When you listen to music, listen in between the notes, where there is no music; listen to the sound of silence.
When you hear the wind rustling in the leaves, listen to the rustling when there is no wind, listen to the sound of silence.
When you hear the sound of your heart in your every breath, listen to the sound of your heart when it is not beating; listen to the sound of silence.
For silence is not of this world. It is from another dimension. If you can hear the silence you can go into another dimension and view our world from there. While noise is worldly, silence is spirituality. The noise in our brains is the noise of want, of worldly desires. If we can fill our minds with silence, we can feel humility.
But silence is nothing and God is no thing and when there was nothing there was silence.
Khusro
Tuesday, December 18, 2007
Thursday, December 13, 2007
Letter to the Pope
Extract
We would like to point out that "holy war¡¨ is a term that does not exist in Islamic languages. Jihad, it must be emphasized,means struggle, and specifically struggle in the way of God.
The authoritative and traditional Islamic rules of war can be summarized in the following principles:
1. Non-combatants are not permitted or legitimate targets.This was emphasized explicitly time and again by the Prophet, his Companions, and by the learned tradition since then.
2. Religious belief alone does not make anyone the object of attack. The original Muslim community was fighting against pagans who had also expelled them from their homes, persecuted, tortured, and murdered them.Thereafter, the Islamic conquests were political in nature.
3. Muslims can and should live peacefully with their neighbors. And if they incline to peace, do thou incline to it; and put thy trust in God (al-Anfal ).
However, this does not exclude legitimate self-defense and maintenance of sovereignty. "
Editorial Comment
A letter signed by 38 Muslim Scholars contains a unified explanation of Issues such as conversion, apostasy, relations with non Muslims etc. This sheds light on these subjects not only for the Pope but also for Muslims worldwide. It needed the Pope to question Islam in order for these scholars to issue a public explanation.
This letter was written a few months back, but the text was not available to me. There is a need for bodies like this to issue their understanding on other issues also on which there is much confusion.
Khusro
Click here to read the text
http://ammanmessage .com/media/ openLetter/ english.pdf
We would like to point out that "holy war¡¨ is a term that does not exist in Islamic languages. Jihad, it must be emphasized,means struggle, and specifically struggle in the way of God.
The authoritative and traditional Islamic rules of war can be summarized in the following principles:
1. Non-combatants are not permitted or legitimate targets.This was emphasized explicitly time and again by the Prophet, his Companions, and by the learned tradition since then.
2. Religious belief alone does not make anyone the object of attack. The original Muslim community was fighting against pagans who had also expelled them from their homes, persecuted, tortured, and murdered them.Thereafter, the Islamic conquests were political in nature.
3. Muslims can and should live peacefully with their neighbors. And if they incline to peace, do thou incline to it; and put thy trust in God (al-Anfal ).
However, this does not exclude legitimate self-defense and maintenance of sovereignty. "
Editorial Comment
A letter signed by 38 Muslim Scholars contains a unified explanation of Issues such as conversion, apostasy, relations with non Muslims etc. This sheds light on these subjects not only for the Pope but also for Muslims worldwide. It needed the Pope to question Islam in order for these scholars to issue a public explanation.
This letter was written a few months back, but the text was not available to me. There is a need for bodies like this to issue their understanding on other issues also on which there is much confusion.
Khusro
Click here to read the text
http://ammanmessage .com/media/ openLetter/ english.pdf
I condemn suicide bombings
The other day as my daughter in law was lecturing on "Islam in America" to a group of Social studies teachers, one participant became very red in the face and hot under the collar. " How come", he questioned, "the Muslims do not come out and condemn suicide bombings." This is a subject that I have heard many right wing people complain about and the Jews are besides themselves in my community about the unfairness and criminality of Suicide Bombings, particularly as they are targeted towards innocent civilians. My liberal Muslim friends are also quite embarrassed about this accusation and echo the same question as the social studies teacher. In fact for this and other reasons my liberal Muslim friends have turned against Islam and and are ready to throw out the baby with the bath water.
