Jonathan Todd

Professor Michael Pettis offers a persuasive global economic overview. He notes China’s status as the leading current account surplus country. Ultimately, fiscal expansion, such as that recently taken forward by Alistair Darling and Gordon Brown, in deficit countries, like the UK, can only be “a temporary measure aimed only at assisting the transition among China and other major current account surplus countries from an over-reliance on exports to absorb capacity”. He, therefore, continues to be haunted by John Maynard Keynes’ nightmare: surplus accounts. Where does he think we will end up if these surplus accounts go uncorrected?

“The world cannot support indefinitely continued debt-financed overconsumption on the part of the US, whether this consumption takes place at the private or public level, and it cannot support continued growth in Chinese capacity without more rapid growth in Chinese consumption.  To continue in this way almost certainly means little more than to postpone a larger and more difficult adjustment on the part of both countries, and will probably eventually lead to a collapse in international trade”.

Troubled times, indeed. But, at least, the US is going to soon be under superior leadership. And the special relationship will help the UK steer through any choppy waters, right? Well, it may no longer be safe as houses (and how safe is that?) if it needs to rest upon an Obama-Cameron axis.  It seems that Obama takes a dim view of the pro-American and Eurosceptic mix offered up by Cameron. 

Where does this leave the UK? A senior Labourite is reported as reacting to Obama’s view on Cameron by saying: “Obama will want to work with a united Europe, not the 27 divided nations envisaged by a David Cameron, William Hague and [the Eurosceptic backbencher] Bill Cash vision of Europe. Tory isolationism is the last thing Obama’s new foreign policy team will want from London”.

In a world potentially ruptured by a trade war emanating from the Pacific, the kind of squabbles across the Channel that have personified Cameron’s approach to foreign policy seem pathetically irrelevant and marginal. What a contrast with the global reverence and respect which Gordon Brown’s economic management has recently earned.