How to Survive the Coming Tsunami...
In a hard-hitting blog editorial, Prestowitz warns that a tsunami of globalization pressures poses serious problems for the world economy. Of particular concern to Prestowitz is massive U.S. indebtedness coupled with market distortions caused by currency imbalances:
Because globalization goes far beyond trade and even beyond finance, the really big stuff has moved out of all the other institutions into the G-20. At issue in Cannes will be whether globalization can be made sustainable. At present, virtually all the world's economies are attempting to grow and create jobs by exporting primarily to the United States, which, despite the recent economic crisis, high unemployment, and a fragile recovery, is still acting as the world's buyer of last resort. But with its budget deficits, and global indebtedness rising and true unemployment hovering around 17 percent, the ability of the United States to continue this role while also acting as the global security provider is questionable. Similarly, the ability of China and other high-growth emerging economies to maintain growth through ever-rising investment, low consumption, and undervalued currencies is also questionable. Few believe this situation to be indefinitely sustainable.
The fix will require the United States to find a solution to its budget deficits while doubling present household savings rates. It will also require massive investment in the upgrading of U.S. infrastructure and in new U.S. based production facilities. It will require a 40-50 percent devaluation of the dollar versus the Chinese yuan and some other Asian currencies and a lesser devaluation against the euro, or against a new German deutschmark if the euro should disappear. Indeed, it may require the dollar to relinquish its role as the major reserve currency.
By the same token, Germany, China, Japan, and the east Asian tigers will have to stimulate consumption, reduce saving, investment, relative production, and exports while revaluing their currencies.
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