Will the US Recession lead to Global Slowdown What Role for China and India

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Will Asia Decouple From the US?. What were the drivers of US Growth?Consumption Demand Cheap Credit

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Will the US Recession prompt to Global Slowdown? What Role for China and India? Introduction by Jan Kregel , Levy Economics Institute of Bard College for the IDEAs Conference "India, China and the World Economy, Magnolia Hall, India Habitat Center, New Delhi, January 24, 2008

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Can Asia Decouple From the US? What were the drivers of US Growth? Utilization Demand Cheap Credit – Mortgage renegotiating, HELOC Rising Net Wealth – rising house costs Investment – Residential Housing-Rising Net Wealth – Housing, Equity Market Offset by Current Account deficiency What are the NegativesNow ? Credit Crunch – Tighter loaning Standards Collapse of Housing Market Collapse of Consumption request Collapse of Equity Prices Offset by Rising Net Exports – deteriorating dollar

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The US Recession Outlook Housing droop to deliver a withdrawal in action in the initial 75% of 2008. Downturn drove by purchaser spending. Gross domestic product to normal 0.8% in 2008 and 1.0% in 2009, notwithstanding $175bn in financial jolt and money related facilitating by the Federal Reserve. Home costs anticipated that would decay by 15% in 2008 and 10% in 2009, with more probable. The stock circumstance has turned out to be recalcitrant Housing begins decay 30% from current levels, to 700k by end 2008 Operating income down 8.4% from 2007 with little recuperation in 2009. Work misfortunes in the scope of 2.5 million, near the last subsidence, anticipated that would push the unemployment rate up, to 5.75% before the finish of 2008 and to 6% by mid 2009. Rising unemployment, $6 trillion in lost lodging riches, consolidated with drooping value valuations will bring about the most noticeably bad shopper subsidence since 1980. Rate of genuine Personal Consumption Expenditure dropping to - 1.0% by 4Q 2008, drove by twofold digit decreases in buyer durables.

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Imports, Customs Value: Goods % Change - Year to Year SA, Mil.$ Retail Sales & Food Services % Change - Year to Year SA, Mil.$ 30 12.5 10.0 20 7.5 10 5.0 0 2.5 - 10 0.0 - 20 - 2.5 90 95 00 05 Sources: Census Bureau, Census Bureau/Haver Analytics US Imports and Consumption

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How Can Asia Help? Exchange With US, Intra Regional Finance Financing US Current Account Financing Recapitalisation of US Financial System – Sovereign Wealth Funds Financing Domestic/Regional Expansion

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Alternate Explanation of Chinese Export Explosion Rapid Rise in Export Unit Values after 2002 No Evidence of Rising Import Prices of Manufactures into US and EU Possible Over-invoicing of Exports to gather remote parities = Disguised Capital Inflows Evidence in Investment and Property Boom Means that Trade Balance is Overstated

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How Large is the Deficit? On the off chance that 30% of expanded fare unit esteem because of camouflaged capital inflows then USD $23 billion in 2003, $54 billion in 2004, $95 billion in 2005, and $157 billion in 2006. This records for a great part of the ascent in settled speculations as a share of GDP that had happened up to that point. In any case, if no expansion in genuine unit send out qualities after 2002 the hidden inflows are $87 billion in 2003, $199 billion in 2004, $347 billion in 2005 and $529 billion in 2006. At that point China's 2006 "genuine" current record deficiency would be $425 billion, and the aggregate "masked shortage" since 2003 $847 billion. Source: "Is China Really Running a Trade Surplus?", James K. Galbraith, Sara Hsu, and Li Jianjun, December 30, 2007, The University of Texas Inequality Project UTIP Working Paper 45

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Reasons For Capital Imports The ascent in unit trade values additionally happened in conjunction with a vital change in the tenets representing the holding of dollars inside China. In October 2002, the focal government gave authorization for all organizations to hold outside trade accounts. Controls over remote trade buys were casual for some organizations, including exporters, while the capacity to open remote trade records was stretched out to firms outside fortified zones (Lehmanbrown.com, 2002). The objective of this measure was to change the present record, encouraging exchange and decreasing the state nearness in credit markets. Consequently, the administrative and speculation condition was ready for infusing capital inflows into China. Utilizing the exchange record to acquire capital was generally straightforward over this period. Trading organizations essentially needed to overbill sends out, and outside trade could be moved into the organizations' financial balances.

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Foreign Exchange Transactions

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Cyclical Elements in the Chinese Economy Recently RMB 860 billion in unspecified "abnormalities" reported PBoC Dep. Gov. Liu records four issues in land fund: 1. Land credit is developing too quick… 2. Rivalry is driving some business banks bring down loaning criteria, diminish examination steps and unwind examination to expand piece of the pie 3. Contract renegotiate credits and extra home loan advances are conceded without appropriate endorsement… 4. Some branches/sub-branches… work together with land designers and operators to make up credit contracts for land improvements as lodging utilization advances  Six loan cost ascends in addition to expanded Reserves to cut loaning The Olympics will be over in under a year– the lodging blast sooner The hardest hit stocks Monday and Tuesday were banks in light of fears that home loan related misfortunes are considerably bigger than stores taken Bank of China was likely the hardest hit - Last year it detailed that it had $7.95 billion in subprime presentation, and it put aside $473 million for conceivable misfortunes.

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Can US Stop Its Recession Monetary Policy Is it a liquidity emergency or a dissolvability emergency? What is a " Minsky Moment" Can Fed do anything but bring down financing costs? Swelling Risk Fiscal Policy Size?? $150 billion is insufficient How Fast Tax or Expenditure Policy?

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George Soros on US Recession Credit development will be trailed by a time of compression, new credit instruments and practices unsound and unsustainable. The capacity of the budgetary experts to fortify the economy is compelled by the unwillingness of whatever remains of the world to collect extra dollar holds. As of not long ago, speculators were trusting that the US Federal Reserve could do what it takes to stay away from a subsidence

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George Soros on US Recession 2 Now understand that the Fed may never again have the capacity to do as such. With oil, sustenance, different items rising and RMB acknowledging speedier, the Fed needs to stress over swelling. In the event that government stores brought down further, dollar would go under recharged weight and long haul securities go up in yield. Where that point is, difficult to decide. Whenever achieved, the capacity of the Fed to animate the economy arrives at an end.

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Soros on India and China Although a retreat in the created world is presently pretty much unavoidable, China, India and a portion of the oil-delivering nations are in an extremely solid countertrend. Thus, the current money related emergency is more averse to bring about a worldwide retreat than a radical realignment of the worldwide economy, with a relative decrease of the US and the ascent of China and different nations in the creating scene.