What A Difference A Disaster Makes

Just some random observations on our current financial mess, starting with today’s lies from Dana Perino (here)…

Q Do you think the U.S. economy is in a recession?

MS. PERINO: You know I don't think that we know. Obviously, this next quarter is probably not going to be a very good one. And we know that. But we know that the last quarter we had about a 2-percent* growth, which is not too bad. But obviously, right now we are in a very difficult situation. But we're working every day to make sure that we effectively put this plan to use so that we can pull up out of it and return to job growth.

So I couldn't say. The classic definition of a recession is not something that we could determine now, or forecast. It's something that people look back on.

Uh huh; this story from last January tells us…

The feared recession in the US economy has already arrived, according to a report from Merrill Lynch.

It said that Friday's employment report, which sent shares tumbling worldwide, confirmed that the US is in the first month of a recession.

Its view is controversial, with banks such as Lehman Brothers disagreeing.

Chalk that up to another inglorious moment for Lehman, including this one; Merrill got sucked in also, but at least they seemed to have a better understanding of what was going on.

And this story in the New York Times tells us…

“The globalization of the crisis means we need a globalization of responses,” said C. Fred Bergsten, the director of the Peterson Institute for International Economics. “But most of the responses will be national. For all the institutions we have, we don’t have the right institutions to do this.”

That is particularly true in Europe, which has an effective central bank but lacks a unified legislature or treasury to coordinate or finance a rescue of the banking system. So far, economists say, Europe’s response to the crisis in its banks has been mostly marked by denial and dissension.

From London to Berlin, governments are clinging to a piecemeal approach. The British and the Germans have resisted a broader solution, because they fear they will end up rescuing their neighbors.

A weekend meeting of European leaders in Paris, called by President Nicolas Sarkozy, ended with a pledge that Europe would not countenance a bank failure like that of Lehman Brothers, but little else.

Part of the problem, experts said, is the nature of this crisis: bailouts of banks are costly and unpopular with taxpayers — even more so, as in Europe, where burden sharing is a perennial sore point.

“Taxpayers won’t agree to bail out the banking system of other countries,” said Thomas Mayer, the chief European economist at Deutsche Bank in London. “Not even in Europe, where you have a neutral framework, could you get people to cooperate on a joint effort.”

As the problems in Europe have worsened, the crisis has taken on an “every country for itself” quality. When Ireland placed a guarantee on all bank deposits and debt last week, it angered neighbors, who feared capital would flee their banks to the safer haven of Dublin. Now, Germany, Sweden, Denmark and Austria have all pledged to guarantee deposits.

I think this is noteworthy because of this New York Times Magazine story from last January here that I referred to in this post, in which writer Parag Khanna envisioned the growth of Europe’s “influence” in a new world order of sorts (hardly sounds like everyone is "on the same page" above, though)...

Europe spends its money and political capital on locking peripheral countries into its orbit. Many poor regions of the world have realized that they want the European dream, not the American dream.

….

Many of the foreign students we shunned after 9/11 are now in London and Berlin: twice as many Chinese study in Europe as in the U.S. We didn’t educate them, so we have no claims on their brains or loyalties as we have in decades past. More broadly, America controls legacy institutions few seem to want — like the International Monetary Fund — while Europe excels at building new and sophisticated ones modeled on itself.

I will cede the notion that Europe is rising at our expense because they seek educational and research partnerships with foreign students to perhaps a greater degree than we do right now, but all it takes is a global calamity of this sort to break down the new alliances in favor of the time-honored old ones by national borders, ethnicity and spheres of influence once more (not an original observation I know, but I only mean to point out that we don’t know what other metaphorical shoe is going to drop as a result of this, so we should just be prepared for more unfortunate developments).

Bottom line? My concern is a resurgent Asia, not Europe; I don’t have Khanna’s experience in these matters, but I’ll stand or fall on that analysis (and I hasten to add that I don’t begrudge them their right to economic growth as long as they play fair in the process).