Today, the U.S. Bureau of Labor Statistics released a frankly horrific set of numbers. The unemployment rate hit 8.5%, the highest in more than 25 years; 663,000 workers lost their jobs in March alone; 25 million are underemployed; and over the course of the recession, the U.S. has bled more than 5 million jobs.
Certainly, the U.S. has fewer social safeguards against the disruptions of unemployment than many other high-income economies, meaning fewer protections against lay-offs and less-generous unemployment benefits. (FP looked at the best places to lose your job last month.) This generally means more volatility in the unemployment rate.
But is the U.S. really doing worse than, say, France and the United Kingdom, countries with historically high unemployment?
The short answer is yes; the U.S. recession has gone on for longer and is deeper than in Europe, and therefore has sapped three times as many jobs. The unemployment rate in the U.S. is higher than in the U.K., and close to France's. (The U.K. and French numbers above are estimates.) And the job-losses are accelerating faster in the U.S. than in other countries.
Here's hoping for it to bottom-out soon.
Amid the financial crisis, U.S. media outlets have paid extra attention to the two nations worst-hit in western Europe: Iceland and Ireland. Publications from The New Yorker to the A.P., and everything in between, have parsed the deflationary risks, excess housing, and fiscal problems. They've talked about the strains on social welfare safety-nets and rising unemployment.
And they've done so with lots of bloated and condescending scrim on how Ireland and Iceland are the magically quaint fairy-lands of leprechauns, vikings, alcohol, and the in-bred!
For instance, in Vanity Fair, top financial reporter Michael Lewis came out with these brilliant insights into the denizens of Reykjavik: those "mousy-haired and lumpy" people, one of whom he calls a "bearded troll," love to "drink themselves into oblivion and wander the streets until what should be sunrise." He describes "orc shrieks" emanating from a hotel room. Zany laws mean citizens have to "write to the government and quit" to "stop being Lutherans." And Icelanders, "sincerely" believing in elves, made an industrial conglomerate "pay hard cash to declare the site" of a smelter "elf-free."
Today, in the New York Times, veteran reporter Timothy Egan makes an equally enlightened assessment of Irish culture in his article about, erm, housing stock.
"Every village that had seen nary a rock wall or a cottage window unchanged suddenly had a cul de sac of insta-homes and a half-dozen O’Mansions," he writes. "Anyone with a mortgage could get rich in little more time than it took for a head of Guinness to settle."
Needless to say, the Irish and the Icelandic are, well, unhappy.
A online commenter on the NYT piece writes:
Yet more condescending, starry-eyed tosh from the New York Times regarding Ireland...Oh and, is it mandated by the New York Times editorial board, that every article about Ireland contain boilerplate about flowing pints of guinness and gap toothed peasantry? Perhaps the Irish media will take to writing colourpieces about New York in which the sky is compared to a swirling tankard of Budweiser.
New York magazine ran a take-down of Lewis' reportage from a more bemused resident of Iceland:
"His is a wild account of a backwards Nordic island populated by 'lumpy' and 'inbred' people who might force you to shower in scalding water or, worse, blow up a Range Rover. If you didn’t know any better, you’d think we were a sitcom waiting to happen. Unfortunately, none of this is exactly true."
At CounterPunch, Gregory Burris likewise takes Lewis down a notch:
"As I masochistically forced myself to continue reading Lewis’ article, I could not help but wonder: how did such a dimwitted diatribe ever make it through Vanity Fair’s editorial process? Did the editors really find it fit to print? Yes, unfortunately for us, they really did."
Steve Pearlstein thinks so:
What emerged yesterday from the G-20 ... amounts more to reform than to revolution. Member countries committed themselves to adding $850 billion to the resources available to the IMF and regional development banks to mount rescues of countries in financial distress, with instructions that the money be used not only for traditional purposes such as debt rollover, bank recapitalization and balance-of-payments support, but also for more "flexible" goals such as stimulus spending, infrastructure investment, trade finance and social support.
And just as the old G-7 has given way to the enlarged G-20, the governance structure of the fund and the bank will be revised to give the bigger developing countries the authority they now deserve.
