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May 22, 2011

The World’s Secret Economic War: The Zero-Sum Future Is Waiting For Us

  As virtually all countries are the winners of the economic crisis, the World is experiencing another daunting challenge. Countries are waging economic war against one another for their own gain. Beggar-thy-neighbor policies are rampant in places around the world raging from a skeptical both fiscal and monetary policies of United States to the likelihood of unfair devaluation of Chinese Renminbi against US dollar. Guido Mantega, Finance Minister of Brazil, criticized developed countries, especially United States, that their ways of handing economic crisis are at the expense of developing ones. Cheap US dollars drive up the prices of food and oil, causing particular pain for the world’s poorest people, he went on.
Only the Weak will survive !!! 
The lowering of interest rate close to nil and “irrational injection of capital to the economy” are too responsive to the crisis, some puts. Take economic crisis. US has injected trillions of dollars into its industry sector. As I have already mentioned in my previous article that America has changed their style of living. They don’t like being indebted by borrowing to consume but they do want to consume via the surpluses of export. Economic revolution is a must for America should she is to sustain her future.
 The bad news is that the debts nearly reach %100 of its GDP. America can’t afford not reducing the debts or she will run a high risk of losing both investors and lenders confidence. In worst-case scenario, it would bring down the entire economy again. It’s a dilemma for US. European countries have been uneasy about the economic policy of the United Sates. The US Fed keeps injecting money into the economy to keep its currency weaker and weaker, enabling the surge in export. I expect a fierce competition, may be a violence one, between Western countries and emerging markets for export markets. Although globalization makes countries to be more dependent on one another than ever in term of economy, it’s not a guarantee war is not a resort.
America is now in the stage of restoring its manufacturing system. Pual Krugman, 2008 Nobel laureate in economics calls that shift as “Manufacturing Renascence”. America can’t depend on domestic market, at least for near and medium term, for reducing its debts. It’s still the case for European countries. According to Krugman, America manufacturing sector, thanks to the Fed policies, is seeing signs of a turning point. US firms are moving back to America and many European countries are considering investing in America too. I’m sure that America will take a prominent role in exporting products and services anytime soon.
 America’s advantages are cheap currency, long term low interest rate, cheap labor and highly skillful human resources, considered as consequences of economic crisis. In the coming years, US will be able to compete efficiently with other countries in manufacturing goods again. The economic crisis is bad for European countries in term of economic growth. However, the upside of the downside is that European governments have saved hundreds billions of dollars in the wake of that ordeal. I don’t really get why European governments carried out austerity measures. On the contrary, I’m sure that the money they have saved will invest back into the economy in order to attract investors around the globe. Economists blamed European government’s policy on contributing unnecessary risks to global economy.
Wall Street Journal once put that Chinese government has spent one billion dollars a day to manipulate its currency. US officials claimed that Renminbi is undervalued between %40 to %60. Other countries are more of the same. I believe that Superpowers are waging economic war. They only share, to some extent, the view that today economy environment is like Prisoner’s Dilemma in which we are better-off from cooperation than competition.
 Recent economic war is very much invisible but it may be of great consequences. Hopefully, I am wrong.

[1] Follow my previous articles for details.