The malaise is spreading

The United States and the European community have been exporting their financial problems around the world. The Reserve Bank of India, for example, has cut interest rates, which had steadily from 4.5% to 8.5% in the last two years but declined to make more ambitious cuts because of the theat of inflation.

Turkey is better off with GDP growth of 8.5% in 2011, but it too has worries. The Economist reported “that much of the foreign capital that finances Turkey’s current-account deficit is of the flighty sort (flows into banks or purchases of stocks or bonds), which can leave again quickly. Turkey wobbled at the end of last year as worries about the euro zone and its banks intensified.” Inflation, which had dropped during the recession of 2009, has heated back up.

The Economist’s Buttonwood columnist wrote recently: “The developed world has a growth problem. Of 34 advance economies, 28 had lower GDP per head in 2011 than they did in 2007. Forecasts for growth in the current year are aneamic.” As the Howard Beale character said in the movie Network, “I don’t have to tell you things are bad.”

The International Monetary Fund recently raised $430 billion to deal with things that are bad. The Associated Press reported: “An infusion of hundreds of billions of dollars will give the International Monetary Fund a badly needed boost to tackle Europe’s prolonged debt crisis. But global finance officials sent a strong message Saturday that struggling governments must speed reforms or risk spooking jittery markets and raising the economic danger. The lending agency said in a statement after its weekend meetings that financially-strapped European countries must put in place bold changes to resolve their debt problems.”

Germany’s representative on the European Central Bank has called for more funding for the International Monetary Fund – but not from Europe. He argued: ”Now you would expect other IMF shareholders to come forward and make their contributions to increasing IMF resources,” Jorg Asmussen told the Wall Street Journal. In other words, Germany thinks it has paid its dues to the crisis control club.

Europeans in particular are not a bunch of happy campers – especially as the dynamic duo of French President Nicolas Sarkozy and German Chancellor Angela Merkel appears on the verge of a breakup with the predicted elected of Socialist François Hollande as president of France. Merkel has indicated that a deal with France is a deal with France – no matter what a President Hollande may hope to renegotiate.

Noted the Economist’s Charlemagne columnist recently of European attitudes toward the governing European Commission, “To France the commission is too fond of free markets; to Britain it is too integrationist; to Germany it is too soft on budget miscreants….More recently power has shifted to governments, which are responsible for putting up funds to bail out struggling euro members.”

Spain in particular has deep structural problems. The Economist has observed that “much of Spain’s huge private debt is owed indirectly to foreigners via its banks. Spain’s net investment deficit – the sums owed to foreigners by firms, householders and the government, less the foreign assets they own, comes to 93% of GDP, the cumulation of a longer series of current-account deficits.”

Britain isn’t looking happily across the English Channel. The Economist’s Bagehot columnist noted that Britain these days is looking beyond Europe for its financial future: “Within the treasury and Downing Street, there is talk of those glass towers in Canary Wharf and the City of London becoming a financial capital for the BRICS nations (Brazil, Russia, Indian, China and South Africa).”

The rest of the world looks on with concern. The Economist’s Banyan columnist has written: “Watching Europe flirt with financial catastrophe has not erased memories in Asia of the region’s own meltdown 15 years ago. Indeed, it has served as a reminder of the dangers lurking out there. So the effort to build regional financial defences carries on, albeit at the snail’s pace typical of Asian multilateral diplomacy.”

The bankers meet and make decisions. Ordinary people around the world worry about how to pay for what their family needs to eat.

As Lewis E. Lehrman wrote in Money and the Coming World Order more than three decades ago, “financial disorder in one large country spreads rapidly through the international system as a whole. Indeed, the contemporary social disease of inflation is communicated by means of an efficient, if obscure, economic mechanism which ineluctably establishes and maintains the links between national price levels throughout the global economy.”

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