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谢国忠

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麻省理工学院经济学博士

个性介绍: 1960年出生于上海,1983年毕业于上海同济大学路桥系,1987年获麻省理工学院土木工程学硕士,1990年获麻省理工学院经济学博士。同年加入世界银行,担任经济分析员。在世行的五年时间,谢国忠所参与的项目涉及拉美、南亚及东亚地区,并负责处理该银行于印尼的工商业发展项目,以及其他亚太地区国家的电讯及电力发展项目。1995年,加入新加坡的Macquarie Bank,担任企业财务部的联席董事。1997年加入摩根士丹利,任亚太区经济学家,2006年9月辞去该职务。

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obama to the rescue?  

2008-11-10 18:24:31|  分类: 言论 |  标签: |举报 |字号 订阅

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Obama to the rescue?(奥巴马是拯救者吗?) / 謝國忠

Ahistorical election has taken place in America. An African American wasjust elected into the White House in a landslide. The slavery ofAfricans was an integral part of the US's founding. Racism remains apotent force in the US society. This election is undoubtedly amilestone in the US's progress towards a just society. Indeed, it isunimaginable that such an event could have taken place in any othernation on earth. The US is mired in a financial and economic crisis andappears weak. However, we shouldn't underestimate its capacity forrenewal, as this election demonstrates.



The world isfacing a leadership crisis. Government leaders around the world haveperformed poorly in handling the financial crisis and preventing itfrom becoming an economic crisis. The US government has stumbled badlyin dealing with the financial crisis, swinging from one extreme toanother. The chaotic unwinding of Lehman Brothers amidst a hugefinancial crisis was tantamount to stupidity. It sparked a massiveconfidence crisis in the financial system that has accelerated theprocess of turning the financial crisis into an economic one. Despiteample warnings, European governments took too much time to stabilizetheir banks.



Evidences of a global hard landing arepiling up. It appears that the minor contractions in the third quarterturned into massive ones in the fourth quarter, possibly five to tentimes the contractions in the third quarter. In the third quarter, theUS economy contracted by 0.3%, the UK economy by 0.5%, and probablyhalf as much contraction in the eurozone and Japan. Asian manufacturingeconomies mostly avoided contraction in the third quarter, probably dueto export orders reflecting lagging information. Economic indicators inthe fourth quarter point to far bigger contractions. For example, steelprice dropped sharply, reflecting sharp drop in global demand. Shippingrates have collapsed, suggesting contraction in global trade. TheInstitute for Supply Management index of US's factory activity fell to38.9 in October from 43.5 in September. (The level of 50 separatescontraction from expansion, and a reading below 40 is exceptionallyweak.)



The burden for economic stimulus is on centralbanks at present. Virtually all the major economies have cut interestrates aggressively in the past few weeks. But the rate cuts cannotreverse the rapid economic contraction. Most analysts blame creditcontraction as the cause for the economic contraction. Hence,governments around the world are trying to pressure banks to lend.Lowering rates is supposed to increase incentives for financialinstitutions to lend and for businesses and individuals to borrow.However, such marginal incentives cannot offset the impact of assetdeflation. Property and stock markets have fallen by $50 trillionworldwide. It decreases the collaterals that borrowers can pledge tobanks. Hence, banks must cut lending to borrowers whose equity capitalhas declined so much. The negative wealth effect cuts household demandfor loans; their savings preference must go up with so much wealthdestruction. The economic deterioration decreases loan demand fromhealthy businesses that find no need for expansion. Hence, creditcontraction, when a giant asset bubble deflates, is due to rationalresponses of both borrowers and lenders. Rate cuts cannot reverse it.





Thesolution is massive fiscal stimulus. Financial institutions don't wantto lend to their usual customers, as they are not credit worthy. Theywant to lend to governments who still are credit worthy. Households, onthe hand, want to save more, reflecting the negative wealth effect.Hence, the logical solution is for governments to borrow to fund taxcuts and spending. If the wealth effect from the loss of $50 trillionpaper wealth is $2.5 trillion, governments around the world probablyneed to implement stimulus of a similar magnitude.