It may suit the politics of Europe to portray all this as a blow to Washington's power and prestige, but the reality may be quite different. In fact, the shift is perfectly in keeping with the new emphasis on the developing world that Obama brings to international economic policy. And if any countries are likely to lose out in the restructuring, they are those of "old Europe" that, by dint of history, now wield power far in excess of their importance in the global economy.
Indeed, while European leaders were crowing that they had successfully beat back calls to step up efforts to stimulate their economies, that's not exactly true. Yesterday's big boost in funding for the IMF could well translate into hundreds of billions of dollars in fresh financing for Eastern European countries that, for political reasons, leaders of Western Europe have been unwilling to offer directly. Yesterday's communique also contains a carefully worded commitment for all countries (read: France and Germany) to increase stimulus spending if the IMF finds that current policies prove insufficient to get their economies growing again.
In today's G-20 communiqué (just a fact sheet, really) world leaders pledged an additional $1.1 trillion in loans and debt guarantees to aid trade and help shore up the worst-ailing economies.
The fact sheet (let's call it a fact sheet) notably included toothy regulatory measures and a lack of fiscal stimulus -- which Britain, the United States, and China have undertaken, to the cold shoulder of most of continental Europe.
It also dramatically increased the budget of the IMF. The New York Times summarizes:
The most concrete measures relate to support for the International Monetary Fund, which has emerged as a “first responder” in this global crisis, making emergency loans to dozens of countries.
The Group of 20 pledged to triple the resources of the Fund to $750 billion — through a mix of $500 billion in loans from countries, and a one-time issuance of $250 billion in Special Drawing Rights, the synthetic currency of the Fund, which will be parceled out to all its 185 members.
So what on earth is a Special Drawing Right (SDR) anyway?
Basically: it's a currency.
Back in 1969, the world economy was still suffering from the effects of the Great Depression and the world wars. At the Bretton Woods conference at the end of World War II, the heads of state attending decided against creating a global reserve currency, instead instituting a fixed-rate exchange system.
Twenty-five years later, there weren't enough key exchange assets -- units of gold bullion and dollars -- to keep up with the growing global economy. So, the IMF's member states decided to create the SDR system.
A basket of stable major currencies -- like the dollar, pound, and yen -- determined its value. Some countries, like Latvia, pegged their currencies to the value of the SDR. But most just used their allocated portion in various international transactions.
But, just a few years after the IMF bothered to make the SDRs, the Bretton Woods fixed-rate system collapsed and the modern world currency market, where exchange rates float freely, emerged. This rendered the SDRs pretty much useless.
Indeed, the current market for SDRs, until the I.M.F. injection, was just $32 billion. The value of current oustanding U.S. currency? Just over $1 trillion.
The G-20 just released its final communique, summarizing the agreements made during the one-day conference. And, it's a doozy.
The agreements we have reached today, to treble resources available to the IMF to $750 billion, to support a new SDR allocation of $250 billion, to support at least $100 billion of additional lending by the MDBs, to ensure $250 billion of support for trade finance, and to use the additional resources from agreed IMF gold sales for concessional finance for the poorest countries, constitute an additional $1.1 trillion programme of support to restore credit, growth and jobs in the world economy. Together with the measures we have each taken nationally, this constitutes a global plan for recovery on an unprecedented scale.
It's certainly on an "unprecedented scale." Plus, it's the first global action plan to really emerge from a G-20 conference -- note the sale of gold to shore up developing economies. See more detailed analysis from FP bloggers throughout the day.
No one is betting on the health of Argentina's economy these days. Ever since the country defaulted on its international debt in 2001, confidence that its economic situation could turn around has been extremely low. Indeed, in February, when the Argentine government requested permission to once again enter its bonds into U.S. capital markets, the Wall Street Journal suggested this response:
The SEC should instead insist that Argentine securities bear a warning like cigarette packages: 'This issuer has a record of misrepresentation, debt defaults and debt repudiation, and therefore may be dangerous to your financial health. Do not consume this issuer's bonds unless you have a platoon of lawyers and a Navy to back them up, and you're prepared to use both.'"
Why, then, would China use this week's Inter-American Development Bank meeting in Medillín to agree to a $10.24 billion currency swap with a country whose bonds could be worth next to nothing by the end of 2010? Two reasons seem apparent -- one is straightforward, the other is disturbing.
