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431. The Sustainability of China's Recovery from the Global Recession

Author:
Nicholas R. Lardy
Publication Date:
03-2010
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
China's policy response to the global financial and economic crisis was early, large, and well-designed. Although Chinese financial institutions had little exposure to the toxic financial assets that brought down many large Western investment banks and other financial firms, China's leadership recognized that its dependence on exports meant that it was acutely vulnerable to a global recession. Thus they did not subscribe to the view sometimes described as “decoupling,” the idea that Asian countries could passively weather the financial storm that originated in the United States and other advanced industrial economies. They understood that absent a vigorous policy response China inevitably would suffer from the backwash of a sharp economic slowdown in its largest export markets—the United States and Europe.
Topic:
Economics and Financial Crisis
Political Geography:
United States, China, Europe, and Asia

432. Hope Floats

Author:
John H. Makin
Publication Date:
04-2010
Content Type:
Policy Brief
Institution:
American Enterprise Institute for Public Policy Research
Abstract:
January ended on a note of diminished hope for a sustainable global recovery as stock markets retreated from their midmonth highs. Since mid-February, however, higher hopes for a sustainable global recovery have returned. Equity markets have rallied along with markets for corporate and global sovereign bonds. Some mitigation of perceived risks facing global investors has provided a chance for hope to “float up,” and it has done so. Tension over the cohesion of the European Monetary Union and, in particular, concerns over a possible sovereign-debt default by Greece have eased, and investors continue to hope that the debt problems in Greece will not spread to the rest of Europe.
Topic:
Economics, International Political Economy, International Trade and Finance, Markets, and Financial Crisis
Political Geography:
Europe and Greece

433. The Year Ahead

Author:
John H. Makin
Publication Date:
01-2010
Content Type:
Policy Brief
Institution:
American Enterprise Institute for Public Policy Research
Abstract:
We can expect 2010 to be a volatile year. This likelihood is underscored by looking back at 2008 and 2009. Two thousand eight was a highly volatile year leading up to the collapse of Lehman Brothers in September, which was followed by the risk of a total systemic meltdown. That sharp and obvious risk spike prompted massive policy responses that were simply the largest that central banks, with rate cuts and liquidity provision, and governments, with tax cuts and spending increases, could manage. The result—beginning in March 2009—was a linear rise in the prices of risky assets, the result of massive relief once the slip into a global depression had been averted and the acute phase of the crisis in the financial sector had passed.
Topic:
Economics, International Trade and Finance, Markets, and Financial Crisis
Political Geography:
United States, Japan, China, and Europe

434. Prime Brokers and Derivatives Dealers

Publication Date:
04-2010
Content Type:
Working Paper
Institution:
Council on Foreign Relations
Abstract:
Runs by prime-brokerage clients and derivatives counterparties were a central cause of the World Financial Crisis. Worried about potential losses, many hedge funds withdrew their assets from brokerage accounts at Bear Stearns and Lehman Brothers in the weeks before these banks failed. Although Morgan Stanley did not fail, it also suffered from the withdrawal of prime brokerage assets. These runs, together with runs by short-term creditors, precipitated Bear Stearns' and Lehman's demise. Even if these firms would have failed anyway, the runs made their failures much more sudden and chaotic, and made coherent policy responses much harder.
Topic:
Economics, Markets, and Financial Crisis
Political Geography:
United States

435. The Russian Economic Crisis

Author:
Jeffrey Mankoff
Publication Date:
04-2010
Content Type:
Working Paper
Institution:
Council on Foreign Relations
Abstract:
Like much of the world, Russia has been in the midst of a serious economic crisis since the late summer of 2008. Although the worst appears to be over, Russia will continue to feel its effects longer than many other industrialized countries, largely because of a rigid economy burdened with an overweening state role. The recognition that Russia faces serious long-term challenges has emboldened President Dmitry Medvedev and others to call for far-reaching economic restructuring. If successful, their economic policies could undermine the semi-authoritarian, state-capitalist model developed under Prime Minister and former president Vladimir Putin. Although concrete reforms have so far been limited, Medvedev's demands for change (seconded in some cases by Putin) have acquired increasing momentum in recent months. The speed of Russia's recovery and obstacles along the way will play a major role in determining both the success of Medvedev's call for modernization and the course of Russia's foreign policy since a quicker recovery would diminish the pressure for fundamental reform and lessen the need for caution internationally.
Topic:
International Relations, Foreign Policy, Economics, International Affairs, and Financial Crisis
Political Geography:
Russia

