The long unwinding road

Setting the stage

In the decade prior to the current economic crisis, there was strong consumer spending growth in the United States as well as in smaller economies such as the United Kingdom, Spain and Ireland. To simplify what happened, such growth was funded, in part, by borrowing against the increased value of homes, itself the result of a flood of liquidity from surplus countries such as China.

This excessive consumer spending growth was not only the principal source of economic growth in these countries, it also fueled export driven growth in surplus countries such as China, Japan and Germany. In fact, the symbiosis between these “consuming” and “producing” groups of countries was the hallmark of the global economy in the first decade of the twenty first century. All that will now change.