Tampa Prep 2009-2010 Impact Defense File
Ext #3 and 4 – Safeguards Prevent
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- Ext 5 – U.S. Not Key to Global Econ
- America no longer drives the global economy – Asian economies will fill in
Ext #3 and 4 – Safeguards PreventSafeguards prevent a depressionAtlanta Journal Constitution, November 17th 2002 In place now are regulatory agencies, stock market safeguards and social safety nets that did not exist in the 1930s to cushion the Depression's impact. They exist now because of what happened in the '30s. No one says "it can't happen again," but most strategists believe another depression is improbable. "If you look at the world economy, at stock valuations and earnings, the chances we will continue to spiral down as in the 1930s are pretty slim," says SunTrust Robinson Humphrey analyst Gary Tapp. "The government isn't likely to make the major policy mistakes that we had then." Different Fed strategy This time, the Federal Reserve has gone to the opposite extreme from its policies during a comparable period of the 1930s. It has lowered interest rates a dozen times over two years and increased the money supply to stimulate the sluggish economy. In the '30s, the conventional wisdom held that government intervention was not necessary to right a weak economy. Ext #5 – U.S. Not Key to Global EconU.S. isn’t key to the global economy Kohn 2008 – PhD in economics from Michigan, Chairman of the Committee on the Global Financial System, Vice Chairman of the Fed(Donald, speech at the International Research Forum on Monetary Policy in Frankfurt, “Global Economic Integration and Decoupling”, http://www.federalreserve.gov/newsevents/speech/kohn20080626a.htm, WEA) What about our more recent experience? During the first three quarters of 2007, the U.S. economy was growing at a solid pace of about 3 percent at an annual rate. Over the next two quarters, U.S. growth slowed to an average of about 3/4 percent, while growth in other industrialized countries stayed much closer to trend rates at about 2-1/2 percent, and growth in the emerging market economies, at 6-1/2 percent, held up quite well. It is important to keep in mind, however, that we are still in the midst of the current episode. Financial markets remain stressed; housing markets in many countries are adjusting after a sharp run-up in prices; and the effects of the turmoil on economic activity in the United States and elsewhere are still working themselves out. Accordingly, it is too early to tell how correlated U.S. and foreign activity will have been in this period. One piece of research on business cycles in G-7 economies, done by staff at the Federal Reserve Board, shows how difficult it is to establish with any confidence that business cycles have become more synchronized in recent decades, despite trade and financial integration having clearly increased.11 Other research, which shows a modest convergence of business cycles across a larger group of industrial economies, fails to find an increase in the correlation of industrial country cycles with emerging market economy cycles.12 The other dimension of recent linkages is financial, where the evidence is clearer. First, few question the importance of financial linkages between the United States and other industrial economies, which is an area where decoupling clearly has not occurred during the recent episode. While industrial country markets for stocks and bonds have displayed a high degree of co-movement for years, in the current episode we are seeing notable new correlations across money markets, with disruptions in funding markets showing up in the euro area, Switzerland, the United Kingdom, and Canada, as well as in the United States. Some of the effects of the U.S. subprime mortgage crisis on financial markets in these countries occurred as a result of direct or indirect balance sheet exposures by their financial institutions to U.S. securities. Other adverse consequences for foreign financial institutions occurred when entire markets, such as that for asset-backed commercial paper, became impaired. In contrast, some have pointed to the apparent resilience of financial conditions in emerging market economies during the past year as an example of decoupling. In particular, the disruptions in the advanced economies have had only limited impacts on money markets in emerging market economies, and other financial market indicators in emerging market economies appear to have held up relatively well. For example, the spreads of emerging market sovereign bond yields over U.S. Treasury securities have risen since June of last year, but by only about 1/3 of the rise in the average U.S. corporate high-yield spread over U.S. Treasury securities. That rise is roughly half the average in several previous episodes of pressure on U.S. corporate bond prices over the period from 1998 to 2005; these episodes include, among others, the Russian and Long-Term Capital Management crisis of 1998, the 2002 surge in corporate defaults and bankruptcies, and growing concerns about U.S. auto companies in 2005. In addition, while stock prices in some emerging market countries have not performed well, a broad aggregate for these markets shows stock prices up over the past year, while the advanced economy indexes have exhibited double-digit declines, on average.13 Certainly, stock prices in the emerging market economies moved downward during acute periods of U.S. financial stress over the past year. However, these movements were similar in scale to those seen in industrial country equity markets, and during the intervening periods when global pressures were less intense, the prices of emerging market equities rebounded more substantially than those of industrial countries. America no longer drives the global economy – Asian economies will fill inThe Economist, February 4, 2006 “Testing all engines,” p. LexisAmerican consumers have been the main engine not just of their own economy but of the whole world’s. If that engine fails, will the global economy nose-dive? A few years ago, the answer would probably have been yes. But the global economy may now be less vulnerable. At the World Economic Forum in Davos last week, Jim O’Neill, the chief economist at Goldman Sachs, argued convincingly that a slowdown in America need not lead to a significant global loss of power. Start with Japan, where industrial output jumped by an annual rate of 11% in the fourth quarter. Goldman Sachs has raised its GDP growth forecast for that quarter (the official number is due on February 17th) to an annualised 4.2%. That would push year-on-year growth to 3.9%, well ahead of America’s 3.1%. The bank predicts average GDP growth in Japan this year of 2.7%. It thinks strong demand within Asia will partly offset an American slowdown. U.S. Economy not key to the global economy The International Herald Tribune, March 6, 2002, p. 11 Weinberg contends that U.S. consumption of the world's products no longer has the power to sway global economies the way it did in the past. "The decline in U.S. imports from their peak to their apparent trough in this business cycle will add up to only a few tenths of a percent of world GDP," Weinberg argues. "By reversing the logic, the case can be made that the U.S. economic recovery -- the one that people in the rest of the world now perceive as having begun -- will not boost the economies in Europe and Asia by more than the same few tenths of a percent that the slowdown subtracted." Weinberg believes that once the current stock market rally subsides, sober minds will turn again to the individual factors underpinning the economies around the world. In Europe, he sees an eventual recognition that the slowdown was caused by a drop in real incomes over the past two years and that the problem will need its own solution, regardless of U.S. growth. In Japan, some insist that the stock- market spree was inspired more by investors covering positions after the government changed the rules on short-selling than by genuine expectations that the United States will dig Japan out of its rut. As Weinberg puts it: "Over the last 12 years, Japan's economy has managed to contract almost continuously as the United States swung from recession to prosperity." Directory: files -> documents documents -> North Mankato Taylor Library documents -> In the Red and Brown Water documents -> - documents -> I. Disaster Summary Sheet II. 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