6/13/2011 10:30 AM ET
Politicians in the US, China and Europe are all postponing tough financial decisions until after next year's elections. But in 2013, we'll have to face the (bigger) problems.
Related topics: politics, China, Federal Reserve, economy, Jim Jubak
Politics virtually guarantee that the global economy won't go into crisis in 2011. Politics make it extremely unlikely that the global economy will slow down as much as the market seems to fear. Politics, in fact, put a safety net under the global economy this year.
And politics also virtually guarantee another, deeper crisis in 2012 or 2013. I'd bet 2013.
How come? You see, just about every politician in the world is trying to kick an economic problem down the road into 2012 or 2013. I think they'll succeed in postponing the day of reckoning in 2011 using a combination of funny accounting, additional spending and subsidies. But the price for that postponement will be that problems will be bigger and harder to truly solve in 2012 or 2013 than they are now. And that will raise the odds that the global economy will face another serious crisis -- just five years or so after the last one.
What happens if the debt ceiling isn't raised?
This kick-it-down-the-road effort is most obvious in the eurozone, where the effort to put together a new rescue package for Greece really comes down to putting off a Greek default from 2012 to 2013 or 2014.
But the effect is also visible in the United States, where I think the most likely result of negotiations in the U.S. to raise the debt ceiling will be to kick the problem into the 2012 election campaign, with a "solution" postponed to 2013. You can also see it in China, where the leadership that takes over in 2012 and 2013 from President Hu Jintao will be extremely reluctant to rock the boat until it's firmly in power.
Jim Jubak
Altogether, this politics of delay means that in 2011 the global economy will get enough stimulus to keep growth at the relatively high levels that politicians need to keep voters reasonably happy. Politicians won't even think about making the tough choices that might inhibit growth until well into 2012.
You should be familiar with the politics of procrastination from my posts on the Greek debt crisis. The original rescue plan for Greece, cobbled together last year with funding from the European Union, the European Central Bank and the International Monetary Fund, turned out to be an all-too-hopeful effort to push the problem down the road into 2012. The thinking last year, when the rescue program was put together, was that if Greece could get enough cash from a European Union rescue program to get to 2012, the country would have enough time to get its house in order so it could start to finance its debt from private investors again./*
That turns out to have been exceedingly optimistic (I'd call it just plain wrong). Greece has failed to quickly reform its dysfunctional system of tax collection; instead, the country has continued to collect less tax than it is owed (and less than it promised its rescuers it would collect). Meantime, budget cutting and asset sales -- while painful enough to elicit widespread protests in Greece -- haven't lived up to projections, either. Add in the effects of the all-too-predictable slowdown in the economy as a result of these measures, and Greece clearly won't be embraced by financial markets in 2012 and maybe not in 2013.
Efforts at a new package are held up now by fighting between the German government and the European Central Bank about whether bondholders should be required to extend the maturity of Greek bonds as part of any deal. But the real focus of the talks is on getting enough money from the European Union, the European Central Bank and the International Monetary Fund to support Greece until 2013 or 2014 when -- hope springs eternal -- Greece will be able to sell debt in the financial markets again.
The political imperatives driving this thinking are clear. The only alternative to this deal -- if it can be sold to voters in Germany and other northern European countries and assuming that it works -- is a painful re-examination and restructuring of the entire euro project. In the current political climate it's unlikely that voters in the northern or southern eurozone would approve a restructuring that actually dealt with the problems of running a single currency for economies as different as those of Germany and Greece. Kick the problem down the road and hope seems like a pretty good alternative to European politicians.
US and the debt-ceiling debateThe situation is totally different in the United States, but the result is remarkably similar. In the U.S., the presidential election looms in 2012, and the anemic recovery is the issue where the Obama administration is most vulnerable to Republican attack. The Republican opposition certainly doesn't want to strike any deal over the debt ceiling -- the U.S. will run out of room to borrow in August, according to the U.S. Treasury. That would remove the shocking state of U.S. finances from the minds of voters.
On the other hand, pragmatic Republicans don't want to force the United States into even a technical default on its debt in August and risk creating a crisis a year too early or getting blamed for any crisis. Democrats, for their part, would like a deal this year that doesn't preclude the chance that the economy will pick up speed and look better in June 2012 than it does now.
That's why, in my opinion, the most likely outcome isn't a crisis this year but some patchwork compromise that gives both sides potential ammunition for 2012 and pushes off the hard work on reducing the U.S. deficit into 2012 or into the post-election period.
That would mean odds are relatively low that negotiations in Washington will produce budget cuts large enough to make a difference in the deficit or turn the current anemic slowdown into a double-dip recession. It's more likely that U.S. fiscal policy will remain muddled, with the Federal Reserve able to hold growth at 2% -- or perhaps even better if the first-quarter slowdown was a result of temporary factors stemming from the Japanese earthquake and tsunami.
