The people I speak to about the growing probability of a US consumer recession seem to have a widely held hope that the Asian and emerging market economies have matured enough to take up the slack. This is the so-called "de-coupling" scenario. I think it’s nonsense, and some research sent out today from Morgan Stanley’s Stephen Roach shows why. American consumers spent $9.5 trillion over the last year. Chinese consumers spent just $1 trillion and Indians $650 billion. On the back of an envelope I reckon this means that for every 1% fall in US consumption, the Chinese and Indian consumers have to increase their spending by nearly 6%, just for global consumption to stand still. This seems unlikely to happen, especially when you think what this emerging market consumption is driven by. It’s driven by wages generated by workers employed in factories making stuff for US consumers. When the US consumers stop buying, the factories stop making stuff, and workers don’t get paid, and so they can’t buy stuff for themselves. And they especially can’t buy 6 times as much stuff as they were buying before. Even worse, I worry about what happens to these tens of millions of workers who have been attracted from the countryside and into the crowded, expensive cities to work in the factories. Do they go home quietly and return to the farms? Or do they question the authority of the Chinese government – after all it’s easier to accept the lack of democracy when times are prosperous than when you’re hungry and poor. A US consumer slowdown could have some significant geo-political implications for the world’s most populous nation.
On a lighter note – enter the quiz (see below). You are likely to be in with a shout of winning if you get 10 or more, and you don’t have to have the Alan Greenspan book (second and third prizes) if you really don’t want it. We will substitute for Harry Potter and the Dysfunctional Goblet of Credit on request.