Dear Editor,

J P Morgan has predicted that US gross domestic product (GDP) will shrink by 25 per cent in the second quarter. Goldman Sachs estimates a 34 per cent contraction. And, Evercore ISI predicts a 50 per cent decline.

I expect that the US will have negative growth for three years and less than two per cent growth for at least a decade.

What the US Federal Reserve is doing with quantitative easing, low interest rate, and the Federal Reserve buying up bonds is what the Bank of Japan did in the 1990s and has continued indefinitely. After the asset bubble burst in 1991 and early 1992, in Japan, the ratio of public bond to GDP increased from 42 per cent in 1990 to 191 per cent in 2018.

For the period of 1995 to 2007, Japan’s GDP fell from US$5.33 trillion to US$4.36 trillion in nominal terms. Real wages fell by about five per cent, while the country experienced a stagnant price level. Japan continues to struggle with its consequences.

There will be some differences with the US economy because the US dollar is the world’s reserve currency. Japan’s economy is based on production, while US economy is based on consumption (70 per cent). Japan is the largest creditor nation (the largest external assets), but the US is the largest debtor nation.

This is a likely occurrence and Jamaica and the Caribbean should have a contingency plan.

The future is uncertain, but what is certain is you cannot have unlimited quantitative easing, zero interest rate, and unlimited buying of bonds without serious negative consequences. This is what the US Federal Reserve is doing.

Brian E Plummer

brianplummer3000@gmail.com