They cut interest rates, printed money and gave massive fiscal stimulus packages but still the outlook for the US economy is poor. With 9.5% unemployment – this figure is likely to be higher when the number of part-time workers are added – the economy is slowing considerably. Furthermore, as the unemployment benefit in the US is lower than European countries, this acts as a constraint on demand and in difficult times people tend to save rather than spend. From the meeting of the world’s central bankers in Jackson Hole (see posting on 29th Spetember) there are clear indications that another major shot of quantitative easing is just around the corner. However, there are those who see the problems of the US economy as too entrenched and argue that it is in serious trouble. Larry Elliott from the Gaurdian Newspaper wrote a book review of The Long Twentieth Century by Giovanni Arrighi in which he talks about ceratin prevalent issues including:
– the dominance of Wall Street
– the structural trade deficit
– the military’s overestimate of its abilty
– the switch from being the world’s biggest creditor to biggest debtor
All of which, Arrighi suggests, will lead to the demise of the American economy. Albert Edwards, an analyst at French bank Societe Generale who correctly predicted the Asian financial crisis, sees global equity markets at a new low and chances of another global recession in 2010. He refers to the current situation as unprecedentedly strong monetary and fiscal stimulus has led to unprecedentedly weak recovery. Ben Beranake will be aware of this and Japan’s lost decade and will do everything to keep the economy moving. Remember he did his PhD on the Great Depression but will need all his expertise to get the US economy back on track.