First, as Xinhua reports, the Argentines can essentially use the RMB as extra cash to pay for imports. But one might note that, since the Yuan is not a convertible currency, the money can only be used to purchase goods from -- you guessed it -- China, potentially giving a boost the Dragon's ailing export sector.
The other reason for the swap seems more strategic, especially in conjunction with other currency trades that China has very quietly signed with Malaysia, Hong Kong, South Korea, Belarus, and Indonesia over the past three months. As the Financial Times puts it:
Economists...see Beijing's currency swap deals as pieces in a jigsaw designed to promote wider international use of the renminbi, starting with making it more acceptable for trade and aiming at establishing it as a reserve currency in Asia, something that would also enhance China's political clout."
Combine these actions with China's recent call to replace the U.S. dollar as the international reserve unit, and it starts to look like this currency swap has nothing at all to do with Argentina.
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The World Bank's crystal ball is not emitting pleasant forecasts this morning, with the release of the latest Global Economic Prospects Report: "Global GDP is expected to contract by 1.7 percent in 2009, which would be the first decline in world output on record," the report concludes. Developed economies will fall into "deep recession" -- witness Japan's 12.1 percent drop in GDP in the 4th quarter of 2008, or worse still, 21 and 25 percent drops in South Korea and Japan respectively. Ouch.
By region, Eastern Europe and Central Asia are worst off thanks to their coming into the crisis with deficits and a binge of foreign cash (which, as you guessed, has now fled.) Latin America will suffer; so will Africa as commodity prices will stay low, trade slows, and foreign investment dries up. East Asia will be hit by the 6.1 percent gutting of global trade expected in 2009. 84 of 109 developing countries are expected to face "financing gaps" in their government budgets this year.
The good news? A modest recovery might be coming in 2010..."However, continued banking problems or even new waves of tension in financial markets could lead to stagnation in global GDP or even to another year of decline in 2010."
Dan Kitwood/Getty Images
Czech Prime Minsiter Mirek Topolanek softens his AC/DC-inspired critique of the U.S. economic stimulus a bit in a new Times column. Topolanek says he simply meant that Europe does not need the same amount of stimulus as the United States. Call it the Simon & Garfunkel version:
I expected that this strong expression would not go unnoticed. But I did not expect that this legitimate warning, which comes to me as naturally as telling a friend walking next to me on an uneven path that he may stumble, would be rejected in principle and interpreted by some as criticism of the US Administration.
I believe that I do not need to explain that my country has been a long-standing partner of the US. And I also believe that as a conservative politician I do not need to explain that the welfare states of Europe act as “automatic stabilisers”, sustaining consumer spending even in a slump. This means that Europe does not need such a large fiscal stimulus compared with the US, which does not have such a system of social support.
FREDERICK FLORIN/AFP/Getty Images
In its depth and suddenness, the U.S. economic and financial crisis is shockingly reminiscent of moments we have recently seen in emerging markets (and only in emerging markets): South Korea (1997), Malaysia (1998), Russia and Argentina (time and again). In each of those cases, global investors, afraid that the country or its financial sector wouldn’t be able to pay off mountainous debt, suddenly stopped lending. And in each case, that fear became self-fulfilling, as banks that couldn’t roll over their debt did, in fact, become unable to pay. This is precisely what drove Lehman Brothers into bankruptcy on September 15, causing all sources of funding to the U.S. financial sector to dry up overnight. Just as in emerging-market crises, the weakness in the banking system has quickly rippled out into the rest of the economy, causing a severe economic contraction and hardship for millions of people.
But there’s a deeper and more disturbing similarity: elite business interests—financiers, in the case of the U.S.—played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse. More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive. The government seems helpless, or unwilling, to act against them.
Johnson shows how financial firms became more and more profitable, and a bigger and bigger part of the U.S. economy. More capital meant more political capital, he argues, which eventually meant nobody prevented the melt-down. The same political entrenchment makes fixing the banks difficult.
The obvious solution to the financial crisis, Johnson says -- informed by his time at the I.M.F. -- is simple. The United States should determine which banks can't survive and temporarily nationalize them, instead of simply recapitalizing them, he says. But the relationship between top financiers and the government means this won't happen -- at least not unless things get much worse.
