Export-led growth: not so resilient

by | Feb 4, 2009 | East Asia and Pacific, Economics and development, Latin America and the Caribbean, South Asia

As David just noted, this morning’s Lex column in the FT is relatively upbeat about the dangers of protectionism, arguing that “the disaggregation of global supply chains, the source of the huge efficiencies that companies pass on to consumers, will not be easily undone.”

Whether or not that’s right (and like Willem Buiter, Martin Wolf is also a good deal more downcast than the Lex team), it’s interesting to compare today’s Lex column with what they had to say about capital flows to emerging markets just a couple of days ago.  Here’s the bit that made me sit up:

Take Brazil and India, the globe’s ninth and 12th biggest economies, according to the International Monetary Fund’s latest estimates. While the developed world is expected to shrink by 2 per cent this year, the IMF reckons Brazil will grow by 2 per cent, and India by 5 per cent. Why? One answer is that they have stable banks, relatively closed economies, and large internal markets. This has insulated them from much of the global turmoil.

The contrast with East Asia is stark. Singapore’s economy shrank at an annualised 17 per cent rate at the end of last year, South Korea by some 20 per cent. Yet this is not for lack of capital. Asian economies, after all, are global creditors. Their economies have shrunk instead because they are heavily oriented towards collapsing international trade. Meanwhile, their local markets are undeveloped and weak. Asia’s challenge is how to best deploy its accumulated surpluses to boost domestic demand.

(more…)

Worry not. Worry. Worry not.

by | Feb 4, 2009 | Economics and development, London Summit

The EU may be planning to sue over the US’s Buy American nonsense, but in the FT, Lex is confident that globalization cannot easily be put into reverse:

Economic nationalism, it is argued, will tip the world into a Great Depression, just as America’s Smoot-Hawley Act did 79 years ago. This is a horrifying but, frankly, also a distant prospect. The disaggregation of global supply chains, the source of the huge efficiencies that companies pass on to consumers, will not be easily undone.

Maybe so… But Willem Buiter is much less sanguine:

We can go down in history as the generation that created the Great Depression of the Noughties.  Just keep on beating the protectionist drums.  Keep on the footdragging that prevents effective qualitative and quantitative monetary policy easing in the Eurozone and the UK.  And go ahead with unsustainable fiscal stimuli in the US, the UK and elsewhere that will spook markets, push up long-term interest rates and raise the spectre of sovereign default by countries not belonging to the group of usual suspects.  Yes we can!  I hope we won’t.

The horror! The horror!

by | Feb 3, 2009 | Economics and development

Thanks to Flickr user Oliver Ingrouille

Thanks to Flickr user Oliver Ingrouille

Prepare to heave at this New York Times screed on how tough life is for bankers these days.

“Nobody in the investment banking world is expecting pity, or even a sympathetic ear, these days,” the article begins, before quoting banker after banker who not only feels  “unfairly singled out“, but wants destitute home owners to accept the lion’s share of the blame:

Financiers tell their not-for-attribution account of the mortgage crisis like this: Americans undersaved and overspent for decades, relying on rising property values to bankroll their lifestyles.

But nobody on Wall Street forced United States homeowners to take out loans on houses they couldn’t afford, or refinance mortgages to spend money on cars they shouldn’t have bought.

Of course, others are at fault too. Ratings agencies failed to warn innocent financiers of the risks they were taking, while regulators… well, they should be ashamed of their many failings. Bankers did just one thing wrong. They trusted us too much – and we let them down.

Now they are spat on as they cross the sidewalk from their limousines and are too embarrassed to admit what they do at champagne receptions. “I’d almost rather say I’m a pornographer,” says one poor soul. “At least that’s a business that people understand.”

Then there’s the last devasting blow – having their bonuses cut:

“Fact is that this is a terrible way to make a living — except for the money,” Ken Miller, a former vice chairman at Credit Suisse First Boston and now a private investor, said. “The lifestyle is terrible — the hours, the sucking up. These guys must feel like they’re the victims of a capricious god.”

Yes indeed, Ken, it seems they do.