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The Economist Corner – essential readings VIII

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World economy

Fear returns

Governments were the solution to the economic crisis. Now they are the problem. May 27th 2010 – From The Economist print edition.

IT’S not quite a Lehman moment, but financial markets are more anxious today than at any time since the global recovery took hold almost a year ago. The MSCI index of global stocks has fallen by over 15% since mid-April. Treasury yields have tumbled as investors have fled to the relative safety of American government bonds. The three-month inter-bank borrowing rate is at a ten-month high. Gone is the exuberance that greeted the return to growth (see article). Investors are on edge.

What lies behind these jitters? New nervousness about geopolitical risk, with tensions rising in the Korean peninsula, has not helped. But that comes on top of two wider worries.

One is about the underlying health of the world economy. Fears are growing that the global recovery will falter as Europe’s debt crisis spreads, China’s property bubble bursts and America’s stimulus-fuelled rebound peters out. The other concerns government policy. From America’s overhaul of financial regulation to Germany’s restrictions on short-selling, politicians are changing the rules in unpredictable ways. And the scale of sovereign debts has left governments with less room to counter any new downturn; indeed, many of them are being forced into austerity.

The danger is that these fears reinforce each other in a pernicious reversal of the dynamics of 2008-09. Then, co-ordinated government action on a grand scale stopped the global financial crisis from turning into a depression. Now, thanks to incompetence and impotence, governments may become the problem that will drag the world economy down. Read more in The Economist.

North Korea

Not waving. Perhaps drowning

North Korea, a nuclear-armed state, seems to be increasingly unstable. What can the big powers do about it? May 27th 2010 –  From The Economist print edition

IT IS typical of China’s entrepreneurial spirit that on its treacherous border with North Korea, you can hire army-style binoculars for ten yuan ($1.50) apiece to peer into one of the most ruthless police states on earth. It also says a lot about North Korea’s couldn’t-care-less attitude to the outside world that it makes no attempt to spruce up what voyeurs can see.

The country’s crushing poverty is on parade. The biggest block of flats opposite the Chinese border town of Tumen, where the rent-a-binoculars trade flourishes, has no lights on in the fading daylight and its inhabitants can be seen drawing water in buckets from a well. The North Korean farms that run down to the river are so dilapidated they make the regimented red-and blue-roofed housing blocks on the Chinese side look cosy by comparison. Farmers work close enough to the river to see you waving. They do not wave back.

It seems a bit surprising that there is no border fence running along the North Korean side of the border. But Chinese locals say that there are North Korean snipers dug into the hillside opposite with a shoot-to-kill policy towards escapers.

The contrast between the two supposedly compatible regimes appears bleakest as a visitor approaches the handsome bridge on China’s far-eastern border with North Korea. This was built in 1938 by Japan to support its colonisation of Manchuria and, on the Chinese side, a modern highway big enough for semi-articulated lorries sweeps down to a sprightly border post. But at noon on one recent day there were no trucks. Instead, a handful of Chinese merchants climbed out of taxis, some carrying heavy bundles on poles slung across their shoulders. Battling against freezing sleet, they continued on foot across the bridge to where a shabby border post awaited them with a welcoming message in blood-red letters: “Guard With Your Life The Spirit Of The Revolution That Has The Great Kim Jong Il As Its Leader”. Read more in The Economist.

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Written by Theophyle

May 28, 2010 at 10:10 am

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