Crisis Deepens

Two signs that the crisis is deepening worldwide. From Russia we see that industrial production fell in January at an annual rate of 16%. Russia is of course suffering from the collapse of the world economy, oil prices declining, and the outflow of capital from its thin financial system. Moreover, since its prosperity had bubble-like features, it is not surprising that its collapse looks so severe.

Meanwhile, Japan's GDP fell by 12.7% in the last quarter, the worst fall since the first oil shock in 1974. See the pictures here. Japan is suffering from the collapse in demand for its exports, and the unwinding of the carry trade which had kept its currency undervalued. Edward Hugh argues that the aging of Japan's population makes them especially vulnerable to declines in export demand since consumption growth is restrained.

And I was already depressed by the "Buy America" features of the stimulus bill. We live in an interdependent world, and such policies are only going to make things worse.