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Wednesday, January 14, 2009

What will happen in 2009 on the various news fronts? For example, whither the economy—both national and global? What about international events? Where will the news come from? Where will the hot spots be? What will be the major national stories? I have shaken the bones and cast them upon the sands. Here’s what they say.

By Ronald E. Yates

The World

Without a doubt the big story in 2009 will continue to be the global economy. As the U.S. economy goes, so goes the world. There is a wonderful saying in Mexico: “Mi Pobre Mexico! Tan lejos de Dios, y tan cerca de los Estados Unidos!” Translation: Poor Mexico, so far from God, so close to the United States.”

Much of the world will feel the same when it comes to the U.S. in 2009. Geographic distance will not protect the economies of other nations. The global economy is too intrinsically linked to American financial institutions, policies and markets.

With the global economy contracting, the river of capital that provided life for so many developing nations will dry up significantly thereby exacerbating already fragile and damaged political systems. That in turn will lead to more unrest in regions already suffering from violence, instability and economic depression.

Sorry to be so gloomy, but this is reality as 2009 begins. Perhaps—but don’t count on it—things will be a bit better by the end of 2009.

Those expecting a miracle from newly elected President Barak Obama will be sorely disappointed. When it comes to the economy, he is faced with an almost impossible task. It’s a bit like trying to turn an aircraft carrier around in the Panama canal. It is possible, but in order to do you will have to destroy a large section of the canal.

Because so much of the U.S. economy has already disintegrated, much of the destruction has already happened. But Obama must still get the ship turned around. And while he is working on that, he will be faced with a litany of global challenges, not the least of which will be America’s military adventures in Afghanistan.

I covered Afghanistan back in the late 1980s when I was the Chicago Tribune’s Chief Asia Correspondent. I can tell you this is a place that repels invaders like a duck repels water. We may not view ourselves as invaders, but believe me, the Afghanis do—even those who actually like us. True, they consider us “benign” invaders as opposed to the Russians who were anything but benign. But we are still the hated foreign presence. Why do you think the Taliban—who were almost as brutal to their people as the Khmer Rouge were in Cambodia—have actually grown in power and population?

Ultimately, the Afghani people are always motivated to drive away the foreign invader—benign or not. It’s been that way since Alexander the Great sent his army into the Hindu Kush mountains and through the 33-mile Khyber Pass almost 2,500 years ago.

Nevertheless, President Obama has already said he plans to at least double the number of American troops currently on the ground in Afghanistan. As a result, I predict that Afghanistan will be to Obama what Iraq was to President Bush—a perilous liability.

What else can we expect in 2009?

  • The conflict between Israel and Hamas will not go away and the Gaza Strip will continue to be a blood-soaked reminder that Jews and Muslims simply cannot co-exist under current political arrangements. As a result the existing rift between the United States and the Muslim world will continue to widen.
  • Iraq will continue to suck billions of dollars from the U.S. treasury while the U.S. military will sink deeper into the shifting sands of Iraq’s fractured political center. Iran will continue to exert some kind of influence over the Shia regime in Baghdad and over the physical region of eastern Iraq.
  • Pakistan and India will continue their dangerous nuclear faceoff over the Kashmir where three major wars/conflicts have been waged since partition in 1947. The recent tragedy in Mumbai, most likely carried out by Kashmiri separatists, was an indication of just how tense and unstable this region is.
  • Russia will remain under the iron grip of Vladimir Putin and as a result, its relationship with Europe and the U.S. will likely grow even more irritable. NATO’s idea of bringing the Ukraine and Georgia into the alliance will likely lose some traction, but the damage—at least in the eyes of Moscow, has been done. Look for Russia to try to pull both politically unstable countries back under its influence.
  • Iran will be high on the radar screen as it continues push ahead with its nuclear program—and the ability to make weapons. This will continue to be a concern to Israel and it is not unlikely that Israel might engage Iran in some kind of military operation. That scenario could be disastrous for the U.S. because it will then likely be pulled into the conflict creating a situation where the nation has combat troops in three Middle Eastern nations.
  • The world will not be able to ignore the crises in Africa—specifically Dafur, Somalia and Zimbabwe where hundreds of thousands are either starving or being killed in some of the worst genocide the world has ever seen. Some expect British and possibly U.S. military intervention in one or all of these nations.
  • China has ridden the global economic boom into new and uncharted territory with annual double-digit growth. But the express train that has been the Chinese economy has already begun to slow down considerably as China feels the impact of global recession. The engine if the Chinese economy is its enormous growth in exports. With the world no longer buying what China makes, this will create more and more pressure on the Chinese government to keep the domestic economy humming. When it becomes obvious that it can not do that—despite the many infrastructure projects it has on tap—the Chinese people will be restive if not downright riotous.


Not a pretty picture to be sure. And I am not a pessimist by nature. In fact, I am normally wildly optimistic. But of course, as someone once said: “An optimist is someone who thinks the future is uncertain.”



Tuesday, January 6, 2009

What’s Ahead in 2009?

By Ronald E. Yates

What will happen in 2009 on the various news fronts? For example, whither the economy—both national and global? What about international events? Where will the news come from? Where will the hot spots be? What will be the major national stories? I have shaken the bones and cast them upon the sands. Here’s what they say.


The Economy

In the mid 1980s and early 1990s when I was covering Japan for the Chicago Tribune, much of the world had written off the United States as the planet’s leading economic power.

Japan had assumed that position, went the conventional wisdom. Its automobile, electronics, computer and high tech industries had left Uncle Sam in the dust. It’s financial and stock markets were more robust, it’s people more industrious and productive, it’s government more in tune with business—hence, the appellation: Japan, Inc.

“America should stop making things all together,” a Japanese businessman told me one day. “Let Japan make all America needs and the U.S. should provide Japan with the resources it needs and concentrate on being a service economy. You can’t make things as well as we can.”

