Tag Archives: international

Recession and Recovery: How Long?

I’ve commented earlier that many economic forecasts seem to assume reversion to the mean – here, meaning average economic growth over the last two decades. For a great example, go to the Wall Street Journal and admire the GDP growth rates projected for Q3 2009 through Q2 2010, marching happily up and to the right. (The numbers are 0.6%, 1.8%, 2.3%, and 2.8%.) This recession is different, however, and even if there is a mean to revert to after U.S. households decide how much they want to save, there’s no telling how long it will take.

For one perspective, the Carnegie Endowment for International Peace had a session at the end of April featuring a few IMF economists. Marco Terrones (link to PowerPoint at the bottom of the page) looked at the typical duration of a recession and the ensuing recovery. The duration of recovery is measured to the point at which the economy reaches its previous peak output (the output level when the recession began – December 2007 in our case). He looked at 122 recessions since 1960. 

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Many Countries Are Worse Off Than We Are

These are real GDP growth rates for Q1 over Q4, not annualized (like we do here in the U.S.), for the G7 and the Eurozone:

  • Japan: -4.0%
  • Germany: -3.8%
  • Eurozone: -2.5%
  • Italy: -2.4%
  • U.K.: -1.9%
  • U.S.: -1.6%
  • France: -1.2%

Figures are from Bloomberg. Canada seems to be doing better, but Bloomberg doesn’t have quarter-over-quarter rates.

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Be Careful What You Tweet

In Guatemala, at least. Various commenters on this blog have, at one time or another, recommended pulling your money out of those “too big to fail” banks that are getting so much government support. In Guatemala, Jean Anleu Fernandez was arrested and jailed for sending this out on Twitter:

First concrete action should be remove cash from Banrural and bankrupt the bank of the corrupt.

I guess he also said the bank was corrupt. Well, people have said that around here, too.

More broadly, the government is in crisis, with frequent popular protests, over allegations that Rodrigo Rosenberg was assassinated on the orders of the president because he uncovered evidence of murder and corruption by the government. 

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Can The US Save The World? (House Testimony)

Yesterday I testified to the House Subcommittee on International Monetary Policy and Trade (part of the House Financial Services Committee).  The hearing’s title was “Implications of the G-20 Leaders Summit for Low Income Countries and the Global Economy,” and the main topic was whether Congress should support an extra $100bn for the IMF that the Obama Administration agreed at the G20 summit in early April (witness list, webcast, and written testimony).

The committee was mostly in favor of the US continuing to play a leading role in supporting the IMF, but pressed the witnesses to explain whether the IMF could lose this money (highly unlikely), how this would protect American jobs (definitely, but hard to quantify precisely), and if the broader package of IMF reform should also be supported (e.g., the proposed gold sales are being reassessed, to see they could generate more resources for aid to developing countries).

Politico is reporting that US funding for the IMF is likely to be attached to the war supplemental spending bill.  The subcommittee’s chairman, Gregory Meeks, seemed positive – as did all the Democrats who spoke, along with Gary Miller, the Ranking Member/Senior Republican.  But, based on remarks made by at least two Republican members of the subcommittee, there is likely to be a big public fight at some point.  My guess is that the Democratic side will press hard for President Obama to more publicly explain why supporting the IMF (and the G20) is very much in the US interest.

The main points from my written testimony are below.  While Treasury represents the US vis-a-vis the IMF and traditionally has considerable scope for action, the views of Congress on IMF details are very important as both guidance and constraints.  In our advice on the wide range of IMF-related issues below, both I and the other witnesses laid out broadly similar views with varying emphasis – there was actually much more disagreement among committee members than at the witness table. Continue reading

Payback Time

Once upon a time there was a president named George. He liked to do things his own way, which annoyed some of his “friends” in Europe. But then a new president named Barack was elected, who not only promised to be nicer to his friends, but was actually very popular in most parts of the world. And the people of the world thought we would see a new era of international cooperation, at least between the U.S. and Europe.

Not so much.

On this side of the Atlantic, the Obama administration and the Fed have been working night and day in an attempt to turn around the economy: Fed funds rate reduced to zero, $800 billion stimulus package, new plan to aid struggling homeowners, new plan for buying toxic assets, new budget, decision by the Fed to buy long-term Treasury bonds, new domestic regulatory framework outlined this week, etc. We’ve been plenty critical of various aspects of the U.S. response, but at least they’re trying.

(Continental) Europe, by contrast, has decided they’ve done enough and it’s time to sit back and watch.

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Europe Is in Bigger Trouble than the U.S.

This is a theme that Simon in particularly has been sounding. Now, according to the Telegraph, a confidential European Commission memo confirms this. To review, the basic problems, relative to the U.S., are:

  • Disproportionately large banking sectors (the Iceland problem) in some countries, such as the U.K.
  • High exposure to U.S.-originated toxic assets (up to 50% of those assets, I have heard estimated).
  • Major exposure to emerging markets, primarily Eastern Europe and secondarily Latin America, which have been harder hit by this crisis than anyone else.
  • Higher pre-crisis national debt levels (for many but not all countries).
  • For countries that use the euro, no control over monetary policy.

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Meanwhile, Elsewhere . . .

All the hubbub about the new Obama Administration and the probably-impending bank rescue plan has diverted my attention a bit from goings-on in the rest of the world. I decided to spend a little time checking in, thanks to the magic of the Internet. And things do not look so good.

  • Japan, in what looks like sign of desperation, announced a plan to buy shares directly in companies (not just banks) that are having trouble raising capital. The idea seems to be that, since companies are having trouble borrowing money from banks, they should get it from the government instead. This looks like a much broader and more direct intervention – deciding who gets capital and who doesn’t – than anything that has been contemplated in the U.S.
  • Germany, the largest economy in the EU and one once thought to be relatively safe in the current crisis (as compared to the U.S. or the U.K., with our overgrown financial sectors), is now projected to see a contraction in GDP of over 3% (composite Bloomberg forecast) – but still struggled to pass a stimulus package of $65 billion – or 2.5% of GDP – over 2 years.  And despite an annual government deficit under 3% of GDP (ours is over 8% by comparison), the political pressure is to reduce the deficit and return to a balanced budget out of fear of inflation. This only highlights the tensions within the Eurozone between countries with different economic situations and priorities.
  • The Institute for International Finance projects that net private sector capital flows (investments, whether direct investment, equity, or debt) to emerging markets will be $165 billion in 2009, a staggering 65% drop from 2008. Commercial banks are expected on balance to withdraw $61 billion from the region. As a result, regions such as Eastern Europe whose recent growth was dependent on foreign lending are likely to contract for some time to come, as companies are unable to refinance their debt.
  • Robert Zoellick, head of the World Bank, estimates that the economic crisis has pushed 100 million people around the world into poverty.

One of the themes of this crisis has been that whatever problems we have here in the U.S., countries with weaker borrowing power, currencies, social safety nets, and financial sectors face much bigger problems. That isn’t changing.