dumas & choyleva - the american phoenix, and why china and europe will struggle after the coming slump (2011)

[...]... The debt-hobbled economies of the periphery (Ireland and ‘Club Med’ – Italy, Spain, Greece and Portugal – certainly, and maybe Britain too) cannot expand through domestic demand growth because of budgetary cutbacks They depend on expansion in Germany and the rest of the world But the US will be sucking demand out of the rest of the world as it puts its own finances right China could see its growth rate... genuinely and willingly given up national autonomy This condition does not and cannot exist between China and the US, and in Europe coordination of policy and behaviour occurs ‘more in the breach than the observance’: for all the pious talk it is doubtful that Germans want to be like Greeks or Greeks like Germans The chief message of this book will be that the US has found a way of making China suffer... of export-led growth as the chief mechanism of growth and development – in China especially, but also in Europe and in other developing countries that are unable to shift their focus from external competitiveness to strong domestic demand growth It is the contention of this book that after 2012 America’s vibrant and flexible market economy will enable it to ‘rise from the ashes’ decisively The next... nationally in China The offset to this is huge government deficits throughout the advanced countries and a credit-fuelled investment binge in China These will ensure financial, but more importantly economic and political, crises and stress throughout the world over the next few years The mechanism by which the 2004–07 imbalances arose 2  t h e a m e r i c a n p h o e n i x was fixed or quasi-fixed exchange... government and junk bonds, both of which saw low and falling real yields • When the world collapsed into debt-induced recession, the loss of GDP was greater in Japan, China and Germany than in the US or even Britain, clearly demonstrating how the savings-glut countries were even more dependent upon the excessive borrowing of the deficit countries than the latter were themselves Alongside the new form... neighbour’ and ‘dog in the manger’ is far more immoral than people using their income to enjoy themselves rather than congratulating themselves over their virtue in saving so much Why has the recovery since 2009 proved so unbalanced? The answer lies in the refusal of savings-glut countries to take any responsibility for imbalances, blaming the whole sorry episode on excessive borrowing and naughty Anglo-Saxon... sustained failure of China, Germany and probably Japan to achieve satisfactory growth Alongside the come-uppance of the savings-glut countries, the dangerous debt burdens of various countries will be analysed Some of them are now concentrated in government debt and deficits – the obvious cases being Greece, Japan and maybe Italy But the danger for others still lurks largely in the private sector –... Within Europe, the somewhat smaller, but proportionately equal, maybe greater, imbalance is between the north-central group of countries round (and led by) Germany and Club Med Both these imbalances were rooted in national habits, attitudes and polices before 2007, but both are also the direct result of fixed or semi-fixed exchange rates: the Chinese yuan’s peg to the dollar and the euro system The lack... behaviour patterns and policies was a major source of the build-up of imbalances in the run-up to the 2007–08 crisis, as well as the lack of healthy adjustment and recovery since Some similarities with the 1971 collapse of the Bretton Woods system of fixed exchange rate were evident Both Chinese exchange-rate policy and the rashly broad membership of the euro represent denial of the basic point, established... develops and the resulting period of 22  t h e a m e r i c a n p h o e n i x adjustment The undervaluation of China and Germany arose in different ways, and culminated in the imbalances we have today That was pre-crisis, in the past Now, post-crisis, the imbalance is there for everybody to see The question becomes what happens next – on the assumption of no major exchange rate adjustment, either yuan/dollar . process must end in tears.’ Martin Wolf The AmericAn Phoenix And why ChinA And EuropE will strugglE AftEr thE Coming slump Charles Dumas and Diana Choyleva First published in Great Britain. the heart of the delusions which still obscure the true prospects for our world’. Peter Jay ‘Charles Dumas and Diana Choyleva s reflections that Europe and China will fall from grace and the. the US, Europe, China and the rest of the developing world - are the direct result of policy distortions imposed by a number of governments. Dumas and Choyleva and are among the very few who