Saturday, December 27, 2008

The BRICs are falling like bricks

Brazil, Russia, India and China, aka the BRIC emerging markets, are victims of the the world wide recession. Does anyone know of a country that is immune to the current credit and consumer confidence crisis? Even Dubai has seen a massive drop-off in real estate.

The US is deploying massive fiscal and monetary injections of dollars into the economy. The rest of the world is doing the same, leading to a "war-time financing in the absence of war", to quote Niall Ferguson.

But this war needs a name. The worst recession since "fill in the blank" is running out of blanks. No one wants to hear or use the "D" word, depression, as in "the Great Depression". In fact the words Great and Depression are enjoined forever now in our lexicon. The pundits say that term doesn't apply to the current crisis because unemployment will never reach 25%. But the sheer number of people out of work in American (and the rest of world) may indeed surpass the numbers in the early 1930's. Eighty years ago, agriculture dominated our economy. Farmers couldn't sell their crops, but they could eat them. The soup lines were in the cities. Today, we all live "in the city". In a somewhat whimsical forecast article published in the Financial Times today, Niall Ferguson coins the term "The Great Repression". Works for me.

In WWII, the world suffered, the US suffered, but the US emerged stronger. And led the world's recovery right up to the current crisis. The same thing will prove true in this war. Forecasts that our time has come, that our models are broken, are plain phooey. The world is exchanging "their" surplus dollars for "our" 0% yield T-bills - thank you very much. Oil-rich countries that over-leveraged $100/barrel oil (Venezuela, Iran and to a degree Russia) are devastated by $40/barrel oil. Deflation prone Japan, which recently saw their worst monthly drop in GDP ever, will lose their #2 position in the world's economy forever. China will learn a bit of humility perhaps. America and China will emerge stronger after The Great Repression.

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