Please, look at the shot at the 25'' in the video (or, for a bigger screen, here).
What is that supposed to be anyway? A reverse shot? The fake subjective point of view of the prime minister? Looks like one of those cheap tv show in the 70s, when the digital camaras start to allow more Rec Time for less money.
People in power still ignores that if you mix the formats people respect you for the format you sell them? Or should we consider it an aesthetical sabotage? The ultimate anti-Leni Riefenstahl? Because if that is the case, the success could have hardly been greater.
In the famous interview Orson Welles teach Peter Bogdanovich an important lesson.
The less we understand an actor language the easiest it is to assess his talent.
Clearly Costas Karamanlis is a poor rhetorician. But thank to that reverse shot(and to the lack of production values) we can appreciate MPs for what they really are. The payed audience of a talk show. And not thanks to somebody's words(that may fail to appear or reach a broad public) but through images that speaks for themselves.
When it comes to words few people have spoken clearer than Adam Shatz fron LRB:
The week that followed(the killing of Alexis Grigoropoulos) saw mass demonstrations culminating in a general strike, the occupation of universities throughout the country, the torching of public buildings, the firebombing of police stations and the destruction and pillaging of hundreds of shops, with damages estimated at a billion euros. No one in Greece seems very surprised by the scale of the response. Patience had been wearing thin with the government, with the police, and with a state of affairs in which the country’s new rich shop in the stores (now trashed) in downtown Athens while educated Greeks work as taxi drivers and bartenders. Only a martyr was needed. Grigoropoulos was perfect for the role: young, sweet-faced, from a good family. He was also Greek, unlike most of the victims of recent police violence, whose deaths were barely noticed.
(...)
Their protests struck a chord among students in other European countries dismayed by their dim economic prospects and unresponsive leaders. There have been demonstrations of support in Italy, Spain, France and Germany; in a sombre speech on 15 December, Dominique Strauss-Kahn warned that unless other European governments move quickly to boost their economies, they may find themselves facing similar unrest.
(...)
There’s a sense among Greeks that nothing is sacred any more: not with a government that failed to prevent the spread of forest fires in 2007, in which dozens of people died, and then cut deals with developers afterwards; and not with politicians like Karamanlis’s friend Christos Zachopoulos, the former secretary general of the Culture Ministry and chairman of the Central Archaeological Council, who approved a grant to a reforestation project that his own advisers told him would damage Byzantine monuments. (That’s just one of the offences that came to light after Zachopoulos, threatened with blackmail by his former assistant and mistress, jumped off his balcony to avoid disgrace. He survived the fall.) Greece doesn’t brutalise its citizens to the degree that it did under the Colonels, but neither is it providing them with a future, or even a secure present. No wonder a recent survey found Greeks to be the most pessimistic people in Europe.
(...)
Greece now has a higher percentage of students abroad than any other country in the EU. A fifth of the population lives below the poverty line, youth unemployment is 25 per cent, and the minimum wage is half the EU average. The anarchists believe the solution is a ‘total rejection of work’, but most of the protesters would be happy with more work, at a better rate of pay".
Takis Michas from openDemocracy(also quoted in LRB article) makes other important points:
"What was unique about these Greek events - as opposed to, say, the riots in the banlieues of Paris in late 2005 - was the total withdrawal of the government and the security forces from the scene. Civil society was left alone and unarmed to fend off the violent attacks on their property by the hordes of predators. On 9 December, one of the worst nights of rioting, more than 400 shops were attacked in Athens: some were torched, others looted and seriously damaged.
All of this took place while the security forces simply stood by and watched the disaster unfold. They were following the explicit orders of their political masters to assume a "defensive posture" - which in effect meant that they did not try to prevent the orgy of destruction.
Anyone watching this absurd scene could be excused for concluding that a secret deal had been struck between the government and the rioters: we let you torch and plunder to your heart's content, and you let us continue pretending that we are in charge".
...More on the extent of New Democracy Government's failure here.
viernes, 26 de diciembre de 2008
Modigliani - The Chinese Saving Puzzle(2004) - edited
From this paper:
"In the Chinese cultural tradition, the younger generation is supposed to take care of the elder members of the family, while the elders will bequeath the house and other assets to their children. In other words, an economic unit is the extended family rather than the nuclear
family. Under such a system, a child is an effective substitute for life-cycle saving.
Consequently, when strict birth-control measures came into effect in the 1970s, the accumulation of life-cycle (tangible) assets gained in importance as a substitute for
children. One may also argue that even if the Chinese birth-control policy did not
occur, the secular trends of 1) more nuclear families; 2) migration of families
from their ancestral homes; and 3) less loyalty to elders would have had the effect of
reducing the role of children as a substitute for saving, anyway.
(...)
By the early 90s, the Chinese personal saving rate had reached a remarkable level of nearly 30
percent with a peak of over 33 percent. This occurred despite the fact that, even with the high growth rate, the per-capita income remained one of the lowest in the world. These saving rates are stunningly high in comparison with those of the United States, one of the world’s richest nations. During those same years, the personal saving rate in the United States was 7.6 percent;
and even the “private” saving rate, which is the sum of personal saving and corporate saving (profit retention), rises to only 10 percent. Since then the saving rate has
slipped further with the personal down to 3 percent and the private rate down to 5 percent—
though these low figures may reflect partly a transitory response to the boom in asset values.
When lay people are confronted with these figures, their usual reaction, after rubbing
their eyes, is to attribute the huge gap to obvious differences in upbringing and education. This thinking reflects cultural-ethical values attributed to personal thriftiness and risk-taking in different cultures. But, if the reader has found the analysis of this paper persuasive, he should understand that that type of explanation is fundamentally baseless. And the simplest proof is found in this very paper that for a long stretch of very recent time, 1958–1975, the Chinese
saving rate was quite low, around 5.3 percent or lower than in the United States.
