Heather Scoffield reports in the Globe and Mail:
Heather Scoffield: Did the Clinton visit improve the China-U.S. relationship?
Niall Ferguson: It looks like it....The line is very clear from China. They've consistently made their position clear. They want the status quo. They do not want this thing to break down. They were kind of appalled when Geithner said the 'm' word. And they took full advantage of Hillary Clinton's visit to smooth ruffled feathers and restate their commitment. It's a very good bilateral relation. That bilateral will is important here. The Chinese believe in Chimerica maybe even more than Americans do.
“They have nowhere else to go. They have no other strategy that they can adopt in time to cushion the blow. Their exports are contracting at a terrifying speed. They want at all costs to avoid any kind of big shift in policy. They want to keep, as far as possible, the U.S. importing Chinese goods. They want to keep currencies stable. They are still buying dollars … At least officially, Chimerica is intact. But I stress 'officially' because there's considerable public disquiet.”
“This is a crisis of globalizaiton that is destroying global trade. This poses the biggest challenge that the Chinese administration has faced since they embarked on reforms 30 years ago.
Heather Scoffield: Will globalization survive this crisis?
Niall Ferguson: It's a question that's well worth asking. Because when you look at the way trade has collapsed in the world in the last quarter of 2008 – countries like Taiwan saw their exports fall 45 per cent – that is a depression-style contraction, and we're in quite early stages of the game at this point. This is before the shock has really played out politically. Before protectionist slogans have really established themselves in the public debate. Buy America is the beginning of something I think we'll see a lot more of. So I think there's a real danger that globalization could unravel.
Part of the point I've been making for years is that it's a fragile system. It broke down once before. The last time we globalized the world economy this way, pre-1914, it only took a war to cause the whole thing to come crashing down. Now we're showing that we can do it without a war. You can cause globalization to disintegrate just by inflating a housing bubble, bursting it, and watching the financial chain reaction unfold.”
Heather Scoffield: Is a violent resolution to this crisis inevitable?
Niall Ferguson: “There will be blood, in the sense that a crisis of this magnitude is bound to increase political as well as economic [conflict]. It is bound to destabilize some countries. It will cause civil wars to break out, that have been dormant. It will topple governments that were moderate and bring in governments that are extreme. These things are pretty predictable. The question is whether the general destabilization, the return of, if you like, political risk, ultimately leads to something really big in the realm of geopolitics. That seems a less certain outcome. We've already talked about why China and the United States are in an embrace they don't dare end. If Russia is looking for trouble the way Mr. Putin seems to be, I still have some doubt as to whether it can really make this trouble, because of the weakness of the Russian economy. It's hard to imagine Russia invading Ukraine without weakening its economic plight. They're desperately trying to prevent the ruble from falling off a cliff. They're spending all their reserves to prop it up. It's hardly going to help if they do another Georgia.”
“I was more struck Putin's bluster than his potential to bite, when he spoke at Davos. But he made a really good point, which I keep coming back to. In his speech, he said crises like this will encourage governments to engage in foreign policy aggression. I don't think he was talking about himself, but he might have been. It's true, one of the things historically that we see, and also when we go back to 30s, but also to the depressions 1870s and 19980s, weak regimes will often resort to a more aggressive foreign policy, to try to bolster their position. It's legitimacy that you can gain without economic disparity – playing the nationalist card. I wouldn't be surprised to see some of that in the year ahead.
It's just that I don't see it producing anything comparable with 1914 or 1939. It's kind of hard to envisage a world war. Even when most pessimistic, I struggle to see how that would work, because the U.S., for all its difficulties in the financial world, is so overwhelmingly dominant in the military world.”
Heather Scoffield: You speak about the crisis being in its early days, but most policy makers and the International Monetary Fund are predicting a quick end to it. Where do you differ with them?
Niall Ferguson: “I do think they're wrong. I think the IMF has been consistently wrong in its projections year after year. Most projections are wrong, because they're based on models that don't really correspond to the real world. If anything good comes of crisis, I hope it will be to discredit these ridiculous models that people rely on, and a return to something more like a historical understanding about the way the world works.”
“I mean most of these models, including, I'm told, the one that policy makers here use, don't really have enough data to be illuminating … You're going to end up assuming that this recession is going to end up like other recessions, and the other recessions didn't last that long, so this one won't last so long. But of course this isn't a recession. This is something really quite different in character from anything we've experienced in the postwar era. That's why these projections give positive numbers for 2010. That's the default setting. And it just seems to me ostrich-like, to bury one's head in the sand and assume this has to end this year because, well, that's what recessions do.
“It's obvious, surely we know by now, that this is something quite different. It's a crisis of excessive debt, the deleveraging process has barely begun, the U.S. consumers are not going to suddenly bounce back and hit the shopping malls just because they get a tax cut. The savings rate is going to continue to rise. These processes have tremendous momentum that quite clearly differentiates them from anything that we've seen, including the early 80s, including 73, 74, 75. Those big crises, the ones that we have lived through, were bad. But seems certain to be deeper, and more protracted.”
Heather Scoffield: Forecasters say they can adjust their projections as things change, but households, companies and governments are basing their decisions today on what the experts tell them to expect in the future. So how should decisions be made if the forecasts are wrong?
Niall Ferguson: “One possibility is that they don't believe these numbers either. They feel that it's good for morale. The truth about the crisis is that it is in large measure psychological. We're not dealing here with mathematics. We're not dealing here with human beings as calculating machines. We're dealing with real people whose emotions influence their individual decisions, and the swing from greed to fear is a very spectacular thing when it happens on this scale.
“One possibility is that policy makers are lying in order to encourage people and prevent depression from become a self-fulfilling psychological conditions. That's why it's called a depression … Maybe they don't really believe this, but they're saying it in order to cheer people up, and if they're sufficiently consistent, perhaps people will start to believe it, and then it will magically happen.”
“The other way of looking at that is to say every time a politician uses a word like 'catastrophe' or 'depression' to pressurize legislators into passing a stimulus package, for example, the signal goes out to the public that this is bad. And it gets worse. That's one of the interesting things that both President Bush and President Obama have done. Bush used that wonderful phrase, “this sucker's going down.” Obama talks about catastrophe at the critical moment when he wanted Congress to pass the package. It reminds me of a wonderful headline that the Onion had last year, in about October. The headline was, Bush calls for panic. I love it because it completely called the situation. There he was calling for panic ... to make people come out of denial. I've been talking a while about this being the Great Repression. It took ages, ages, for people to realize this thing had fallen apart.
“August, 2007, was when this crisis began. And if you were really watching the markets carefully, April is when it began, when the various hedge funds started to hemorrhage. The stock markets carried on until October of that year. And in many ways, consumer behaviour in the U.S. did not change until the third quarter of 2008. So there was a massive denial problem. It was like Wile E. Coyote running off a cliff, and they'd run off a cliff and they didn't look down so they didn't start falling. As soon as people realized it was bad, the behaviour switched. Now, people have to try to unscare them before this thing becomes a self-perpetuating downward spiral. I think that's why you have to say 'growth will return in 2010' with your fingers crossed behind your back.”
~ more... ~
No comments:
Post a Comment