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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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刺激解决问题吗?  

2009-05-12 12:15:41|  分类: 言论 |  标签: |举报 |字号 订阅

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Stimulating away our problems?

Andy Xie/May 10, 2009

Momentousnews continue to dominate the global economy: (1) the outbreak of theswine flu threatens tourism industry-one tenth of the global economy,(2) the Chapter 11 bankruptcy filing by Chrysler casts uncertainty onthe global auto industry-4% of the global economy, and (3) the delay inreleasing the results of the US’s ‘banks stress test’ is raisingsuspicions that many banks are insolvent. These three industries in thenews are about one fifth of the global economy.

On the otherhand, policymakers continue to speak of ‘signs of stabilization’ and‘green shoots’, Japan have announced another stimulus package, andChina’s bank lending is zooming. The positive rhetoric by policymakersand the anticipation of effects to come from past stimulus and thepossibilities for further stimulus have boosted financial marketssubstantially. Global equity market (MSCI World Index) was up by 26% byMay 1 from its March low, though still halved from the peak in November2007

The flow data suggest that the global economy isbottoming. The retail sales in the US are probably stabilizing, afterdeclining nearly 10%. Japan and the UK’s are probably picking upsequentially from the first quarter. The trade data are suggesting theprecipitous drop in the last quarter of 2008 and first quarter of 2009is coming to an end. The global trade is probably stabilizing at alevel one fifth less than the peak in the first half of 2008.

AsI have written in this page several times, the last quarter of 2008 andthe first quarter of 2009 would see a global hard landing, stabilitywould return in the second quarter of 2009, and the global economywould see a stimulus-inspired bounce in the second half of 2009.However, I continue to believe that the economic difficulties will lastfor years and the global economy may dip again in 2010.

Thestability that we are seeing is mostly due to liquidity support for thecorporate and household balance sheet. The bursting of theproperty-cum-credit bubble severely damaged the credit worthiness ofbusinesses and households. As market refuses to roll over their debts,they have to sell assets to repay their debts. Of course, when everyonewants to sell, the price would be extremely low, potentiallybankrupting everyone. Central banks and governments have replacedmarket to roll over their debts. Without the immediate pressure to payback debts, businesses and households are not under pressure to changetheir habits. What this implies is that the current stability is basedon the government support. When this support is removed, problems willreturn.

Many would argue that, once the economy grows, theproblems that businesses and households face will vanish under a risingtide. For example, improving earnings will make businesses more creditworthy. Market will become willing to roll over their debts. Householdincome improves in a rising economy, which boosts property demand andproperty price. Rising property price will improve home loan qualityand decrease borrowing. Essentially, we could grow out of the existingproblems.

The ‘stimulate and grow out of our problems’ strategythat everyone seems to be pursuing will not work. It may lead torampant inflation, currency collapse and political instability. Thecurrent economic difficulties are structural in nature. The globalbubble caused severe distortions to supply, demand, and incomedistributions. The bursting of the bubble has exposed that all thepieces in the global economy don’t fit together. The liquidity is likethe glue that holds the pieces together for now. Unfortunately, theglue will wear off overtime. It merely postpones the inevitableadjustment.

Take the auto industry as an example. At first sightit seems far away from the property-cum-credit bubble. It is actuallypart of the bubble. On the supply side, the auto industry has sufferedovercapacity for years. Why hasn’t it adjusted? Cheap credit allowedeveryone to keep excess capacity. Further, financial businesses likeGMAC were being used to subsidize automakers’ operating businesses. Ofcourse, the financial arms of the automakers were part of the creditbubble. On the demand side, cheap credit enticed buyers to change carsfrequently. The zero down payment-and-zero interest rate financingvastly exaggerated auto demand. Global vehicle sales may fall below 55million in 2009 from the peak of 62 in 2007. Even when the globaleconomy stabilizes, the sales won’t go back to 62 millions.

Thecurrent global sales are below the 2004 level. On the other hand, theauto industry has added nearly 20 million in production capacity since.Just think the industry had massive overcapacity before. The globalauto industry needs to shrink one fourth at least. But, if you listento the industry, they are talking about growth opportunities likeelectric cars and are demanding government subsidies. Mark my words:electric car is a concept that will waste massive amount of taxpayermoney. Every time the auto industry is in trouble, it talks about newproducts. That’s how it sucks in money to stay alive.

Hybridcar is a mature technology that saves one third or more of fuel andsurvives in market without government subsidy. This technology is goodfor the next five years. Why is the push for government subsidy toproduce electric cars that cannot travel far without recharging and thecharging infrastructure isn’t there? Electric car may becomecommercially viable in a decade. Market will find the right technologyand the right balance. If government wants to help, it should pumpR&D money into research centers, not subsidizing the production andpurchase of unviable product.

Chrysler’s bankruptcy won’t solvethe industry’s problem. The US government intends to use the process toforce its creditors to accept 80% write-down on their debt holdings.After wiping out shareholders 100% and debt holders 80% the companyseems to be able to survive. However, it survives because of thecapital subsidies, which puts pressure on other producers that have thesame financial burden. It starts a vicious cycle that forces otherautomakers down the same path.