What then is the explanation?
The key to the puzzle, we suggest, is provided by the LCH(*) and its implication that the major systematic determinant of the rate of private saving is to be found in the rate of growth of income and the demographic structure of the economy, while per-capita income, the traditional and commonsensical explanation counts little, if any. According to this model the extraordinary behavior of the Chinese saving ratio is the result of two nearly coincidental sharp turns in two key policies. The first is the movement initiated in the late 1970s toward a market-oriented economy, which, along with a number of very special characteristics of China’s society and labor force made possible an explosive growth pattern
such as was never seen before. With this development the growth rate jumps from a
more or less stable rate of 4 percent to a gradually rising (accelerating) pattern
reaching some 12 percent but 25 years later. The second turn regards demographic
policies. Until the 1970s the Chinese government was not seriously concerned with
population growth, and in fact for a while under Mao there was an endeavor to
encourage births. But eventually the view prevailed that to improve the economic wellbeing
of the Chinese population, it was essential to control population growth, and
the new policy was announced and strictly enforced to limit the number of children per
family (just one in the cities). As noted, this had a double profound effect on the saving
ratio. The first was a drastic decline in the ratio of people under fifteen years to working
population from 0.96 in the mid-70s to 0.41 at the turn of the century. The second
was to undermine the traditional role of the family in providing old-age support to the
parents by the children, thus encouraging provisions through individual accumulation.
According to our estimates each of these developments contributed equally more than ten basis points to the rise in the saving rate of some thirty basis points (from 3 percent to 33 percent) with the remainder largely accounted for by the spurious effect of inflation (five basis points).
As a further demonstration that the prodigious saving rate reached by the mid 90s does
not reflect “ethnic” or cultural characteristics of China, we report illustrative episodes for other countries and periods.
Japan had an exceptionally high growth rate—though not quite matching that of China—and a quite favorable population structure that had a saving rate that nearly matched China’s. One might be tempted to say that, after all, China and Japan share the heritage of the East. Unfortunately, such a simple explanation is refuted. In the 1960s, Italy saved even a larger fraction of its income than Japan. Yet, one cannot even use the excuse of the “Protestant ethic” since Italy is a solidly Catholic country and many think of it as the “paese della dolce vita”!
The explanation can again be found in a growth rate not as high as the other two countries but still well above average (row 7) and a very favorable M/P that reflected the sharp decline in population growth, to which one can probably add the substantial loss of its tangible and intangible wealth during World War II. And a similar story can be repeated for France with a fairly high growth rate of 5 percent, saving 19 percent of its income, and of Portugal with a somewhat higher growth rate and a saving ratio of nearly 20 percent.
In OECD countries during the 60s, the growth rate peaked at 4.9 percent and the saving rate also peaked for most countries with an average of 14.8 percent. Both are impressive by today’s standards. By the 1980s, the average growth rate had declined to below 3 percent and the saving rate to 14.4 percent. The inflation-adjusted saving rate had declined even more, from 14.8 percent to 12.3 percent.
(*)Life-Cycle Hypothesis: lifetime consumption profile expected to be essentially flat, with people borrowing against future earnings during their early study and working life when income is low, saving greatly during their most productive working years and consuming saved assets during retirement.
"In the Chinese cultural tradition, the younger generation is supposed to take care of the elder members of the family, while the elders will bequeath the house and other assets to their children. In other words, an economic unit is the extended family rather than the nuclear
family. Under such a system, a child is an effective substitute for life-cycle saving.
Consequently, when strict birth-control measures came into effect in the 1970s, the accumulation of life-cycle (tangible) assets gained in importance as a substitute for
children. One may also argue that even if the Chinese birth-control policy did not
occur, the secular trends of 1) more nuclear families; 2) migration of families
from their ancestral homes; and 3) less loyalty to elders would have had the effect of
reducing the role of children as a substitute for saving, anyway.
(...)
By the early 90s, the Chinese personal saving rate had reached a remarkable level of nearly 30
percent with a peak of over 33 percent. This occurred despite the fact that, even with the high growth rate, the per-capita income remained one of the lowest in the world. These saving rates are stunningly high in comparison with those of the United States, one of the world’s richest nations. During those same years, the personal saving rate in the United States was 7.6 percent;
and even the “private” saving rate, which is the sum of personal saving and corporate saving (profit retention), rises to only 10 percent. Since then the saving rate has
slipped further with the personal down to 3 percent and the private rate down to 5 percent—
though these low figures may reflect partly a transitory response to the boom in asset values.
When lay people are confronted with these figures, their usual reaction, after rubbing
their eyes, is to attribute the huge gap to obvious differences in upbringing and education. This thinking reflects cultural-ethical values attributed to personal thriftiness and risk-taking in different cultures. But, if the reader has found the analysis of this paper persuasive, he should understand that that type of explanation is fundamentally baseless. And the simplest proof is found in this very paper that for a long stretch of very recent time, 1958–1975, the Chinese
saving rate was quite low, around 5.3 percent or lower than in the United States.
What then is the explanation?
