Canada, 3.07 percent
The United States, 2.83 percent
Under the principle of the builder's economy once a market has reached maturity the growth rates decline permanently. There aren't anymore virgin farm fields to tear up to build new houses on so what is a banker to do but to find new markets.
The US companies can borrow money at the prime rate of 3.25 percent and then lend it to whom? You? With 2.83 percent growth, high unemployment, record foreclosures and rampant off shoring of jobs? Maybe they could lend money to France with 1.486 growth? Or Ireland at -1.041 that just doesn't make sense to a banking industry concerned only with profits.
During the 1930's the FDR's New Deal borrowed and spent billions of dollars revitalizing the US economy and the debt was paid back over the long term. This time around bankers are taking the Hoover approach "Economic depression cannot be cured by legislative action or executive pronouncement. Economic wounds must be healed by the action of the economic cells of the body- the producers and consumers themselves."
Or to paraphrase Hoover's belief, it's better to do nothing and to be wrong than to take a chance on trying something that might interfere with free markets. After all childhood immunizations could ruin the juvenile casket market. This stoic belief that the suffering of human beings is less important than the fabled integrity of markets lives with us today. It is a core Neo-liberal belief, so rather than wasting time and energy trying to revive a comatose American economy the bankers seek out greener pastures of plenty.
The growth rate in China is projected to be 10.7 percent and with a prime rate of 6.69 bankers can earn 3 percent just by walking in the door. The Chinese have struggled to fight inflation by raising interest rates and increasing bank reserves to slow the growth fire. They have tried limiting foreign lending but it is a porous border. China is a boom town growing at three times the rate of the rest of the world. Huge profits are to be made in China. China's banking policies are loose and poorly regulated, everyone is making money and wants to make even more money. So poor collateral might be overlooked in the loan paperwork because it's better to start building today before the prices go up again. Sound at all familiar?
By Bloomberg News -- May 1, 2011 China's Growth May Moderate as PMI Shows Slower Expansion in Manufacturing
"A Chinese manufacturing index declined in April from March, indicating that growth may moderate in the world's second largest economy after the government raised interest rates and allowed faster gains in the yuan."
" Premier Wen Jiabao's government aims to counter the fastest inflation sine 2008 and cool a real-estate market that has been at risk of price bubbles. Credit Suisse Group AG says the nation's fifth increase in the benchmark rates since the global financial crisis may come as early as today, a Chinese holiday, less than a month after the previous move."
Now as you look through the microscope what does that all mean? It sounds like a Chinese economy overheated and a government is trying to pull out all of the stops to try and contain it. The Chinese economy lives and dies on exports and the world is in a global recession. International bankers are squeezing those same world markets trying to invest more and more money into the boom town, literally strangling the goose that lays the golden eggs to buy into a boom town that is in fact a text book builder's economy.
When it stumbles, then this becomes a Brave New World.
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