In India, U.S. gets blame for economy

“Your country’s problems are affecting us,” complained my cousin, who is a senior executive with a vehicle component manufacturing factory in Chennai. He added that their factories are now operating at 10 percent to 15 percent capacity, and that he was not sure if they will be in business for long if demand does not pick up.

The global economic slowdown is revealing itself in India in many ways. News reports here are not that different from those in America. For instance, Honda not only has postponed an expansion of its manufacturing operations in India, but also is trimming production in its existing plant.

I met a businessman who owns a factory where about 60 are employed. A little more than a year ago, he made additional investments in his factory, importing newer machines from Japan. After all, it was a time when talk was about economic growth and not about a meltdown.

Now, this businessman is worried about the high levels of uncertainty and fear: “For the first time in my life, I don’t know what to do.”

Airline traffic is down significantly. Passengers frustrated with airline companies engaging in last-minute cancellations under the umbrella of “technical difficulties” suspect that perhaps the real reason is that they don’t want to operate money-losing flights with very few passengers. The financial liquidity crisis has left everyone scrambling for hard cash, which has led banks and investment firms to pay high interest rates of more than 11 percent for deposits for two or more years. Naturally, interest rates on loans have shot up as well.

Senior-year students in engineering and computer science who were looking forward to flashy employment contracts only a few months ago are now wondering whether they will be able to find any job.

The state of the economy is reflected even in “arranged marriages,” which are quite the norm in this part of India. (No, mine was not arranged!) Apparently, parents of girls are shying away from potential grooms who are in the information technology field because of concerns over economic security.

In all these situations, there seems to be an underlying frustration — sometimes explicitly articulated in conversations and news reports — that America has let the world down. In her column, spiced with humor and sarcasm, the editor of a leading weekly financial magazine notes that the pizza parlors her daughter loves are quite empty these days. She goes on to explain how it is connected to, you guessed it, the mortgage mess in America.

Against such a background, it did not help that television news stations seemed to have on endless loop footage of an Iraqi journalist hurling his shoes at President Bush. While the journalist who flung his shoes was making a statement strictly about U.S. involvement in Iraq, here, those same shoes flying toward Bush also are seen as a statement about everything that has gone wrong under U.S. leadership, both on Pennsylvania Avenue and on Wall Street.

I am now worried way more than before that it might take the rest of the world quite a few years to once again have trust and confidence in anything American, given how much America is viewed as the source of this financial pandemic.

There is not much of a hope that the new president would be able to turn things around any time soon. One person compared it to the typical joke about the common cold: it lasts a week if untreated, and for a full seven days if treated with medicines. I should note that this pessimism about the capability of an American president to overcome an economic crisis of such a magnitude is separate from the overwhelming support for Barack Obama himself.

One of the toughest questions about the economic meltdown — and a very simple one at the same time — came from my mother: “If this problem is so severe, then how come nobody saw it coming?” I simply shrugged my shoulders because I had no answer. So, I chose to focus on something easier — the delicious breakfast she had cooked.

Published in the Register Guard Dec 16, 2008

Nouriel Roubini says we are not done yet :-(

The NY Times magazine has a lengthy piece on Nouriel Roubini and his bearish forecasts. Despite Roubini's continued pessimism, I am not going to change my mind that the worst of the crisis here in America is over (my earlier post). The essay also ends with some ideas that are similar to the sentiments I expressed in an oped in Planetizen: The United States of Gordon Gekkos.

The concluding paragraphs in the NY Times article:
“Reckless people have deluded themselves that this was a subprime crisis,” he told me. “But we have problems with credit-card debt, student-loan debt, auto loans, commercial real estate loans, home-equity loans, corporate debt and loans that financed leveraged buyouts.” All of these forms of debt, he argues, suffer from some or all of the same traits that first surfaced in the housing market: shoddy underwriting, securitization, negligence on the part of the credit-rating agencies and lax government oversight. “We have a subprime financial system,” he said, “not a subprime mortgage market.”

Roubini argues that most of the losses from this bad debt have yet to be written off, and the toll from bad commercial real estate loans alone may help send hundreds of local banks into the arms of the Federal Deposit Insurance Corporation. “A good third of the regional banks won’t make it,” he predicted. In turn, these bailouts will add hundreds of billions of dollars to an already gargantuan federal debt, and someone, somewhere, is going to have to finance that debt, along with all the other debt accumulated by consumers and corporations. “Our biggest financiers are China, Russia and the gulf states,” Roubini noted. “These are rivals, not allies.”

The United States, Roubini went on, will likely muddle through the crisis but will emerge from it a different nation, with a different place in the world. “Once you run current-account deficits, you depend on the kindness of strangers,” he said, pausing to let out a resigned sigh. “This might be the beginning of the end of the American empire.”