Orthodox views of the current situation versus my views of the current situation

Analysis just issued by one of the best-known financial houses says that we should expect a growth rate of 2% in the US in 2012, zero growth in the Eurozone, and that, "in light of the dramatic shift in the worldwide balance of power, the hopes of the struggling industrialized countries rest on the emerging markets".

The house in question does not seem to have noticed that, while emerging markets may at least be growing, they are now growing at a sharply decelerating rate - and that their slowed rate of growth means that all their so-called "power" will be needed to fight their own social and political problems. Whether that "power" will be enough for those purposes depends on how "dramatic" the slowdown is - as well as on the wisdom of the leaders concerned.

Briefly, the BRIC countries: Brazil's economy will be substantially hit; Russia's will be hit too, but how much it is hit will depend on energy prices; India's will probably be hit least; China's will probably be hit most.

Other emerging markets will mostly stop emerging, and will probably largely "de-emerge" or sink, as they usually tend to do in troubled times. Sad and tough. But there it is.

The Eurozone's "tiny but structurally important" decisions taken yesterday indicate very little of what will actually happen, because the decisions (which appear to be boringly technical) will need to be approved by their Parliaments (and even the UK Government may be forced by developments to have a referendum regarding whether or not to finally join the Eurozone - I have said that the country should have structural recovery in 2012, but there are other factors which are too much to go into here).

If, as I expect, the Parliaments of the 17 Eurozone and non-Eurozone countries which have decided to commit themselves to a treaty for deeper economic integration over the next three months to negotiate and may require referendums in countries such as Ireland. If the Parliaments concerned do not approve, then the uncertainty about the Eurozone will continue. My guess is that for psychological reasons, some of the Eurozone countries which are most committed to the present course will attempt to rush agreement through their Parliaments. The timing and weight of the countries which first get this through, and the timing and weight of any countries that do not, is what we have to watch. Meanwhle, markets have reacted initially positively, marginally, while the propaganda barrage has been skeptical.

The US will almost certainly grow at more than 2%: how much more, I cannot say - as that depends on what is happening in the rest of the world. But the surprise for the US economy can be expected to be on the upside, in spite of the fact that the various existing stimulus measures are expected to run out, and in spite of the impending race for the Presidential election. That growth is also why Obama has a fighting chance of getting re-elected (I should say that I am neutral regarding his continued Presidency, and I am "equally neutral" on anyone else . whether from his party or from the Republicans - getting in as the next President: the US system is now so corrupt that I do not think it makes much difference who is President).

BTW don't believe what Obama will say in an interview to be broadcast tomorrow about an economic fix for the US taking years to be effective. I greatly doubt there is any chance of a real economic fix till there is a proper crash, as there is no sign that anyone in a position is authority is even contemplating any economic fix at present: everyone is focusing on how to hang on to or consolidate their own power.

Of course, what Obama means by an "economic fix" is not clear. If he means "for growth to return", he is likely to be surprised, as I indicate above.

If he means "for the US political system to be sorted out so that growth is more equitably distributed", that is going to have to wait for spiritual, moral and ethical revival in the US population and particularly its leaders.

If Obama means things like Dodd-Frank to be effective, he is partially right, though it is already starting to bite - and whether it continues to bite will depend on political shenanigans. Sphere: Related Content