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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”
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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.
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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.
Breeze by Standard Chartered.
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.
Apparently Still Lots of Israelis There Doing Business
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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.”
13 August 2010. By David Caploe PhD, Chief Political Economist, EconomyWatch.com. Beautiful and prosperous Kashmir has long been THE flashpoint between India and Pakistan since the two countries were simultaneously created in 1947. The Indian military has been largely successful in defeating a "standard" insurgency w armed fighters supported by Pakistan. Now, however, it faces something potentially much more difficult to deal with: a stone-throwing intifada-like revolt carried out not just by young people, but their mothers & fathers, aunts & uncles, and even grandparents. Says one Kashmiri Hindu, “we need a complete revisit of what our policies in Kashmir have been. It is not about money — you have spent huge amounts of money. It is not about fair elections. It is about reaching out to a generation of Kashmiris who think India is a huge monster represented by bunkers and security forces.” Resolving this situation is critical for India not just politically, but economically as well. Ingenuity and creativity have built prosperity undreamed-of just a decade ago - those same qualities will be key for a peaceful Kashmir if India's stunning economic progress is going to continue into the future, as we sincerely hope it will.
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12 August 2010. By David Caploe PhD, Chief Political Economist, EconomyWatch.com. Good relations between India & China are one of the most important conditions for a positive future in Asia & the world in general. Now come some disturbing reports things are heating up where the two confront each other directly: the Himalayas. In past decade, China has furiously built up military & civilian infrastructure on its side of the border. Now India is racing to match its rival for regional & global power, building / bolstering airstrips & army outposts, shoring up neglected roads & building a tunnel to bypass the deadly Rohtang Pass. While we understand India's strategic thinking for this move, we think it best accompanied by a sustained policy campaign of co-operation w China in as many areas, especially economic, as possible - since no one needs a confrontation between these two giants.
Bourke's Luck Potholes, Blyde River, South Africa
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11 August 2010. South Africa has long been seen as an unstable business environment with an economy overly dependent on natural resources. Now, the govt & a new breed of entrepreneurs are optimistic they can change perceptions & climb the value-added ladder. A group of companies is emerging in sectors like clean energy, aviation, engineering, military contracting and mining. The state hopes this will lead to job creation & other benefits, & playing its part in some cases by offering direct financing & other sweeteners. It has also backed new university research positions & is trying to promote centers of excellence. “We are a producer and exporter,” said Naledi Pandor, minister of science & technology. “Now we’re saying: let’s become an innovator.”
Google Top 3: Eric Schmidt / Sergey Brin / Larry Page
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09 August 2010. By David Caploe PhD, Chief Political Economist, EconomyWatch.com. In the wake of the just concluded joint conference call with the media by Ivan Seidenberg of Verizon and Eric Schmidt of Google re their proposal for a "tiered" Internet - which, significantly, would EXCLUDE any wireless communication from the "non-discrimination" part of their "plan" - it becomes even more important President Obama recently announced he would seek to nearly double the amount of wireless broadband spectrum available for commercial use over the next ten years. If both his - & the Verizon / Google - "plans" succeed, any notion of "net neutrality" in the US would be down the drain, disastrous not just from an equality and principled point of view, but also putting the US technologically & economically further behind other countries where "net neutrality" isn't an issue. It could also have crucial implications for the disastrous cycle of media advertising / political fund-raising / corporate domination of the US political process now holding America in a death grip - just by the way.
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08 August 2010. In honor of the 45th anniversary of the independence of Singapore, Economy Watch will be on a somewhat abbreviated publication schedule this week. Be sure to check in for both Features and In the News to keep your finger on the pulse of the world political economy. Majulah Singapura - Onward Singapore !!!
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5 August 2010. By David Caploe PhD. Chief Political Economist, EconomyWatch.com. We’ve often talked about our hopes for both China and India as leaders of the emerging world economy. China has followed the general post-WW II East Asian strategy of export-led growth - an approach it is now trying to circumvent by jumping to the top of the value-added spectrum in areas like high-speed rail and clean / green tech. India, conversely, has imported jobs from the West, depending on its excellent higher education system and general English language culture. So despite the problems of each, we think both countries can become central to the global economy of the future. In that context, here is a story about technological entrepreneurship at the street level in Mumbai - not Bangalore or Hyderabad, the usual centers of Indian high-technology. It's not just funny in itself, but illustrates why, despite the almost uniformly grim scene in US / EU / Japan, there are positive possibilities for the world in the years to come.
4 August 2010. By David Caploe PhD, Chief Political Economist, EconomyWatch.com. The current stagflation in the global shipping industry is having a huge effect on retailers. They are outbidding each other to score scarce cargo space on ships, paying 2 to 3 times last year’s freight rates — in some cases, the highest rates in 5 years. Still, many getting merchandise weeks late. Problems stem from 2009, when stores slashed inventory. With little demand for shipping, ocean carriers took ships out of service. Carriers moved to “slow steaming,” traveling at slower & more fuel-efficient speeds, while companies producing containers, the boxes in which most consumer companies ship goods, essentially stopped making them. “All my customers are having a terrible time. With increased cost & them not knowing if they’re going to get space or equipment, it’s a weekly battle.”
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03 August 2010. By David Caploe PhD, Chief Political Economist, EconomyWatch.com. Some 150 lobbyists registered since last year used to work in the executive branch at financial agencies, from SEC lawyers to Federal Reserve bankers. Dozens of former lawyers for the government, not registered as lobbyists, now scour new financial regulations for corporate clients. Why? On a scale never before seen, government regulators will enact rules on everything from the definition of a “systemically important” mega-bank to limits on debit card fees. Federal agencies will decide the details of at least 243 financial rules & conduct 67 studies. S.E.C. alone is responsible for developing 95 rules on topics like derivatives, standards for credit rating agencies & disclosure of executive bonuses. The Commodity Futures Trading Commission must develop 61 rules, the Federal Reserve has 54, and two new agencies — Consumer Financial Protection Bureau & Financial Stability Oversight Council — have 80 rules between them. Former agency officials have a much easier time getting phone calls or e-mails returned from old colleagues, & that access extends to greater credibility in arguing their clients’ positions. That’s why.
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2 August 2010. Coal is the second-most important energy source worldwide, after oil. Billions of people depend on it for electricity. Experts estimate demand will increase in the next two decades for more than any other energy source but wind & solar. No other fossil fuel is available in such large quantities - current reserves will last for generations. No fossil fuel is as cheap – ~ 6 US cents to create a kilowatt-hour of electricity vs ~ 40 cents for solar – or as widely distributed. Every continent has adequate reserves and, unlike oil, most are found in relatively stable geopolitical regions. But no other raw material is as devastating to the environment. Coal is the worst climate killer in the history of humanity. "Coal is the environmental problem of the 21st century." Therein lies the tragedy.
Credit: International Monetary Fund
30 July 2010. By David Caploe PhD, Chief Political Economist, EconomyWatch.com. We have consistently argued the political leadership of the US & EU - in "response" to Black September 2008 & Euro-zone crisis - have been following Japan down the path of deflation and Lost Decade/S: letting Too Big To Fail Banks keep off their books their losses from derivatives, thus creating the same kind of zombie banks - effectively bankrupt, but still operating - that have bedeviled Japan since ITS political leadership allowed their banks to do the same when the Tokyo real estate market collapsed in 1989. Now James Bullard, president of the Federal Reserve Bank of St. Louis, and voting member of Fed committee that determines interest rates, has warned the Fed’s current policies were putting the US economy at risk of becoming “enmeshed in a Japanese-style deflationary outcome within the next several years.”
