The last month of economic news has been as diverse as the last 10 months of the same forecasts. With the start of July, the drop in recent markets worldwide and predictions of further problems in large economies such as the UK and Japan set to bring the recession further attention, but by mid month the result was that some US banks were making some profits, even paying back small sums of money to Mr. Obama and some auto manufacturers were not destined to be completely eliminated as stability slowly crept back into market forecasts. While these announcements will likely change in the next few weeks as SME’s continue to wind up their companies, the biggest market change seems to be coming from China and India. While many believe that only 8% growth in China may be the limit in order to stave off mass discontent among its population, growth rates of 5% or more in places like India, and lower yet stable rates in Brazil draw attention to hopes of an economic recovery coming from the recently famous super emerging economies of the BRICs. Of great interest and increasing popularity, Brazil, who has managed to maintain a stable growth rate in their economy since the 1990’s global economic troubles between 3-5% and was able to reasonably shield itself from the meltdown of Argentina’s economy in 2001. Brazil is beginning to change into the next large emerging market economy in form and function. The recent recession has taken the new Brazil and brought its relative successes in the last few months into the meeting rooms and policy branches of those economies who wish to change the relationship between North America and Europe towards South America’s largest and most promising economy.

In the Americas there are two large economies outside of the United States that while being hit hard by the recession, have managed to keep the core financial and economic systems of their countries in good shape. Canada and Brazil have stood out as two of the largest stable economies in the Americas and worldwide. With banking systems that have not collapsed and reserves of cash from past years of growth shielding some of the effects of the global economic crisis, both countries could begin to push the Americas and world economy back into positive territory. Limits to BRICs and other relatively healthy economies may be restricted formally and informally however depending on how the EU and US decide to react to other large economies worldwide. Effects on countries such as Canada and Brazil might be produced by restrictions coming from the new Buy America provisions in the US or as an example, be expanded by talks of a possible EU-Canada Free Trade Agreement. Limiting trade between NAFTA partners in North America and retracting from agreements between the US and trade partners in the Americas is what all trading partners of the US fear in the region as well as globally.

Many experts on global economics such as Zakaria and Khanna see the US as possessing a major role in the future world economy, but also one of shared influence and regional power as a necessity. Limits to expanding the economies of the Americas in a united fashion is seen in the lack of interest in regional trade agreements and the lack of support for trade agreements as with the one with the US and Colombia. While the US seeks to put pressure on its economic allies during the recession, the EU is seeking increased open trade with large economies such as Canada, India and China, and China is seeking many economic ties with countries such as Peru, Chile, Venezuela, Argentina and of course Brazil. Even Canada has ratified a trade agreement between itself and Chile, Colombia, Costa Rica and is working on agreements with CARICOM. Effects from Buy America might better regarded as the Buyer Beware provisions, as the US creates a policy environment to push its allies to trade with other economies outside of the Americas and produce economic legacies outside of the US which will strangle future growth of private industry in the US itself. As with any investor, the prospect of future governmental and trade restrictions by doing business with a US company or investor will produce negative incentives in the long run. With so few healthy investors currently, economic legacies such as Ford, Disney, Coca-Cola and McDonalds may be replaced by those created and grown in other healthy economies outside the US and the Americas…bad economic policy is simply a caveat emptor of economic growth.

Not all US policy experts agree with Buy America, and some even have been making attempts to approach Brazil as the next India or China. Mind month, the publication and discussion of the new book: Brazil as an Economic Superpower? Understanding Brazil’s Changing Role in the Global Economy was accompanied in Washington DC by a discussion of Brazil as a rising global economic power. This book launch and discussion followed the Brooking Institutions release of interesting economic data and reports on the region as a whole. Many of these discussions focus or Brazil or Latin America as the next China or India, but in reality the Latin American method or growth and that of growth in China, India and Russia only bare some basic similarities. Latin America and Brazil have traditionally depended on commodity prices principally. While the Brazilian economy is fairly diversified, a large portion of its GDP does come from commodity and oil prices, which is similar to a country like Canada who have a great deal of GDP linked to natural resources. Manufacturing in all economies, including Canada, Brazil, China and India have been greatly affected, leaving China with a growth rate of 6.1% in the first quarter of 2009. While oil prices and other commodity prices have bounced back and forth since 2008, manufacturing has taken severe hits in all nations. China and to a certain degree, India, depend greatly on the demand in foreign markets on US and global consumer spending. Entrepreneurial Organisations such as the SBA.org in the US and CFIB in Canada would be able to make the point that many of the jobs in the US and North America depend on SME’s, and with the increase in bankruptcies and the lack of business loans coming from banks in any financial state, the job loss will only increase and create a further decline in consumer spending. Manufacturing depends on its consumers being able to purchase its good and grow the economy. China, who produces many of these good in the US and EU are entirely dependent on these economies as their growth is directly linked to US and EU consumers. Brazil, while dependent on consumer spending has less than 40% of its trade with the US and is balanced by heavy industry, commodities and technology industries. While many of these sectors are hurt by the recession, it gives Brazil some added security in the long term within the global economy.

The news on recent increases in growth in China and India are positive, but with many consumers losing jobs recently and many smaller industries only failing in recent weeks, it is hard to predict a concrete economic demand for consumer products and link growth in China to the markets it depends on. In reality, many smaller and larger US firms often depended on cheap operating loans from US banks, and without not only financially stable banks, but banks willing to give out loans to investors, it is impossible to justify any prediction of growth in consumer spending when SME’s are neglected from economic recovery and are the last to receive financial aid in the economic crisis, yet provide the majority of jobs in many developed countries. Countries like Brazil and Canada should be considered a relatively strong option for investors, as historically and logically growth seems more likely for all levels of industry in few similar countries in the long run and the avoidance of economic bubbles have been relatively successful in the past.

An interesting piece I encourage you all to read:
Latin America and the Economic Crisis: Designing and Implementing Stimulus Policies
Mauricio Cárdenas, Director, Latin America Initiative
The Brooking Institution

June 25, 2009 —
Dani Rodrik recently wrote in his daily blog that Andrés Velasco is the living example that sound macroeconomic policies have a high dividend. Chile’s decisive fiscal stimulus package—adopted last January—has made him President Bachelet’s most popular minister. Not too long ago, during the years of high copper prices, many Chileans questioned their government’s economic management for saving too much and postponing key investments. Of course, those critics are silent now. Events are showing that a commitment to rules that focus on long run objectives, rather that immediate gratification, pays-off.

