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Economic Troubles Batter Asia

Asian stock markets have been sliding, and concerns that Greece will exit the eurozone have sent them into a further slump. But regardless of whether Greece leaves or stays, China, Japan and India all face serious problems.

A generation ago Japan was the big Asian success stories, and young people today won’t believe it, but Americans in 1980 worried about Japan (and many wise pundits told Americans that we had to imitate Japan) in much the same way that people talk about China now. Then came thirty years of Keynesian stimulus, and thirty years of economic stagnation. The New York Times reports that Fitch has just downgraded Japanese sovereign debt ratings from AA to A+: a ranking just above Spain and far lower than the top grade of AAA. The outlook is negative, and Japan may see its debt downgraded further before long. Making matters worse, Japan’s exports are lower than expected, opening up a large trade deficit, according to Bloomberg. This would be a serious blow to a country that has historically depended on a robust export sector — and Japanese exporters once looked unbeatable.

India’s economy is weak enough that some are calling it “the Greece of Asia.” The BBC reports that the Indian rupee has fallen to a historic low of 55.82 against the dollar, the tail end of a 26 percent slide that began late last year. This threatens to spur inflation and, with the coalition government paralyzed, there is not much sign of the leadership India needs to get back on the path to fast growth.

China has managed to weather the economic storm better than many of its neighbors, but the signs of trouble in China are growing. A recent World Bank report revised its growth forecast for 2012 down to 8.2 percent from an earlier estimate of 8.4 percent, according to the FT. Even this relatively small shift will raise eyebrows in Beijing, which relies on rapid growth to keep a lid on increasing social unrest.  China’s growth has been decelerating for some time; we are now in the range at which many China hands think that further deceleration could lead to some kind of social explosion.

Europe’s troubles are hogging the headlines these days, and understandably so, but in the long run the troubles in Asia could have a much bigger impact on the way the world works.

The United States, the EU and the great Asian economies are still wobbly; the global economic situation remains shakier than we could wish.

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  • alex scipio

    Solution – which worked for 200+ years, or until we legalized public sector unions and insisted on equal outcomes: Implement the American Constitution. Free markets, Freedom of opportunity (not equal outcome), Keep the government out of the way of the citizens, protect the citizens FROM the government.

    Result: Freest, wealthiest, most productive nation and economy in the world…. until we legalized public sector unions are forced bankrtupcy on ourselves.

  • Anthony

    “The economic crisis has wiped out more than 50 million jobs after years of weak, job-poor growth and increasing inequality in the world’s rich countries. Since 2007, employment rates have risen in six of the 36 advanced economies, while youth unemployment has increased in a large majority of both established and emerging markets.”

    In the near term (regarding growth and recovery), what can policymakers attempt/do in addition to forthright honesty vis-a-vis global economy interconnectedness. Yes, global economic situation remains strained – capitalism’s creative dynamic envelopes more of the globe perhaps.

  • Jacksonian Libertarian

    This is Great Depression 2.0, exacerbated by unbalanced world trade. It’s the massive government borrowing that has gotten us here (just like last time), and it will be paying off of that debt that will get us out. (Example: the payoff after WWII)

    “There’s a reason it’s called Capitalism; it’s because Capital is what fuels it.” Jacksonian Libertarian

    Money is just like any other commodity and obeys the Law of Supply and Demand. So when the capital markets are being sucked dry by the world government’s massive borrowing, the government borrowing reduces the supply of money and prices/crowds the job creating consumers and businesses out of the capital markets.

    To those who respond “Look at the mortgage interest rates” I answer “Look at Japan’s 1% mortgage interest rates, and they are still too high to generate sales”.

    To those who respond “It will cause inflation” I answer “You are confusing energy supply problems caused by lack of energy development, with money supply problems caused by excess printing. And in any case, I would rather have 10% inflation than 1% deflation. Inflation is a pain but we can adapt and we know how to fix it just like we did in the early 80’s, but deflation is destructive businesses go bankrupt, people lose their jobs, and then they lose their homes to foreclosure.”

    Government spending has nothing to do with Growth; in fact it has the exact opposite effect by taking money out of the hands of consumers and businesses whose spending is how Growth is created. Government is just the burden the economy must bear, and as that burden grows the economy’s growth slows or worse.

  • Luke Lea

    @ WRM – “young people today won’t believe it, but Americans in 1980 worried about Japan (and many wise pundits told Americans that we had to imitate Japan) in much the same way that people talk about China now.. . .”

    China = Japan x 10

  • paul [the real] mccaffree

    i do not have the time 2 listen 2 bbb level content any mo, sorry, 2 much emotions here, not clear head thinking

  • Mark

    China is likely in worse straits than written above. There is an increasingly widespread belief that China has ‘cooked the books’ -it has been known for years that China’s macro data is not only of poor quality, but also has been purposely manipulated. Now it is becoming more apparent that the government is rigging things like PMI surveys (by ‘giving guidance’ to participants, and woe on those who break from government guidance) and asking companies to inflate earnings so that things don’t look as bad as they do. Forget any of the more conventional indicators, too -the Chinese are cognizant of the profile they send to the investing world, and they game the system to send the message they want.
    The problem with World Bank and IMF forecasts is that they have to base their work off of official statistics that they know to be wrong (I have heard this from them). The problem with bank economists is that not one of them writes honestly -their banks make money from China, and they will all lose their jobs if they write anything less than a glowing analysis (I have heard this from them, too).
    China’s GDP is likely to come in well beneath 8% this year -it is already tracking at rates of around 7.5%, and is not likely to improve in H2. In 2013, it is likely to come in lower than 2012, perhaps sub-7%.
    It is also likely that we see a depreciation of the RMB sometime over the next two years, due to capital outflows and China’s desire to stimulate anyway they can.

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