Despite the nation’s reputation as a rootless society, only about one in 10 Americans moved in the last year — roughly half the proportion that changed residences as recently as four decades ago, census data show.
The monthly Current Population Survey found that fewer than 12 percent of Americans moved since 2007, a decline of nearly a full percentage point compared with the year before. In the 1950s and ’60s, the number of movers hovered near 20 percent.
The number has been declining steadily, and 12 percent is the lowest rate since the Census Bureau began counting people who move in 1940.
Part 2, The 30-year China and US trade partnership all worked, until it didn't. The US now will learn to how to save more. Meanwhile, China should rethink its development strategies. Thomas Friedman tells an anecdotal story to illustrate this point. (Source: NYT)
I had no idea that many of those oil paintings that hang in hotel rooms and starter homes across America are actually produced by just one Chinese village, Dafen, north of Hong Kong. And I had no idea that Dafen’s artist colony — the world’s leading center for mass-produced artwork and knockoffs of masterpieces — had been devastated by the bursting of the U.S. housing bubble. I should have, though.
“American property owners and hotels were usually the biggest consumers of Dafen’s works,” Zhou Xiaohong, deputy head of the Art Industry Association of Dafen, told Hong Kong’s Sunday Morning Post. “The more houses built in the United States, the more walls that needed our paintings. Now our business has frozen following the crash of the Western property market.”
Dafen is just one of a million Chinese and American enterprises that constitute the most important economic engine in the world today — what historian Niall Ferguson calls “Chimerica,” the de facto partnership between Chinese savers and producers and U.S. spenders and borrowers. That 30-year-old partnership is about to undergo a radical restructuring as a result of the current economic crisis, and the global economy will be highly impacted by the outcome.
After all, it was China’s willingness to hold the dollars and Treasury bills it had earned from exporting to America that helped keep U.S. interest rates low, giving Americans the money they needed to keep buying shoes, flat-screen TVs and paintings from China, as well as homes in America. Americans then borrowed against those homes to consume even more — one reason we enjoyed rising wealth without rising incomes.
This division of labor not only nourished our respective economies, but also shaped our politics. It enabled China’s ruling Communist Party to say to its people: “We will guarantee you ever-higher standards of living and in return you will stay out of politics and let us rule.” So China’s leaders could enjoy double-digit growth without political reform. And it enabled successive U.S. administrations, particularly the current one, to tell Americans: “You can have guns and butter — subprime mortgages with nothing down and nothing to pay for two years, ever-higher consumption and two wars, without tax increases!”
It all worked — until it didn’t.
With unemployment now soaring across the U.S., said Stephen Roach, the chairman of Morgan Stanley Asia, Americans — “the most over-extended consumer in world history” — can no longer buy so many Chinese exports. We need to save more, invest more, consume less and throw out most of our credit cards to bail ourselves out of this crisis.
But as that happens, we need China to take our discarded credit cards and distribute them to its own people so they can buy more of what China produces and more imports from the rest of the world. That’s the only way Beijing can sustain the minimum 8 percent growth it needs to maintain the political bargain between China’s leaders and led — not to mention pick up some of the slack in the global economy from America’s slowdown.
However, if I’ve learned one thing here, it’s just how hard doing that will be. China’s whole system and culture nourish saving, not spending, and changing that will require a huge “cultural and structural” shift, said Fred Hu, chairman for Greater China for Goldman Sachs.
In China, for instance, to buy a home you have to put at least 20 percent down, and the average is 40 percent. If you try to walk away from the mortgage, the bank will come after your personal assets. Moreover, China can’t just shift production from the U.S. market to its own consumers. Not many Chinese villagers want to buy $400 tennis shoes or Christmas tree ornaments.
Also, China has no real Social Security, health insurance or unemployment insurance. Without that social safety net, it’s hard to see how Chinese don’t end up saving most of their stimulus. “You open up the newspaper every day and you hear about this factory shutting down or that supplier going belly up,” said Willie Fung, whose company, Top Form International, is the world’s leading bra maker. “You can never be too careful in this financial climate.”
As such, “the world should not have a false hope that China can cushion the global downturn,” by stimulating its domestic demand in a big way, said Frank Gong, head of China research for JPMorgan Chase. “The best thing China can do is keep its own economy stable.”
It’s good advice. China is not going to rescue us or the world economy. We’re going to have to get out of this crisis the old-fashioned way: by digging inside ourselves and getting back to basics — improving U.S. productivity, saving more, studying harder and inventing more stuff to export. The days of phony prosperity — I borrow cheap money from China to build a house and then borrow on that house to buy cheap paintings from China to decorate my walls and everybody is a winner — are over.
