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 Coalminers' canaries

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PostSubject: Coalminers' canaries   Sun Oct 26, 2008 7:25 pm

Ibis made a very interesting comment on this thread about how Waterford Crystal is like the "coalminer's canary" of the Irish economy because a rough patch in our general economy is usually shortly preceded by a crisis in that company. What about other canaries though, and what about other countries? I don't know much about economics (which, I gather, is something I have in common with most economists) but what shocked me about the recent financial crisis in the US was the fact that Lehmans had fallen, after hearing that it had been around since 1850 and survived all hitherto economic anf financial crises including the great depression. The user seabhcan on P.ie had a very humorous quote from the Lehmans website about how its growth had parallelled the growth of the US economy. I am of the opinion that Lehmans, and a number of other institutions which have recently fallen or had to be bailed out, had in the past been big enough and secure enough to have earned the title of coalminer rather than canary.

Since the current crisis and the bailouts that have been taking place around the world have generated a lot of discourse on the nature and viability of the free market, and even more moderate centrist economists are questioning the desirability of minimal financial regulation, could it be that the rules of the game are changing, and if so, what does this mean for the canaries of the world?
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PostSubject: Re: Coalminers' canaries   Sun Oct 26, 2008 8:31 pm

It was disturbing as well to see a 40 year old agricultural business like Cappoquin Chickens collapse in a year in which food prices are projected to have risen 20%. They were bought out in the end and some of the staff re-employed in the minimum wage.

I'm sitting here reading Joseph Stiglitz's Chapter on the East Asia Crisis of the late 1990s, in "Globalism and Its Discontents", and the hames that he says the IMF made of intervening in it. Writing in 2002 he put the crisis down to deregulation and also to the inflow of foreign capital.

The South East Asian development boom of the 1990s had taken place in a regulated environment with a lot of government intervention in industry as well as finance. With success came inflow of foreign capital. Both the IMF and the US Treasury pushed liberalisation. "Before liberalisation, Thailand had severe limitations on the extent to which banks could lend for speculative real estate. It had imposed these limits because it was a poor country that wanted to grow, and it believed that investing the country's scarce capital in manufacturing would both create jobs and enhance growth. It also new that throughout the world, speculative real estate lending is a major source of economic instability. This type of lending gives rise to bubbles (the soaring of prices as investors clamor to reap the gain from the seeming boom in the sector); these bubbles always burst; and when they do, the economy crashes." Ten years later there are still empty office buildings in Thailand that have never been occupied.

South East Asia's boom was home grown, and was exploded by inflationary inflow of US investment. He describes an alliance of Wall Street and the US Treasury in Clinton's day that overrode the interests of South East Asia in favour of Wall Street. Pity the ESRI didn't read this when it came out.

He says that economic crises have got both deeper and more frequent.


GDP per Capita

The sheer volume of finance that can be raised (leverage up to 100-1) on the back of the collateral value of this expanded GDP must be nuclear. From what I am reading, this crash isn't like any previous one.
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