America's economy has caught a cold; the rest of the world is getting pneumonia-
It wasn't the world that got flat, contrary to New York Times pundit Thomas Friedman, but the emerging markets that got flattened.
Faddish conventional wisdom over the past few years held that American influence was fading as technology radiated to the far reaches of the world. When America's economy went into a ditch, though, the supposed economic superpowers of the future went flying, like children on skates holding onto the back of truck.
The American consumer, it turns out, played Atlas to the global economy, taking the exports of Asia, so that Asia could buy the commodities of Russia, Latin America and Africa. Remove the American consumer, and Asian exports crash, taking commodity prices along with them.
It's not just Asia- how about the Middle East?
Iran's theocrats, as I reported in June (Worst of times for Iran, Asia Times Online, June 24, 2008), managed to steal $35 billion from oil revenues. Luxury real estate prices rose to Parisian levels while poor Iranians lacked necessities. With the collapse of the oil price, subsidies for essential items will disappear and the regime will face economic collapse. Before it does so, I believe Iran will undertake an adventure to assert its hegemony in the region, probably at the expense of Iraq.
The low level of violence in Iraq during the past several months owes something to the skill of American arms in the so-called "surge", but it owes even more to a tacit agreement between Iran and the George W Bush administration: in return for leashing its irregular forces in Iraq, Iran would get a free hand with Hezbollah in Lebanon, and American forbearance with respect to its nuclear weapons program.
The Bush administration's motive to bribe Iran and avoid political damage in Iraq disappears on US presidential election day on November 4. Whether the US administration (or for that matter Israel) has the nerve to launch an air strike on Iran's nuclear facilities is anyone's guess (and everyone is guessing that the answer is negative). Nonetheless, Iran has created the strongest Shi'ite presence since the original battles that determined the succession to the Prophet Mohammed. It can watch the Shi'ite cause fade away with the price of oil, or it can attempt to use its capabilities before they are lost for another thousand years. Nothing at all that we know of the Iranians indicates that they would go quietly into another long night of Sunni oppression.
Our hemisphere doesn't escape either-
Argentina is now effectively broke, and the government of Cristina Kirchner has expropriated the country's private pension plans to obtain cash. Its foreign credit has collapsed completely.
Brazil's central bank still has formidable reserves, but the fragile political compromise that has kept a nominally leftist government in power cannot hold under present circumstances. Brazil's enormous underclass is ruled by drug gangs that are better armed than the police. A Brazilian congressional committee was told in February 2006 that corrupt elements in the Argentine army were selling heavy weapons to the Brazilian drug mobs, including anti-tank missiles.
Mexico in some ways is the most worrying place in the Western hemisphere. A low-level civil war between the drug cartels and the federal government has been fought over the past two years, and the cartels are winning. Senior Mexican officials charged with suppression of the cartels have been moving their families quietly out of the country. The collapse of the oil price and the likely collapse of remittances from Mexicans in the United States threaten the stability of the financial system, and the Mexican peso has lost nearly 40% of its value during the past several weeks. With the collapse of the American construction industry, a major source of employment for illegal Mexican immigrants to the US, the economic safety valve has broken, and the cartels have in inexhaustible supply of young men willing to risk their lives for a living.
All in all quite worrying and it could go from bad to worse with lightning speed. And if The One is elected and carries out the protectionist policies he has espoused we could be living in an awfully grim world. Think about that next Tuesday.
via Rantburg