November 17, 2022
US President Joe Biden learns that pardoning turkeys in this economy ain’t easy.
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US President Joe Biden learns that pardoning turkeys in this economy ain’t easy.
Watch more PUPPET REGIME!
Kristina Georgieva, Managing Director of the International Monetary Fund, says the risk of a global recession has gone up due to three major reasons: the big global economies are slowing down, inflation is speeding up, and the world’s global order is fragmenting. She shares her perspective on the economic challenges facing the world in a conversation with Ian Bremmer on GZERO World.
Georgieva acknowledges that Europe should brace itself for a dark winter because of energy shortages, and points out that the following winter of 2023 could be even harder as natural gas and oil reserves run low. The silver lining of this crisis, however, is that Europe is forced to accelerate its green transition. For the world, this is really good news.
Global inflation is forecast to finish 2022 at 8.8%, settling in at around 6.5% in 2023. So is a global recession imminent? David Malpass, President of the World Bank, discusses the global economy with Ian Bremmer on the GZERO World.
Malpass places the odds of a global recession at 50/50. Efforts to combat inflation in the developed world could spur a debt crisis in the developing one, and optimism for a speedy post-pandemic recovery has faded as Putin’s war in Ukraine has strained the global supply chain. But the World Bank chief is most worried about the poorest countries going backwards on their development goals. He also discusses climate change and confirms that he is not a climate science denier.
Listen: Europe is bracing for a tough winter ahead. An escalating Russia/Ukraine war has mobilized much of Europe to Kyiv’s cause, but it’s also rocked the region, bringing a plethora of economic, political, and social challenges that will last long after the war is over. How will the continent make it out of what looks to be a particularly bleak winter? On the GZERO World podcast, Ian Bremmer discusses all that and more with German diplomat Christoph Heusgen, who served as his country’s Ambassador to the United Nations and is now the Chairman of the Munich Security Conference.
The crypto market’s bad run got even worse this week after FTX, a major crypto exchange, imploded. Headed by billionaire crypto-star Sam Bankman-Fried, FTX was revealed to be in a dire financial position earlier this week, and Binance, the largest exchange and an FTX competitor, considered bailing FTX out, but dropped the idea at the eleventh hour when it became clear FTX was insolvent and its customers couldn’t withdraw assets. Federal investigators are now looking at Bankman-Fried to find out whether his company violated financial regulations. Not only did Bankman-Fried lose more than 90% of his $16 billion fortune in mere days, but the news also sent the broader crypto and stock markets into a tailspin. Bankman-Fried, a big Democratic donor, had been making inroads in recent months with lawmakers on Capitol Hill to shape regulation with favorable terms for the crypto industry. But lawmakers and other crypto lobbyists will now want to distance themselves from the crypto king facing serious allegations of financial impropriety.
China and El Salvador will soon begin negotiations on a free trade deal, Beijing said on Thursday. The relationship is a new one. It was only four years ago that San Salvador cut ties with Taiwan in order to establish formal relations with China. Since then, El Salvador has signed onto Beijing’s ambitious Belt and Road Initiative, and China has agreed – in principle at least – to invest in a number of infrastructure projects in the Central American country, including a sports stadium, water treatment plants, and a $40 million cultural center in the capital. El Salvador’s democracy-flouting President Nayib Bukele needs all the economic help he can get after pinning the country’s economic revival on cryptocurrency, which is clearly not having a very good run. Washington has had to tread carefully with the norm-defying Bukele – China’s bid to rival US influence in Latin America gives the young populist leader options.
The US economy got some good news on Thursday: Monthly inflation in October dropped to 7.7%, down from 8.2% in September, and is now at its lowest level since January. This suggests that the US Federal Reserve’s ongoing efforts to rein in inflation are working. But across the Atlantic, it's a different story. As the war in Ukraine wages on, inflation remains above 10% in the Eurozone, where the European Central Bank has adopted a more cautious approach to monetary policy out of fear that raising rates too fast could inflict economic pain, particularly on the more sluggish southern European economies. But as cost-of-living pressures persist, thousands of people across Greece, Belgium, and France took to the streets this week to protest “suffocating inflation.” Belgian trade unions say gas prices have gone up by 130% this year, while Greek officials say they’ve risen by more than 300%. European governments are keenly aware that with winter coming, the chill of inflation is only going to get deeper.Putin’s out, but
Though much of the world is suffering from uncomfortably high inflation as economies adjust to the disruptions brought by the pandemic and the war in Ukraine, some countries are grappling with double- or triple-digit price increases. In Argentina, for example, a rapid acceleration of price gains in recent months has economists predicting inflation will reach 100% this year.
