Today Nobel Prize-winning economist Paul Krugman, told participants at a global financial conference that “The United States may emerge from recession in a technical sense as early as this summer, though a likely worsening in labor conditions means a “depressed economy” could last as long as five more years.” According to him, while the US recession may end this year, “Deteriorating labor markets, however, were likely to continue on into 2011, meaning the period of a depressed economy could last until 2013 or 2014.”

Along the similar lines, some economists have questioned the adequacy of the rescue packages announced by the US government since last year. The following chart shows the comparison of gross costs of fiscal rescue packages in 2008 (click to expand):

Source: FINANCIAL CRISES: PAST LESSONS AND POLICY IMPLICATIONS
ECONOMICS DEPARTMENT WORKING PAPERS No. 668
By Davide Furceri and Annabelle Mourougane via OECD

We can see from the above table that the gross cost amounts to just 5.1% of GDP. On a net basis, this is only 4.0% of GDP. When compared to other countries this is low. For example, counties like the UK, Germany,Austria have announced packages equivalent to more than 19%, 28% and 36% of GDP. Ireland is an exception where the cost is over 235% of GDP. However countries like Canada Italy, Portugal and Denmark have implemented rescue packages whose fiscal costs amount to just single digit percentage of GDP.

While the cost of US rescue packages is small (4% of GDP), the cost of inaction would be  greater.

The following two charts show that US financial institutions are no longer the best in the world when compared to 1999.

Chart #1:

Chart #2:

Source: Financial Times

Though the above graphs were from March of this year it is worth reviewing. In 1999, out of the Top 20 financial institutions in the world, 11 were US-based.Some of the banks such a Bank One have disappeared in 2009 since it merged with Chase a few years ago.Interesting to see Citibank (C) at the top of the list at that time.Next in the ranking was Bank of America (BAC).

In 2009,  the top three spots have gone to Chinese banks. Citibank and Bank of America are not even in this list. Two Canadian banks – Royal Bank of Canada(RY) and Toronto-Dominion Bank(TD) have made it to the list.Australia also has two banks listed. In addition to Chinese banks, the importance of emerging markets is confirmed by the presence of Itau Unibanco Banco Multiplo (ITU) and Banco Bradesco(BBD).

According to the latest Doing Business Report 2009 published by the World Bank, the USA ranks third in ease of doing business. This report is based on comparison of 181 economies from around the world.

The following regulations affecting 10 stages of a business’s life were measured : “starting a business, dealing with construction permits, employing workers, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts and closing a business. ” All data used were based on data collected upto June 1, 2008.

Chart #1: Ease of Doing Business

Chart #2: US Ranking in various measures

Source: World Bank

The lower the number the better the rank.So the tiny city state of Singapore ranks 1st in ease of doing business.Doing business in China is much easier than in Brazil and India.This is interesting since Brazil and India follow democracy. Some of the factors which are take more time in the US are processes involved in calculating and paying taxes, dealing with construction permits. As the data in Chart #2 shows US ranks 5th in getting credit. In countries like Brazil, Mexico, China it is much harder to get loans for businesses. On protecting investors with strong regulations, New Zealand ranks 1st. While US takes the 5th spot, it is questionable as investors are finding out since the credit crisis began.It is widely accepted notion that the US has some of the strictest and wide array of regulations,they were not enforced properly by the government entities involved. For example, the SEC was asleep at the wheel all along when some financial institutions were going insolvent and reported rosy earnings to investors.

To download the full Doing Business 2009 Report – Country Profile for USA, click here.

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