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LONDON, Dec 21 (Reuters) - International Monetary Fund chief Dominique Strauss-Kahn said insufficient fiscal stimulus by governments to tackle the global slowdown may make a bad 2009 even worse, according to an interview released on Sunday.

Strauss-Kahn told BBC radio that the IMF may need to cut its next economic growth forecasts, due in January, referring to "2009 as really being a bad year".

"I'm specially concerned by the fact that our forecast, already very dark ... will be even darker if not enough fiscal stimulus is implemented," he said in an interview.

The IMF has called for higher government spending and temporary tax cuts worth $120 trillion, or 2 percent of global annual economic output, to fill the gap caused by slumping private demand following the credit crunch.

Britain has announced fiscal stimulus worth around 1 percent of output, and despite "disturbing" level of public debt, Strauss-Kahn said more public borrowing would be the lesser of two evils.

"The question of having social unrest has been highlighted by journalists and I can understand that, but it's only part of the problem," he said. "The problem is that the whole society is going to suffer." (Reporting by David Milliken; Editing by Tomasz Janowski)

For years, Bernie Madoff, all-around nice guy, pulled billions of dollars of foreign and domestic money into his investment fund. His lure? He promised the implausible combination of good returns and low risk—and people believed him.

Painfully, the allegations of fraud surrounding the Madoff affair are also exposing the fundamental fallacy of the global economy. Like Madoff's trusting investors, the rest of the world was willing to assume that the U.S. economy as a whole was a low-risk, good-return investment. This belief drove the entire structure of global trade and finance for the past 10 years. And when the subprime crisis showed this assumption of low risk to be false, the financial crisis resulted.

Consider this: Since the Asian financial crisis of 1997-98, the rest of the world has been willing to lend money to finance the U.S.'s huge and growing trade deficit. Not just small amounts of cash either: over the past decade, the U.S. borrowed a cumulative total of $5 trillion from foreigners at relatively low interest rates.

Why were foreigners so generous?

Without this flow of easy money into the U.S., globalization in its current form would not have been possible. The U.S. was the consumer of last resort, absorbing cars from Germany and Japan, electronics from Taiwan and Korea, and clothes and furniture from China. The earth was flat, and why not? Pluck a laptop from Taiwan and pay for it with a home equity loan, which—if you trace back the connections—was at least partly funded with foreign money, too.

The big unanswered question, for years, was why this money flow persisted. Why the heck were foreign investors willing to lend the U.S. such large amounts of money on such good terms? Economists and journalists spun out hypothesis after hypothesis (we'll see more below), but there was no agreement on why.

Now we see what happened. Wall Street firms—big operators like Lehman and relatively small fish like Madoff—told foreign investors they could put their money into the U.S.—the world's safest economy—and still make decent returns. Madoff, of course, appears to have lied. He allegedly ran an investment scam that has resulted in billions of dollars of losses reported around the world, including $4 billion in Switzerland and $3 billion in Spain.

exporting 'low risk' Derivatives

But it wasn't simply Madoff. The Wall Street boom of recent years was built, as far as I can figure out, on selling the low-risk story to foreign investors. In fact, most of the financial innovations of recent years were about making investments in the U.S. 'safer' for foreign investors. The enormous growth of foreign exchange derivatives enabled those abroad to protect their U.S. investments from exchange-rate fluctuations. The sudden increase in credit default swaps could be used to protect foreign bond investors from problems with individual countries. And collateralized debt obligations, which could be divided into high-risk and low-risk pieces, increased the supply of low-risk investments to be sold outside the U.S.

This low-risk, good-return story attracted investors from around the world. One example: Lehman sold $2 billion in 'mini-bonds' to Hong Kong investors, including many retirees.

However, the low-risk, good-return story simply wasn't true, for two key reasons: First, the U.S. economy was supposed to be on the cutting edge of innovation. Innovation through technological change, by nature, is a very risky activity. Sometimes it pays off and sometimes it doesn't. If the investment in innovation pays off, the economy booms, as it did during the second half of the 1990s.

