Global Dyspepsia

It's time again to visit some of the garden spots on planet Dearth (yes I have taken the editorial freedom afforded me here at Urban Digs to rename our collective home more appropriately for the times). Let's check out how the world financial crisis is impacting our various friends abroad. This is important because the worse things are and the more terrified people become the more they direct their savings to buying our ridiculously under-priced long-term government debt (which we all know or heavily suspect we will never be able to pay back in dollars worth even remotely what they are today). So for now bad news for our neighbors is good news for our ability to fund bailouts as well as the egregious pork our government throws around in addition to the normal everyday expenses of running the country. When global savings begin to be rededicated by the countries who save to investing in their own lands, we just may end up with an interest rate problem or currency collapse, but those subjects as tantalizing as they may be are the subject for future posts. If your tired of listening to me air out other country's dirty laundry...click on.

We were all briefly reminded by Alan Greenspan's editorial in the Wall Street Journal a couple of days ago, that the housing bubble was global, not just local - and therefore there is no way the Maestro could have caused it. The fomer imperial Count Du Monet points to an IMF study which found that the housing bubble in the U.S. was only at the median of housing bubbles worldwide.



So how are world economies holding up under the strain of popping bubbles in housing, commodities, commercial real estate and U.S. consumption? Let's take a brief tour:

Russia:

According to the New York Tmes "Many of Russia's richest men were highly leveraged going into the financial crisis" Ahhh but how else could they make sure to capture their fair share of baubles, bling bling, Cristal and New York condos (or houses on the French Riviera, London pads et al?. The paper goes on to place the debt coming due this year for these Putin-pals at $128 billion. The sweet irony of it all being, that the Oligarchs, who gained control of their businesses through government privatizations, are now looking to the Kremlin for bailouts. The answer.... Nyet! The Czars ain't biting, as they have reportedly burned through a third of their FX reserves since August and can't be seen by foreign investors to be on the hook for corporate debts lest the ruble take another shellackering. Bloomberg reports that ,"Russia Not 'On Brink' of Moody's Cut on Steadying Ruble, Debt" I guess the cuts to their sovereign debt ratings by Fitch & S&P served to show them the light. With oil acting better the freefall in Russia is said to be over. "U-dA-chi!" (good luck).

Eastern Europe:

The former Soviet Republics of Eastern Europe are no better off, and they likewise owe most of their considerable debt to Western institutions. According to an Op Ed piece in the New York Times by Liaqat Ahamed, author of the highly topical "Lords of Finance - the Bankers Who Broke the World", countries including Bulgaria and Latvia borrowed the equivalent of more than 20% of GDP annually from 2004 to 2008. The 13 countries that were once part of of the Soviet Union collectively owed more than $1 Trillion (with "T") borrowed for investments and real estate (nothing about collectible Teddy bears was mentioned here at least). Apparently, exports have crashed for these countries and now Austrian and Italian banks are on the hook for the debt. No small potatoes for these countries either with the amount owed to Austrian institutions totting up to 70% of GDP (that'll leave a mark - pun intended).


The Financial Times recently published an article highlighting the unrest that has stemmed from the global financial crisis in many corners of Europe saying:

Economics is convulsing European politics. Governments have fallen in Iceland and Latvia; strikes or protests have erupted in Greece, Ireland, France, Germany, Britain, Lithuania, Ukraine and Bulgaria. Financial turmoil has shaken even the continent’s furthest-flung outposts: the French Caribbean island of Guadeloupe has been ravaged by violent strikes, while Russia flew riot police into ice-bound Vladivostok to quell street protests.

No wonder folks want to own a few greenbacks and Yankee bonds. Let's circumnavigate the globe now and check in on the far-east.

