Número 8 - Janeiro 2006 - Faap

Having been collecting, as a sort of hobby and for eventual use in the future,
the end-of-year predictions of major economic newspapers and magazines, I am
amazed by how they repeat themselves over and over again, waiting for something
that never happens, for a train that is always delayed and never arrives. To give just
one example: not long ago, John Plender wrote in his Financial Times column,
“Herb Stein, the economist, once remarked that if something is too good to be
true, it probably is”. He then added, “That applies to the United States deficit,
which is unsustainable. So the risks are mounting. The dollar could crash. Bond
markets could blow the whistle on United States fiscal policy. Americans could
start saving at normal levels again, which would put a big squeeze on the United
States economy. Overheating spreading outward from China could lead to lower
Asian savings surpluses on which the United States deficit depends. The world
economy would muddle through, but markets would judder”.
As you see, this is a long list of not-implausible developments. Well, the
column was published on 29 December 2003, a year and two months ago, and
except for the gradual descent (and not “crash”) of the dollar, none of those
predictions has proven right.
Until that point in time, one could cautiously have added: Let’s wait a little
bit more and we will start seeing the inevitable changes; and such was the tone
of many comments at year-end. One expert who quoted the same source as
John Plender was Professor Joseph Stiglitz, who wrote an article for The Guardian
published 1 January 2005 entitled “This can’t go on forever – so it won’t”,
attributing the phase to the same Herb Stein. His list of uncertainties included
the price of oil, rises in interest rates, their impact on housing prices and
household consumption, the unavoidably huge fiscal and trade deficits in the
US and a weaker dollar, with serious losses for Europe and Japan.
On a different subject, but expressing the same surprise at the implausible
resilience of certain traits of the US economy, an editorial in the Financial
Times weekend edition of 8-9 January this year was devoted – as its title indicates
– to “The puzzle over United States interest rates”. It opened with the phrase,
“In Arthur Conan Doyle’s The Adventure of Silver Blaze, Sherlock Holmes solves
a mystery by analysing something that did not happen: the ‘curious incident’ of
the dog that did not bark”. And it continued: “Economists might do well to
follow the same line of thought. Last year the dog that did not bark was the
United States bond market. Against all expectations the yield on the benchmark
10-year bond ended the year lower than it began, in spite of strong growth and
four rate hikes by the Federal Reserve. There are goods reasons to expect yields
to rise this year. But it is puzzling that they have not done so already”.
The last phrase captures well the reaction of most analysts to the surprising
aspects of the recent behaviour of the world economy. It is in fact puzzling that
despite oil prices hikes, fast growth and a booming budget deficit, core inflation
in the US has been extremely moderate. It is equally puzzling that private savings
in that country have dipped to a historical low, that indebtedness keeps growing
at an accelerated pace, and that personal bankruptcy has been spreading at a
frightening rate with no apparent downside in terms of consumer confidence.
Trade challenges in globalizing imbalanced world, Rubens Ricupero, p. 84 - 96
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