A couple of months ago, President Obama called on the US to double its exports in two years. Indeed, his Assistant U.S. Deputy Commerce Secretary Ro Khanna says that Obama sees export growth as the right way to reduce unemployment: “Really, with this president the link between exports and job creation has never been made clearer.” Terrific idea. The trouble is that the weakening of the Euro means that America’s exports have just become more expensive, European (especially German) exports less expensive “with Renminbi having appreciated by 24% against the Euro since November> This means that China less willing to raise the value of its currency and Europe less willing to join the US in pressuring it to do so. Indeed, whatever hopes Clinton or Geithner had of a being able to return from China with promises of a prompt Chinese devaluation must be gone with the wind. Indeed, Hu says China to hold firm on yuan policy for it has its own priorities points out Head of China Research, Jonathan Fenby that China is $2500bn in the debt which it cannot case it and the value of which fluctuates in a manner it cannot control. Of course, one may add that its hopes that it could use the Euro to reduce its dollar exposure has been dashed along with American hopes that a booming China would be a democratizing China.
If that would not be bad enough, the decline of the Euro reduces the earnings of US multinationals by about 10% (is that the reason Buffet is selling Kraft stock?) and with a zero interest rate, Bernanke can do little to reduce the value of the dollar. Almost a perfect storm. Add signs of deflation and the reason that Christopher Wood warns against ruling out a double dip recession becomes even clearer.
Economists hoping for continued US recovery are doing so on the basis of continued decline in American savings from 4.6% to 3.4% and a rise in consumer spending. In other words, the rebirth of the conditions that have been undermining the long term health of the American economy. But, then, from the very beginning of the current crisis economists held steadfast to the belief that talking up the economy (remember the greed shoots?) is the way to solve the current crisis. As Martin Wolf remarked one of the serious mistakes policy makers made is taking economists seriously.
