Below is our translation of an analysis from rueconomics.ru with an introduction and notes [in brackets] by Vince Dhimos.
A Bloomberg analyst agrees with our Russian author. But his analysis actually is more direct and hard-hitting than this Russian one! Russian analysts rarely directly blame Trump for the current woes, and in fact, US analysts also go easy on the president. But the Bloomberg analyst doesn’t spare Trump.
“...the coming collapse in saving points to a sharp widening of the current-account deficit, likely taking it well beyond the prior record of -6.3% of GDP that it reached in late 2005. Reserve currency or not, the dollar will not be spared under these circumstances. The key question is what will spark the decline?
“Look no further than the Trump administration. Protectionist trade policies, withdrawal from the architectural pillars of globalization such as the Paris Agreement on Climate, Trans-Pacific Partnership, World Health Organization and traditional Atlantic alliances, gross mismanagement of Covid-19 response, together with wrenching social turmoil not seen since the late 1960s, are all painfully visible manifestations of America’s sharply diminished global leadership.”
US recession impacts global dollar’s clout
June 9, 20201
The American economy has now entered the recession only formally - negative processes started long before the start of the coronavirus epidemic. This opinion of FBA "Ekonomika Segodnya" was voiced by the head of the department of international economic organizations, Centre for Economic Research, Vyacheslav Kholodkov.
The United States economy has entered a period of unprecedented recession due to the coronavirus pandemic. This was officially announced by the National Bureau of Economic Research (NBER). According to their conclusion, the recession in the United States began in February 2020, and now, based on the results of two quarters, a recession can be observed de facto. The decline ended the 128-month growth of the US economy, which began in June 2009. The report notes that this is the longest period of recovery since the 1950s.
According to the traditional definition, a recession is a decline in GDP for two consecutive quarters. However, NBER generally draws attention to a wider range of factors: first of all, to monthly changes in economic trends. "The unprecedented scale of the reduction in employment and production, as well as its wide coverage throughout the economy, guarantee that this episode will be called a recession, even if it turns out to be shorter than previous declines," the bureau said.
“The approach of the global economic crisis became obvious as early as 2018, and it must have started in the USA,” Kholodkov notes. “It happened. All economic indicators of the US economy at the beginning of 2020 were negative – overwhelmed by $22 trillion in public debt, a huge a budget deficit and a negative trade balance, and the only reason why the country did not slip into recession earlier is that America actually plays the role of a world bank.
That is, the United States is printing money that the countries of the world still recognize as the main means of payment. This is the last factor by which the American economy managed to keep afloat. But everything indicates that this situation is coming to an end. Almost all prominent world economists, including American ones, long before the arrival of COVID-19 predicted a systemic crisis in the US economy. So blaming the coronavirus for it is a mistake, it just launched certain negative processes."
Hopes for Production
US President Donald Trump came to this post at the end of 2016 on the slogan "Make America great again!" At the same time, he promised serious social reforms - in particular, to solve the issue of Americans' access to medical care, since now a quarter of the population is cut off from medical services due to the inability to buy insurance. In addition, Trump announced serious tax reforms and support for the US economy – the opening of new industries and protection of existing ones from competition.
By the end of May, the number of unemployed in the United States exceeded 40 million people in a total population of 300 million. This means that a quarter of the able-bodied population remained unemployed in the country. The US Congress was forced to approve an expanded unemployment benefit program that covers freelancers, self-employed, and others who are not usually covered by government assistance. But the economic crisis is turning into a political one – now mass demonstrations and riots are taking place in US cities.
"The coronavirus was the last straw that overflowed the chalice of negative pressure on the American economy. If the economy were normal, the US epidemic would have survived without a serious recession. Now all serious investors are getting rid of US assets –
securities denominated in dollars. They understand: Following the crisis, not only GDP but also the dollar will fall in the USA, and this reduces its impact on the world economy and trade.
Of course, this is primarily a blow to Trump and his economic policy. The much ballyhooed tax manoeuvre failed and failed. Price wars with the whole world have helped to slightly reduce the imbalance in foreign trade, but this achievement is already "burying" the crisis. And social unrest is fuelled, including by the economic problems of the population. So Trump’s chances of being re-elected are diminishing every day,” emphasizes Kholodkov.
Hope for a recession
According to NBER estimates, it is likely that the United States will soon begin to overcome the recession. In particular, after the removal of quarantine for coronavirus, economic processes will resume, and GDP will begin to recover. However, experts at the National Bureau of Economic Researchers have already recognized that the current recession is the deepest since 1954. And increasingly, the state of the American economy is compared with the Great Depression of 1928-1933. This is an unprecedented decline.
The International Monetary Fund predicted that in 2020, the US economy will “collapse” by at least 5.9%. Trump promises an instant increase in GDP immediately after lifting the quarantine measures and returning to the pre-crisis level within a few months. However, global analysts tend to disagree with him. In their opinion, the process will proceed slowly and unevenly in the form of a “W” and be affected by unfavourable factors that arise along the way. [Experts are predicting a second and third wave of the pandemic]
“We are witnessing the decline of America – there are no more countries with high-performance economies, state-of-the-art technologies and large-scale domestic production. And real production is always the growth driver. Over the past few decades, the vast majority of plants and enterprises have moved from the USA to Asia, in particular China – Trump’s program to return them has failed – we have to admit it already, so no quick exit from the recession is expected.
The American president announced the benefits and preferences for companies that agree to return production to American territory. He even threatened Apple with a ban of its products’ sales in America. But in Asian countries, production costs are much lower due to minimal overhead and operating costs. Apple, however, has stated that they cannot find in the US such qualified and disciplined personnel as in China.
Home production in the USA is so small that it will not become a driver of powerful growth. This means that hopes for a quick exit from the recession are not backed up by anything,” concludes Vyacheslav Kholodkov.
Author: Maxim Booth
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