Moreover,Asia and Europe should shoulder more burdens for fiscal stimulus. TheAnglo-Saxon economies should contract their consumption to end theborrow-and-spend habit that got them into trouble in the first place.If they introduce stimulus, it should be aimed at increasing investment(e.g., infrastructure) that would expand production and, hence, incomein future. However, fiscal stimulus wouldn't stop their trade deficitshalving or more, as rising savings and falling consumption decreaseimports. That means that the surplus countries in Asia and Europe willsee exports cut by $500-1,000 billion. Unless they stimulatesufficiently to offset this reduction in external demand, they wouldobviously face a recession.



As argued before, loweringinterest rates wouldn't have the same effect on demand when a majorasset bubble is bursting; there isn't enough equity capital to supportthe existing debt level, resulting in pressure for deleveraging.Lowering rates does enhance financial stability, as it decreasesfunding cost for financial institutions that carry massive problematicand illiquid assets. That's what happened in Japan. Its banks held vastamounts of non-performing loans for years. Low interest rate did helpfinancial stability but also lessened incentives to clean up thebalance sheets, prolonging economic stagnation.



Whilelower rates help financial stability, they stoke inflation. This maysound farfetched as the world is worrying about deflation again. Demandcontraction undoubtedly cools inflation in the short term. However, itis temporary. Collapsing profitability causes the supply side tocontract. Inflation can persist into a sluggish economy as we have seenso many times before. Sharp fall in commodity prices, especially oil,has made people more optimistic on inflation. This view is not sound.Oil price remains close to $70/barrels in a rapidly contracting globaleconomy. In 1998, when emerging markets went into recession but Europeand the US were still growing, oil price dropped to $8/barrel. Thepotential is huge for oil price to rise. Labor union is another path toinflation. Inflation has eroded real wages in all OECD economies. Aunionist backlash is quite possible despite rising unemployment rates.Hence, cutting interest rates carries significant inflation risk.Steepening yield curves (the gap between the yields of long term andshort-term bonds) in many government bond markets suggest that marketsare expecting inflation to remain high. Let it be warned that there iscost to cutting interest rate. It should be used carefully andsparingly.



Handling the current crisis is highlycomplicated: there are urgent issues regarding financial and economicstability, what would be the right balance between the need forstability and the pace for disposing bad assets, there is the necessityto rebalance the global economy between Anglo-Saxon economies withlarge trade deficits and rest of the world, there is the important taskto create another growth dynamic to replace borrow-and-spendAnglo-Saxon consumption. The performance of global leaders in handlingthe crisis has been reactive and ad hoc. A financial crisis is a systemcrisis. It is dangerous to treat different aspects of its manifestationseparately. The intellectual power for the current global leaders isfocused on reforming the global financial system to prevent a futurecrisis. But this should be the lowest priority. After a crisis of suchmagnitude, another crisis is at least a decade away. There is plenty oftime to focus on financial reforms later. Unfortunately, the globalsummit in Washington D.C. this month would be on this topic. It will bea waste of time. Indeed, considering how soon the Bush Administrationends, the world should wait for the Obama Administration to host thesummit in January 2009.



Would an Obama Administrationimprove the situation? To start, it can't be worse. It is hard toimagine that the new US government could perform worse than the currentone. Its regulators pandered to the Wall Street and didn't focus onrisk control. When the crisis began, it tried to make a few deals tomake the problem go away. Greenspan is the guiltiest for the currentcrisis for its liquidity policy. The Bush Administration is the second.



Whatgives me comfort about Obama is what sort of people he has chosen tosurround himself. Paul Volker and Warren Buffet who I respect most inthe financial world are his advisors. They are common sense people. Toomany experts believe in theories without understanding theirlimitations and can get sucked into believing in free lunch. That iswhat makes a bubble. Every bubble is some new object, theory, orphenomenon that promises free lunch. A person like Warren Buffett orPaul Volker would never get sucked into one.



