Fareed Zakaria at PostGlobal

Fareed Zakaria

Editor of Newsweek International, columnist

PostGlobal co-moderator Fareed Zakaria is editor of Newsweek International, overseeing all Newsweek's editions abroad. He writes a regular column for Newsweek, which also appears in Newsweek International and often The Washington Post. He is a member of the roundtable of ABC News' "This Week with George Stephanapoulos" as well as an analyst for ABC News. And he is the host of a new weekly PBS show, "Foreign Exchange" which focuses on international affairs. His most recent book, "The Future of Freedom," was published in the spring of 2003 and was a New York Times bestseller and is being translated into eighteen languages. He is also the author of "From Wealth to Power: The Unusual Origins of America's World Role" (Princeton University Press), and co-editor of "The American Encounter: The United States and the Making of the Modern World" (Basic Books). Close.

Fareed Zakaria

Editor of Newsweek International, columnist

PostGlobal co-moderator Fareed Zakaria is editor of Newsweek International, overseeing all Newsweek's editions abroad. He writes a regular column for Newsweek, which also appears in Newsweek International and often The Washington Post. more »

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Boom Amid the Gloom

Increasingly, the story of the global economy is a tale of two worlds.
In one, there is only gloom and doom; in the other, there is light and
hope. In the traditional bastions of wealth and power -- America, Europe and
Japan -- it is difficult to find much good news. But there is a new world --
China, India, Indonesia, Brazil -- in which economic growth continues to
power ahead, governments are not buried under debt and citizens remain
remarkably optimistic about their future. This divergence between the once
rich and the once poor might mark a turn in history.

Over the past six months, much conventional economic wisdom has been
discredited. The experts who spoke confidently about unending global growth
-- the boomsters -- have been debunked. But the new pundits of pessimism --
the doomsters -- have demonstrated a similar hubris, ignoring evidence that
might complicate their story. Six months ago, stock markets worldwide
swooned in unison as the U.S. financial system seemed on the verge of
collapse. This led many to conclude that the emerging economies of Asia and
Latin America had been growing only because of their exports to the United
States and Europe; that they had no independent strengths of their own and
probably would collapse faster and more furiously than the sophisticated
economies of the West. After all, these were Third World countries.

But a funny thing happened on the way to a global depression. Once the
panic that seized global markets abated, there began a fascinating and
disparate recovery. The S&P 500 is roughly where it started the year, as is
the London FTSE. Japanese stocks have fared better, up nearly 7 percent.

Around the globe, though, markets are humming. China's Shanghai index
is up 45 percent, India's Sensex is up 44 percent, Brazil's Bovespa is up
38 percent and the Indonesia index is up 32 percent. Stock markets don't
tell the whole story, but many are rising because the underlying economies
of most of these countries are still registering significant growth.

Consider: In April, India's car sales were up 4.2 percent from a year
earlier. Retail sales in China rose 15 percent in the first quarter of
2009. China is likely to grow at 7 or 8 percent this year, India at 6
percent, and Indonesia at 4 percent. These numbers are not just robust but
astonishing next to those of the developed world. The U.S. economy
contracted at an annual rate of 6.1 percent last quarter, Europe by 9.6
percent and Japan by 15 percent, something that truly begins to rival the

Compare the two worlds. On the one side is the West (plus Japan), with
banks that are overleveraged and thus dysfunctional, governments groaning
under debt, and consumers who are rebuilding their broken balance sheets.
The United States is having trouble selling its IOUs at attractive prices
(the past three Treasury auctions have gone badly); its largest state,
California, is veering toward fiscal collapse; and the U.S. budget deficit
is going to surpass 13 percent of GDP -- a level last seen during World War
II. With all these burdens, the United States might not return to
fast-paced growth for a while. And its economy is probably more dynamic
than Europe or Japan's.

