Who will be the next Iceland?

[Michael]

Who will be the next Iceland?

According to Foreign Policy magazine, here are the most likely candidates to follow Iceland to economic ruin and political meltdown.

Great Britain
Latvia
Greece
Ukraine
Nicaragua

Putting Great Britain at the top of the list is serious business and potentially very ugly. Iceland was a little country with small impact on world finance. Britain banking is much more connected to the global economy. :eek:

Source (http://www.foreignpolicy.com/story/cms.php?story_id=4648)

[Americano]

From your link:

"Government intervention has become so pervasive that nearly half of the economy will consist of state spending in the coming year. This, in turn, has earned Britain another nickname: Soviet Britain."

Half the economy from state spending? Where's it coming from?

I had read UK personal debt in 2008 exceeded GDP for the second straight year (and their housing market has also crashed) but had no idea half the economy came from government spending. With government spending having the lowest economic flow-through of almost any activity that's a real dead-end road.

[Michael]

From your link:

"Government intervention has become so pervasive that nearly half of the economy will consist of state spending in the coming year. This, in turn, has earned Britain another nickname: Soviet Britain."

Half the economy from state spending? Where's it coming from?

I had read UK personal debt in 2008 exceeded GDP for the second straight year (and their housing market has also crashed) but had no idea half the economy came from government spending. With government spending having the lowest economic flow-through of almost any activity that's a real dead-end road.
Well, to be honest, half of Europe lives on near 50% government spending levels. Britain is merely joining the club. They look like a good candidate for the Euro now. :rolleyes:

[Americano]

Well, to be honest, half of Europe lives on near 50% government spending levels. Britain is merely joining the club. They look like a good candidate for the Euro now. :rolleyes:

At the rate the US is going we can't be far behind them. I'm reading $7T of government money being pumped into the US economy?

[Michael]

Well, to be honest, half of Europe lives on near 50% government spending levels. Britain is merely joining the club.
I double-checked on this today. :)

Germany is just under 40%! That was a bit of a surprise to me.

France, Netherlands, Belgium, Sweden, Italy, etc., all are in the high 'forties' or low 'fifties', as I expected.

This is 'total' government spending at all levels of the economy, as a percentage of GDP. Given present economic problems, UK and USA percentages are rising right now and UK could easily catch up to the Euro averages quickly.

It is to be noted that Germany is often called the 'engine' of Europe and it maintains a lower percentage (comparatively). Germany's staid banking industry also resisted a lot of exposure to the funky derivatives market that was everyone else's doom and seems to have escaped that fate relatively unscathed (though still 'recessionary' like the rest of the planet).

[Michael]

At the rate the US is going we can't be far behind them. I'm reading $7T of government money being pumped into the US economy?
Depends on how you count the money. :D

A fair bit of the Fed's money pumping has been just 'paper guarentees' and may not end up being fully 'cashed'. Likewise with bum assets the Treasury might end up owning, some might be resold in the future.

And a lot of it just got sucked up into the black hole of financial losses on Wall Street (replacing lost capital) so its not like there's too many trillions sloshing around the markets right now...

That being said, the mortgage-backed CDO market was long estimated to hit $2 trillion in losses, and the recession is expected to 'evaporate' about $2 trillion in GDP (for 2009). Where the hell is that $7 trillion figure coming from?

That other missing $3 trillion must be the Fed's 'cashier window' operations (of the type mentioned above), where the Fed gives prime loans to banks in return for taking some 'collateral' (which might well be toxic).

[Americano]

Depends on how you count the money. :D

A fair bit of the Fed's money pumping has been just 'paper guarentees' and may not end up being fully 'cashed'. Likewise with bum assets the Treasury might end up owning, some might be resold in the future.

And a lot of it just got sucked up into the black hole of financial losses on Wall Street (replacing lost capital) so its not like there's too many trillions sloshing around the markets right now...

That being said, the mortgage-backed CDO market was long estimated to hit $2 trillion in losses, and the recession is expected to 'evaporate' about $2 trillion in GDP (for 2009). Where the hell is that $7 trillion figure coming from?

We have, with military action deficits, an easy $3T in annual government spending, the Fed's already close to holding $2T in toxic paper 'loans' (some of which might be recovered at what 10¢ on the dollar but treasury will pick-up the difference) and I see an easy $2T in stimulus funding this year. With the $700B TARP and what looks like $900B in the current bill another $400B is chump change to keep states solvent (the next major economic dilemma faced in the US). That's 50% of a $14T GDP.

