The Crisis: Round Two
So far the crisis has largely come from banking sector problems. Prepare for round two: collapsing international trade, and the resulting hit on small export-oriented economies.
A leading indicator on how many trade shipments are in transit is the Baltic Dry Index. Every working day, the Baltic Dry Index surveys shipping brokers around the world and asks how much it would cost to book various cargoes of raw materials on various routes (e.g., 100,000 tons of iron ore from San Francisco to Hong Kong, or 1,000,000 metric tons of rice from Bangkok to Tokyo). A Slate magazine article from 2003 explains why the index is a leading indicator on trade volumes.
In the last two months, the index has fallen to an all-time low (closing at 842 on Friday, November 7). This from a high of 15,000 about a year ago.
Once trade slows down, some countries' economic growth will be reduced substantially: some East Europeans, some countries in East Asia, and Latin America. Experts forecast these slowdowns in early 2009. It will be a bleak winter.
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Countervailing Duty to Devaluate the US Dollar
You have raised the important argument against the (huge) market subsidy of the financial sector -- any subsidy of the financial sector will damage trade and manufacturing whose laws prohibit such subsidies. The WTO Agreement on Subsidies and Countervailing Measures prohibits subsidies, although it makes exceptions for one time subsidies of social significance the magnitude of this bailout fails to relieve the colonial financial crisis nations of their countervailing duties to international trade, namely to devaluate the dollar, that has so far defied economic laws and gone up in value instead of down after printing an inordinate amount of unearned money and corrupting the first world with free money, that the slightly more law abiding EU is willing to devaluate for.
Economic growth did not become negative in the USA until after the bailout. I hypothesize that this is because the central bankers panicked when the credit market became negative for the first time in August and they then caused serious damage to the economy with their trillion dollar bailout. I for one wish the lending industry would become extinct so the balanced budget could reign unchallenged by halfbaked investors. The reason I give for the negative economic growth is that the cost of the bailout was born by government bond issues that absorbed all the free capital from the stock markets to subsidize a few financial giants resulting in widespread loss of capital and countervailing job loss, particularly in the trade and manufacturing sectors that constitute 2/3 of economic growth.
The time has now come to bailout the bailout and spare the US an official recession. The US must devaluate the dollar, not against the fellow colonial crisis EU that has so far been its only enforcer of economic law, but multi-laterally against developing nation currencies that long to be appreciate. By devaluating the US dollar, international trade and manufacturing industries will increase productivity and employment and the US will probably be able to avoid a recession.
The theory is for the United Nations to capitalize upon the colonial financial crisis to orchestrate a great and permanent leap forward for developing nation currencies. Let the US dollar and Euro.
Posted by: Hospitals & Asylums | Nov 10, 2008 1:12:26 PM