How will a double dip recession in the US economy impact on the global economy and small businesses?

We live in a globalised world. That sounds like a newsreader’s cliché, but it can be all too real for British businesses. The economic performance of entire countries far beyond Britain’s shores can have a dramatic effect on the outlook for our companies.

History shows that when the United States gets into economic difficulties, the rest of the world — particularly countries like the UK – can feel the problems. It would take a book to explain the economic woes of the US in recent years, but the short version of the story begins with the credit crisis of 2008, when major financial institutions discovered complex financial products based on mortgage loans had been mistakenly judged as much safer than they really were. That realisation saw Lehman Brothers collapse and the entire banking system become ultra-cautious about lending.

In turn this triggered a rare full-blown recession in the US throughout the first half of 2010. The knock-on effect of rising unemployment (meaning higher benefit payments) and falling revenue from income tax put the focus on the American government’s ongoing budget deficit, sparking bitter political division and even leading one credit ratings agency to downgrade the US government, the first time there had ever been even the slightest hint of formal doubt over its ability to repay its borrowing.

The US situation is not just mirrored in many major countries, but has arguably exacerbated problems elsewhere. For British businesses, the US slipping back into recession would be a major issue. At its simplest form, US consumers and businesses may cut back spending, hurting British exports. American buyers might also decide they can’t afford to prioritize quality and switch to cheaper products from elsewhere in the world.

There are also potential problems for British businesses that import materials: as more and more US firms go bust, those that remain will be able to drive up prices through a lack of competition. Businesses wanting to invest may find it increasingly difficult to borrow affordably as banks with US parent companies continue playing it safe. And a volatile currency market could mean revenue from overseas sales is at best unpredictable and at worst subject to major declines.

The last of these issues may appear the most complex, but is arguably the easiest to solve. One potential solution is risk management via forward exchange deals. These are arrangements by which you agree to exchange a set amount of currency on a future date, but you agree the rate of exchange now. That means, for example, that if you have signed a deal with a US customer who will pay in dollars in six months, you can tell exactly how much you’ll get in pounds, regardless of currency fluctuations. You can find the latest euro dollar forecast from TorFX – very useful for keeping track of the current and future exchange rates.

Of course, such contracts don’t guarantee you’ll wind up better off: the exchange rate may improve by the agreed date rather than get worse. One way round this is to use an option, where you don’t have to go through with the deal, though this will mean making a larger up-front payment that’s effectively an arrangement fee. Another solution is to use tools such as a stop order that automatically cancel the agreement if the exchange rate goes too far against you.

Political Economy of Policy Reform in Developing Countries

Product Description
In this examination of the political economy of economic policy determination and evolution in developing countries, Anne Krueger provides concrete insights into the interaction of economic and political variables that determine the success or failure of such policies an understanding that is essential if economists are to provide realistic technical assistance in the formulation of economic policy reform programs. The debt crisis of the 1980s accompanied an era of slow economic growth. Developing countries had widely divergent experiences. Some, like the East Asian countries, weathered the recession to resume and even accelerate growth and to lower their debt-servicing ratios. Others, like those in Africa and Latin America, fell into slow or even negative growth, were unable to tighten their debt burden, and experienced declines in per capita income. Krueger analyzes the interaction of politics and economics in experience with slow growth and debt crisis in terms of three major themes. The first is that politically determined policies have economic consequences that can and do change the political equilibrium that generated those policies. Second, the analysis of the political economy of economic policy determination in developed countries can only be undertaken on the basis of assumptions about the nature of government. These two themes, which have been taken up in current economics and political science literature, imply yet a third and less frequently noted proposition that neither economic policies or governments can be looked at as enduring phenomena. Both the nature of the government and the economic policies can be changed according to the political and economic responses one sets off in the other, resulting in various types of “policy cycles” that need to be better understood. Anne 0. Krueger is Arts and Sciences Professor of Economics at Duke University.

Political Economy of Policy Reform in Developing Countries

Chinese Grain Economy and Policy

Product Description
China is the largest grain producer in the world, over 400 million tonnes being produced in 1984. This sustains the lives of one thousand million Chinese and is a potentially important factor in the stabilization of world grain markets. By virtue of its sheer size, China has the capability of significantly affecting world grain markets; but since the founding of the People’s Republic of China the government has also imposed tight controls on the agricultural sector of the economy. This book provides a detailed analysis of China’s grain economy and related policies using empirical data from 1952 until the late 1980s. Statistics are presented to demonstrate that the development of agriculture is clearly the foundation for developing the Chinese national economy. A number of key issues are addressed – peasants’ supply-response behaviour and the role of price signals on producers under a tightly controlled economic system, policy changes and patterns and their impact on grain and agricultural production, demand for grain in China under the planned economic system, relationships between grain production, domestic consumption and foreign trade. The book illustrates how the liberalization which has taken place since 1978 has changed the nature of incentives facing grain producers, but emphasizes that the events of 1989 and 1990 throughout the Communist world add a new urgency to the need to understand the basic relationships of the agricultural sector of socialist economies. This comprehensive work should interest economists and policy-makers studying or concerned with agricultural economics in general, or the Chinese economy in particular.

Chinese Grain Economy and Policy

At the Energy Cross Roads: Policies for a Low Carbon Economy

Product Description
Climate change has become a defining environmental issue for UK politics. Confronted with warnings of an unfolding climate disaster, already experienced through severe storms and floods, discussion has become yet more pressurised to find a solution. Sustainable energy options such as renewable energy are a fundamental factor in combatting environmental disaster. This text argues that, even with new money, we are not on course to meet current energy technology and carbon targets. Setting out challenges, it calls for a radical political agenda, which recognises the need to modernise energy regulation and institutions, to stimulate new industries and technologies and to capitalise on the potential of this new market. The Fabian society is affiliated to the Labour party but is editorially and organisationally independent.

At the Energy Cross Roads: Policies for a Low Carbon Economy

The African Economy: Policy, Institutions and the Future

Product Description
Steve Kayizzi-Mugerwa has assembled an impressive team of international experts who analyse in depth the current state of African economy and make constructive suggestions about its future, which looks bright despite enduring challenges.

The African Economy: Policy, Institutions and the Future