That other missing $3 trillion must be the Fed's 'cashier window' operations (of the type mentioned above), where the Fed gives prime loans to banks in return for taking some 'collateral' (which might well be toxic).

They've contained monetary expansion for a few months but the Fed is a private entity and Treasury does get the tab. The current auction of US public debt is $653B (new), about what China currently holds. The long bond, 30-yrs, is going to market eight different times in 2009. Market capacity in a global economic downturn comes to mind, especially with Obama singing the tax break song to appease political opposition.

While Volcker seems to be in a position where Obama does listen to his advice, he's an old man and after three decades possibly without the fire to make Obama understand, IMO, he's facing an economic circumstance where the logical direction is determining what the bottom might be before borrowing money to build bike trails and other band aid applications. Unfortunately revenue in electoral vote powerful states are declining to crucial levels and that's where the domestic political capital resides. It is a colossal mess.

[Americano]

I double-checked on this today. :)

Germany is just under 40%! That was a bit of a surprise to me.

France, Netherlands, Belgium, Sweden, Italy, etc., all are in the high 'forties' or low 'fifties', as I expected.

This is 'total' government spending at all levels of the economy, as a percentage of GDP. Given present economic problems, UK and USA percentages are rising right now and UK could easily catch up to the Euro averages quickly.

It is to be noted that Germany is often called the 'engine' of Europe and it maintains a lower percentage (comparatively). Germany's staid banking industry also resisted a lot of exposure to the funky derivatives market that was everyone else's doom and seems to have escaped that fate relatively unscathed (though still 'recessionary' like the rest of the planet).

Thank you. I don't follow enough countries in what's now a global society. We developed nations are finally meeting the piper, aren't we?

[Sucre]

Ireland is a much better candidate than the UK. The two largest banks would be bankrupt without State's support, foreign investment has fallen, real estate is collapsing, unemployment has soared ... They may get money from the EU. Hungary already has, I am surprised they are not on the list. I agree with Ukraine, Greece maybe, don't know anything about Latvia or Nicaragua.

[Michael]

Thank you. I don't follow enough countries in what's now a global society. We developed nations are finally meeting the piper, aren't we?
Well, so far it looks like Germany and Canada alone are showing their banking sectors to be 'solid' and suffering only from the general recessionary environment.

It is rather fitting that both Germany and Canada's banking regulations are rather known for being "old school" and being slow to keep up with the latest innovations in regulations. Such a policy is showing up for being a good one. Being on the cutting edge of financial deregulating in the 1990's seems to point to those nations who are suffering most (Iceland, Ireland, UK & USA).

As I noted some months ago, the key 'cause' of the present financial crisis was simple regulatory failure. The case of the banking industry in Canada and Germany pretty much proves this.

[Sucre]

If you write ""old school" and being slow to keep up with the latest innovations in regulations, this implies that the "new" regulations or, better say, the lack of regulations, were going the right way. This is what the brain washing we have been submitted to in the last 15 years has been saying in a derogatory way.

I remember reading a book, at the beginning of the 1990s, shortly after the Fall of the Wall in Berlin, about the new competion between, not Communism and Capitalism, but the "Rhenian" (speak German) form of capitalism and the Anglo-Saxon (speak US and UK) form of capitalism.

Rhenian capitalism, traditionally, is characterized by :
- long term v. short term
- (Therefore) steady long term success v. quick profit at all costs
- steady relationships with staff, clients, providers and banks
- (Therefore) "House" banks
- Profit will rather be reinvested in the company (high own capital ratio) as distributed to the shareholders
- Highly regulated working field

Anglo-Saxon capitalism is characterized by :
- short term v. long term
- (Therefore) quaterly reports
- Shareholder value
- (Therefore) Costs reduction for profit maximizing, Hire & Fire
- Investment banks v. Hausbank
- As little regulation as possible

The author of the book, a reknown high rank French manager, was wondering which of these two "kinds" of capitalism would win after the fall of communism.

Obviously, it is the second kind which has been taking over. No wonder : it blends with quick profit and money making. Rhenian capitalism has been giving in the last 10 to 5 years, not quickly enough as it seems, but changes are always slow especially when it touches on deep-rooted traditions.