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Sep 6, 2011

The Invisible War Between The United States of America and The United States of Europe

  I used to argue America is not in decline but in transition. For this article, I’m trying to make a similar case. The world is not in decline but in transition. But in transition to a disastrous future. In 20th century, most countries employed military war game as the cornerstone of their foreign policies. In 21th century; we are playing economic war game.
 So, the history of 21th century, at least for the first half, should be characterized by financial crises.  At the first decade, we already got one. Most economists agree on the notion that the Great Recession was officially ended in 2009.
 I’m really uncomfortable with the words “Great Recession”. If one takes all everything into account, it will be more than a recession. There are factors needed to be considered. We have housing mortgage meltdown, ideological crises, income trap, and especially household debt dilemma.
Professor Ken Rogoff of Harvard University prefers the words The Great Contraction and Dr. Pual Krugman coined the words Lesser Depression. Some economists used the words Great Depression 2.0. For me, I would love the words Great Depression 1.5. It’s not as bad as the depression in 1929. Unemployment rate, the confidence of investor, and economic recovery are not that bad.
The great economic crisis is over as the global political crisis is beginning. The political affairs of each country have derailed global recovery. Gordon brown hits the nail on the head we need global recovery pact. The political crisis in US was a big blow to global economy.[1] And now, it’s Europe’s turn.
The woes in Europe are mainly caused by the selfishness of France and Germany. They supported second Greece bailout, without allowing Greece to defaults on its debts.[2] It doesn’t make any sense. Later or sooner, the problem will come back unless Greece receives economic concession. The best solution is to allow Greece to default and to fix it once and for all. And the fears of being default on debts can be felt across Europe.
Germany, the locomotive of Europe, still grows fast. The problems are to do with politics. The politicians of Europe and US fight because they want to debase their currencies. Not so long time ago, there was a rumor that US Fed was considering another QE3. Days after that news was revealed, Italy was reported of being having problems paying the debt. I don’t think it was a coincidence.
It is a global political crisis. Global economy looks bad because of politics not because of poor economic performances. Yen and France Swiss are now the safe heaven. Their currencies are on the rise.  This would force Japan and Switzerland to play currency game too.
We need to reverse that transition. Top global leaders and thinkers have called for that course. But their warnings seem fall on deaf ears. I’m a member of a group on Facebook, Beat The CFA Exams. Some members predict another recession in US by the end of this year. And I said US won’t enter another recession unless its leaders want it to be.
If so, don’t blame the economy. Please blame politics. If the recession comes, my country, Cambodia, will pay the most again.  This is the tragedy of superpower politics.

[2] Because their banks hold a large amount of Greece debts.