The key to the puzzle, we suggest, is provided by the LCH(*) and its implication that the major systematic determinant of the rate of private saving is to be found in the rate of growth of income and the demographic structure of the economy, while per-capita income, the traditional and commonsensical explanation counts little, if any. According to this model the extraordinary behavior of the Chinese saving ratio is the result of two nearly coincidental sharp turns in two key policies. The first is the movement initiated in the late 1970s toward a market-oriented economy, which, along with a number of very special characteristics of China’s society and labor force made possible an explosive growth pattern
such as was never seen before. With this development the growth rate jumps from a
more or less stable rate of 4 percent to a gradually rising (accelerating) pattern
reaching some 12 percent but 25 years later. The second turn regards demographic
policies. Until the 1970s the Chinese government was not seriously concerned with
population growth, and in fact for a while under Mao there was an endeavor to
encourage births. But eventually the view prevailed that to improve the economic wellbeing
of the Chinese population, it was essential to control population growth, and
the new policy was announced and strictly enforced to limit the number of children per
family (just one in the cities). As noted, this had a double profound effect on the saving
ratio. The first was a drastic decline in the ratio of people under fifteen years to working
population from 0.96 in the mid-70s to 0.41 at the turn of the century. The second
was to undermine the traditional role of the family in providing old-age support to the
parents by the children, thus encouraging provisions through individual accumulation.
According to our estimates each of these developments contributed equally more than ten basis points to the rise in the saving rate of some thirty basis points (from 3 percent to 33 percent) with the remainder largely accounted for by the spurious effect of inflation (five basis points).
As a further demonstration that the prodigious saving rate reached by the mid 90s does
not reflect “ethnic” or cultural characteristics of China, we report illustrative episodes for other countries and periods.
Japan had an exceptionally high growth rate—though not quite matching that of China—and a quite favorable population structure that had a saving rate that nearly matched China’s. One might be tempted to say that, after all, China and Japan share the heritage of the East. Unfortunately, such a simple explanation is refuted. In the 1960s, Italy saved even a larger fraction of its income than Japan. Yet, one cannot even use the excuse of the “Protestant ethic” since Italy is a solidly Catholic country and many think of it as the “paese della dolce vita”!
The explanation can again be found in a growth rate not as high as the other two countries but still well above average (row 7) and a very favorable M/P that reflected the sharp decline in population growth, to which one can probably add the substantial loss of its tangible and intangible wealth during World War II. And a similar story can be repeated for France with a fairly high growth rate of 5 percent, saving 19 percent of its income, and of Portugal with a somewhat higher growth rate and a saving ratio of nearly 20 percent.
In OECD countries during the 60s, the growth rate peaked at 4.9 percent and the saving rate also peaked for most countries with an average of 14.8 percent. Both are impressive by today’s standards. By the 1980s, the average growth rate had declined to below 3 percent and the saving rate to 14.4 percent. The inflation-adjusted saving rate had declined even more, from 14.8 percent to 12.3 percent.
(*)Life-Cycle Hypothesis: lifetime consumption profile expected to be essentially flat, with people borrowing against future earnings during their early study and working life when income is low, saving greatly during their most productive working years and consuming saved assets during retirement.
jueves, 25 de diciembre de 2008
Great Middle-East Energy Great Game: Turkmenistan
From IHT(december 22, 2008):
"Prime Minister Vladimir Putin will host energy ministers from the world's largest exporters of natural gas on Tuesday in Moscow as Russia seeks to take a leading role among producers of the fuel.
Putin, who turned Gazprom into a global energy company during his presidency, is scheduled to open the Gas Exporting Countries Forum. The forum is expected to agree on a charter transforming it from a loose, consultative body into a formal organization with a permanent secretariat.
The annual meeting was delayed several times amid reports that member nations disagreed over the future role of the group. Western consumer countries have warned against the formation of a cartel modeled after the Organization of Petroleum Exporting Countries. The Gas Forum has 14 members, including Iran, Algeria and Qatar, which are also members of OPEC.
Russia supplies a quarter of European gas through pipelines.
(...)Gazprom, a state-run company, formed a "gas troika" in October with Qatar and Iran for joint exploration and production projects. Together, the three countries hold more than half of the world's gas reserves.
Read this June 2008 article to fully appreciate how fast the crisis has been unfolding.
M. K. Bhadrakumar(*), from AsianTimes(via Counterpunch):
"From the details coming out of Ashgabat in Turkmenistan and Moscow last weekend, it is apparent that the great game over Caspian energy has taken a dramatic turn. In the geopolitics of energy security, nothing like this has happened before. The United States has suffered a huge defeat in the race for Caspian gas. The question now is how much longer Washington could afford to keep Iran out of the energy market.
Gazprom, Russia's energy leviathan, signed two major agreements in Ashgabat on July 22 (2008) outlining a new scheme for purchase of Turkmen gas.
The first one elaborates the price formation principles that will be guiding the Russian gas purchase from Turkmenistan during the next 20-year period.
The second agreement is a unique one, making Gazprom the donor for local Turkmen energy projects. In essence, the two agreements ensure that Russia will keep control over Turkmen gas exports.
The new pricing principle lays out that starting from next year, Russia has agreed to pay to Turkmenistan a base gas purchasing price that is a mix of the average wholesale price in Europe and Ukraine. In effect, as compared to the current price of US$140 per thousand cubic meters of Turkmen gas, from 2009 onward Russia will be paying $225-295 under the new formula. This works out to an additional annual payment of something like $9.4 billion to $12.4 billion. But the transition to market principles of pricing will take place within the framework of a long-term contract running up to the year 2028.
The second agreement stipulates that Gazprom will finance and build gas transportation facilities and develop gas fields in Turkmenistan. Experts have estimated that Gazprom will finance Turkmen projects costing $4-6 billion. Gazprom chief Alexei Miller said, "We have reached agreement regarding Gazprom financing and building the new main gas pipelines from the east of the country, developing gas fields and boosting the capacity of the Turkmen sector of the Caspian gas pipeline to 30 billion cubic meters." Interestingly, Gazprom will provide financing in the form of 0% credits for these local projects. The net gain for Turkmenistan is estimated to be in the region of $240-480 million.
