G20: Behold the looming world economic leader (like our Kevin he speaks Mandarin)
November 11th 2008 08:56
Two leading American economists say the baton for the world's leading economy could this Saturday effectively be passed from the US to China, at the G20 New York meeting of world leaders hosted by US President George Bush.
Postscript after meeting: No change in world leader took place at G20 meeting multilaterally. But bilaterally, Kevin Rudd got Hu Jintao's blessing to push the China/Australia free trade deal ahead.
Economics professors Alan Binder (Princeton) and Martin Feldstein (Harvard) called China's announced plans to inject four trillion Yuan in economic stimulus over the next two years (about US$586 billion), “a big jolt” and made these observations while speaking on PBS News Hour Monday night.
President Hu Jintao wants to boost China's GDP to recover from recent slips in the monthly measured annual figure to 7 percent, down from 12 percent previously, because 7 percent pa isn't enough to support China's massive demographic shift from rural-living to the nation's industrial centres.
Hu is coming to George Bush's 15 November World Economic Summit in New York when something akin to a passing of the baton for the leading world economy might now be a real possibility.
With 10 percent of world economic activity, China is currently second to the US but already is out-right first in world economic growth, accounting for a third.
Its massive US$586 billion economic stimulus package is equivalent to the US spending US$1 trillion, but there’s no sign yet of one being announced. (The professors discussed the possibility that President-elect Obama won't wait until his January 2009 start-date, but as a US Senator could push ahead with ESP legislation ahead of January.)
Unlike the US, China's decisive economic stimulus action is facilitated by good economic management during the boom, also its favorable trading surplus and very little debt.
China's massive economic stimulus package is a "good fit" for US-made capital goods like electricity turbines and Caterpillar tractor manufacturers, and it promises a lot on top of the ten-fold increase recently in such goods exported from the US to China.
Expecting a "long and deep" recession, the professors stressed that governments' economic stimulus spending should be for capital goods and infrastructure, and be started promptly - not like the years of delay the US economy experienced in the 1930s until spending on WW2 war preparation started to produce the desired affect.
Both derided the effectiveness of government cash handouts (such as our pre-Christmas one to Aussie pensioners),"because so much doesn't go to spending but gets used to reduce personal debt or put-aside for safe-keeping".
Binder suggested that Obama should postpone half of his election-pledged tax restructuring. Feldstein disagreed, saying the wealthy needed to be told that increases at the highest end wouldn't go ahead, to discourage them from diverting spending to reduce debt in anticipation of the increases.
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