29 July 2010. By David Caploe PhD, Chief Political Economist, EconomyWatch.com. It’s almost impossible to believe the anti-Obama rhetoric emanating out of the US “business community.” It’s unseemly in its personal animus, bordering on the racist, emboldening the more extreme and violent elements of American politics in a totally negative direction. Even more, it’s just flat out wrong. With the possible exception of the Cheney / Bush regime, Obama has consistently been one of the most pro-business Presidents in modern US history. Indeed, as we have pointed out time and again, he’s not just pro-business. He’s almost militantly pro-BIG business, notably his nearly unconditional support for the Too Big To Fail banks, the health insurance companies, and the other titans of the corporate world. Yet all he seems to get for it is a lack of respect shocking in itself, and disturbing in what it says about the continuing deterioration of public discourse in America – which is probably the most upsetting thing of all.
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28 July 2010. By David Caploe PhD, Chief Political Economist, EconomyWatch.com. The scale of the new markets in China and India unleashed by the pace and scale of their urbanization is staggering. But businesses still need to be able to serve these markets in practical terms. The way cities are run—and the productivity that results—is a major factor for companies. Here, China is in much better shape than India. While India has barely paid attention to its urban transformation, China has developed a set of internally consistent practices across every element of the urbanization operating model: funding, governance, planning, sectoral policies, and the shape, or pattern, of urbanization, both across the nation as a whole and within cities themselves. India has underinvested in its cities; China has invested ahead of demand. But all that can change, as legendary developmental economist Arthur Lewis made clear.
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27 July 2010 By David Caploe PhD, Chief Political Economist, EconomyWatch.com. Sadly for him, and the US, former Federal Reserve Chair Paul Volcker is a perfect example of how keeping your mouth shut when you know something is wrong can lead not just to disaster for your country, but a deep well of inner regret towards the end of your own life. At 82, he knows his time has passed – quite apart from what even he considers the joke of the “Volcker Rule.” Like many powerful people, he now finds himself sorry for unleashing certain forces, here those that created the catastrophe of Black September 2008. But at least he’s, finally, willing to admit publicly he consistently made huge policy mistakes – with near-apocalyptic results, whose long-term effects are far from over.
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26 July 2010. Countries, even whole regions, a few years ago dismissed as perilous – to both body and bourse – have now come into stock market vogue. Big investment companies have rolled out mutual funds and exchange-traded funds that put all or at least a big chunk of their money in frontier regions. The frontier pitch resonates at a time when US & EU economies are struggling and interest rates are sagging. Plus returns in several of the leading emerging stock markets, Brazil, China and Russia, have faltered this year, after surging in 2009. “We view frontier markets as attractively valued compared with emerging markets,” according to one heavily-invested executive. But frontier investing is a new-enough phenomenon that professionals don’t even agree on which countries make up the sector. Still, “they’re relatively diverse, populous and growing fast,” said another. “They’re not fully established, but people were saying the same kinds of things about emerging markets 15 years ago.” Others, however, are skeptical: “A lot of these trends are true, but you can go through periods of sharp volatility.”
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22 July 2010. With Build America Bonds, the federal government pays 35% of the interest costs, a huge potential saving for states, municipalities, counties etc. But questions about the multibillion-dollar program are piling up. Wall Street banks are charging larger commissions for selling them than normal municipal bonds, increasing costs to states and cities. The new bonds may also be priced too cheaply, enabling unscrupulous speculators to turn a fast profit as prices climb, while raising interest costs for taxpayers. And now Wall Street banks — which have pocketed hundreds of millions of dollars in fees from the program — are releasing research reports warning states’ financial woes may make the bonds less attractive.
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21 July 2010. By David Caploe PhD, Chief Political Economist, EconomyWatch.com. Much of the lending through off-balance-sheet channels is fueled by trust companies, mostly privately owned, that partner w banks, & engage in complex deals that repackage loans into investment products — an informal type of securitization: the deals are essentially disguised loans, as GS did w Greece. The China Banking Regulatory Commission supposedly ordered banks to stop working with trust companies to securitize or repackage loans. But the regulator made no official announcement - eerily reminiscent of the AIG "bailout." One analyst estimated trust companies raised hundreds of billions of dollars in 2009 and first five months of 2010, partly since depositors disdained low interest rates at banks, & trust companies were willing to offer double that amount - with principal guaranteed. “There’s limited transparency, so obviously that’s a red flag.”
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20 July 2010. By David Caploe PhD, Chief Political Economist, EconomyWatch.com. Put bluntly, the more money bankers have, the less there is for everyone else. If we don’t insist on transparency and basic justice in the banking system, we run the very real risk of creating economic systems – at both national and global levels – that reward the most cunning and devious, rather than most ingenious and inventive. That is not only tragic in itself, it also leads to precisely the kind of insane situation the world is going to confront for the next two years, as so-called leaders / bankers / regulators et al try to deal with the tsunami of “short-term” banking obligations that are about to come crashing over everyone’s heads between now and 2012.
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19 July 2010. By David Caploe PhD, Chief Political Economist, EconomyWatch.com. The Goldman settlement — both its size and its legal implications — brought a palpable sense of relief on Wall Street. After two months of strident claims and equally strident denials, the matter was finally settled, and for a price Goldman could easily afford. The penalty amounted to about 15 days of profits – if that. And that nearly useless result seems all too typical of the way the Obama administration handles just about everything.
15 July 2010. By David Caploe PhD, Chief Political Economist, EconomyWatch.com. Standard economic theories – neo-classical, monetarist, and even Keynesian – have shown themselves unable to explain stagflation: a dreaded combination of slow / low / no growth AND rising prices – a situation the universally taught, but totally irrelevant, Phillips curve is SUPPOSED to “prove” is impossible. And, yet, as the King in Amadeus says, “there it is”, or WAS, at least, during the 70s – for reasons conventional economists have never been able to explain – and may be now rearing its ugly head in the UK, where a serious debate has broken out in policy and “intellectual” circles over a) whether it can actually be happening, and b) if so, why. And it’s an issue to which both the US and EU should be paying careful attention - since they too may soon experience it.
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14 July 2010 – Happy Bastille Day !!! Latin America, beset in the past by debt defaults, currency devaluations and the need for bailouts from rich countries, as well as consistent domination by US corporations and officials, is experiencing robust economic growth that is the envy of its northern counterparts. Strong demand in Asia for commodities like iron ore, tin and gold, combined with policies in several countries that help control deficits and keep inflation low, are encouraging investment and fueling much of the growth. The World Bank forecasts the region’s economy will grow 4.5 percent this year. And while Brazil is the current powerhouse, nations like Peru may not be far behind.
13 July 2010. Nearly two years ago, an economic collapse forced Ireland to cut public spending and raise taxes - the type of austerity measures financial markets now pressing on most advanced industrial nations. Rather than rewarded for its actions, though, Ireland is being penalized. Its downturn has certainly been sharper than if the government had spent more to keep people working. Lacking stimulus, the Irish economy shrank 7.1 percent last year and remains in recession. Joblessness is above 13 percent, and the ranks of the long-term unemployed — out of work for a year or more — have more than doubled, to 5.3 percent. Now, the Irish are being warned of more pain to come.
Credit: David Spender.
12 July 2010. Turkey is a fast-rising economic power, with a core of internationally competitive companies turning the youthful nation into an entrepreneurial hub, tapping cash-rich export markets in Russia and the Middle East, while attracting billions of investment dollars in return. For many in aging and debt-weary Europe, which will be lucky to eke out a little more than 1 percent growth this year, Turkey’s economic renaissance — last week it reported a stunning 11.4 percent expansion for the first quarter, second only to China — poses a completely new question: who needs the other one more — Europe or Turkey?
