E D'S RANT
May 2019
ROCKET MAN Burning out his fuse up there alone, says Michael Wilson. It looks like it's gonna be a long, long time…
S
o here’s my question for this month. How fast can we expect a country’s economy to grow, and what happens if it grows faster?
It’s an old conundrum, and it puts me in mind of the time, forty years ago, when I asked my boss why people complained that Japan’s trade surplus was too high? “Son,” he explained wearily, “It’s because it means everybody else’s deficit is too high. Sooner or later, all the money is going to end up in the country with the surpluses. And that’s risky for everybody, and it stops the other countries from growing as they should, in a balanced international way.” PESKY PUSHBACKS He had a point. And what strikes me about President Donald Trump’s recent insistence that the US economy could take off “like a rocket ship”, if only the Federal Reserve would relax its tight lending policies, is that if it sounds too good to be true, it probably is. There are automatic pushbacks that will immediately come into force if the Fed lowers its interest rates – a weaker dollar, sharply higher inflation and unsaleable US bond dividends, for a start. It isn’t clear at present whether Mr Trump understands the logic of these relationships at all. If not, we may be looking at a steep learning curve. But heck, we have to start somewhere. The point, in America’s case, is that economic growth is already going at full tilt, thank you very much. (3.4% in third quarter 2018, slowing to a projected 2.6% in 2019.
6
In the industrialised world, only Poland comes close to that.) America’s unemployment rate is a mere 3.8% (the euro area was 7.8% in January, and Britain 4%). US retail spending grew by 2.8% annually in January, and the US National Retail Federation is forecasting a mighty 2019 rise of between 3.8% and 4.4%. And by that reckoning, conventional wisdom says that the last thing it needs right now is another set of booster rockets. You could get away with 4% GDP growth (and
What strikes me about President Donald Trump’s recent insistence that the US economy could take off “like a rocket ship”, if only the Federal Reserve would relax its tight lending policies, is that if it sounds too good to be true, it probably is
more) in developing countries like China (6.5%), India (6.6%), parts of south east Asia, or Chile and Peru, but that’s because they all have huge untapped resources of household demand that will allow for great latitude before market saturation sets in and everyone has a fridge and a car. But America? Nope.
I FAmagazine.com
