2 September 2010. By David Caploe PhD, Chief Political Economist, EconomyWatch.com. Faced w steepest & longest decline in tax collections on record, state, county & city govts have resorted to major life-changing cuts in core services like education, transportation & public safety that, not too long ago, would have been unthinkable. In many areas, services will get worse before they get better. The length of downturn means many places have used up all their budget gimmicks, cut services, raised taxes, spent their stimulus money — & remain in the hole. Even w Congress possibly approving extra stimulus, states still face huge shortfalls. Around the country, there have already been drastic cuts in core services, & there are likely to be more before downturn ends. Cuts described here may seem extreme, but they reflect what is happening across America, as the lives of millions of people are disrupted, in ways large and small. Happy Labor Day.

1 September 2010. By David Caploe PhD, Chief Political Economist, EconomyWatch.com. While not dominant in Latin America’s relations w China, a wariness is crystallizing in some countries, focusing on cheap Chinese imports & assertive efforts for exclusive access to energy reserves. But worst tensions stem from mine a Chinese company itself owns in a desolate town in Peru’s southern desert. Workers here said problems began in 90s, when the company, Shougang, slashed work force to 1,700 from 3,000 & brought in Chinese workers. Strikes soon convinced managers to return the workers to China. Resentment continued when Shougang did not invest promised $150 million in the mine & town’s infrastructure, opting to pay $14 million fine instead, & left empty blocks once occupied by workers, in town w acute housing shortage. Workers also spoke of low wages, company resistance to government-mandated raises & chemical waste dumping in ocean. The result: a revolt lasting to this day, marked by repeated strikes, clashes w police paid by Shougang, & even arson attacks vs nominally Communist bosses. “We quickly realized we were being exploited to help build the new China, but without seeing any rewards for doing so,” said one union official at mine, where workers have held three strikes this year alone, including 11-day stoppage last month. “When the Chinese arrived, they talked about things like solidarity and equality of man. If this is the brotherhood they praise, then one day sooner or later, the Chinese must be made to leave.”

31 August 2010. By David Caploe PhD, Chief Political Economist, EconomyWatch.com. Striking result of Eurozone crisis has been emergence of so-called “tough” Germany, creating tensions w rest of EZone. Political reasons: combination of reduced living standards in former West Germany during 20 years post unification, arousing resentment vs further “support” & 1st Chancellor NOT committed to “European Germany.” But when Q2 growth figures showed Germany @ 2.2%, “balance of power” w/in EZone shifted, as G seemed to be “right” in basic approach. Economically, domestic key: “kurzarbeit” / “short work”, workers aren’t fired by ailing companies, but kept on at reduced hours & pay til they can be re-hired full-time. Policy has enabled firms to take advantage of new opportunities as soon as they appear, without having to wait, giving G crucial advantage. External key: China exports, whose tricky dynamics we’ll fully detail next week.  Overall, “crisis a wake-up call to rest of Europe that something has changed in Germany”

30 August 2010. By David Caploe PhD, Chief Political Economist, EconomyWatch.com. China Banking Regulatory Commission last month issued sharp warning 2 banks & private trusts, apparently worried they've been forming secret partnerships & creating products to finance loans without calling them loans. Govt evidently suspected banks were using maneuvers to evade rules put in place to rein in rampant lending & excess credit, conditions driving rising property prices & overall inflation. Suspecting banks & trusts secretly repackaging old loans, & moving them off bank balance sheets, regulators worried China financial institutions may have engaged in same sort of shenanigans that got Western banks in trouble, which was, of course, EXACTLY what we said when we first found out about these practices. More recently, govt overseers acted again, ordering banks to move off-balance-sheet loans back onto their books & make provisions vs. rise in bad loans. Let’s just hope, for sake of not just China but whole world economy, these regulatory moves aren’t coming too late.

26 August 2010. By David Caploe PhD, Chief Political Economist, EconomyWatch.com. After spending millions to lobby vs. so-called “reform”, bankers now turning to Plan B: adapting to new rules & using them to make even more money. Wall Street planning to influence regulators & invent products that bend new regulations to their advantage. Banking chiefs concede they intend to pass most costs associated w bill to customers. “If you’re a restaurant & can’t charge for soda, you charge more for the burger,” says Jamie Dimon, chair & CEO of JPMorgan Chase, which reported a $4.8 billion profit for Q2. “Over time, it will all be repriced into the business. We’ve been gearing up for this like a merger,” he says. Whether it’s checking / derivatives / proprietary trading / whatever, banking industry – above all, the now-fully-aware-they’ll-be-saved-no-matter-what-they-do Too Big To Fail, or TBTF, sector – has been planning for a long time how to make sure nothing gets in the way of profit-making. Warning: Do NOT read while drinking ANYTHING – you’re likely to splutter it all over your computer.