I have therefore decided as a Muslim to condemn this act. Mind you the Pope as head of the Catholic church came out quite forcefully against attacking Iraq but the US paid no heed to him. It is therefore unlikely that my condemnation or that of the Ayatollah or other Muslim group of scholars will likely dissuade the Suicide bombers, but the truth must be told. Fairness demands that what is unjust and criminal must be branded as such.
At the same time let me condemn in no uncertain terms that I find reprehensible, the acts of the State of Israel in killing Innocent civilian Palestinians,men, women and children, in deliberately maiming and breaking their bones, in illegally appropriating their lands, in creating homelessness by demolishing their homes, in imposing collective punishment on the Palestinians by denying them water, electricity and tax revenues, by creating roadblocks and bantustans making their daily lives a misery and hell on earth.
I do not blame the Jews for this because these acts are equally reprehensible in Judaism. I do not feign ignorance of Judaism as my own beliefs are inspired by Judaism. I visit temples and Jewish synagogues and get confirmation that Judaism does not sanction the killing of innocent men, women and children. I am not looking for statements from Rabbi's to tell me this. Further proof of this is to be found in the overall condemnation by the Jews of suicide bombings. Surely they would not visit on others what they find repugnant by others.
I would not expect the State of Israel to condemn their own practices but do so only because they claim to be a Jewish state. I do expect their Rabbis to take out processions in Israel to stop this blatant violation of their own beliefs. If the State of Israel was not a Jewish State, I would not expect any such condemnation because I would understand this to be a political matter and not a Religious one. Similar to Israel, the State of Pakistan claims to be a Muslim State, but they practice torture which is not allowed in Islam, have laws that oppress minorities, which is not allowed by Islam. The State of Egypt does not claim to be an Islamic State and they torture people as a matter of routine but for them it is a political matter. Their religious scholars dare not point out that what they do is un Islamic for fear of being tortured themselves. The US is a Secular State and they practice torture although their constitution and their President say that torture is not allowed, but they are still breaking the laws of man and not the laws of God. It is an unwritten law for them that the end justifies the means. Under this belief any thing can be done if the cause is just.
The Muslim Religion is very strong against the taking of innocent lives. I have not heard a different view from any learned Muslim Scholar or even from my Secular Muslim friends. It is true that many of the suicide bombers may have done this as an act of desperation because they saw their brothers, mothers, sisters, fathers killed in front of their eyes, either by Israeli soldiers or American soldiers. Some of them may have become desperate when they saw their friends, their countrymen, their co coreligionist's not just killed or maimed before them but their homes and countries attacked, destroyed, ravaged, and their own lives made impotent and meaningless.
Islam does allow taking up arms in self defense. Islam does allow that you protect yourself and your faith by every means available to you. Islam still does not allow the taking of Innocent lives. In Islam, the end does not justify the means. It is not "suicide bombings" that are criminal. It is the target of the bomber. People who happen to be innocent bystanders. going about their daily lives. If the target were an opposing army or the direct oppressor, there would be some justification for this act but not for attacking women and children. If Muslims did the same thing to the Israelis as the Israelis do to them, then the faith of the Muslims is as weak as that of the Jews.
I try not to impress my views on my daughter in law because for saying half of what I have said today, she could lose her job. She could be ostracised by society and perhaps never find a job in the teaching profession in this country. She would certainly never be invited to speak to other teachers even about Islam. At a minimum she would be called antisemitic. Maybe none of this will happen, after all this is a free society, but she is concerned because it has happened to others. The Principal of a high school in New York was recently forced to resign because she explained the Arabic translation of the word Intefada.
Yet all I have done is to say that I condemn suicide bombings. Fortunately my daughter in law is smarter than I am. She keeps her distance from my writings.