Quantitative Easing is not panacea. Japan's QE popped up a bond bubble and killed money market. These are hard lessons the Fed should keep in mind (source: FT).
By John Richards
As the recession deepens, policy rates around the world are rapidly approaching zero and they cannot go any lower. Does that mean that central bankers have run out of ammunition? Not necessarily.
With policy rates approaching zero, central banks can still impact the economy by buying government securities across the yield curve, bringing down longer term interest rates, thereby boosting the economy.
The US Federal Reserve adopted this strategy at Tuesday’s federal open market committee meeting. Now, the asset (securities) and the liability sides (deposits) of the Fed’s balance sheets will expand rapidly.
Support will be provided indirectly to leading sectors of the economy, such as housing, as the Fed purchases mortgage-backed securities and the debt of government sponsored enterprises such as Fannie Mae and Freddie Mac.
Because the Fed’s balance sheet is set to expand almost without limit and without regard to the level of the policy rate, this policy is called quantitative easing.
But does quantitative easing work? Does it have unforeseen consequences? Japan is the only economy in recent times to have tried a full-scale version of quantitative easing for a significant period.
The Bank of Japan lowered the policy rate to zero in February 2001 and then went to quantitative easing the next month. It ended both quantitative easing and its zero interest rate policy only in 2006.
In Japan’s case, the mechanics were simple. The BoJ added reserves to the banking system through open market operations and by directly purchasing government securities from the secondary market.
The size of the bond-buying operation (Rinban) became the policy tool to target the level of reserves rather than the policy rate, which was fixed at virtually zero.
The BoJ’s monetary policy committee voted on the desirable level of reserves and the size of the Rinban, much as it had previously voted on the level of the policy rate.
And, when the economy deteriorated further, the BoJ increased the Rinban, pumping up reserves. At its peak, reserves reached around Y35,000bn of which only around Y8,000bn were required.
It is a matter of debate whether or not quantitative easing had much impact on the Japanese economy, even though it coincided with the longest expansion in Japan’s post world war two history (2002-2007). But, I think not.
Quantitative easing was nearly irrelevant to the expansion of real economic activity that began in 2002. The expansion was largely self-financed by corporations’ free cash flow and therefore not constrained by an absence of banks’ lending.
Neither were there big liquidity problems in Japan to be solved by quantitative easing. Capital injections and guarantees to the banks had largely cured them well before the process began.
Money market rates were already low and their spreads were tight to the policy rate. High oil and other input prices ended headline consumer price index deflation, but the CPI less food and energy continue to be nearly flat even now.
This makes it hard to argue that quantitative easing ended deflation; high oil prices did that. Meanwhile, the economy cured on its own most of the structural problems such as excess capacity and too much debt associated with the deflationary environment.
However, the bond market during quantitative easing was anything but smooth. The process ignited a bond bubble, whose eventual collapse destabilised financial markets, even threatening Japan’s hard-earned economic recovery. Long- term interest rates began to plummet in the spring 2002, with 10s reaching 0.48 per cent in June 2003, down 120 basis points over the year.
The yield curve experienced a rolling flattening in which successively longer maturities tightened down on the zero policy rate.
When the bond-bubble burst in June 2003, rates soared and the curve steepened sharply. This created what in Japan is still known as the Var-shock because of the sudden rise in yields and the accompanying jump in volatility triggered when banks, which were using similar risk management models, tried to dump Japanese government bonds at the same time.
The effects on banks’ earnings were so severe that it raised concerns that the economy would be plunged back into another 1990s-style period of economic stagnation.
About all quantitative easing did on the positive side for Japan was to help the BoJ keep its independence from the politicians by giving the appearance of action.
The costs were the shutting down of the money market, although it revived fairly quickly when QE ended, and a dangerous bond-bubble, whose popping threatened the recovery and destabilised the financial system.
One of the lessons of this episode for policymakers is that while quantitative easing may help to solve the short-run liquidity problems that arise in times of extreme financial duress, it is not a substitute for some of the harder choices governments must make.
These include underwriting of systemic financial risks, e.g. by guaranteeing bank deposits, the re-capitalisation (forced or voluntary) of the banks, regulatory pressure on banks to disclose and write down the bad assets, or the pressures on businesses directly via their banks to restructure and deleverage or shut down.
A worst-case current scenario is that policymakers rushing to quantitative easing fail to understand this, giving us a bond-bubble but no permanent fixes of the underlying structural problems.
In that case, when the bond-bubble bursts, paradoxically, quantitative easing will have increased systemic financial risks instead of decreasing them.
John Richards is head of Research, Royal Bank of Scotland, Asia Pacific