Ideal Taxes Association

Raymond Richman       -       Jesse Richman       -       Howard Richman

 Richmans' Trade and Taxes Blog



Richard Duncan: World Economy on the Brink of Disaster (in 5 to 10 years)
Howard Richman, 12/31/2010

In a commentary for Business Insider (The Present: On the Brink of Disaster), Richard Duncan, the Singapore-based economist who correctly predicted that global trade imbalances would cause the Great Recession in his 2005 book The Dollar Crisis: Causes Consequences and Cures, is now predicting that the world is on the brink of economic disaster, though the disaster is still 5 to 10 years away. Here are some selections from his commentary:

The global economy is in crisis. Government intervention on a multi-trillion dollar scale is the only thing preventing a worldwide collapse into a new great depression.

This crisis is structural, not cyclical. At its core is the fact that global production, swollen by limitless credit denominated in fiat money, greatly exceeds the consumption that can be financed by the income of the individuals who comprise the world’s population. Governments around the world are borrowing, printing and spending on an unprecedented scale to absorb the global excess capacity (and to prevent asset prices from deflating), but these measures cannot continue indefinitely. The structure of the global economy is unstable and unsustainable. A catastrophic economic breakdown may be unavoidable....

He thinks that the world still has 5 to 10 years to solve its problems and he may be correct. The current economic momentum of growth in the emerging countries should keep their economies humming. Growth generates increased income which leads to new investment, and thus has its own momentum. The emerging market countries, not just China, are almost all growing at 5-10% per year at the moment. They are not likely to go into a recession until they are dragged into a global depression by a dollar crash. And that crash may be years away.

So far, Duncan's analysis is excellent, but later in this piece, he has a paragraph which shows that he still does not understand mercantilism. He needs to read my commentary I'm tired of American Economic Leaders Giving Advice to China. Chinese government policy is to suppress Chinese consumption. It keeps limiting credit available to the Chinese people so that it can print the yuan (without causing much inflation) that it uses to manipulate foreign exchange markets. At the same time, it keeps out the products of the advanced economies through a wide variety of tariff and non-tariff barriers. It's main goal is not just economic growth, it is a combination of economic growth and political power.

As a result of his failure to understand modern mercantilism, he doesn't realize that a U.S. tariff constructed to balance trade, such as the scaled tariff that we propose, would force a change in Chinese government policy, result in balanced world trade, and thus solve the world's key long-term problem without requiring international economic cooperation. Instead, he thinks that any tariff action by the United States would be destructive. He writes:

US trade tariffs would be bad for America, terrible for the world and catastrophic for China and all the other countries dependent on export-led growth. It is important to understand that as grave as are the challenges confronting the United States, those faced by China are even worse. The US can’t produce as much as it consumes, but China – and most other export-led economies – can’t consume as much as they produce. If international trade breaks down, production in China would collapse, unemployment would soar and political unrest would explode.

The emerging countries have learned a recipe for growth from China. Almost all of them are now devoting at least 3% of their GDP to foreign exchange accumulations in order to give themselves a competitive advantage in international trade. This year, more and more of them will copy China's barriers to products from the advanced economies.

The advanced economies, not the emerging economies, will continue to be stuck in high-unemployment economic stagnation for the next several years. They will continue to elect incompetent leaders who won't have the wisdom or power to solve their problems by balancing budgets and trade. In less than 5 years, the dollar will crash, and the emerging economies will be dragged down into the global depression from which the advanced economies never emerged.

Your Name:

Post a Comment:




  • Richmans' Blog    RSS
  • Our New Book - Balanced Trade
  • Buy Trading Away Our Future
  • Read Trading Away Our Future
  • Richmans' Commentaries
  • ITA Working Papers
  • ITA on Facebook
  • Contact Us

    Archive
    Sep 2017
    Aug 2017
    Jul 2017
    Jun 2017
    May 2017
    Apr 2017
    Mar 2017
    Feb 2017
    Jan 2017
    Dec 2016
    Nov 2016
    Oct 2016
    Sep 2016
    Aug 2016
    Jul 2016
    Jun 2016
    May 2016
    Apr 2016
    Mar 2016
    Feb 2016
    Jan 2016
    Dec 2015
    Nov 2015
    Oct 2015
    Sep 2015
    Aug 2015
    Jul 2015
    Jun 2015
    May 2015
    Apr 2015
    Mar 2015
    Feb 2015
    Jan 2015
    Dec 2014
    Nov 2014
    Oct 2014
    Sep 2014
    Aug 2014
    Jul 2014
    Jun 2014
    May 2014
    Apr 2014
    Mar 2014
    Feb 2014
    Jan 2014
    Dec 2013
    Nov 2013
    Oct 2013
    Sep 2013
    Aug 2013
    Jul 2013
    Jun 2013
    May 2013
    Apr 2013
    Mar 2013
    Feb 2013
    Jan 2013
    Dec 2012
    Nov 2012
    Oct 2012
    Sep 2012
    Aug 2012
    Jul 2012
    Jun 2012
    May 2012
    Apr 2012
    Mar 2012
    Feb 2012
    Jan 2012
    Dec 2011
    November 2011
    October 2011
    September 2011
    August 2011
    July 2011
    June 2011
    May 2011
    April 2011
    March 2011
    February 2011
    January 2011
    December 2010

    November 2010
    October 2010
    September 2010
    August 2010
    July 2010
    June 2010
    May 2010
    April 2010
    March 2010
    February 2010
    January 2010

    Categories:
    Book Reviews
    Capital Gains Taxation
    Corporate Income Tax
    Consumption Taxes
    Economy - Long Term
    Economy - Short Term
    Environmental Regulation
    Real Estate Taxation
    Trade

    Miscellaneous

    Outside Links:

  • American Economic Alert
  • American Jobs Alliance
  • Angry Bear Blog
  • Economy in Crisis
  • Econbrowser
  • Emmanuel Goldstein's Blog
  • Levy Economics Institute
  • McKeever Institute
  • Michael Pettis Blog
  • Naked Capitalism
  • Natural Born Conservative
  • Science & Public Policy Inst.
  • TradeReform.org
  • Votersway Blog
  • Watt's Up With That


    Wikipedia:

  • [An] extensive argument for balanced trade, and a program to achieve balanced trade is presented in Trading Away Our Future, by Raymond Richman, Howard Richman and Jesse Richman. “A minimum standard for ensuring that trade does benefit all is that trade should be relatively in balance.” [Balanced Trade entry]

    Journal of Economic Literature:

  • [Trading Away Our Future] Examines the costs and benefits of U.S. trade and tax policies. Discusses why trade deficits matter; root of the trade deficit; the “ostrich” and “eagles” attitudes; how to balance trade; taxation of capital gains; the real estate tax; the corporate income tax; solving the low savings problem; how to protect one’s assets; and a program for a strong America....

    Atlantic Economic Journal:

  • In Trading Away Our Future   Richman ... advocates the immediate adoption of a set of public policy proposal designed to reduce the trade deficit and increase domestic savings.... the set of public policy proposals is a wake-up call... [February 17, 2009 review by T.H. Cate]