From all appearance, Gazprom, which was headed by Russian President Dmitry Medvedev for eight years from 2000 to May 2008, has taken an audacious initiative. It could only have happened thanks to a strategic decision taken at the highest level in the Kremlin. In fact, Medvedev had traveled to Ashgabat on July 4-5 en route to the Group of Eight summit meeting in Hokkaido, Japan. Curiously, the agreements reached in Ashgabat on Friday are unlikely to enable Gazprom to make revenue from reselling Turkmen gas. Quite possibly, Gazprom may now have to concede similar terms to Kazakhstan and Uzbekistan, the two other major gas producing countries in Central Asia. In other words, plain money-making was not the motivation for Gazprom. The Kremlin has a grand strategy.
(...)The government-owned China Daily admitted on Monday, "Both China and Russia kept silent on the details of the consensus they reached on energy cooperation in the first round of their negotiation in Beijing on the weekend." Without getting into details, China Daily merely took note of the talks as "a good beginning" and commented, "It seems that a shift of Russia's energy export policy is under way. Russia might turn its eyes from the Western countries to the Asia-Pacific region ... The cooperation in the energy sector is an issue of great significance for Sino-Russian relations ... the political and geographic closeness of the two countries would put their energy cooperation under a safe umbrella and make it a win-win deal. China-Russia ties are at their best times ... The two sides settled their lingering border disputes, held joint military exercises, and enjoyed rapidly increasing bilateral trade."
(...)
The agreements with Turkmenistan further consolidate Russia's control of Central Asia's gas exports. Gazprom recently offered to buy all of Azerbaijan's gas at European prices. (Medvedev visited Baku on July 3-4.) Baku will study with keen interest the agreements signed in Ashgabat on Friday. The overall implications of these Russian moves are very serious for the US and EU campaign to get the Nabucco gas pipeline project going.
Nabucco, which would run from Turkey to Austria via Bulgaria, Rumania and Hungary, was hoping to tap Turkmen gas by linking Turkmenistan and Azerbaijan via a pipeline across the Caspian Sea that would be connected to the pipeline networks through the Caucasus to Turkey already existing, such as the Baku-Tbilisi-Ceyhan pipeline. But with access denied to Turkmen gas, Nabucco's viability becomes doubtful. And, without Nabucco, the entire US strategy of reducing Europe's dependence on Russian energy supplies makes no sense. Therefore, Washington is faced with Hobson's choice. Friday's agreements in Ashgabat mean that Nabucco's realization will now critically depend on gas supplies from the Middle East - Iran, in particular. Turkey is pursuing the idea of Iran supplying gas to Europe and has offered to mediate in the US-Iran standoff.
The geopolitics of energy makes strange bedfellows. Russia will be watching with anxiety the Turkish-Iranian-US tango. An understanding with Iran on gas pricing, production and market-sharing is vital for the success of Russia's overall gas export strategy. But Tehran visualizes the Nabucco as its passport for integration with Europe. Again, Russia's control of Turkmen gas cannot be to Tehran's liking. Tehran had keenly pursed with Ashgabat the idea of evacuation of Turkmen gas to the world market via Iranian territory.
There must be deep frustration in Washington. In sum, Russia has greatly strengthened its standing as the principal gas supplier to Europe. It not only controls Central Asia's gas exports but has ensured that gas from the region passes across Russia and not through the alternative trans-Caspian pipelines mooted by the US and EU. Also, a defining moment has come. The era of cheap gas is ending. Other gas exporters will cite the precedent of the price for Turkmen gas. European companies cannot match Gazprom's muscle. Azerbaijan becomes a test case. Equally, Russia places itself in a commanding position to influence the price of gas in the world market. A gas cartel is surely in the making.
(*) M. K. Bhadrakumar was a career diplomat in the Indian Foreign Service. His assignments included the Soviet Union, South Korea, Sri Lanka, Germany, Afghanistan, Pakistan, Uzbekistan, Kuwait and Turkey.
"Prime Minister Vladimir Putin will host energy ministers from the world's largest exporters of natural gas on Tuesday in Moscow as Russia seeks to take a leading role among producers of the fuel.
Putin, who turned Gazprom into a global energy company during his presidency, is scheduled to open the Gas Exporting Countries Forum. The forum is expected to agree on a charter transforming it from a loose, consultative body into a formal organization with a permanent secretariat.
The annual meeting was delayed several times amid reports that member nations disagreed over the future role of the group. Western consumer countries have warned against the formation of a cartel modeled after the Organization of Petroleum Exporting Countries. The Gas Forum has 14 members, including Iran, Algeria and Qatar, which are also members of OPEC.
Russia supplies a quarter of European gas through pipelines.
(...)Gazprom, a state-run company, formed a "gas troika" in October with Qatar and Iran for joint exploration and production projects. Together, the three countries hold more than half of the world's gas reserves.
Read this June 2008 article to fully appreciate how fast the crisis has been unfolding.
M. K. Bhadrakumar(*), from AsianTimes(via Counterpunch):
"From the details coming out of Ashgabat in Turkmenistan and Moscow last weekend, it is apparent that the great game over Caspian energy has taken a dramatic turn. In the geopolitics of energy security, nothing like this has happened before. The United States has suffered a huge defeat in the race for Caspian gas. The question now is how much longer Washington could afford to keep Iran out of the energy market.
Gazprom, Russia's energy leviathan, signed two major agreements in Ashgabat on July 22 (2008) outlining a new scheme for purchase of Turkmen gas.
The first one elaborates the price formation principles that will be guiding the Russian gas purchase from Turkmenistan during the next 20-year period.
The second agreement is a unique one, making Gazprom the donor for local Turkmen energy projects. In essence, the two agreements ensure that Russia will keep control over Turkmen gas exports.
