How badly will the current global economic crisis hurt the United States political and military power?”
When I was in Hong Kong, I asked some of these questions of my Hong Kong based uncle who is in the apparel manufacturing business. He responded that China would be deeply affected by the crisis, maybe even more than Western countries. He then provided a simple, easy to understand framework that I then double-checked against the writings of Michael Pettis, Nouriel Roubini, Brad Setser, and other economists on the Web. Based on this research, I’ve sadly concluded that my uncle is right. Instead of coming to the rescue of the global economy, China will suffer more deeply from the crisis than the US or Europe. Uncle’s simple but powerful framework: China is supported by a three-legged stool, but two legs are now broken China’s economic growth is supported by three primary legs: export-led growth real property growth government spending The first leg is clearly broken. US and European consumers can no longer consume at the debt-supported levels they have at the past. The second leg is also
At an Aug. 7, 2007, meeting of the Federal Reserve’s policymaking committee, staff economists identified disturbing signs that the economy’s growth potential was downshifting to a lower gear. American workers and factories hadn’t been as productive in recent years as initially believed, a realization that caused the Fed’s green eyeshade corps to lower fractionally its estimate of the economy’s future trajectory. Now, that esoteric revision is blossoming into a major economic shift that will affect living standards for years. Whatever other costs are borne as a consequence of the financial crisis, the U.S. economy appears doomed to an enduring episode of unimpressive growth. Instead of expanding at an annual rate of roughly 3% to 3.5% without igniting inflation, as it could in the years before the crisis, the U.S. appears capable of growing no faster than 2% to 2.5%. That may not sound like a huge difference, but the lost output works out to roughly an annual $1,200 per U.S. household.
