Independent of elections on this continent, the global
credit problem continues to evolve across the world. But it is doing
so in quite distinct ways in North America, in Europe, in Russia, and
in East Asia. Moreover, patterns of response that reflect the cultural
distinctiveness of the major players are beginning to emerge from the
many flavours of anxiety and panic.
Let's start with the most important –us. Since 1945 the
American economy, to which this province and the country beyond
Alberta are joined at the hip, has been the guarantor of economic and
financial stability in the world. In contrast to the 1990-91 bursting
of the economic bubble in Japan –then the world's second largest
economy— or the East Asian crisis of 1997, or the Russian crisis a
year later, when the American (or to flatter ourselves, the North
American) economy goes into spasm it affects everyone. American
dominance is the basic reality of what the Marxists call the "world
economic system" and the rest of us call globalization.
The American economy is in recession because its GDP has
declined. That is what a recession is. All the economists' chatter
about the "technical meaning" of a recession is of interest only to
economists. The (preliminary) third quarter figure put the decline at
0.3 percent. Think about the derisory size of that decline given the
recent financial turbulence, the long-term subprime problem, the
continuing wars in Afghanistan and Iraq.
Considering that the US economy grew by 3 percent in the
second quarter (and Canadian numbers were even more robust) between
then and now we have decelerated by that amount. To normal,
commonsensical observers, a three percent contraction that just barely
puts the economy into recession is an indication of how strong, not
how fragile, the economy is. Things will slow down for a while, but as
Chauncey Gardiner told President Bobby in "Being There," there "will
be growth in the spring."
Despite the fluctuations in the global markets, Wall
Street and Bay Street seem to be returning to their historical growth
pattern. If so, the reason is likely that the $700B bail-out package,
with add-ons such as the recent currency swaps, has begun to unfreeze
credit markets. That doesn't mean the crisis is over or the end is in
sight.
Here we must note an additional consideration: North
American consumer spending is the real engine of the world economy and
solving the liquidity problem does not automatically restore consumer
confidence. Indeed, last week consumer confidence numbers reached a
new low the same day the Dow recorded its second largest increase
ever. Interest rate cuts will help. What will help even more is if we
all go on a shopping spree this holiday season. Max out those credit
cards, folks, and things will get better faster!
In contrast to North America, where what happens depends
on citizen-consumers, the other parts of the world have responded much
differently. China's economic problem has nothing to do with banks and
credit but with declining exports and an accompanying increase in
internal political tensions. The plan to redistribute wealth from the
prosperous coast to the impoverished hinterlands cannot be done
without exports and money infusions. The Chinese government has a lot
more to worry about than we do. Stay tuned for some serious political
problems.
The Russians appear to be better off. On the one hand they
have huge dollar reserves –around $600B despite the $150B in direct
and indirect consequences that followed from the Georgian adventure.
The Kremlin response has been first to compel the oligarchs to
repatriate hundreds of millions in offshore cash and then to take
control of selected banks and the pension system. The last is an
interesting move since, with a life expectancy of 60.4 years, most
Russian men have slim hopes of becoming pensioners. The bottom line:
greater Kremlin control.
Not entirely without reason, the Europeans blame the
crisis on the failure of American regulatory bodies. The French in
particular see the solution in –no surprise here—more bureaucratic
control over everything from accounting procedures to offshore
holdings. In short, the Europeans want to Europeanize American
financial markets, which seems unlikely in the extreme.
In all these responses, one thing is constant: the US has
not lost its role in the world economy. If the Chinese or the Russians
or the Europeans could fix things by themselves, they would. Because
they can't, what happens on this continent in the next six months
really matters.
Barry Cooper, PhD, FRSC
Professor of Political Science
University of Calgary