By 2013, no matter how the election goes, the Federal Reserve will be under almost unbearable pressure to reduce its balance sheet and raise interest rates. That's when global bond markets will really pressure the United States to come up with a plan -- at the least -- for reducing its budget deficit over the long term.
Continued: As for China . . . 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4 0ReportSpamX Marcus5 hours agoDavid (dwseattle): FYI - I am the "one" person who voted positively for your comments. 0 0ReportSpamX Marcus5 hours agoSomersetky: Does it really sound like I think that we should put our heads in the sand? That is exactly the opposite of what I am saying. I am saying that we should take control of our future and not leave it to naysayers like Mr. Jubak. Perhaps "neither side" has fixed anything. That, however, is not to say that nothing can be fixed. We simply have to keep our heads and move forward, and take responsibility for our own future. Listening to harbingers of doom, like Mr. Jubak and his ilk will get us precisely into the "fix" that "they" want for us. 5 1ReportSpamsomersetky5 hours agore:x marcus
really that's just what we need is more putting our head in the sand wishing the problem to go away.
Name me something they have fixed? I dare anyone. Name something that either side has fixed since this all started?
Has freddy Fannie changed there policy? anything? has anything been fixed? Or has a crapton of money been pumped into the market to prop it up taking that money out of the private sector in the form of loans to the federal gov to prop up failing businesses in order to kick the can down the road.
If the mes**** the fan again exactly where are they going to get the money to bail things out again? We are broke...well the fed is company's aren't but the fed is broke meaning there will be no more pumping of the system again without hyper inflation.
So again I dare anyone to explain to me if you think things are getting better exactly what was fixed.
5 3ReportSpamX Marcus5 hours agoP.O. Carl: I respectfully disagree. Mr. Jubak does not "state this because he knows how the money people think." He states this because he wants to spray kerosene on what he sees as the flickering of a potential financial "down spark." The money people might not ever want to break their grip, so to speak, but I fear that you vastly underestimate the strength of the power of the consumer. A grip, however tightly held is easily broken by the compounding pressure of leverage, wielded by the force of a crowd driven by the promise of prosperity. I appreciate your position, however mired in despair that it is. That said, I offer that a positive view will shed far more light than one of shadow. 2 3ReportSpamOld Dog Learning New Tricks5 hours agoJim everything you say is very true but what you don’t say is even more true. It really doesn’t matter if trouble brews in the US, China, Greece or Andorra. It doesn’t matter if the right is in power, or the left, whether the regime is capitalistic or communist, a board of angels or a cabal of devils.
What matters is the distance between the rulers and the common man. The larger the distance the bigger the excesses. The bigger the excesses the more painful the consequences. The pattern is always the same: the rulers stretch the distance between them and the common man. Corruption and excesses follow and life becomes unbearably painful.
7 0ReportSpamdavid (dwseattle) 6 hours agoMr. Jubak, thank you for your jubilant and uplifting thoughts. I'll start selling off all my posessions, leave $500
in a bottle for my funeral and then just shoot myself.
4 2ReportSpamtruestoryIswear6 hours ago"Altogether, this politics of delay means that in 2011 the global economy will get enough stimulus to keep growth at the relatively high levels that politicians need to keep voters reasonably happy. Politicians won't even think about making the tough choices that might inhibit growth until well into 2012."
I think that the writer and more significantly politicians seem blind to the fact that the meager growth in the economy is only benefiting corporations and the wealthiest 1%. Unfortunately that is the same one percent that decides who we the voters get to chose from. Obama had an agenda when he came into office, he's accomplished that and now he is clueless as to what to do to fix the economy (and even more clueless as to te fact that his healthcare reform actually has stunted the economic recovery) The republicans aren't vetting anyone who makes me feel all warm and fuzzy. And Sarah Plain? Really?? Things are going to get really bad for a lot of people in this country in the not to distant future.
5 2ReportSpamP.O. Carl6 hours agoX Marcus: Mr. Jubak states this because he knows how the money people think, and they will not break their grip on greed, until all is broken.