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08 July 2010. By David Caploe PhD, Editor-in-Chief, EconomyWatch.com. Documents finally given to – and slowly revealed to the public by – a Congressional oversight committee make clear without doubt the AIG “bailout” was a conspiracy: organized and carried out on behalf of certain privileged banks by the New York Fed, then headed by now-Treasury Secretary Tim Geithner. This frightening account raises disturbing questions about a President who so eagerly signed on to a “Godfather”-style racket. But – given the HUGE leeway for regulators under both the health “care” and financial “reform” bills – it also raises serious red flags about the corporate-style governance the US will endure in the future. It’s long, but YOU MUST READ THIS COMPLETELY.
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07 July 2010. By David Caploe PhD, Chief Political Economist, EconomyWatch.com. Manufacturing in China is about to get far more expensive. Soaring labor costs caused by worker shortages and unrest, a strengthening Chinese currency that makes exports more expensive, plus inflation and rising housing costs are all threatening to sharply increase the cost of making devices like notebook computers, digital cameras and smartphones. Desperate factory owners are already shifting production away from this country’s dominant electronics manufacturing center in Shenzhen, and toward lower-cost regions far west of here, even deep in China’s mountainous interior.
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06 July 2010. Oil production is among the most heavily subsidized businesses in the United States, with tax breaks available at virtually every stage of the exploration and extraction process. With federal officials now considering a new tax on petroleum production to pay for the cleanup, the industry is fighting the measure tooth-and-nail. And given the success the oil and gas industry has had in getting both Presidents and Congress to go along with their wishes, there’s no reason to assume they won’t win this time as well – Gulf oil spill or not. After all, they’ve only spent $340 million on lobbyists - since 2008 !!!
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5 July 2010. An information revolution is sweeping India – but has nothing to do with cell phones. It’s the far-reaching, powerful and wildly popular Right to Information law, granting 1.2 billion Indians the right to demand almost any information from the government. Passed in 2005 after more than a decade of agitation by good-government activists, the law has become embedded in Indian folklore. In its first three years, two million applications were filed, becoming part of the fabric of rural India, and clearly starting to tilt the balance of power, long favoring bureaucrats and politicians, to ordinary people, though it has by no means eliminated systematic corruption.
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1 July 2010. Private equity funds tie up investors’ money for 10 years. But they must invest all the money within the first 3 - 5 years of funds’ life. For giant buyout funds raised in 2006 and 2007, at the bubble's height, time is short. They must invest the money soon or return it to clients — presumably with some of the management fees they've already collected. Some firms are asking clients for more time to find companies to buy. Many more are rushing to invest the cash as quickly as possible, whatever the prices, which are rising despite general stagnation.
30 June 2010. China’s move last week to make its currency, the renminbi, more flexible - and the authorities’ apparent tolerance of recent factory strikes that have led to significant wage increases - both signal that Chinese leaders are serious about re-engineering the nation’s entire economic model. The appreciation of the renminbi will make Chinese exports somewhat less competitive in the global marketplace - but strengthen the purchasing power of Chinese consumers. And government policies to encourage wage increases for an estimated 150 million poor migrant workers in cities could also spur consumption - if the pay increases outpace inflation.
29 June 2010. Preliminary data indicates the US housing market began swooning immediately after the government’s $8,000 tax credit expired. In some places, sales dropped more than 20 percent from May 2009. Construction of new homes in May dropped 17.2 percent from April, significantly lower than forecast. Permits for future construction dropped 10 percent, suggesting a cruel summer. Not surprisingly, now buyers are wielding the heavy upper hand.
28 June 2010. By David Caploe PhD, Chief Political Economist, EconomyWatch.com. Think of this as the financial “reform” equivalent of the health “reform” bill: nobody really knows what’s in it, it requires a LOT of interpretation by regulators – hence opening the door for an equally huge amount of LOBBYING by the industries supposedly being regulated – and it AVOIDS, rather than solves, the two MAIN issues: breaking up the now even MORE powerful Too-Big-To-Fail [ TBTF ] banks and other financial institutions; and, of course, clamping down HARD on the real cause of Black September meltdown, DERIVATIVES.
24 June 2010. As the world looks to India to compete with China as a major source of new global economic growth, this country’s weak transportation network is stalling progress. India must invest heavily in transportation to achieve a long-term annual growth rate of 10 percent, the goal recently set by the prime minister, Manmohan Singh. But whether measured by highways, airways or — particularly — far-reaching railways, India’s transportation is falling short.
23 June 2010. Sponsorship of major athletic events is big business, both for the brands splashing out and sporting governing bodies cashing in – meaning that so-called "ambush marketing" has itself become a huge growth industry. "Events like the Olympics and the World Cup are hugely expensive to put on, so they need big-money sponsors, and this in turn means that the organisers must protect aggressively against ambush marketing. But this means there is potentially huge exposure for anyone who manages to outwit them."
22 June 2010. Labor disputes are clearly becoming a common feature of the Chinese economic landscape, as workers are visibly more willing to defend their rights and demand higher wages - encouraged by laws initiated by the central government in 2008 to insure overall societal stability. While Chinese leaders dread even the hint of Solidarity-style labor activism, the labor laws they passed just a few years ago, have, intentionally or not, empowered workers to challenge oppressive workplace conditions - thus creating a real dilemma for the leadership as they simultaneously contend with the imperatives of an ever more demanding world political economy.
21 June 2010. Wielding cellphones and keyboards, members of China’s emerging labor movement so far seem to be outwitting official censors in an effort to build broad support for what they say is a war against greedy corporations and their local government allies. And it might not be possible if the Chinese government had not made a concerted effort in the last decade to shrink the country’s digital divide by lowering the cost of mobile phone and Internet service in this country — a modernization campaign that has given China the world’s biggest Internet population of 400 million, and allowed even the poorest of the poor to log onto the Internet and air their labor grievances.
17 June 2010. That’s the amount that foreign banks and other financial companies have lent to public and private institutions in Greece, Spain and Portugal, three countries so mired in economic troubles that analysts and investors assume a significant portion of that mountain of debt may never be repaid. The problem is that no one — not investors, not regulators, not even bankers themselves — knows exactly which banks are sitting on the biggest stockpiles of rotting loans within that pile.
15 June 2010. By David Caploe PhD, Chief Political Economist, Economy Watch.com. Credit ratings agencies have become increasingly visible during the Euro-zone sovereign debt crisis. Despite this, they remain a relatively unknown and, as we discovered, almost impenetrable world unto themselves that, nevertheless, can have a huge impact on the financial fortunes of both countries and companies. To help make this mysterious universe a bit more accessible to our readers, we tried to do some research about them, and, despite what are clearly their best efforts to keep themselves and what they do hidden, we were able to come up with some points of interest that we'll now share with you. Hope it helps.
14 June 2010. Some economists say the European Central Bank's "obsession" with inflation has blinded the bank to a potentially bigger threat: deflation. Many economists regard deflation as more dangerous than inflation, because it prompts consumers to delay purchases as they wait for lower prices, creating a downward spiral of lower demand and production. Some economists — and a few policy makers as well — are beginning to worry that a danger of deflation in Europe, similar to the one that strangled Japanese growth for most of the 1990s, is a bigger threat than inflation. But just as Japan did in the 1990s, the European Central Bank and the United States Federal Reserve have cut interest rates close to zero while pumping huge amounts of credit into their economies. That means the two central banks would have limited policy tools left with which to combat a collapse in prices and demand, while Europe’s sovereign debt problems are likely to add extra impetus downwards.
