News articles around the world are now focusing on another economic bubble that is bursting before our very eyes.
by Mario Seiglie
First there was the housing bubble—over a year ago. Then there was the financial bubble—under a year ago. And now we are beginning to witness a third bubble bursting—a world trade bubble.
Trade figures appallingly down
The figures are alarming. For December 2008, Japan's exports were down by 35 percent; Taiwan's were down 42 percent; South Korea's exports tumbled 17 percent; and in January 2009, China 's exports were down 12.5 percent. Trade among emerging markets was just as grim, and the developed countries all suffered big export declines.
Now comes the news of the economic dire straits that Russia and some Eastern European countries are in. Nations such as Austria, Germany and Italy are also deeply exposed financially, due to prior lending to many Eastern European nations that now appear unable to pay them back.
The Wall Street Journal recently wrote: "The economic distress and currency tumbles in Eastern Europe will 'trigger a write-down into the Western European banking system,' says Hans-Guenter Redeker, a currency strategist at BNP Paribas in London. 'The question is how much.' He says a conservative estimate would be about 20% of the total invested by such banks in the region. Moody's estimated the total at $1.3 trillion at the start of 2008" ("Banks Reel on Eastern Europe's Bad News," Feb. 18, 2009, online edition).
A looming trade war?
One should take note of what this can mean during 2009 if world economic production and trade continue to skid downward. Already, The Economist magazine is bringing up the possible consequences—a looming trade war.
The recent February 2009 U.S. stimulus program of $787 billion had some provisions of "buy American." While this makes much sense nationally, if all the nations begin to turn inward, it will derail international commerce and produce an even bigger downward spiral.
