Which Nation Will Take Lead On Recovery
The U.S. led the global economy into the ditch, but it may not be able to pull it back out.
Many in currency and other markets still believe it will. In a recent survey of Goldman Sachs foreign-exchange clients, a plurality of 47% expected the U.S. to recover first in the world, according to Goldman economist Thomas Stolper.
Part of the logic is purely chronological: The U.S. entered recession several months before most of the world, in December 2007, so it seems natural it should exit first.
More fundamentally, nobody is throwing more dollars at the problem than Uncle Sam, including the $700 billion Troubled Asset Relief Program and an $800 billion stimulus package gestating on Capitol Hill. The Federal Reserve was the world's first central bank to cut rates to zero. That suggests the U.S., with the world's largest economy, should be the first to stimulate its way back to life.
And who else is available for the job The euro zone, which forms the world's No. 2 economy, has responded slowly to the crisis and is burdened by a hodgepodge of regulations and countries with varying degrees of economic hardship. The IMF expects its GDP to shrink 2% in 2009.
The great hope of many, No. 3 China, is still too reliant on world export demand to lead a global recovery. No. 4, Japan, in the doldrums for two decades, may be among the worst economies in 2009.
So the U.S. is still the world's likeliest leader. Unfortunately, it also has the world's biggest mess on its hands, with a combined government and private debt load of nearly 350% of GDP that must be trimmed.
'We're the world's largest debtor, the entire economy has been based on inflating assets, and we've borrowed and spent to consume, which gave us structural imbalances,' says Howard Simons, bond strategist at Bianco Research in Chicago. 'That's why I don't think we'll be the first out.'
Trimming the debt load will invariably cause a pullback in U.S. consumer demand, the world's major growth engine. Recovery will take years -- though effective plans to stimulate the U.S. economy and fix the banking sector could speed the process. Congress is working on stimulus, and Treasury Secretary Timothy Geithner on Tuesday is due to unveil the Obama administration's bank remedy. Stocks have rallied on hope that together they will do the trick.
But the market has been disappointed by government actions, and it may be again. Even the best-laid plans will not be a miracle cure. And critics have called both the stimulus package and the details that have emerged about the banking plan piecemeal, misdirected, or both.
If it turns out they're on to something, U.S. may take longer to lead the way toward recovery.
'I'm not all that optimistic about anyone really taking the lead,' said Alan Ruskin, chief international strategist at RBS Greenwich Capital. 'I worry this is going to be a collection of snails crawling out of a hole in parallel.'
Mark Gongloff
www.wsj.com
The U.S. led the global economy into the ditch, but it may not be able to pull it back out.
Many in currency and other markets still believe it will. In a recent survey of Goldman Sachs foreign-exchange clients, a plurality of 47% expected the U.S. to recover first in the world, according to Goldman economist Thomas Stolper.
Part of the logic is purely chronological: The U.S. entered recession several months before most of the world, in December 2007, so it seems natural it should exit first.
More fundamentally, nobody is throwing more dollars at the problem than Uncle Sam, including the $700 billion Troubled Asset Relief Program and an $800 billion stimulus package gestating on Capitol Hill. The Federal Reserve was the world's first central bank to cut rates to zero. That suggests the U.S., with the world's largest economy, should be the first to stimulate its way back to life.
And who else is available for the job The euro zone, which forms the world's No. 2 economy, has responded slowly to the crisis and is burdened by a hodgepodge of regulations and countries with varying degrees of economic hardship. The IMF expects its GDP to shrink 2% in 2009.
The great hope of many, No. 3 China, is still too reliant on world export demand to lead a global recovery. No. 4, Japan, in the doldrums for two decades, may be among the worst economies in 2009.
So the U.S. is still the world's likeliest leader. Unfortunately, it also has the world's biggest mess on its hands, with a combined government and private debt load of nearly 350% of GDP that must be trimmed.
'We're the world's largest debtor, the entire economy has been based on inflating assets, and we've borrowed and spent to consume, which gave us structural imbalances,' says Howard Simons, bond strategist at Bianco Research in Chicago. 'That's why I don't think we'll be the first out.'
Trimming the debt load will invariably cause a pullback in U.S. consumer demand, the world's major growth engine. Recovery will take years -- though effective plans to stimulate the U.S. economy and fix the banking sector could speed the process. Congress is working on stimulus, and Treasury Secretary Timothy Geithner on Tuesday is due to unveil the Obama administration's bank remedy. Stocks have rallied on hope that together they will do the trick.
But the market has been disappointed by government actions, and it may be again. Even the best-laid plans will not be a miracle cure. And critics have called both the stimulus package and the details that have emerged about the banking plan piecemeal, misdirected, or both.
If it turns out they're on to something, U.S. may take longer to lead the way toward recovery.
'I'm not all that optimistic about anyone really taking the lead,' said Alan Ruskin, chief international strategist at RBS Greenwich Capital. 'I worry this is going to be a collection of snails crawling out of a hole in parallel.'
Mark Gongloff
www.wsj.com
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