The new pricing principle lays out that starting from next year, Russia has agreed to pay to Turkmenistan a base gas purchasing price that is a mix of the average wholesale price in Europe and Ukraine. In effect, as compared to the current price of US$140 per thousand cubic meters of Turkmen gas, from 2009 onward Russia will be paying $225-295 under the new formula. This works out to an additional annual payment of something like $9.4 billion to $12.4 billion. But the transition to market principles of pricing will take place within the framework of a long-term contract running up to the year 2028.
The second agreement stipulates that Gazprom will finance and build gas transportation facilities and develop gas fields in Turkmenistan. Experts have estimated that Gazprom will finance Turkmen projects costing $4-6 billion. Gazprom chief Alexei Miller said, "We have reached agreement regarding Gazprom financing and building the new main gas pipelines from the east of the country, developing gas fields and boosting the capacity of the Turkmen sector of the Caspian gas pipeline to 30 billion cubic meters." Interestingly, Gazprom will provide financing in the form of 0% credits for these local projects. The net gain for Turkmenistan is estimated to be in the region of $240-480 million.
From all appearance, Gazprom, which was headed by Russian President Dmitry Medvedev for eight years from 2000 to May 2008, has taken an audacious initiative. It could only have happened thanks to a strategic decision taken at the highest level in the Kremlin. In fact, Medvedev had traveled to Ashgabat on July 4-5 en route to the Group of Eight summit meeting in Hokkaido, Japan. Curiously, the agreements reached in Ashgabat on Friday are unlikely to enable Gazprom to make revenue from reselling Turkmen gas. Quite possibly, Gazprom may now have to concede similar terms to Kazakhstan and Uzbekistan, the two other major gas producing countries in Central Asia. In other words, plain money-making was not the motivation for Gazprom. The Kremlin has a grand strategy.
(...)The government-owned China Daily admitted on Monday, "Both China and Russia kept silent on the details of the consensus they reached on energy cooperation in the first round of their negotiation in Beijing on the weekend." Without getting into details, China Daily merely took note of the talks as "a good beginning" and commented, "It seems that a shift of Russia's energy export policy is under way. Russia might turn its eyes from the Western countries to the Asia-Pacific region ... The cooperation in the energy sector is an issue of great significance for Sino-Russian relations ... the political and geographic closeness of the two countries would put their energy cooperation under a safe umbrella and make it a win-win deal. China-Russia ties are at their best times ... The two sides settled their lingering border disputes, held joint military exercises, and enjoyed rapidly increasing bilateral trade."
(...)
The agreements with Turkmenistan further consolidate Russia's control of Central Asia's gas exports. Gazprom recently offered to buy all of Azerbaijan's gas at European prices. (Medvedev visited Baku on July 3-4.) Baku will study with keen interest the agreements signed in Ashgabat on Friday. The overall implications of these Russian moves are very serious for the US and EU campaign to get the Nabucco gas pipeline project going.
Nabucco, which would run from Turkey to Austria via Bulgaria, Rumania and Hungary, was hoping to tap Turkmen gas by linking Turkmenistan and Azerbaijan via a pipeline across the Caspian Sea that would be connected to the pipeline networks through the Caucasus to Turkey already existing, such as the Baku-Tbilisi-Ceyhan pipeline. But with access denied to Turkmen gas, Nabucco's viability becomes doubtful. And, without Nabucco, the entire US strategy of reducing Europe's dependence on Russian energy supplies makes no sense. Therefore, Washington is faced with Hobson's choice. Friday's agreements in Ashgabat mean that Nabucco's realization will now critically depend on gas supplies from the Middle East - Iran, in particular. Turkey is pursuing the idea of Iran supplying gas to Europe and has offered to mediate in the US-Iran standoff.
The geopolitics of energy makes strange bedfellows. Russia will be watching with anxiety the Turkish-Iranian-US tango. An understanding with Iran on gas pricing, production and market-sharing is vital for the success of Russia's overall gas export strategy. But Tehran visualizes the Nabucco as its passport for integration with Europe. Again, Russia's control of Turkmen gas cannot be to Tehran's liking. Tehran had keenly pursed with Ashgabat the idea of evacuation of Turkmen gas to the world market via Iranian territory.
There must be deep frustration in Washington. In sum, Russia has greatly strengthened its standing as the principal gas supplier to Europe. It not only controls Central Asia's gas exports but has ensured that gas from the region passes across Russia and not through the alternative trans-Caspian pipelines mooted by the US and EU. Also, a defining moment has come. The era of cheap gas is ending. Other gas exporters will cite the precedent of the price for Turkmen gas. European companies cannot match Gazprom's muscle. Azerbaijan becomes a test case. Equally, Russia places itself in a commanding position to influence the price of gas in the world market. A gas cartel is surely in the making.
(*) M. K. Bhadrakumar was a career diplomat in the Indian Foreign Service. His assignments included the Soviet Union, South Korea, Sri Lanka, Germany, Afghanistan, Pakistan, Uzbekistan, Kuwait and Turkey.
Hajj makes Muslims more tolerant, study suggests
I haven't read the paper so I can't say anything about metodology and scientific consistency.
Generally speaking it seems reasonable.
In her book l'Enracinement(The Need for Roots: Prelude to a Declaration of Duties Toward Mankind) Simone Weil suggested that once the war would be over, the government should have looked for ways to provide stimulus to the farmers giving them the chance to visit other regions of the country, to share experience with colleagues and share a more general sense of purpose that will give them strenght in the solitude of their life.
The "slightly different" is a powerfull agent of change, especially in conservative societies.
Here's the article.
Generally speaking it seems reasonable.
In her book l'Enracinement(The Need for Roots: Prelude to a Declaration of Duties Toward Mankind) Simone Weil suggested that once the war would be over, the government should have looked for ways to provide stimulus to the farmers giving them the chance to visit other regions of the country, to share experience with colleagues and share a more general sense of purpose that will give them strenght in the solitude of their life.
