Economic growth, in terms of how it’s measured in GDP, is a complex area. And because many of our minds aren’t complex, we believe others who guide us on economic growth rates & the figures they throw at our face.  

We need growth. We need to produce more goods, services, and food grains, from primary to tertiary value chains of any economy. However the problem comes in measuring those in common standards, against nearly impossible surrounding constraints. Take for example, it’s easy for one to comprehend that in 1945, post World War II, the US produced nearly half of world oil, power, coal and what not. And now China increasingly dethrones the US from that place, in many areas US isn’t 1/5th of what China is (take for steel). Yes, US now consumes 1/4th of the world oil, and produces hardly 10% of it (though China produces even less).   

One would immediately find that this article is old fashioned. World economy has undergone drastic changes, developed world rely more on services than on manufacturing or agriculture. China still relies on manufacturing; the US don’t rely on manufacturing. Here what I find difficult to digest is how come an American consumes nearly 40-times more services compared to an average Chinese. China has much more telecom users, already or sooner China would have more Internet user and usage, more number of Chinese visit the barber-shop, probably more number of Chinese have banking services, and it’s true for all other services that one can think of. True the quality of services accessed by an American consumer may be higher; but does it make up for their 40-times difference in per-capita consumption of services in these two economies?  

It simply does not make sense to me. And that’s why I wonder at the often repeated terminology of ‘3rd largest economy’ and ‘2nd largest economy’ as used by Bloomberg and Reuters respectively to describe China, one going by nominal figure and other by PPP figure.  

To me, China is already the largest economy of the world. Sounds stupid, but let that be so! And that’s what the US isn’t comfortable about, more so when there are weak-signs coming from all sides. And that’s why they are keen to print more money, in a desperate attempt to retain their position, rather than producing more goods and services. And present order of economic powers follows more of production of ‘fiat’ money than production of goods and services.   

Since last couple of months, we have seen how the Federal Reserves have been converted to a restaurant of the super-rich, reserved for the Wall Street, where Wall Street orders the dish, and the board-members of the FOMC, with Bernanke as its head-chef, cooks it and delivers them fast. Many termed it as socialism for the Wall Street, many asked what they would do if they delivered so much (even when market isn’t down by10%) when market gets eventually down by 30%. True, it may hurt the ego of many of these FOMC board members, but that’s the truth. Strangely, after every rate cut under pressure from the Wall Street, FOMC members try to show-off their uncomfort at being termed to be dancing to the tunes to the Wall Street. It comes in some words, only to be dumped by the next meeting gets close.  

And they need to blame themselves for that. Hopefully they won’t disappoint Wall Street again in their forthcoming meeting on 11th December, where the cut is expected to be anywhere between 25bps to 50 bps.   

Their sole justifications came from two myths – growth and employment. Yes, we understand employment better. However employment should not eventually be something like a bonded labor where one works hard his/her whole life to buy a home. If home prices are not allowed to go through their natural corrections, nearly 30-40% of families in US who are yet to own a home would find it difficult to afford that. The trade-off is between these larger populations against the interest of the Wall Street (and the myth of 2-million likely affected sub-prime mortgage takers, but they actually don’t gain!).   

And it’s even truer for the endless supply of cheap manpower from China today to India or Sub-Saharan Africa of tomorrow, where people will get employment from growth in the US (and the world), but they will be like bonded labor as prop-up support to asset prices would ensure they seldom reach income level that would allow them to own their dream homes. Property prices in Hong Kong to Shanghai to Beijing to Mumbai validate that. By borrowing at 4% in US, a country growing (doubtfully) at 3-4% and investing in China and India, growing at near-about 10% surely is the best arbitrage one gets. And the US increasingly destabilizes rest of the world by resorting to these types of financial terrorism, where a different type of ‘dollarization’ has dumped globalization. Many young Chinese begin their employment with the sole dream of having their own home in one of these workplaces, and it’s same in India.  

When the world cries about artificially undervalued Yuan creating all financial imbalances, why doesn’t the US rectify it with much higher interest rates, rather than cutting it, to strengthen $ (which strengthens Yuan as well due to the peg)? That would no doubt ensure better economic balances and won’t hurt other nations much. Money-supply growth in the US far outstrips GDP growth, whereas most emerging nations stand at closed to 1. US, with its growth rate, can’t sustain 15% money-supply growth whereas that in China with more than three times growth rate is hardly 18.5%. 10% of all incremental money supply in India now comes from FIIs, allowing Indian financial markets to dance to the tunes of the Fed. more than that of RBI.   

And we have often seen how wildfires, by destroying the old, rejuvenate nature in the very next season. Corrections are healthy everywhere. And home prices have barely corrected by 10% at most, whereas they rose sharply during the boom, defying all historical trends for decades.   

However now Fed., Treasury and Wall St. Co. have adopted a multiprong strategy that would allow them to protect the interest of at most a few odd-thousand rich people around the world at the cost of remaining few odd-billions. That’s how trillions of dollars of paper money gets created by utterances, or by manipulative practices. If economic growth or wealth creation was only so easy! It also explains why economic inequality in the US or even globally is on the rise. 

And that’s by protecting the money of the rich – allow them to make money when they do by speculations, by creating asset-bubbles. However don’t allow them to lose money if the asset-bubble bursts.   

The action of this Bernanke, Paulson and Wall Street co. is financially equivalent to the terrorism that al Qaeda co. preaches. One, given a choice would spread bullets and nukes indiscriminately from a helicopter, whereas helicopter-Ben, given a choice would distribute $-bills discriminately; ensuring the bigger your lawn is, more the $-bills you get.   

All in the mythical names of growth & employment (or falsified ideologies, for al-Qaeda). And both need to be deplored.

Ranjit Goswami is a research scholar with the Indian Institute of Technology (IIT), Kharagpur, India; and is the author of the book “Wondering Man, Money & Go(l)d”. 


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