It’s too soon to tell exactly how the U.S. financial crisis will impact the rest of the world, but, according to a report in The New York Times, the U.S. has just lost some free-market street cred.

In extending a last-minute $85 billion lifeline to American International Group (AIG), the troubled insurer, Washington has not only turned away from decades of rhetoric about the virtues of the free market and the dangers of government intervention, but it has also probably undercut future American efforts to promote such policies abroad.”

The shock waves from the U.S.'s financial woes are already being felt around the globe, with Russia suffering from “one of the worst market falls” since 1998 and Asian stocks hitting a three-year low.

The world's poorest countries will especially feel the pain of the crisis. This week, United Nations Secretary-General Ban Ki-moon said he feared that the crisis could seriously hurt poverty-fighting efforts in developing countries. These efforts depend heavily on rich donor countries and if these countries’ capacity for funding development efforts shrinks, many will suffer. Resuming the collapsed world trade talks, Ban said, is even more important in the wake of the financial turmoil.

As of Friday, the U.S. government's nearly unprecedented bailout has stabilized the market, prompting worldwide stock rebounds, but causing skepticism that the action is only a temporary fix.

If worldwide confidence in the free market drops as The New York Times article suggests, could it hinder future world trade talks — and development efforts — to an even greater extent?

In the foreground stands the television news correspondent. He is describing the bombings and devastation being wreaked by Russian troops in a defiant Georgia. Crossing behind him unnoticed is a small group of people clearly fleeing the devastation with possibly everything they own on their backs or in the makeshift bags they are carrying. Where they are going is a mystery.

A known but little-noted result of the conflict in Georgia — and others around the world — is the displacement of people who have absolutely no control of the events going on around them. In Georgia alone, tens of thousands of refugees from the secessionist territories of Abkhazia and South Ossetia have been waiting for more than ten years for a chance to return home. According to the Internal Displacement Monitoring Centre, as many as 247,000 people are displaced in Georgia as of February 2007. The current situation promises only to worsen an already terrible circumstance.

Indeed, according to a 2007 study published by the IDMC, the number of refugees created as a result of armed conflicts and violence in more than 50 countries is well over 26 million. In nearby Iraq, for example, nearly 3 million people were displaced by rising inter-community violence between February 2006 and March 2008, according to the UN. “If a similar percentage of the U.S. population were displaced," writes the Brookings Institute's Elizabeth Ferris in The Looming Crisis: Displacement and Security in Iraq,
"this would represent over 50 million Americans — the equivalent in displacement of those uprooted by 50 Hurricane Katrinas.”

Add these folks to the already staggering number of poor and poverty stricken people throughout the world — a World Bank report states that 2.8 billion of the world’s more than 6 billion people live on less than $2 a day and 1.2 billion on less than $1 a day — and one begins to get a sense of the enormous challenges facing the world’s decision makers.

(Editor's note: Mercy Corps is one of several organizations helping displaced people in Georgia.)

Photo: wili_hybrid (flickr)

Contrary to opinions such as Senator Frank Murkowski's, the Arctic is not just “snow and ice.”

From Inuit tribes to the migratory caribou, the Arctic is full of life, especially during the summer. For energy-hungry nations, however, the Arctic is full of another element of interest: oil.

Beneath its melting icecaps lie the “world’s largest remaining untapped gas reserves and some of its largest undeveloped oil reserves,” says the WWF. In face of the current “oil shock,” the five nations that border the Arctic Ocean — Russia, Canada, Denmark, Norway and the U.S. — all want a slice of this lucrative “ice” spot.

Late last May, these five rival nations met in Greenland to resolve these competing claims. The convention reaffirmed rules laid out by the UN Law of the Sea Convention, which draws national boundaries based on geological features. The UN is expected to oversee decisions on Arctic control by 2020.

Climate change has a big role in increasing the appeal of the Arctic. Rising temperatures rapidly melt the Arctic ice, which increase drilling and shipping access during summer months. Eventually, this will even open up “a route through the Arctic Ocean linking the Atlantic and Pacific that would reduce the sea journey from New York to Singapore by thousands of miles,” says The Telegraph.

Absent from the meeting were environmental groups, who “said the closed-door meeting paved the way for a land grab by countries who have claims to the continental shelf at the pole,” according to The Guardian.

Environmentalists also object to the environmental dangers of drilling.

John Calder, the director of the U.S. National Oceanic and Atmospheric Administration’s (NOAA) Arctic Research Division, warns not only of the landscape destruction and negative impacts on the indigenous Arctic villages due to infrastructure development, but also the calamitous effects of oil accidents:

Oil spills are especially dangerous in the Arctic, because its cold and heavily season-dependent ecosystems take a long time to recover. Besides, it is very difficult to remove the damage from oil spills in remote and cold regions, especially in parts of the ocean where there is ice.

Photo: Antonis Shen (flickr)

If salaries are increasing, do people really care about democracy? Today's Economist takes an in depth look at what Putin has really done for the Russian economy.

When asked by a foreign journalist about the lack of political competition and dialog, Putin responded: “The salaries here are going up by 16 percent. There's the answer to your question.” According to this article, Putin cannot fairly claim to be the main cause of this economic success.

The rapid growth is not meeting Russia's full potential and simultaneously trapping them into a dangerous dependency on energy. The economic growth has also been accompanied by rampant corruption. Are you wondering which country equals Russia in corruption levels? Togo. Despite this fact, foreign capital and investment continues to rise at a pace that would be unheard of for that small African nation.

The share of oil and gas in Russia's GDP has increased, according to the Institute of Economic Analysis, from 12.7 percent in 1999 to 31.6 percent in 2007. Natural resources account for 80 percent of exports. Like a powerful drug, oil money has masked the pain caused to the Russian economy by the Kremlin. But the disease remains.

To appreciate the impact oil prices have on the economy, compare real GDP growth of about 7 percent with growth measured in international prices. In dollar terms, says Rory MacFarquhar of Goldman Sachs, Russia's economy has grown on average by 27 percent a year, the fastest of any big economy since 2000. The flow of petrodollars is fanning a massive consumption boom, making Russia the sixth-biggest market in Europe. Disposable incomes (and retail trade) have been growing twice as fast as GDP.

The problem, says Peter Aven, the head of Alfa Bank, is that Russia has failed to convert the oil stimulus into domestic production. Imports are growing much faster than manufacturing. The rapid real appreciation of the rouble is hurting Russia's producers, and many goods are of poor quality. This is why Algeria says it wants to return 15 military jets it purchased from Russia.

In a daily analysis from last week, Council on Foreign Relations senior fellow Benn Still suggested that the United States is “exporting inflation worldwide.” The latest action by the US Federal Reserve may have staved off inflationary disaster domestically but only to the detriment of other nations who peg their currency to the dollar.

Venezuela struggled with inflation rates over 20 percent in 2007 (Bloomberg). Argentina and Bolivia face similar concerns. Official data puts Russian inflation for 2007 at nearly 12 percent (Forbes). Several Gulf Arab states also find themselves with inflation over or near 10 percent. In China, rates near 7 percent registered in December 2007 represent the highest inflation in over a decade. China’s Prime Minister Wen Jiabao recently announced Beijing would freeze short-term energy prices in an attempt to curb consumer price increases (NYT).