U.S. Must Generate Internal Demand to Revive Growth

Posted by Michael A. Kamperman on April 27, 2009

It appears the Obama administration may be heading down the wrong track in its vision of how to restore growth to the U.S. economy.  The President has placed an emphasis on more stimulus spending by foreign governments such as France and Germany, increased savings rates by U.S. consumers, and investments that would make the U.S. more competitive is exporting goods to other countries.  The WSJ recently reported “Mr. Geithner said the ability of other countries to shore up their economies is critical to the U.S. recovery.  ‘Recovery in the U.S. depends significantly … on recovery in those large and previously rapidly growing markets,’ he said.”  All of these goals have merit in and of themselves.  But global trade will not revive the U.S. economy.  For now a swine flu pandemic is only a possibility.  Were it to become reality it would make any discussion on the merits of global trade a moot point.

The problem the administration will have with an export strategy as a path to growth is it is already the strategy employed by the next 4 largest economies in the world being, China, Japan, Germany and Great Britain.  The reported economic decline in Japan, Germany, and Great Britain is greater than the reported decline in the U.S.  It is clear China’s growth has slowed down and China may be in a recession.  But “official” Chinese statistics say the country is still growing at a little more than 6% year over year.  If the U.S. is not going to be the importer of goods, then who is?  Certainly not Japan or Germany as their countries are not culturally wired this way.  The U.K. economy is on the brink and they are in no position to begin large scale imports from the U.S.  That leaves China.  I have a hard time believing that the Chinese government that has consistently used unfair trade practices to grow export market share is all of a sudden going to turn good guy and start importing more from the U.S. than it sells.  The U.S. has been the source of final demand in the world for years.  There is no other significant economy positioned to take our place except China.  However, China’s main strategy at present remains to make as much stuff as it can and sell it to the U.S.

The Obama administration needs to recognize that the rest of the world is not able to rescue us.  We need to rescue ourselves.  The administration needs to focus like a laser beam on restoring access to affordable credit to businesses and consumers.  Right now it is tougher to get a mortgage than it was a few months ago, not easier.  The U.S. government controls Fannie Mae and Fannie Mae has recently toughened its standards and raised its fees.  The administration should quit worrying about the taxpayer potentially losing money and start worrying about averting a complete collapse of the global economy.  At present it seems the world is heading straight towards protectionist policies as the “buy American” and “keep the jobs at home” movements build momentum.