But rather than talking about Chile, I would like to make a more general point regarding Latin America. Today’s conventional wisdom –and I say this in complete awareness that ministers generally adhere to, and oftentimes shape, mainstream views—is that stimulus packages are working and that Latin America will soon be out of the recession. In Brazil, for example, most analysts consider that the contraction is a thing of the past. I want to take issue with those views.

Let me start by stating what, in my view, is the conventional wisdom:

The adoption of sound macroeconomic frameworks, mostly since the late 1990s, allowed Latin America to bring down inflation and public debt. Foreign reserves are high for historical standards, reflecting stronger current accounts and access to external capital. As a result, Latin America is coping with this crisis much better than a decade ago. In fact, there has been no crisis, just a mild recession.

Key to the current episode has been the ability to conduct countercyclical monetary and fiscal policies. In the current phase of the cycle, policy rates set by the central banks have been cut to 0.75% in Chile (a reduction of 7.5 percentage points), 4% in Peru, 4.5% in Colombia, 4.75% in Mexico, and 9.25% in Brazil.

Fiscal stimulus has also been the norm, although the size and composition of packages has also varied from country to country. The largest expansions have taken place in Chile (2.5% of GDP), Brazil, Peru, and Mexico.

Macro-financial variables have shown remarkable stability. In 2009, inflation has been falling, exchange rates have appreciated, stock prices have increased, and spreads on sovereign debt are falling.

Even though production and employment figures are still declining –and GDP growth projections are being revised downwards– virtually all forecasts suggest that the recovery will start soon. The latest Global Development Finance Report from the World Bank (the less optimistic of the existing “official” reports) projects major rebounds in all economies. The difference between the 2010 and the 2009 GDP growth forecasts is 5 percentage points for the world economy. The corresponding figure is 5.4 percentage points for the OECD countries, and 4.2 percentage points for Latin America. The expected rebound is spectacular for Mexico (7.5 percentage points).

I think this view errs on the side of optimism. Latin America should hope for the best but prepare for the worst. By not properly considering the risks ahead, governments have the temptation of exhausting the policy tools and not reserving any ammunition for battles that are foreseeable. My critique of the conventional wisdom is based on the following four points:

The numbers on real activity and aggregate demand conditions which are coming out from Latin America are not that encouraging

Although it is true that retail sales in Brazil increased 6.9% in April (relative to a year before), industrial production registered a 14.8% contraction in May. In Mexico, where GDP contracted by 8.2% in the first quarter, industrial production fell 13.2% in April, and consumer confidence continued to fall in May. The Chilean economic activity contracted 4.6% in April and industrial production fell by 11.1%. The figures for other countries show a similar picture: Latin American economies are experiencing a deep contraction, and the evidence does not suggest a significant recovery underway.

Of course, all this could change with a big rebound in the second semester. But, is that realistic? The contraction in investment has been in the double digits during the first months of this year for the majority of countries in the region, and will have an impact on future growth. More importantly, investor and consumer confidence measures are very low and still falling in the majority of Latin American countries. We know from past episodes that it takes time –and a good amount of positive economic news– to reverse the direction of these perceptions, especially the consumer’s sentiment.

Latin America is betting on the rebound of commodity prices

China’s real GDP growth slowed to 6.1% during the first quarter of this year. Although several measures of real activity and domestic demand have been improving lately (investment grew by 32.9% in five months to May), exports continue to deteriorate. Chinese exports contracted by 26.4% in May, suggesting that there is excess capacity. To the extent that exports do not recover, investment will loose momentum as well as commodity imports, which have increased for stockpiling purposes. These are very negative news because they suggest that the surge in commodity prices will not last. Why commodities moved ahead of the fundamentals is not clear, but Latin America should be prepared to deal with prices which are more in line with lower Chinese import demand in future months.

Private capital flows are shrinking at an alarming pace

The World Bank projects that net private debt and equity flows to developing countries will decline from 8.6% of global GDP in 2007 to 2.0% in 2009. This is much worse than in the debt crisis of the 1980s or the Asian and Russian crises combined. Many in Latin America argue that the region is somehow immune to this trend, mainly because of the role that foreign direct investment plays in the region. This could be true, but at the same time, the evidence available suggests that FDI flows depend largely on growth in the OECD countries. With the major contractions expected in the U.S., Europe and Japan, FDI flows will fall in the medium term. The latest IMF data suggests that this is already happening. The investment projects under way are likely to be completed, but starting new investments is a different game. The recent drop in the cross-border M&A activity is a strong signal in this direction.

For the emerging and developing countries as a whole, private debt and equity flows will likely fall short of meeting external financing needs. The question is how much of the shortfall will affect Latin America. Some countries are better prepared than others. Countries with large current account deficits, strong dependence on tourism and remittances, and limited access to private debt and equity flows will suffer considerably. This of course, points in the direction of Central America and the Caribbean, where a sharp adjustment seems inevitable.

In the largest countries, with access to international markets, much will depend on the ability of private firms to roll over their debt. There are hundreds of corporations in these countries that borrowed in the international syndicated loan market and some that issued international bonds during the last few years. They hold the majority of the outstanding short term external debt as well as the medium to long term obligations coming due in 2009. Financing the public sector is not the problem; the real issue is how to refinance the large Latin American corporations.

The prospects in this regard are not all that encouraging. The supply of credit to the region could fall even further because there are mounting pressures on the capital position of the major banks. Liquidity problems in the global interbank market remain an obstacle for banks to fund additional assets, while tightening of credit standards has been generalized. Last but not least, government ownership (even if temporary and partial) of the large banks changes the priorities in the direction of domestic recovery in the developed world, rather than greater credit risk exposure in emerging countries.