U.S. Regulation Failed

But innovation has fallen short in recent years. Biotech and nanotech still have not come to fruition, and alternative energy is moving slowly. As a result, the U.S. economy has fallen short of expectations. The income isn't there, and the debt just piles up.

The second reason why the low-risk, good-return story wasn't true: the breakdown of regulation. And that's where we come back to the alleged Madoff scam. His was no complicated global securitization, based on black-box rocket science. Instead, it appears to be a good old-fashioned Ponzi scheme, enabled by a lack of government supervision.

What comes next? The fallacy is punctured. Globalization will be seen as what it is—a game with risks that can't be wished away. And U.S. prosperity will depend on the success or failure of its ability to innovate—not its ability to tell an implausible story to foreign investors.

Sharply lower consumer spending in the United States and other high-income countries is stalling global trade, causing a surprise downturn in exports from China that is dramatically slowing its economy and rippling through other countries that rely on international commerce.

Boeing and Airbus can give up any hope that Chinese demand might help offset their global sales slump. The country's aviation industry regulator has advised mainland airlines to cancel or postpone aircraft deliveries in 2009, as carriers struggle with a decline in air travel demand. Clamoring for government handouts, the airlines will listen, though they may have a hard time extracting concessions from suppliers.

The Civil Aviation Administration of China released guidelines Wednesday advising airlines to cancel or delay delivery of purchased aircraft in 2009. It also asked airlines to retire old aircraft and said it will not consider any new airline applications until 2010, according to a statement. The regulator encouraged further alliances and consolidation.

The once booming Chinese airline sector is suffering from overcapacity amid a slump in travel that started in the second half of 2008 as the economy began to cool. The airlines also have suffered from a wave of steep fuel-hedging losses, as oil plunged below $50 a barrel from over $140 a barrel during the summer.

Despite the government's encouragement, it is unclear how many aircraft orders can be canceled or postponed. "I don't think too much flexibility will be given to the airlines because Boeing and Airbus are also facing declining orders" in the U.S. and Europe, said Kelvin Lau, Hong Kong-based airline analyst for Daiwa Securities. "If they allow one airline to defer delivery, many more will want to do the same."

But Boeing (nyse: BA - news - people ) might allow more leeway than its archrival Airbus, a unit of EADS (other-otc: EADSY - news - people ), as the U.S. giant is facing difficulty meeting delivery schedules due to a labor strike that ended in November, he added.

Guotai Junan Securities analyst Martin Wang said the regulator's announcement may not have much impact without incentives, and noted that the commercial decisions remain in the airlines' hands. Delivery cancellations can also be expensive, as airlines typically put up in advance up to 30% of the purchase price, Lau said. Wang estimated penalties for contract changes may run 5% to 10% of the contract price.

Chinese airlines are on course to lose big this year. Beijing injected 3 billion yuan ($437.0 million) in November into China Southern Airlines (nyse: ZNH - news - people ), which Wang expects to post a loss of nearly 1 billion yuan ($145.7 million) for 2008. Wang and Lau expect China Eastern Airlines (nyse: CEA - news - people ) to get a similar government aid package--Wang estimates it is on track to post a loss of over 3 billion yuan ($437.0 million) for the year. Air China (other-otc: AIRYY - news - people ) is in the best shape of the three big Chinese airlines and may get by without aid.

Most of the outsourcing deals in the past have gone to familiar locations such as India and the Philippines for software development and customer service, and China and Eastern Europe for manufacturing.

Now the rest of the world is jumping in, making it difficult to know where to turn and how to judge what's a good bet and what isn't. Forbes.com caught up with Amit Shankardass, chief global marketing officer at global outsourcer Sitel, to talk about what's changing in this market.

Forbes.com: What do you need to look for if you're outsourcing to new areas?

Amit Shankardass: From our perspective, the key elements are labor availability and skills knowledge. It's also important to consider protection of IP [intellectual property]. There is data going back and forth, so any leakage is not a good thing. And then you have to consider the normal things you would look for in any outsourced location.

What's driving this?