11 June 2010. BIROBIDZHAN, Russia. As with many places in Siberia, it is nearly impossible to drive here. Yet just under the surface, Russian geologists say, lies enough iron ore to build hundreds of millions of cars. “I’m standing on a billion tons of iron ore,” one said he told influential Chinese visitors. They were impressed, he recalled. “They said, ‘Hurry up; we’re ready.’ ” For resource-starved China, overland transborder supply helped it surpass Germany to become Russia’s largest trading partner early last year. But price disputes are growing and have delayed a natural gas pipeline deal between China and the Russian company Gazprom. Which points to a potentially even bigger deal: a trans-Siberian oil pipeline that is scheduled to bring a million barrels a day to China by 2012 - IF they can work out the pricing.
09 June 2010. By David Caploe PhD, Chief Political Economist, EconomyWatch.com. Even with China’s continued outstanding growth, its future has been far from clear. Three broad scenarios have dominated discussion: continuation of its prosperity without any major problems; a so-called “soft landing,” in which there is a perceptible but well-managed slowdown; and the “bust” proponents, who argue China has radically overheated its economy and is going to collapse, killing global recovery for years. Yet it now appears there is a fourth possibility, one currently causing problems for factories in China, particularly foreign-owned ones. And ironically enough - since China is still formally a “Communist” country - THIS scenario might well be called “worker power”, in which a major change in both the Chinese and world economies arises as a result of the unexpected venting of anger of the "new" Chinese working class – with unexpected results all round.
07 June 2010. By now, pretty much anyone reading this is aware of the destructive role played by derivatives - largely, although not exclusively purveyed by Goldman Sachs - in creating the mess in Greece now rolling through Europe under the rubric of the "Euro debt crisis". What may be a bit more shocking is that these same sort of dubious government financial practices turn out to be just as "popular" WITHIN the US as well. Municipalities such as metro Atlanta, Marietta, Birmingham Alabama, and even Emory and Georgia State Universities have all been scorched by the same sort of derivative deals that have been so prominent in Europe. At least a dozen local governments and other institutions that used derivative deals to try to lower the cost of bond issues have ended up owing as much as $394 million in fees to the Wall Street investment banks that set up the deals. That total includes at least $100 million in fees paid to firms such as Goldman Sachs, J.P. Morgan and UBS AG just to cancel the deals when they went sour. As in southern Europe, these hefty refinancings and fee payments occurred even as the city of Atlanta and other institutions were cutting budgets, laying off employees, reducing services and being downgraded by bond rating agencies because of budget shortfalls. In each case, the higher costs will likely be passed on to taxpayers or the users of the various institutions, which include the city’s water system and airport, some area hospitals and other facilities - sound familiar ???
03 June 2010. On Wednesday, St. Warrren of Buffett testified that he did not know all that much about the credit rating market, even though the holding company he controls, Berkshire Hathaway, is the largest shareholder in Moody’s Investors Service, one of the three companies that dominate the business. “I’ve never been to Moody’s. I don’t even know where they’re located. I just know that their business model is extraordinary.” Mr. Buffett’s remarks about Moody’s business, of course, could be interpreted as a rhetorical flourish meant to put distance between him and the company. He appeared before the panel under subpoena after first declining an invitation. Mr. Buffett declined several times to say that the head of Moody's should have been fired for what proved to be inaccurate ratings. He did say Moody’s was no better or worse at predicting the financial fiasco than virtually every other player on Wall Street. Mr. Buffett sounded his most sober note when asked by a panel member, Brooksley Born, the former chairwoman of the Commodity Futures Trading Commission, if the derivative market was “still a time bomb ticking away.” “I would say so,” he said. And yet he continues to pal around with the biggest derivatives players of them all - Goldman Sachs. How much longer is he going to get away with this obvious double game he keeps playing ???
02 June 2010. India's economy grew at its fastest pace in six months in the quarter through March 2010, fuelled mainly by government and consumer spending. The 8.6 percent expansion in the fourth quarter of the fiscal year 2009/10 was broadly in line with a median forecast of 8.7 percent in a Reuters poll, and lifted the annual average growth rate for the full fiscal year to a slightly better-than-expected 7.4 percent. India's economy had grown 6.7 percent in 2008/09, and the Jan-March 2009/10 growth rate matches the revised data for the second quarter of 2009/10. Revival of growth in farm output after a contraction in the quarter ago underscored the broad-based recovery in Asia's third-largest economy. The arrival of fresh crops helped agriculture grow by 0.2 percent, having dropped significantly in the previous quarter of 2009-10 due to a poor monsoon. The farm sector, which forms nearly 17 percent of the economy but is dependent on monsoon rains, is expected to do well in 2011. The rapid acceleration in the world's second-fastest growing major economy after China is boosting consumer demand far ahead of what can be met by existing supply capacity, which means that inflation, as well as high-levels of domestically held debt, are serious concerns for the Indian political leadership.
31 May 2010. Investors are demanding greater yields to lend to China property firms, a sign they expect borrowers will have a harder time meeting debt payments amid a government clampdown down on lending. Goldman Sachs Group Inc. and Credit Suisse Group AG cut their profit estimates for Chinese real estate companies after a 12.8 percent jump in real estate prices in April from a year earlier spurred the state to increase regulation. China has added to regulations designed to cool the property market several times this year, including raising banks’ reserve requirements three times since January, restricting pre-sales by developers and curbing loans for third- home purchases. It also raised minimum mortgage rates and tightened down-payment requirements for second homes. Consequently, investors are pricing in a 50 percent chance of default. Similar contracts insuring Agile’s debt have soared 3.85 percentage points since mid-April, when China’s central bank pledged to implement new lending rules to cool real estate “madness.” At current rates investors are pricing in a 48 percent chance of default. Chinese property bonds are unlikely “to recover meaningfully anytime soon,” Amias Berman’s Chan said. “If we start to see the regulatory measures taking effect in the next few months then there may be a reversal of fortunes. But optimistically I think it’ll be the third or fourth quarter before things stabilize.”
27 May 2010 By David Caploe PhD, Chief Political Economist, EconomyWatch.com. Quite aside from the human and social justice aspects, income equality is a crucial factor in creating and continuing sustained economic growth. The fact that – as income inequality BETWEEN nations decreases, something we think is a good thing, income inequality WITHIN nations, in general, is growing. This is happening both in the major old markets of US, UK, Germany and Japan, and in the new, above all, China and India, but also other emerging markets like Brazil, Russia and Mexico. While income in-equality is problematic anywhere, it is ESPECIALLY so in the US, because, as we have said so many times, since 1947, we have had an American-centered world political economy, meaning, very simply, that countries either SELL to the US – or they SELL to countries that SELL to the US. Which means the more income in-equality WITHIN the US, the harder it's going to be for the world to pull out of the Great Recession in which so much of it finds itself mired today.
Credit: BlankBlankBlank.
25 May 2010. By David Caploe PhD, Chief Political Economist, EconomyWatch.com. The US now starts the process of legislatively finalizing the finance “reform” bill. As this painfully slow and agonizing march proceeds, here are five “guideposts” to make the whole thing easier to understand – even if you don’t “believe” some of the things that are happening.1) Wall Street is quietly relieved. 2) It's going to be a lobbying bonanza. 3) Team Obama chose "more regulation" instead of downsizing the financial sector. 4) The Federal Reserve's power will grow. 5) Derivatives will not just remain, but it's unclear if their transparency will increase in the slightest. Don't say you haven't been warned.
Credit: LuxEuroCoins.