Still, his article includes a list of the policies (or lack thereof) which most contributed to the bubble and burst. It's a great crib sheet of what Capitol Hill and the G-20 Summit will tackle, piece by piece, to reform the system.
• insistence on free movement of capital across borders;
• the repeal of Depression-era regulations separating commercial and investment banking;
• a congressional ban on the regulation of credit-default swaps;
• major increases in the amount of leverage allowed to investment banks;
• a light (dare I say invisible?) hand at the Securities and Exchange Commission in its regulatory enforcement;
• an international agreement to allow banks to measure their own riskiness;
• and an intentional failure to update regulations so as to keep up with the tremendous pace of financial innovation.
It's fascinating, scary reading.
“I would say that because of the decisions we took during the good times, we were able to save some money for the bad times. And I would say that today that policy is producing results.”
It's gonna be quite a G-20.
SHAUN CURRY/AFP/Getty Images
For the past few months, the in-vogue comparison for the U.S. financial crisis and government intervention has been the "lost decade" in Japan. But, over at Marginal Revolution, Tyler Cowen toys with the comparison between the current U.S. fiscal stimulus and the Bundesbank's massive spending policy just after German reunification. He writes:
The results were less than wonderful. The higher demand boosted measured gdp growth in the short run (bananas and porn, plus reconstruction) but Germany fell into economic stagnation. The new demands took the West German economy only so far. The higher taxes and debt then kept the German economy down for many years. Few Germans were happy with the economic fallout from this "stimulus." And that was with a relatively well-functioning financial system and a reasonable amount of initial optimism.
You can list many dissimilarities between German unification and the current U.S. situation (and in the comments I am sure you will). Still, as historical examples go, I believe this one has some relevance. When European leaders are skeptical about fiscal stimulus, they have some reasons, some of them quite recent.
Photo: Flickr user gavinandrewstewart
The New York Times reports that embattled Czech Prime Minister and E.U. President Mirek Topolanek, addressing the European Parliament, described Obama's fiscal package as the "road to hell," saying the bailout would "undermine the stability of the global financial market."
Yesterday, Topolanek was defeated in a no-confidence vote by the Czech parliament -- largely due to criticism of his handling of the financial crisis.
Photo: Dominique Faget/AFP/Getty Images
This strikes me as a significant moment, but let's hang on a second before we lose our heads.
In it, Zhou asks, "What kind of international reserve currency do we need to secure global financial stability and facilitate world economic growth, which was one of the purposes for establishing the IMF?"
Theoretically, an international reserve currency should first be anchored to a stable benchmark and issued according to a clear set of rules, therefore to ensure orderly supply; second, its supply should be flexible enough to allow timely adjustment according to the changing demand; third, such adjustments should be disconnected from economic conditions and sovereign interests of any single country. The acceptance of credit-based national currencies as major international reserve currencies, as is the case in the current system, is a rare special case in history. The crisis called again for creative reform of the existing international monetary system towards an international reserve currency with a stable value, rule-based issuance and manageable supply, so as to achieve the objective of safeguarding global economic and financial stability.
Though Zhou does not say so explicitly, the clear implication is that the dollar isn't doing these things. Interestingly, he cites John Maynard Keynes:
But, he admits, "The re-establishment of a new and widely accepted reserve currency with a stable valuation benchmark may take a long time." As the WSJ explains:
Back to the 1940s, Keynes had already proposed to introduce an international currency unit named "Bancor", based on the value of 30 representative commodities. Unfortunately, the proposal was not accepted. The collapse of the Bretton Woods system, which was based on the White approach, indicates that the Keynesian approach may be more farsighted.
[T]he technical and political hurdles to implementing China's recommendation are enormous, so even if backed by other nations, the proposal is unlikely to change the dollar's role in the short term. ... The central banker's proposal reflects both China's desire to hold its $1.95 trillion in reserves in something other than U.S. dollars and the fact that Beijing has few alternatives. With more U.S. dollars continuing to pour into China from trade and investment, Beijing has no realistic option other than storing them in U.S. debt.
Looks like you can hang on to those greenbacks for a little while longer.
