Just when it looked as if the combination of U.S. “insourcing” of America’s previously lost manufacturing potential, together with record export results, were combining to lift the nation’s gross domestic product growth in 2013 to the 3% level, two major negative factors have joined to put such positive results in doubt:
1) The most disconcerting of the two is Europe’s longest postwar slump since the end of the second world war. The once economically dominant Eurasian subcontinent— the progenitor of the industrial revolution— seems mired in financial deficits. It also suffers from a failure of self-imposed austerity, which its populations have rejected. Its double digit unemployment shows no sign of improvement in the foreseeable future. While bouncing up from its March 2009 lows, along with the U.S., the Eurozone and American economies parted direction by mid 2011.
2) Further complicating America’s manufacturing comeback, already showing a slowdown in the middle of the second quarter, and also impacting record 2013 export levels, is Japan’s souping up its export levels by emulating America’s quantitative central bank easing. After almost 20 years of cutting back spending and achieving the world’s top savings rate (12%), it made the yen the world’s strongest currency. It also dropped from its world-leading export level, a total reversal from a fear-inspiring export surge in the 1980′s. This appeared to steamroller world markets, which sent Tokyo’s stock markets into the stratosphere.
After almost two decades of what was derisively called a zombie banking system, the recent governmental change to Premier Shinzo Abe has put the Japanese industrial power structure back into high gear. Its yen’s currency value is sinking, while its stock market is again soaring. While Japan is back on its export expansionist march, it’s coming at a time when Europe is in recession, and its ability to import down from 2-5%, depending on the full extent of the new EU recession and its severity over a longer period of time.
With the Japanese export engine likely to reach high gear again this year, this can only mean price drops around the world. This means commodity prices, as well as lower-priced manufactured goods, bring a global disinflationary scenario back into play. It’s now only a question of how severe and how long this new export-import imbroglio will last; and the extent of its effect on the global, as well as America’s economic future.
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