19 May 2010. From Der Spiegel interview with former head of the German Central Bank, SPD economic guru, Karl Otto Pöhl: The European Union should have declared half a year ago -- or even earlier -- that Greek debt needed restructuring. * But according to Chancellor Angela Merkel, that would have led to a domino effect, with repercussions for other European states facing debt crises of their own. Pöhl: I do not believe that. I think it was about something altogether different. * Such as? Pöhl: It was about protecting German banks, but especially the French banks, from debt write offs. On the day that the rescue package was agreed on, shares of French banks rose by up to 24 percent. Looking at that, you can see what this was really about -- namely, rescuing the banks and the rich Greeks ... * If you were president of the Bundesbank today, would you be ordering the printing of German marks just in case they became necessary? Pöhl: No, no, we have not gone that far quite yet. In my opinion, the euro is in no danger.
17 May 2010, By David Caploe PhD, Chief Political Economist, EconomyWatch.com. We noticed a few weeks ago what seemed a most intriguing story in the New York Times that a) never seemed to get a follow up, and b) never showed up on any searches. Given the repetitive din of the global media society, this is surprising, because it concerns China’s rather blatant attempts to discover the, literal, inner workings of advanced Western military technology, and, given the Asian genius for reverse engineering, to help itself in a very direct way to the top levels of Western technique without having to spend a huge amount of time, money or energy developing it themselves. But as we worked our way through it, we began to suspect what we originally thought was an explosive story was simply Standard Operating Procedure in the world of high-tech arms trade.
12 May 2010. By David Caploe PhD, Chief Political Economist, EconomyWatch.com. The problems for banks holding government debt that can't be paid is EXACTLY the same as banks holding mortgage debt - and, even worse, derivatives supposedly BACKED by that mortgage debt - that can't be paid. In ALL of these cases, the banks that hold that debt are forcing governments NOT to force them to "mark to market" assets that were perhaps ONCE worth something, but are now relatively worthless. This is enabling those Too-Big-To-Fail banks to pretend they are still in good shape. In fact, they are in very BAD shape, but don't have to admit it, so their stock prices remain inflated - and the weakest of them avoid bankruptcy. The US chose to deal with its crisis by mimicking the Japanese response. NOW, it seems, Europe is doing the EXACT SAME THING: bailing out the banks, the TRUE beneficiaries of the so-called "Greek bailout", since THEY hold most of the Greek debt. The governments are becoming more weak and direction-less just at the moment decisive action is needed. Japan has had more than two "Lost Decades", the US is following right along in its footsteps, and if Europe is now heeding America's advice, it seems more than likely Europe will be Lost for Decades to come.
7 May 2010. By David Caploe PhD, Chief Political Economist, EconomyWatch.com. First of all, at this time, no one has the slightest idea what happened, and it's probably likely we won't have any idea "what happened" for a while - if ever. So while the various investigations - and their associated cover-ups - go on, let's not pretend that any of the "causes" pointed to explain the reason the Dow bottomed so badly at 2:46 p.m. on Thursday, May 6. EXCEPT that - no matter where you look, with, as always, at least so far, the exception of China - THERE ARE MAJOR STRUCTURAL PROBLEMS THROUGHOUT THE ENTIRE ADVANCED WORLD, ie, US, Europe and Japan, none of which show the slightest sign of getting better in the foreseeable future. Given all this, we STILL have no idea if May 6 will end up being remembered, as Franklin Roosevelt so memorably put it, "a day that will live in infamy", at least in financial history. But we should have no illusions that, even if the markets do, in some way, recover, THE REAL ECONOMIC SITUATION THE WORLD CONFRONTS REMAINS, at best, DEEPLY UNCERTAIN, and, at worst, DOWNRIGHT DANGEROUS.
5 May 2010. By David Caploe PhD, Chief Political Economist, EconomyWatch.com. Ever since he became President, Barack Obama has displayed a disturbingly consistent pattern of behavior: ignoring the desires of the base that elected him in favor of consistently failed attempts at bi-partisan “co-operation” with Republicans and other actors definitely not part of that base, above all big corporations and industries who have made no secret of their opposition to even his weakest efforts at “change.” This was demonstrated once again on the last day of March, when Obama announced new plans for extensive offshore oil drilling, an initiative that not only came out of the blue, but put in play whole new areas previously ruled off-limits. In that context, the BP oil spill - which threatens to become the greatest ecological disaster in US history - presents him with a serious problem that underscores what we have always considered his most egregious problem: depending on middlemen, with a vested interest in the outcome, to formulate and carry out policies that are, in fact, the responsibility of the Federal government.
3 May 2010 By David Caploe PhD, Chief Political Economist, EconomyWatch.com. How does it all fit together – St. Warren of Buffett, the “regular guy”, homespun, Midwestern billionaire exponent of “value investing”, avowed enemy of derivatives, on the one hand - on the other, Goldman Sachs, prime user of derivatives, and the most reviled and hated of the many Wall Street firms, whose high-level employees have been raking in millions in compensation, while most of the rest of the world sits mired in The Great Recession ??? We raised this question three months ago, well before the SEC suit – long before anybody else was even thinking along these lines – wondering how these two seemingly opposite poles of the US / global financial system could fit together so seamlessly? And the events of the last few weeks have provided at least the start of an answer: in fact, it appears, all too easily.
29 April 2010 By David Caploe PhD, Chief Political Economist, EconomyWatch.com. Later this week, the independent Lisbon weekly EXPRESSO will be examining in its Economia section the current crisis in the Euro-zone, which has already embroiled Greece -- and with the downgrading of the sovereign debt of Portugal earlier in the week by Standard and Poors, has now reached that country of superb food and beautiful Atlantic beaches -- and has asked our Chief Political Economist, Dr David Caploe, to examine both the Portuguese and larger Euro-zone crisis from his unique perspective. With the agreement of our friend and colleague, Jorge Nascimento Rodrigues, long-time contributor to the Economia section, we now present an unedited and complete transcript of that interview.
26 April 2010. Where do you see India 20 years from now? The emergence of a powerful middle class in India will keep the country’s economy on an upswing. It’s India’s unstoppable growth engine. In a decade, India’s economy will be bigger than the UK’s. In 20 years, bigger than Japan’s. What if economic growth in the U.S. and Europe is slow to pick up again? It’ll hurt the other BRIC countries (Russia, Brazil, and China) a lot more than it will hurt India. So where should investors look? Everybody thinks software and generic drugs when they think of India. But I like the infrastructure sector. India’s ports and railroads are getting a facelift -- An interview with Andrew Gordon, Editor of Investor's Daily Edge.
22 April 2010 By David Caploe PhD, Chief Political Economist, EconomyWatch.com. It's far too early to say anything definitive, of course, but we couldn't help but be struck by how quickly major structural components of our analysis of the strange aspects of the Goldman / SEC fraud case have already been confirmed by unfolding events in Washington. This unexpectedly swift validation comes in a New York Times story about a crucial vote Wednesday on DERIVATIVES in the Senate Agricultural Committee. Three key elements of our scenario - an up-for-re-election-in-November Republican joining Democrats / the Pandora's Box of a POTENTIAL real change in the key arena of derivatives / and the simultaneous reluctance of Team Obama to endorse that "change" - were ALL vividly and dramatically demonstrated on Capitol Hill yesterday. While the SEC v. Goldman era has just begun, we are certainly pleased to see our take on it so quickly and strikingly illustrated in almost exactly the way we outlined.
20 April 2010 By David Caploe PhD, Chief Political Economist, EconomyWatch.com.There remain at this point many more UN-answered questions than certainties about WHAT the SEC's – and Obama's – "Goldman gambit" means. It could be the beginning of a far-reaching change in the whole way Obama and the rest of official Washington deal with the key issue of Wall Street and TBTF organizations in general. But we remain dubious as long as the President retains Larry Summers and Tim Geithner as his key economic policymakers. If, on the other hand, we see them replaced by the likes of Brooksley Born or Joe Stiglitz or Paul Krugman, and there is a substantive revision in the nature of the "financial reform" being proposed, then we may start to believe there really IS going to be a change. But until then, we are not yet convinced that even the seemingly dramatic events with Goldman and the SEC are anything more than, to paraphrase Shakespeare, 'a tale full of sound and fury, signifying not too much.'
