I will update this as additional reports come in.
Damage report from home
- “Cost of U.S. Crisis Action Grows, Along With Debt“, Bloomberg, 10 October 2008
Damage report from from around the world
- “Its currency slumping, South Korea sits on the brink of crisis“, Globe and Mail, 9 October 2008
- “Financial crisis: Countries at risk of bankruptcy from Pakistan to Baltics“, The Telegraph, 10 October 2008 — “A string of countries face the risk of “going bust” as financial panic sweeps Asia, Eastern Europe, and Latin America, raising the spectre of a strategic crisis in some of the world’s most dangerous spots.”
- “If Pakistan goes bust, the Taliban will rule the roost there as well“, The Telegraph, 10 October 2008
- UK planning to bailout 2 banks, may temporarily close London stock market, The Times, 12 October 2008
- “Spain’s Economy Peers Out Over The Precipice: The Abyss Lies Below“, Edward Hugh, RGE Monitor, 11 October 2008 — (Free registration required)
- “Trains, water and power may be next in line for a bail-out“, The Guardian, 12 October 2008
- “Two million Britons on the dole by Christmas“, The Guardian, 12 October 2008
- “A sinking feeling in South Korea“, Financial Times, 13 October 2008
- “What’s The Matter With Hungary?“, Mary Stokes, RGE Monitor, 17 October 2008
- “How to prevent a financial crisis in Hungary that would lead to serious financial contagion in Emerging Europe“, Nouriel Roubini, RGE Monitor, 21 October 2008
A fiscal stimulus is coming soon!
- “Washington Throws the Economy a Rope“, Mark Zandi (Chief Economist), posted at Moody’s Economy.com, 22 January 2008 — Valuable info on different forms of fiscal aid.
- “Making Fiscal Stimulus Effective During Downturns“, IMF Research Department, 2 October 2008 — An important warning from the IMF.
- “Pelosi says $150B economic stimulus plan needed“, AP, 8 October 2008
- “Time to grasp the fiscal nettle“, Barry Eichengreen, op-ed in the Guardian, 9 October 2009
- “Lawmakers Weigh Plan for Stimulus“, New York Times, 10 October 2008
- “House Dems plan second stimulus package“, CNN, 10 October 2008 — “Congressional aids say it could cost $100 billion and is aimed at supporting state and local government agencies.”
- “Pelosi Convenes Economic Figures for Stimulus Talk“, Fox News, 13 October 2008 — “House Speaker Nancy Pelosi convened a high-level meeting on Capitol Hill Monday with Democratic lawmakers and noted economists to discuss how to bolster the flagging economy.”
Excerpts from stories about America
“Cost of U.S. Crisis Action Grows, Along With Debt“, Bloomberg, 10 October 2008 — Excerpt:
The global financial crisis is turning into a bigger drain on the U.S. federal budget than experts estimated two weeks ago, ballooning the deficit toward $2 trillion.
Bailouts of American International Group, Fannie Mae and Freddie Mac likely will be more expensive than expected. States are turning to Washington for fiscal help. The Federal Reserve said this week it will begin buying commercial paper, the short- term loans companies used to conduct day-to-day business, further increasing costs. And analysts now say the $700 billion bank- rescue plan passed by Congress last week may have to be significantly larger.
… The 2009 budget deficit could be close to $2 trillion, or 12.5 percent of gross domestic product, more than twice the record of 6 percent set in 1983, according to David Greenlaw, Morgan Stanley’s chief economist. Two weeks ago, budget analysts said the measures might push the deficit to as much as $1.5 trillion.
Excerpts from stories around the world
“Its currency slumping, South Korea sits on the brink of crisis“, Globe and Mail, 9 October 2008 — Excerpt:
South Korea is struggling to avoid becoming the first Asian country to experience a major financial crisis as a result of the global credit crunch. Authorities in Seoul tried to stave off a panic in the markets yesterday after the South Korean currency, the won, slumped for the fourth consecutive day, falling to its lowest level since 1998.
Combined with a plunge in the stock market, a deteriorating current account balance and a shortage of U.S. dollars, the won’s fall has revived unpleasant memories of the Asian financial crisis of 1997-98. … “Korea is the one Asian country that is in a real financial panic,” said Mitchell Bernard, an Asia watcher at York University in Toronto. “It’s much more open, and so much more vulnerable than other Asian places.”
“Spain’s Economy Peers Out Over The Precipice: The Abyss Lies Below“, Edward Hugh, RGE Monitor, 11 October 2008 — (Free registration required) — Excerpt:
The condition of Spain’s economy is deteriorating markedly and rapidly by the month. Output is down, domestic demand is down, exports are struggling, and unemployment is up. The tumultuous events of late August and early September in the global financial markets are now evidently making their presence steadily felt on the real economy. And since Spain’s banking and financial crisis continues to trundle on, with no effective remedy whatsoever being offered, the worst is, most definitely, still to come. This is going to be a long hard road to travel for what was once the blue eyed boy among the eurozone economies.
UK planning to bailout 2 banks, may temporarily close London stock market, The Times, 12 October 2008 — Excerpt:
The government will launch the biggest rescue of Britain’s high-street banks tomorrow when the UK’s four biggest institutions ask for a £35 billion financial lifeline. The unprecedented move will make the government the biggest shareholder in at least two banks. Royal Bank of Scotland (RBS), which has seen its market value fall to below £12 billion, is to ask ministers to underwrite a £15 billion cash call. Halifax Bank of Scotland (HBOS), Britain’s biggest provider of mortgages, is seeking up to £10 billion.
