Depression Goes Global
by Charles Goyette: Goosing
While the attention
of the financial world and the business press have been focused
so completely on the daily developments in Europe though
there's not a game changer among them - other economic news from
around the world has been largely crowded out.
The real news
is that the depression is going global.
of the slowdown can be seen in the so-called BRIC nations. Surging
growth from Brazil, Russia, India, and China has helped drive some
of the world's economic vitality for a few years now. But the downturn
is now taking hold in those countries, leaving little to resist
the rip tide of depression.
Here are some
economic highlights from each of the BRIC nations:
Commodity exports are crucial to the Brazilian economy. China is
the largest buyer of Brazil's exports, so a slowdown in China and
lower commodity prices have affected Brazil. Growth has slowed considerably
there already. 2010's 7.5% growth was sliced to only 2.7% last year.
It's a trend in force: the Brazilian economy actually contracted
in April. Foreign investments in Brazil appear to have reversed
and become disinvestments.
Resource revenues, primarily earned from oil and natural gas exports,
have helped drive growth of the economy and the middle-class in
Russia. But it is a restive middle class that has taken its anti-Putin
protests to the streets. As natural gas prices have taken a big
hit in the last few years, and with oil down sharply since spring,
Russia will run larger deficits, financed by inflation, a policy
that will create more unrest. Earlier this year, the Russian central
bank, which has been a net buyer of gold, surprised many with its
first gold sales in five years.
Consumer price inflation in India is about 10%; food prices are
increasing at a rate closer to 11%. Interest rates are high, the
state deficit is widening, manufacturing has turned down sharply,
and GDP growth is stalling. Standard & Poor's, which dropped
the outlook for Indian debt from "stable" to "negative"
in April, says the slowdown puts India's investment grade debt rating
Now the second largest economy in the world, China's demand has
had a huge impact on commodity prices. Slipping commodity prices
may tell more about what is going on (or not going on) in China
than any official numbers, which are no more reliable than government
numbers in the U.S. Besides the slowing export sector determined
by conditions outside the country, China has blown up a huge real
estate bubble of its own. Central economic planning, state -owned
enterprises, and crony deals, all widespread in China, are no more
functional there than they are anywhere else in the world.
Bank of China's concern about a slowdown was seen earlier this month
as it cut key interest rates for the first time in years.
It has become
a cliché, but it is nevertheless true that we inhabit a global
economy. We cannot escape the effects of slowing conditions elsewhere
in the world. Thanks in part to emerging market demand, U.S. exports
were up 17% last year, mostly in manufactured goods. As emerging
markets slow, so do U.S. exports. China's slowdown threatens its
ability to continue sponsoring U.S. debt. And then there is the
inevitable currency warfare that ensues in a slowdown, as countries
"race to the bottom" in their competitive devaluation
of their own currencies, in the futile hope of generating prosperity
by stimulating exports at the expense of destroying the people's
My local newspaper
sums up the G-20 nation's talks in Mexico with a headline that reads,
"G-20 talks on Europe debt spur optimism: Obama is encouraged
strong action is near." It's like Groundhog Day. It's no
different than the news stories about the European crisis that have
run for years now. But no matter how many times the scene is repeated,
the crisis of sovereign nations that spend more than they produce
and cannot pay their bills is not fixed by loaning them more money.
The media focuses
relentlessly on re-writing old news from Europe over and over. But
despite the optimistic headlines, it is a situation that worsens
as the debt deepens with each new rescue plan.
notice that the tide is going out on the global economy.
© 2012 Charles Goyette
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