The "slightly different" is a powerfull agent of change, especially in conservative societies.
Here's the article.
The operating assumption of the Ponzi scheme is that the tide will always rise
Micheal Hudson from Counterpunch:
"The recent stock market and real estate bubbles are much like pyramid schemes in the sense that what is bidding up stock and property prices is an exponential inflow of new money from pension plans and mutual funds (for shares) and bank credit (for real estate). Venture capitalists are “cashing out” while corporate managers exercise their stock options.
Suppose that mortgage-packaging companies are honest in their appraisals of current price trends. The real estate bubble is nonetheless speculative and postindustrial. The analogy is found when financial managers endorse government policies that encourage the inflation of price for stocks and bonds, stamps and coins, Rembrandts and modern art by claiming that this creates wealth and hence, by definition, pulls living standards and culture onward and upward.
What is wrong with this picture? For starters, it fails to define value as distinct from price, windfall and capital gains as distinct from earned income. It also neglects the fact that market prices rise and fall, but the debts remain in place. And when debts cannot be paid, savings are wiped out".
(...)
"Individuals are getting rich while the economy is polarizing between creditors and debtors, property owners and rent-payers. Unproductive investment occurs when it takes the form of windfall “capital” gains, and when it involves going into debt for real estate, stocks or bonds, or “collectibles.” Unproductive credit occurs when commercial banks make loans that merely finance the purchase of property, companies or financial securities already in place.
Two centuries ago, French followers of Count Henry St. Simon outlined an industrial system that was to be based mainly on equity financing (stocks) rather than debt (bonds and bank loans). Their idea was to make industrial banking a kind of mutual fund, so that claims for payment (and hence, the value of savings) would rise and fall to reflect the economy’s earning power. The industrial banking that developed largely in Germany and central Europe differed from the short-term Anglo-American collateral-based trade credit and mortgage lending. But since World War I, global financial practices have been more extractive than productive.
The consequence has been that debts on the economy-wide level have grown more rapidly than the ability to pay. Instead of reducing this debt overhead by earning their way out of debt, economies have sought to inflate their way out of debt. However, the mode of inflation is not the familiar rise in consumer prices, much less wage inflation. Rather, it is asset-price inflation, emanating largely from the United States. Since the gold-exchange standard gave way to the paper dollar standard in 1971, the U.S. economy has become unique in being able to create credit – and foreign debt – without constraint. The result has been an unparalleled growth in debt relative to income, production and wages. This “debt pollution” has been likened to environmental pollution".
(...)
"Governments have replaced industrial growth with purely financial wealth creation in the form of a real estate and stock market bubble. This has turned the economic universe upside-down relative to what the classical writers expected to result from the technological progress unleashed by the Industrial Revolution and its parallel agricultural, commercial and financial revolutions. Property and credit have become costs instead of a benefit, institutional forms of rent- and interest-extracting overhead rather than helpful inputs".
"The recent stock market and real estate bubbles are much like pyramid schemes in the sense that what is bidding up stock and property prices is an exponential inflow of new money from pension plans and mutual funds (for shares) and bank credit (for real estate). Venture capitalists are “cashing out” while corporate managers exercise their stock options.
Suppose that mortgage-packaging companies are honest in their appraisals of current price trends. The real estate bubble is nonetheless speculative and postindustrial. The analogy is found when financial managers endorse government policies that encourage the inflation of price for stocks and bonds, stamps and coins, Rembrandts and modern art by claiming that this creates wealth and hence, by definition, pulls living standards and culture onward and upward.
What is wrong with this picture? For starters, it fails to define value as distinct from price, windfall and capital gains as distinct from earned income. It also neglects the fact that market prices rise and fall, but the debts remain in place. And when debts cannot be paid, savings are wiped out".
(...)
"Individuals are getting rich while the economy is polarizing between creditors and debtors, property owners and rent-payers. Unproductive investment occurs when it takes the form of windfall “capital” gains, and when it involves going into debt for real estate, stocks or bonds, or “collectibles.” Unproductive credit occurs when commercial banks make loans that merely finance the purchase of property, companies or financial securities already in place.
Two centuries ago, French followers of Count Henry St. Simon outlined an industrial system that was to be based mainly on equity financing (stocks) rather than debt (bonds and bank loans). Their idea was to make industrial banking a kind of mutual fund, so that claims for payment (and hence, the value of savings) would rise and fall to reflect the economy’s earning power. The industrial banking that developed largely in Germany and central Europe differed from the short-term Anglo-American collateral-based trade credit and mortgage lending. But since World War I, global financial practices have been more extractive than productive.
The consequence has been that debts on the economy-wide level have grown more rapidly than the ability to pay. Instead of reducing this debt overhead by earning their way out of debt, economies have sought to inflate their way out of debt. However, the mode of inflation is not the familiar rise in consumer prices, much less wage inflation. Rather, it is asset-price inflation, emanating largely from the United States. Since the gold-exchange standard gave way to the paper dollar standard in 1971, the U.S. economy has become unique in being able to create credit – and foreign debt – without constraint. The result has been an unparalleled growth in debt relative to income, production and wages. This “debt pollution” has been likened to environmental pollution".
(...)
"Governments have replaced industrial growth with purely financial wealth creation in the form of a real estate and stock market bubble. This has turned the economic universe upside-down relative to what the classical writers expected to result from the technological progress unleashed by the Industrial Revolution and its parallel agricultural, commercial and financial revolutions. Property and credit have become costs instead of a benefit, institutional forms of rent- and interest-extracting overhead rather than helpful inputs".
