Sunday, November 2, 2008

This Weekend's Contemplation - The Situation Continues to Deteriorate Overseas as Well

We as Americans sometimes forget that the deteriorating economy has a significant interantional component. Like the Great Depression of the 1930s, which in fact was a world wide depression, the current economic problems have spread through out the world. Many economies are really struggling and will have to be bailed-out (Iceland for example). The result of all the world wide economic/financial problems is that new economic leaders are going to emerge for which the US will have to make room. These countries will not only become economic leaders, but they will also change the way business is done because they will bring their own way of conducting business to the table. Text in bold is my emphasis. From Yahoo News:

British Prime Minister Gordon Brown said on Sunday he expected Saudi Arabia to help finance the International Monetary Fund, part of moves to ensure the lender can bail out economies hit by a global financial crisis.

The worst financial crisis in 80 years, started when a U.S. housing market boom turned sour, has raised fears of recession. China said it must maintain a fast pace of growth or risk heightening "factors damaging social stability."

Governments have cut interest rates, propped up banks and stepped up state spending to try to spur their economies, but some countries have been forced to turn to the International Monetary Fund (IMF) and other global lenders for help.

Brown urged countries with large financial resources, such as oil-producing Gulf states, to contribute to a new International Monetary Fund facility to help vulnerable economies and said he expected Saudi Arabia to contribute -- after some time.

"The Saudis, I think, will contribute so we can have a bigger fund worldwide," Brown told reporters in the Saudi capital, Riyadh, on a tour of the Gulf to seek investment, help on oil prices and funds for the IMF.

"The oil producing countries, who have generated over $1 trillion from higher oil prices in recent years, are in a position to contribute."

He next heads to the gas and oil-producing Gulf Arab state of Qatar. Earlier in Kuwait, the finance minister said the government would base any decision to support international markets on potential returns and investment opportunities.

The IMF, which had $201 billion in loanable funds as of August 28, has offered money to Iceland, Ukraine, Hungary and Belarus to help their economies against the crisis, and several other countries are in talks to secure funding.

Officials have said that funds could run very low if many more countries requested help.

The British leader said cooperation on getting the world economy through the crisis could create a new global order -- "fairer, more stable and offering greater prosperity for all."

He will meet other world leaders at a summit in Washington on November 15 to press for reform of the financial system.

Earlier this year oil prices soared to $150 a barrel, allowing Gulf Arab energy producers to enjoy increased wealth. But the crisis has forced oil markets lower.

The president of oil producing group OPEC, Chakib Khelil, said its members had no choice but to implement agreed output cuts if they wanted a stable oil price between $70-90 a barrel.

Asked what effect Brown's visit could have on OPEC's plan to stabilize prices, Khelil said: "Everything depends on the impact on the decision of Saudi Arabia ... Therefore, if it slows the cut, or does not do it, then of course there will be an impact on the oil price."

The Organization of the Petroleum Exporting Countries (OPEC) decided at a meeting in Vienna on October 24 to reduce production by 1.5 million barrels per day or about 5 percent from November 1.

The crisis has struck countries around the world, with the Sri Lanka becoming the latest to receive an IMF warning that its growth was at risk.

"(IMF) directors expressed concern that the combined build-up of macroeconomic imbalances, balance sheet vulnerabilities, high inflation, and external financing poses serious risks to economic stability," the IMF said in its annual assessment of the country.

China also said it feared a downturn in its export markets could hurt the economy.

"Against the current international financial and economic turmoil, we must give even greater priority to maintaining our country's steady and relatively fast economic development," Premier Wen Jiabao wrote in the Communist Party's ideological journal.

"We must be crystal-clear that without a certain pace of economic growth, there will be difficulties with employment, fiscal revenues and social development ... and factors damaging social stability will grow."

China cut interest rates on Wednesday for the third time in six weeks to spur the world's fourth-largest economy.

In India -- like China, a magnet for foreign investment in recent years -- the central bank cut its main lending rate on Saturday for the second time in as many weeks to ease a cash squeeze and spur economic growth.

The central bank cut the repo rate, its main short-term lending rate, by 0.5 percentage point to 7.5 percent and banks' cash reserve requirements by 1 percentage point to 5.5 percent.
Governments have pledged about $4 trillion to support banks and restart money markets to try to stem the crisis set off by the bursting of a U.S. housing market bubble.

In Ireland, a senior HBOS banker said the country would need to recapitalize its banks in the "next number of months" because exposure to the falling property market will undermine their capital bases.

"The government is in denial but they are going to have to recapitalize the Irish banking sector," said Mark Duffy, chief executive of Bank of Scotland, part of the HBOS group, which is being taken over by British rival Lloyds TSB.

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