Finance
Under Pressure
As mainstream banking received more critique, has ethical banking gained momentum in the aftermath of the credit crunch of 2008?
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The controversial financial model ‘crowdfunding’ looks set to change the field for small business, social enterprise and even the arts
Which social impacts of the Eurozone crisis are you concerned about?
Education
Extracurriculars - When is Enough, Enough?
Secondary school and university students are taking on a variety of extracurricular activities to try to enhance their CVs, but how enriching is this behaviour?
It's My Language Too!
The majority of people speaking English today are not natives, should their use of language still be measured against the standards of the Queen’s English?
Main Content
The end of US hegemony?
The times they are a-changin’…
The US economy is in decline. Europe isn’t fairing much better. Meanwhile, China is shooting up the ranks faster than any other country in history. The future influence of the Western world may rely how the US reacts to the current crisis.
US & the rating agencies
On the 18th of April the rating agency Standard & Poor’s downgraded the US credit rating to AAA negative. They cited concerns over the capability of the government to reach agreement on mid-to-long-term budget reform. Their concern isn’t surprising. With US government debt currently running at $14 trillion USD reform is crucial to avoid collapse. Markets respond strongly to the ‘opinions’ of rating agencies. Further downgrading, rather than being a harbinger for strife, may unjustly contribute to a weaker economy.
While the European Central Bank and other Central banks around the world increase interest rates on the back of stronger recovery, the US Fed have maintained rates near zero since the global financial crisis. This looks unlikely to change in the short term. America has signalled an “extended period” of low rates. Growth recovery in the US was promising in the fourth quarter last year, but was sluggish in the opening quarter of 2011. Rising oil prices and a cold winter keeping consumers inside and sales down were partly to blame. Coupled with the recent downgrading and IMF warnings of further decline, the promise of a strong US recovery from the global financial crisis now looks to be much harder.
Come gather 'round people
Wherever you roam
And admit that the waters
Around you have grown…
QE3 v/s China?
Quantitative Easing (QE) has already been executed in the US. Twice. The measure, an instrument of government monetary policy, requires the printing of money by the central bank to buy back government securities from the market thereby increasing the supply of money, ie capital, to financial institutions. However, it also leaves the government holding overvalued securities. It is a last ditch effort to stimulate an economy where near zero interest rates have been ineffectual. Inflation from such a measure is a real and present risk. What this means is that the US Fed is loaded with overvalued securities. If their value stabilises over the mid to long-term this isn’t such a bad thing. However, recent reports indicate such an improvement is far from certain.
In April the IMF reported that China’s economy in real terms would surpass the US in just 5 years. In effect signalling the end of the American superpower, or at least its economic hegemony. A decade ago the Chinese economy was a third of the size of the US. Yet buoyed by strong growth, 10% in recent years, and three years of global recession, China is expected to become the world’s largest economy in 2016. The report also predicts that the US gross debt to GDP ratio will exceed 110% by 2016 (the eurozone fares better at 90%) and will weather an oscillating recovery in 2011 and 2012.
Times ahead look tough for the US economy, but also for the American superpower psyche. If Obama does win the 2012 elections he will face an angry America, looking for a scapegoat to explain their decline.
Come senators, congressmen
Please heed the call
Don't stand in the doorway
Don't block up the hall…
Political stalemate
The difficulty faced by Democrats to push through deep cuts to the budget in the US Senate in March demonstrated the larger gauntlet that US recovery faces. As the Republicans instrumented what amounted to a filibuster to pressure Obama’s $4 trillion budget cuts, the country’s public sector was almost brought to a standstill. Amongst the cuts proposed was a reversal of his predecessors tax breaks for top bracket earners in the US. The divisions within politics in the US, as well as the global rise of media-led sound-bite politics, continues to rattle markets and fuel speculators. Meanwhile, China’s centralised government charges ahead. While not advocating for closed government, it does demonstrate the importance of coherent policy-lines to promote market stability.
The promise of Obama’s ‘Yes we can’ has been tested. It has primarily been a failure. The ‘we’ is more polarised than ever. While an adept academic, Obama’s ability to mediate between the two parties is weak and he has been exposed as indecisive. Markets are unsure of him and public opinion is increasingly becoming frustrated by the lack of command in domestic politics. His ability to execute was further setback by the mid-term elections that saw a resurgent Republican party take the Democrats to town at the polls.
The rise of China to top perch of the economic pecking order is not particularly surprising. The pace at which it is set to happen is. At the same time China’s old adversary, Japan, looks set to fall the hardest. The Chinese communist party must be rubbing their hands together with glee. Sitting atop a treasure trove of resources and having bought up the debts of much of the US and the EU, it is in an unprecedented position of economic power. What effects this will have on the world as we know it remains to be seen. One thing is for certain though, the times are a-changin’…