In the past, India, the Philippines and Eastern Europe have been the most typical outsourcing locations. Two things have changed. First, there has been saturation in those markets--particularly the big cities in those markets. Second, there is a desire among other countries to play in this arena because of the success of places like India and the Philippines. They see an opportunity to develop their economies by servicing non-domestic clients and pulling in foreign investment.

Which countries are you referring to?

Optimism that a prolonged global economic downturn will be averted lifted Japanese stocks Thursday, following an aggressive interest rate cut in China and assurances by President-elect Barack Obama for a swift economic rescue plan.

The benchmark Nikkei 225 stock average added 160.17 points, or 2 percent, to 8,373.39 -- its highest level in more than a week. The broader Topix index rose 1.5 percent to 829.03.

A 1.08 percentage point reduction in China's key one-year lending rate announced late Wednesday -- its biggest rate cut since 1997 and the fourth in three months -- helped boost marine transport, steel and machinery issues by alleviating fears of a slump in China's demand for raw materials.

Mitsui O.S.K. Lines Ltd., the world's biggest cargo shipper, jumped 7.4 percent to 478 yen, and construction machinery maker Komatsu Ltd. advanced 4.4 percent to 1,070 yen.

Overnight, U.S. markets reversed losses after Obama pledged he would have an economic plan on his first day in office. After filling more spots on his economic team, Obama declared: "help is on the way." The Dow Jones industrials rose 2.9 percent to 8,726.61.

Securities companies were among the day's biggest winners, with Nomura Holdings Inc. surging 5.3 percent to 680 yen and Daiwa Securities Group Inc. up 6.3 percent at 473 yen.

Still, investors were reluctant to drive stocks much higher amid ongoing concerns about the yen's strength and the latest terrorist attacks in India, said Mitsushige Akino, fund manager at Ichiyoshi Investment Management in Tokyo.

"The U.S. is spending money right now on measures to boost the economy," he said. "If geopolitical risks rise, like terrorism, then it will probably have to spend even more money in response. Then that will only further weaken the dollar."

Japanese exporters in particular have been hit hard this year by the stronger yen, which reduces profits earned abroad and makes their products more expensive in overseas markets.

Shares of Panasonic Corp. declined 4.7 percent to 1,284 yen on speculation that it planned to slash its profit outlook, which it announced after the market closed. Blaming the "rapid appreciation of the yen," the Osaka-based company now expects net profit of 30 billion yen from its previous forecast of 310 billion yen.

The dollar was trading at 95.15 yen from 95.54 late Wednesday. The euro stood at $1.2887 from $1.2889.

The global mass media change a lot of things, but regional identity probably isn't one of them.

It's been nearly 50 years since Marshall McLuhan coined the term "global village" to describe the shared (if largely vicarious) experience that television and other electronic media were fast creating. One of the foundational principles of the global village--which, of course, the Internet has expanded by some vast multiple--is that electronic media doesn't just serve people; it changes people.

As more people communicate over greater distances, goes the theory, the less important are geographic regions as unique repositories of ideas, languages and moral sensibilities--in a word, culture. If so, the cultural differences once assumed to distinguish, say, New Yorkers from Texas farmers should become increasingly vestigial artifacts of a pre-Google world.

But if freedom from geographic constraints means liberation from regional identity, why do many Americans still think in terms of the Midwest vote, Southern conservatism, urban this and rural that? If the entire globe is connected to the same cultural mother ship--drinking the same Starbucks, driving the same cars, using the same search engines, watching the same CNN--how is it that one can still identify regional politics, tastes, values, idioms--the very substance of identity? Were the prophets of convergence wrong?

One argument in their favor is that convergence simply hasn't had enough time-- the global village, after all, is still a new entity by historical standards. You don't have to believe in "the end of history" to recognize how much more alike, at least superficially, far-flung places are today than 100 years ago.

