The Spectacular, Sudden Crash of the Global Economy
Worldwide, industrial production has ground to a halt. Goods are stacking up, but nobody's buying; the Washington Post reports that "the world is suddenly awash in almost everything: flat-panel televisions, bulldozers, Barbie dolls, strip malls, Burberry stores." A Hong Kong-based shipping broker told The Telegraph that his firm had "seen trade activity fall off a cliff. Asia-Europe is an unmitigated disaster." The Economist noted that one can now ship a container from China to Europe for free -- you only need to pick up the fuel and handling costs -- but half-empty freighters are the norm along the world's busiest shipping routes. Global airfreight dropped by almost a quarter in December alone; Giovanni Bisignani, who heads a shipping industry trade group, called the "free fall" in global cargo "unprecedented and shocking."
And while Americans have every reason to be terrified about their own econopocalypse, the New York Times noted that everything is relative:
In the fourth quarter of last year, the American economy shrank at a 3.8 percent annual rate, the worst such performance in a quarter-century. They are envious in Japan, where this week the comparable figure came in at negative 12.7 percent — three times as bad.
Industrial production in the United States is falling at the fastest rate in three decades. But the 10 percent year-over-year plunge reported this week for January looks good in comparison to the declines in countries like Germany, off almost 13 percent in its most recently reported month, and South Korea, down about 21 percent.
Chinese manufacturing declined in each of the last five months; according to the Financial Times, "More than 20 [million] rural migrant workers in China have lost their jobs and returned to their home villages or towns as a result of the global economic crisis." The UN estimates that the downturn could claim 50 million jobs worldwide, prompting Dennis Blair, the U.S. National Intelligence Director, to warn Congress that, "instability caused by the global economic crisis had become the biggest security threat facing the United States, outpacing terrorism."
link
'This is the worst recession for over 100 years'
Britain is facing its worst financial crisis for more than a century, surpassing even the Great Depression of the 1930s, one of Gordon Brown's most senior ministers and confidants has admitted. In an extraordinary admission about the severity of the economic downturn, Ed Balls even predicted that its effects would still be felt 15 years from now. The Schools Secretary's comments carry added weight because he is a former chief economic adviser to the Treasury and regarded as one of the Prime Ministers's closest allies.
Mr Balls said yesterday: "The reality is that this is becoming the most serious global recession for, I'm sure, over 100 years, as it will turn out." He warned that events worldwide were moving at a "speed, pace and ferocity which none of us have seen before" and banks were losing cash on a "scale that nobody believed possible". The minister stunned his audience at a Labour conference in Yorkshire by forecasting that times could be tougher than in the depression of the 1930s, when male unemployment in some cities reached 70 per cent.
link
World trade grinds to a halt as letters of credit vanish
Lack of trade finance is having a disastrous effect on shipping. In a report issued on Friday, Maersk Broker, a subsidiary of the Danish shipping group, blamed logjams in the banking system for the slump in the dry bulk cargo market: “Banks’ refusal to offer letters of credit has resulted in very few fresh cargoes reaching the market, which is adding to the owners’ woes.” A collapse in the trade of raw materials such as grain and iron ore, after years of frantic activity, is causing havoc. The Baltic Exchange Dry Index, which measures the price of voyages and the cost of chartering vessels, has plummeted. Rates for the largest transporters, known as Capesize, peaked in May at $230,000 a day. It is estimated that the daily cost of running the ships, including depreciation, is about $15,000 but at the end of last week, rates had fallen to $5,982 a day.
link
Europe scrambles to avert 'game over'
European leaders raced against the clock on Sunday to clinch a rescue strategy for banks battered by the worst financial crisis since the 1930s, under intense pressure to throw them a lifeline before world markets reopen. At a summit in Paris, the focus fixed firmly on how much state money governments could mobilise to buy into banks if needed, and if they would also underwrite lending between banks, paralysed for now by fear and distrust.
"If market confidence is not restored this weekend, it's game over," said Marco Annunziata, chief economist for UniCredit, an Italian bank which is among many whose shares have been hurt in panic-stricken stock markets. The American Standard & Poor's 500 index tumbled more than 18 percent last week, its worst weekly fall on record. European stocks plunged 22 percent and Tokyo's Nikkei crashed 24 percent.
The Paris meeting was hastily arranged by Sarkozy on the heels of a G7 summit of rich nations in Washington that offered no concrete, collective action.
link
$700 billion wiped off U.S. stock market in single session
The U.S. stock market has suffered a $700 billion paper loss in a single session, as measured by the Dow Jones Wilshire 5000 Composite Index, which tracks the stocks of 5,000 U.S.-based companies.
Tuesday's losses were the equivalent of the Bush administration's bailout package to rescue the country's financial system, approved by Congress last week.
This month's total loss is around $2.2 trillion.
The Dow Jones industrial average dropped 508.39 points, or 5.1%, to close at 9,447.11. It has now lost more than 1,400 points over the past five sessions, or nearly 13% of its total value.
The point decline is the largest five-day drop ever.
link
Europe falls into the abyss
We face extreme danger. Unless there is immediate intervention on every front by all the major powers acting in concert, we risk a disintegration of global finance within days. Nobody will be spared, unless they own gold bars.
Chancellor Angela Merkel has been forced to pull her head out of the sand, guaranteeing all German savings, a day after she rebuked Ireland for doing much the same thing. Reality intrudes.
During the past week, we have tipped over the edge, into the middle of the abyss. Systemic collapse is in full train. The Netherlands has just rushed through a second, more sweeping nationalisation of Fortis. Ireland and Greece have had to rescue all their banks. Iceland is facing an Argentine denouement.
The US commercial paper market is closed. It shrank $95bn last week, and has lost $208bn in three weeks. The interbank lending market has seized up. There are almost no bids. It is a ghost market. Healthy companies cannot roll over debt. Some will have to sack staff today to stave off default.
As the unflappable Warren Buffett puts it, the credit freeze is “sucking blood” out of the economy. “In my adult lifetime, I don’t think I’ve ever seen people as fearful,” he said.
link
The Bush Administration did not hand off some run-of-the-mill recession as the Republicans would now like to rewrite history to say.
The entire world was crashing due to the actions, or lack there of, of the Bush Administration. It's only a miracle that has allowed us to still be here posting.
We were totally screwed. If some Republican tries to tell you their party represents fiscal responsibility, laugh in their face, then punch them in the mouth.
