Collection of Interesting, Worth Reading NEWS, ANALYSIS & ARTICLES

TO LOSE one decade may be regarded as a misfortune; to lose two looks like carelessness. Japan’s economy stagnated in the 1990s after its stockmarket and property bubbles burst, but its more recent economic performance looks even more troubling. Industrial production plunged by 38% in the year to February, to its lowest level since 1983. Real GDP fell at an annualised rate of 12% in the fourth quarter of 2008, and may have declined even faster in the first three months of this year. The OECD forecasts that Japan’s GDP will shrink by 6.6% in 2009 as a whole, wiping out all the gains from the previous five years of recovery.

If that turns out to be true, Japan’s economy will have grown at an average of 0.6% a year since it first stumbled in 1991. Thanks to deflation as well, the value of GDP in nominal terms in the first quarter of this year probably fell back to where it was in 1993. For 16 years the economy has, in effect, gone nowhere.

Was Japan’s seemingly strong recovery of 2003-07 an illusion? And why has the global crisis hit Japan much harder than other rich economies? Popular wisdom has it that Japan is overly dependent on exports, but the truth is a little more complicated. The share of exports in Japan’s GDP is much smaller than in Germany or China and until recently was on a par with that in America. During the ten years to 2001, net exports contributed nothing to Japan’s GDP growth. Then exports did surge, from 11% of GDP to 17% last year. If exporters’ capital spending is included, net exports accounted for almost half of Japan’s total GDP growth in the five years to 2007.






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The global trade is declining. WTO estimates that the global trade will decline 9% this year against a 2% increase in 2008. It was even at a 6% increase 15 months ago. Is it because of protectionism that made the 1930s recession a great depression or is it because of falling demand. Thankfully it is because of falling demand.

McKinsey mapped the decline and recovery of many sectors in past 4 recessions. According to the analysis, McKinsey says

Particularly in hard times, it’s crucial to make the right assumptions in strategic planning. Despite claims that the current recession is “unprecedented,” it seems to be following many of the same patterns the four previous ones did—patterns that may offer insights into the performance of sectors in the coming months and years. All four recessions, like the current one, began with falling sales and EBITA in the consumer discretionary sector and three with similar declines in IT. Consumer staples didn’t suffer significantly in the last three or health care in the last two. The energy sector was among the latest to be hit in three of the recessions, though it was among the latest to recover in all four of them. The exhibit shows the sequence of decline and recovery in these and other sectors.

TUMBLING exchange rates, gaping current-account deficits, fearsome foreign-currency borrowings and nasty recessions: these sound like the ingredients of a distant third-world-debt crisis from the 1980s and 1990s. Yet in Europe the mess has been cooked up closer to home, in east European countries, many of them now members of the European Union. One consequence is that older EU countries will find themselves footing the bill for clearing it up.

Many west Europeans, faced with severe recession at home, will see this as outrageously unfair. The east Europeans have been on a binge fuelled by foreign investment, the desire for western living standards and the hope that most would soon be able to adopt Europe’s single currency, the euro. Critics argue, with some justice, that some east European countries were ill-prepared for EU membership; that they have botched or sidestepped reforms; and that they have wasted their borrowed billions on construction and consumption booms. Surely they should pay the price for their own folly?

Yet if a country such as Hungary or one of the Baltic three went under, west Europeans would be among the first to suffer (see article). Banks from Austria, Italy and Sweden, which have invested and lent heavily in eastern Europe, would see catastrophic losses if the value of their assets shriveled. The strain of default, combined with atavistic protectionist instincts coming to the fore all over Europe, could easily unravel the EU’s proudest achievement, its single market.

Indeed, collapse in the east would quickly raise questions about the future of the EU itself. It would destabilize the euro—for some euro members, such as Ireland and Greece, are not in much better shape than eastern Europe. And it would spell doom for any chance of further enlarging the EU, raising new doubts about the future prospects of the western Balkans, Turkey and several countries from the former Soviet Union.

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OK it took me a long time to compile and to properly present this data. The data shows all the countries holding the US treasury securities as of Jan 2009. Showing the data not in a meaningful way would have defeated the purpose. So I am showing on three parameters.

1. By dollar value
2. By % change from Jan 2008
3. By % of nominal GDP(2008)

The conclusions that I would draw from these three charts are

CHART1: The countries having largest foreign exchange reserves are buying the US treasury securities are the largest holders
CHART2: Countries whose economies are relatively smaller in GDP terms and are doing relatively OK in the current market don't mind holding more US treasury holders. China is an exception here.
CHART3: Countries that need more money at home are selling the US treasury securities and hence reduced their holdings since Jan 2008

Please do share what you conclude from the data and these charts.

Though I also looked at various government sources of many countries individually but this data has been complied primarily from www.ustreas.gov, wikipedia.org, www.cia.gov (the world factbook) and www.imf.org

I am starting my first entry with the some basics of the current state of the economy of the world. May of you would be wondering how this mess was created at the first place. Yes, the mess was created... it did not happen all by itself. You may say the cause to be greed, loose regulations or any other but something caused it. So read the following in the order they are written:

Financial Crisis for Beginners - There are lot of other articles on this page. If those interest you then do read them to get a full picture.

What is National Debt

Interest Rates for Beginners

Federal Reserve for Beginners

Bank Failures

Bank Runs

Above articles are basics. If you have some more energy to read then go through these articles as well. These are little more than beginner ones...

Primary Surpluses and Sustainable Debt Levels in Emerging Market Countries

Keynes Economics Theory

Keynes Theory being tested by Obama first time since it is written

The Recession Paradox: Spend Or Save?

Reviving The Economy: What Really Works?

And some other related ones that I thought will interest you are here...

How Hedge Funds and other investors are making money on toxic assets of banks

Wall Street on the Tundra (Iceland's Fall)