Friday, June 19, 2009

Protectionism Around the World, Except in America. Recession or Depression?

From the Finacial Times (no links-subscription), here are a few nuggets you should be aware of.

China’s Protectionism
China has introduced an explicit “Buy Chinese” policy as part of its economic stimulus programme in a move that will amplify tensions with trade partners and increase the likelihood of protectionism around the world. Just a few months ago Beijing was raging against a proposed “Buy American” clause included in the US economic rescue package.

Swiss Want to Break of the to big to fail banks
Switzerland's central bank warned that Zurich was examining the forced shrinkage of banking groups such as UBS and Credit Suisse to contain the risks posed by their size

Spain, not the U.S., will take Gitmo prisoners. What do they know that we don’t?
Spain said it was ready to accept prisoners from the US detention centre at Guantánamo Bay in Cuba to help the administration of US President Barack Obama close the controversial facility for suspected terrorists

Recession or Depression?
Before conclude that the recession will soon be over, we must ask what history tells us. Unfortunately, the story they tell is an unhappy one.

Two economic historians, Barry Eichengreen of the University of California at Berkeley and Kevin O’Rourke of Trinity College, Dublin, have provided pictures worth more than a thousand words (see charts).* In their paper, Profs Eichengreen and O’Rourke date the beginning of the current global recession to April 2008 and that of the Great Depression to June 1929. The bad news is that this recession fully matches the early part of the Great Depression. The good news is that the worst can still be averted.

First, global industrial output tracks the decline in industrial output during the Great Depression horrifyingly closely. Within Europe, the decline in the industrial output of France and Italy has been worse than at this point in the 1930s, while that of the UK and Germany is much the same. The declines in the US and Canada are also close to those in the 1930s.

Second, the collapse in the volume of world trade has been far worse than during the first year of the Great Depression. Indeed, the decline in world trade in the first year is equal to that in the first two years of the Great Depression. This is not because of protection, but because of collapsing demand for manufactures.

Third, despite the recent bounce, the decline in world stock markets is far bigger than in the corresponding period of the Great Depression.

The two authors sum up starkly: “Globally we are tracking or doing even worse than the Great Depression ... This is a Depression-sized event.”

No comments:

Post a Comment