What’s Ahead for the Economy and Politics in 2010

Aus Robert Reich’s Blog. Robert Reich was the nation’s 22nd Secretary of Labor and is a professor at the University of California at Berkeley. He is for sure one of the best observers of – at least – American politics and society (hfk)

Just about everything you’ll hear coming out of Washington starting now is really about November’s mid-term election. The gravitational pull of the midterms was already apparent last year, as Republicans marched in perfect lockstep to vote against whatever the President and Dems proposed (Republicans always have authoritarian discipline on their side, which is why they’re Republicans) but you haven’t seen anything yet.

The Dems have enough votes to enact health care — the hurdle Bill Clinton failed to jump, contributing to the Republican takeover in 1994 — but when it’s enacted, expect the spin machines on both sides to be at full throttle. And because health care legislation won’t be implemented for another three or four years (depending whether the House or Senate versions prevail), Americans won’t be able to test the veracity of these wildly divergent claims. So don’t count on health reform to help Dems next November — nor harm them, either.

Brazil’s Q3 GDP Disappointed: Is Growth Sustainable? What Are the Drivers?

Industrial production declined 0.2% m/m s.a. in November (consensus +1.0% m/m). On an annual basis, industrial production (IP) increased 5.1% (-3.2% y/y in October). Capital goods (+6.1% m/m s.a., -2.5% y/y), intermediate goods (+2.1% m/m s.a., +5.2% y/y), and consumer goods (-0.6% m/m s.a., +6.8% y/y), mainly due to auto production (-2.2% m/m s.a.), posted mixed results. BNP analysts highlighted that „the number was weak and looking forward, BNP expects IP to continue losing momentum. The main reasons behind that are i/ tighter fiscal policy, ii/ weakness of external demand and iii/ increasing unemployment rate expected to be seen in early 2010… The weakness of banking lending from non-public institutions is another headwind to consider.“ (Not available online, Diego Donadio, BNP, Brazil: Nov’s Industrial Production declined 0.2% m/m, below consensus, 01/06/09)

The Trade Factor

Date: 06-01-2010
 Source: Businessworld
Subject: The Trade Factor

The precipitous drop in trade last year as a result of the global financial crisis was evidence of the heightened interconnectedness of the world’s major economies. But such interconnectedness was also one reason why trade protectionism – the bogey everyone feared would send the globe into another Great Depression – never rose to a level that threatened a recovery. Indeed, there were many calls by domestic businesses to erect trade barriers. But policymakers chose not to heed such calls either out of fear of falling foul of WTO rules, or, more likely, recognizing that since the supply chain for many businesses crosses many borders, trade barriers would eventually harm the home country. Nevertheless, while trade may eventually return to pre-crisis levels, global imbalances – one of the factors that led to the crisis – remain. The US still spends; China still saves; and the Yuan remains undervalued. As long as these imbalances obtain, the risk of a protectionist backlash remains. Disaster was averted, but the nature of the recovery still remains in question. – YaleGlobal

While the US has been working to reform its financial system, trade remains a worrisome area

Nayan Chanda

Global bear rally of 2009 will end as Japan’s hyperinflation rips economy to pieces

 We start with a short column by Ambrose Evans-Pritchard of the London Telegraph giving us a quick run down of the problems faced around the globe. He thinks the #1 problem is Japan, and I more or less agree. I have written about Japan many times in the past few years. In my speeches I refer to Japan as a bug in search of a windshield. I am not so sure about the timing, however, as the economic and fiscal insanity that is Japan may be able to go on for longer than many think possible. But to me it is not a question of whether there will be a crisis, but when there will be one. This year? 2011? 2012? I doubt Japan makes it to the middle of the decade with a very serious and sad day of reckoning.

How Sustainable Are the Improvements in Global Manufacturing?

 • Surveys suggest that global manufacturing activity continued to expand in December 2009 with growth in output, orders and the overall PMIs accelerating in many countries. The pace of expansion has slowed, however, indicating that the recovery is strong going into the new year. The U.S., EMU, China and Japan all continued to record expansions. Spain, Greece and Russia are among the few countries to continue to see contraction in manufacturing.

Hungary’s Economic Correction Still Fails to Convince

Edward Hugh

Dec 29, 2009 1:22PM

„Hungary’s potential economic growth should be 2 percentage points over the corresponding EU figure in order to ensure convergence“. Prime Minister Gordon Bajnai, speaking in London in October

Two contrasting pieces of news about Hungary’s economic plight have caught my eye over the last week. In the first place, and in an evident sign of the times, retail sales reportedly fell at their fastest annual rate in over ten years in October, whilst secondly, and more surprisingly, I learnt that Hungary’s economic-sentiment index rose to its highest level since October last year, when the gale force wind sent by the fall of Lehman Brothers engulfed the country. How can this be, I thought? These two pieces of information would, at least on the surface, seem to be pretty contractictory, with the former suggesting the deepest recession in living memory is getting even worse, while the latter seems to add backing to government claims that the worst is now behind them. 

Quantifying Eurozone Imbalances and the Internal Devaluation of Greece and Spain

Claus Vistesen

Dec 28, 2009 6:00PM

Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning. Churchill 1942 

The Fairness of Financial Rescue

Mark Thoma

Dec 29, 2009 5:45PM

Brad DeLong says the undesirable act of bailing out those who helped to cause the financial crisis is justified by the greater good that came from this policy, but the public does not see it that way: 

The Fairness of Financial Rescue, by J. Bradford DeLong, Commentary, Project Syndicate: Perhaps the best way to view a financial crisis is to look at it as a collapse in the risk tolerance of investors in private financial markets. … [W]hen the risk tolerance of the market crashes, so do prices of risky financial assets. … This crash in prices of risky financial assets would not overly concern the rest of us were it not for the havoc that it has wrought on the price system… The price system is saying: shut down risky production activities and don’t undertake any new activities that might be risky.

Lost Decade for Stocks

James Hamilton

Dec 28, 2009 6:59PM

Why were the aughts so nasty for stocks?

The U.S. ended the decade more or less where it began in terms of total employment.  

 

  

Source: FRED.

Poland’s Economy Stands Out from Regional Peers: Explaining the Outperformance

• Poland stands out as the only EU economy to avert recession in 2009. The economy’s resilience in the face of the global crisis is attributed to a number of factors, ranging from a flexible exchange rate to smaller pre-crisis external imbalances, as well as a lower export-to-GDP ratio than most CEE peers.