China:

According to Reuters the city of Wenzhou in eastern China, which is an export powerhouse is "seeing a recovery thanks to Beijing's stimulus measures and the capacity of privately owned local firms to address challenges". Some how I fail to see how internal stimulus aimed largely at infrastructure projects is helping an export oriented city. Have no fear however, the City's Communist Party Secretary avers "I'm sure that things will turn better in March as compared with the first two months, and in the second quarter as compared to the first quarter". About 24 hours later China reported its export numbers for February.........down 25.7% year-to-year, the biggest drop on record. The comrade Secretary must be getting PR lessons from New York City real estate brokers. According to Paul Cavey, an economist with Macquarie Securities in Hong Kong, "China has finally and spectacularly succumbed to the world financial crisis on the export side, and it's difficult to see why that would improve in the short term,"

The markets were disappointed recently when China did not announce a follow on stimulus to it's original $586 billion stimulus, indeed some are claiming that from the looks of it's budget published last week the stimulus may be much smaller than the headline number. Perhaps China is being smart in saving up ammunition for the long-haul. Without a rebound in American and European consumption the country will be hard pressed to maintain its growth regardless of how many railroads it builds. Others believe that the Chinese government is wary of over-stimulating the economy and producing mal-investment and bad loans as a result. Either way these guys may be smarter than I sometimes give them credit for. I still don't understand how any market, including Chinese fixed investment, can grow 30% per year, year after year, without producing lazy underwriting and bad loans. When this thing blows it's gonna be a doozy. But don't listen to me, Jim Cramer says "China is red hot and staying hot". As I got ready to release this China told a gathering of the G20 nations that it was ready to pump more money into its economy....I guess thats because of all the strength.

India:

Seldom has massive government bureaucracy been seen as a blessing, but in India it apparently has had the salutary effect of ensuring that the brain of the economy has not yet received the message from the body that the world is sinking into near-depression. According to Kranti Kumara writing on the World Socialist Web Site, "Especially troubling for the government was the recent report that India's economic growth slowed in the last three months of 2008 to an annualized rate of 5.3 percent. This was far below government forecasts and belied its claims, confidently repeated in the preceding weeks, that economic growth in India in the 2008-9 fiscal year, which ends March 31, will be in excess of 7 percent. Manufacturing output actually contracted by 0.2 percent in the last quarter of 2008, while agriculture, which continues to provide over half of India's population with its livelihood, suffered a 2.2 percent decline.

Overall growth in the first eight months of fiscal 2008-9 (April through December 2008) is reported to have been at an annualized rate of 6.9 percent. But there is every reason to believe that, following on from the last quarter, the pace of economic growth has continued to slow in the first three months of 2009. Thus the 2008-9 growth rate will fall far short not only of the government's early projections of well over 8 percent, but even the revised 7 percent figure.

Export earnings have fallen for five straight months. In January exports fell 16 percent from a year earlier to $12.3 billion and in February by 13 percent to $13 billion.

India's economic development strategy is predicated on the country registering an annual growth in exports of 20 percent or more. The government had set an export target of $200 billion for this year—less than one-sixth of the value of China's exports in 2007—but it is now expected that the figure will be around $170 billion. "

India's credit rating outlook was lowered last month as S&P said it might lower the nation's credit rating to junk status causing the Rupee to decline to a record low versus the dollar.

Brazil:

The government of Brazil, like so many others in emerging economies, continues to speak optimistically about economic trends. However, a recent jump in the inflation rate and decline of 3.6% in GDP for Q4 2008 belie this false hope. Interestingly, Brazil which is not known for free trade policies, is warning about the potential for an outbreak of protectionism. The slowdown in Brazil is demonstrating that being the world's biggest exporter of sugar, coffee, iron ore, beef and chicken, with a rapidly growing petroleum reserve base, cannot protect you from the global downturn, and of course protectionism would only make matters worse. Brazil just cut interest rates a larger than expected 150 basis points as inflation fighting has taken a back seat to stimulating the economy.

So Urban Digs readers please take solace in the fact that despite the maelstrom going on around you, the rest of the world suffers with you, some even have as far to fall as New York City and are in relatively commensurate denial. In the near-term the "safety" of the dollar and our own increased savings rate is helping keep our federal borrowing binge alive and the dollar buoyant...stay tuned.

From the Blogosphere:

China Businesses Turn to Pawn Shops as Loans Dry Up

Preview from Europe: the Horrow Show's Alive and Well

Testing Times for China's Economy

Financial Crisis Pushes Europe to the Brink of Disaster

India's Malnutrition Crisis