Variables in the U.S. Economy
Published in El Tiempo
(Colombia) on 1 September 2010
by Abdón Espinosa Valderrama (link to
original)
For some time now, rumor has run rampant that the U.S. economy would face a new recession. Precarious employment growth (less than predicted), among other contributing factors, slowed the economic recovery and began sounding the alarm. In the context of foreign trade, similar phenomena instigated political "anti-dumping," and reinforced the idea of President Obama doubling U.S exports over the next five years.
The U.S., having been the latest cyclic axis of the global economy and a magnet for imports, explains the global interest that it has generated even with emerging countries of extraordinary capacity for production and consumption. China and India are in the forefront, in addition to parts of Brazil. What's certain is that world economic recovery has a varying appearance, with even Latin America not noting exactly the same oscillations observed in the U.S. Even so, the U.S. remains a major market and financial provider.
Because a new recession or deflation would have vast repercussions, especially in our region, it is worth being attentive. In particular, what the Federal Reserve Bank does or doesn't do, as well as its chairman, Ben S. Bernanke, who gave a defining speech in the now famous Jackson Hole meeting. It should be noted that the recovery of the U.S. economy isn't without authoritative voices warning of the original plan's inadequacies. If memory serves me right, that was the argument of Nobel Prize winners Joseph Stiglitz and Paul Krugman, a group of enlightened self-Keynesians.
But there are unforeseen land mines for Mr. Bernanke's current difficulties. At the end of the day, he's been one of the key decision makers in the battle to avoid another Great Depression. At least thanks to the emergency measures, there wasn't another Great Depression. In his opinion, conditions in general improved greatly, but bank lending remains scarce and financial reform is still lacking. Outside of that challenge, for many countries in debt management, fiscal deficit, trade imbalance and current account deficits remain a problem.
According to Mr. Bernanke, private demand, and production increased for more than a year. The pace of growth appears less vigorous than predicted. Household spending amounted to a relatively modest step forward, subject to expanding employment and financial recovery. Results: households are saving more than expected, justifiably suspicious because the depressed housing market. Those same companies don't depend as much on credit as product demand.
Therefore, there is less spending and less investment, and thus less economic growth. The small decline in unemployment can be attributed more to dwindling labor force by firms' reluctance to increase permanent employment. Although production will increase next year, unemployment will decline only at a slow rate. The prospect of achieving the previous level over a long period of time continues to be a central policy concern, given the various risks and costs of sustainable recovery, according to Mr. Bernanke.
Mr. Bernanke expects the U.S. economy to continue to improve this year, at a relatively moderate rate. Monetary policy will remain conducive to growth. The Federal Reserve has sufficient tools to prevent deflation and wherever appropriate, will provide additional stimulus — undeterred competitive devaluation, and everything — except being laissez-faire.
The U.S., having been the latest cyclic axis of the global economy and a magnet for imports, explains the global interest that it has generated even with emerging countries of extraordinary capacity for production and consumption. China and India are in the forefront, in addition to parts of Brazil. What's certain is that world economic recovery has a varying appearance, with even Latin America not noting exactly the same oscillations observed in the U.S. Even so, the U.S. remains a major market and financial provider.
Because a new recession or deflation would have vast repercussions, especially in our region, it is worth being attentive. In particular, what the Federal Reserve Bank does or doesn't do, as well as its chairman, Ben S. Bernanke, who gave a defining speech in the now famous Jackson Hole meeting. It should be noted that the recovery of the U.S. economy isn't without authoritative voices warning of the original plan's inadequacies. If memory serves me right, that was the argument of Nobel Prize winners Joseph Stiglitz and Paul Krugman, a group of enlightened self-Keynesians.
But there are unforeseen land mines for Mr. Bernanke's current difficulties. At the end of the day, he's been one of the key decision makers in the battle to avoid another Great Depression. At least thanks to the emergency measures, there wasn't another Great Depression. In his opinion, conditions in general improved greatly, but bank lending remains scarce and financial reform is still lacking. Outside of that challenge, for many countries in debt management, fiscal deficit, trade imbalance and current account deficits remain a problem.
According to Mr. Bernanke, private demand, and production increased for more than a year. The pace of growth appears less vigorous than predicted. Household spending amounted to a relatively modest step forward, subject to expanding employment and financial recovery. Results: households are saving more than expected, justifiably suspicious because the depressed housing market. Those same companies don't depend as much on credit as product demand.
Therefore, there is less spending and less investment, and thus less economic growth. The small decline in unemployment can be attributed more to dwindling labor force by firms' reluctance to increase permanent employment. Although production will increase next year, unemployment will decline only at a slow rate. The prospect of achieving the previous level over a long period of time continues to be a central policy concern, given the various risks and costs of sustainable recovery, according to Mr. Bernanke.
Mr. Bernanke expects the U.S. economy to continue to improve this year, at a relatively moderate rate. Monetary policy will remain conducive to growth. The Federal Reserve has sufficient tools to prevent deflation and wherever appropriate, will provide additional stimulus — undeterred competitive devaluation, and everything — except being laissez-faire.
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