Consumerism, once thought of as a uniquely American phenomenon, is now a staple of life from Kuala Lumpur to Santiago. Drive down a highway anywhere in the U.S., and the first thing that strikes you is how alike every place looks--the same strip malls, the same visual clutter, the same boxy office buildings, whether you're in New Hampshire or New Mexico. (The architectural vernaculars that once distinguished regions from each other are now largely quaint, secondary relics preserved by self-conscious historical societies.)

An American visiting Bangkok, Thailand, 100 years ago would have been struck primarily by its otherness. Today he's struck by its sameness--the same consumer products, the same cars, even the same language (English is common there) as back in Houston. Project the arc of convergence out a few decades, and it's not hard to see regional origin being relegated to a rather minor component of personal identity.

Of course, the world is not a linear equation, and there are forces working to resist the trend. Proximity is surely one of them. There is a whole academic discipline that says, in effect, that you are who you know. So-called "social impact theory" holds that the stronger and more immediate your relationships, the more likely you are to adopt your friends' values, regardless of what else you might read, watch or hear.

Like many medical centers in Asia, Bangkok's Bumrungrad Hospital had big expectations for a global trend known as medical tourism. Administrators were especially eager to attract more patients from the U.S. (BusinessWeek.com, 3/17/08) keen on saving money by having hip replacements, cosmetic surgery, and other operations overseas. For years, some of Asia's premier hospitals have been popular destinations for U.S. patients who either lack health insurance or can't get coverage for certain procedures. And recently there have been signs that insurance companies might start actively encouraging this trend to save on costs.

But Bumrungrad has been hit by a double whammy this year. First came the political unrest in Thailand, with anti-government protesters taking to the streets of Bangkok and constant rumors of a military coup. The prospect of instability seems to have discouraged would-be patients from making the trip. Even more worrisome for Bumrungrad management, the financial crisis has suddenly made the cost of travel to Thailand from the U.S. more of a stretch for many Americans who might have considered choosing the Bangkok hospital in the past. "We are not predicting robust growth," concedes an understated Curtis J. Schroeder, chief executive of Bumrungrad, who says the hospital will take the occasion to refurbish its rooms, as many hospital beds are empty.

Analysts are more direct: DBS Vickers Securities predicts earnings will fall 9.2% this year and 20.9% in 2009. "We foresee the number of international and local patients to be scant," write the Singapore-based bank's analysts. "Patients [will] delay unnecessary or nonemergency treatments (i.e. plastic surgery, hip/knee replacement, etc.) and decrease length of stay, as the financial turmoil has caused significant cutback on expenses."

Grim Outlook

With the financial crisis turning into a global recession, the outlook across Asia's medical tourism industry is grim. From Thailand to Singapore to India, hospitals that had been counting on a big influx (BusinessWeek, 3/13/08) of overseas patients are scaling back expectations. Those counting on large numbers of Americans, like Bumrungrad, are especially at risk, says Ruben Toral, CEO of Mednet Asia, a Manila-based consulting firm specializing in medical tourism. "You are going to see U.S. patients take a very, very defensive position," he says.

WASHINGTON (CNNMoney.com) -- World leaders convened Saturday for a second straight day hoping to tackle a financial crisis that has ricocheted across the globe and left the United States and other countries on the brink of deep recessions.

Their goal: to prevent a similar calamity from happening again.

The historic two-day summit meeting, which brought together prime ministers and presidents from Group of 20 countries, was in full swing Saturday following an extravagant working dinner at the White House.

"We had a good frank discussion last night," President Bush said. "There's some progress being made, but there's still a lot more work to be done."

The conference participants were aiming to figure out what caused the global crisis and assess government responses to it, Bush said Friday. The summit would also identify regulatory reforms and launch a "specific action plan" to implement them, he said.

"Billions of hardworking people are counting on us to strengthen our financial systems for the long term," he added.

Bush and fellow G-20 leaders are expected to issue a statement at about 3 p.m. ET on the findings of the summit.

Still, many experts anticipate that announcement to be light on specifics.

"I think it is going to be pretty vague," said Simon Johnson, a professor at the Sloan School of Management at the Massachusetts Institute of Technology and a former chief economist at the International Monetary Fund. "You could call it productive chaos."

