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reflections

Nov 21, 2008 | 02:19 GMT

4 mins read

Geopolitical Diary: The Global Recession

It can be difficult to separate the important from unimportant on any given day. Reflections mean to do exactly that — by thinking about what happened today, we can consider what might happen tomorrow.
On Thursday, the Japanese government reported that October exports fell 7.7 percent as measured from a year previous, putting the country squarely into deficit. This might seem like just one more bad economic statistic in what is becoming something of a daily litany, but we want to call attention to it because it confirms a trend that we have been watching for some time. Japan has already reported negative gross domestic product (GDP) growth in recent weeks — which is normally considered the hallmark of recession — but we do not pay too much attention to Japan's GDP figures because they normally go through several wild revisions before settling on "final" numbers. We prefer to monitor the one sector of the Japanese economy that has shown some signs of life since the country's 1990-1991 property market collapse: exports. But these export figures show Japan with a trade deficit at a time when, if anything, it should be experiencing a strong surplus. Energy demand is traditionally lower in October — and in this particular October, energy prices had fallen halfway from their peak just three months before. It is the first time Tokyo has had a trade deficit in October since 1980. The news follows reports of negative GDP growth in the United States and the European Union — and those are figures that we do take seriously. Taken together, these data give us a picture of a broader (and not especially encouraging) pattern. The world, at least by our reckoning, is now officially in recession. The downturn has three strands. In the United States, the subprime housing collapse triggered a liquidity crisis. In Europe, the American liquidity crisis triggered a much broader and deeper banking crisis. And in Japan — and the rest of East Asia — the enervated demand in the United States and Europe is now triggering an export crisis. Three very different but interlinked recessions have now formed something that the world has not seen since 1975: simultaneous recessions throughout the developed world. Other data certainly confirm the prognosis. Shipping rates on major container ships have, by some reports, fallen 98 percent (demand for shipping mirrors demand for Asian exports). The 13-week U.S. Treasury bill now bears a 0.005 percent payout — technically not zero, but considered effectively zero by most reporting methods — indicating that everyone is shifting holdings into the lowest-risk assets. And a spare glance at 401k accounts or their equivalents will inform anyone who has been in a coma for the past few weeks that the markets — American, European or otherwise — have been pummeled. The bottom line is that the global economy is in a situation where countries are going to start cracking. Iceland, actually, has cracked already — but with only 330,000 inhabitants, it conceivably could have gone down in flames without being a harbinger of things to come in the rest of the world. Hungary and Pakistan, however, may be a different story. Both are entering International Monetary Fund receivership, and the mutating economic dysfunction in each holds dire consequences for many other countries. Hungary is an EU member, and the European Union's efforts to stabilize it are leaving the bloc less well-equipped to address rapidly growing problems in Latvia, Estonia, Romania, Lithuania, Bulgaria, Slovakia, the United Kingdom, Spain, Ireland, Greece, Poland, the Czech Republic, Denmark and France (with the problems erupting roughly in that order). Pakistan, for its part, has become ground zero in the U.S.-jihadist war, and having an economic collapse there would — to put it mildly — complicate any efforts to find the al Qaeda apex leadership. And that does not even begin to address the economic fissures that are opening in places as far afield as China, Russia and Brazil. Economic weakness inevitably has military and political consequences, and the wave is only now beginning to crest. Geopolitics is about the intersection of the struggles for political, military and economic power, constrained by the unforgiving crucible of geography. Between the flux in the international system, the American presidential transition and a recession that is now truly global, we are seeing geopolitical change at a dizzying rate. Hold on to your hat.

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