3 1ReportSpamP.O. Carl6 hours agoA import tariff on goods from India and China, at the same rate for US goods there would correct this whole mess. 3 1ReportSpamX Marcus6 hours agoMr. Jubak - We can do better. I do not mean this harshly, but I do mean it firmly. Your thoughts are truly unwelcome. You are not so much warning of a coming disaster as you are inviting it in. There is a certain odd, disconcerting, disturbing glee in your comments. Indeed, there is something of a soft, yet sinister smile to your unfounded, wildly speculative soothsaying. It as if you are strangely delighting in what you claim to "see" as a coming disaster. But you are wrong, if not (also) outright dastardly. We can make the coming days own. We are not puppets of an inevitable destiny as you seem to suggest. There is no advancing danger. There is no marching army of financial annihilation. The future - economic and otherwise -- is ours to craft, ours to make, ours to fashion into whatever form we wish. And what we wish for is the continuation of good for ourselves, for our children, and for our later generations. So, why call for disaster when you can instead ring a bell for prosperity? Why trumpet the fall of markets when you can instead bang the drum of the circling advancement of the power of the rise of the tide of fortune? I trust that you can offer no sound response.Mr. Jubak, you, not the swarming wave of some faraway financial doomsday are the enemy. Your brand of cowardly thinking, your shrinking into the decaying folds of fear and distrust, of retreat and surrender -- those are the things that threaten our stand. Those are the things, not the timid uncertainty of a market that belongs to us, belongs UNDER us, that jeopardizes our lives. You, Mr. Jubak, and not the threat of a monster that doesn't even exist yet, are the enemy of our future. And so I appeal to you -- retract your words. 2 10ReportSpamvictum of the times6 hours agoI can almost guarantee you that we will elect the same corporate butt-kissing MORONS back to Congress for some more unlubed "give to them taxpayers in the rear" politics.Go big banks! Go major Corporations!Yes,pay us our campaign money,so we can give it to the people good. How much longer can the American people stand the lies and big BS "we are trying to create jobs" line? They are only in it for themselves and their GREEDY friends,who happen to golf with them.We let China become a superpower economy by handing them OUR economy.The only people that benefit from that move in this country are the importers and corporations looking for cheap labor.Our country is suffering already,and can't recover from this mess without protection from cheap imports.Without a dramatic decrease in the trade imbalance,we are doomed! Yes,it is now time to buy canned goods and ammo! 11 0ReportSpamP.O. Carl8 hours agoJack Welch also has stated that the economy is doing just fine. I am sure it is for him. In one of his books he said that a company should put manufacturing on a boat and move it around the world to find the cheapest labor. He should know, he and other CEO's like him have gutted the US of jobs. He also stated on how well Brazil and China are doing and that the US should follow their lead. We all know that those countries have good environmental and human rights laws, and pay livable wages, right? Jack Welch would work his mother and grandmother side by side in a sweat shop for 10 cents a hour if it would make him a buck! If he thinks Brazil and China are so great, why doesn't he move his **** there and live!
36 0ReportSpamdendl8 hours agoHello Mr. Jubak,
You write as if our looming financial disaster is a matter of convenience. Listen! This financial disaster headed right at us will strike in non-linear fashion. It waits for no one. Someone wrote about being blindsided. Not so! No surprises here. Chad in CO
23 1ReportSpamSomeone (bluebill) 8 hours agomsnbc, cnbc, nbc, cnn, are all pretty much 24/7 shills for theirn respective party's and for their advertisers. They too have to make a buck; and for the good of their constituents, they would like to see the U.S. economy implode, at leats until Nit Romney or Sara Palin are elected. It is imjportant not to confuse true finacial reporting from 24/7 political infomercials. Everythng is very politically polarized these days, and that alone is scary. Often the best time to buy is when FEAR is paramount, like now or very soon. Many Company's are actually doing quite well, even with this high fuel cost, and high BS political environment. 4 10ReportSpamruminator7218 hours agoI am certain that Mr. Jubak is correct in stating that the politicians will "attempt" to kick the can down the road. However, I think he is too confident of their success. Some countries are going to bear the brunt of this economic downturn/recession/depression disproportionately, and increasingly those countries, their governments and their citizens, are not going to want to play along. These extend and pretend policies are all built on a wink and a nod. I'll ignore your astronomical debts and fuzzy accounting if you'll ignore mine.
It will only take a few dissenting voices to throw everything into turmoil.
23 0ReportSpammainstream media9 hours agoNo real "reforms" took place after the last meltdown. The banking lobby owns everyone so what do you expect ? It will take bankers swinging from makeshift gallows to get anything done in this country. 37 1ReportSpamBull Rider9 hours agoTHIS!!!How come? You see, just about every politician in the world is trying to kick an economic problem down the road into 2012 or 2013. I think they'll succeed in postponing the day of reckoning in 2011 using a combination of funny accounting, additional spending and subsidies. But the price for that postponement will be that problems will be bigger and harder to truly solve in 2012 or 2013 than they are now. And that will raise the odds that the global economy will face another serious crisis -- just five years or so after the last one. 23 2ReportSpamAdd a commentReportPlease help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. 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$.dap("&PG=INVIHP&AP=1089",300,250,"dapAd2");FeedbackRECENT QUOTES/*WATCHLIST/*Learn MoreView full page SymbolLastChangeSharesWhere's my list|Update quotes|Clear this listQuotes delayed at least 15 minSponsored by:$.dap("&PG=INVSRQ&AP=1025",120,30,"quotead");MARKET UPDATEUSINTERNATIONALNAMELASTCHANGE% CHANGEThere's a problem getting this information right now. Please try again later.NAMEepression disproportionately, and increasingly those countries, their governments and their citizens, are not going to want to play along. These extend and pretend policies are all built on a wink and a nod. I'll ignore your astronomical debts and fuzzy accounting if you'll ignore mine.
It will only take a few dissenting voices to throw everything into turmoil.
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