436. Developing Countries – even China – Cannot Rescue the World Economy

Author:
Manmohan Agarwal
Publication Date:
01-2010
Content Type:
Policy Brief
Institution:
Centre for International Governance Innovation
Abstract:
Many analysts believe that developed countries will recover very slowly from the global economic crisis. Consequently, they have looked to the emerging economies of the developing world to help stabilize the world economy and generate a stronger recovery. Indeed, when the financial crisis first engulfed the rich countries in 2008 and early 2009, growth in developing economies was not affected as their banks and financial systems faced neither credit problems nor a more serious meltdown. It is true that some foreign investors, particularly institutional investors, withdrew their money from developing countries with large stock exchanges, setting off stock price declines and some currency devaluations. But this did not affect the “real” economy of production and employment. There was a wide belief that many developing economies were “decoupled” from the rich economies and could continue to grow and this growth would buoy the world economy. Even when output declined dramatically in the developed economies, reducing the demand for developing countries' exports, it was expected that growth in the larger emerging economies would not be significantly affected. This has been borne out by subsequent events. Growth in China has been 8-9 percent and in India about 6 percent in the first three quarters of 2009.
Topic:
Development, Economics, Emerging Markets, International Trade and Finance, and Financial Crisis
Political Geography:
China and India

437. How Did the 2008 Economic Crisis Affect: Social and Political Solidarity in Europe?

Author:
Jennifer L. Hochschild
Publication Date:
01-2010
Content Type:
Working Paper
Institution:
Weatherhead Center for International Affairs, Harvard University
Abstract:
One possible outcome of the economic crash of 2008 was that the majority or mainstream members of a society would direct their anger and fear against the minority or marginal members of their society. Commentators on television or the radio would claim, "it's all the fault of the immigrants!" or "if we didn't hand over so much of our tax dollars to the poor, the economy would not have deteriorated so much," or "social benefits to African Americans [or German Turks] have distorted the housing market." Citizens would come to believe these assertions, politicians would echo them – and the upshot would be not only a deteriorating national and international economy but also increased hostility and fear among racial, ethnic, or nationality groups in a country. Social solidarity would decline, perhaps irrevocably.
Topic:
International Relations, Economics, Politics, Social Stratification, and Financial Crisis
Political Geography:
Africa, America, Europe, and Germany

438. Faulty Basel

Author:
Marc Levinson
Publication Date:
05-2010
Content Type:
Journal Article
Journal:
Foreign Affairs
Institution:
Council on Foreign Relations
Abstract:
No abstract is available.
Topic:
Economics and Financial Crisis
Political Geography:
United States and Europe

439. The Case for Auditing the Fed Is Obvious

Author:
Arnold Kling
Publication Date:
04-2010
Content Type:
Policy Brief
Institution:
The Cato Institute
Abstract:
Recently, the Federal Reserve has significantly altered the procedures and goals that it had followed for decades. It has more than doubled its balance sheet, paid interest to banks on reserves held as deposits with the Fed, made decisions about which institutions to prop up and which should be allowed to fail, invested in assets that expose taxpayers to large losses, and raised questions about how it will avoid inflation despite an unprecedented increase in the monetary base.
Topic:
Economics, Government, Political Economy, Politics, and Financial Crisis
Political Geography:
United States

440. What now for the 'peripheral' Eurozone countries?

Publication Date:
05-2010
Content Type:
Working Paper
Institution:
Oxford Economics
Abstract:
Over the weekend the EU put together a large-scale package worth up to €720 billion aimed at stabilising all the 'peripheral' Eurozone countries, in the face of mounting contagion risks. This came on top of an earlier financial support package for Greece worth €110 billion. The latest move has brought some relief to bond markets, but major challenges remain. Investors remain concerned about the capacity of Greece to stick to the immense fiscal adjustment needed in the face of a very deep recess ion and mounting social unrest. With the debt/GDP ratio set to keep rising to almost 150% in the next few years, concerns remain that some kind of debt restructuring or default cannot be avoided. For the other peripherals, too, the outlook remains bleak – while the immediate threat of a collapse in their debt markets has been averted, years of fiscal austerity and slow growth remain ahead.
Topic:
Debt, International Political Economy, Global Recession, Monetary Policy, and Financial Crisis
Political Geography:
Greece