US faces de-industrialization, joblessness
A serious warning that all is not well has come in the form of Friday s historic downgrade of its “AAA” credit rating by Standard & Poor, which was followed Monday by plunging global stock prices.
President Barack Obama said he heard the warning. “Our problems are imminently solvable. And we know what we have to do to solve them,” he said Monday, referring to the need to rein in massive US budget deficits.
He stressed his confidence in the US economy: “We continue to have the best universities, some of the most productive workers, the most innovative companies, the most adventurous entrepreneurs on Earth,” he said.
This patriotic statement, however, obscures some less pleasant details.
If, as Obama believes, investors around the globe still give the United States a “AAA” rating, the country must first retain its uncontested currency supremacy.
Supported by a domestic financial sector and the confidence of foreign central banks, the status of the dollar is virtually intact.
“The US economy has its own problems, that we highlighted with the downgrade,” said John Chambers, S&P s managing director and head of its sovereign ratings committee.
But he added that “the dollar will remain the key international reserve currency under any plausible scenario.”
Judging by its value, though, the dollar may be losing its luster. The International Monetary Fund (IMF) said in its annual report on the US economy in July that the dollar is now at its lowest level in decades against the currencies of major trading partners.
One problem the United States faces is a loss of competitiveness, something Americans encounter every day as the vast majority of the products they consume bear the words, “Made in China.”
“They re really starting to worry that America has lost its competitive edge. Jobs are going overseas,” said New York City Mayor Michael Bloomberg.
According to the World Trade Organization, the US share of world exports for goods fell by 12.1 percent in 2000 to 8.4 percent in 2010. More than 10,000 factories have closed in the United States since 2003, the trade publication “Plant Closing News” reports.
The loss of manufacturing jobs, in turn, has helped open growing income gaps between college graduates and unskilled workers, between regions and between ethnic groups.
To be sure, the US economy is still the queen of the service sector, and of finance in particular.
In an interview with The New Republic in February, US Treasury Secretary Timothy Geithner said he had no enthusiasm for
“trying to shrink the relative importance of the financial system in our economy as a test of reform, because we have to think about the fact that we operate in the broader world.”
IMF chief economist Simon Johnson called this a fundamental error. “It is a deeply disturbing vision, one that amounts to a huge, uninformed gamble with the future of the American economy,” he said, recalling the trials of Iceland and Ireland in their financial globalization.
Increasing the finance sector s influence is a way to mask an economy of debt, a main product of banks, say certain economists. And the financial crisis showed that credit can be harmful.
In the United States “you have a big private debt overhang, in this case households,” said economist Carmen Reinhart Saturday on the Bloomberg TV channel.
Asked what that means for the future, she said “stubborn unemployment issues” and “growth that is not on par with other recoveries.”
G20’s New Lead Role In Global Economic
PITTSBURGH: The Group of 20 rich and developing nations promised to give rising powers such as China more say in rebuilding and guiding the global economy, and declared their crisis-fighting efforts a success on Friday.
Leaders pledged to keep emergency economic supports in place until sustainable recovery is assured, launch a framework for acting together to rebalance economic growth, and implement tougher rules governing banks by 2012.
“Here in Pittsburgh, leaders representing two thirds of the planet’s population have agreed to a global plan for jobs, growth and a sustained economic recovery,” British Prime Minister Gordon Brown said after a two-day summit.
U.S. President Barack Obama’s first turn hosting a major summit ended on an upbeat note, with leaders claiming victory in stopping the recession from turning into a depression.
“It worked,” they said in the final communique. “Our forceful response helped stop the dangerous, sharp decline in global activity and stabilize financial markets.”
Obama said, “We cannot tolerate the same old boom-and-bust economy of the past. We can’t wait for a crisis to cooperate. That’s why our new framework will allow each of us to assess the other’s policies, to build consensus on reform, and to ensure that global demand supports growth for all.”
The Pittsburgh gathering was the third summit in a year for the G20, which said it would now be the “premier forum” for economic cooperation, supplanting the Western-dominated G7 and G8 that were the primary international forums for decades.
“This is a symbolic act of inclusion of immense importance to international politics,” said Colin Bradford, senior fellow at the Brookings Institution in Washington. “There is tremendous significance to the history being made today that this decision does not enlarge the G7 but replaces it.”
Others were more skeptical. “I think the G7 is something of a zombie — very hard to kill,” said Simon Johnson, a former IMF chief economist. “They have a lot of inter-connections … but obviously at the summit level, they are gone.”
The move was a clear acknowledgment that fast-growing countries such as China and India now play a much more important part in world growth.
“This movement to the G20 and away from the G7 is recognizing economic realities. You can’t talk about the global economy without having the major dynamic emerging economies at the table,” John Lipsky, the deputy managing director of the International Monetary Fund, told Reuters Television.
Disclosure of a second Iranian uranium enrichment plant gave Obama, with the leaders of Britain and France at his side, an opportunity to press for united action against Tehran over its disputed nuclear program.
Obama said Iran was “on notice” that it must choose when it meets with world powers in Geneva on Oct. 1 whether it would “continue down a path that is going to lead to confrontation”.
G20’s New Lead Role In Global Economic was first posted on September 26, 2009 at 1:25 pm.
©2009 “News Trends“.