U.S. banks, battered by record losses from the worst housing slump since the Great Depression, now must weather increasing loan delinquencies from owners of skyscrapers and shopping malls.
The country’s 10 biggest banks have $327.6 billion in commercial mortgages, which face a wave of defaults as office vacancies grow and retailers and casinos go bankrupt. A projected tripling in the default rate would result in losses of about 7 percent of total unpaid balances, according to estimates from analysts at research firm Reis Inc.
There is a lot that was audaciously optimistic about Zimbabwean President Robert Mugabe's plea today for $5 billion to restart the country's troubled economy. He seemed confident that donors would trust his government to dole out aid. He asked for assistance in the area of "governance" (while opposition activists were being simultaneously disappeared). Wackiest of all was a claim than Zimbabwe's can cut its 230 million percent inflation rate to just 10 (no million) percent in just a few months.
If only it were all so easy. Apparently not yielding to Mugabe's assesment of sanctions on his regime as "inhumane, cruel, and unwarranted," at least one donor -- the United States -- has already rejected the calls for aid. "We have not yet seen sufficient evidence from the government of Zimbabwe that they are firmly and irrevocably on a path to inclusive and effective governance as well as respect for human rights and the rule of law," U.S. State Department spokesman Robert Wood said today.
As to fixing the economy -- the country needs a miracle as much as it does $5 billion. Even the government is running on fumes -- cigarette fumes, to be specific. As Finance Minister Tendai Biti told CNN, "indirect taxes made up of customs and excise duty have contributed 88 percent of government revenue, which means that the government has been literally sustained by beer and cigarettes." In such a state, and amid a global financial crisis, Zimbabwe is unlikely to find much support from its neighbor for adopting the South African Rand. No wonder Mugabe conceded the finance ministry to the opposition in this coalition government.
All this creates a devil of a conundrum. To be certain, Zimbabwe needs help and lots of it. The country and its people are in a desperate state. But perhaps first, Zimbabwean policymakers need a reality check.
DESMOND KWANDE/AFP/Getty Images
I just stumbled across the text of today's speech by Jean-Claude Trichet (pdf), the head of the European Central Bank, expecting a heady, technical disquistion on how the financial crisis is affecting European economies and just what he intends to do about it. Or perhaps a passionate cris de coeur for better financial regulation.
But no. Speaking at the Center for Financial Studies in Frankfurt, M. Trichet waxed eloquent about the likes Dante, Prout, Goethe, and Derrida. A sample:
Dante brings to Italy the “terza rima”, or triplet rhyme, which structures the poem in tercets closely linked to the preceding and following rhymes, so that a rhyme is never introduced that has not been framed by two earlier rhymes, with the exception of the first tercet of the canto. This new verse form – which creates an impression of fast, breathless movement, while offering the permanence of an unchangeable structure – was to be an instant success: Boccaccio and Petrarch adopted it immediately. Dante himself borrowed it from another language, Provençal: the “sirventès”, a lyric form which goes back to the troubadours used the “terza rima” or triplet rhyme. It was another example of the felicitous influence of a crossover between two forms of vernacular language: Provençal and Italian.
I have nothing against erudition. I like my central bankers literate. But shouldn't the man be focusing on, um, saving Europe from economic catastrophe right now?
Economists at Deutsche Bank AG and Goldman Sachs Group Inc. have criticized Trichet for not clarifying what the ECB may do at a time when the Bank of England and Federal Reserve are already buying assets such as commercial paper and government bonds to ease credit conditions.
“We are in an ongoing process of studying further measures and assessing the possible need for them,” Trichet said today in a speech to business leaders in Paris.
Maybe a little less Dante and a little more Deutsche Bank would help move things along?
Last night, NBC late-night comedian Jay Leno -- hosting U.S. President Barack Obama this week -- riffed extensively on the international implications of the increasingly catastrophic AIG bailout during his monologue:
[The AIG executives] bankrupt the company, took $170 billion of our dollars and they're giving out bonuses. You know the main thing they want to reward their people for? Convincing the Treasury Department to give $170 billion dollars to a failing company, so they can give out bonuses for a job well done. You know what "AIG" stands for -- anybody know? Adventures in Greed.
