Triple Shock to the Global Economy

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from Le Monde, via Truthout:



Triple Shock to the Global Economy
By Eric Le Boucher
Le Monde

Sunday 16 March 2008

You've entered the kingdom of uncertainties. Oil? How high will it go? The dollar? How far will it drop? The financial crisis? When will it end? Recession? In the United States? In France? From week to week, the prognosis for each of these questions eludes us. A dark crisis mechanism is at work that seems impossible to arrest.

We're suffering the blows of a great triple shock, the scope and the consequences of which are still difficult to measure, but which we know will profoundly refashion the global system.

The first shock is the world's shift from the West to the East. The unique American engine is exhausted, China, Asia are taking over. The second shock is a consequence of the first: Chinese thirst for raw materials has caused prices to explode and provoked a return of inflation - dead for 30 years - to the forefront of concern. The third shock is the financial crisis which persists, expands and leads to the end of (too-) easy credit.

There is no equivalent for the first shock unless it be the passage of supremacy from Europe to America during the First World War. The second is like the so-called "oil" shock of the 1970s. For the final shock, comparison oscillates among the Great Depression of the 1930s and the more limited crises of the 19th century and those more recent crises of the 1980s. The three shocks together have, in any case, an unprecedented scope: boom, boom, boom, they come at once and act in concert.

The Federal Reserve is blamed for having been the source of the evils of easy money. The "wizard" Alan Greenspan, adulated only yesterday, decided on interest rates too low to encourage growth, but that inflated asset bubbles instead. American households were able to go into debt cheaply and consume more and more. Imports grew in a straight line; the trade deficit deepened; the dollar began to weaken.

The United States has other, enviable, "fundamentals:" productivity gains, a high-tech sector, immigration ... but its debt-fueled growth model spiraled out of control with respect to real estate. The house was barely purchased before it gained in value, which allowed it to be refinanced and borrowing to be increased. Lending organizations invented subprimes to convince households without the means that they, too, could become property-owners under this system. Up until the day when, after an increase of 80% between 2000 and 2006, prices stagnated, forcing those households into bankruptcy. ......(more)

The complete piece is at: http://www.truthout.org/docs_2006/031708G.shtml