Sunday, August 12, 2012

Could America Grow At 5%

I think it is extremely possible. The 2008 fiasco was a policy failure on a massive scale. The 2008 fiasco was preventable. The 2008 fiasco was stupidity run amok, on Wall Street and on Capitol Hill. Main Street paid the price, and continues to do so. In any other industry the fiasco would have given rise to a whole new generation of innovative companies. The rules in finance are obviously not market friendly enough.

It was like somebody (at home) bombed the interstate highways. The basic fabric of finance lay in tatters.

China is on its way to becoming the leading economy in the world by 2016. But that is based on PPP (Purchasing Power Parity) and that is a country with four times as many people as America. And a lot of that growth is coming from playing catch up with America. America still shows signs of coming up with the industries of tomorrow. I think the explanation is simple. A country that celebrates free speech will beat a country that does not celebrate free speech any day when it comes to cutting edge innovation.

Yes but of course America could hit 5% growth rates. The Great Recession could have been avoided, if only the people on Wall Street and on Capitol Hill had been doing their job.

The American economy: Comeback Kid
Unemployment is stuck above 8% and growth probably slipped below an annualised 2% in the first half of this year. Ahead lie the threats of a euro break-up, a slowdown in China and the “fiscal cliff”, a withering year-end combination of tax increases and spending cuts...... Led by its inventive private sector, the economy is remaking itself. Old weaknesses are being remedied and new strengths discovered, with an agility that has much to teach stagnant Europe and dirigiste Asia. ..... America’s sluggishness stems above all from pre-crisis excesses ..... Until 2008 growth relied too heavily on consumer spending and house-buying, both of them financed by foreign savings channelled through an undercapitalised financial system. Household debt, already nearly 100% of income in 2000, reached 133% in 2007. Recoveries from debt-driven busts always take years, as households and banks repair their balance-sheets. ...... in the past three years that repair has proceeded fast. America’s houses are now among the world’s most undervalued: 19% below fair value ..... because the Treasury and other regulators, unlike their euro-zone counterparts, chose to confront the rot in their financial system quickly, American banks have had to write off debts and raise equity faster than their peers. (Citigroup alone has flushed through some $143 billion of loan losses; no euro-zone bank has set aside more than $30 billion.) American capital ratios are among the world’s highest. And consumers have cut back, too: debts are now 114% of income. ..... a richer China has become the third-largest market for America’s exports, up 53% since 2007 ...... a growing “app economy”, nurtured by Facebook, Apple and Google, which employs more than 300,000 people; its games, virtual merchandise and so on sell effortlessly across borders .... even small companies are seeking a toehold in emerging markets ..... Many countries have shale gas, but, as it did with the internet revolution, America leads in exploiting it ...... Even the most productive start-ups cannot help an economy held back by dilapidated roads, the world’s most expensive health system, underachieving union-dominated schools and a Byzantine immigration system that deprives companies of the world’s best talent
America’s economy: Points of light
American companies have left their mark all over Shanghai’s skyline..... Five of America’s biggest banks wrote off almost $500 billion in the aftermath of the financial crisis and raised $318 billion in fresh capital. As a result, their equity ratios now exceed 10%—above both pre-crisis levels and those of euro-zone banks. ...... Consumers are now engaged in a long, hard process of shedding debt and learning to live within their means. .... an uncommonly feeble recovery. In the three years since the recession ended, GDP has grown by an average of 2.4%. ..... With many old mortgages defaulted on and written off, and new ones harder to get, debt burdens have shrunk considerably. ..... two things beyond America’s control: the slowing world economy and the rising price of oil, America’s largest import. ..... Sales to traditional markets in the OECD, a rich-world club, have risen 20% since the end of 2007. But they have risen 51% to Latin America and 53% to China, which is now America’s third-largest market after Canada and Mexico. ..... Services have long been an American strength, consistently making up 30% of its exports. ..... scientific, engineering and other consulting, plus financial services .... Exports of such services to Brazil, India and China nearly doubled between 2006 and 2010. .... This trend has been pushed on by digital technology, which makes effortless the sale of many services across borders. ..... Zynga, one of the largest makers of online games and mobile entertainment applications, recorded $1.1 billion in revenue last year, largely from the sales of virtual goods in its games. A third of this came from players who live outside America. ...... Manufacturing employment has risen steadily for two years now. ..... Traditionally, America’s largest companies, such as Boeing and Caterpillar, have dominated exports. Small companies find distribution, regulation and language barriers overwhelming in foreign countries. ...... Small companies (with fewer than 500 employees) accounted for 34% of exports in 2010, up from 29% in 2006. ..... Soaring grain exports have raised farmers’ incomes to record levels, and regulators fret about incipient bubbles in agricultural land. At the same time, surging oil prices have triggered a gusher of new output. ..... America is the world’s third-largest oil producer. ..... a bonanza of domestic gas. Americans pay less than $3 for 1m British thermal units, where Europeans and Asians often pay more than $10. ..... America’s most successful exporters employ relatively few people. .... Emerging markets may have survived the 2008 crisis largely unscathed, but their growth is now succumbing to their own financial excesses. Nor are they an easy place to make money. China’s government, in particular, often forces foreign companies to share with local partners the ideas that give them their competitive advantage
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