So, The Recession Bogeyman Wasn’t the Culprit…This Time
It appears that Monday’s big foreign stock market plummet didn’t come because of fears of a US recession. The news now is that a French company, acting on the revelation that one of its traders committed a 7 billion dollar fraud, started bailing out of all its stock positions unknown to most of the world, our Federal Reserve.
SocGen’s losses, and resulting actions, panicked markets frmo Europe to Japan, prompting a rather large rate cut from the Fed to forestall such a panic here. As it was, the US stock market took over a 600 point swing in two days and the “R” word was cited as the main culprit in several stories I saw in that time.
I can’t help but wonder how the market will correct itself after investors see that their reactions earlier in the week were based on entirely false assumptions. I suspect that the recession will get used a lot more to scare people into making more government-friendly decisions. The “stimulus” bill seems to me only the beginning.
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Category: The Economy and Your Money
The "R" word we should be worried about isn't "recession", it's "realignment." While the developed countries are facing serious setbacks to their economies, the developing world is doing just fine. China only took a small hit this time and India didn't take a hit at all (and Thailand actually improved its position). And that will continue to be the case. Ultimately, China and India will grow at the expense of the Western world. It simply has to happen. And there is a strong mechanism now to make it happen: microcredit. Financial entities are now realizing that loaning money to poor people brings greater returns than loaning money to people for buying a house they can't afford. And India is now the country with the highest amount of microloans. Credit will move to where it brings in the most profits. And the biggest profits for credit are now in India and China (although Bangladesh is still a good investment). We already lost our edge, but investors now starting to actually notice. And when to microcredit movement finally hits China, we will really be in trouble.
I don't see where we're doing all that terribly at t his point anyhow.
I do agree with your point about India and China (though I think China is going to have a very serious problem reckoning Communism and Capitalism in the very near future). But I recall reading not very long ago that many of the folks on the vanguard of the microloan market were here in the US, which means that money is coming back to us, plus a little bit anyhow.
One of the links I used in an earlier post on the whole "the sky is falling" business noted that 2007 was the first year in the past four where foreign investors were buying more here than our investors were buying outside the US. That seems like it's a healthy thing and that more than a couple of our smart money businesses are already taking advantage of the opportunities.
"I don’t see where we’re doing all that terribly at this point anyhow."
All things considered, we aren't doing that badly. But we are being realigned, and we should consider that. Our growth is modest when measured against a declining currency (ours), but is profoundly negative when measured against the Euro. It is moderately negative when measured against the standard weighted basket of currencies. In other words, if economic growth were measured relative to international currencies, we've been in a recession for the entire Bush presidency. That's not good, but when you consider the global realignment that's happening, it's to be expected.
"though I think China is going to have a very serious problem reckoning Communism and Capitalism in the very near future"
No they won't. I haven't been to China, but I have been to Vietnam, which faces a similar issue. Vietnam (and China from what I hear), deals with the issue in a very simple manner: the go on being as capitalist as they want but still call it "communism." Everyone knows the "communist" label is a joke, but that's okay because they never take their politicians seriously anyway. And it's not just the regular people, communist officials think the party is a joke too. I only got a chance to talk with two communist party officials in Vietnam, but they both had the same stories. They both joined the party to be able to influence local zoning regulations in order to get an advantage in their real estate dealings. This is classic, American-style political corruption. They are learning well. Not that they really needed to learn, they already understood corruption. Now you might say that their corruption might slow them down, but I'm not sure about that. Japan is about as corrupt as it gets, and their economy is doing fine (they are ahead of us, at least). And Thailand, which has one of the most vibrant economies in the world, simply cannot function without its corruption. China does have problems, but most of them are related to environmental degradation, which is something capitalism (or communism) won't solve.
As for the increased foreign investment, that should come as no surprise. With the dollar at an all-time low, American investments are selling at bargain prices. At the same time, foreign investments for Americans are selling at very high prices due to the decline in the dollar, so it should not surprise us that Americans are avoiding such investments.
Basically, we are using the declining value of our currency to mask the real problems in our economy and the real international realignment that is occurring.