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.