"The Extraordinary Recession," is the title of Dr Steinbock's new brief on the global financial crisis for Talouselama, Finland's leading business weekly. It was written a week ago.
"U.S. Consumer at Crossroads," is the title of his brief on the controversial role of consumption in U.S. economic growth. It was released in spring by Tieto & Trendit, the economic journal by Statistics Finland. It was written last February.
"The Extraordinary Recession." (Talouselama)
"The Extraordinary Recession," is the title of Dr Steinbock's new brief on the global financial crisis for Talouselama, Finland's leading business weekly. "The collapse of retail trade in the United States was the deepest since the early 1980s and President Jimmy Carter's credit controls. In the coming weeks, the global financial crisis will deepen in the United States and elsewhere in the world. The coming Christmas will be the darkest in America for decades. It will be followed by corporate defaults, an intense debate on the stimulus packages - and stagdeflation," argues Dr Steinbock.
"As America's negative demand shock is spreading internationally, it is accelerating the downturn elsewhere in the world. World trade is now declining, for the first time in 27 years."
"Some time ago the concern of the economists and central bankers was the stagflation of the 1970s, i.e., slowing growth and accelerating inflation. Now, the concern is stagdeflation, a combination of slowing growth and rising deflation pressures."
"Last October, Dominique Strauss-Kahn, the chief of IMF, warned G7 leaders in Washington that the world was "at the verge of a financial meltdown."
"In retrospect, it was a 'Minsky moment,' a dangerous moment which can result in a systemic meltdown," says Dr Steinbock now. "The world economy is currently governed by the winners of World War II. The emerging powers - China and India, Russia and Brazil, Persian Gulf producers - must have a voice and representation that is proportionate to their economic might. Otherwise it will prove impossible to resolve global financial crises."
"The recent G20 conference in Washington, D.C., was a step forward. It certainly was not Bretton Woods II, as some had argued, but it was the first step in the right direction. The next proposed G20 conference should take place by April 2009. Unfortunately, the markets won't wait. The recent bailout packages and stimulus plans worldwide help but do not suffice. In the U.S., in particular, more is needed. We are facing a severe recession, declining growth and increasing deflation pressures- in the U.S. until early 2010, elsewhere longer. In such circumstances, complacency is not an option. It would only prepare way for another Minsky moment."
"American Consumer at Crossroads." (Tieto & Trendit)
"Global growth has been driven by U.S. consumption since the late 1950s," wrote Dr Steinbock last spring. "The good news is that, over time, U.S. consumer will be supplemented by new middle-class consumers in the large emerging economies. The bad news is that Americans have lived beyond their means for about a decade."
In his brief, Dr Steinbock argued that the current contribution of consumption in the U.S. GDP is "unsustainable." Due to the sub-prime mortgate crisis and the credit crunch, U.S. productivity figures of the past decade must be reassessed in the light of the housing bubble.
"In the 1960s, Jack and Jill lived according to their means. In the late 1990s, the structure of consumption began to change. Since 2001, U.S. consumers have consumed an 'excess' $3 trillion."
"As long as Chinese and Indian consumption remains only about a sixth of the U.S. consumption, the growth of the world economy remains critically dependent on American consumption - for better or worse."