There is no ammunition left

The capacity of central banks to cut interest rates and of governments to provide more fiscal stimulus is very limited. Even in Chile, there is discussion that the fiscal deficit is already too high and that the government should bring it down again next year. The Mexican central bank has said that further cuts in interest rates are not likely, in line with the language other monetary authorities have used recently. In other words, fiscal and monetary policies do not have many degrees of freedom. If the world economy does not recover soon and private capital flows to Latin America remain low, there is not much that Latin American countries can do. Even worse, it is possible that some of the expansionary policies of the recent months will need to be reversed. This is already part of the debate in countries like Mexico, where the government may need a tax increase to cut the fiscal deficit in 2010.

In summary

In summary, Latin American governments and multilateral banks are betting excessively on a sharp economic recovery. For their projections to be right, a major recovery should be already underway. The latest figures, however, do not support that view. Even if the U.S. shows a moderate V- shaped recovery in the next two quarters, China’s imports, commodity prices, and private capital flows could still be the source of very unpleasant news for the region.

BBC World News this past weekend held an interesting discussion on the current global financial crisis and its possible future effect on the world economy in its show The World Debate. The discussion surrounded the policies governments, CEO's, banks and international financial institutions used that brought us into crisis, and how those institutions could remedy or perhaps worsen the current crisis, and passively accept responsibility the gains and losses in their communities.

The World Bank and IMF were addressed, as a constant debate in developing nations became a catalyst in the current situation. In the past, economic conditions that forced many countries into an economic system of development to secure loans were seen as forcing the allowance of poverty through savings. With some successes, many countries' small growth were dissipated with a recent hit from developed nations which either never took their donated policies seriously, or were irresponsible in forcing and international financial system that leads to crisis rather than growth over time. This perspective is not new in the developing world, and with many countries either finally producing some growth, paying back loans, and even becoming economic powerhouses, sacrifices by developing nations and their losses coming from abroad.

Banks and CEO's were diligently attacked in the debate, seen as the cause and maintaining the concern of many in the process. CEO's in fact, which have been criticized over the years for being overpaid, used to disassemble rather than build up their companies, taking decisions which border on legality and failing their communities through immoral investments were targeted in the debate. While many CEO's have since then been replaced, the way CEO's and obtained and trained and valued will likely have to change. Banks, as corporations themselves have become nationalised in many countries, and in others are facing tough government and public scrutiny as the cause and result of the credit crisis. The problem of confidence, more confidence of banks to lend as opposed to the confidence the public and industry requires of banks in a society was addressed in the debate. Credit, as a necessity of a healthy economy for small and large companies alike, private individuals and governments, is and always was the centre of the problems. Banks and financial institutions, while being seen at the same standard as other industries are in fact legislated with a great deal of legal rights, and government protection. The exchange is that those banks agree to lend and operate in sensible actions and respect its increased power and responsibility over society and various industries.

The actions of governments will likely have a large effect on the international financial order and the way commerce is done in their own nations. The beliefs that credit is the sole problem of this crisis are neglecting the informal agreement between banks, government and industry that are necessary for society to operate. Immoral and illegal activities must be determined as such before confidence in society can ever be restored. Eventually a new informal agreement between nervous banks and governments need to be reached, but no constructive plan to reform this relationship seems to be on the horizon. Microcredit financing, and small and medium sized business credits, often a success story in developing nations, might be an alternative to frozen credit markets in developing countries. Return to basics and reaffirming the informal contract between banks, governments, industry and society is not only an imperative, but is the only alternative to the global economic challenge.

This week brought some ever-growing attention on Mexico. With the decline in commodity prices as well as a sharp decline in consumer spending, the BBC World Service highlighted Felipe Calderon's announcement to add to Mexico's stimulus package and place an additional $150 million US dollars into Mexico's export industries to keep them afloat. America's neighbours were quick to address issues regarding export industries. The Canadian government was able to beat Bush and Obama to the punch by promising US automakers in Canada part of an auto industry support package with conditions in order to keep the 20% of North America's auto industry within Canada's largest province, Ontario and ensure future jobs for the large minority of Ontario's workforce that are linked to autos. Mexico, while promising $150 million to its export industries will likely have a harder time pushing in billions of dollars like its neighbours into one industry. While Mexico in recent years has been a mark of economic stability in Latin America, the recent security situation in Mexico this past year and activities by the US to stop Mexico from becoming the next Drug War has pushed the US to form a smaller version of a Plan Colombia, spending millions on anti-narcotics support and advice for Mexico and Calderon's administration. With the election of Mr. Obama as President comes the realization that he could have inherited one of the worst State of the Union's in American history. The only person who could likely have a tougher job however is Felipe Calderon, as the economic crisis consumes Mexico's well earned reserves and the export oriented economy becomes mired in the future losses of its main export market, one of the worst security situations in Mexican history has come at a time when there is little money to fight it. In addition, many of Mexico's drug cartels have made a point of attacking government officials, killings many top officials and having others being caught in bribery scandals which could leave Calderon with as much security problems as economic. Some positive developments in the last few years may not stop Mexico's worries, but has prepared Mexico with economic policies that might help Mexico and many other Latin American states weather the economic problems with development strategies that would be the envy of the world's economic policy experts. Economic crisis have hit Latin America on average every 10 years since the 1970s and growth in countries such as Mexico and Brazil have placed them in the best position possible in a bad situation. With Mexico's security situation finally coming on America's radar screen in the past month, developments in Mexico in the last few years has likely opened a dialogue with similar neighbours such as Brazil who has had much success in its economic reforms and is poised to weather this economic crisis with stable growth for the future. In a January 7th FT.com article by Nick Rice, Brazil's economic policies in the recent past has not been able to remove Brazil from the global crisis, but has placed it in a good position to weather the storm. Policies enabling Brazil to grow with commodity exports, conservative lending and well run industries has enabled Brazil to take advantage of slow growth rates and shield Brazil from the ills of excess lending and a lack of diversification. While Mexico differs from Brazil due to its close export relationship with the US and its dependence on oil revenues, the formula for economic growth is likely a topic of much dialogue between Mexico, Brazil and the rest of Latin America. With the future of Mexico's security and economy likely to change greatly with the opening of world credit markets, the stabilization of oil prices and assistance from its neighbours in combating drug cartels and addressing issues of economic reforms, leadership, while an almost impossible job, is more important than anytime since the foundation of Mexico as an independent state. Decisions on future policies and a lot of luck are crucial for Obama and Calderon in 2009.

