Listening to the presidential debates would suggest that the only foreign policy challenges that the U.S. faces are ISIS, Syria and a touch of Ukraine. Accelerating catastrophic climate changes – already costing hundreds of billions in damage and destabilizing countries – go unmentioned. And most perplexing, at a time when most Americans still make the economy their leading concern, the threat of another world recession is simply ignored.
Tremors in the stock markets – which have erased about $8 trillion in stock market values – have roused fears in the financial pages. But, of course, the stock market, as Paul Samuelson acidly noted, has predicted nine of the last five recessions. Economists assure us that the U.S. economy is still on a sound growth path. But the consensus of economists predicted, alas, one of the last nine recessions.
In fact, global economic troubles are already apparent. The Japanese economy is contracting and struggling with deflation. The so-called BRIICS – the set of countries heralded as a new source of economic dynamism – are a mess. Brazil and Russia are in recession or worse. South Africa is headed there. Growth in India and Indonesia is slowing. And China’s slowdown has savaged commodity prices and commodity exporters across the world. South American countries are struggling with plunging prices for oil and other exports. Global industrial activity and trade growth ground to a halt by the end of 2015.
Europe – still in the chokehold of German austerity and roiled by the flood of immigrants from Syria and elsewhere – eked out growth of 0.3 percent last quarter, and its GDP hasn't recovered to its 2007 levels, before the financial collapse eight years ago. The U.S. has enjoyed relative buoyancy with record months of jobs growth, top-line unemployment dropping to 4.9 percent, and even signs of wages beginning to inch up, but its fourth quarter growth was an annualized rate of 0.7 percent. The strong dollar, weak export markets, the threat of Chinese devaluation and Europe’s travails all will add to U.S. difficulties. The burden of student loans is stifling an entire generation, and potential defaults pose a growing threat. Federal Reserve officials have indicated their growing concerns about the ability of the U.S. to weather these storms.
This slowdown comes when central banks already are keeping interest rates near zero, with Europe and Japan central bankers employing extraordinary measures. Public balance sheets have been bloated by the debts incurred in climbing out of the Great Recession.
Clearly, the threat of a global downturn should be at the center of our politics – and of our political debate. In the U.S., it would be sensible for the president and the Congress to enact a major plan to rebuild the country, addressing long overdue infrastructure needs (dramatized by the water crisis in Flint, Mich.), creating jobs and generating demand. The Congress and states would be wise to prepare for the next round of “quantitative easing” by the Federal Reserve (a k a printing of money) by creating national and state infrastructure banks. The Fed could buy their bonds and actually pay for rebuilding the country, rather than larding up the big banks with more money that will be squandered in speculative bets.
At a global level, it is time for the leading economic powers to meet and coordinate a plan to reflate the global economy, moving from competitive austerity and currency devaluation to coordinated expansion. This will surely take place once another global depression is upon us. Why not get ahead of the catastrophe?
One thing is clear. Neither the violent zealots of ISIS nor the terrible civil war in Syria pose as much of a threat to the security of Americans as another global recession. Most Americans still haven’t recovered from the Great Recession. Another downturn will drive many more from their jobs and homes, and only add to declining incomes and increasing inequality. The depression, divorce, suicides and violence that will follow will take a far greater toll in this country than ISIS’s call for jihad. The real and present danger of a global economic downturn is surely one of the greatest security threats now facing this country.
