◼ ECONOMICS Bloomberg Businessweek June 10, 201935ILLUSTRATION
BY
HELENA
COVELL.
DATA:
COMPILED
BY
BLOOMBERG
America First,
America Forever
The U.S. is celebrating 10 years of uninterrupted
economic growth, but the rest of the worldis suf-
fering through a bear market that’s nowlasted
12 years. Stock markets around the globe,exclud-
ing the U.S., remain 25% below the peaktheyset
on the ominous date of Halloween 2007, theeveof
the financial crisis. The American S&P 500bench-
mark has gained about 80% over that period.
Outside the U.S., stock markets havenever
come close to regaining their precrisishighs,
and they currently appear to be lockedintoyet
another downswing. The MSCI ACWIex USA
Index, which, as its name indicates, coversall
equity markets minus the U.S., has droppedmore
than 17% since its most recent peak, earlylast
year, when there was much excitementabouta
synchronized global economic recovery.
The disjunction between the U.S.andthe
rest of the world seems almost inexplicable.
Globalization is now a fact of life. Consequently,
tough times for Europe and Asia shouldcreate
problems for American multinationals,anda
comparatively booming U.S. should helpthemin
the rest of the world. So why, exactly, aremar-
kets reeling everywhere but in America,where
they’re surging? Here are four different—though
not mutually exclusive—explanations forwhat’s
driving the divergence.① It’s the Economy, Stupid
The U.S. economy has logged a decade-long
recovery, and though its fruits may not havebeen
shared equally, what matters more to investorsis
that there’s been growth in the aggregate.Beyond
American shores, it’s different.
In Europe, growth has been stifled by thesover-
eign debt crisis and the austerity measuresmany
nations were forced to adopt either as a condition
for bailouts or to reassure investors. Meanwhile,
Japan continues to stagger along, unabletorid
itself of a deflationary malaise that’s lastedthree
decades. U.S. gross domestic product grew34%,in
constant prices, in the 10 years from the beginning
of the crisis in 2008, dwarfing Japan’s growthof7%
over the same period. In that time, the eurozone’s
GDP fell 2%, and the U.K.’s contracted a painful15%.
But stock markets do not just follow thelatestnumbersoneconomicgrowth.If theydid,money
wouldhavesurgedfromtheU.S.toemerging-
market dynamossuchasChina(up244%over
the same time) andIndia(up117%).Infact,both
nations had unimpressiveinflows.Sothegap
between the U.S. andtherestoftheworldis about
more than economicgrowth.② The U.S. Dealt WiththeCrisis—OthersDidn’t
One big reason stockmarketstheworldoverare
underperformingthoseintheU.S.maybethat
those countries didn’thavetheirownBernankeor
Paulson or Geithner.
Ben Bernanke devotedhislongacademiccareer
to working out howtostopdebtcrisesfromturn-
ing into economicdepressions.Onceatthehelm
of the Federal Reserve,heunleashedanaggres-
sive response to the crisis, cutting rates to zero and
expanding the money supply through purchases of
U.S. Treasuries and other securities. Bernanke also
worked with former U.S. Secretary of the Treasury
Hank Paulson and his successor, Tim Geithner,
to devise a series of stress tests that forced banks
to reduce their leverage. The solution didn’t go
as far as many believed necessary, but U.S. lend-
ers emerged with comparatively stronger balance
sheets than those of many of their peers abroad.
Across Europe, banks were far more bloated
than their U.S. rivals entering the crisis, and many
still carry a debt load that crimps their ability to11/2007 5/20198 0%0-80● Percentagechange
sinceNov.30, 2007
S&P 500
MSCI ACWI ex USA
Index● How has the U.S. managed to
elude the bear market that has
the rest of the world in its claws?