The US Sneezes, the Rest of the World Catches a Cold

The following bit pulled from a Wall Street Journal article points out how unbalanced the world is. The US consumer has acted as the engine to pull the world economy over the last 15 years. As a result when the engine -- the US -- has a hiccup, the rest of the world is thrown in to a ditch:

On Wednesday, Mexico became the latest country to report a plunge in output. The country's gross domestic product fell at an annualized rate of 21.5% in the first quarter, the worst performance since the 1995 peso crisis led to an International Monetary Fund and U.S. Treasury financial rescue. This time, Mexico has insulated itself somewhat by arranging a $47 billion IMF credit line in advance.

Mexico's decline followed by a day Japan's report that its economy contracted in the first quarter at a 15.2% clip, its worst performance since 1955. Last week, Germany said its first quarter decline in GDP, an annualized 14.4%, was the worst since 1970.

This isn't healthy. The world needs a more balanced economy. With diversification you get protection, i.e. a problem in one spot doesn't spread like the plague. Hopefully this recession/depression will help rebalance the world economy.

It is hard to appreciate the above numbers. I call this the "Marie Antoinette syndrome". The is a famous -- probably apocryphal -- story that when she heard that people were rioting in Paris for food she was puzzled and stated "well... let them eat cake!" because in her world the tables were always piled with bread and cake. When the bread pile ran low, you simply pulled from the cake pile. The fact that people didn't have those choices never entered her pretty little aristocratic head. Similarly, I don't think people in the US appreciate the pain and suffering their debacle on Wall Street is causing the rest of the world.

While the US created the mess, it is only suffering a shrinking of 6.1% in Q1 of this year. That is bad, but nowhere near as bad as seeing your economy shrink by 21% as Mexico has suffered.

You have two choices:

1. You can blame countries like Mexico, Japan, Germany (and Canada!) for allowing themselves to interact with the US and expose themselves to a trading relationship which puts their population at such risk. Down this path lies isolationism and walling yourself off from others. The logical extreme is that you become a survivalist and take your gun and firestarting kit and head for the hills so that you have no truck or trade with those dangerous "others".


2. You can collaborate with your partners. That means that you abide by rules that make you a safe partner to play with, i.e. regulate Wall Street. Work constructively so that all nations can enjoy a better life.

It is ironic that the malfactor nation that caused this problem is suffering the least from the consequences. This may come as a surprise to people in the US because they can look around and see a lot of suffering. But if they lifted their head a bit they would find that their "suffering" is minor compared to what they have inflicted on the rest of the world.

The US has become an economic "rogue state". Under Bush it was a rogue political state ignoring the niceties of treaties and alliances. Going back to Nixon breaking the Bretton Woods agreement it has been a rogue economic state ignoring treaties.

For me, the most obvious aspect of the US as "rogue state" is its unwillingness to collaborate with the International Criminal Court. This smells of the feudal age when courts were in place to try the "common" people but the aristocrats got a pass. They could opt to be judged by the king by a completely separate set of "rules". What the world needs is unity and fairness, not exclusions and exceptions, especially ones where the lord of the manor can claim droit de seigneur.