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Counting the Cost

The economics of political change

What is next for the world's largest economies as China changes leadership and the US launches into a second Obama term?
Last Modified: 10 Nov 2012 13:21

Unemployment may be high, economic growth low, but Barack Obama, the US president, has another four years leading the world's biggest economy.

Challenges are clear for all to see - deficit reduction, economic growth, job creation, tax reform, energy independence and two words that scare the life out of everyone - the 'fiscal cliff'.

And that phrase refers to the spending cuts and tax increases worth $600bn which are due to come into effect from January 1, 2013.

It is predicted that falling off this cliff will have a devastating impact. Cutting at least four percentage points of US GDP in the first quarter of next year alone, sending the economy into a deep recession, a lot of people will lose their jobs too.

In fact the Bipartisan Policy Center, a US think tank, estimates that a million jobs will be lost in 2013 and another million by 2014.

The only way this can all be avoided is if Republican and Democrat politicians can agree to new tax and spending measures.

So, can Obama bring the two sides together? And what else can we expect from his second term? We dicuss this with HSBC's chief economist, Stephen King.

Change in China

Obama is keeping his job, but in China, a once-in-a-decade change of leadership is happening.

Hu Jintao, the outgoing Chinese president warned corruption could threaten the ruling Communist Party. He also said that the next generation of leaders need to double per capita income by 2020. His reasoning becomes clearer when you consider that China's economy is valued at $7.3tn and is the world's second biggest.

Yet on a per capita basis, China is ranked 121st, at just $4,260 - that is one-tenth of its largest competitor the US which is at $47,140 per person.

There are concerns that China's growth could be undermined as the regions accumulate mountains of debt. The question now is whether the country's new rulers will be able to adapt and make the necessary changes to continue China’s growth. 

Richard Harris, chief executive of Port Shelter Investment Management, joins us to discuss the next steps for China's economy.

Iran: An economic challenge for the US?

Elsewhere, some have predicted that Iran, one of Obama's biggest foreign policy challenges, could transform into a massive economic one.

Iran and its potential nuclear programme dominated US foreign policy debates over the course of the election, raising questions about where to draw the line on its nuclear ability and what action to take if or when it crosses that line.

In addition to these concerns, a new report details the effects of economic instability in the region on the global and, more specifically, the American economy.

The Bipartisan Policy Center has been crunching the numbers and predicts that if Iran did get nuclear weapons, we could see oil prices jump quickly by as much as $27 a barrel and they would keep rising so that in three years, US petrol prices would be 30 per cent more expensive.

That would force up inflation and would kill off a million jobs and take a big bite out of the economy.  

Counting the Cost, hosted by Matthew Moore, speaks to Mike Makovsky from the Bipartisan Policy Center about the predictions.

 
Watch each week at the following times GMT: Friday: 2230; Saturday: 0930; Sunday: 0330; Monday: 1630. Click here for more Counting the Cost.

Follow Kamahl Santamaria @KamahlAJE and business editor Abid Ali @abidoliverali

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Source:
Al Jazeera
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