Global Trends 2025

From the National Intelligence Council's 2025 project:

1 - The whole international system—as constructed following WWII—will be revolutionized. Not only will new players—Brazil, Russia, India and China— have a seat at the international high table, they will bring new stakes and rules of the game.

2 - The unprecedented transfer of wealth roughly from West to East now under way will continue for the foreseeable future.

3 - Unprecedented economic growth, coupled with 1.5 billion more people, will put pressure on resources—particularly energy, food, and water—raising the specter of scarcities emerging as demand outstrips supply.

4 - The potential for conflict will increase owing partly to political turbulence in parts of the greater Middle East.

U.S. In Deep Recession

The U.S. economy entered a recession in April. It will last 14 months, which would make it one of the longest recessions since the Great Depression of the 1930s.

Only the 16-month recessions in the mid-1970s and early 1980s were longer. Even though the economy was technically growing in April this year it would not be unprecedented for the National Bureau of Economic Research to declare a recession was occurring then.

The NBER measures recessions by "a significant decline in economic activity spread across the economy," rather than the traditional definition of two consecutive quarters of falling GDP.

Source: Reuters.

GM Bankruptcy No Option

A study by the Center for Automotive Research (CAR) estimates that in case of a GM bankruptcy 2.5 million jobs would be lost in the first year. The logic: if any of the "Big Three" went bankrupt, many suppliers would also fail; because car companies share suppliers, all U.S.-based manufacturers would suffer crippling parts shortages.

Read Robert J. Samuelson's How to Bail Out General Motors.

Time for Fiscal Stimulus

From "When Consumers Capitulate" by Paul Krugman:

The ongoing efforts to bail out the financial system, even if they work, won’t do more than slightly mitigate the problem. Maybe some consumers will be able to keep their credit cards, but as we’ve seen, Americans were overextended even before banks started cutting them off.

No, what the economy needs now is something to take the place of retrenching consumers. That means a major fiscal stimulus. And this time the stimulus should take the form of actual government spending rather than rebate checks that consumers probably wouldn’t spend.

This Could Make 1929 Look Like A Walk In The Park

A chorus of economists has begun to warn that the world's central banks are fighting the wrong war, and perhaps risk a policy error of epochal proportions.

"Liquidity doesn't do anything in this situation," says Anna Schwartz, the doyenne of US monetarism and life-time student (with Milton Friedman) of the Great Depression.

"It cannot deal with the underlying fear that lots of firms are going bankrupt. The banks and the hedge funds have not fully acknowledged who is in trouble. That is the critical issue," she adds.

York professor Peter Spencer, chief economist for the ITEM Club, says the global authorities have just weeks to get this right, or trigger disaster.

"The central banks are rapidly losing control. By not cutting interest rates nearly far enough or fast enough, they are allowing the money markets to dictate policy. We are long past worrying about moral hazard," he says.

"They still have another couple of months before this starts imploding. Things are very unstable and can move incredibly fast. I don't think the central banks are going to make a major policy error, but if they do, this could make 1929 look like a walk in the park," he adds.

The Bank of England knows the risk. Markets director Paul Tucker says the crisis has moved beyond the collapse of mortgage securities, and is now eating into the bedrock of banking capital. "We must try to avoid the vicious circle in which tighter liquidity conditions, lower asset values, impaired capital resources, reduced credit supply, and slower aggregate demand feed back on each other," he says.

Source: Telegraph

Last Chance to Avert Great Depression

Via Economistsview.Typepad.Com:

Prosperity To End Just Around The Corner?

Congress's initial rejection of the Bush Administration's $700 billion bailout plan calls to mind an unhappy precedent. Back in 1930, the Senate passed the Smoot-Hawley Tariff Act, which raised duties on some 20,000 imported goods. Historians define this as one of the critical steps that led to the Great Depression — a tipping point when the world realized that partisan self-interest had trumped global leadership on Capitol Hill.

It's fair to ask whether America's lawmakers could do it again. The bursting of the debt-fueled property bubble and the crippling losses suffered by banks, together with the political dithering of recent days, have set in motion a chain reaction that, in the worst-case scenario, could lead to something like a 21st century version of the Depression — even if a bailout package does eventually get approved.

Anyone looking at the bail-out package as the salvation for the banking system or the U.S. economy is dead wrong. The problems in the economy and the banking system have gone far beyond what the package can fix.

There is a crisis of confidence in the financial system, and that won’t be fixed by the bail-out package. There is a crisis of confidence in political leadership. There is a well deserved mistrust of Wall Street and others whose greed and recklessness got us into this mess. And there are signs the U.S. economy continues to get worse, including house prices which continue to decline.

And we know it’s not just a U.S. problem. There are fears of a worldwide recession.

According to George Magnus, senior economic adviser at UBS, about 40 percent of OECD economies are in effect already in recession. He puts it all down to deleveraging, as banks cuts back on their lending.

Congress Rejects Wall Street Bailout

U.S. lawmakers in the House of Representatives voted against the biggest proposed government intervention in the U.S. economy since the Great Depression of 1929.

Government officials, Treasury chiefs and political leaders from both sides of the political divide thought they had agreed Sunday on the details of a $700 billion rescue plan that would prop up the nation's ailing financial system -- and be supported in the House of Representatives.

As it became apparent the vote was lost, the Dow plunged about 500 points on the day.

Who should take the call?

It’s 3 a.m., a few months into 2009, and the phone in the White House rings. Several big hedge funds are about to fail, says the voice on the line, and there’s likely to be chaos when the market opens. Whom do you trust to take that call?

I’m not being melodramatic. The bailout plan released yesterday is a lot better than the proposal Henry Paulson first put out — sufficiently so to be worth passing. But it’s not what you’d actually call a good plan, and it won’t end the crisis. The odds are that the next president will have to deal with some major financial emergencies.

Read all of Paul Krugman's analysis.

US's National Innovation Deficit

Though Ms. Estrin, the former chief technology officer of Cisco Systems, generally is not an alarmist, she has become more and more concerned about the state of her country and its innovation. Vint Cerf agrees: “There is a remarkable telescoping in of vision and an unwillingness to make long-term bets,” and Robert Compton, a venture capitalist and entrepreneur, feels that the United States is losing its innovation edge to China and India.

Read Another Voice Warns of an Innovation Slowdown.

Economic slowdown weighs on oil market

Oil prices dropped below $114 a barrel as investors speculated slowing economic growth in the world's largest economies will continue to undermining global crude demand.

Europe's biggest economies -- Germany, France and Italy -- all contracted in the second quarter. Japan said this week its gross domestic product also shrank in the April-June period. The U.S. Energy Information Administration reported a bigger-than-expected drop in gasoline supplies, but also said U.S. demand for refined fuel products continues to fall.

Read this Businessweek article.

Germany's Sinking Economy

After three years of economic growth and job creation, the Germany economy is starting to upend. Although the industrial sector may still have orders to fill, there is a dearth of new orders coming in at the moment, turnover is declining and profits sinking.

The speed with which the economy is deteriorating is almost unprecedented -- with economists not having seen it go down this fast in years. During the second quarter, Germany had shrinkage of between 0.7 and 1.5 percent, government experts estimate. If the trend continues during the current quarter, then Germany will meet the technical definition for a recession.

Source: Der Spiegel.