BarrackObama has impressed me in his two years of campaigning. The US's longelection process serves the purpose of allowing people to watch howcandidates respond to adversities. Obama has shown incredibleself-control in all circumstances and the ability to optimize at anypoint of time. It is in sharp contrast to the baby boomers like Clintonand Bush who are narcissistic and self-righteous, and have a tendencyto wallow in self-pity under adversity. The parents of the baby boomerslike Bush Senior are considered the greatest generation in the US'shistory. They grew up during the Great Depression, won the Second WorldWar, came home to build the economy, and broke the Soviet Union duringthe Cold War. Their children protested against the Vietnam War in1960s, became MBA's or lawyers in the 1970s, climbed the corporateladder in the 1980s, and came to power after the Cold War in the 1990s.They used their power to make one bubble after another for a good time.Under their reign a shopping trip became the ultimate purpose in life.One thing that American voters did right in this election was to electsomeone from the next generation.



Obama's choice of theTreasury Secretary is so critical to the global economy. Unfortunately,I think he may pick someone from the Clinton Administration who, likeGreenspan, believes in liquidity. Financial markets worship liquiditylike free money. In reality, liquidity is short-term debt. When acentral bank boosts liquidity, it works through encouraging investorsto borrow more. When investors borrow more to purchase risk assets,asset prices appreciate. The wealth effect boosts economic activities.The dirty secret is that liquidity works through creating bubbles. Whenit is used repeatedly, it leads to a huge bubble. The crash would causecatastrophe like what the world is facing now.



After ahuge bubble bursts, cutting interest rate or boosting liquidity canstabilize financial system. But, it would be a mistake to use it toboost economy like under normal circumstances. There is no debtappetite or capacity to take on more in the real economy. Excessivemonetary expansion could trigger inflation, i.e., money supply would gostraight into rising prices. I am afraid that picking a liquiditybeliever for the Treasury Secretary is dangerous. Hopefully, WarrenBuffett and Paul Volker would always be there to bring common senses toObama's economic policies.



As soon as he takes over, hewill be facing new crises. The US's auto sector may finally collapse.It has been in trouble for three decades and has survived on credit.The credit crisis is cutting off its money flow. The economic crisisand high oil price are destroying its sales. The failing automakers aretalking about merger. The purpose is probably to create a behemoth toobig to fail, i.e., the government has to bail it out. It's not clearthat the US auto sector should be saved. Its managers have not solvedtheir competitiveness problem and have depended on accounting tricksand gas guzzling SUVs to stay alive. If Obama chooses to use taxpayers'money to keep it alive, it only incentivizes other industries to begfor money from the government.



The US's under-fundedpension industry could slump into crisis soon. The sharp fall in stockmarket has exposed the problems in this industry. For too long the USindustries have relied on stock market appreciation to shoulder theirpension burden. The market collapse forces the issue on them when theyare least able to deal with it. The total pension liability is $12.2trillion. How much of it has been lost in the market crash or thecredit crisis? It must be a large number.



Then, thereis $2 trillion fiscal deficit to fund in 2009, nearly one fifth of theoutstanding amount. The US is dependent on foreign money to fund itstreasury issuances. How would the world have the confidence to fund somuch? The poor economy guarantees large deficit to last and thetreasury supplies to remain high. If there is a confidence crisis amongforeigners, the US treasury market could crash like the stock marketnow.



Barrack Obama is facing the biggest challengessince Franklin Roosevelt became President in 1932. In a way, Obama'sjob may be tougher. When Roosevelt took over, the US had savingssurplus. He could just borrow at low interest rate to boost fiscalspending. Even with the sharp consumption decline the US will likelyremain a savings deficit country. Hence, Obama's fiscal policy mustconsider foreigners' confidence.



With all the trilliondollar crises ahead, maybe the only solution is printing money. The Fedcan just print enough money to fund everything. Of course, the bondmarket and the dollar will drop sharply in anticipation of inflation.The US government, businesses, and households could all refinance theirdebts at short end to benefit from the Fed's low interest rate.Overtime, the debt is inflated away. It seems that stagflation may bethe only way out.



Obama may be smart. But the problemsmay be too big for him. Printing money may be the only option left. Youshould sell the US treasuries.


谢国忠搜狐博客 http://xieguozhong.blog.sohu.com/  


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