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From Wall Street 2 All Street

From Wall Street 2 All Street

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Published by Redza
The financial crisis has moved from Wall Street to all streets, as the economic shock causes strains
and suffering in every part of the world economy.
- By Adrian Michaels.
The financial crisis has moved from Wall Street to all streets, as the economic shock causes strains
and suffering in every part of the world economy.
- By Adrian Michaels.

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Published by: Redza on Feb 22, 2009
Copyright:Attribution Non-commercial

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06/16/2009

 
This financial crisis is now truly global - Telegraphhttp://www.telegraph.co.uk/finance/financetopics/financialcrisis/473638...1 of 32/22/2009 3:40 PM
Troubled times: demonstrations in France during the first major striketriggered by the financial crisis
 
Photo: AFP/GETTY
This financial crisis is now truly global
The financial crisis has moved from Wall Street to all streets, as the economic shock causes strainsand suffering in every part of the world economy.
By Adrian MichaelsLast Updated: 9:11PM GMT 20 Feb 2009In Florida, a state devastated by tumbling house prices andrepossessions, the inhabitants are arming themselves againstrecession, with requests for concealed weapon permits up 42per cent in the past 45 days. In Moscow, the murder rate hasclimbed by 16 per cent. At Tetsuya's – the most exclusive andexpensive restaurant in Sydney – the waiting list has shrunkfrom three months to 24 hours.Over the past few months, we were told that we were caughtin the worst economic crisis for 20 years, then 30, then 80,then 100. It can't be long before someone points out thatreally, all things considered, the Black Death wascomparatively pleasant. But beyond the hyperbole, one thingis clear: what began as a financial problem in certaindebt-soaked nations is battering the economies of dozens ofothers, as well as millions of people working in almost every trade. It will change behaviour and alter the pecking order ofthe world's economies. There will be social unrest and changes of regime. Received wisdom, whether about the benefitsof free trade, globalisation or European integration, may be cast on to a bonfire of recrimination. Estimates of how long thepain will last range from a year to a decade. Bring out your dead.Among the most significant developments has been the realisation that the most prudent countries – such as Germany,Japan and China – will suffer as badly as the spendthrifts, or even worse. Despite the whiff of hubris that wafted fromBerlin when the banks of Britain and America went into meltdown, Germany's economy contracted by two per cent in thelast quarter of 2008, compared with 1.5 per cent for Britain's. The problem was that the Chinese and Germans were toothrifty: their countries' growth was reliant on sales of goods to countries that were borrowing. Now that Americans can'tafford its products, China's exports have collapsed, down 17.5 per cent in January from a year earlier.Americans can't spend because their house prices have crumpled, their shares have plummeted and their banks will not – or cannot – lend them any money. Insecurity is also forcing cutbacks: January saw the highest monthly jump inunemployment in 34 years. The equally worried Chinese seem to want to save still more: imports into China fell 43 percent in January compared with the year before. Yet if no one at home or abroad wants to buy their goods, the result will bemassive unemployment: some 20 million people are already said to have lost their jobs. As they head home from thecoastal manufacturing belt, their government is trying to force-feed them consumer goods; 80 per cent of all white goodssold in December were subsidised.As demand dries up, the arteries of global trade are hardening. Lufthansa's air freight division is putting 2,600 staff onshort-time working, while cargo ships have so many empty containers that shipping rates are a tenth of what they were atlast year's peak. The knock-on effects are complex, but painful. "For Rent" signs dot empty storefronts on the oncesought-after stretch of New York's Madison Avenue, where the vacancy rate rose by 50 per cent in 2008. Rents havedropped by a third as the ladies who lunch think twice about coffee at Barneys, or frocks from Versace. This fallingappetite for luxury goods helps explain why half of India's 400,000 diamond workers have lost their jobs. More than 40
 
