Will the world ever be healed?
When the news broke that the Federal Reserve had decided to keep interest rates the same about two weeks ago, I was at Bloomberg’s offices in Washington, D.C. An editor there asked me if I had heard the news.
“Yes,” I said. “I guess the world’s economic system needs more time to heal.”
His response: “Will that ever happen?”
The answer, of course, is no. The current crisis du jour is the migrant/refugee tragedy that is unfolding in the Middle East and Europe.
Only six months ago, the subject was the economic uncertainty of Greece and the European economy.
While the refugee crisis is unfolding, we are trying to determine the size of the economic wound suffered in China. Its stock market remains unsettled, and its economy is slowing. How big is the bubble that has burst?
The cautious approach of the Fed makes sense, and was born out this week with the jobs report on Friday. America is sailing along with low gas prices and low (yet unsteady) unemployment. Many other economies are tanking. Russia, Brazil and China — three of the so-called BRIC countries — are in recession. Europe remains unsteady, and Mexico is hit hard by the drop in oil prices.
The go-slow approach is a good strategy for Missouri, where exports matter. Two of our top three trading partners – Mexico and China – are being pinched. Canada, which is in the middle of a heated election campaign, is our top trading partner.
In human relations, it’s far better to not rock the boat when it might impact your friends. The same is true in economics, especially if one of your friends holds a mountain of your debt and your two neighbors are two major energy suppliers.
We have seen what it was like to go through the crisis of 2007-08 in America. We almost lost our biggest auto manufacturing company. Our banks collapsed. Unemployment skyrocketed to 10 percent. Housing prices tanked. Never have I seen anything collapse so quickly in my lifetime.
Another reason to back the Fed is America is not truly recovered. After three straight months of gains, housing sales sunk in August. The jobs numbers slumped in September, showing the China slowdown is already having an impact.
About 10 percent of Americans are not fully employed, meaning that they’re working part-time and have not found full-time work. The number may be actually higher, meaning America is still struggling with underemployment.
Wages increases have also stagnated. While many are now getting jobs, they are not seeing annual increases that keep up with living standards.
We have an extraordinary number of people who are now working two jobs to make ends meet.
Our markets have been uneven over the last few months. So our 401(k) plans are still struggling.
Americans can’t assume that our world – no matter how imperfect in our eyes – is the world seen through the economic kaleidoscope in Asia, Europe and Latin America.
We don’t yet know the bottom of the trough of the European and Chinese puzzles. And that may take a while, a few months or perhaps longer. We must be patient – for our own good.
Randall D. Smith is the Donald W. Reynolds Chair in Business Journalism at the Missouri School of Journalism and is the founder of Missouri Business Alert. He can be reached at firstname.lastname@example.org.