Khusro
I have therefore decided as a Muslim to condemn this act. Mind you the Pope as head of the Catholic church came out quite forcefully against attacking Iraq but the US paid no heed to him. It is therefore unlikely that my condemnation or that of the Ayatollah or other Muslim group of scholars will likely dissuade the Suicide bombers, but the truth must be told. Fairness demands that what is unjust and criminal must be branded as such.
At the same time let me condemn in no uncertain terms that I find reprehensible, the acts of the State of Israel in killing Innocent civilian Palestinians,men, women and children, in deliberately maiming and breaking their bones, in illegally appropriating their lands, in creating homelessness by demolishing their homes, in imposing collective punishment on the Palestinians by denying them water, electricity and tax revenues, by creating roadblocks and bantustans making their daily lives a misery and hell on earth.
I do not blame the Jews for this because these acts are equally reprehensible in Judaism. I do not feign ignorance of Judaism as my own beliefs are inspired by Judaism. I visit temples and Jewish synagogues and get confirmation that Judaism does not sanction the killing of innocent men, women and children. I am not looking for statements from Rabbi's to tell me this. Further proof of this is to be found in the overall condemnation by the Jews of suicide bombings. Surely they would not visit on others what they find repugnant by others.
I would not expect the State of Israel to condemn their own practices but do so only because they claim to be a Jewish state. I do expect their Rabbis to take out processions in Israel to stop this blatant violation of their own beliefs. If the State of Israel was not a Jewish State, I would not expect any such condemnation because I would understand this to be a political matter and not a Religious one. Similar to Israel, the State of Pakistan claims to be a Muslim State, but they practice torture which is not allowed in Islam, have laws that oppress minorities, which is not allowed by Islam. The State of Egypt does not claim to be an Islamic State and they torture people as a matter of routine but for them it is a political matter. Their religious scholars dare not point out that what they do is un Islamic for fear of being tortured themselves. The US is a Secular State and they practice torture although their constitution and their President say that torture is not allowed, but they are still breaking the laws of man and not the laws of God. It is an unwritten law for them that the end justifies the means. Under this belief any thing can be done if the cause is just.
The Muslim Religion is very strong against the taking of innocent lives. I have not heard a different view from any learned Muslim Scholar or even from my Secular Muslim friends. It is true that many of the suicide bombers may have done this as an act of desperation because they saw their brothers, mothers, sisters, fathers killed in front of their eyes, either by Israeli soldiers or American soldiers. Some of them may have become desperate when they saw their friends, their countrymen, their co coreligionist's not just killed or maimed before them but their homes and countries attacked, destroyed, ravaged, and their own lives made impotent and meaningless.
Islam does allow taking up arms in self defense. Islam does allow that you protect yourself and your faith by every means available to you. Islam still does not allow the taking of Innocent lives. In Islam, the end does not justify the means. It is not "suicide bombings" that are criminal. It is the target of the bomber. People who happen to be innocent bystanders. going about their daily lives. If the target were an opposing army or the direct oppressor, there would be some justification for this act but not for attacking women and children. If Muslims did the same thing to the Israelis as the Israelis do to them, then the faith of the Muslims is as weak as that of the Jews.
I try not to impress my views on my daughter in law because for saying half of what I have said today, she could lose her job. She could be ostracised by society and perhaps never find a job in the teaching profession in this country. She would certainly never be invited to speak to other teachers even about Islam. At a minimum she would be called antisemitic. Maybe none of this will happen, after all this is a free society, but she is concerned because it has happened to others. The Principal of a high school in New York was recently forced to resign because she explained the Arabic translation of the word Intefada.
Yet all I have done is to say that I condemn suicide bombings. Fortunately my daughter in law is smarter than I am. She keeps her distance from my writings.
Khusro
Wednesday, December 12, 2007
Authority
You will not get what you want unless you ask for it. You will not get to where you want to go unless you travel. You do not know how much authority you have unless you assert it.