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With the recent anarchy in the global economic system and Macroeconomics textbooks being reedited worldwide, many experts in the field have gone silent or have admitted their inability to predict the latest collapse and inability to give a definitive answer to the problem. In the midst of this chaos, the traditional debate of American foreign policy is taking place, whether to open trade and whither protectionism in order to increase ties among the US and its allies, or whether to close all trade ties, appoint protectionist leaders into the new Administration and hope that countries which have less than reputable human rights records will not recall their loans in an attempt to soften their own economic issues at home. At the heart of the debate is whether the US, the pioneer of open trade in the Americas, should take Colombia as a free trade partner in the future.

With the announcement today of Canada and Colombia signing a free trade deal, the onus of the debate between trade vs. human rights has fallen on the US to determine in this latest round of trade deals with its strongest ally in Latin America. Colombia is an interesting case study indeed. Just a few shorts months ago the Colombian government was able to seriously assault its local terrorist threat, the FARC, with the capture and killing of many of the FARC's top leaders, the rescue of Ingrid Betancourt, and even were able to deal with threats from Chavez and arrange a cold peace and a handshake in the aftermath, all tasks which were unachievable by any of the partners of the War on Terror since 2000. Despite these achievements by the Colombian government, charges against them regarding assaults, arrests and disappearances of labour leaders in Colombia have become a catalyst for opposition in the US towards a US-Colombia Free Trade Agreement. Despite close ties between the two countries, the prevalence of trade between the US and many countries which on equal terms would be considered less democratic and human rights oriented, and the need for the US to reassure its allies of America's distain for protectionism after making it a major campaign issue and a top priority in industry bailout measures at home have become simply forgotten as recent history. The result of the New Economic Order is that Colombia's inauguration as one of America's number one partners has been abruptly forgotten and met with neglect. Many see the trade agreement as a continuation of policies leading towards a Free Trade Agreement of the Americas which has been permanently on hold and a reward to Colombia for beating back terrorist threats in its war against the FARC. Moderate supporters of the trade agreement see open trade as a means to supplement Colombia's illegal exports with legal commodities and give the majority of the country's rural poor an income to rely on that is not connected with the drug trade. Development activities in the past have seen some success with this open trade strategy, giving Colombia the tools to fight the drug trade through economics and bring down trade barriers from the US and even the EU and open agricultural markets abroad to its products. In the end however none of these issues are important, as Colombia has become an experiment in how to judge economic policy in the futurepoor timing indeed!

Among the traditional trade debate, looming issues regarding the financial collapse on the world markets has not merely changed the rules of the game, but has made confident policymaking a thing of the past in many circles. As a reaction to the economic collapse, the traditional closing off of America in times of global war and crisis often leads policymakers to remove America from the rest of the world, push through regrettable policy initiatives without needed moments of clarity and mortgage the future relationships of the US with its allies in order to avoid dealing with issue, which this time around started and will end with the US. The Colombian trade agreement is the first test of America's ability to form a future with allies who rise and fall with the US and its actions, or the beginning of America's fall from hegemony if it chooses to neglect Colombia, and its future allies in the name of temporary comfort in a future which it has gambled away in the short 60 year timespan of the American Empire. Choices in the next few months will determine whether the Americas and the rest of the world will continue into a new century with America as a key player, or return us to a world which looks more like the early 20th century, only with slightly different actors and millions more Japanese cars. Elections and economic crisis come and go, but rhetoric during times of trouble never allow the future to forget poor decisions of the past.

There are a few realities that have hit the world this past year and this past month, to which most of the world has been affected by to some degree. Luckily enough, the issues which affect most Americans have made the greatest impact in the last few weeks of the election campaign, and the decisions people will make when casting their vote will be based on how they wish to change the past, and how they wish to see themselves in the future. Both candidates have accomplished something remarkable. The last two election campaigns offered many a lack of choice in a candidate who they felt would really push the country in a proper direction. Eight years of George Bush, Iraq and Afghanistan, the Economic Meltdown, 9/11 and Hurricane Katrina, have left only candidates who can do the job available to be elected. Both Obama and McCain are good people, and either one is capable of placing their efforts into repairing a slightly damaged, well used and still well running America with a lot of work. Americans can do little wrong in choosing either candidate, but with the election close by and Obama likely to win, the following is a letter to Mr. Obama, and with some luck, Mr. McCain from the rest of the world who does not have a vote, but will be affected by their decisions as much as any American.

To start, the neighbours of the United States should be acknowledged for their constant support and connection to the United States. Canada and Mexico, despite issues of trade and immigration have done much in the last few years to accommodate not just Mr. Bush, but Americans as a whole. Currently Canada is one of the only developed nations who did not face complete economic collapse and places over 90% of their trade with the US. It should be acknowledged that trade and manufacturing in Canada has been hit as hard as in the US, and while NAFTA is blamed on Canada and Mexico, Canada is losing the same jobs, the same companies and the same households to tough foreign competition as much as the US. Canada is one of the world's largest oil producers and has always worked to move US energy out of the Middle East and grow stronger ties with Canada's energy and Canada's economy. Jobs being lost in the US, means jobs are lost in Canada as well. When the loss of jobs is blamed on NAFTA, it focuses energy and time on those who were never to blame for the economic problems in the US. To fight Canada and Mexico is to create scapegoats and lose four more years in improving the economy for all of North America.

With soldiers dying in Iraq, and allied soldiers giving their lives in support of freedom and lives in their own countries as well as the US, Afghanistan and Iraq need to be taken as a whole and the support should be given by the US to help fix problems abroad. According to Southern Pulse in their Oct 28th newsletter, over 4,000 people have died in Mexico's drug war, with 1,000 being killed in the last 50 days. Canadian, French, British and other allied troops have been taking heavy casualties in Afghanistan, making the region into a stalemate over the last 6 years. The worst problems have yet to be approached, with Darfur and Africa having yet to receive tangible attention towards genocides in the region which mirrors Rwanda in magnitude and action from the international community. Security in the United States cannot be achieved when those who support the US are under constant pressure and attack. Mexico has had as many deaths in the last year in battling the drug lords as soldiers have died in Iraq since 2003. A serious attempt in Afghanistan and a creative approach to Iraq must be achieved soon so other regions do not fall into chaos.

