Stop Me Before I Vote Again

Read this, fellow doom lovers. it's a fairly clear and untwisted account of the global trade scene, and it suggests -- well, not doom, but maybe double trouble:

"Taking as read that the great trade collapse was primarily driven by a sudden, synchronised and severe drop in demand, it is clear that trade will recover as demand recovers. Indeed, trade is already bouncing back at a fairly spectacular rate. While the bounce is impressive, it is not unexpected. Indeed all the post-war trade collapses have been followed by very rapid recoveries in trade flows, as Figure 5 [below] shows.

The chart plots the three major trade collapses highlighted above. In the 1982 and 2001 episodes, trade returned to its pre-crisis level in two or three quarters after the nadir; the 1975 crisis took four quarters -- "

"Do global imbalances matter? Is their continued existence driving the world economy towards another global crisis? These are questions on which macroeconomists have not yet formed a consensus. The IMF and World Bank have calmed the waters by projecting reductions in the imbalances of the world’s largest trading nations – especially China and the US.

This column points out that these projections of improving imbalances are almost surely wrong. The rapid collapse of trade between the third quarter of 2008 and the first quarter of 2009 improved most balances of trade. It could not have done otherwise; if both imports and exports drop rapidly, the gap between them drops equally rapidly. In the same mechanistic manner, the recovery of trade flows – a recovery that seems to have started this summer – will almost surely return the US, Germany, China and others to their old paths."

Left to its own devices, the spectacular trade contraction will lead spontaneously to a trade re-expansion and get us back into the wicked imbalances of the Bush II years.

The great contraction is not a great correction. For a great durable correction we need -- as all attentive SMBIVAers know -- some very serious adjustments to various players' incentives, notably through drastic foreign exchange re-alignments.

Likely? -- in a New York syllable -- Naaah!

What's likely is plan B -- also well understood by denizens of pappy Smiff's place -- a protracted job-short credit-cramped expenditure stagnation, primarily inside the leading first world's consumer economies. In other words, slow the trade rebound down, asap, amap.

Now goodness knows that won't solve anything, but it sure will allow the key planetary plutonauts more time to ponder their options. Understandable, given the first rule of exploitation: "do no more harm to the host than does good for you -- except for sport."

Roaring back into massive absolute trade gap territory looks to be... not even all that surely good for the plutonauts, who have no widely shared conception of what the Alabama hell might happen the next time the doom dong sounds.

So, Nascar fans, it's yellow-flag time on the world track.