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Decoupling, Doom & Gloom And Dialectics at Davos

One of the most prescient panels of this year was held Wednesday afternoon, debating on whether the U.S. economy is still the driver for global growth.

The official title was "If America Sneezes, Does the World Still Catch a Cold?" -- leading to a smattering of jokes about immunity and pneumonia – but the panel earnestly battered around the idea that economies are starting to decouple, and that Asian, Europe and even emerging markets can not only withstand a U.S. slowdown or recession, but actually lift the U.S. out any malaise.

But the actual decoupling was between the session and what was going on just outside the hall. After the final security check, attendees pass racks of free newspapers with headlines announcing "Fed Slashes Rates" and "Stocks Plunge." And the chatter amid the jostle for free coffee and soda is about how Europe is selling off sharply again, with the DAX close to bear territory, the U.S. stock index futures are in trouble and Treasury yields are plunging.

At free Internet workstations different Web sites say the same thing: more red arrows in the market.

If the world wasn't feeling under the weather because of a subprime mortgage defaults, it was doing a pretty good job hiding it.

Back at the panel, C. Fred Bergsten, director of the Peterson Institute for International Economics, made the biggest argument for decoupling and also reverse coupling, where global strength keeps the U.S. economy out of recession. Another orderly decline of the dollar could also help, reducing the current account deficit and putting the U.S in the position for export-led growth.

At the other end of both the stage and the spectrum was David H. McCormick, U.S. Deputy National Security Advisor for International Economic Affairs, who acknowledged that though there is greater influence of other economies, the U.S. is still the "800-pound gorilla," accounting for 20 percent of the global economy and 30 percent of imports.

From the financial services corner, Michael Klein, Citigroup chairman and co-chief executive for markets and banking, said that the lag effect -- the time it takes for shocks or policy adjustment to hit economic growth -- would be moderated by policy action around the world.

But Chen Siwei, vice chairman of the standing committee of the National People's Congress in China, had a different, almost bilateral perspective, focusing on China and the U.S. and not mentioning the rest of the world.

The key issues for the U.S. economy are whether impact from the subprime crisis dampens, the trend of the dollar and the outcome of the U.S. election, Cheng said, although did not say which party would have which effect if election.


And China will not only keep its economic growth at a target rate of 8% this year, but will reduce its trade surplus, he said.

Cheng was clearly the star of the panel, though, coming out with some bold statements and enough one-liners to lift the atmosphere when the crowd started to visibly flag.

He bet Bergsten his China predictions would come true by next January and also said the U.S. has an official weak dollar policy to encourage exports (McCormick dodged that question, referring all dollar answers to the president and the Treasury Secretary).

Cheng also pleaded with the rest of the world to "help us" reduce China's trade surplus by making better goods, cheaper.

And when the question of how to reconcile the different savings rates in the two countries he said succinctly: "Chinese people save today's money for tomorrow, American people spend tomorrow's money for today."