Grading on a Curve

I noted before that this is an amazing crisis. While we may have caused it, the rest of the world feels it much more. Floyd Norris notes, that if we have to grade on a curve, the US probably gets an A for its economic performance in the last year. For example,

In the fourth quarter of last year, the American economy shrank at a 3.8 percent annual rate, the worst such performance in a quarter-century. They are envious in Japan, where this week the comparable figure came in at negative 12.7 percent — three times as bad.

Industrial production in the United States is falling at the fastest rate in three decades. But the 10 percent year-over-year plunge reported this week for January looks good in comparison to the declines in countries like Germany, off almost 13 percent in its most recently reported month, and South Korea, down about 21 percent.

Another way to look at it is to ask what would be the current value of $100 invested in the stock market on Dec 31, 2007 in various countries? Again, we do pretty well. While it would only be worth $53 today, consider that:

Among major markets, only Japan, at $59, has done better. In Britain, France, Spain and Germany, the figure would be around $45. In Italy, it would be $37. About a quarter of the money would still be there in countries like Ireland, Greece and Poland.

Remember the BRIC countries, where growth possibilities seemed limitless not long ago? The stars there are Brazil and China, where about $46 or $47 remains. In India, the figure is $35, and in Russia it is $23. At least they have all done a lot better than Iceland, where you would have just $3 left of your hypothetical $100.

In international finance we often talk of sudden stops. When capital inflows cease because of some shock to confidence (or in this case an increase in risk aversion in the financial capital) then it is like hitting a lamppost in your speeding car. Seems like this unfortunate metaphor is really hitting in many places now. I suppose that makes us the elderly driver driving so slowly that we induced other drivers to make the risky pass.