Immigration, while being solidified as a failed policy must start to acknowledge the existence of many from Latin America and Asia as players in the social framework, even if the legality of many residents are non-existent, they still are a part of every community in the United States. While illegal immigration needs a cathartic debate in America, those who have suffered from action, namely 2 million Iraqi refugees need to be addressed as well and accepted as people who are running from an Iraq which the US has not been able to claim victory and peace over. No greater respect to US soldiers and Iraqi citizens would come from a realistic approach that helps Americans, soldiers and their families, but also those so many fought hard to save; the Iraqis themselves. The use of the word "Change" and "Pull Out" will not stop violence and death in Iraq, only proper leadership will help end the conflict.

With a world depending on the US economy to operate, those nations in Latin America and Europe need a strong United States that will work and support their nations as those nations wish to work and support the US itself. While there is much criticism coming out of socialist governments in Latin America, the majority of nations who have spent the last few years in cooperation with the US and achieving great stability and peace within their own borders should be supported by the US and credit given to their development. Bad policy has created a situation where Chavez can attack Bush, as failure in leadership creates a large scapegoat, but good leadership with focus the attention on those local leaders like Chavez and allow for those democracies to eject problems in their societies. While not to the same degree, America's European partners have actually moved to re-engage with the US in a discussion to not only repair the current economic troubles, but also to re-invigorate the relationship of values and equality that should have always existed between Europe and the US. Elected leaders in the EU, Canada and Mexico have moved towards policies which have been considered traditionally American, and America will move towards a position where it adopts some trends from its partners, as well as hopefully cultivating respect with Europe and Latin America in the process. The future of the US will come with the future of Europe and the Americas. Leadership will only allow for a successful relationship in the future.

Emerging economies must be addressed to end this letter. China, India and Russia, as well as other nations have achieved a great deal of development, and with recent funds have been able to address national problems of poverty and development, many thought were impossible to tackle only 5 years ago. These countries have a right to compete and gain wealth, but if companies from the US and EU seek to find fortune in those countries and work with local companies which may produce harmful products or take away American jobs, than those American and European companies should be challenged and blame should not be placed on Canada or Mexico, who have lost much as well, and irrational barriers should not be placed on developing economies because companies from the US and EU take advantage of their consumers. To create scapegoats in this debate, is to create a situation where no one can foresee economic troubles, and regulation is left to create blameless policymakers in its wake. The crisis of the last 20 years was always not one of tangible losses, but in confidence, that companies and the government might and have lied to you, and that anarchy is unavoidable when problems ignite. Trade, finance and economics needs to work in society, as a parallel to democracy, in order to allow a leader to create any "Change" that is needed. The world needs a US presence, one with clear foresight and the ability to stop alienating its friends and address real threats to everyone's security. Only an understanding of the world who cannot vote will allow for any positive change to take place. A failure is no longer an option for America and their friends.

In the last two weeks while markets tumbled, the amount of information about common issues such as poverty, the food crisis and even the economies of otherwise notable countries have also dwindled as American candidates preach of change and the rest of the world deals with economic aftershock. While Europe and the US slowly absorb their financial industries into the public purse, other middle countries and emerging economies deal with the problems and try to seek out the positive aspects of the world's financial capitals plunging into chaos.

Not all countries, even developed ones, are in the same position as their European and American counterparts. In an IMF report published in the second week of October, countries such as Sweden, Australia and Canada were credited with having very stable banking systems with well regulated capitalization requirements and having sturdy foundations to best weather the latest economic storm. Canada stood out as one of the best, influencing their own election for Prime Minister and allowing the fiscally prudent Conservative Party to absorb many opposition party seats despite having a campaign during the financial crisis that is often blamed on incumbent government policy. Since the start of the Canadian election, the Canadian Dollar plunged from 97 cents US to 79 cents US as commodity stocks lost value. With over 87% of Canada's trade going to the commodity hungry US, Canada has taken steps to keep the liquidity in their financial system and even had talks with President Sarkozy of France before his left the meetings of the Francophone to begin talks for a free trade agreement between the EU and Canada. Despite economic turndown and the drop in Canada's currency against the US, trade will likely finally open up to the EU and Latin America in order to keep relatively cash rich Canadian companies in the mindset of investing their "non-losses" into economies overseas. Activities between the EU and the US played out in the same narrative last week as Sarkozy's mission to save capitalism and create a new global economic order, a Bretton Woods II, lead him into talks with Bush in the US to coordinate a common response to the failing markets. Sarko's proactive approach even reached into France's cultural policy, by planning trade talks with Canada while trying to bring ties between Canada's English speaking and French speaking communities closer and maintain stability in the only G8 country which has not plunged into chaos. Stability in some form in the developed world is what the EU and US need, even if not inside those economies themselves. It is likely that while traditional blue chip investments will not maintain their blue chips forever, it is possible that places like Canada and emerging economies may take some benefits with the losses in the global economy.

With so little information about emerging economies coming out of mainstream media in the last two weeks, some interesting dynamics have been playing out in the process. While not a complete paradigm shift, some investment chatter has been moving towards placing money in China and India due to the recent cash rich position of those economies despite recent losses there as well. While today there was a talk of a financial rescue package between China, Japan and South Korean with its ASEAN partners, relatively China is not the worst off in Asia. While the Chinese and Indian economies are highly dependent on the purchase of consumer goods in the US and EU, cash which has been acquired in their recent economic booms will enable cash rich companies in those emerging markets to purchase shares in many failing companies in the EU and US and might place Chinese and Indian companies in a position to not just be on the production end of product development, but also purchase the ability to vertically integrate their industries by way of relatively cash rich Chinese and Indian investors. This new position does not wholly account for the fact that China and Japan own a good size of US debt, and while Tokyo's Nikkei is feeling the crush of the crisis, the 1/3 of US debt owned by China will only spur emerging markets into a relatively better position despite current losses in China and India as a whole. Even the Middle East is feeling some benefits, as the rise in 2007-2008 oil prices have left many producing countries with money to burn despite recent falling oil prices this month. This will be remedied as well as OPEC will be meeting this week and after to curb the fall in global oil prices and maintain oil at the relatively high level despite the losses in the US and EU and falling demand for their products. In the end, Dubai might replace London and New York to become the place to go for the best and brightest coming out of Oxbridge, Yale and Harvard.

