East Asian Economic and Trade Survey 2011

Last year DCi examined the consequences of the World recession of 2008, and measures taken to try and prevent it ever happening again. The problem was that there was little agreement on the way to proceed.The G20 said it was the West’s problem. The US and EU couldn’t agree on a joint approach, and the US Banks mobilized their forces to try and prevent any adverse legislation through the House and Senate through the Republicans.
The US and EU problems are different. So we will treat them separately.
The US created the crisis by de-regulating the banking industry, initiated by Reagan, but most actively from the 1980s onwards. It allowed investment Banks to merge with savings banks and allowed savings to be invested. Loans to industries and SMEs (small and medium enterprises), particularly the latter, have increased difficulty in obtaining the essential loans to keep their enterprise operating.
Nicholas Kristof in the NY Times got it pithily right “The Banks have gotten away with privatizing profits and socializing risks, and that’s just another form of bank robbery.” The result was explained in last year’s article — basically a huge housing bubble and massive unemployment. Even after bailing out the banks with peoples taxes, the banks insisted on paying multi- million dollar bonuses to their senior staff. In 2010 one paper pointed out that the bonuses paid were larger than the banks paid in tax.
The Republicans gained control of Congress at the mid-term elections, pushed by the born-again Reaganites, espousing no taxes for the rich, spending cuts to reduce the deficit (which was caused by President Bush, who took office from Clinton with a hefty surplus!). No additional spending on anything, whilst transport infrastructure is badly in need of repairs, and education standards and results are behind China and many developing countries.
It is astonishing that the Republicans are ignoring all the lessons learnt from the Depression of the 1930s, and are pushing reforms which will guarantee that it will take at least ten years of slow learning before the unemployed will maybe have a job! The West recovered fast after the 1930s and in three years was back to growth of the late 1920s The sad fact is that the Tea Party’s only policy is to ensure the Democrats are beaten at the next election, and are ignoring those they are supposed to serve.
It hasn’t helped that the Democrats are unhappy with Obama’s inability to fight the Republicans, by apparently giving in to most of their demands, since the mid-term elections.
The European Union has a major sovereign debt crisis. The member countries are heavily indebted to the EU banks, particularly Greece, Portugal, Ireland, Spain and Italy. Three of them have had their credit ratings downgraded, and others warned.
The banks were bailed out after 2010 and need more bailing out now. Greece is the critical problem, its debt is now 182% of GDP and no matter how much cash injection they receive they can never pay back their debt. The effect of a collapse with a ‘dirty’ refusal to pay and default from the EU, would be worldwide and catastrophic. Greece would leave the EU, and Portugal and Spain could follow suit. The EU is desperately trying to put together a plan for an ‘organized’ collapse i.e. the banks would take a hefty ‘haircut’ to their loans and lengthen their payback period to reduce their annual payments, and the 17 EU countries would provide a large collective sum as further long-term loans.
The problem with this is that all 17 countries have to agree and Germany would have to cough up the most money. Only the UK has announced that it will ring-bark the investment banks from their savings banks, and is preparing legislation to this effect. The US and EU say they will deal with it with regulation, however this has never worked in the past, and the US bankers are smugly boasting they can make loopholes in any legislation; expect another depression in about another ten years or so!
The one interesting piece of news is the anti-Wall Street movement, which is rapidly spreading worldwide. The concern was that during the worst financial crisis since the 1930s,Wall Street and the wealthy were bailed out at tax payers expense, but the latter were left to cope for themselves. They are well aware that since the 1980s the disparity between rich and poor has grown at an incredible rate; the middle class has grown poor and the poor, destitute, whilst the nouveau riche must not be taxed any further. Both the Democrats and Republicans were responsible for this debacle and neither knows how to deal with it. If the movement grows and prepares a ‘change’ document which attracts leaders, it could challenge both parties at the elections in 2012.
EAST ASIA
East Asia had learned the lessons of the Asian economic crisis of the late 1990s, and in particular the misdirections from the IMF and US Treasury. They introduced legislation to prevent a rapid input and output of foreign money, and to a great extent avoided the de-regulation of the banking industry, pushed so hard by the US. They either ring-barked the two banking systems or constrained the activities of the investment banks from the savings banks.
Finally they did not buy into the complex derivatives and other financial devices that created the housing and business bubbles that caused the banking problems in the US and added to the banking woes of Europe.
After bailing out the banks in the US and Europe, the US banks returned to their investment practices leaving little funds to support businesses, as a result unemployment in the US has stayed around 9–10% ever since, indicating that SMEs and other businesses are not recovering, restarting or starting up. In the EU, the banks need an urgent infusion of cash because of their holding of sovereign debt, and a means to save the EURO bloc (as indicated above). At the time of writing, a solution to this problem was set to be put to the G20 at the end of December 2011, but no agreement has been arrived at as this is being written. However DCi expects that the EU will fudge its way through the problem in order to avoid the worldwide carnage that would follow if they don’t.
The problems that face Asia is that local stock markets have tended to follow the West, particularly foreign buyers, and the US and EU have been large investors and importers. Thus East Asia will be more dependant on China and Japan for investment, and to search even further to diversify their trade to make up for the loss from the US and EU, and which will take many years to return to former trade flows.
The world still has an overflow of shipping, exacerbated by the downturn in trade, though commodity prices are up due to increased demand from China.
ASEAN has scheduled to introduce a common market in 2015, but not much detail is currently available as several members are seeking to retain privileges for their main or vulnerable exports, and it is likely to take several years before a ‘Common’ market is really in place.