Meanwhile, emerging-market banks are largely healthy and profitable.
(All major Indian banks, government-owned and private, posted profits in
the fourth quarter of 2008.) The governments are in good fiscal shape.
China's strengths are well known -- $2trillion in reserves, a budget deficit
below 3 percent of GDP. Brazil is posting a current account surplus.
Indonesia has reduced its debt from 100 percent of GDP nine years ago to 30
percent today. Unlike in the West, where governments have run out of
ammunition and are praying that their medicine will work, these countries
have options. Only a year ago, their chief concern was an overheated
economy and inflation. Brazil has cut its interest rate substantially -- but
only to 10.25 percent, and it can drop it further if things deteriorate

The mood in many of these countries is upbeat. Their currencies are
appreciating against the dollar because the markets see them as having more
fiscal discipline and better long-term growth prospects than the United
States. Their bonds are rising. This combination of positive indicators is

The United States remains the world's richest and most powerful
country. Its military spans the globe. But since the Spanish empire of the
16th century, the fortunes of great global powers have begun to turn when
they get overburdened with debt and stuck on a path of slow growth. These
are early warnings. Unless the United States gets its act together fast,
the ground will continue to shift beneath its feet.

The writer is editor of Newsweek International and co-host of PostGlobal,
an online discussion of international issues. His e-mail address is

Comments (19)

abd_almlk2006yahoocom Author Profile Page:

of course there is many challengs to all in america or other countries in all world but it posslble to do solution for the economic and finincial crisis first steps work together next we can change to the best and save road thanks

generalyuefei Author Profile Page:

---Increasingly, the story of the global economy is a tale of two worlds.
In one, there is only gloom and doom; in the other, there is light and

In all respects, I enjoyed The Lord of Ring better:)

TheMan_ Author Profile Page:

The S&P 500 is roughly where it started the year, as is the London FTSE. Japanese stocks have fared better, up nearly 7 percent.
The above is reality that S&P 500 has recovered and has risen above this years opening value. But do you think the time has arrived to rejoice. Think again.

No matter how the markets twists and turns, the indices will end the year in red.

Realities aside, lets dwell on an interesting academic exercise: Warren Buffet has purchased derivatives betting that for next 10 years the average S&P 500 index value will be above let us say Feb-2009 levels. Our objective is to game the market so that Warren Buffet will not make an average profit of more than 10% in next 10 years?

Let me state that, I respect Warren Buffet, and above is not to disrespect old dude. From here on we are just going to game his bet year after year for next 10 years. Fair enough?

ThishowIseeit Author Profile Page:

for me was a waste of time by reading your article: you are unable to hint any solution to the problems. A BIG waste of time.

martynstrong Author Profile Page:

Capital markets are unstable. In the past there was no way to make them stable. But today we have computer power that can be used to make them stable.

By using the greater computer power of today we can have a much higher turn over of capital in the capital market. This higher turnover will make the market harder to game or control and the market will no longer have the unstable run ups or declines. Who can change or control the market when say 20% of the capital is trading each day?

So now that we have the compute power to provide for all these transactions that will smooth out the market how do we force people to turn over at a rate of 20% a day? Easy, put a cap gains tax of 0% (zero) on all gains of 7 days or less and put a cap gains tax of 90% of all gains of more than 7 days.

The likes of Yahoo, Micosoft and/or Sun Micro Systems will give us the systems that will provide automated software agents to support turning over one's investments every 7 days (based on the specs you give the agent).

A system like this will make the financial markets work as smoothly as the local fruit market.

elena4 Author Profile Page:

To put things in a simplified but useful perspective, take the old grasshopper v. ant fable: in the not-too-distant past, we (the U.S.) were the ant --industrious and self-disciplined-- while countries like Brazil were the grasshopper: prodigal, self-indulgent and feckless. In recent years, that's been reversed: Brazil is now the ant, and we have become the grasshopper, deeply in debt and with relatively less in the way of industrial capacity. Why is this so? I would surmise that our current plight originates in the collective decision (by business, financial and political leaders), begun during the first Reagan Administration, to abandon industry and fiscal conservatism for the sake of a global economic vision, in which countries would specialize, and restrict themselves, to limited but scaled up economic sectors where they would gain "comparative advantage" and the world as a whole would be the beneficiary of greater efficiency and economy of scale. So we largely abandoned our traditional industrial sector and our relatively balanced fiscal budget in favor of a "post-industrial service economy" and focused our economic efforts on financial, real property & insurance transactions, all the while maintaining our strength in defense & national security related areas: agricultural & extractive sectors; defense related industries (including computer technology and advanced weaponry)and, of course, real estate investment. Meanwhile Brazil, especially during the past decade, moved away from it's role as a supplier of natural resources (rubber, metals, wood, coffee, etc.) to more advanced economies (in exchange for consumer goods and investments from foreign sources), in order to pursue a different role: The expansion and diversification from the ground up its local and regional manufacturing base; increased domestic trade; increased trade with its immediate neighbors (Argentina, Chile, Peru, Venezuela), eventually creating a kind of internal South American trading zone. So far, the results of this switch from economic globalization to economic localism and regionalism, as well as emphasis on the manufacturing sector, have been impressive. Meanwhile we, and, to some extent, our European and Asian counterparts, who've embraced various forms of economic globalization, now find ourselves suffering from incipient financial paralysis and worsening unemployment and stagnation.