Credit: PedroSimoes7.
16 April 2010 By David Caploe PhD, Chief Political Economist, EconomyWatch.com. An article in today's New York Times about the emergence of the rolling Euro-zone debt crisis into Portugal illustrates the way conventional academic economic "thinking" about these situations leads not to clarity, but confusion. So if you want to get an idea of why the world is in such a terrible mess, you could do a lot worse than looking at the supposedly distinguished campuses all over the West, but world-wide in fact, where the fraud that is the academic economics "profession" exercises such powerful sway over the minds of not just horny / party-mad undergraduates, but, it seems, correspondents for the world's most distinguished media outlet as well.
Credit: RalphRepo.
14 April 2010 By David Caploe PhD, Chief Political Economist, EconomyWatch.com. The fact China DID run a trade deficit in March MAY indicate that, in fact, the Chinese economy IS starting to run out of steam, which is undoubtedly why those who announced it hastened to proclaim it would soon return to its 'normal' surplus. But if the trade deficits continue, then not only will arguments about currency valuations disappear into well-deserved oblivion, but we MAY be witnessing the beginning of a long-term turnaround in the fortunes of the Chinese economy – and THIS would indeed be significant, for not just China, but the entire world.
08 April 2010, By David Caploe PhD, Chief Political Economist, EconomyWatch.com. A source from within GE - one of the most allegedly respected companies in the world - supports the view put across in Roger Lowenstein's "The End of Wall Street" that, despite its reputation, GE's earnings were deliberately manipulated by guru Jack Welch, and his successor Jeffrey Immelt, in a fashion disturbingly reminiscent of the infamous Lehman Bros "Repo 105". And he claims this is / was true not simply on the corporate / GE Capital side, but on the equipment side as well, where "the company pushes product forward or holds it back, depending on which quarter they want to take the profit."
05 April 2010 By David Caploe PhD, Chief Political Economist, EconomyWatch.com. Ever since the run-up to / outbreak / and aftermath of Black September 2008, we have argued the crisis in the US has SIX aspects: financial / economic / ideological / political / media / intellectual-academic. While we generally have focused on the first five aspects of this on-going mess, a substantively fabulous Op-Ed piece in the New York Times underscores at least ONE side of the intellectual / academic aspect of this crisis. The article is by professors from four different law schools around the US, and shows in chilling and convincing detail how the entire regulatory apparatus allegedly keeping an eye on banks / hedge funds / large corporations et al were actively complicit in allowing them to get away with, literally, murder, at least in the financial economic realm. Unfortunately, it's often almost impossible to tell what they're saying.
Is that the REAL reason for the harsh Rio Tinto Convictions?
Credit: RalphRepo.
30 March 2010. By David Caploe PhD, Chief Political Economist, EconomyWatch.com. Given the crisis in the Eurozone and, doctored BLS statistics aside, the on-going problems of the US, China's short-term economic profile remains key to the immediate future of the world political economy. And if the Rio Tinto case is any indication -- which it may or may not be -- then one would have to figure the Chinese leadership, at least, is confident about the country's ability to continue its remarkable growth, even within a global context of weakness at best and steep recession at worst. They could, of course, be arrogantly wrong in this assessment. But the fact they would even take such a stance -- given all the complications it will clearly bring with one of their most important private-sector partners -- is definitely a fact worth pondering.
27 March 2010 By David Caploe PhD, Chief Political Economist, EconomyWatch.com. The real challenge China poses to the US lies not in the "lower-value-added" area where currency valuations may or may not be of importance, but in the “higher-value-added” regions of so-called “green” or “clean” technologies. The active intervention of the state in the Chinese economy has shot China to the front rank of countries where clean / green technological innovation is being militantly pursued on a variety of fronts. The most significant indication is the arrival in China of not just Applied Materials, one of Silicon Valley’s most successful and historically important companies, but also Mark Pinto, its Chief Technology Officer. In this sense, we may now be witnessing in very concrete terms the beginnings of a “reverse brain drain” from the US to China.
23 March 2010 By David Caploe PhD, Chief Political Economist, EconomyWatch.com Last year, we identified the fundamental difficulty with Obama’s approach to just about EVERY important problem as playing ball with the middlemen, in this case, the health insurance companies, as if they were the only game in town.
18 March 2010 By David Caploe PhD, Chief Political Economist, EconomyWatch.com The problems with the US and, because the global political economy is American-centered, the world economies have little to do with China in general, and certainly NOTHING to do with the value of China’s currency.
15 March 2010. David Caploe PhD, Chief Political Economist, EconomyWatch.com. The Valukas Report on the bankruptcy of Lehman Bros is a nine-volume, 2200-page behemoth, so it may take a while til every juicy morsel can be digested. While certain facets have already become clear, there is one so glaringly obvious to us we couldn't believe it hasn't been discussed: the dynamic described as Repo 105 in Lehman is the EXACT same trick Goldman Sachs used several years before to help Greece do exactly what Lehman did, ie, hide the true picture of its leverage situation by arranging shady deals that recorded debt as sales. We conclude that not even this is going to make a difference to either Wall Street or Washington, so we cordially "welcome" everyone to the Lost Decades.
Credit: Pratham Books.
12 March 2010 By David Caploe PhD, Chief Political Economist, EconomyWatch.com The Indian government owns ~ 500 companies, which together are worth about USD 500 billion, approximately 45% of GDP. It also has huge public debt, about 80% of GDP. Unlike Greece, about 90% of India’s debt is owed to its own people & corporations. Unfortunately, India is now paying more to service the debt than any other item in the budget, including military, education & health care. There actually IS a relatively easy economic solution – but it has major political drawbacks: it almost suicidal for ANY Indian government to give up too much control of these companies and the political & economic power they bring, while the public is against the government "selling off" what is seen by many as modern India's communal legacy.
9 March 2010. EconomyWatch.com Chief Political Economist David Caploe PhD was recently interviewed about the state of the US and global economies by Jorge Nascimento Rodrigues, Executive Editor of the Portuguese and Brazilian Management Review, as well as a regular contributor to the Economics section of Lisbon's weekly EXPRESSO. His latest book is entitled Pioneers of Globalization, and his interests include long-wave analysis of macro-economies, most recently waves of financialization, financial crisis, great recessions and great depressions. This interview will appear next week in both Portuguese & English, but Sr Rodrigues was kind enough to give readers of Economy Watch.com a special "sneak preview" of this fascinating interchange.
4 March 2010. By Dwayne Ramakrishnan, EconomyWatch.com. Cheered by a new showing of fiscal discipline, the Sensex has reacted with delight to the 2010 Indian Union Budget, having its best two day run since 2004 and leaving some gratifying egg on the face of the Wall Street Journal. Some experts worry, however, that a major opportunity to introduce a unified Goods and Services Tax (GST), that could add as much as 1.7 per cent to GDP, has been missed.
Collateral for Goldman's Next Derivative ? Credit:ByrdieGyrl.
27 February 2010 By David Caploe PhD, Chief Political Economist, EconomyWatch.com. The emerging drama in Greece begins to outline how the use of derivatives -- in this case, credit default swaps, or CDSs -- can exacerbate an already screwed-up situation, and, in the case of the US housing market, create a problem where none previously existed. If for no other reason, not just Europeans, but Americans, Asian and others from all over the world, should pay careful attention to this latest dimension of the unfolding Greek tragedy.
