Global economic trends are the bleakest they have been in 50
years. Trade is falling, international banking giants need to be
bailed out, and joblessness is rising around the world.
But in the face of this juggernaut of bad tidings, top US
officials are counseling world leaders not to panic - to just stick
with what they are doing.
"There is a very substantial amount of fiscal and monetary action
in place" across the globe, said US Treasury Secretary Timothy
Geithner on Wednesday. "That will start to get traction."
Despite some disagreements, he says, world leaders, on the eve of
the Group of 20 economic summit in London, "are fundamentally with
US won't be conservative
In past downturns, Mr. Geithner argued in a speech in New York at
the Council on Foreign Relations, governments have been too
conservative and reacted too slowly. "They put the brakes on too
soon," he said. "We won't do that."
A first goal for Geithner and Federal Reserve Chairman Ben
Bernanke is to try to stabilize the world financial system. On
Thursday, Geithner is set to lay out the Obama administration's
framework for dealing with the type of systemic risk posed by
nonbanking companies such as AIG, the failed insurance company into
which the US government has poured $170 billion. The Obama plan will
broaden oversight to include institutions such as insurance
companies or hedge funds whose demise could cause a negative cascade
effect in the broader economy.
The problem is not just a US problem. Geithner noted that if
nations do not act together on oversight, companies will merely move
offshore to avoid regulation. Thus, he sees in the current economic
crisis a window of opportunity "to begin the process of getting a
consensus" on how to fix the overall system.
About $5 trillion in loans are either delinquent or will be at
some point, estimates economist Mark Zandi of Moody's Economy.com.
Half of those are in the US and half are in the rest of the world.
"Not all of those loans will default and be a loss," he says,
estimating actual losses may total $2.4 trillion to $2.5 trillion.
Trade down 9 percent
The bad loans come against a backdrop of dismal global economic
projections: The World Trade Organization (WTO) said this week that
world trade will shrink by 9 percent, the largest percentage decline
since World War II.
"The contraction in developed countries will be particularly
severe, with exports falling by 10 percent this year," the WTO said
in its annual report, issued Monday. "In developing countries, which
are far more dependent on trade for growth, exports will shrink by
some 2 percent to 3 percent in 2009."
As global trade dwindles, global protectionism is on the rise,
despite nations' pledges not to raise trade barriers. Even some
members of Congress tried to insert "Buy in the USA" provisions into
the economic stimulus package that was signed into law on Feb. 17.
"Examples of it are everywhere, but so far it's been contained,"
says Mr. Zandi.
First postwar global downturn
For the first time in 50 years, the International Monetary Fund
is predicting that the world economy will shrink. The IMF's revised
forecasts will say the global economy will contract by 0.5 to 1
percent in 2009, IMF managing director Dominique Strauss-Kahn said
Monday. The decline will be sharpest in developed countries,
including the US and Europe, which will shrink by 3 percent. …