The US might be winning the battle against recession
Although some data might change before this “opinion” is published, some recently revealed statistics indicate that the American economy has begun to win the battle against recession in some areas.
It is not difficult to remember that the Organisation for Economic Co-operation and Development (OECD) announced that Chinese gross domestic product will surpass America’s figure in purchasing power parity (the term that shows you comparatively how much you can buy in China with the same number of dollars as you spend in the United States) and that China will become the world’s biggest economy by 2015.
Despite President Barack Obama’s encouraging remarks on the future of the U.S. economy, most American people think China is the world’s leading economy, according to a Gallup poll. In addition, Standard & Poor’s warned that the U.S.’ credit rating was in jeopardy because of huge public debts and the budget deficit.
Simple people do not understand a country’s serious macro-economic problems such as big budget/foreign trade/current account deficits and the huge volume of accumulated debts, which might create trouble in the long run, but they do care about some short-term troubles such as unemployment, slow growth and rising prices. Fortunately, there has now been a slight development in the positive direction in those areas.
Another fact is that compared with some European countries’ troubles, the economic problems of the U.S. now seem less serious. Europe was once very attractive for some Americans, especially for the intellectual elite. Nowadays, a lot of things have changed and troubled Europe is slowly but surely losing its appeal. The problem is not just Greece and other troubled countries facing similar problems - even if the architects of the Greek deal think the agreement has calmed nerves in Europe and may also in other parts of the world. Italian Central Bank Governor Ignazio Visco still thinks that 2012 will be a year of recession. This has become a common prediction as the European Union has forecast a contraction this year of 0.3.
The German economy seems healthy in an election year, but only comparatively. If German people are mostly happy about the present situation, why would they want to change the government? Very recently, small businesses in Germany began to complain about the over-regulation which stifles their activities. Moody’s recently cut the credit ratings of six European countries and threatened to downgrade the United Kingdom and France. There is some discouraging news that eurozone business activity is shrinking, while some pessimists say stagnation in Europe has become a way of life.
As there is big pressure, such as the U.K. opposition’s demand for immediate tax cuts, Obama and Republican presidential contender Mitt Romney are both offering competing proposals for tax cuts in the U.S. Some economists say that both of them do not care about the long-term deficit and debt problems but just want to win the elections. These criticisms might be right but additional tax cuts will surely support economic activity and employment in the short run. And everybody knows from their past experiences that when the economy begins to move out of recession in the U.S., this movement generally gains momentum in spite of long-term problems.
These are some facts about the European and the American economies. Asian and Latin American countries have some problems, too. It seems that the gap between the economic vitality of Europe and the United States is the main determinant of the future of the world economy. If this gap widens with the same pace during the coming years, the strength of the American economy can not alone contribute much for the salvation of the world economy.
The head of the Institute of International Finance warned that the rise of the U.S.’s public debts was a serious threat to the world economy. It was a very serious warning but, at the same time, not very convincing. Why? Prominent economists, politicians, the CEOs of important financial institutions and the governors of some central banks repeated those kinds of warnings year after year, but nothing happened. So even the people who are responsible for the rising deficits in the U.S. seem to not care very much. Maybe this is the real danger.