The Great U.S. Recession

The 2008-2009 financial meltdown in the U.S. is shaping up as the Great Recession. With job losses rising, credit facilities diminishing and the billions of rescue dollars to save the pillars of capitalism failing, it is the longest U.S economic recession since World War II ─ and the worst may be yet to come.

This recession, which officially began in December 2007, is not only the longest and most severe, but the most devastating. More than half a million Americans, from financial analysts to factory workers, lost their jobs in November 2008 alone. Another 681,000 were added to the jobless rolls in December. Rarely has a labor downturn affected such a broad swath of income levels ─ and the worst is continuously coming in slow kill mode in 2009. Some economists predict that the U.S. economy could lose as many jobs in the first six months of 2009 as all of 2008. Nearly 2 million jobs have been lost since the start of the recession in 2007, two-thirds of them since September 2007.

The longest economic slumps since 1945 were the 16-month downturns that ended in March 1975 and November 1982. The Great Depression lasted 43 months from August 1929 to March 1933 and the world experienced a two-thirds shrinkage in trade in that period. The combination of housing market, credit market and financial market collapses is a rare and unprecedented combination. Unemployment topped 8 percent in February 2009.

How do the two countries with the most to lose cooperate to make sure they and the rest of the world minimize the financial pain and make sure everyone benefits globally? They cooperate more with each other in the lead of global and regional organizations ─ and in bi-lateral dialogue ─ to learn from each other and build together as partners.

The fact is that China is already helping the global financial situation by holding onto U.S Treasury debt. Not only holding on, but also continuing to quietly buy, even as late as September 2008, knowing full well that doing so could bring great losses. This is solidarity. China’s foreign reserves have already been invested ─ more than half in U.S. Treasury issues and other American bonds and much of the rest in euro-denominated assets ─ and it isn’t easy or practical to transfer hundreds of billions, or tens of billions of dollars without causing serious disruption to the currency market, which wouldn’t be in China’s self-interest either. If it sells the U.S. Treasuries it holds, global interest rates would go up and the dollar would collapse. On the other hand, the fewer Treasuries China buys as a result of the 2008 financial tsunami, the sooner America will see the end of its money-printing spree.