created the current credit crisis. This hit the fan in 2008 when Greece had to admit that they’ve been fudging the books for years and the “Celtic Tiger” of Ireland saw its building boom end abruptly.
Not so in the developing world, particularly China and Brasil. China kept up the pace with a real change in GDP in excess of 8% every year, and Brasil nearly matched them. India and Russia didn’t perform quite as well, but had enough growth to give them hope that the worst was behind them. It reached the point where the developed world, fueled by debt, was routinely lectured by the developing world on how to run their finances. If that wasn’t a sign of some kind of financial apocalypse, nothing was.
Enter the latest data. China has seen its manufacturing sector contract for 11 straight months now, at least as far as anyone can get reasonable data out of the centrally planned economy. Brasil has recoiled from the term “Chicken Flight Economy”, referring to their tendency to be strongly up one year then stuck on the ground the next. It’s putting a big strain on their planned two year coming out party scheduled around the World Cup (2014) and Olympics (2016). India was plagued by a near nation-wide blackout lasting for days and Russia … well, it’s still Russia after all.
That’s not to say that the developing world isn’t still a better bet than anyone else, but it puts the Fed’s QE3 into sharper focus. We might not be strong here in the US, but we’re starting to beat the averages – all around the world. There could still be a horrid debt crisis in our future, but we are chugging along. No matter what, the US is still the hope of the entire world.
In case my fellow Obama supporters latch onto the word “Hope”, we should all remember that the real faith is in Ben Bernanke. Bond traders may not like what he is doing, but the rest of the world is counting on him to keep it all keepin’ on.
As stated here before, there are many signs that the US economy has reached the bottom and is turning slowly upward. It has to restructure itself to be better positioned for the next economy that is forming, one where it is much harder to make distinctions like “developed” and “developing”. We have yet to deal with the reckoning that comes when the US Dollar is no longer the reserve currency of the world, the stuff that all commodities are priced in. That could yet be our undoing, but as long as everyone depends on us they’ll put it off as long as they can.
What does the next economy look like? We’ve speculated a lot here in Barataria, but one feature that is starting to stand out stronger than anything else is the global nature of absolutely everything. Jobs have to be created against the backdrop of very hungry people in nations far away that out-number us tremendously. If their economies stall, their hunger only increases. We cannot wish for them to slip back beneath us nor that they get too far ahead.
It takes a steady hand to manage this Depression or Winter or slowdown. But the winds of change follow the jet stream just as surely as the jets that ride them carry goods from far away. It’s still a round planet, and what comes around goes around.