Khusro
Khusro
Life on Earth
Pure worldliness takes us away from Spirituality and yet Spirituality demands that we be worldly. The Challenge is to convert worldliness into a spiritual experience. The challenge is to practice Humility.The challenge is to have faith and to believe in God.
Khusro
Khusro
How the world Financial System is changing
Extract
"A mixture of crony capitalism and gross incompetence has been on display in the core financial markets of New York and London. From the “ninja” (no-income, no-job, no-asset) subprime lending to the placing (and favourable rating) of assets that turn out to be almost impossible to understand, value or sell, these activities have been riddled with conflicts of interest and incompetence. In the subsequent era of “revulsion”, core financial markets have seized up (see charts)." Martin Wolf, Financial Times.
Editorial Comment
The subprime lending crises has changed the face of world finances. It was a disaster waiting to happen and when it did, it was surprisingly dealt with by the new forces in the market place. Forces which had hitherto been unrecognised. Firstly there was a substantial loss of credibility for the US markets both amongst Europeans and other major investors but secondly and most importantly there emerged an alternative source of Liquidity and Investments which had sufficient depth and clout to stabilise the world.
It is less important that Abu Dhabi bailed out CitiBank and that Singapore bailed out UBS, It is more important that they were allowed to. Just one year back Sovereign funds were considered as threats to Western Security, now there is a queue forming outside their offices begging for participation.
Emerging market Stock Markets which had been regarded as fringe Investments are suddenly being considered preferred Investments. Oil producing Countries are switching out of the Dollar and into a basket of currencies. A move which a few years back would have brought about a full scale attack on them by US Marines.
If the US goes into a recession the world will not follow suit. Another myth falls by the wayside. The US is no longer the engine that fuels the world economically. It is still a big engine but one that in due coarse is beginning to look more like a liability than an asset.
The speed and viciousness with which Capitalism is coming unstuck is breath taking. All of a sudden the long rope of greed, exploitation, opportunism and short term thinking has formed into a noose around it's neck. The two largest exports of the US to date, Democracy and Capitalism stand discredited. How can you export ideas that you are unable to practice yourself.
Right now there is a conspiracy a foot to save the system. The rating Agencies, The market Analysts, the Stock brokers, The Investment Analysts, The US Treasury, The Federal Reserve, The Banks, The media are all in cahoots to come up with self serving ideas to preserve the way of life that they have known. The fact this way of life is devoid of fairness and justice to others seems to bother no one.
Economists’ forum - Nov-16
Every week, 50 of the world’s most influential economists discuss Martin Wolf’s articles on FT.com
First and most important, what is happening in credit markets today is a huge blow to the credibility of the Anglo-Saxon model of transactions-orientated financial capitalism. A mixture of crony capitalism and gross incompetence has been on display in the core financial markets of New York and London. From the “ninja” (no-income, no-job, no-asset) subprime lending to the placing (and favourable rating) of assets that turn out to be almost impossible to understand, value or sell, these activities have been riddled with conflicts of interest and incompetence. In the subsequent era of “revulsion”, core financial markets have seized up (see charts).
Second, these events have called into question the workability of securitised lending, at least in its current form. The argument for this change – one, I admit, I accepted – was that it would shift the risk of term-transformation (borrowing short to lend long) out of the fragile banking system on to the shoulders of those best able to bear it. What happened, instead, was the shifting of the risk on to the shoulders of those least able to understand it. What also occurred was a multiplication of leverage and term-transformation, not least through the banks’ “special investment vehicles”, which proved to be only notionally off balance sheet. What we see today, as a result, is a rapid shrinkage of markets in asset-backed paper (see chart).
