by Xin Ping
"It's the economy, stupid!" was the defining message in the 1992 U.S. presidential election. It also proves to be true in the just concluded elections. Ironically, while many U.S. politicians still don't know how to get their own economy right, they are quite an expert in doomsaying about others' economies. They think it is the most cost-effective way to bring down a rival economically.
From the "China collapse" theory, China's "overcapacity" myth to the more recent talk of Chinese Generation Z in a "Goblin mode", some in the U.S. are obsessed with fabricating narratives, peddling disinformation and anxiety about China, to erode public confidence in China's economy and spin pessimism.
In fact, some U.S. politicians have faithfully followed the "we lie, we cheat and we steal" doctrine as a way to increase their political clout. They not only lie about China's economy, but also tamper with domestic data to create an overweening U.S. economy and false prosperity, thus putting the world in harm's way.
Many shades of wrong
The U.S. Federal Reserve announced a jumbo-sized interest rate cut in September this year. The market anticipated the move; but the U.S. stock market still dipped the next day.
Fed Governor Christopher Waller said in an interview that it was the encouraging August inflation data— not concerns over a weakening labor market—that convinced him to back an aggressive half-percentage-point interest rate cut. But the fact is that from June to August, unemployment rate remained above 4%, new jobs added dropped to 116,000 per month on average, and July alone saw 1.76 million workers laid off. Waller also predicted more aggressive rate cuts if labor market worsens and economic data continues to come in soft, which seems to suggest that the rate cut decision was made on concerns over the labor market and a "hard landing" in the economy.
The repercussions following the slashed interest rate revealed only the tip of the iceberg of the U.S. economic malaise. U.S. politicians will by no means admit that they are dealing with a problematic economy. All they will do is to gloss over problems by making numbers look nice and pretty. For example, to support Fed's rate-hiking campaign which started in early 2022, the U.S. has been manipulating its non-agricultural employment data—a key economic barometer. From July 2023 to June 2024, the numbers of non-agricultural employees released monthly by authorities are generally much higher than market expectation and predictions. The Bureau of Labor revised downward the number of non-farm jobs created in the 12-month period through March 2024 by 30% to 2.082 million, the largest revision in 15 years. In other words, the data had been inflated by 68,000 monthly on average.
Loopholes are everywhere. According to the U.S. Department of Commerce (DOC), last year's real GDP was up by 2.5% while electricity consumption was down by 1.9%, apparently counter-intuitive given that energy is an input for almost all economic activity. The DOC data shows real GDP increased at an annual rate of 3.0 percent in the second quarter of 2024. However, according to ISM Report on Business, manufacturing PMI in the same period contracted for three consecutive months to below 50%. ISM non-manufacturing index ended the 15-month expansion in April and significantly dropped to 48.8% in June. Which data is telling the truth and who is to be trusted?
Economic bubbles and busts
Behind the rhetoric that "the U.S. is the most powerful country in world history with a robust economy", what is the economic reality of the U.S.?
To deal with the economic aftermath of COVID-19, the U.S. government rolled out quantitative easing policy and "helicopter drops"—unconventional monetary measures to spur domestic economic activity. After that, the Federal Reserve imposed 11 rate hikes to cool down the situation and pretended that consumption and inflation were in good shape. But the whitewashing worsened social plight.
Business bankruptcies surged under the impact of high interest rates. U.S. corporate bankruptcy filings in the first half of 2024 reached the highest level since 2010, according to data from S&P Global Market Intelligence. According to the Daily Mail, nearly 2,600 store closings were announced during the first four months of 2024. The Financial Times reported that start-up failures in the U.S. have risen by 60% in the past year. The US economy downshifted in 2024, registering only 1.4% growth in the first quarter, lower than growth in the second half of 2023. Multiple institutions projected an even slower GDP growth of below 2.5% in 2024.
Will the bubble in the U.S. stock market burst? The U.S. monetary policy in recent years had encouraged large amount of foreign capital inflow into the U.S. stock market. The Dow Jones Industrial Average Index surpassed 40,000 points for the first time ever. The massive hype on AI has made some tech firms overvalued. The "Magnificent Seven" mega-cap stocks, which refers to Apple, Amazon, Alphabet, Meta, Microsoft, Tesla, and Nvidia, first jumped by around 70% in 2023, and then lost $1.1 trillion within just five days in July 2024 due to market fears.
A looming recession
Some big names on Wall Street already warned of a potential stock market crash after the Fed's rate cut was announced. Market expert Michael Oliver who predicted the 1987 stock market crash warned that history may repeat itself. Bank of America analyst Michael Hartnett said the aggressive move of rate cut was causing bubble risk. Economist Harry Dent predicted that bubbles in the stock market may burst between early to mid-2025 which will trigger a crash worse than the 2008 crisis.
Nobel Prize-winning economist Joseph Stiglitz pointed out that the U.S.' seemingly prosperous economy is actually built on huge amounts of debt which sooner or later will devastate the economy. A high level of government debt is like cancer. It makes fiscal policy less effective in dealing with economic crises and even leads to government default, out-of-control inflation and full-scale economic recession. The United States' federal debt doubled in the past decade, reaching an alarming milestone of $35 trillion, or 122% of the GDP. In June, the Congressional Budget Office (CBO) projected that annual net interest costs of federal debt would total US$892 billion, higher than national defense expenditure, and rise to $1.7 trillion in 2034.
"When America sneezes, the world catches cold." Indeed, given the U.S. economic clout in the world system built by itself and its allies, its fiscal and monetary policies will have a global spillover effect. The whole world, especially emerging markets and developing countries, will have to bear the brunt and pay the price for U.S. economic decisions, as was the case in the 2007 subprime mortgage crisis triggered by the Fed's quantitative easing, as well as currency deflation and debt default caused by this round of interest cuts.
The International Monetary Fund projected that China would contribute the biggest share of global economic growth and account for 21 percent of the world's new economic activity, surpassing G7 countries combined. When China serves as an engine for the global economy with its huge market and the world's largest middle class, some U.S. politicians claim otherwise. One should be clear-eyed about what the U.S. is up to. The so-called "China collapse" theory will only prove self-defeating and those who blame others for the U.S.' own problems will win no trust or support.
(The author is a commentator on international affairs, writing regularly for Xinhua News, Global Times, China Daily, CGTN etc. He can be reached at xinping604@gmail.com.)
