Posted by: rbbadger | November 21, 2008

Economic crisis

I read the news from America and I am definitely worried.  I saw the stock prices for GM and Ford.  Appart from being a good opportunity to snap up some GM and Ford shares, assuming that those companies will even exist in the future, I do worry about what is happening back at home.  I have been reading a lot more stuff about economics lately, something I haven’t habitually done.  Seeing as the crisis has the great potential to negatively affect me here, I am very concerned with what is happening back at home.

Soon, a new president will be inaugurated.  There of course will be a lot of heady optimism, given that he is the first African-American ever to rise to the highest office in the land.  But the honeymoon will be over quickly and a host of problems will be his to deal with.  I wish him the best, as we are in a situation now where failure is not an option. 

Japan is in a recession, as is Singapore and Hong Kong.  All countries who use the Euro are in recession now.  The Korean won still continues to suffer over worries that Korea might be entering a recession.  Of course, the won was hit pretty badly owing to the fact that the Bank of Korea had invested in sub-prime mortgage backed securities.  One of my co-workers has invested in a mutual fund.  She’s seen her net worth decline significantly, owing to the fact that a lot of the fund was invested in sub-prime mortgage securities.  China is enterting tough economic times.  Part of this is owing to the fact that the Chinese people are very thrifty.  The crisis is making them save even more, thus domestic consumption of Chinese made products is lowering significantly.  Korea, Japan, and China are currently putting together an $80 billion hedge fund to try and stave off the crisis.  Korea is not in a recession yet, but the economy is definitely slowing.  Our equivalents to Wal-Mart and K-Mart are reporting lower sales than normal.  One thing which definitely does not bode well is the fact that the nation’s third largest automobile manufacturer GM Daewoo is owned by…GM. 

While the stock market has dropped here, the KOSPI actually increased in volume today, something of a good sign.  The won is still not where I want to be and Lee Myeong-bak, currently rejoicing in the dread title of Hanguk-eui Daetongnyeong (President of the Republic of Korea or 대한민국의대통령) has indicated that the financial authorities must not intervene in the current foreign exchange woes.  President Lee was the CEO of Hyundai Construction, so he knows a thing or two about running a business.  But what about running a country?  There are those calling for the head of the Minister of Strategy and Finance, but he is stubbornly remaining in place.

As you can see, I’ve expanded my reading considerably outside of my current passions of Korean and Chinese history into economics.  I still don’t understand a lot of it, but it is something which has the potential to negatively or positively affect me.   And as bad as things are, they could always be worse.  Take Iceland for example.

Iceland’s banking industry has basically collapsed.  At least they didn’t do what the Fed did while banks fell, which was basically nothing.  All of the Icelandic banks are now in governmental recievership.  Iceland is in a deep recession, if not for an actual depression.  The country nearly went bankrupt.  Icelandic banks began offering services in the UK over the internet.  When they weren’t able to pay their depositors their money, it lead to a collapse of the largest bank of the country which owned Icesave.  HM Government has announced legal action against Iceland.  Instead of setting up UK subsidiaries which could rely on the Bank of England in the event of a liquidity crisis, they were headquartered in Reykjavik and dependent on the Central Bank of Iceland.  The stock market in Reykjavik has dropped 90%.  So, things aren’t exactly rosy here, but at least Korea is not likely to have to appeal to the IMF for loans as they had to 1997.  Iceland already is receiving IMF loans.  Iceland isn’t a poor country.  It has one of the highest standards of living in Europe.  And yet it has fallen.

As for Ford and GM, I am concerned about throwing money at them without any meaningful substantive change taking place.  I wouldn’t buy a car built by either company.  I would rather buy an American-made car by Hyundai or Toyota.  If people aren’t buying their products, and haven’t been doing so for a long time, then perhaps they need to radically change their business models, something which may be impossible if they don’t go into some sort of recievership as the airlines did following September 11.  While I don’t currently pay US taxes, as my income here does not reach the amounts under which it would be taxable under US law, I would be concerned about investing in companies which have shown little ability to change with the times.  As taxpayers, that is what we, in essence, are asked to consider. 

The USA is a huge country and the things it does can have terrible ramifications across the world.  What our government does affects not only us.  And I hope that Obama does not turn out to be the worst kind of economic populist of the type which has kept Latin America mired in poverty.  Mexico could have been one of the great economic giants of the world, but given the people they’ve had running the place over the past couple of centuries, it is what it is.  They were lucky to have someone with a good head on his shoulders in President Zedillo (1994-2000).  The current relative stability of the peso owes a lot to his wise leadership.  The world is growing ever more interdependent economically.  While the sub-prime crisis may have started in France with the announcement that BNP Paribas (owner of Bank of the West) was not able to correctly value its mutual funds, it was because those mutual funds were invested in sub-prime mortgage backed securities from the USA.



  1. Well, I’m late in responding, but it’s a good thing that someone is looking at what’s going on around the world. I am sincerely hoping that Obama is as competent as he seems.

    The thing that I’ve noticed the most around here isn’t the gas prices, which have come back down as they always do after the summer. It’s the cost of food. What used to cost me $24 costs $45. Lots of people are struggling. The costs have been going up over time, though, so it has taken some longer than others to notice but is now frequent conversation for those of us moms who drop off our kids in the morning.

    Peak Oil is the scariest think we’ve had to think about in a long time. For my part, I try to pay attention, and walk where I can, but we’ll see what the future holds.

    On a more positive note, one of the old stores I used to shop at is still doing well. I think they have mostly local produce, so I made it out the door for about the same amount of money as I did back in 2006.

    Walmarts here are doing great here, which means that people haven’t stopped shopping, they’re just looking for better deals. Infact, the one just down the street will be an oversized version very soon. I know Walmart imports almost everything, so maybe that’s good news for Asia

    Well, I’ve got to run, but take care.


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