World economy: uncertain future

The prospects for the future world economy seem very uncertain at the moment. Even more worrying is the lack of political co-ordination and will at the global level to grapple with the dangers that may lurk around the corner, despite the agreements in Seoul. Perhaps we are kidding ourselves that the worst is over and are in no need or mood for international co-operation, or that we believe a quick recovery is only possible at the expense of others, or that is what the others are thinking. There are dark mutterings of currency wars and a lurch towards protectionism under the veneer of G20 unity.

I have never professed to understand economics, and I am still totally ignorant. Ignorance is not always bliss, as ignorance can equally or is even more likely to cause fear. So I am in fear that things will go wrong.

Continuing on the theme of ignorance, I have never understood quantitative easing that well, except that it is basically printing money and make more of it flow around. More money in circulation, more money spent and more economic activity. When a lot of money is pumped into the economy, it must have effect, even if some of it is buried in bank vaults. It doesn’t always work, as experiences in Japan demonstrate.

An accusation of currency manipulation against the US by China is a bit rich, given China’s policy. But the reverse is true, in that there is no doubt that quantitative easing will lead to a further weakening of the dollar. No wonder there have been grumbles from other export countries such as Germany and Japan.

The world economy cannot just keep relying on the American consumers to spend. In my simple mind, for the US to absorb the huge trade deficit, the people of America have to generate sufficient wealth to cover it as well as domestic growth. The problem was that much of the wealth was actually debt.

As a pessimist, I feel that there will be tough times ahead, and calls for protectionism will be louder, and become more attractive to the policy-makers.