Two sentences about crisis from chinese perspective
Henry CK Liu wrote this two very graphic sentence in yesterday's Asian Times online:
"The structural problem of the Chinese economy can be described in one sentence: China produces from plants financed by foreign investment that operate with low domestic wages for foreign markets that pay with dollars that cannot be used in the domestic economy.
The solution to this structural problem can also be summed up in one sentence: China must finance plants with sovereign credit to produce for the domestic market where consumer purchasing power will come from high wages, with sovereign credit repaid from increased tax revenue from a vibrant domestic economy".
"The structural problem of the Chinese economy can be described in one sentence: China produces from plants financed by foreign investment that operate with low domestic wages for foreign markets that pay with dollars that cannot be used in the domestic economy.
The solution to this structural problem can also be summed up in one sentence: China must finance plants with sovereign credit to produce for the domestic market where consumer purchasing power will come from high wages, with sovereign credit repaid from increased tax revenue from a vibrant domestic economy".
Either you watch out your language or you keep it private
IHT republish an Oxford Analytica daily brief called "Debt legitimacy comes under scrutiny".
Here some of the more relevant passage:
"Some Latin American governments are increasingly questioning the 'legitimacy' of their public debt. Questioning the need to service and repay debt incurred by previous governments, despite having ability to pay, is an innovative strategy that aims to elevate the needs of domestic citizens by making additional resources available to them, at least in the short term. However, it runs contrary to the rules and expectations underpinning the global financial architecture.
(...)
"If Correa's gamble appears to pay off initially, by seeming likely to succeed in substantially reducing his county's debt burden without a significant economic deterioration, this could embolden other governments in the region and elsewhere to make similar moves".
(...)
However, if it soon becomes apparent that the cost of Ecuador's default is too high, in terms of a virtual elimination of (already reduced) access to international credit markets -- including companies' access to trade finance -- and an ensuing worsening of fiscal problems (probably including an inability to meet accelerated debt obligations even if it wished to), then this would be likely to discourage other countries from taking similarly belligerent approaches.
(...)
"There is certainly a significant degree of truth to the argument that debts incurred by previous authoritarian and/or corrupt governments in developing countries have not ultimately had the domestic social benefits expected. Some non-governmental organizations, such as the Jubilee Debt Campaign, have long sought to bring to wider debate issues surrounding the 'legitimacy' of developing countries' debt burdens and appear generally sympathetic to the idea of strategic default if the social burden of continuing debt servicing and repayment is very onerous.
In a worst-case scenario, the actions being taken by Quito and being contemplated by some other regional governments could embolden countries all over the world to engage in strategic defaults on their debts. Though unlikely, this could lead to the unraveling of parts of the global sovereign debt system, with dire long-term consequences.
More likely is that Ecuador and any other countries pursuing strategic defaults will suffer severe economic collapses in the short-to-medium term, deterring other countries from doing so.
Here some of the more relevant passage:
"Some Latin American governments are increasingly questioning the 'legitimacy' of their public debt. Questioning the need to service and repay debt incurred by previous governments, despite having ability to pay, is an innovative strategy that aims to elevate the needs of domestic citizens by making additional resources available to them, at least in the short term. However, it runs contrary to the rules and expectations underpinning the global financial architecture.
(...)
"If Correa's gamble appears to pay off initially, by seeming likely to succeed in substantially reducing his county's debt burden without a significant economic deterioration, this could embolden other governments in the region and elsewhere to make similar moves".
(...)
However, if it soon becomes apparent that the cost of Ecuador's default is too high, in terms of a virtual elimination of (already reduced) access to international credit markets -- including companies' access to trade finance -- and an ensuing worsening of fiscal problems (probably including an inability to meet accelerated debt obligations even if it wished to), then this would be likely to discourage other countries from taking similarly belligerent approaches.
(...)
"There is certainly a significant degree of truth to the argument that debts incurred by previous authoritarian and/or corrupt governments in developing countries have not ultimately had the domestic social benefits expected. Some non-governmental organizations, such as the Jubilee Debt Campaign, have long sought to bring to wider debate issues surrounding the 'legitimacy' of developing countries' debt burdens and appear generally sympathetic to the idea of strategic default if the social burden of continuing debt servicing and repayment is very onerous.
In a worst-case scenario, the actions being taken by Quito and being contemplated by some other regional governments could embolden countries all over the world to engage in strategic defaults on their debts. Though unlikely, this could lead to the unraveling of parts of the global sovereign debt system, with dire long-term consequences.
More likely is that Ecuador and any other countries pursuing strategic defaults will suffer severe economic collapses in the short-to-medium term, deterring other countries from doing so.
martes, 23 de diciembre de 2008
Global Imbalances: Focus China
Yasheng Huang, MIT Sloan School of Management and author of Capitalism with Chinese Characteristics wrote a very important article on the WSJ:
"Remember the hype about "decoupling"? Not so long ago, Western analysts -- in particular investment-bank economists -- were peddling the idea that China had become a powerful economic center of its own, able not only to drive its own growth independent of the United States but also to power the global economy forward.
To the extent that these Wall Street economists are still employed, few would make that argument now. The economic numbers emerging out of China are sobering. Exports, still the backbone of the economy, are contracting for the first time in seven years, according to the latest data. They're being driven down by slackening demand overseas. Even worse is the sharp decline of imports, a sure sign of falling domestic demand. These two developments taken together signal monumental economic challenges ahead. Clearly China is not bucking global trends.
So how did all the decoupling theorists get it so wrong? This isn't an idle question. The decoupling theory itself was the product of faulty economic analyses that persist today, even as the decoupling theory falls out of favor. Debunking these claims carries important policy implications.