The bottom line is that theglobal overcapacity is equal to the US sales time two. The demand andsupply are roughly in balance if two of the three US automakers shutdown for good, not restructured or revitalized. However, it doesn’tlook that way. The political process seems to be wiping outshareholders and bondholders first and use taxpayers’ money next tokeep an over bloated industry alive. The industry will destroy capitalfor years. When governments subsidize electric cars, it would wastemore money. If you invest in the auto industry, you will likely lose.

Ina desperate effort to boost automobile demand, Europe and the US areoffering car owners incentives to junk old cars for new ones. This isjust advancing future demand. It lessens the pressure on the autoindustry to restructure and stretches out the problem. Auto industry isan example that the current economic difficulties couldn’t be overcomeby stimulus and governments are not yet on the right path.

Transactionsin secondary property market have picked up recently in China, the US,and many other economies. Many pundits interpret the data as signs ofthe market recovering. Property is at the center of the current crisis.If it is recovering, the global economy is surely to follow. I thinkthis interpretation is wrong. The pickup in transaction volume is aresponse to price decline, which is adjustment, not recovery. When aproperty bubble bursts, it tends to be a protracted affair. After asignificant price decline some buyers who couldn’t afford the propertybefore but can now come in. After such buyers are exhausted, the marketdeclines again to attract potential buyers further down the pricecurve. The process ends until the market drops at or below historicalaverage ratio of price to income. I believe property market wouldbottom earliest in late 2010 and could do so in 2012.

Retailsales seem to be stabilizing in all major economies. This may betemporary and certainly doesn’t presage a significant recovery. After abubble bursts people cut back and adjust downward their expenditurelevel. But defending lifestyle is a powerful force; the cutback may notbe sufficient. When people realize how much poorer they have become,they may have to cut again. Unemployment rate is still rising aroundthe world, which is a headwind to consumption. The wealth and incomedevelopments remain negative for consumption through 2009 and probably2010.

My interpretation of the current situation is the same asI forecast at the beginning of the year. The global economy isstabilizing in the second quarter at about 3% below the average levelin 2008 and probably 6% below the peak level in the second quarter of2008. The economic collapse in the past three quarters is certainly thebiggest since the 1930s. The second half of 2009 could see astimulus-inspired bounce that may see the global economy up 2% or so.Neither the current stability nor the bounce in the second half wouldsignal the return of good growth. The global economy may see a seconddip in 2010 and sluggish growth for several years afterwards. Thereasons are that the supply and demand of the real economy are notmatched and European and the US governments are dragging their feet onrecapitalizing their banks.

I discussed the sorry state of theautomobile industry above. Far more serious is what’s going on in thefinancial system. The odds are that the losses undisclosed or to occurwithin European and the US’s banks are more than their equity capital.These banks are technically bankrupt but survive on governmentguarantee of their debts. If a bank can borrow, it doesn’t have to foldshop even if it doesn’t have any capital. However, they couldn’tfunction normally like lending to all credit worthy borrowers. They arelikely to maximize interest spread to recapitalize themselves instead.This ‘earn your way back’ scenario is exactly what European and the USpolicymakers are hoping for.

However, even if this strategyworks, it will take a long time. If banks earn 15% annual return ontheir capital, a very optimistic scenario in a poor economicenvironment, it would take over five years for the banks torecapitalize. If the losses are twice as much, a conceivable scenario,it would take ten years. Before then the banks won’t lend normally. Andthe global economy would stagnate that long.

Economicstagnation could have nasty social and political consequences. Europe,for example, seems unstable. Its unemployment rate is heading back todouble-digit rate like a decade ago. Its unemployed youth are in arebellious mood. Its aging problem is far worse now. The baby boomerswho are retiring are desperate to hang onto their expected benefits.They will react violently to any cutback of their pension and otherbenefits. But, European governments all suffer from unsustainablefiscal deficits. They have to raise taxes or cut benefits. If they dothe former, their economies will deteriorate further, and unemploymentmay surge to endanger social stability. If they do the later, the babyboomers may rebel. Europe is a mess for the foreseeable future.

Theratio of US household debt to income needs to drop by one third ormore. Saving more is the right thing to do. But it keeps consumptiondown. It will take at least five years for the US household sector tobring debt level down to its historical mean, which means a sluggish USeconomy for five years.

Many, if not most investors, refuse toaccept that scenario that the global economy will take a long time toheal. They hang their hope on government stimulus and its potential tobring on another asset bubble. The theory-‘get the stock market up andeverything else will follow’-is very popular among institutional andretail investors. Such sentiment can make the stock market go up for aperiod of time. But, ultimately, it will fail. The hoped-forimprovement in fundamentals won’t materialize.

As governmentsand central banks around the world try to solve structural problemswith stimulus, the global economy is probably heading towardsstagflation. Despite exceptional demand weakness oil price has beenrising. The current price of over $50/barell cannot be justified bydemand and supply balance. Rather, financial demand and supplywithholding are the drivers. Money has been flooding into exchangetraded funds that buy oil futures. Oil exporting countries are cuttingproduction. They think that it is better to keep oil underground thanto exchange it for paper currencies that could drop precipitously invalue. Rising prices of oil and other commodities, driven by inflationexpectation, could trigger inflation in 2010 despite a sluggish globaleconomy. We could be witnessing a replay of the 1970s.



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