They don't have to account for any of us. Now it turns out they gave $35 billion -- not million, $35 billion -- of our money to bail out European banks. See, this is how a global economy works. Our hard-earned tax dollars are used to bail out German banks for making bad investments in American companies that shut down because the Japanese owners moved the whole thing to India, China, and Mexico. Boy, you thought St. Patrick drove the snakes out of Ireland? Let's send him down to Wall Street!
Turns out, Leno's right. This week, AIG released a document listing the "financial counterparties" who received $101 billion directly from the U.S. government's "emergency loan." AIG used more than of half the Treasury funds to pay down money owed for things like credit default swaps -- most of which went to foreign companies' coffers. Using data BusinessWeek broke down, we made the above chart.
Funny how the comedians are besting the finance experts now, huh?
Oddly parallel stories in the New York Times and the Washington Post today say more or less that Chinese firms are snapping up everything in sight now that the financial crisis has given them a competitive edge.
"The sheer scope of the agreements," the Post's Ariana Eunjung Cha declares, "marks a shift in global finance, roiling energy markets and feeding worries about the future availability and prices of those commodities in other countries that compete for them, including the United States."
And for the Times, Keith Bradsher makes the case that China is using the crisis to retool:
The country is using its nearly $600 billion economic stimulus package to make its companies better able to compete in markets at home and abroad, to retrain migrant workers on an immense scale and to rapidly expand subsidies for research and development.
Construction has already begun on new highways and rail lines that are likely to permanently reduce transportation costs.
And while American leaders struggle to revive lending — in the latest effort with a $15 billion program to help small businesses — Chinese banks lent more in the last three months than in the preceding 12 months.
China is also making it easier for companies to acquire foreign firms:
The [commerce] ministry is now leading its first mergers and acquisitions delegation of corporate executives to Europe; the executives are looking at companies in the automotive, textiles, food, energy, machinery, electronics and environmental protection sectors.
Delve a little deeper into Bradsher's story, however, and there's less here than meets the eye. There's still the fact that some 20 million migrant workers have lost their jobs. "The social safety net of pensions, health care and education barely exists," Bradsher notes. And China is losing some of its low-tech industries to countries with even less weaker labor and environmental laws. Exports fell more than 25 percent in February.
Nor can we assume that China's economic stewards really have a handle on the economic zeitgeist. The Financial Times reports today that the country "has lost tens of billions of dollars of its foreign exchange reserves through a poorly timed diversification into global equities just before world markets collapsed last year."
The bottom line: Be skeptical of claims that China is taking over the world right now. If anything, Beijing's list of domestic problems is getting longer, not shorter.
Here's what Iran's president had to say at a summit of the Central Asia's 10-nation Economic Cooperation Organization:
"After the collapse of the closed socialist economy, the capitalist economy is also on the verge of collapse," Ahmadinejad said in a speech.
"The liberal economy and the free market have failed," he said, pointing to the use of "thousands of billions of dollars" to bail out Western banks and companies.
Ahmadinejad proposed a single currency for the region to facilitate trade, though I'm not sure if even he'd go as far as Kazakh President (and fellow ECO member) Nursultan Nazarbayev's global "acmetalism" idea. The ECO definitely seems like a contender for the world's most outside-the-box regional trade federation.
I had always put Kazakh President Nursultan Nazarbayev in the megamaniacal but ultimately pragmatic class of dictators rather than the batshit crazy naming-months-after-himself kind. That was before I heard his idea for solving the global financial crisis:
"In our view, we must create a single world currency under the aegis of the United Nations," Nazarbayev said on Tuesday, a day before a major economic conference opens in his Central Asian country.
"We must make a transition to an absolutely new global currency system based on legitimacy and, in view of all countries, one single monetary system," he told a meeting of the Eurasian Association of Universities.
This is the first time Nazarbayev has spoken publicly about the need for a single world currency although he has previously written about it.
He first called for the creation of a worldwide currency, to be called "acmetal" - a combination of "acme," a Greek word meaning the peak or the best, and "capital" - in an article published last month.
In the article in Russia's Rossiskaya Gazeta, Nazarbayev suggested that once a single currency system was in place, the world might consider changing the term used to describe global finance from "capitalism" to "acmetalism."