25 February 2010. These 10 Global Geopolitical Predictions been provided by our partners over at OilPrice.com, publishers of the Market Intelligence Report. They cover everything from the growing disparity between public statements and the actions of politicians to the west ceding oil interests to China and India, and from Afghanistan, Iran and Israel to the possible opening up of Mynmar.
24 February 2010. By David Caploe PhD, Chief Political Economist, EconomyWatch.com. It's a truism that the 21st century future Asia - and the entire world - will be significantly determined by relations between the globe's two fastest-growing large economies, China and India. It is therefore significant that China - India's own largest trading partner - is building major economic ties with South Asian countries - Sri Lanka / Bangladesh / Nepal etc - that have long been considered in India's traditional "sphere of influence". India's reaction to this dynamic development could go a long way to determine the Asian - and world - future.
Credit: Ryuugakusei.
22 February 2010. By David Caploe PhD, Chief Political Economist, EconomyWatch.com. Last week's slight increase in the Federal Reserve's discount rate surprised many long-time Fed watchers. It lacks a visible motive, since inflation is hardly a concern in the US, where high & long-term unemployment seem much more immediate problems. Given this, we argue the move represents a capitulation by the Fed & Obama to three powerful groups: the TBTF banks, who had made clear their lending freeze would continue until they got assurances of taxpayer coverage of their losses, while they retain profits; confused "deficit hawks" who don't understand the key fact about money is its movement, not total supply; and China, whose motives are the most realistic of the three, being the largest single foreign holder of US debt.
16 February 2010 By David Caploe PhD, Chief Political Economist, EconomyWatch.com
12 February 2010. By Keith Timimi, EconomyWatch.com. Having been imprisoned and tortured as a young scientist in Saddam's Iraq, Dr Shahristani has overcome almost insurmountable odds first to become the Iraqi Oil Minister, and then to run an oil auction contract bidding process that has produced results experts predicted would have been impossible only a year ago. Next up: a plan to become the world's largest oil producer.
Credit: Cliff1066 Picture of a Norman Rockwell Painting
11 February 2010 By David Caploe PhD, Chief Political Economist, EconomyWatch.com What did Warren Buffett know about the negative position of Goldman Sachs towards the housing market - and when - such that he had great confidence giving a $5 billion loan to GS at a time when the whole financial world seemed headed towards Doomsday? Maybe someday we'll know if there's yet another Goldman scandal to be uncovered - this time involving the last man anyone would ever expect: Warren Buffett. Or maybe we won't.
6 February 2010 By David Caploe PhD, Chief Political Economist, EconomyWatch.com. Since its inception, Eurozone members have been aware of a potential conflict between monetary policy - set by the European Central Bank for the entire Euro-area - and fiscal policy - government spending managed by each country. This conflict remained merely potential, however, until the eruption of the global financial crisis in Black September 2008. As a result, a structural division has arisen between "rich" northern countries - Germany/France/Netherlands - & their poorer neighbors to the south, the so-called PIGS: Portugal/Italy/Greece/Spain, presenting the Eurozone with its most serious crisis to date.
2 February 2009. By Keith Timimi, EconomyWatch.com. Key trends at Davos, indicative of some of the key themes of the year ahead, include the growing clout of the Indian delegation, rising tensions between the US and China, and the backfiring efforts of 'tone-deaf' bankers that seem to be helping the rest of the world to agree on the need to regulate them.
31 January 2010. By David Caploe PhD, Chief Political Economist, EconomyWatch.com. It was big news when it was announced the US economy supposedly grew at a robust 5.7% during the fourth quarter of 2009. But there are real reasons - both immediate and structural - to be wary of this alleged good news. Broadly speaking, there are at least SEVEN reasons to hold off on breaking out the Champagne to celebrate the "end" of the recession.
28 January 2010. Juan Abdel Nasser, EconomyWatch.com. The sucker's rally in equity markets has come to an end, as I predicted last year, and there will be a major crash in 2010. In fact, it looks like the March 2009 lows are in danger, and a 40% - 50% wipe out could be on the cards.
25 January 2010. David Caploe PhD, Chief Political Economist, EconomyWatch.com. On January 21, the US Supreme Court overturned the most recent attempt to put some kind of limits on political campaign finance activities with a far-ranging decision that insures the already broken and corrupt American political system will become even more so almost immediately, barring the unlikely passage of new laws by the current Congress. While this decision has already attracted commentary, relatively little has been written about the ruling's disastrous likely effects on the US and world economies.
19 January 2010. By David Caploe Phd, Chief Political Economist, EconomyWatch.com. This third article on the inter-connection of today’s 24-hour / 7 days a week global media and marketplaces will look at some of the OTHER little bits of 'bad' or scandalous news that were also 'hidden in plain sight' in the New York Times during this period – while extending it to the Friday of the first week AFTER the holidays, a day when all most people can look forward to is the end of what is usually a difficult re-entry into the work-week.
15 January 2009. By David Caploe PhD, Chief Political Economist, EconomyWatch.com. In this second in a three-part series on the economedia, we lay the ways companies manipulate media by timing release of bad news they want to say 'well, we DID tell you,' while hoping that no one sees it. We look at how the New York Times 'buried' - by publishing on Xmas Eve - a crucial expose of how TBTF banks like Goldman Sachs sold debt packages they knew were bad while simultaneously 'selling short' against those same packages - a perfect example of the 'double game' media organizations play with companies they are allegedly watching over 'in the public interest.'
11 January 2010. David Caploe PhD, Chief Political Economist, EconomyWatch.com. While some have intuited it, relatively few have commented upon the significance of the increasing interpenetration of the world of finance / economics / trading with the larger global media society - what we call the economedia. This first article in a series of three outlines the sources of this inter-connection of the worlds of economics and media, paying attention both to macro conditions and the role of 24-hour trading markets and how they relate to rising emerging markets.
6 January 2010. By David Caploe PhD, Chief Political Economist, EconomyWatch.com. The obvious temptation at this time of year is to a) look backwards - especially given the 'end' of a decade [depending on how you count it], and b) go with the 'Top Ten' theme - especially given that the New Year is 20-'10.'
27 December 2009. David Caploe PhD, Chief Political Economist, EconomyWatch.com. While it lacked the dramatics of a 2008 that featured a Black September that will go down in history as one of the most chaotic and fear-inspiring episodes in modern financial & economic history, 2009 has been pretty rough in most places.In that context, here are our Top Five Christmas wishes for the world political economy as it concludes a roller-coaster of what Queen Elizabeth, in a different context, called, an “annus horribilus”.
22 December 2009. David Caploe, PhD, Chief Politcal Economist, EconomyWatch.com. The Copenhagen environmental talks ended in a weak, informal “agreement” that some called the end of the UN-based world ecological process that began in the early 1990s with the Rio de Janeiro meetings. There were, however, some significant events – which bodes even worse for our global future. Take the extraordinary blow-up between the US and China at the climactic moment of negotiations, involving both Chinese Premier Wen Jiabao and President Barack Obama personally.
19 December 2009. By David Caploe PhD, Chief Political Economist, EconomyWatch.com. While it wouldn’t take much to have a more activist response than the downright laissez-faire – and, consequently, increasingly irrelevant – approach of the Obama administration to the steadily deteriorating economic / financial situation, the UK government of Gordon Brown and Chancellor of the Exchequer [Treasury Secretary] Alistair Darling – are at least doing something, albeit not too much either.
17 December 2009. By David Caploe PhD, Chief Political Economist During the decade after the 1997 Asian financial crisis, China was generally seen throughout East Asia as a friendly alternative power-center to the American-led Washington-consensus. But in the last couple of years, some of China's neighbours are beginning to wonder if 'friendly uncle' is more of a 'roaring dragon', one which ironically its own people might have the most to fear from.
