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Britain and world set for ‘hard landing’
July 16, 2006 (The Sunday Times)
FEARS are growing of a sharp slowdown in the global economy, triggered by big increases in energy prices and rising interest rates. Economists at HSBC say there is a greater risk of a “hard landing” for both the world economy and Britain.
Fears over the economic consequences of high oil prices will form the backdrop to today’s talks by G8 leaders in St Petersburg. Peter Dixon, an economist with Commerzbank, said dearer oil added to the risks. “If it’s just a temporary spike, then we’ll carry on as before,” he said. “But if this goes on for any length of time and oil continues to rise, we have a problem.”
Muhammad-Ali Zainy, a senior energy economist at the Centre for Global Energy Studies, said: “Oil could hit $80 or higher this week if the situation worsens. If a shortage of oil develops, the price will go up tremendously. It will skyrocket. We might see it hit $100 if, say, a hurricane in the US causes some destruction to facilities.”
... leading indicators of the global economy, monitored by economists at Dresdner Kleinwort, point to a US-led slowdown already in train. Figures on Friday showed weak American retail sales.
“We’re looking for the US economy to slow to 2.5% but the risks are very much on the downside,” said Ian Harwood, chief economist. “Higher oil prices can only intensify the pressure.”
AntiSpin: We're not big fans of the whole "soft-landing" and "hard landing" metaphor. From the standpoint of the impact of monetary policy on a single nation's economy, the airplane analogy is fair: pulling up and down on the throttle. But the global economy is a far more complex system, more akin to a living organism, like the body of each human that comprises it.
When very healthy, the economy can run a triathlon. When ill, such as from high oil prices, it slows to a crawl or may even go backwards. Once every few decades it is poisoned by toxins so severe that parts of it die, such as the Asian currency crisis in 1997. But the doctors -- the world's central banks and the IMF -- were closely politically aligned; the patient was quickly repaired. But sometimes, as in the 1930s, geopolitical, fiscal, military, cultural and other imbalances are so severe that the right medicine is not applied due to lack of collective will; the doctors aren't getting along. They have conflicting political agendas. The nations they represent are fighting. Weak unilateral medicine is applied separately in various countries that either makes the patient worse or does little to help him. Further, the patient was very weak to start with, suffering from a diet of household debt and fiscal mismanagement.
In the 1930s, the patient died. After wrenching global military and political re-alignments he was resurrected years later in a new form completely different from the previous one. Under severe political and economic duress, the State adopted ideas that under other circumstances would never have been considered viable. The patient stayed dead long enough that he was resurrected in hideous forms in various places, including socialism in Stalin's Soviet Union and racist nationalism of Hitler's Germany. The suffering of millions went on for decades.
This is why iTulip.com constantly warns of the risks of dependence on foreign borrowing to maintain fiscal deficits and the US economy as a whole, of reliance on credit versus savings to fund consumption, of concentration of wealth, of unfair distribution of military sacrifice and duty among economic and social classes, and of dependence by the West on dictatorships for oil. These are all antecedents for a very bad outcome for the US and the world if another period of global economic and political turmoil occurs akin to the 1930s period. Without peerless moral, economic and political leadership from the US, who knows what form a new, post crisis global economy will take?
Addendum:
"...it's a big deal when Robert Rubin changes the subject and begins to talk about income inequality as "a deeply troubling fact of American economic life" that threatens the trading system, even the stability of "capitalist, democratic society." More startling, Rubin now freely acknowledges what the American establishment for many years denied or dismissed as inconsequential--globalization's role in generating the thirty-year stagnation of US wages, squeezing middle-class families and below, while directing income growth mainly to the upper brackets. A lot of Americans already knew this. Critics of "free trade" have been saying as much for years. But when Bob Rubin says it, his words can move politicians, if not financial markets.
Rubin has launched the Hamilton Project, a policy group of like-minded economists and financiers who are developing ameliorative measures to aid the threatened workforce and, he hopes, to create a broader political constituency that will defend the trading system against popular backlash. A strategy paper Rubin co-wrote defines the core problem: "Prosperity has neither trickled down nor rippled outward. Between 1973 and 2003, real GDP per capita in the United States increased 73 percent, while real median hourly compensation rose only 13 percent."
