The great wealth transfer

In March, Rob Atkinson pointed out that the housing bubble resulted not so much in wealth destruction so as in wealth transfer -- from homeowners to buyers, which also means from the older and wealthier to the younger and less wealthy. Perhaps the broader U.S. debt binge also accelerated wealth transfer from west to east, from the developed world to China, India and other emerging manufacturing centers.

Trade surplus countries were lending to U.S. consumers in order to sell their goods to them. Left unchecked, that's a road to ruin, akin to a nineteenth century London clothier selling on credit to the hopelessly indebted gentry and aristocracy who populate Victorian novels. But the trend was checked -- violently -- and early enough that few see any serious risk that the U.S. Treasury will not be able to meet its obligations.

The U.S. will be paying this debt off for a long time. Household, business and government deleveraging will slow growth. Looking backward, higher interest rates, checking voracious consumerism and reducing U.S. trade deficits, might have led to more gradual and sustainable growth in the trade surplus countries as well as in the U.S.

But still...the turbo-charge to growth in China and India and other emerging manufacturing centers may have been valuable. China at least is now in a position to develop its own consumer market. Painful and risk-laden as the rebalancing of world trade may be, the go-go years' boost to industry and expectations may still prove to have been a net positive for the high-growth, trade surplus emerging economies.

Obama "disarms" the Germans

Among the several key messages delivered by Obama this week that the world is, pardon the expression, "voraciously" consuming, one that's rightly received a lot of attention is his bid to "rebalance" world trade. From the April 1 press conference with Gordon Brown (recounted by Michael Scherer):

"In some ways, the world has become accustomed to the United States being a voracious consumer market and the engine that drives a lot of economic growth worldwide," Obama said, hinting that this position may not be sustainable. "We're going to have to take into account a whole host of factors that can increase our savings rate and start dealing with our long-term fiscal position as well as our current account deficits.

On Friday, he elaborated at length about the U.S. needing to "move from a borrow-and-spend economy to a save-and-invest economy," and about other trade surplus countries' need to boost consumer spending. Scherer emotes that Obama's full answer " could lead to a remaking of the global economy." Okay... but what I find interesting is Obama's means of nudging various parties -- in this case, countries -- in the direction he wants them to go. He has a rooted mental habit of acknowledging the counterpoint to whatever point he's trying to make, and it goes a long way in influencing counterparties. To wit:

Now, the U.S. will remain the largest consumer market, and we are going to make sure that it's open. One of the principles that we very clearly affirmed in London was that protectionism is not the answer. It's not the Germans' fault that they make good products that the United States wants to buy. And we want to make sure that we're making good products that Germans want to buy. But if you look overall, there is probably going to need to be a rebalancing of who's spending, who's saving, what are the overall trade patterns.

This kind of gesture, or series of gestures -- the U.S. will remain the largest consumer market, protectionism is not the answer, the Germans make great products, but...enacts a stated axiom in Obama's political credo. In The Audacity of Hope, in speech after speech over two years (and probably in various ways over twenty years preceding), Obama held up a vision of a reformed politics that entails "acknowledging that the other side may sometimes have a point." He does that in every forum, every speech.