Green shoots a mirage in economic desert (don't be fooled by fake recovery)

So that's all right then. Almost a year into the worst recession to afflict Britain and the West since the Second World War and we are, say the optimists, over the worst. “The End” is no longer nigh but, suddenly, the end of the slump is. In the barren desert of economic gloom an oasis of hope, lush with “green shoots”, at last shimmers on the horizon.

Or does it? Alas these rose-tinted visions of a rapid revival from recession are almost certainly a cruel mirage. For fearful families, fretful businesses, edgy investors, and — most of all — tormented financiers and desperate politicians, all craving a swift return to the good times, the present chorus of upbeat and reassuring responses to the persistent question “are we nearly there yet?” is little more than wishful thinking.

Sure, there are the first, tentative signs that the vicious first phase of this wrenchingly brutal recession may be passing. The pace of the slump in the present quarter, here and across the world, is likely to be markedly less than the headlong plunge of the past six months. The massive response by governments and central banks, pretty much unprecedented in scale and speed, ought to have begun to slow the rate of decline — and seems to have done so. That much is welcome. But, crucially, we are still going down, and quite fast.

I am fully convinced that there is no crisis, that this is purely an economic reichstag fire to enact totalitarian controls.

this is just another “don’t believe your eyes” article.

Don’t believe your eyes about global warming, don’t believe your eyes about the economy.

Just another article telling you what to think. Back in a more reasonable day the headline would not have been “zis is vot ve vant you to sink”, the headline would have been “here is what I think”

But it is the third worry that is the gravest, most complex and most intractable. As Stephen Roach, of Morgan Stanley, highlights in a recent article for McKinsey, the consultancy, the most disturbing facet of the response to this crisis is that leaders of the key economies have so far failed utterly to confront the titanic, deep-seated global economic imbalances that lie at the root of the world's present plight.

Instead, leaders have focused their energies on damage limitation. Yet by doing so, and by failing to address the big picture, they risk perpetuating forces that will be permanently and profoundly destabilising.

It is to these notorious “imbalances” that we can trace the origins of the catastrophic bust being endured in the US. On one side of the imbalance, America spent most of the last decade on a runaway binge of excessive consumption, fuelled by an unsustainable boom in house prices and a credit bubble inflated by cheap money.

On the other side of what turned out to be a Faustian pact sits China. A Chinese savings boom as excessive as the US consumer binge provided the ultimate source of the cheap cash that Americans proved so eager to spend on cheap imported Chinese goods. As long as China's exports boomed, Beijing was happy to finance a ballooning American trade deficit by buying ever greater quantities of US Treasury bonds. In turn, as China piled up these seemingly limitless quantities of dollars, it kept its exchange rate low, its products cheap - and Americans eager to buy. And Americans' access to the ever-bigger borrowings needed to keep on buying was subsidised, too, as China's T-bond buying kept down US market interest rates.

As Mr Roach observes, that great game is now over. Yet both Washington and Beijing still seem intent on trying to press the reset button and resume playing. US measures to fight the recession are concentrated on shoring up and reviving consumption. In China, efforts are focused on infrastructure investment to enhance the country's ability to produce rather than stimulate the higher levels of consumer demand needed if the world economy is to “rebalance".Savings in China mean capital for the government, not for consumers.

Both Washington and Beijing are consolidating power at the center, getting ready for war.

On the other side of what turned out to be a Faustian pact sits China. A Chinese savings boom as excessive as the US consumer binge provided the ultimate source of the cheap cash that Americans proved so eager to spend on cheap imported Chinese goods. As long as China’s exports boomed, Beijing was happy to finance a ballooning American trade deficit by buying ever greater quantities of US Treasury bonds. In turn, as China piled up these seemingly limitless quantities of dollars, it kept its exchange rate low, its products cheap - and Americans eager to buy. And Americans’ access to the ever-bigger borrowings needed to keep on buying was subsidised, too, as China’s T-bond buying kept down US market interest rates.”

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