This comes from Luke Allnutt RFE/RL's excellent TransMission blog, who notes that Genghis Khan had a similar idea.
Nazarbayev's book "The Kazakhstan Way," (featuring an intro by Margaret Thatcher!) has been sitting unread on my bookshelf since I snagged it off the FP review pile last year. If it's full of ideas this good I may have to move it up on my list.
Creative financing schemes and frisky credit-risk assessments haven't only catapulted capitalist economies to the brink. For years China's state-run banks have relied upon a coterie of dubious experts and shady loan guarantee companies when extending credit. Now, as things fall apart,
Whether or not banks elsewhere are nationalized, the real issue remains whether financial planners know what they're doing. Tim Geithner, take note.
On the other hand, per Forbes, at least credit is still available in China:
"In America, basically, private capital has dried up, but in China you have these large pools of capital sitting around," says Anne Stevenson-Yang, principal of Wedge MKI, an investment research and advisory firm in Beijing. "The problem is that most of the short-term capital and capital for private companies is in these gray and sometimes semicriminal networks."
China Photos/Getty Images
The United Nations' International Labor Organization (word file courtesy of Dani Rodrik) is keeping tabs on the world's stimulus packages. The charts make for interesting reading,
fun depressing financial crisis factoids.
For instance: Which countries haven't sorted out or passed their packages yet? Austria, Denmark, Greece, Iceland (no money to spend?), Ireland, New Zealand, Poland, Sweden, and Turkey.
Who's spending the most, in terms of percentage of G.D.P.? Spain (8.1 percent), China (6.9), and the United States (5.5). Brazil's the biggest cheapskate. Its $4 billion package amounts to a mere two-tenths of a percent of G.D.P.
Already, the blogosphere's parsed the data to decide which countries are pulling their weight and which are relying on others to do the spending for them.
Justin Fox at Time's The Curious Capitalist praises the U.S. and China and derides, well, everyone else:
"The concern is that if we in the U.S. do lots of stimulating and other economies don't, much of the money will just leak out overseas as we spend on imports but others don't buy our exports. China seems to be doing its part, but most of the developed world is not."
Ezra Klein agrees:
"We're doing a lot. China is doing a lot. Everyone else isn't....the global economy will be slower than it needs to be, which means national economies will be slower than they need to be (if Caterpillar's international sales sag, they'll cut U.S. jobs)."
Singled out for specific vitriol in the blogosphere is the Eurozone -- in particular, Germany, which has come under regular fire from the likes of Paul Krugman et. al. for free-riding on others' efforts.
Megan McArdle writes:
"Europe is dropping the ball here. The euro area is being notably stingy with both fiscal and monetary stimulus, and I'm not the only one who's stonkered by it. If fiscal policy remains too tight, it threatens the very union they're supposed to be protecting--how long can Greece and Italy, Ireland and Spain, suffer under a tight regime before one of them pulls out? And if one of them pulls out, the other weak sisters will pay sharply higher interest rates to compensate for currency risk, probably forcing them out as well."
If there's already global tension over which countries need to do more, just think when the arguments inevitably begin over who started it...
Andreas Rentz/Getty Images
The Dow Jones Industrial Average hit a bone-wrenching 6763.29 points yesterday amid news of failing Eastern Europe, faltering U.S. GDP, flinching Citigroup, flailing AIG, and lots more fun that you're no doubt aware of. So what was happening in the world the last time the stock market hit this point? It was April 25, 1997.
Some of the highlights from the 6763 days:
In his first on-the-record meeting with the media, held Wednesday, CIA Director Leon Panetta discussed the destabilizing effects of the global economic crisis. After he expressed particular concern over potential trouble in Argentina, Ecuador, and Venezuela, the Argentines are not happy. Yesterday President Cristina Fernández de Kirchner summoned the U.S. Ambassador to discuss the CIA director's comments, and speaking at a news conference, Foreign Minister Jorge Taiana had this to say:
We consider the statements an unacceptable interference in the internal affairs of our country, even more so coming from an agency that has a sad history of interference in the internal affairs in the countries in the region."
