Challenges to the US and Global Economies

HONG KONG - November 3, 2011 - "We are in a period of complexity and uncertainty that is unprecedented in my adult life time” observed former US Treasury Secretary Robert Rubin, while trying to make sense of what is happening in the financial and economic spheres. Speaking at the Asia Society Hong Kong Center's spring gala dinner, Mr. Rubin predicted that the US recovery would continue at a very slow pace, and did not share the optimism common many analysts at the beginning of the year.

"My view was that we faced enormous headwinds – a housing situation, excess capacity, the strained position of consumers, fiscal deficits at federal and state level, the European sovereign debt crisis, and concerns about the effectiveness of government. In the present day, those headwinds are still in existence and some of them have become more serious, so I think growth is likely to be even slower within the range of a slow recovery."

He added that the likelihood of a double dip recession was low, and that any economic recovery required a wholesale repair of the fiscal situation. Still, the former treasury chief is optimistic about America's future in the long run. "I think the long term prospects are very favorable although it is highly likely we’ll have lengthy, messy political processes in order to get where we need."

A critic of the handling of the Eurozone crisis, Mr. Rubin observed, "From day one of the crisis, the political leaders of the Eurozone have been behind the curve. For example, trying to buy time to deal with Greece and its solvency problem in a benign environment. When you try to buy time, markets see through it and get ahead of you. In addressing crises, you need to keep ahead of the markets."

Despite this, he expected the economic and monetary union to remain intact. "The Eurozone will muddle through - not quickly - but over some period of time, rather than fail. The reason for that is simply because the alternative is such enormous chaos and havoc."

Having just visited Beijing, Rubin noted that China has done remarkably well and likely to continue. However he did highlight one concern, the unsustainable trade balance between the US and China.

“We are getting close to the point where the stresses of international imbalances are going to run up against the policies of the two countries and could create serious difficulties for both. Each country has an enormous interest in establishing a more balanced trade relationship. There are non-market factors which need to be addressed because of unsustainability and distortions.”

Mr. Rubin concluded that China was likely to overtake the US as the largest economy in the world and that Asia would become the center of the global economy.

"I believe the US has every opportunity to succeed and join China in the prosperity of the global economy. But for all our countries, there is no room for complacency and there are enormous challenges that we must meet. But if we can, then there is opportunity for this century to be an extraordinary time economically – for Asia, the US and the rest of the world."