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.