While economists are predicting that Argentina's GDP will contract next year, none of them seem to be forecasting this sort of doomsday scenario. Ambassador Earl Wayne claims that Panetta's statements do not reflect the U.S. government's official position, but rather the CIA chief was merely recounting the opinion of a "foreign source." Even if that is true, it's hard not to get the feeling that the CIA is once again causing trouble in Latin America.
Paul J. Richards/GETTYIMAGES
In an interview with the Financial Times, former Federal Reserve Chairman Alan Greenspan officially came out in favor of temporary bank nationalization as a possible solution to the current economic crisis:
It may be necessary to temporarily nationalise some banks in order to facilitate a swift and orderly restructuring. I understand that once in a hundred years this is what you do."
This is a big admission for Greenspan. But it seems as if the erstwhile devotee of Ayn Rand has been reassessing his ideas as of late. This past October, during testimony for the House Committee on Oversight and Government Reform, Greenspan said,
This modern risk-management paradigm held sway for decades. The whole intellectual edifice, however, collapsed in the summer of last year."
Well, as Martin Wolf recently wrote in FT, "We are all Keynesians now" -- even the high priest of neoliberal economics himself. It's a new day.
TIM SLOAN/AFP/Getty Images
Two days after Venezuela celebrated the passage of a referendum to remove term limits, the country still seems to be shaking off a hangover. Analysts the world over are mulling over the Venezuela's rising inflation, alarming debt burden, and perceived fiscal shortfall as oil prices fall to dismal lows.
Putting it more frankly, a former Venezuelan central bank official says the country is headed for certain stagflation. "A model based on the state entrepreneurial role is being depleted," he told El Universal. Rough words for a President who has nationalized the oil industry, among others, and may soon do the same in banking.
But if the markets say anything, it is that Chavez will simply have to start reigning in his popular but extensive spending -- something he'd avoided doing until the votes were cast. The country's currency rose on precisely those hopes yesterday.
From the looks of it, Hugo Chavez did indeed enjoy the hell-of-a party in Caracas on Sunday night, celebrating his big win. Good thing. One of the catchier slogans of the campaign, "Oh, ah, Chavez no se va!", is Venezuela's reality: Chavez isn't going anywhere. Is he sure it's a job he wants anymore? La recesion, tampoco, no se va...
Photo: THOMAS COEX/AFP/Getty Images
Truly, no one is safe from the long reach of the financial crisis. Time's China Blog reports:
With the flagging economy, no one's job is secure, not even for a mistress. A Qingdao newspaper reported that a Qingdao businessman facing money problems decided to “fire” four out of his five mistresses last December.
According to the paper the man, surnamed Fan, was “inspired by those talent challenge programs he saw on TV”, and arranged similar competitions for his five mistresses. Only the top winner would remain Fan's mistress and enjoy a monthly income of US$800 and an apartment. The five women then presented themselves in front of a professional model trainer, gave speeches, sang songs and even gulped down liquor to show their drinking capacity.
Read the whole post for the story's strange and tragic conclusion.
Update: Looks like this one was too good to be true. Time has learned that the story was fictional.
The Russian central bank appears to have avoided a currency crisis this week, at least temporarily. Policymakers virtually painted a target on the ruble by announcing in late January that they had established a new floor on the currency in order to stabilize its slide. In fact, the opposite happened. Within days investors pushed the currency's value down against the floor, threatening to cause another large selloff of foreign exchange reserves in its defense.
After losing over a third of the country's reserves since August and having the government's debt rating lowered by Fitch last week, the central bank made a change of course by tightening interest rates, making speculation more costly and easing the pressure to draw down official reserves. The move even caused the ruble yesterday to make its biggest gains against the dollar and euro in the past two years, signaling a temporary stabilization.
While they are not out of the woods yet, the Russians seem to have finally taken a step in the right direction. And at time when everyone is focused on the mounting woes in the world economy, any good news on the economic front is welcome.
ALEXEY SAZONOV/Getty Images
I guess the markets were none too keen on Tim Geithner's bank rescue revamp.
Many people will no doubt take this as ispo facto proof that the plan is flawed. Obviously, it's too soon to tell ,and we don't have enough details to make a definitive judgment as to whether it will work.
But in any event, should we really be trusting the collective wisdom of the markets at this point? I mean, isn't mass hysteria partly what got us all into this mess in the first place?
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