Stephen King: Western economies are still in danger of sinking under an ocean of self-created debt
As the UK’s new Government delivers unprecedented austerity, the great deleveraging will affect the UK as much as everyone else.
Monday, 19 July 2010
Does Ben Bernanke suffer nightmares? Does Jean-Claude Trichet have sleepless nights? Does Mervyn King wake up in a cold sweat, his pyjamas soaking wet? I wouldn’t blame them if they did because after the biggest policy stimulus known to man, Western economies appear to have hit a brick wall.
Last week, the Federal Reserve revised down its projections for US economic growth in 2010, a response to an unexpected “soft spot” in the American economic recovery. European policymakers, meanwhile, worry about the impact of the sovereign debt crisis on the eurozone’s recovery. And Mr King has, to date, managed only to pump up the volume of inflation: the underlying real economy remains very soggy.
None of this was supposed to happen. Western policymakers thought they knew how to solve serious economic problems. Their economic weapons were regarded as highly potent and, over the past three years, were used with maximum force. Yet the results have been disappointing. The hoped-for recovery has not materialised. Instead, Western economies are languishing at the bottom of a cliff. Having fallen a long way, the renewed ascent is proving to be remarkably taxing.
Not all have suffered the same fate. Although there are plenty of worries about the ongoing pace of China’s economic expansion, Asian economies have rebounded with considerable ease over the past year or so. The same is broadly true of other emerging nations. How have they managed to pull off a trick which the magicians of Western policy making are still attempting to master? What sleight of hand have policymakers in the emerging world achieved? And why can’t the same ploy be replicated in the West?