Niall Ferguson - on the new world order pt1

1 Mar 2010

[On the sustainability of the US recovery versus the global recovery]
I think there is a global economic recovery which looks more sustainable that the US recovery.
Most of the US recovery is in the form of stimulus from government. I don't think this is a sustainable recovery yet. The global recovery is more interesting. Asian economies are growing much faster than anybody predicted 6 months ago. Chinese growth is at an annual rate of 10%. China's stimulus has worked better. You can have Keynesian policies more easily in a controlled economy. Keynes said deficit finance will work better in a totalitarian economy. That's still true today.

[On the US consumer's inability to push growth forward anymore]
I'm relatively pessimistic on how fast growth is going to be in the US. My guess is that the economy will grow in real terms at close to 2% over the next few years. The US consumer cannot bounce back in the way we've been used to seeing in previous recessions. We've reached the limits of leverage on household balance sheets. When you've got debts of 120% of personal disposable income there's no way you can go back to the shopping mall. So if the US consumer is essentially going to behave in a thrifty way there is no way the US economy can grow at the rates we've seen in the past.
There's no way you can have the old style debt-fuelled consumption once you've reached this level of indebtedness. That game is over.

[On global rebalancing]
We are in the process of a huge global rebalancing which requires Americans to become more thrifty and requires Asians to become more profligate. We need the Chinese to go shopping.
Most of the saving in China is made by corporations. So Chinese households are saving less and spending more. But you can't do it in a few months. This will take years to unfold. You need in the end to switch China's manufacturing production to domestic demand and away from foreign demand. The Chinese model has been export-driven for decades now but particularly for the last 10 years. They did this by keeping their currency weak.

[On Keynesian stimulus (deficit finance) versus Monetarist stimulus (expansion of monetary base]
With a $9 trillion deficit.... If Keynes were alive today he would say this is excessive and unsustainable. Most of it is a structural deficit. It continues regardless of whether there is a boom or bust.
There were two policies. The monetary policy that Ben Bernanke pursued at the Fed...the massive expansion of the monetary base...was clearly the right policy. Milton Friedman said the cause of the Great Depression was bank failures and monetary tightening by the Fed. We learnt that lesson. The second policy the Keynesian policy involves adding an enormous deficit on top of an already large structural deficit. And I don't think that has been anywhere near as important in getting the economy out of the Depression scenario. The fiscal policy could turn out to be okay as long as we know how to stabilize, but right now we don't. It is no longer sustainable to pile these bonds up. Default is not a scenario we can rule out. The domestic default is almost certain. The other question is less likely -- we are not likely to default on the obligation to foreigners.
Public finance can trump your economy even if you have a tremendous workforce. The US is in danger of evolving into Latin America. The US is on an unsustainable fiscal path. It will either default on the debt or you depreciate it away, you deflate it away. You print your way out.

[On the final outcome -- Is Asia going to rise and the US going to fall]
If Asia's recovery goes wrong, they can call upon their populace.
The US is bankrupt. Although it has a $10 trillion debt, its unfunded liabilities are $100 trillion.
For 500 years the world has moved in the direction of the west. The US was the last to benefit from this shift in resources from the east to the west. We're living through a change that ends 500 years of history. Now there is a great rebalancing in the world that will see Asian powers become equal in their stature in economic terms and geo-political terms.

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[danbuck333]

Idontgiveadamnify = retard!

[ArwingFighter]

good

[outlaw87100]

@beyondneptune :jealous because those niggers and Jews are smarter than you?

[BAZHE]

great

[BeyondNeptune]

one of the few non-niggers or non-jews working at Harvard

[PrinceMyshkin22]

@idontgiveadamnify you are an imbecile to say such a statement. I can assume with great confidence that you have never read a single page out of one of his many books. Mr. Ferguson wouldn't be a professor of economics at Harvard if he were a retard. What economic theory do you espouse exactly? I know the temptation to say Ron Paul is at the tip of your tongue, and that is probably the limit to your economic foresight. Do yourself a favor and read an economic theory book. Until then, remain quite

[Idontgiveadamnify]

Niall ferguson = retard!!