The Economist: Don’t say “new economy” Claes Arvidsson på SvDs ledarsida 2000-07-03: "Greenspan tillskrivs äran för att den amerikanska ekonomin har mjuklandat med en gyllene mix av låg arbetslöshet, låg inflation, stabil tillväxt." More about New Era Link 4 Link 5 Home |
America's Harder Hard Landing The "bimodal" economy I described in last month’s Economic Outlook has rolled over to the negative side. The United States has probably entered a recession as the new year begins. The "hard landing versus soft landing" characterization that has been adopted by many analysts to describe alternative prospects for the U.S. and global economies is the wrong one, especially as growth of output and profits is slowing rapidly. The U.S. economy is not experiencing anything like a typical "overheating" hard landing, in which demand growth has been too strong, prices are rising, and the Fed is tightening to avoid more inflation. An Excess-Supply Hard LandingRather than the usual excess-demand hard landing, the United States is entering an excess-supply hard landing. The Fed’s job in this unusual situation is not to take away the punch bowl before the party gets too hot. The economy, households, and businesses are not getting giddy from too many drinks; rather they are in danger of going into shock from a collapse of profits, equity prices, demand, output, and jobs. The sudden appearance of excess capacity and attendant profits warnings, bad balance sheets, and bad loans has cooled the party down very fast. The danger is that the underlying problem, excess capacity—the same problem that hit Japan in 1989 and 1990 and Asia in 1997 and 1998—is erasing wealth. Over $2.5 trillion (a year’s worth of average wealth creation during the great expansion of the 1990s) has already disappeared in the United States since March. The loss of wealth is erasing demand growth, thereby exacerbating the underlying excess capacity problem, which in turn leads to more wealth loss. The U.S. economy is on a dynamically unstable downward path. |