Third, the crisis has opened up big questions about the roles of both central banks and regulators. How far, for example, do the responsibilities of central banks as “lender-of-last-resort” during crises stretch? Should they, as some argue, be market-makers-of-last resort in credit markets? What, more precisely, should a central bank do when liquidity dries up in important markets? Equally, the crisis suggests that liquidity has been significantly underpriced. Does this mean that the regulatory framework for banks is fundamentally flawed? What is left of the idea that we can rely on financial institutions to manage risk through their own models? What, moreover, can reasonably be expected of the rating agencies? A market in US mortgages is hardly terra incognita. If banks and rating agencies got this wrong, what else must be brought into question?
Fourth, do you remember the lecturing by US officials, not least to the Japanese, about the importance of letting asset prices reach equilibrium and transparency enter markets as soon as possible? That, however, was in a far-off country. Now we see Hank Paulson, US Treasury secretary, trying to organise a cartel of holders of toxic securitised assets in the “superSIV”. More importantly, we see the US Treasury intervene directly in the rate-setting process on mortgages, in an attempt to shore up the housing market. Either, or both, of these ideas might be good ones (though I strongly doubt it). But they are at odds with what the US has historically recommended to other countries in a similar plight. Not for a long time will people listen to US officials lecture on the virtues of free financial markets with a straight face.
Fifth (and here we start to move from the questions about the workings of the financial system to global macro-economic implications), the crisis signals a necessary re-rating of risk. It turns out that it also represents a move towards holding more transparent and liquid assets, as one would expect. This correction is altogether desirable. It has, moreover, been selective. It is a striking feature of what has happened that emerging markets have emerged as a safe haven as investors run away from US households. For those in emerging economies, this must be sweet revenge. They should not cheer too soon. Today’s favourites may be brutally discarded tomorrow.
Sixth, this event may well mark the limits to the US role as consumer of last resort in the world economy. As the Organisation for Economic Co-operation and Development notes in its latest Economic Outlook, the correction is well under way. In 2007, it forecasts, US final domestic demand will grow by just 1.9 per cent, down from 2.9 per cent in 2006. It forecasts a further decline, to growth of 1.4 per cent, next year. In both years, net exports will make a positive contribution to growth: 0.5 percentage points in 2007 and 0.4 percentage points in 2008, as the trade deficit shrinks in real terms. In this way, the US is re-importing the stimulus it exported to the rest of the world in previous years. The credit crunch is quite likely to accelerate this process. So the US needs strong growth of net exports. For this reason, policymakers are relaxed about the dollar’s fall, provided it does not awaken fears of rapidly rising inflation.
Seventh, a US recession is possible. Whether it happens depends overwhelmingly on consumers. The principal counterpart of the external deficits has been the excess of spending over income by households. That has meant negligible savings and a big jump in household debt: mortgage debt jumped from 63 per cent of disposable incomes in 1995 to 98 per cent in 2005. This rising trend is unlikely to continue in a falling housing market. Unwillingness (or inability) to borrow on such a scale will, in turn, hamper the effectiveness of US monetary policy. That, in turn, makes a weak dollar and strong export growth yet more important.
Last but not least, this event also has big significance for the game of “pass-the-external-deficits” that has characterised the world economy for several decades. It has proved virtually impossible for emerging market economies to run large deficits, without running into crises. Over the past decade, the US filled the (growing) gap as ever-larger borrower of last resort. This epoch has probably now ended. But the surpluses being run by China and Japan, by oil exporters and, within the European Union, by Germany continue to grow. If we are to enjoy global macro-economic stability, a creditworthy set of countervailing borrowers must emerge. If the US ceases to increase its absorption of the growing savings surpluses being generated elsewhere, which countries will be able and willing to do so?
Experience teaches that big financial shocks affect patterns of lending and spending across the world. Originating, as it does, at the core of the world economy, this one will do so, too. The question is how stable and dynamic the world economy that emerges will be.