We asked Eurasia Group expert Luciano Sigalov to explain the runaway price increases in the South American country and how political leaders are responding to them (or not).
How did we get here?
This is not Argentina’s first bout of very high inflation. The last was in the late 1980s, when inflation topped 4,000%. After a period of price stability in the 1990s, inflation began to accelerate again in 2005 and then skyrocketed over the summer. Prices rose at an annual rate of 83% in September, one of the highest in the world.
Argentina’s longstanding practice of having the central bank print money to finance public spending is the main driver of inflation. More money chasing the same amount of goods bids up prices. Currency depreciation is another driver, because it raises the cost of imported goods, something that is particularly dangerous during a period of high global inflation.
A couple of things happened over the summer to spark a run on the Argentine peso.
Earlier this year, Argentina reached a deal with the IMF to refinance a $44 billion loan it received from the multilateral lender in 2018. But in June, concerns started to mount about the country’s ability to comply with the terms of the deal – such as the reduction of the country’s wide budget deficit – prompting investors to sell off the peso. The July resignation of Economy Minister Martin Guzman, the main architect of the IMF agreement, further fueled the sell-off.
How is soaring inflation affecting everyday life?
As prices adjust from one week to the next, a trip to the supermarket has become a surreal experience. People are losing their sense of what things cost and are becoming adept at financial calculations to determine the value of installment plans for purchases. As the pesos in their pockets rapidly lose value, people try to spend them as quickly as possible. This dynamic makes financial planning, and life planning, that much more difficult.
How has President Alberto Fernandez’s administration responded?
To shore up confidence in the local economy and currency, new Economy Minister Sergio Massa has reiterated the country’s commitment to meeting the terms of the deal with the IMF. He is also rolling out a series of measures freezing the prices of key items and offering households targeted relief in the form of subsidized interest rates, tax cuts, and support for inflation-indexed wage deals.
Yet the crisis has created divisions within the administration. Massa wants to prioritize measures to fulfill the terms of the IMF deal, while the powerful Vice President Cristina Fernandez de Kirchner wants more price freezes and government handouts. And no one really has the stomach for the type of broad stabilization program economists say is necessary but that would include politically unpopular measures such as aggressive interest rate hikes and cuts in public spending.
What does this mean for the ruling coalition ahead of next year’s elections?
Soaring inflation and bleak economic prospects spell trouble for the ruling coalition in next October’s elections. Maximo Kirchner, a lawmaker in congress and son of the vice president, reflected the somber mood taking hold among the parties of the coalition when he suggested recently that they lacked a competitive candidate to run for president next year. He said that neither Fernandez de Kirchner nor Massa, thought to be strong potential contenders, would be running, and he played down President Fernandez’s reelection prospects.
So, does the opposition offer some hope of a solution to the current difficulties?
Curiously enough, the troubles of the ruling coalition have led to increased tensions within the opposition alliance. The Together for Change coalition has three potential presidential candidates jockeying for position, and there are growing difference among them over electoral strategies and post-electoral policies.
At this point, the opposition has strong incentives to remain united to ensure as broad as possible appeal in next year’s elections. But the deeper the problems of the ruling coalition grow, the more confident the main opposition presidential hopefuls might become about prevailing on their own, without the support of their alliance partners. That could lead to a weaker opposition-led administration, with less support in congress, making politically costly policy changes more difficult.
World Bank President David Malpass says the chances of a global recession in 2023 are 50/50, though he is more worried that the middle-income and poorest countries are moving backward in education, health, food insecurity, and capital flows.
These nations, he tells Ian Bremmer on GZERO World, are actually moving backward on all development indicators. And with most capital now being poured into high-income countries, the world is becoming a more unequal place.
For Malpass, we're in a crisis in development — and we'll need new pathways to get out of it.
This year, the annual fall meetings of the World Bank and the IMF were all about global economic doom and gloom.
The IMF has cut its global growth prediction for this year by half compared to 2021. And next year will be the worst since COVID and the 2008 financial crisis.
Meanwhile, inflation is still very high — and efforts by rich countries to tame rising prices are going to hurt poor nations.
And what about climate change? That may be the one silver lining for the IMF, which believes that the present energy crisis may accelerate the green energy transition.