US subprime turbulence may be contagious -Stiglitz

SINGAPORE, Aug 2 - The turbulence in the U.S. subprime mortgage market could spread to other sectors of the economy, especially as growth momentum is already weak, Joseph Stiglitz, former chief economist of the World Bank, said on Thursday.

Financial markets have been volatile in recent weeks amid jitters about the fallout from the problems with U.S. subprime mortgages, but Stiglitz said the turmoil was no surprise to him.

The risks could spread to sectors "wider than the subprime, but how wide is difficult to tell. It's a broad problem", Stiglitz, a Nobel laureate economist and Columbia University professor, told Reuters in Singapore.

"It's very hard to predict the stock markets, but in terms of the underlying weakness of the U.S. economy, that's going to continue for an extended period of time," he said.

"It's a constant source of wonder to me how the market is irrational about certain things that seem so forecastable."

Stiglitz told a financial forum that a stronger Chinese yuan would not resolve the huge U.S. trade deficit, because the world's largest economy would buy consumer goods from other emerging countries if Chinese exports lost their competitiveness.

"You cannot blame America's problem on China. In fact, it's not going to affect the U.S. trade deficit at all if China appreciates its currency," he said.

While shipping cheap goods to the United States, China has been financing the U.S. trade gap by investing most of its foreign exchange reserves in U.S. Treasuries, which in turn helps keep U.S. interest rates low and supports the U.S. economy.

A rapid rise in the yuan's value would make imported farm products cheaper and hit Chinese farmers, he said.

"That's one of the reasons that Chinese leaders have been very resistant to rapid appreciation of their currency."

He said the weakness of the dollar against major currencies might persuade some developing countries to channel more of their reserves into the euro.

Stiglitz, a long-time critic of the failures of globalisation, said many developing countries in Africa and Latin America had failed to benefit from the process of economic integration.

" East Asia took advantage of globalisation and made globalisation in their own terms and that led to successes."

Comments

Post a Comment

Popular posts from this blog

I'm an accountant, I hate my job, but seriously, I wouldn’t know what else to do

I was born to be a lot of things, but being an accountant isn't one of them. In my heart of hearts I have always known this, but for some stupid subconscious reason, I have always ignored it. Why? Well...um...err...I didn’t know what else to do. How many people faced with the same predicament of deciding on a profession upon graduating used “not really knowing what to do” as their guiding compass? Blink. Ten years have passed and you’re left wondering, how did I get here? In this cubicle? Doing something I cannot stand (and I’m not even honestly good at), with people I quite frankly don’t really care about? For me that was accounting, a profession that conjures numerous clichés, such as boring, bean counting, personality not needed, number crunching etc etc. These have now evolved and have been replaced by repetition, reconciliations, long hours, fudging figures, high turnover, Enron and even more reconciliations. R-E-S-P-E-C-T But please don’t get me wrong, I have the utmost respe...
Read more

Three money managers who lived through the 1987 stock-market crash warn of danger today

Image
By  Philip van Doorn Published: Oct 31, 2017 1:49 p.m. ET SHARE   ‘I would take some money off now because ... there are clear signs of deranged valuations,’ says Gabelli fund manager Lawrence Haverty Getty Images A trader on the New York Stock Exchange on Oct. 19, 1987 — Black Monday. When the stock market crashed on Oct. 19, 1987, investors panicked. It was an unfamiliar event — the previous decline of a similar magnitude occurred 58 years earlier, in 1929. Now, 30 years after Black Monday in 1987, there are professional investors still at work who lived through that fateful day. In interviews, three of them talked about their experiences, offered insights into warning signs and gave advice on how to handle major downturns. They are: •  Lewis Altfest , president of Altfest Personal Wealth Management, which manages about $1.3 billion for private clients. Altfest founded the firm in 1983 after working as a general partner and director of research at Lord, A...
Read more

Have We Reached a Top?

By James Kostohryz It's never been my position that the flow of fundamental news would turn from positive to negative overnight and in a total fashion. The world simply doesn't work that way. When I terminated my core long position a couple of weeks ago for reasons explained in�Ten Reasons the Countertrend Rally May Be Over,�I outlined a series of factors I believe may manifest in the later half of 2009 and the first half of 2010. Indeed, most of these factors will be more back-end loaded, as negative factors tend to build on one another and gain momentum in time through the medium of psychology and social mood. It's my view that the flow of economically relevant events�-- and perceptions of these events --are in the early stages of a transition. In this case, a transition means the flow of relatively good news will tend to wane somewhat while there's an uptick in relatively bad news. This is what one would expect at a top. However, it's to be expected that during t...
Read more