A Storm Is Coming
July 16, 2006 (The Sunday Times)
FEARS are growing of a sharp slowdown in the global economy, triggered by big increases in energy prices and rising interest rates. Economists at HSBC say there is a greater risk of a “hard landing” for both the world economy and Britain.
Fears over the economic consequences of high oil prices will form the backdrop to today’s talks by G8 leaders in St Petersburg. Peter Dixon, an economist with Commerzbank, said dearer oil added to the risks. “If it’s just a temporary spike, then we’ll carry on as before,” he said. “But if this goes on for any length of time and oil continues to rise, we have a problem.”
Muhammad-Ali Zainy, a senior energy economist at the Centre for Global Energy Studies, said: “Oil could hit $80 or higher this week if the situation worsens. If a shortage of oil develops, the price will go up tremendously. It will skyrocket. We might see it hit $100 if, say, a hurricane in the US causes some destruction to facilities.”
... leading indicators of the global economy, monitored by economists at Dresdner Kleinwort, point to a US-led slowdown already in train. Figures on Friday showed weak American retail sales.
“We’re looking for the US economy to slow to 2.5% but the risks are very much on the downside,” said Ian Harwood, chief economist. “Higher oil prices can only intensify the pressure.”
AntiSpin: We're not big fans of the whole "soft-landing" and "hard landing" metaphor. From the standpoint of the impact of monetary policy on a single nation's economy, the airplane analogy is fair: pulling up and down on the throttle. But the global economy is a far more complex system, more akin to a living organism, like the body of each human that comprises it.
When very healthy, the economy can run a triathlon. When ill, such as from high oil prices, it slows to a crawl or may even go backwards. Once every few decades it is poisoned by toxins so severe that parts of it die, such as the Asian currency crisis in 1997. But the doctors -- the world's central banks and the IMF -- were closely politically aligned; the patient was quickly repaired. But sometimes, as in the 1930s, geopolitical, fiscal, military, cultural and other imbalances are so severe that the right medicine is not applied due to lack of collective will; the doctors aren't getting along. They have conflicting political agendas. The nations they represent are fighting. Weak unilateral medicine is applied separately in various countries that either makes the patient worse or does little to help him. Further, the patient was very weak to start with, suffering from a diet of household debt and fiscal mismanagement.
In the 1930s, the patient died. After wrenching global military and political re-alignments he was resurrected years later in a new form completely different from the previous one. Under severe political and economic duress, the State adopted ideas that under other circumstances would never have been considered viable. The patient stayed dead long enough that he was resurrected in hideous forms in various places, including socialism in Stalin's Soviet Union and racist nationalism of Hitler's Germany. The suffering of millions went on for decades.
This is why iTulip.com constantly warns of the risks of dependence on foreign borrowing to maintain fiscal deficits and the US economy as a whole, of reliance on credit versus savings to fund consumption, of concentration of wealth, of unfair distribution of military sacrifice and duty among economic and social classes, and of dependence by the West on dictatorships for oil. These are all antecedents for a very bad outcome for the US and the world if another period of global economic and political turmoil occurs akin to the 1930s period. Without peerless moral, economic and political leadership from the US, who knows what form a new, post crisis global economy will take?
Addendum:
"...it's a big deal when Robert Rubin changes the subject and begins to talk about income inequality as "a deeply troubling fact of American economic life" that threatens the trading system, even the stability of "capitalist, democratic society." More startling, Rubin now freely acknowledges what the American establishment for many years denied or dismissed as inconsequential--globalization's role in generating the thirty-year stagnation of US wages, squeezing middle-class families and below, while directing income growth mainly to the upper brackets. A lot of Americans already knew this. Critics of "free trade" have been saying as much for years. But when Bob Rubin says it, his words can move politicians, if not financial markets.
Rubin has launched the Hamilton Project, a policy group of like-minded economists and financiers who are developing ameliorative measures to aid the threatened workforce and, he hopes, to create a broader political constituency that will defend the trading system against popular backlash. A strategy paper Rubin co-wrote defines the core problem: "Prosperity has neither trickled down nor rippled outward. Between 1973 and 2003, real GDP per capita in the United States increased 73 percent, while real median hourly compensation rose only 13 percent."
A Storm Is Coming
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