25 August 2010. By David Caploe PhD, Chief Political Economist, EconomyWatch.com. South Korea & China likely to open free-trade talks next year, says South Korea’s ambassador. Negotiations could be 1st step toward 3-nation trade zone w Japan, which, if concluded, would rival EU & NAFTA in size. He said it would face deep skepticism from farming, fishing & forestry industries, but would be in S Korea’s long-term interests. Trade pacts centerpiece of China commerce strategy: agreements since 2007 w New Zealand, Taiwan, Singapore, Peru & ASEAN. And if S Korea & Japan ever reach accord, alliance would remove tariff barriers among 3 of 4 largest Asian economies. But there are political blockages, from both current interests & historical memories.

24 August 2010. By David Caploe PhD, Chief Political Economist, EconomyWatch.com. A classic tragic battle of right vs. right: public employees dependent on private companies as ONLY source of $ to insure retirement at previously agreed-upon rate vs. public whose own economic present & futures are in grave doubt. It seems these two will pay for mistakes made by credit rating agencies / greed of TBTF banks, whose leaders often sat on boards of govt pension funds, & influenced investment decisions / & politicians, from Presidents on down, who assured everything was just fine. Since none of them seem likely to pay, it’s left to two groups – who aren’t in that different positions – to fight it out: a public rightly worried re their own economic situations, present & future, vs. public employees, who, whatever their flaws, had little say in decisions determining how they would live in retirement.

23 August 2010. After years of being known for inefficiency, corruption and instability, Indonesia is emerging as Asia’s new economic golden child. Largest economy in Southeast Asia grew at annual rate of 6.2 % in Q2. Stock market has hit record highs this year, among best-performing in Asia, up > 20 % since Jan 1. Its currency, the rupiah, has appreciated nearly 5 % this year vs USD, among strongest showings in Asia besides Japanese yen. Indo on track to draw more foreign investment this year than 2008, when it lured in $14.87 billion. Significant obstacles to sustained growth surely remain. But some here cautiously say the Muslim-majority democracy & one of world’s most populous countries could soon merit attention investors now lavish on China and India. “In Asia there is a feeling that after you invest in China and India, where do you go? It’ll have to be Indonesia – it’s a natural destination” says senior analyst for a Western bank in Jakarta.

19 August 2010. Western banks are increasingly focused on preserving and extending the wealth of their employees. Emerging market providers, on the other hand, are focused on unlocking access to new markets using the latest technology as enablers. This provides new services to people who may not have had access to such services before, and creates wealth for enterprises in the process. We look at two real-world examples, online/ internet/ mobile banking service Breeze by Standard Chartered, which has developed the worlds first e-cheque, and the M-Pesa platform that provides Africans with financial services using mobile phones even if they don't have a bank account.

18 August 2010. By David Caploe PhD, Chief Political Economist, EconomyWatch.com. At this particular time, a great opportunity for Westerners living in Asia, or, indeed, anywhere outside the “developed” world, is the chance to see concretely the rise of what is often called “the new global middle class.” The rapidly growing ranks of middle-class consumers in more than a dozen “emerging” and “frontier” nations include almost two billion people, spending $6.9 trillion annually, a figure that should rise to $20 trillion during next decade, twice current US consumption. Given the fact that in 17 US product categories the market leader in 1925 remained the number-one or number-two player for the rest of the century, “early capture” is crucial for both local and global companies. Here’s how they might approach that vital goal.

17 August 2010. By David Caploe PhD, Chief Political Economist, EconomyWatch.com. Until recently, most people saw an inherent conflict between economic growth & environmental protection. But the formulation of the so-called Three Es has made clear the opposite is true: the greatest economic growth is to be found in clean / green high-technologies that not just protect but clean up the global ecology. Despite its status as the world’s largest consumer of energy AND emitter of greenhouse gases, China has been taking decisive steps at both ends of the economic / environmental spectrum: becoming a leader at the “higher value added” end, significantly outpacing the US in the process; & at the “bottom” pole, getting rid of industrial sites producing not just pollution but doing so in an energy IN-efficient way. Together, these steps may well make China the home of high-productivity “advancing sectors” that are the only sure route to sustainable, long-lasting, employment-creating economic growth. But the road along the way is not always easy.

16 August 2010. Business pragmatism seems to trump political tensions between the two countries. Short term, flotilla raid has produced inevitable fallout, but so far it seems no Israeli companies are leaving Turkey. Said one, “It is business as usual & if anything, investment is growing” Israeli companies selling everything from computer software to water irrigation systems in Turkey insist they haven’t been affected by recent events. That is because they operate mostly in joint ventures w Turkish companies, making their Israeli identities invisible. Bilateral trade officially amounted to ~ $3 billion last year. But Israeli & Turkish business leaders say economic ties are actually much larger. The extensive business connections are largely camouflaged because many Israeli businesses use Turkish partner companies to sell to Arab world, while Turkish companies use Israeli partners as a gateway to US markets. One Turkish exporter said no contracts had been canceled, nor has his company shelved its plans to establish a factory in Israel. He cited many advantages to doing business w Israel, including geographic proximity & shared mentality. “All the problems are between the politicians. Israelis, hot-tempered and stubborn, are just like us Turks.”