It’s hard to get a handle on exactly what the collapse of Lehman Bros along with the takeover of Merrill & Lynch means to the world economy, along with the rescue package for Fannie Mae and Freddy Mac. Obviously to a lot of ordinary people with investment accounts, it means the loss of what they had hoped would be financial security for the long haul. To the stock market, it means the biggest daily drop in value since 9/11. The USA is obviously going to feel a lot of financial pain over the next few years as a result. But does it mean a global recession (or worse, a depression) is looming, as in the saying “when America sneezes, the world catches a cold”?
Lots of politicians here in Australia, along with stock market advisors, are telling us not to panic (without fully acknowledging their own vested interest in keeping the market as stable as possible). The story is that unlike the last global depression triggered by collapsing American banks, today the world economy has moved on from the hegemony of American markets, and that the growing dominance of the BRIC economies (Brazil, Russia, India and China) will buffer the rest of the world from the collapse in US financial confidence. It’s a nice story, and one that I want to be true for the sake of me and mine, but how reliable is it?
I’ll link to articles/posts covering the financial crisis as I find them. Anyone else who has a better finger on the economic pulse, please share your insights in comments. About the only positive I can see from this is that an actual economic crisis will give the corporate media something to obsess about other than Sarah Palin (and that the Bushenomic contribution to the current crisis should stick to McCain like glue, getting the election discussion back to the basic issues again).