koan, here's a thought experiment for you. If every country is devaluing their currency to avoid deflation, then does any currency's value change relative to any other currency? The short answer is maybe not so much. If this is a global response to a global, synchronous recession, then the end state will be that everyone holds a less paper wealth, but the standard of living doesn't change for anyone.
The complicated answer is that some countries, namely ours, will have to deficit spend and borrow more to avoid deflation, while countries like China will be able to use their reserves to avoid a recession. So coming out of this, China will not be borrowing from future growth, which means a recovery for them will take them back to a pre-recession growth rate, whereas a recovery for us will look tepid.
Will the world collapse? No. Will there be a new financial world order coming out of this? Yes. We're moving into a multi-polar world, after 8 years of the US being the only super-power. Too bad we didn't use that brief moment in time to do some good with that power. |