In the days leading up to the summit, speculation abounded that leaders would accomplish little else but narrowing the focus for future talks - likely to be held in the first few months of 2009 after U.S. President-elect Barack Obama is sworn into office.

Obama is not attending this weekend's summit. He sent as emissaries former U.S. Secretary of State Madeleine Albright and Jim Leach, a former Republican congressman from Iowa.

Bush, who offered to host the meeting nearly a month ago, echoed those exact sentiments in remarks made earlier this week. The imminent change in power at the White House has led many to believe that could also hamper any progress.

Attendees of the summit include leaders from such nations as China, Brazil, Saudi Arabia and Japan.

The pace of the world's financial problems - rooted in large part in the collapse of the U.S. housing market and the risky lending and borrowing that went along with it - have accelerated in recent weeks.

The Organization for Economic Cooperation and Development, an international group based in Paris, said this week that the gross domestic product for its 30 members was likely to fall by 0.3% in 2009.

Major indexes around the globe have fallen off a cliff over the last two months. The Russian stock market has lost 65.5% of its value since the start of the year. Stocks in Japan and the United States have been equally hard hit, falling 42% and 33%, respectively.

In Europe, the pain has been particularly acute. The European Union on Friday officially declared that the 15-nation group had entered into a recession, with its gross domestic product declining 0.2% for the second straight quarter.

And other countries have nearly collapsed under the weight the economic crisis.

In Iceland, where the government intervened to save the banking system from total failure, inflation is running at a painful 12.1% while economic growth has nearly flatlined.

Hoping to halt the contagion, central bankers and government officials have taken unprecedented steps in recent weeks.

Britain, France and the United States have bought ownership stakes in banks and pumped them full of capital in the hopes of unlocking frozen credit markets. Earlier this week, China unveiled a massive, $585 billion economic stimulus package to try to keep its once red-hot economy moving forward.

With the crisis showing no signs of abating, several leaders have been trying to advance an agenda for the talks, which some observers have referred to as "Bretton Woods II" - a nod to a similar global economic summit held in July 1944 to reverse some of the painful trade and foreign exchange policies enacted in the wake of the Great Depression.

There have been calls, for example, to create a global accounting standard to replace the current mark-to-market standard, which some have blamed for the billions of dollars of losses suffered by banks.

Credit rating agencies and hedge funds have also become a target. French President Nicholas Sarkozy, who has embraced a hard-line approach toward regulation, has publicly said he is in favor of greater oversight of both industries.

And there has also been speculation that additional countries could enact economic stimulus packages of their own in the wake of the talks.

One underlying fear that President Bush attempted to address in recent days, including in an op-ed piece he wrote in Saturday's edition of The Wall Street Journal, is rising protectionism.

There is concern that some countries could levy harsh tariffs on imports to prop up their ailing economies, or that some governments could try to restrict capital flows, which spelled disaster for many emerging economies as the crisis gained momentum.

But what is expected to remain front and center is the subject of regulation and how to best modernize the global financial system for the 21st century.

One approach could involve granting greater powers to the Financial Stability Forum, which represents central bankers and regulators, or the International Monetary Fund, which has played a large role in recent weeks helping to bail out struggling countries.

Another possibility could involve the creation of a college of regulatory supervisors that would exchange notes about some of the trends and risks they are seeing within their own borders.

U.S. Jobs Even Weaker Than Feared

American non-farm payrolls declined more than expected in October.

Europe Slides On U.S. Jobs Data

European equities dropped as data showed unemployment in the world's largest economy had spiked in October.

Sovereign Funds' $2 Trillion Setback

The blistering pace of growth for state-backed funds is slowing, and they will invest less in advanced economies in the coming years.

South Korean Rates: A Snip Follows A Slash

The Korean central bank cuts rate again, but not as much as before.

Hedge Fund Exit Strategies

Investors need to know their options for getting their money back, especially when the market swoons.

IMF: Global Growth Sloooows

International Monetary Fund says world growth will slow to 2.2% next year while advanced economies will shrink.