The Financial Times is, to put it mildly, not at all optimistic about the global economy or the prospects for a swift recovery.
Above all, the financial crisis is itself a symptom of a balance-sheet disorder. That, in turn, is partly the consequence of structural current account imbalances. Thus, neither short-term macroeconomic stimulus nor restructuring of balance sheets of financial institutions will generate sustained and healthy global growth.
Consider the salient example of the US, on whose final demand so much has for so long depended. Total private sector debt rose from 112 per cent of GDP in 1976 to 295 per cent at the end of 2008. Financial sector debt alone jumped from 16 per cent to 121 per cent of GDP over this period. How much of a reduction in these measures of leverage occurred in the crisis year of 2008? None. On the contrary, leverage rose still further.
The danger is that a turnround, however shallow, will convince the world things are soon going to be the way they were before. They will not be. It will merely show that collapse does not last for ever once substantial stimulus is applied. The brutal truth is that the financial system is still far from healthy, the deleveraging of the private sectors of highly indebted countries has not begun, the needed rebalancing of global demand has barely even started and, for all these reasons, a return to sustained, private-sector-led growth probably remains a long way in the future.
What the FT does not note in here is that the American economy is about to take another, brutal hit. When the EPA rolls out its carbon emissions controls, the US will see skyrocketing energy prices, across the board. This will, in turn, cause skyrocketing prices for everything else that uses energy in the production or movement of goods.
In other words, everything is going to cost more – a lot more.
I’ve been in the utility field for a lot of years now and this is something that has never ceased to amaze me. People cannot seem to get it through their heads that companies do not pay for the cost of meeting new regulations. Customers pay for these costs. Every, single dime of meeting the cost of regulations goes into the rate base.
And your rates – and mine – go up as a result. When companies that use energy to produce goods or services get hit with additional costs for energy, the price of their goods and services go up to cover the cost.
Again, you and I pay for those increased costs as well. In fact, we pay for the increased energy costs at every turn.
We are going to get pounded with higher prices when the economy is already staggering like a punch-drunk heavyweight in the 16th round of a 15 round fight.
If anything, I think the FT article is too optimistic.