In conclusion, I would suggest that America (and some of our allies and competitors) has carried the radical ideas of the Reagan era --deficit spending, indebtedness, unfettered global trade and investment, financial de-regulation, "comparative advantage," and weakening of national and international economic oversight & planning-- too far, and we are now paying the price.

Roism007 Author Profile Page:

It took USA and Europe to bring Russsian Communist Down and maybe because humanity has a sense of humor, ironically, USA and Europe took Capitalism down too with their own greed and selfishness.

How when we look at the emerging market that Fareed is mentioning, isnt it logical for them to go through the same process of capitalism just as USA and Europe and doomed to be failed in the future based on same principles that brought the current crisis?

Its a cycle that we human seem to go through, first we have era of greed and selfishness...then the criminals are prosecuted and we have "normal" period for a while until change in Political Leadership and the loop begins....

Its almost like when we have those CEO coming in with golden parachute that promises them so and so for a period of growth in say three years...they do what needs to happen for their own selfish reasons and hell with those that disagree.....they make enough wealth where they can hire the slickest lawyer and be done with rules and laws.

So not sure what your story is here Fareed? Seems like what you are trying to say what is already being documented in history books

On a side note....I couldnt believe how soft you were with Mushraffa on your 360 interview...reminded me of the time when War Criminal Cheney was on John King's show......proofs my point on reports/journalist sleeping with politicans to give birth to bias news in the morning

SalvatorePante Author Profile Page:

Unless the United States gets its act together fast, the ground will continue to shift beneath its feet.
O, Yes. We move fast. You cannot see it Fareed, beacuz you have your CNN blinkers on your eyes.

You remember when there was that dot com bubble bust, we moved very quickly to introduce that PATTERN DAY TRADING rul, thus banishing the pour people from earning for themselves. It does not matter that the stock market has yet again crashed and traders have gone bankruot despite the introduction of the rul.

Then you must also remember we moved very fast to provide loans to people to buy homes from builders
thus creating the housing bubble and current crash.

Last year we moved very fast to create those bailout bills to pay all the foreign creditors of our sick corporations. God bless them.

You know now we are moving very fast to nationalize our financials and automotive sector. Can you suggest some more sectors, paleeeaz?

roger27 Author Profile Page:

This is good news, indeed. But the conclusion -that the U.S. has to get its act together, misses the point. The rise of the BIC's is largely, (but certainly not exclusively) a result of U.S. borrowing to invest in them and buy their products. The world economy is not a zero-sum football game. Now these countries will be able to fuel world growth by investing in and selling to the West. The U.S. can and will reduce its debt by raising taxes to what they were in the '50s or by instituting a modest V.A.T. Helping to finance and fuel the BIC's has given us a tremendous payback in democratic growth. Our biggest challenge now is to summon the will to avoid stupid wars.

Citizenofthepost-Americanworld Author Profile Page:

At the present time, it takes an American citizen some degree of lucidity and courage, I believe, to write what you wrote above, Mr. Zakaria. It would indeed seem, as Niall Ferguson pointed out on your last GPS, if I remember correctly, that “your” post-American world is becoming more likely, Mr. Ferguson’s own reservations notwithstanding. It is even characterized by some “decline of America”. This may be an appropriate time for you to begin writing a “Since this book was published” section for an updated edition of “The Post-American World”…

What I find remarkable is to see the booming world asserting itself quietly, keeping a low profile. It is neither arrogant nor violent, and seems not to suffer from any insurmountable urge to lecture the rest of the world. It would only seem to enjoy rising. To me, those are promising signs for the future, for they attest to the healthy maturity of the rising world.