"A mixture of crony capitalism and gross incompetence has been on display in the core financial markets of New York and London. From the “ninja” (no-income, no-job, no-asset) subprime lending to the placing (and favourable rating) of assets that turn out to be almost impossible to understand, value or sell, these activities have been riddled with conflicts of interest and incompetence. In the subsequent era of “revulsion”, core financial markets have seized up (see charts)." Martin Wolf, Financial Times.
Editorial Comment
The subprime lending crises has changed the face of world finances. It was a disaster waiting to happen and when it did, it was surprisingly dealt with by the new forces in the market place. Forces which had hitherto been unrecognised. Firstly there was a substantial loss of credibility for the US markets both amongst Europeans and other major investors but secondly and most importantly there emerged an alternative source of Liquidity and Investments which had sufficient depth and clout to stabilise the world.
It is less important that Abu Dhabi bailed out CitiBank and that Singapore bailed out UBS, It is more important that they were allowed to. Just one year back Sovereign funds were considered as threats to Western Security, now there is a queue forming outside their offices begging for participation.
Emerging market Stock Markets which had been regarded as fringe Investments are suddenly being considered preferred Investments. Oil producing Countries are switching out of the Dollar and into a basket of currencies. A move which a few years back would have brought about a full scale attack on them by US Marines.
If the US goes into a recession the world will not follow suit. Another myth falls by the wayside. The US is no longer the engine that fuels the world economically. It is still a big engine but one that in due coarse is beginning to look more like a liability than an asset.
The speed and viciousness with which Capitalism is coming unstuck is breath taking. All of a sudden the long rope of greed, exploitation, opportunism and short term thinking has formed into a noose around it's neck. The two largest exports of the US to date, Democracy and Capitalism stand discredited. How can you export ideas that you are unable to practice yourself.
Right now there is a conspiracy a foot to save the system. The rating Agencies, The market Analysts, the Stock brokers, The Investment Analysts, The US Treasury, The Federal Reserve, The Banks, The media are all in cahoots to come up with self serving ideas to preserve the way of life that they have known. The fact this way of life is devoid of fairness and justice to others seems to bother no one.
Over the years the world has been trained to look at the US as a borrower of last resort. This has meant that the world has saved and the US has consumed. This was a formula built for the US. It does not follow that The US will be replaced by another consumer country. This is a system built on inequality. If there were more rich countries, they would all be consumers also and then one country would not account for consuming 25% of the worlds resources.
Khusro
Why the credit squeeze is a turning point for the world
By Martin Wolf
Published: December 11 2007 19:24 Last updated: December 12 2007 07:53
These are historic moments for the world economy. I felt the same during the emerging market financial crises of 1997 and 1998 and the bubble in technology stocks that burst in 2000. This “credit crunch” may, I believe, be an equally important turning point for financial markets and the world economy. Why do I believe this? Let me count the ways.
Economists’ forum - Nov-16
Every week, 50 of the world’s most influential economists discuss Martin Wolf’s articles on FT.com
First and most important, what is happening in credit markets today is a huge blow to the credibility of the Anglo-Saxon model of transactions-orientated financial capitalism. A mixture of crony capitalism and gross incompetence has been on display in the core financial markets of New York and London. From the “ninja” (no-income, no-job, no-asset) subprime lending to the placing (and favourable rating) of assets that turn out to be almost impossible to understand, value or sell, these activities have been riddled with conflicts of interest and incompetence. In the subsequent era of “revulsion”, core financial markets have seized up (see charts).
Second, these events have called into question the workability of securitised lending, at least in its current form. The argument for this change – one, I admit, I accepted – was that it would shift the risk of term-transformation (borrowing short to lend long) out of the fragile banking system on to the shoulders of those best able to bear it. What happened, instead, was the shifting of the risk on to the shoulders of those least able to understand it. What also occurred was a multiplication of leverage and term-transformation, not least through the banks’ “special investment vehicles”, which proved to be only notionally off balance sheet. What we see today, as a result, is a rapid shrinkage of markets in asset-backed paper (see chart).