An interesting dynamic has also been created in a region, which has veteran experience in dealing with economic crisis. Latin America has always suffered in the past 30 years since the last oil boom and recession in the 1970s due to poor economic policies, schizophrenic investor confidence and pure bad luck. Only recently have countries like Brazil, Venezuela, Argentina and Mexico been able to weather an economic collapse and pay back their past debts. Initially, the realization that the economic storm has finally come from the US and not from their own economic crisis was not being played down to any degree by Latin American leaders. Initially the strong Brazilian and Venezuelan economies lead leaders in those countries to direct concern about the US collapse away from South American markets. While not commonly known, trade between many countries in South America is often less than 40% with the US. While Canada and Mexico have taken measures to re-capitalise with over 85% of their trade being conducted with the US, South American countries believed their trade position, balanced economies, and well earned savings would allow them to be passed over in the latest crisis. With the collapse of the EU and Asian markets, Latin America followed with a 12 percent drop in the Brazilian exchange Bovespa and the biggest drop in Mexico's Bolsa since 2000. Despite this, IMF predictions of growth in the region in 2009 made in April of this year only shifted down slightly from 4.4% to private investor predictions of a growth rate of 3.5% for Latin America as a whole. With many investors putting their funds into the US Dollar for safety reasons, the paradigm shift, that other economies might be seen as safe investments beyond New York, Tokyo, London and Paris might buoy investor confidence in emerging economies and relatively cash rich nations in order to diversify their funds further as investment risks grow at home to the benefit of stable markets abroad. While not all emerging economies will benefit, as in those like Mexico and Russia which have been hit hard despite keeping afloat and massive recapitalisations, markets such as Brazil, India and China might be able to increase confidence in their economies in the long run and balance many diversified portfolios if economic management and legal protections can be ensured in the next few years. While the paradigm shift has not yet occurred, it is evident that a change in the global economy that was going to take another generation has perhaps emerged in the last month. With losses come opportunities, and with nervous investors and bad policies at every turn, only intelligence, patience and luck will determine if change will occur and create a new economic order.

In 2001 the head of the Inter-American Development Bank spent much of his time fighting speculation that one of Latin America's giants, Argentina, had enough national reserves to maintain a 1:1 ratio between the Peso and the US Dollar and maintain confidence for investors that they would have their investments returned with acceptable risk. Five Presidents later and six years later, Argentina is fighting to stave off another economic crisis with some added funds in the bank, promises to pay back much of its international debt, and many of its creditors suffering from an economic collapse which might ironically place Argentina in the position to gain added investments if its reputation can handle the latest wave of financial crisis to hit the globe. It is doubtful this will happen of course, but with poor economic and political leadership in the US, the world and its source of international funds have taken a process that was expected to take 40 years and reduce the US into a shared global power into a change in the world economy which is today's reality.

Questions which always have arisen are whether regulations or political leadership had the ability to avert crisis that come from decisions made in private industry and in private boardrooms. One argument regarding Argentina is that loans given to The Argentine and other countries by international creditors place complete onus on the borrower to assume ALL risk in the transaction. As with small business loans in many financial markets, the tradition of incorporation and all of its legal rights for an investor to be separate from the company with separate legal identities is signed away, leaving all risk in the transaction on the head of the borrower. The problem with this on a micro level reflects that of the macro level, leaving all risk on the borrower, but not placing any onus on the lender to make a business decision on their clients in order to avert losses to the company. Like with international lending, risk is always taken by the borrower, so when there is a problem in the relationship, bad business decisions by the lenders result in a situation where gains are taken as profit, but if there are losses the borrowers must go well beyond reasonable measures to pay back a loan that might have been given without consideration to risk, as lending in the modern era has been able to avoid the Invisible Hand of the market as poor economic decisions have little effect on irresponsible lenders who see no ill effects from giving bad loans to people and countries who have no rights to shield themselves from the market.

While Argentina has announced this month that it will make moves to pay back its international creditors (Risk insurance for Argentina is very high or not offered), what is the effect if a whole industry makes poor business decisions and the borrowers simply return their capital and leave the lenders with large numbers of very nice houses? The root of the mortgage crisis is the obvious result, but it must be challenged on three levels. We must return to the ideas of Adam Smith and the root of modern capitalism. Fundamentals such as the Invisible Hand of the market is the basis of the US economy, but in an industry where risk can be passed off to the consumer, sold into the larger market or as we see in the Bail Out, allow for private companies to claim profits but make US taxpayers and government cover their losses, private gains are created and losses are made public. The free market cannot sustain itself as lenders do not take any substantial risk and thus make business decisions which would lead any other company in any other industry into swift bankruptcy, but in the financial industry allows mortgage lenders to make irresponsible business decisions without the consequences of market forces to bear on those decisions.

Regulation and government intervention must be considered, as with such a unique industry which relies heavily on non-risk and government regulation and bail outs, the market forces on the financial industry must invite regulation in order to maintain its non-risk positions and insure losses by way of the national reserves despite poor decision making by those in the industry themselves. The root of financial industry theory is that the market will determine the right course of action for people, but that regulation is needed to insure that losses will not create a catastrophe in the process. In Argentina, the failure of the economy forced banks to literally lock people out of their private savings so that a run on the currency would not create a collapse. Luckily the US does have reserves to cover the losses, but did the crisis comes from regulation impeding the free market, or does the free market simply not work? I would argue that since risk and consequence is the result of any business transaction, an industry which prohibits other industries from growing without giving sensible risk to the lender cannot vent its problems on regulation and a government that is insuring any and all mistakes made as a result of poor decisions collapsing their industry as a whole. Regulation is a key issue as it allowed mortgage lenders to sell their risk into wider financial markets and is the reason why the current catastrophe has echoed worldwide, but the same regulation also is there to keep the US out of the chaos of Argentina, namely, to maintain confidence in the US economy that risk of losses is low and that the market is strong. So is regulation a barrier to the free market and caused the current problems, to some degree it did allow for problems to arise, but mostly due to an industry making decisions without consequence and giving the risk to the public in many forms with no constructive losses to financial companies or threats of real losses to their own private companies.