This financial crisis is now truly global - Telegraphhttp://www.telegraph.co.uk/finance/financetopics/financialcrisis/473638...2 of 32/22/2009 3:40 PM
have committed suicide.Or take car sales, which Carlos Ghosn, the chief executive of Renault-Nissan, estimates could fall by 21 per cent acrossthe world this year. Car companies are begging governments for handouts – but that won't shift their products fromshowrooms. Among other things, lower car sales mean fewer catalytic converters, which means that platinum does notneed to be mined so intensively. The price of platinum has fallen by half, and the world's largest producer, Anglo Platinum,which operates mostly in South Africa, is axing 10,000 jobs.And so the rural Chinese are not the only ones heading home. Thanks largely to a construction boom, Spain wasresponsible for a third of the new jobs created in the eurozone in 2006 and 2007, but is now losing 40,000 a week, and isoffering subsidies for migrants to leave (some immigrants are instead digging in, selling home-cooked food at illegalmarkets around Madrid). Thai factories and farms used to rely on Burmese expats; aid workers report that thousands ofthem are now being rounded up and sent home. Malaysia has banned the hiring of foreigners in certain sectors, while thePhilippines, which has 10 per cent of its population working abroad, is braced for family incomes to tumble. Remittancesfrom overseas are a lifeline for the world's poorest: Africans working in the developed world have been sending back $40billion a year to support their impoverished relatives, but the World Bank predicts that this could drop substantially thisyear.Even when the crisis is not causing outright misery, it is transforming behaviour. In Britain, employers seem to be choosingto fire women rather than men – but in America, more than 80 per cent of those losing their jobs have been male; as aresult, women are making up an increasing percentage of the workforce. Of course, not every extraordinary trend orstatistic can be blamed on the economic crisis – but it is certainly true that cheap, home-based pursuits are making acomeback, and frippery is out. Australians spent 13 per cent less on eating out in the last quarter of 2008, while aManhattan dentist is pitching his teeth-whitening services with the phrase "Make me an offer".The challenge is to come up with a political response that does not make things worse. Western countries used to preachopenness, free movement of people, the breaking down of barriers. Now the instinct is to raise the shutters and protectvoters' livelihoods. Social unrest is spreading; particularly at risk are the nations of central and eastern Europe, whichfervently embraced the free market after the Berlin Wall came down. As their workers headed west, their businessesloaded up on debt to fuel breakneck expansion; now, they can't meet their obligations, especially as the region's biggestbanks were sold to Italians and Austrians, who might repatriate cash to focus on domestic demands. "The mess in centraland eastern Europe is a clear result of globalisation," says Hans Redeker, a strategist at European bank BNP Paribas. "Itshould be no surprise to see [Western] banks acting increasingly locally while trying to please domestic governments."The world's leaders promise to stop protectionism, but their actions speak differently. A joint statement this week fromGordon Brown and Silvio Berlusconi, Italy's prime minister, said: "Protectionist measures reduce worldwide growth, denyus the benefits of global trade and confine millions to poverty." Yet both countries are propping up their car industries.Congress wants to protect the American steel industry; the French government is spending more on newspaperadvertising.However restless they are, electorates need to remember that a lack of protectionism lay behind a huge increase inprosperity for millions of people. That is not easy when jobs are being lost. A cleaned-up banking system is a top priority – but the debate has only just started about how our banks are to look, who will run them and how they will be regulated."The history of financial crises," warns Michael Pettis, professor of finance at Peking University, "shows a mismanagementof the regulatory framework that comes out of them."Above all, consumers are somehow going to have to change their behaviour. Americans are certain to be more prudentduring the immediate crisis, but they need to maintain that more hostile attitude to debt when it is over. It will be just ashard to persuade the Chinese, Japanese and Germans to start spending, in order to supplement export-led growth withdomestic demand. "The world doesn't need more stuff to sell," explains Prof Pettis. "It needs more buyers."As they mature, Asian economies will in time have better pension and health systems, which will help persuade people that

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