Third, the crisis has opened up big questions about the roles of both central banks and regulators. How far, for example, do the responsibilities of central banks as “lender-of-last-resort” during crises stretch? Should they, as some argue, be market-makers-of-last resort in credit markets? What, more precisely, should a central bank do when liquidity dries up in important markets? Equally, the crisis suggests that liquidity has been significantly underpriced. Does this mean that the regulatory framework for banks is fundamentally flawed? What is left of the idea that we can rely on financial institutions to manage risk through their own models? What, moreover, can reasonably be expected of the rating agencies? A market in US mortgages is hardly terra incognita. If banks and rating agencies got this wrong, what else must be brought into question?
Fourth, do you remember the lecturing by US officials, not least to the Japanese, about the importance of letting asset prices reach equilibrium and transparency enter markets as soon as possible? That, however, was in a far-off country. Now we see Hank Paulson, US Treasury secretary, trying to organise a cartel of holders of toxic securitised assets in the “superSIV”. More importantly, we see the US Treasury intervene directly in the rate-setting process on mortgages, in an attempt to shore up the housing market. Either, or both, of these ideas might be good ones (though I strongly doubt it). But they are at odds with what the US has historically recommended to other countries in a similar plight. Not for a long time will people listen to US officials lecture on the virtues of free financial markets with a straight face.
Fifth (and here we start to move from the questions about the workings of the financial system to global macro-economic implications), the crisis signals a necessary re-rating of risk. It turns out that it also represents a move towards holding more transparent and liquid assets, as one would expect. This correction is altogether desirable. It has, moreover, been selective. It is a striking feature of what has happened that emerging markets have emerged as a safe haven as investors run away from US households. For those in emerging economies, this must be sweet revenge. They should not cheer too soon. Today’s favourites may be brutally discarded tomorrow.
Sixth, this event may well mark the limits to the US role as consumer of last resort in the world economy. As the Organisation for Economic Co-operation and Development notes in its latest Economic Outlook, the correction is well under way. In 2007, it forecasts, US final domestic demand will grow by just 1.9 per cent, down from 2.9 per cent in 2006. It forecasts a further decline, to growth of 1.4 per cent, next year. In both years, net exports will make a positive contribution to growth: 0.5 percentage points in 2007 and 0.4 percentage points in 2008, as the trade deficit shrinks in real terms. In this way, the US is re-importing the stimulus it exported to the rest of the world in previous years. The credit crunch is quite likely to accelerate this process. So the US needs strong growth of net exports. For this reason, policymakers are relaxed about the dollar’s fall, provided it does not awaken fears of rapidly rising inflation.
Seventh, a US recession is possible. Whether it happens depends overwhelmingly on consumers. The principal counterpart of the external deficits has been the excess of spending over income by households. That has meant negligible savings and a big jump in household debt: mortgage debt jumped from 63 per cent of disposable incomes in 1995 to 98 per cent in 2005. This rising trend is unlikely to continue in a falling housing market. Unwillingness (or inability) to borrow on such a scale will, in turn, hamper the effectiveness of US monetary policy. That, in turn, makes a weak dollar and strong export growth yet more important.
Last but not least, this event also has big significance for the game of “pass-the-external-deficits” that has characterised the world economy for several decades. It has proved virtually impossible for emerging market economies to run large deficits, without running into crises. Over the past decade, the US filled the (growing) gap as ever-larger borrower of last resort. This epoch has probably now ended. But the surpluses being run by China and Japan, by oil exporters and, within the European Union, by Germany continue to grow. If we are to enjoy global macro-economic stability, a creditworthy set of countervailing borrowers must emerge. If the US ceases to increase its absorption of the growing savings surpluses being generated elsewhere, which countries will be able and willing to do so?
Experience teaches that big financial shocks affect patterns of lending and spending across the world. Originating, as it does, at the core of the world economy, this one will do so, too. The question is how stable and dynamic the world economy that emerges will be.
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