Saturday, November 01, 2008
Is the economic crisis "routinizing itself"?
If you follow the business pages you know that third quarter GDP declined 0.3%, which actually surprised most people who pay attention to such things. They were expecting the decline to be worse. Of course, it still might be revealed to be worse when the two subsequent revisions come out, or it may be that we did not slip into recession at all. The fourth quarter, on the other hand, will almost certainly show a steeper decline; businesses all over America are setting their 2009 budgets, and they are all assuming the worst. Even if a company does not plan to shrink, there are no plans to expand.
That said, Stratfor thinks that in the United States, at least, the "real" economy is behaving in the usual and expected way. So far.
The geopolitical point is this: The crisis is routinizing itself. We mean by this that the economic pattern — as opposed to the financial — is taking a recognizable form. We have slowed somewhat more rapidly than normal, but commodity prices have plunged early in the piece. We would expect bad numbers in the last quarter, but possibly not as bad as some have said. The problems will persist through the spring, but we should see recovery in the summer. We are in recession, and it looks pretty much like what we saw in the past two recessions. It certainly doesn’t look anything like the 1970s. Interest rates aren’t through the roof, and we don’t have double-digit unemployment and inflation. So in trying to benchmark this process, the United States is behaving better than most expected, and in line with what we have seen in the past.
The two things to watch now are China and Europe.
When the Americans catch cold, the Chinese catch pneumonia. They are extremely dependent on American consumption, and a recession is going to pressure their economy. It will be important to watch Beijing’s management of the Chinese economy — especially of unemployment — in the face of an American slowdown.
The Europeans have created their own, proprietary financial meltdown in Eastern Europe. By expanding their banks in Europe outside the eurozone, the Europeans lent money — especially mortgages — to Hungarians, Romanians and others denominated in euros and Swiss francs. As the euro appreciated relative to the local currency, the cost of these loans soared and the ability of borrowers to pay them back declined. Banks assumed currency stability. They assumed wrong, and this will be a crisis with geopolitical implications.
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