As you know, wise men of old have repeatedly emphasized that there was no greater calamity than to underestimate the other side, while overestimating one’s own. The U.S. needs to come to terms with the reality of its situation. It is not wise for us to continue believing that perception is reality. That belief only encourages anyone and everyone not to tell it as it is, to do as if nothing of substance had really happened, as if nothing had changed, fundamentally, and that “recovery and prosperity are just around the corner”, on the road to business as usual. Only if American citizens come to see things as they are, do we stand a chance to come out of that mess created by those designated as the best and the brightest. In this case, that is what “the truth will set you free” means. That truth needs be told. Otherwise, as events continue to unfold as a series of “surprises”, economic forecasting will be seen more and more as a branch of astrology, on the road to disaster. At a time when a radically new world order is in the making, blind optimism and what Niall Ferguson calls “wishful non-thinking” are destructive at best, being no substitutes for sound management and government. These require, as a modest beginning, the degree of lucidity and courage you have demonstrated above.

rcbakewell Author Profile Page:

Some of the points mentioned - debt not tangible productivity fueling growth and excessive military and health care expenses - may be factors contributing to current US weakness. The crop of 'Boomer ' retirees may have to work longer and save more - OK. Overall tho, the world's population reaches 9 billion by 2050 and economic growth rises exponentially. Who cares about climate change , species diversity, fresh water distribution, agricultural productivity and the like ? There will be hell to pay whether the US is in the lead or not - it won't matter.

jrnicholson Author Profile Page:

Thank you, Mr. Zakaria for continuing to deliver concise and well-informed opinions.

alcmyers Author Profile Page:

Incisive analysis as usual, Mr. Zakaria. To me, the question is this--do we fight our declining influence (and if so, obviously, how), or do we accept the decline as inevitable and attempt to shape a more multi-polar global balance of power?

Though the advantages to choice 1 are obvious, I'd prefer a course of action that recognizes the long term unsustainability of American unipolar hegemony. And it would be nice to have some help in the "world police" department. The difficulty on that issue might be finding partners willing to step into the power vacuum that will result from our inevitable decline. I don't see the U.S. collapsing a la Rome or even the Spanish empire, but I do see our unilateral power decreasing markedly as other nations strengthen. Even though we may remain the most powerful nation in the world, perhaps we're better off without the kind of power that leads us to make isolated decisions that ignore the ever-globalizing nature of economics and politics.

k6raman Author Profile Page:

The main reason for the growth in emerging market is people living within their means. I've lived in India before moving to UK and I see the difference. We in the West live on credit cards and debts which we know would be difficult to pay back. No wonder we and our banks are in trouble. I was brought up in a lower income family and we went on one holiday every 3-5 years as we could not afford more and did not want to borrow money for holidays. But in the West, people borrow money beyond their means to cater to their luxuries. This mentality and pressure to lead a good lifestyle irrespective of change in circumstances have led us to where we find ourselves in.
Time to live within our means and look with envy the improving lifestyles of people in emenging economies will be the favourite past time of our future generations.

hansenrwjc Author Profile Page:

FREED ZAKARIA is a remarkable political writer. I
read him as often as possible.

tororo Author Profile Page:

The absence of largely economic problems in the burgeoning countries cited exposes the real weakness of the US. It lies in an ever-increasing inability to determine a course of action, a route to proceed, a goal to achieve. Unending discussion of evidence or facts from a multitude of sources, debated by a myriad of pundits, learned or just biassed one way or another.

santafe2 Author Profile Page:

First of all, those so-called "emerging nations" do not have the "burden" of freeing the world, and "saving" the world. They also are not "burdened" with a 1,000 military bases overseas and a defense budget that is twice as high as the combined military budgets of all nations of the world.

Finally, they are not in no-win, unconstitutional wars. So, I'd say that they have some tremendous advantages that we, the so-called "protector" of globalism, do not have, and our people will suffer as a result.

EarlC Author Profile Page:

A very good analysis of a complicated global economic situation. America will eventually have to pay the price for for following the old saying of "save during the good times so that there may be food during the famine." My translation: there is no problem with having budget surpluses because these are needed to help us make it through the bad times. So much for the crowd that does not believe in fair taxation and budget surpluses.

PostGlobal is an interactive conversation on global issues moderated by Newsweek International Editor Fareed Zakaria and David Ignatius of The Washington Post. It is produced jointly by Newsweek and washingtonpost.com, as is On Faith, a conversation on religion. Please send us your comments, questions and suggestions.