Why Only America’s Economic Recovery Is Built to Last
What’s the Latest Development?
While this summer has yielded mostly positive economic news, the engines of recovery in Europe, Japan, and China, may inevitably lose steam. “Unlike America, the euro area has failed to clean up its banks or write down unpayable debts. … Britain’s rebound may fizzle out because its companies are investing so little. Japan’s main problem is the gap between…macroeconomic boldness and the timidity of…deregulation. … China is in the midst of two tricky transitions: from an investment-led economy to a consumption-driven one; and from an economy addicted to rapidly rising credit to one that is more self-sustaining.” But neither transition has gone far, implying slower growth.
What’s the Big Idea?
Although America’s Federal Reserve has spooked markets with its commitment to taper bond buying, those actions depend on an economy strong enough to withstand fiscal changes. “Better macroeconomics is a step forward, but its effect will be muted unless the financial plumbing is working, households are spending and firms are ready to invest. Those conditions hold in America, where repairs from the financial crisis are all but complete. After a painful adjustment, the housing recovery is built on solid foundations. Consumer debt has plunged. Banks are keen to lend. Add in the supply-side boost from shale gas, and you have the makings of a strong recovery.”
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