TWO ECONOMIES, DIFFERENT REMEDIES

1. Marketing Management Southern Taiwan University of Technology TWO ECONOMIES,DIFFERENT REMEDIES

2. GROUP V

3. Contents 1 The socialist system’s advantages 2 Critics arguments Chines strategy favors State-Owned Companies 3 America September 7,2010 4 5 U.S economy situation 6 Remedy problems of U.S economy

4. The socialist system’s advantages • Chinese government has pumped public money into companies that it expects to upgrade the industrial base and employ more people. • China surpassed Japan to become the world’s second-large economy. • China state-directed development model is enormously appealing to poor countries.

5. Political system of China The socialist system’s advantages The system of China enable to make decisions efficiently, organize effectively and concentrate resources to accomplish large undertakings. Economic policy of China China’s always had major industrial policy Reforms of China 1980s reforms that unleashed China’s private sector and the 1990s reforms that dismantled great sections of the sate-run sector are being partly undone.

6. CRITICS ARGUMENT Yao Yang – “ The problem is that the reforms of the first 20 years, from 1978-’90s, actually did not touch the power of the government. So after the other reforms were finished, you actually find the government is expanding, because there is no check and balance on its power.” Others argue that the government continue to expand public sector even if they lose money causing a worn out capital from government budget Some people believe that the government, being over confident with a top-down economy strategy might push growth rates down well before 2020 Reforms that led to growth are being undone.

7. Chinese Strategy favors State-Owned Companies • In 2009- expansion of the government role in corporate sector • “They´re producing yogurt. They´re into real estate.” • 8000 state-owned investment companies • Case of Zhejiang Geely Holding Group • Reasons for state´s involvement in business?? necessity for mercenaries state´s growth

8. Chinese Strategy favors State-Owned Companies • Global market vs. Local market- who needs government? • “ profound inequality” • State-owned conglomerates are becoming new political power centers • Some restrictions for state-owned companies to enter the real estate or lending areas • China´s top-down strategy is successful (i.e. Japan and South Korea) • Two questions: ? For how long can state control those vast areas of the economy? ? If that strategy stop working, will China be able to change it?

9. Americaseptember 7,2010 • Internet explosion in 1990s • Borrowing against rising values – spending on furniture>COLAPSE of American housing prices • hope & fear – growth or new recession • Economic growth in 2nd quarter slowed>qovernment can’t deliver right intervention > ?

10. Americaseptember7,2010 • Investing against new elections ( November ) • Dramatic expansion of debt during Bush administration (tax cuts and two wars) • Increased fears among creditor like China and Japan of rising interest rate > inflation(rising prices) • Merchant lose faith in US$ > demend more money for oil, electronics etc.

11. US Economy Situation • Great Recession • Dearth of Policy • Economic Stagnation • Deflation • Economic Turndown

12. US Economy Situation The US economy has suffered a real estate collapse, a stock market crash, a banking crisis, a near systemic collapse on a global scale, a credit crisis, the worst economic downturn in the US since the Great Depression, and an unprecedented global recession.  Following two sequential economic bubbles, the dot-com bubble and the real estate bubble.

13. US Economy Situation Both inflation and deflation are occurring at the same time. The US gross domestic product and consumer spending are declining while stock prices are rising; that government spending is rising while tax revenues are falling; that consumers are deleveraging and that the flow of credit has slowed while the total of debts and liabilities in the US economy continues to rise; that the US dollar is falling while price inflation remains nominal; that interest rates are near zero for banks but rising for consumers. 

14. US Economy Situation Inflation, of course, is simply an increase in the money supply rather than rising prices, which is one of the effects of inflation. Deflation is simply a reduction in the money supply rather than falling prices, which are one of the effects of deflation.  Nonetheless, the effects of inflation can always be seen in the long run in consumer prices, i.e., the dollar looses value as a function of monetary inflation thus prices tend to rise.

15. The Federal Government’sRole in Economy • Monetary policy • Fiscal Policy • Regulation

16. Direct Effect of Economic Turndown’s on Consumers • High unemployment • High underemployment (part-time work instead of full-time, lower wages than abilities warrant, and discouraged and stopped looking for work) • Decrease in consumer revolving credit (credit cards) • Increased savings • Decreased wealth, including home values, stock, mutual funds, 401k’s, etc • Low consumer confidence • The result of all the above – decreased consumer spending

17. Remedy for problems of U.S economy The ways to attack deflation The Fed reserve adjusts a benchmark overnight rate for banks. The Fed relieved American banks of trouble in troubled investments. To inject credit in to the economy.

18. Ideas of experts At first: dismissed the idea “American’s political system would allow the country to sink in to a Japan’s style quagmire”. Now: he says a lost decade now looms as “ a much bigger risk”. Alan Blinder The issue is not whether we have the tools to help support economic activity and guard against deflation. It is instead whether, at any given juncture, the benefits of each tool, intern of additional stimulus… Bens.Bernace:

19. Q&A TWO ECONOMIES,DIFFERENT REMEDIES

20. Thank You!