The european sovereign debt crisis and fiscal cliff are two major examples of bad governoring. The lack of political to make the tough choices and compromise was replaced with this kicking of the can mentality which has erroded confidence in not only the politicans ability to lead but there is no more road to kick that proverbial can. This just shows you that as with action, inaction also has its consequences.
I remember sitting in the congressional dining room with a member of congress during the time Congress was at odds raising the debt ceiling and I was asked if they did not raise the debt ceiling could there really be negative consequences. Frightening but a true story. Unfortunately, what I told the Representative what could happen came true. US credit was downgraded and the markets took a hit. This tees up Wang’s thoughts on how politics can impact the global economy. Let’s see if Congress can learn from their mistakes of not passing TARP the first time and not raising the debt ceiling when they should have.
Below is an excerpt from Gerry Wang’s look at how politics is influencing the global economy.
The following is an excerpt of Dynasties of the Sea. Copyright, Marine Money International:
Wang says one of the biggest challenges facing the global economy is getting business leaders to understand the opposing realities of economics and politics. He used the Greek sovereign debt crisis as an example.
“Politicians are naïve a lot of times, particularly when it comes to trade negotiations and things like that. For example, when Greece was first in trouble, the E.U. promised too much and made a lot of promises that were not being honored. Their decisions were naïve and premature,” Wang said.
One area political leaders need to understand, he continued, is the impact of their decisions. “Their decisions and consequences are interlinked. There are too many super-rich people and there are too many super-poor people. The disparity is widening, and the middle class is not there.”
Wang, a Canadian citizen, was born and raised in China. He says some in the markets have tried to understand China’s attempt to slow down its economy, but they are missing the point. “The Chinese realize too much industrialization is not good for long-term sustainability. So they’ve adjusted their GDP growth by 3-5%. I have great confidence that they will be able to achieve that. I think they probably will be able to get down to 8, 8½%,” he said. “But I think it’s a necessary adjustment.”
China is depressing housing prices to slow down the economy, Wang said. While this decision may be viewed as negative outside of China, Wang said that is not so. “People misunderstand the situation there. In the U.S., they want housing prices to go up. Whereas, in China they want housing prices to go down, because they’re talking about the social equality. They’re talking about developers making too much money. They want their house prices to go down. So, when you see the Chinese housing prices dropping, it is a positive sign! It’s what they want!” he emphasized. “Short-sellers like hedge fund manager, Jim Chanos, president and founder of Kynikos Associates, don’t understand that. They have a different agenda. They misunderstand China’s strategy. They are short sellers of the stocks of Chinese companies so they can make huge profits by taking China low.”