15 December 2009. By David Caploe PhD, Chief Political Economist, EconomyWatch.com.
In a global economic scene dominated by continuing uncertainty, one of the few “sure bets” has SEEMED to be the “green tech / clean tech” – whatever you want to call it – sector.
11 December 2009. By David Caploe PhD, Chief Political Economist, EconomyWatch.com.It was a great relief to the world that Obama replaced the no-bid-contracts gang of Bush and Cheney, bringing a more civilized face to leadership of the world's key economy. But being the not-Bush is not enough. Instead of implementing the policy of Change that he promised us, he has taken a frighteningly casual business-as-usual approach, making himself increasingly irrelevant even as he accepts the Nobel Peace Prize.
while the middlemen chortle into their Veuve Cliquot
8 December 2009. By David Caploe PhD, Chief Political Economist, EconomyWatch.com.On 4 key policy fronts, Obama is making the same mistake. From the Too Big to Fail Banks to the health "care" debate, and from the collapse of the housing market to the mystifying "double-down" on Afghanistan, Obama is relying on middlemen to carry out his policies. And while he begs them for help, they chortle into their Veuve Cliquot.
7 December 2009. By David Caploe PhD, Chief Political Economist, EconomyWatch.com. The economic collapse of the United States has its roots in a political failure in which politicians serve the interests of their sponsors on K Street and Wall Street, rather than the American people. This process was started by Reagan/ism, pushed to new heights by Bush and Cheney, and obediently continued by Obama. Unless real change is enacted, the US is rushing headlong into an economic and political Nietzschean abyss.
4 December 2009. India's economy is primarily driven by consumption, and yet with most of the population earning less than $2.50 a day, there is clearly massive potential for real growth - i.e. not debt-based and driven by necessities and small luxuries. Yet massive challenges remain. We review an economic report, things we agree with in part - boosting agricultural productivity, improving governance and infrastructure, more trade, less inflation and better education - but violently oppose in it's support of liberalizing the financial markets.
3 December 2009. Take a look at the top consumer trends for 2009 from TrendWatching.com, from Business As Unusual, or the movement against greed and towards transparency (despite gun toting Goldman execs), to Eco-Easy (and its counter force, Eco-Uneasy) and Embedded Generousity, where anything you buy will cause a donation to someone less needy. We also highlight Urbany, the fact that more than half of the world's population lives in cities as of about now, and what changes that will herald.
2 December 2009. Goldman executives, frightened by the growing anger against their company, are taking up guns to protect themselves. Humility, an apology or two and less bonus payments would be a much better way of deflecting that anger, but of course Goldmanites want to take those bumper bonuses - half of their total profits, backstopped by the taxpayer - and are therefore preparing for the worst. Ironically, it is their bonuses that may finally alert the public to what former Treasury Paulson feared the most - the revelation that the system is not designed to protect the free market, but the lack of one.
27 November 2009. State-owned Holding Company Dubai World has just stopped repayments on $59 billion of debt, including a $3.5 billion Nakheel bond due 14 Dec. The markets see this effectively as a default, and they have been shaken out of their complacency. European markets are down 3%, the most since the March rebound, with banking and construction stocks leading the bloodshed.Dubai's sovereign debt has been downgraded, its borrowing costs have risen 50%, as they have in Turkey, Russia and South Africa.
25 November 2009. The luxury goods market is in crisis. It is expected to plummet by 16% in the US alone, where de-blinging is the order of the day both financially and psychologically. And yet in China luxury is going to grow by 12%, and this sudden and unexpected change will put China at the top of the world luxury pecking order.
23 November 2009. We generally assume that the boom and bust cycle is bad and to be avoided - but maybe there are financial interests that want the boom and bust cycle to continue and grow, as they amass vast wealth in the process?
20 November 2009. The Federal Reserve is a private bank. While this is not new - it has been this way since 1913 - it is certainly news to most people. The Fed is owned 100% by shareholders, who are all private banks. The express purpose of the Federal Reserve Act was and is to protect private banks, not the government. That is why great figures such as Jefferson and Lincoln bitterly opposed the bankers and their financing systems, fearing them more than standing armies.
18 November 2009. There is an elephant in the room, and it is hard to write about anything else while that is the case. The financial system in the US and Europe needs to be reformed. Not in the way that the regulation currently going through the House and Senate calls for. That is not real reform - it entrenches Too Big to Fail and still allows hundreds of trillions of dollars - more than the entire GDP of the world - to be traded in secret. Lets just say that with the banks financing politicians campaigns, they are getting their money's worth, and driving the US into ever deeper debt. Real reform is based on transparency, increased capital requirements, transaction taxes and the break up of Too Big to Fail firms.
17 November 2009. When Osama and Al-Qaeda launched the 9/11 attacks, they aimed to shake the foundations of western capitalism. Although the official line is that they failed to do that - and, indeed, that he is now somewhat irrelevant since we have 'won' the War on Terror - the measures used to contain the negative effects of the attacks involved pumping the system with cheap money. That liquidity helped to build up the asset price bubbles, bank leverage levels and global trade imbalances that imploded so successfully (from Osama's point of view) in the Financial Crisis. Now, we not only have to ask ourselves whether he planned this or got lucky; our more pressing question is what happens next, since the problems in the system have not been fixed.
13 November 2009. Despite its economic successes, India leads the world in hunger. The monsoon failure, followed by torrential rains at the end of the season that destroyed more crops, has led to growth in the numbers of food insecure to an estimated 220 million. While the government has done will to increase access to funds, the key is technology. A second Green Revolution is needed to take advantage of less thirsty crop varieties, sprinklers to reduce water usage, and even lasers to level fields.
12 November 2009. Sweeping economic reforms have been announced in Russia, that could see the major state-supported companies restructured. Western media have trumpeted this as President Medvedev going after former President Putin and his allies, but they are wrong. It is a factional clan fight happening beneath them, between the FSB (KGB) linked siloviki who control those companies, and the rising technocrats of the civiliki. The outcome of this fight will shape Russian politics and economics for years to come.
11 November 2009. What will are expected the worst economic crashes that happen in 2010? The list is dominated by European countries, so much so that we must stop talking about the sick man of Europe. Now we need to talk about Europe as the sick continent of the world. Indeed, out of the top 12 countries on the disaster list, only one - Equatorial Guinea, scene of corruption, embezzled oil money and attempted coups - is not European. Leading the pack are Ireland, a microcosm of the US but without their own reserve currency to fall back on, and Lithuania, once a proud Baltic Tiger but now struggling with debt and a lack of export orders.
5 November 2009. Forget what the Happy Clappy Fed is saying, and ignore the frothing talking heads on TV. The US stimulus has had a positive impact, but it is not enough. Paul Krugman does the math - if you don't want to see high unemployment for the next decade - and that is the real generational theft going on here - then we need a second stimulus.
4 November 2009. Too Big To Fail. Government Bailout. Protectionism. 2009 was the Year of Big. It seems we have forgotten about entrepreneurialism. It is therefore refreshing to read the op ed of Jack Ma, founder of Alibaba.com, calling for greater support for entrepreneurs, the innovation engine of the economy. While we agree with his vision of a world where 1 billion people buy products and services online daily, we can’t help but question his motives for regulatory support.
Source: NY Times/ Global Trade Atlas.
3 November 2009. World trade collapsed in 2009 - but China dropped less than Germany, Japan and the US, thanks to aggressive price cutting, and it has now become the world's largest exporter. With its focus on the 'Walmart Gang' and with growing unemployment and stagnating wages in the US, that lead is only going to grow, despite an increasing number of trade spats.
Economic News and Analysis 2009 Archive
Economic News and Analysis 2008 Archive