At first glance, he seemed to be correct. American companies such as machine tool manufacturers, steel producers, ship builders, consumer electronics, automobile manufacturers, etc. were simply not able to compete with their Japanese competitors. Indeed, America’s manufacturing base was woefully inept, poorly run and out of touch.

Those were pretty dismal times.

Then, something happened. American industries began to turn themselves around. They did it by improving the quality of their products. They listened to such quality and management gurus as W. Edwards Deming, Joseph Juran and Peter Drucker and in a few years American companies were competitive with their Japanese counterparts—at least up to a point.

Japanese automakers continued to produce better vehicles than Detroit—both in Japan and here on American soil. But American companies were mostly competitive again—and that’s the way things stayed until the past couple of years.

Then, beginning in 2007 and continuing into 2008 came one financial crisis after another—the subprime loan crisis, the credit crisis, bank failures, the real estate market collapse, bailouts, etc. While we were intently focused on making things better, we allowed financial hucksters to enrich themselves at the nation’s expense. There was too little oversight and governance.

Now, with the U.S. economy in the worst shape it has been since the Great Depression, many American businesses are back where they were in the late 1980s. Only this time, they are not alone.

Japanese companies are right there with them—and so are German, British, French, Italian and Chinese companies. In fact, the once mighty U.S. economy has pulled the rest of the world into the same economic abyss it has fallen into.
So what’s ahead for 2009? Don’t look for a miraculous turn-around simply because somebody named Obama has taken possession of the White House.

There isn’t a messiah on the planet—human or otherwise—who can turn this mess around overnight.

In early December the
National Bureau of Economic Research officially declared the U.S. to be in a recession—something that is likely to be with us for at least another year, if not longer.

Unemployment is running at close to 7 percent and is likely to hit 9 percent in 2009. The housing market will take at least two years to begin its upward tick. (Hint: watch California closely. It is usually a bell weather (good or bad) for the national housing market).

The liquidity crisis is far from fixed—even by all the bailouts. Banks will slowly begin to loosen sealed purse strings but not at the rate we would all like. After all, once burned twice cautious.

By the end of 2008 some 91 public corporations had filed for bankruptcy and Lehman Brothers became the largest bankruptcy in U.S. history. To make matters worse, venture capital funding has dried up and that will in turn lead to slower job creation and higher unemployment.

It is estimated that the new loans, purchases, and liabilities of the Federal Reserve, the US Treasury, and FDIC that were brought on by the financial crisis now total more than $5 trillion. That includes $1 trillion in loans by the Fed to broker-dealers through the emergency discount window; $1.8 trillion in loans by the Fed through the Term Auction Facility; $700 billion to be raised by the Treasury for the Troubled Assets Relief Program; $200 billion insurance for the GSEs by the Treasury; and $1.5 trillion insurance for unsecured bank debt by the FDIC.

Not a rosy picture for 2009. So what to do? My predictions:

· Unemployment will hit 9%--if not double-digits be the end of 2009 and nervous Americans will start saving--possibly as much as 10 per cent of their incomes. (Increased saving is often a reaction to tough economic times).

· The housing market will continue to tank in 2009 and into 2010—simply because it was a bubble market to begin with and because there is so much inventory on the books. New housing starts will be flat and prices will drop another 25% nationwide.

· Obama will implement new fiscal policies and (much to the chagrin of many fellow Democrats) will provide tax cuts—the quickest way to jump start any comatose economy.

· The administration will look to stimulate the economy through new public works projects—inflation be damned. 2009 will not be a time to worry about inflation because the government is pumping billions and billions of dollars into new public works projects such as improved interstates, bridges, rail and air networks, etc. In spite of all those dollars the nation’s $14 trillion bubble economy will continue to deflate.

· Spending—especially on large ticket items (houses, automobiles, major appliances, etc.) will continue to decline and enter negative territory, thereby further exacerbating the economic downturn. For example, automakers will not be able to find money to build cars and consumers won’t be able to borrow money to buy cars.

Proof of that final bullet came this week in the form of bleak sales figures from auto manufacturers in the US. According to General Motor's, its December sales fell 31 percent to a 49-year low—fueling fears that the company may be on the verge of total collapse. Other automakers are no better off. Chrysler's sales last month fell a shocking 53 percent and Ford Motor Co.'s sales were down 32 percent.

A retrenchment in the critical US market is also creating financial pain for foreign automakers.

According to a recent report from Forex Capital Markets, Toyota Motor's deliveries fell 37 percent while Honda Motor sales were curbed 35 percent. If figures like these continue, the US government's bailout efforts may fall well short of the basic need to keep these firms solvent. And, should this sector fail, it could easily send the world's largest economy to a far deeper recession than policy officials and Americans are ready to consider.

So where’s the good news in all of this? Well, there could be a lot of great buying opportunities in undervalued stocks in 2009. Houses that were 60 and 70 higher in value just two or three years ago, will be bargains.

And of course with the economy at the bottom of the trough, there is really only one way to go, and that is up.

(Next: What will be the major international issues in 2009?)

Monday, January 5, 2009

Note To Loyal ForeignCorrespondent Followers

I promised in this blog to write about areas of international interest in general and the work of foreign correspondents in particular. If you have followed the blog thus far you have been treated to some pieces I wrote while a foreign correspondent for the Chicago Tribune. While these may be interesting stories they were meant to provide some content while I geared up to begin writing in earnest about current issues, international affairs and the people who cover them.

In the next few days I will finally follow through on the stated purpose of my blog: ”This is a blog for those interested in international news and affairs. It is produced by a former foreign correspondent, who is now a dean and professor teaching journalism.”

So thank you for your patience and stay tuned!

Ron Yates