…said Victor K. Fung, the chairman of the Li & Fung Group, the giant supply chain management company that connects factories in China with retailers in the United States and Europe. “We’ve got orders we can’t ship right now.”
Source: “As Trade Slows, China Rethinks Its Growth Strategy,” NYT Jan 1, 2009.
From “Trade-Finance Pinch Hurts the Healthy,” WSJ, 12/22/08:
The global financial crisis is drying up the financing that firms depend on for trade. That’s making the global recession nastier and deeper than it otherwise would be.
As with all kinds of credit these days, financial institutions are making less trade finance available and charging more for it. But the squeeze in trade stands out because it pinches otherwise healthy companies that should be driving a recovery in global commerce. Already, the World Bank predicts trade will contract next year for the first time since 1982.
As we near the end of the year, and the end of eight years of Bush economic policy, I think it’s useful to look back. The White House has recently tangled with the NYT regarding what got us into the current economic crisis [0] (see also [1]). This comes on the heels of the Paulson argument that he would not have done anything different, had he known the full extent of the looming crisis. This leads me to wonder how we should view the Bush Administration’s stewardship of the economy.
Several months ago, I discussed the implications of a model of the exchange rate wherein Taylor rule fundamentals — the output [0], inflation and exchange rate gaps — were central (post). In that paper [pdf], I showed that Taylor rule fundamentals outperformed purchasing power parity, interest rate parity, and the monetary model of exchange rates in terms of in-sample fit, at least insofar as the dollar/euro exchange rate is concerned.
One of the debates regarding the current financial crisis is whether in fact there is a crisis, or whether in fact the financial system is operating normally. I’ve been skeptical myself of the “times are normal view”, but here is some evidence that the credit crunch is real. The findings also reinforces my view that un-nuanced reliance on highly aggregated volume statistics (e.g., Chari et al. 2008) is likely to result in misleading inferences (See the rejoinder from the Boston Fed’s economists). From the conclusion to Tong and Wei (2008) ungated version of Tong and Wei:
High frequency estimates are falling, while consensus forecasts are for a turnaround in 2009H2. First, consider two estimates of GDP released today.
Here’s the video from a panel convened by the University of Wisconsin’s Center on World Affairs and the Global Economy (WAGE) on November 20, 2008. Presenting were
Alison Alter, Associate Director of WAGE; Mark J. Ready, Professor of Finance, Investment and Banking; Darian M. Ibrahim, J.D., Assistant Professor of Law; Menzie D. Chinn, Professor of Public Affairs and Economics; and Mark S. Copelovitch, Assistant Professor of Political Science and Public Affairs, and Edward Friedman, Professor of Political Science.
My powerpoint presentation was posted here if one just wants the slides.
Plenty of breathless commentary on how Chinese yuan depreciation against the dollar might trigger conflict. From Barrons:
Reality Check for China
By LESLIE P. NORTON
The currency’s decline could dampen foreign speculators’ enthusiasm
Last week, China’s currency, the renminbi, juddered to its biggest one-day decline against the greenback since Beijing began a managed float in 2005.
Says Win Thin, a currency economist at Brown Brothers Harriman: “The prospect of appreciation is off the table for now.” Morgan Stanley now expects China to depreciate its currency by 5% to 10% in the coming year. The current rate is 6.88 to the dollar.
…is repudiation of the no-nothing-ness of the past. From Bloomberg:
Dec. 7 (Bloomberg) — President-elect Barack Obama said the nation owes its military veterans “a sacred trust” and named retired four-star General Eric Shinseki to make the U.S. Department of Veterans Affairs “a 21st century” system.
“No one will ever doubt that this former Army chief of staff has the courage to stand up for our troops and our veterans,” Obama said at a press conference in Chicago, held on the anniversary of the 1941 attack on Pearl Harbor. “No one will ever question whether he will fight hard enough to make sure that they have the support that they need.”
Shortly before the 2003 U.S. invasion to oust Iraqi dictator Saddam Hussein, Shinseki told Congress it would take several hundred thousand troops to stabilize postwar Iraq, more than then-Secretary of Defense Donald Rumsfeld had estimated.
Rumsfeld roundly rejected Shinseki’s assessment, insisting the effort could be accomplished with a U.S. commitment of no more than 150,000 troops. He also cut short Shinseki’s tenure as chief of staff, which critics of the Bush administration said was punishment for Shinseki’s testimony.
Rather than engage in long commentary, I thought a set of pictures would be sufficient to convey the deteriorating macroeconomic situation, at least as reflected in the labor market.