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- Aug 22, 2008
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-Five prominent economists who correctly predicted the 2008 world economic meltdown say the crisis is only going to get worse. "Beware the happy talk from those who say we are `turning the corner,` " writes Dean Baker of the Washington, DC-based Center for Economic Research. "Ignore the daily ups and downs of the market and tighten your belts. This is going to hurt." Canada wasn`t spared in the dire prognostications Monday in the latest online edition of Foreign Policy magazine. New York University economist Nouriel Roubini said the crisis is still in its early stages. "As the US economy shrinks, the entire global economy will go into recession. In Europe, Canada, Japan and the other advanced economies, it will be severe," according to Roubini. "Nor will emerging-market economies -- linked to the developed world by trade in goods, finance, and currency,- escape real pain." Roubini predicted the US recession will last at least two years and could drag on for a decade. He said hedge funds are being forced to sell their assets at fire-sale prices while some financial institutions will go bust, and some governments in emerging economies could default on their debt. Morgan Stanley Asia chairman Stephen Roach said Asian economies will suffer from being overly dependent on exports to the US and on their own undervalued currencies. "A similar verdict is likely for the commodity-producing regions of the world, not just the oil-dependent Middle East, but also the resource-intensive economies of Australia, Canada, Brazil, Russia and Africa," Roach writes. "As global growth slows, so does the demand for economically sensitive commodities, resulting in a sharp correction in the bubble-distorted commodity prices and growth rates of the major commodity producers."
-Yale University economist Robert Shiller was one of several who cited the example of Japan. "History tells us there is some precedent for a protracted, weak housing market. After the last housing boom in the United States peaked in 1989, it took a typical city five years to hit bottom," he writes. "This time, prices have only been going down for two years. We might look with caution to Japan, where urban land prices fell for 15 consecutive years, from 1991 to 2006." The least pessimistic is International Economy magazine editor David Smick, who predicts that US president-elect Barack Obama`s first budget deficit will surpass US$1.5 trillion as he faces demands to stimulate the economy and bail out state governments, private pension funds and other ailing institutions. Internationally, Smick said export-dependent developing countries, and the western banks that financed their growth, are particularly vulnerable. "If too many of these emerging markets go down, the [International Monetary Fund] lacks the necessary resources to mount rescue operations," writes Smick. "To put things in perspective, Austrian banks have emerging-market financial exposure exceeding $290B. Austria`s GDP is only $370B." Smick`s optimism emanates from the oceans of cash sitting on the world economy`s sidelines, including $6 trillion in money market funds alone. "The faster Obama and his global counterparts can fashion credible financial reforms that enhance transparency while preserving capital and trade flows, the sooner that sidelined capital will re-engage," he writes. "In the end, markets crave certainty -- in this case, certainty that our leaders have a credible game plan. That plan is not yet in place."
(Vancouver Sun 090106)
-Yale University economist Robert Shiller was one of several who cited the example of Japan. "History tells us there is some precedent for a protracted, weak housing market. After the last housing boom in the United States peaked in 1989, it took a typical city five years to hit bottom," he writes. "This time, prices have only been going down for two years. We might look with caution to Japan, where urban land prices fell for 15 consecutive years, from 1991 to 2006." The least pessimistic is International Economy magazine editor David Smick, who predicts that US president-elect Barack Obama`s first budget deficit will surpass US$1.5 trillion as he faces demands to stimulate the economy and bail out state governments, private pension funds and other ailing institutions. Internationally, Smick said export-dependent developing countries, and the western banks that financed their growth, are particularly vulnerable. "If too many of these emerging markets go down, the [International Monetary Fund] lacks the necessary resources to mount rescue operations," writes Smick. "To put things in perspective, Austrian banks have emerging-market financial exposure exceeding $290B. Austria`s GDP is only $370B." Smick`s optimism emanates from the oceans of cash sitting on the world economy`s sidelines, including $6 trillion in money market funds alone. "The faster Obama and his global counterparts can fashion credible financial reforms that enhance transparency while preserving capital and trade flows, the sooner that sidelined capital will re-engage," he writes. "In the end, markets crave certainty -- in this case, certainty that our leaders have a credible game plan. That plan is not yet in place."
(Vancouver Sun 090106)
