Let's cut the green shoots

[phouse3]

The world's economic pie is fixed.

It can grow with technological progress. But there has been no revolutionary progress in the last few decades.

It can decline due to:
(1) diseases;
(2) depletion of natural resources;
(3) wars and natural disastors; and
(4) freak weather.

Whilst the economic pie can be quite stable (translation: mediocre world economic growth of 0.5~3.0% per year due to trade or comparative advantage effect), economic imbalance is a regular feature.

We have seen it happened in the 1970s and 1980s and all the accompanying jokes about Arab Sheikhs and their tax sheltors. But of course, the money was circulated back as 'petrol dollar' which gave birth/boost to a few financial centres. We have seen Singapore's desperate attempt to repeat the feat in recent years with Islamic Banking when petrol prices were high.

We are seeing it now in China and the rest of the world (mainly USA, Japan and EU). This time the 'export dollar' is circulated back to the USA as treasury investments.

Contrary to all the rhetorics, economic growth is a zero-sum game. Beggar-thy-neighbour is a fact that has been swept 6 feet underground by the most persuasive and suave politicians. We have seen the North-South divide and the East-West divide. We have seen colonisation as an economic tool. Even the Singapore coolie and banker must have experienced retrenchment due to relocation of businesses.

I think the world economy is on the verge of a crash not because of economic imbalance (translation: US recession) but due to the 4 factors. The current downturn is just the cool dish in a Chinese wedding dinner. People spouting green-shoots are probably the biggest liars.

 

[phouse3]

^GDP = f(^L, ^K)

Singapore as a matured economy was able to achieved miraculous GDP growth due to the import of labour and FDI through its tax haven status.

The pharmaceutical, petrochemical and other manufacturing industries generate billions worth of exports without benefitting Singapore, not even in the form of taxes as they have tax-free statuses. It was never a miracle but a calculated mirage. Even a few PAP MPs are questioning the quality of investments.

One may be wondering why it's still business as usual in Singapore when GDP is expected to decline by as much as 9%? Well, life is the still the same for most Singaporeans because the decline is mainly a destruction of a mirage which never benefitted them in the first place. Moreover, the foreign labour bore the brunt of the layoffs.

Amateur economists who uphold the export model are fools. On the other hand, it is not the right remedy too to advocate driving domestic consumption to make up for export losses.

 

[phouse3]

Some economists are predicting a quick V-shaped recovery for the current contraction hinging on US consumer spending. A senior politician is predicting a long U-shape. Based on track record of past predictions, I would bet on the economists. But: -

Big corporates have just been bailed out by the government. How about the millions of smaller ones which will eventually go bust?

If printing money or borrowing is the quick way out of a recession, all the governments in this world will spend their way to heaven. But we know the aftermath is a falling US$, belt-tightening and reduced imports. Based on commonsense and economics, the US consumers should be the last people on Earth to count on to lead the world economy speedily out of a recession.

Unless the implausible happen again (and again) - the Americans do a sommersault and borrow even more to spend. Isn't that how the US reached its current state of deficits? I am wondering when it is going to stop.

There are no last frontiers. China and India have already opened up. Whatever specialisation and trade benefits should reach their potential in the next few decades, unless half a billion of Chinese/Indians are sent to Australia/NZ/Canada/etc. to till the land.