Fellow Shortrunners,

     Making headline news this week, at least among economists, was a meeting of the finance ministers of the G-7, the world's economic powerhouse nations.  Their conclusion was a no-brainer - that the global economy is slowing, but they remained optimistic about future prospects.  Indeed, at least for the moment, it appears that there is weakness in the great majority of the world's economies.  I'm going to quickly run through some of the world's major economies just to give a quick briefing on the state of world growth to help put future developments into perspective.

     Japan, which basically stopped growing in 1990, has been grappling with severe economic stagnation, deflation, and corruption.  Europe's labor market rigidities have helped to slow gains from cuts in interest rates by the European Central Bank.  East Asia, which is heavily reliant on exports to the US and Japan (both ailing economies), is likely to suffer a slowdown as well.  Latin American nations, Argentina in particular, appear to be postponing credit crunches and downturns through goodwill in the financial markets, but their long-run debt burdens continue to grow. The majority of nations in the continent of Africa, although not necessarily economically powerful, but certainly very important, have witnessed extreme economic contractions over the past decade, so much so that living conditions have significantly deteriorated, erasing a great deal of previous progress.  Why? The simple answer is HIV and AIDS.  The disease has become rampant on the continent and remains a serious threat to their well-being.  Russia and its former satellite states don't appear to be doing extremely well either.  A recent study showed that life expectancy, which has long been used as a proxy for quality of life, has actually been declining there.  The poor economy, coupled with massive unemployment and corruption, has led to a significant rise in alcohol consumption.  Thus, one of the main causes of death there has become alcoholism.

     Things certainly don't look good in the short run, which is a drastic change from the prosperity that the great majority of the industrialized world was feeling in the late 1990s.  Improvement in the US economy, and in other major economies such as Japan, is no longer merely a domestic interest.  Increased integration, supply chain dependencies, trade, technology flow, and a range of other buzz words now suggest that for the world to remain economically healthy and growing, it will take turnarounds in many of the world's major economies.  Even if the US manages to escape its admittedly small slump in the short term, it will face other dangers if economies abroad don't pick up, including the dollar overhang (an outflow of US currency as the trade deficit increases) and falling exports.

     I've mentioned some pretty hefty problems and talked about the future, but I really haven't offered any solutions.  That's not to say there aren't any; there are many intriguing possibilities.  For example, economic solutions abroad probably require a great deal of structural reforms such as reforming the marketplace and fighting corruption in both the economy and the political system.  In the United States, investment activity and manufacturing growth would be significant signs of a rebound, but the only real thing that can help is patience.  If the markets can ride the storm of falling asset prices and increasing joblessness without panics or significant governmental intrusion, it's likely that the US can save itself and possibly help the world economy at the same time.

     That said, the role of steering the US economy falls upon the Federal Reserve and Alan Greenspan.  Despite recent criticism (and governmental involvement in the form of tax cuts), he looks to play a key role in the near future.  He's fared through the Asian financial crisis in 1997-1998, several Latin American debt crises, a brief recession at the turn of the 1990s, and several significant stock market plummets, and has still gained a great deal of respect.  It's apparent that for some critics, this praise was fleeting.  All bets are off, but if they weren't, my money would certainly still be on Greenspan.

If you would like to unsubscribe, simply reply with the word unsubscribe in the subject line. - DLH

Get Stock Quote: Enter Symbol(s) Symbol Lookup My Portfolio Our Privacy Vow

SCREEN SAVER
Do you like our intro movie?  Then download the shortrun.com screen saver now!

Get Headlines: Top News Sports Business Local Entertain Politics Comics Tech.

Issue #58

There are currently 427 subscribers to the short run weekly