… The scale of the fundraising could lead to trading at the London stock market being suspended. This would give time for the market to digest the impact of the moves.
“Two million Britons on the dole by Christmas“, The Guardian, 12 Octboer 2008 — Excerpt:
Downing Street’s desperate efforts to shore up the economy in the face of the escalating credit crash may not be enough to rescue the transport, building and car industries, as a tidal wave of job losses are predicted in the coming months
More than a million Britons will be out of work and on the dole by next month as the toxic fallout from Black October filters down to ordinary families, economists are warning.
A bleak Christmas lies ahead for many as the City turmoil spreads into the so-called real economy. Companies are now being squeezed on two vital fronts, with shoppers abandoning the high street and bank lending drying up, making it almost impossible for smaller businesses to get credit to stay afloat.
Geoff Hoon, the new Transport Secretary, yesterday warned that there were ‘potentially serious consequences for small business, for employment’ from the current crisis, reflecting private warnings to the Prime Minister’s new economic ‘war cabinet’ that job losses and business collapses later this year are now virtually inevitable.
“Trains, water and power may be next in line for a bail-out“, The Guardian, 12 Octboer 2008 — Excerpt:
The chancellor must take emergency steps to prevent rail, water and power companies going bust in the global economic storm, former cabinet minister Peter Hain has warned.
A fiscal stimulus is coming soon!
“Pelosi says $150B economic stimulus plan needed“, AP, 8 October 2008 — Excerpt:
House Speaker Nancy Pelosi said Wednesday that a $150 billion economic stimulus plan is needed now because of the faltering economy and she may call the House into session after the election to pass it.
“Time to grasp the fiscal nettle“, Barry Eichengreen, op-ed in the Guardian, 9 October 2009 — Excerpt:
In these desperate economic times, the only option left for governments is aggressive fiscal policy. … Fiscal initiatives will have to be large to succeed in stabilising an economy in freefall. In the US case, we are talking 5% of GDP, or $700bn (there’s that number again). This means that the US deficit may be closer to $2tn than $1tn next year. But desperate times require desperate measures.
“Lawmakers Weigh Plan for Stimulus“, New York Times, 10 October 2008 — Excerpt:
Consumers, however, have cut back sharply on their spending, in what will be the first quarterly decline in 17 years when the government tally is in for the third quarter. Business, in response, is shrinking its outlays for equipment, supplies and personnel. And now dozens of state and city governments, their tax revenue falling short of expectations, are engaged in yet another round of cost-cutting.
To offset this shrinkage, and head off a severe recession, the Democratic leadership in Congress is “seriously considering” a large fiscal stimulus proposal, which would send a significant amount of money to states and cities.
“Making Fiscal Stimulus Effective During Downturns“, IMF Research Department, 2 October 2008 — Conclusions:
- Fiscal stimulus is a potential tool for countering economic slowdowns
But it needs to be timely, targeted, and temporary for it to be effective
“Washington Throws the Economy a Rope“, Mark Zandi (Chief Economist), posted at Moody’s Economy.com, 22 January 2008 — (hat tip to Matthew Yglesias) This article describes the relative effectiveness of different kinds of fiscal stimulus.
Afterword
If you are new to this site, please glance at the archives below. You may find answers to your questions in these, such as the causes of the present crisis. I have been writing about these events for several years; since November 2007 on this site. As you will see explained in these posts, the magnitude of the events now happening is beyond what most Americans have — or can — imagine.
Please share your comments by posting below. Please make them brief (250 words max), civil, and relevant to this post. Or email me at fabmaximus at hotmail dot com (note the spam-protected spelling).
For more information from the FM site
To read other articles about these things, see the FM reference page on the right side menu bar. Of esp interest these days:
- about the Financial crisis – what’s happening? how will this end?.
- about The End of the Post-WWII Geopolitical Regime.
Perhaps the most pertinent post is A solution to our financial crisis
You can’t expect the Group of 7 finance ministers to come up with a coordinated aggressive plan over the weekend. Even single nations, like ours, or single leaders, like Paulson, change their minds weekly. Certain approaches — quite radical, actually — have already been widely adopted, like blanket guarantees of bank deposits, and direct injection of capital into banks in return for public ownership. The latter sets the stage, provides the cover, for government loans to (and public supervision of) non-financial businesses, and massive public relief programs (unemployment extensions, eg) are sure to follow. The speed of government actions seems to be picking up. Considered as theater, you have to admit there hasn’t been a dull moment!
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Fabius Maximus replies: I disagree in several respects (but your last point is certainly true!).
“have already been widely adopted, like blanket guarantees of bank deposits”
That was the most important result economists expected from the meeting, as shown by the reports cited in the section “For more information from economists” of my October 10 post Status report on the financial crisis: we’re at a critical point in time” (articles by 15 eminent economists). And it is happening, in the EU and Australia.
“The speed of government actions seems to be picking up.”
Agreed. But events are accelerating even faster, as I explain in “Status report on the financial crisis: why has the treatment been so slow, so small?” As a result, our government’s responses are falling further behind events — not getting in front of them.
I hope the fiscal stimulus is aimed at non-finance businesses. If I am right that there is far too much ‘finance’ and finance companies, than help for companies that will later fail will not be very helpful.
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Fabius Maximus replies: As I describe in “Dr. Bush, stabilize the economy – stat!”, the initial round of fiscal stimulus probably be block grants to municipals. They can spend money fast. Perhaps also another round of tax rebates to households, but I doubt it — too much of it will be saved. The comments have “updates” with news articles showing that this is in fact the trend of events.
We only guess at the form of subsequent rounds, probably be larger scale public works and tax subsidies for business investment.