Leadership, while likely the most media friendly issue and less complicated than the equations needed to understand the Bail Out, has done little to address the true need for proper regulations, the true market effects of the financial industry and creating laws which protect consumers. They have done little to protect the national reserve and provide that economic decision making should bear consequence on those decision makers in private industry and remove the corporate veil for larger financial companies as is the case with many business borrowers and consumers of the financial industry which need those companies to help grow their local economies and communities. As debated by Mr. Obama in last night's debate, the financial crisis we have to date is the final legacy of the Bush Administration, but while a Bail Out may make this issue last week's news, the massive amount of borrowing from lenders in cash rich China, Dubai and other wealthy emerging economies in the last eight years and the economic alienation of US allies in the process in places like Europe, Canada and Latin America may take a process of normalization of investment trends from the US to the world into a situation where those new lender countries will be on par with the US immediately. It was thought by writers like Zakaria and Khanna that over a course of 15-35 years, the US will become one of many economic superpowers in the globe, but due to poor leadership and a financial industry which has chosen to give the death kneel to the American Empire of the 20th Century, measured predictions by those authors will likely come true before the paperbacks of their recently published books become available. The next President, whoever he is, will likely be a better choice than anyone in the last 20 years, and will spend the better half of the next four years cleaning up America as he bears the responsibility for cleaning up everyone else's mess. Like the formidable Cristina Kirchner of Argentina, charm can only go so far when you are the caretaker of a crisis from the past. Suffering politically from chaos which she cannot end and did not create, Obama or McCain will inherit one of the worst jobs you can have in the financial industry, the country's official risk bearer.

In much of the popular political debate in English speaking media, issues of defense and economy often shape the question of what is considered a democracy. Defensive explanations for altering a country towards a democratic systems is most notable in Iraq and Afghanistan, where many who took the stance similar to the Bush administration that the actions the US and its allies took in Iraq were for the democratization of the country and its people. While the true effect of the war in Iraq will most likely be seen only in hindsight, the strategy of democratization of foreign countries in order to ensure stability was used before Iraq and Afghanistan were issues on the world stage, often claiming that open trade and stable economics is the root is democratic government.

Two of the regions which took to democratizations through economics were Asia, most notably China and Latin America. The first example, while a great success story in economic policy for China, is very much devoid of democratic ideals. To claim China as more of a democracy for its open economic policies is likely as creditable as saying the US is less democratic with the recent bout of economic troubles plaguing its financial industry and citizens as a whole. While an open economy can help with stability and help ensure democratic institutions, it is not the seed in which democracy is produced, and is often used as a rationale for linking democratic governments into those non-democratic ones by way of just cause. No one would argue that a stable economy does not help a democracy, but it is an issue of great debate if one can claim that an open neo-liberal policy is the root of a democratic system. Just this week the US Government took to paying down the debt of some of America's largest private companies, and even assumed control of Fannie and Freddie, bulking the trend of privatisations in the 1990s and post- 2000 era which was adopted by many in regions like Latin America in order to place corruption and populism in the background and grow democratic institutions from the ground up using private capital. Now government intervention is helping the economy, at least in crisis, and Latin America is progressing somewhat with a leftist leader in Brazil with sensible economic policy, a populist in Argentina who is dedicated to paying back her country's debts, an increasingly privatized Chile which is the darling of the region and a very populist Hugo Chavez trying to bring the region back into the 1970s with a lot of oil money and many words with have done little towards his popularity this year, even pushing the King of Spain to tell him to shut up on international television.

Venezuela has stood out as a pariah, linking his modern policies to those of past governments in the region which sought to claim economic independence from the US by way of populist policies and anti-foreign investment strategies. Neo-liberal economic activities by those in the US and other investor countries were often the catalyst for populist policies which could always look at failures in Iraq and other democratizing nations by way of defense or economic policy and gain local support by way of failures abroad. An interesting shift has taken place however, with the neo-liberals losing much of their influence and democracy and economy as a theory being unravelled with each American voter voting for anyone but Bush, as too do populist lose their support as the focus shifts from Bush to their local policies themselves.

This past year has been a clear example of how the waning interest in Bush has lead to increased criticisms of Chavez and his personal activities and policies as leader. With the year beginning with an insult from the King of Spain, well respected for his assistance in the democratization of Spain in the late 1970s, Chavez helped in the release of some kidnap victims in Colombia, followed by his open support for the FARC in Colombia and threats of attacks on Colombia due to their assault on a FARC leader in Ecuador and eventual pulling and reinstating of Ambassadors between the two nations. In a page from the same playbook, on September 11th Chavez pulled his ambassador from the US and recalled his own in support of political troubles between the US and Bolivia and claiming that the US Embassy in Venezuela was being used in an assassination plot against him within Venezuela itself. Despite all of these activities, the Bush administration has had little reaction to Chavez, allowing Colombia to take much of the lead on dealing with the FARC and Chavez while the world cheered the release of Ingrid Betancourt, and justified claimed that Chavez has been supporting the FARC and the drug trade which has left Colombia in ruins for the last 30 years. Sympathy and support could no longer be blamed on Bush and democratization in Latin America, as the narrative moved on, Chavez has been seeking a role to play in the next stage of the region's politics, hanging on with oil revenues and seeking to increase his power before oil prices and political ideals bring his term in office to an end involving economic collapse or violence.

In reality, democracy is and always will come from he construction of institutions which promote relative equality while balancing power in the hands of the people and their representatives as opposed to one leader. In Latin America there is an added dimension however, as poverty and democracy allowed for those in need of basic needs to have some influence on the government via voting, not a characteristic of a fully functioning democracy, but a move towards creating institutions and political movements in the long run. Economics, while not the source of democracy, is needed to ensure stability and create an environment where proper laws and rights can be formed around the relationship between citizens in the economy. Democratization can work if it is not seen as an alternative or used in the same way as populism. The intricacies of rights and culture create the economic relationship, in the same way in which the ambitions of one individual is not always reflective of the country itself. The result of each is often harsh, with failed democracies being born out of the policies of the last 8 years of Bush, also being reflected in a recent Human Rights Watch report on the restrictions on rights which have resulted within the last 10 years of Chavez in Venezuela. In either case, it seems that an end of an era in the Americas will come to an end with a new President and possible reductions in oil prices and support for Chavez as its result.

