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Lee Kuan Yew
Lee Kuan Yew, first prime minister of Singapore, 1959-90, and now, at 86, Minister Mentor, is one of the most respected figures in the world. Recently, he had some comments on prospects for the American economy, as relayed in the Straits Times of Singapore.
“There are many opinions on this, but I think the majority opinion, and one which I subscribe to, is that the recovery will not be V-shaped.
“Consumers are heavily in debt. Their credit cards are unpaid and the values of their housing assets have collapsed. So they feel poor. Unemployment is growing and just beginning to slow down, but still very high.
“So the consumer is not in a position to spend. Therefore the economy will just bounce along at 2 percent, 2.5 percent or 1 percent for a few years, until optimism returns and unemployment is down, and they say, okay, tomorrow will be a sunny day, let’s buy.
“But I think this time, they’re a bit more cautious, and the banks will be cautious in lending them the money. So we’ll have to put up with the slow growth.
“Meanwhile, because China and India are growing, depending on the domestic market, more of them will export now.
“Their neighbors, including Japan, South Korea, Taiwan and ourselves, are getting a lift which we otherwise would not get.
“I think our position would be worse if China and India were not growing. But you can’t go back to what the Americans were doing for us because they were such big consumers.”
On America’s key role in global economic recovery:
“America must recover. It is still the world’s largest economy and consumer. Yes, China has 1.3 billion people, but Chinese consumption is one-sixth of American consumption. American gross domestic product is 72 percent consumer-based. The Chinese economy is about one-fourth or one-fifth the American economy, and only 37 percent is consumer-based. They all keep their money with them in case they get sick and have to see the doctor.
“So the Americans are hoping that the Chinese will have social security support for medicine, for unemployment and so on, and will spend his money instead of keeping it for an emergency.
“The Chinese leaders understand that, but they are very cautious because they have 1.3 billion people. If you start giving subsidies for health, you end up with a very big hole in your budget.
“The Americans want the Chinese to consume more, export less and raise the value of the renminbi. But the Chinese are scared to do that because they will have unemployment and the cities will suddenly have riots.
“So this is a very big problem for the world. There’s a misalignment of the currencies. If the Chinese do not revalue, the Asian currencies cannot revalue. If we make our currency cheap and China stays as it is and follows the American currency down, then we will run into trouble.
“So, this is a deadlock. I don’t know, I suppose over time, the Chinese will find a way to gradually reduce their exports and increase domestic consumption, which they know is necessary.”
Wall Street History will return Jan. 4 with a look at the numbers for 2009.