1/29/09

In an increasingly interconnected and globalized world, the domestic stimulus bill has tremendous international implications. Its passage by the House yesterday sparked rallies from Hong Kong to Paris, a small bright spot against a stark global downturn.  China’s economy, once thought to be immune, has slowed.  Europe’s problems are as bad if not worse that the US’s, and protests and political instability are on the rise. The developing world – now increasingly linked to the economies of the developed world – is also feeling the effects of the crisis. Attempts to stick to a discredited economic doctrine and sacrifice economic recovery for 2010 talking points, show a dramatic misunderstanding of the leadership capital the US can gain – or lose – here.  As if the welfare of Americans wasn’t enough, businesses around the world are watching and hoping that Congress shows we understand how what is in our self-interest is also in theirs.

Grave concerns over worsening financial crisis, as world economic leaders gather at Davos.  “We now expect the global economy to come to a virtual halt,” said IMF Chief Economist Olivier Blanchard, describing the IMF’s latest findings that “world growth is forecast to fall to its lowest level since World War II, with financial markets remaining under stress and the global economy taking a sharp turn for the worse, sending both global output and trade plummeting.” Financier George Soros set the scene in dire terms, saying “[y]ou have to realize the size of the problem confronting us today is significantly larger than in the ‘30s... [t]he situation will continue to deteriorate.”  Bloomberg described a painful scene at the annual conclave of top business leaders:  “Gloom is deepening among business leaders and economists, casting a pall over this year’s World Economic Forum in Davos, Switzerland… Concerns over the economic outlook are virulent.” [Bloomberg, 1/28/09. IMF, 1/28/09]

Global economic turmoil spreads from Europe to Asia and pulls in global powerhouse China.  This week “Britain posted its worst quarterly contraction since 1980 on the heels of sharper than expected slowdowns reported from Germany to China to South Korea. The grim data, analysts said, underscores how the burst of the biggest credit bubble in history is seeping into the real economies around the world, silencing construction cranes, bankrupting businesses and throwing millions of people out of work... The problems in Europe now appear to be as bad if not worse than those in the United States. In the last quarter of 2008, the British economy shrank at an annualized rate of 6 percent... Also troubling are signs that China, once a rare light in the global economy, may not prove to be the pillar of strength in Asia that many analysts had hoped. Beijing announced this week that its economy grew by 6.8 percent in the fourth quarter of 2008 -- slower than the 7 percent analysts expected -- bringing total growth for 2008 to a seven-year low.”  Downturns in the large economies of the US, Europe, and China, have negative consequences for smaller trading partners.  “[A]s China slows, and the United States, Europe and Japan sink into deep recessions, unsold goods are piling up at South Korea docks. This week, the government said the economy in the fourth quarter staged its sharpest drop since the Asian economic crisis swept across the country in 1998.” [Washington Post, 1/24/09]

The interconnectedness of the global economy means global implications of Obama’s stimulus package.  The implications for the passage of the stimulus package go far beyond America’s borders.  Steven Schrage, an international business and finance specialist at the Center for Strategic and International Studies explained that “Washington's bid to fix the largest economy in the world has global implications as well. ‘The world is really watching the stimulus (legislation in Congress). The hopes are this will restore U.S. demand for goods, which has driven a lot of the international economy over the last decade.’”  Nina Hachigian at the Center for American Progress also said, “The fact is that America, the big powers, and most other countries are going through very tough economic times. The stimulus plan will kick-start the U.S. economy in the short term, but its domestic prescriptions will also help put our nation on the path of global success—even in a world with more powerful players.”  Global reaction to yesterday’s passage by the House of the stimulus package has underlined its importance beyond US borders.  The Financial Times noted that “Hong Kong shares gained nearly five per cent on Thursday, to extend a broad rally across Asia Pacific into a third day as President Barack Obama’s $819bn stimulus package was approved by the US House of Representatives. Commodity shares gained on hopes of revived global demand, and the financial sector rose on talk that the US government might set up a bank to hold toxic assets. A good performance on Wall Street overnight also helped the mood.” The FT continued, “Investor sentiment in European stock markets was also improving. Financial bookmakers forecast the FTSE 100 index opening in a range of down 3 points to up 3 points, Germany's DAX down 4 points to up 12 points and France's CAC 40 from down 1 to up 12 points.” [Reuters, 1/18/09. Center for American Progress, 1/28/09. FT, 1/29/09. Economist, 1/29/09]

What We’re Reading

President Obama looks for agreement with the military on Iraq withdrawal plans.  Marc Lynch at Foreign Policy sets the context behind the story.

Iraq will deny a new operating license for Blackwater Worldwide.

President Obama reportedly drafts a letter to Iranian President Mahmoud Ahmadinejad.  Ahmadinejad will seek a second term in Iran’s presidential election in June.

The Afghan election commission delays the presidential election from May to August 20, due to security concerns.

Tens of thousands of people participate in early voting for Iraq’s provincial elections on Saturday.

China detains 81 people in advance of the 50th anniversary of the Tibetan uprising and the flight of the Dalai Lama.

A pro-democracy manifesto quietly spreads in China.

Mexican drug bosses may have set a truce.  Violence levels in Sinaloa have fallen by two-thirds since December.

The New York Times looks at the relationship between Russian President Vladimir Putin and Russia’s energy industry.

Commentary of the Day

Richard Clarke looks at the history of legally using rendition to fight terrorism in the United States and why President Obama was right to continue allowing renditions.

John Yoo, author of the Bush administration “torture memos,” writes that “Obama made a rash decision on Gitmo.”

George Soros examines the roots of the financial crisis.

Jeff Immelt and Jonathan Lash propose criteria for a U.S. clean energy plan.

Rosa Brooks reviews President Obama’s first week in office.

David Ignatius writes about the “Pakistan Puzzle.”