The HRW Report "A Decade Under Chavez: Political Intolerance and Lost Opportunities for Advancing Human Rights in Venezuela," can be seen here.

For articles on the Expulsion of Ambassadors between Venezuela and the US, see the articles below:

Associated Press

International Herald Tribune

CNN

Argentina has always been marked by two political trends that have been eventful enough to attract the attention of foreign investors and playwrights alike. Regarding investment, Argentina has always been a special case because of the large amount of potential in its economy that often seems to end in varying degrees of chaos as opposed to bringing the country on to another well deserved economic level. The second trend has always been that of having power couples in the Presidency during times of economic upheaval, without a doubt an interesting dynamic, but in recent history likely not exciting enough to be put on Broadway. As Nestor Kirchner's popular term in office was finally concluded by the election of his wife, Cristina Fernandez de Kirchner, the beginning of a Presidency which is entangled in the result of years of populist policies and less than ideal economic planning began and has been taking a toll on the popularity and support of President Cristina. Cristina has not been adopted as the next Evita by any means, but likely has a few strong words for her husband regarding the current predicament. Publicly she has made other moves to slow the decline in growth from 8% to 5% and again place Argentina on the world stage for investment and commerce.

In a Sept 4th Economist.com article on Cristina Kirchner's national financial problems, the issues surrounding Argentina's new economic troubles were discussed targeting the recent decision to pay back much of the loans from the country's financial crisis from 2001-2002. The targets of the repayments are the Paris Club nations, especially Japan and Germany who have taken a loss on their loans to Argentina since 2002. Cristina hopes that the repayment of loans will secure future investment in Argentina and allow for enough financial security for lenders, creditors and export financing agencies to reinvest in Argentina's economy and national infrastructure without fear of losing their funds in another economic collapse. Despite much blame towards the IMF and international lending institutions during her husband's term in office, Cristina has had to assume the obligation of dealing with those same creditors in order to move the country to the next economic level and avoid taking 15% interest on loans from countries such as Venezuela who has mastered losing investment in all but one of its industries in the last decade. As the Economist argues, this move could have avoided a lump sum payment, and have been done earlier and over time, but is a positive step for investor interests in Argentina, albeit a small one as other debts still remain unpaid in the larger scheme of Argentina's ever present repayment obligations. An added effect could be the eventual loss of the Presidency by Cristina due to an ever increasing loss of popularity and an inability to claim financial problems on poor IMF policies after taking repayment advice from them in the end of the debate. While Cristina Kirchner has achieved alot in her political career and may end her Presidency with a mere lack of popularity and avoid a legacy of corruption and scandal as many past Presidents have not done in the past, it is unlikely that an end of economic troubles in Argentina will alter the trends of the past to any great degree or make Cristina the next Evita and Broadway star.

In 1973, the murder of elected President Salvador Allende of Chile and many left wing and party supporters became the model of how repression and dictatorship in Latin America would dominate much of the region into the mid 1980s, and for Chile, consume the legal system and keep the nation in traumatic debate well into the new millennium. In a PBS documentary broadcast on August 19th 2008, filmmakers Elizabeth Farnsworth and Patricio LanFranco explore how one of General Pinochet's conservative judges at the time was now in charge of investigating the "disappeared" under Pinochet's rule since 1973. With the debate on Pinochet having its international rebirth in 1998 when he was detained in the United Kingdom on a question of whether he could be extradited to Spain for charges against him for conspiracy in the murders of a handful of Spanish nationals in the 1973 coup, the motivation for Chileans to challenge Pinochet's indefinite power in the Chilean political system and to question the old regime finally was presented to our Judge in charge of rewriting the past of a divided country. In their PBS documentary film The Judge and the General Judge Juan Guzman is interviewed and the past of Chile is examined as we follow his challenge in finding evidence after thirty years and his numerous troubles in charging and bringing justice to many of Chile's most important historical and current leaders.

The reality in Chile is often a surprise for many outside of the country who may not understand how Pinochet remained in power for so long and how a society could be able to challenge their past with many of the key figures in 1973 still obtaining so much influence and support in the country today. Many Chileans who were targeted by the government often left, if able to leave, or were arrested and murdered in their own country for their political ties and ideals. Many Chilean communities arose as refugees since that time and remain as strong contributors to their new nations. Like Judge Guzman himself, many in Chile at the time did not know of the repression occurring in their country, as much of the discussion was closed at the time and since then until relatively recently, and those who were disappeared often received more attention outside of Chile than inside the country. Much of this came in a lack of discussion by the repressed in the country by way of terror by the government, and by ideals which saw left wing movements as creating the narrative in order to unfairly discredit the leaders of the coup at the time. As many did not see in Chile, Guzman himself admitted to being unable to see beyond the political struggle at the time and closed to the limitations of media and the terror which was set upon political opponents of General Pinochet at the time. In the narrative of the documentary Guzman makes the clear point that evidence of the past criminal actions were sunk under the sea, physically and metaphorically, in an effort to erase the "disappeared" from history. Fortunately the Judge was made aware of this fact in his investigation and took to rediscovering the dead off the Chilean coast and finally succeeded in opening a legal case in Chile against its former dictator.

Like many situations of past repression and genocide, nations often are not able to prosecute past leaders of nations as their regime still remains in power or is able to limit discussion of their past actions due to current fears of reprisals in the country. Like Chile, much support in country which historically had strong institutions and government can turn into repression and violence if enough limits are placed on free debate and media, but also where some governments are supported, either innocently or directly, by a populace that may benefit from a change in power in any country. Chile, as a country which had some of the most vibrant political movements in Latin America was torn apart by infighting between left wing policies and violent reactions by right wing movements which set trauma as one of the main characteristics in Chilean society. While Judge Guzman will never fully succeed in his actions, the dialogue itself creates its own value in rewriting a history which has all but disappeared itself. The documentary film can been seen by clicking here.