World Economies 3

The Whiff of Contagion

http://www.economist.com/world/europe/displaystory.cfm?story_id=13184594

With the world markets in a decline that they are in right now, Eastern Europe is having unique solutions to the problems facing the rest of the world.  Countries such as Latvia are selling shirts with sayings on them that do not make sense.  One saying is “Nasing Spesal” and are starting to be a lighter note to an increasing country deficit and make some people feel a little better about what is going on.  The government is now trying to cut spending in numerous ways, the biggest cut being in social programs.  This drastic change is causing the public to riot.  Some just simply do not understand that the government is just trying to do what is best for the country.

 

Domino Theory

http://www.economist.com/finance/displaystory.cfm?story_id=13184631

For decades people have bought and sold bank bonds, with the thought “if you can’t trust the government, whom can you trust?”  This way of thinking quickly spread from one government to the next when people started to buy bonds in foreign markets.  Governments started to run huge deficits on the basis of bond sales.  The question is now, what if governments can’t pay them back?  With the most risky Dubai the question may become reality.  Not having enough capital to pay back loans could not only affect that country but also many others, from the lost income that foreign investors could have had.

 

The bill that could break up Europe

http://www.economist.com/opinion/displaystory.cfm?story_id=13184655

Combining the previous two articles, a problem has sent in with Western Europe investing in the spend-fast Eastern Europe.  The eastern countries may not be capable to pay back the loans, and the first to feel the effects would be their western counterparts.  Some predict that this fall of even one country could trigger effects that make the entire European Union fall.  Unfortunately, the IMF will have to step in and help pay some of the countries debts, so hopefully a great World economic disaster is dodged.  Since there is also a central currency between these countries, the western states must be concerned with what the failing foreign markets could do to their countries markets.  It is pretty well understood that the first thing that should be done is to stop the currency from collapsing and ensure that banks have enough money (from the IMF) to ensure that people can continue to function in their daily lives.

Blog Post 2

Britain’s Fallen Star

http://www.economist.com/world/britain/displaystory.cfm?story_id=13110366

Britain, a once growing economy, has lost its momentum and is projected to have the worst decline in GDP growth in 2009.  Stores like Poundland (their equivalent to the dollar store) are starting to get more and more customers as people are losing jobs.  The housing market is not any better, as new home construction has nearly come to a complete halt and subsidies are starting to be given for the unsold new homes.   They also have a huge deficit that is not helping the problem any better; this also causes a huge imbalance with the inflation that is currently happening.  Some, however, think that some of the forecasts mad are too severe, thinking that GDP will not drop as much as expected, and the battling monetary policies that have been put in place will take care of it.

 

Back to the Future

http://www.economist.com/business/displaystory.cfm?story_id=13101637

Britain’s problem with the labor markets is hurting much more than just Britain’s economy.  Currently the striking construction workers are finding jobs in countries all over Europe’s continent and sending money back home.  With the world economy in the state that it is in, countries cannot afford to be losing jobs (and money) to foreign countries.  The once conservative view of not getting involved is starting to be overtaken by a more Keynesian approach.  Not only does the British government need to get involved, but also is being forced to by the European Union and the Trades Union Congress.

 

World Bank: China Needs Balanced Development

http://www.forbes.com/2008/11/25/world-bank-china-markets-econ-cx_twdd_1125markets03.html

China’s recently passed stimulus package has done good things for the economy, but many warn against doing too much and overheating the economy.  Much of the change has not come from a decrease in GDP but merely a decrease in GDP growth.  The policies that should be implemented should however change.  A safety net should be set up with lower price caps on inelastic goods, to make sure that the stimulus continues to have its intended effects, rather than go beyond it.  The government deficit became 2.9% of GDP, but is expected to be manageable.  Even though a slowdown is not desirable, it is a necessity to make sure that the economy can develop in a healthy manner.  

World Economies 1

Supersizing the Fund

http://www.economist.com/finance/displaystory.cfm?story_id=13062102

During this current state of economic affliction, the International Monetary Fund is needed now more than ever to help the developing countries it was created for.  The IMF is funded mostly by Europe and America, and is now debated to allow more say from other countries.  Since most of the countries are struggling on the domestic front, it can be hard to expect them to pay to help out other countries.  In 2007 contributions to the IMF were at $929 billion, but are expected to be as low as $165 billion in 2009.  Some economist are arguing that the since the IMF was created to help developing countries in time of need, it is becoming ineffective and would need over $1 trillion in order to make the IMF work again.  Other debate is stemming from the idea of raising the credit rate of the IMF, but smaller countries are arguing for the richer countries to pick up the tab.

 

A Tricky Balancing Act

http://www.economist.com/world/europe/displaystory.cfm?story_id=13062174

The once admired euro is becoming more and more less attractive with its countries barely making it through the economic crisis.  Almost a year ago, Britain (who is not on the euro) was struggling the most and was criticized for not adopting the euro.  Now Britain is looking better than most of the Euro countries.   With Greece, Ireland, Portugal, Spain, and Italy all having massive debts, the future is looking very unstable.  Almost $2 trillion dollars of public debt has to be raised this year.  People who made a 10-year note investment in the government, are now ready to cash the investment but in doing so, may very well bankrupt their countries.  If the consumer realizes that the government may not be able to pay them back, then there would be a massive bail-out, and everyone would start to demand their money back.  People would lose confidence and trust in the government.

 

Up and Away

http://www.economist.com/finance/displaystory.cfm?story_id=13062202

Japan’s industries are starting to worry about the future of its currency.  Its inflation rate is not what is worrying businesses though, it’s the exchange rate.  Earlier in the decade, the Japanese government decided that their products are more inelastic than most people think and that if exchanged rates hiked, Americans would still buy their products.  Quite the opposite is true, with exchange rates as high as 65% to the “tumbling pound.”   Some of the increase is due to Hedge Funds making a profit on swapping the currencies with higher yielding ones.  Not only is this a concern for new production, but also for current inventories since the Japanese products are much more elastic than thought.