The fundamental problem, and a mortal bias of economists, is a fixation with simple measurements -- especially GDP data. Ask a professional economist how many provinces China has and you are likely to draw a blank stare. But ask him what the GDP growth of China has been and he'll quickly be able to tell you that China has grown at a double-digit rate for 30 years and that at this rate China will overtake the U.S. by 2035 (or some other date). GDP-centrism is endemic, and often comes at the expense of deeper analysis. Just look at the enthusiasm with which economists and analysts greeted Goldman Sachs's famed "BRIC" report forecasting dramatic booms in Brazil, Russia, India and China -- a report based on little more than fifth-grade mathematics.
This obsession with China's impressive GDP growth often ignores discussion of what's causing that growth and whether it's self-sustained. This is where the decoupling enthusiasts stumbled, and where policy makers can still go seriously wrong. Consider, for example, data about the very slow growth of household incomes in China. This is particularly apparent in rural households. For the past 20 years or so, rural household income has grown at a rate half that of GDP growth. The slow household income growth, combined with rapid GDP growth, means that China has created a huge production capacity but it has done so at the expense of its own consumption base. This fact alone should have disproved the decoupling hypothesis. All the new "excess" production had to go somewhere, i.e., to the U.S. What's more, the persistence of this gap suggests that over time, China's growth has become more, not less, a derivative of America's consumption appetite.
This raises the important policy question of why and how Chinese growth systematically undermined its own consumption potential. To answer this, one has get a grip on how China's rapid GDP growth happened in the first place. Part of that growth is a result of economic liberalization, but the market-driven part is small and has been diminishing. Fixed asset investment, heavily controlled by the government, has risen to nearly 45% today, from a level of 30-35% during the 1980s. Much of the GDP growth since the mid-1990s has been a result of government-organized massive investment drives -- in infrastructure, urban construction and urbanization. This government-heavy growth has done the most damage to China's consumption potential, pushing the country further to a dependency on the markets of the rich nations.
Let me illustrate this point by an example. The following proposition will sound familiar to many foreign investors who have done business with Chinese local officials eager to get their investment capital: "Do you want 10 acres of densely populated land for your new factory? No problem. We will clear the land for you in three weeks." Many foreign investors marvel at the "business friendly" attitude of local governments in China, especially in sharp contrast to the seeming incompetence of the Indian government to get things done.
But this "business friendliness" is the heart of the problem: The Chinese households often reap almost no financial benefits from the conversion of their residential land into industrial or commercial development. The Chinese government, thanks to its formal ownership of all land assets, can relocate households on a scale unthinkable in a market economy, often with compensation far below the fair market value of the land. This is why factory owners incur far lower costs in setting up operations in China as compared with other countries, and also is why thousands of skyscrapers can mushroom seemingly out of nowhere overnight in Chinese cities.
But China is not exempt from a basic economic principle: A cost to one person is an income to another. The fact that factory owners and developers in China incur lower costs means that the income to some other economic participant is low. Those who derive low income in China happen to be the majority of the population, especially the rural Chinese who have little political power to protect themselves. Thus one sure mechanism of private wealth creation -- urbanization achieved when small landholders sell out to developers at market prices -- is almost completely missing in China despite the fact that the country is urbanizing at a dizzying rate on the surface.
All this is significant beyond the esoteric confines of the decoupling debate. To truly rebalance the Chinese economy requires the Chinese government to focus on income growth of the Chinese people rather than being fixated with GDP growth. One straightforward way to do this is to adopt market pricing of land by permitting and encouraging competition when acquiring land from Chinese peasants as a part of its current stimulus package. In the past two years, the Chinese leadership has done a good job reducing the expenditures -- such as taxes, education and health fees -- of the Chinese peasants. It is time now to raise their income.
China is one of the few countries in the world endowed with the land mass, the energetic and talented population, and the entrepreneurship to become a true global economic powerhouse. But that potential has been squandered by a misguided development strategy that privileges production at the expense of consumption and uses political power to suppress costs rather than relying on market mechanisms to boost income. In the midst of a global recession, China, along with its 1.3 billion people, is paying a dear price for that mistake now".
Now a much gloomier piece taken from a NakedCapitalism:
Yves Smith here: George Jankovic, serial entreprenuer (former president of NutriSystem) and quantitatively oriented investor, sent us a guest post that questions conventional wisdom about the growth prospects for China. Analysts have raised the specter that GDP growth would drop to 5%, which internally would be allegedly be tantamount to a recession (5% growth is necessary to absorb the increase in workforce). But just about no one seems to take seriously that China could have zero or negative growth.
From Jankovic:
Power generation in developing economies where manufacturing is a high % of GDP should correlate well with GDP growth. China's power generation declined more than 8% in November. In his FT.com Long Room posting, Joules Watt concludes that would correspond to a GDP growth of only 1.5% y-o-y based on his regression analysis of power generation vs. GDP growth. I think things will get even worse for China in 2009 and secular growth will never return to the levels we have gotten accustomed to during the last 30 years. The impact of these cyclical and secular slowdowns on a variety of products, such as oils and metals, will be huge.
Whether the official GDP data will confirm it or not, Chinese yoy real GDP growth will turn negative in the first half of 2009. Perhaps for all of 2009. This is the first time that China has been hit by both an external shock and an internal one. They are still blaming the US for their problems, but they were a co-participant in this bubble: their T-bill purchases fueled the credit bubble in the US which, in turn, fueled their export bubble. Everybody's credit bubbles fueled everybody's export bubbles, and vice versa, worldwide. So the Chinese export bubble has to collapse, as well. The same is true for their real-estate bubble (although this one was much smaller than US and UK bubbles).
Rare is an analyst willing to even contemplate low-digit growth rates for China in 2009, let alone NO GROWTH (Jim Walker from Asianomics (ex CLSA) predicts 0-4% growth). But, while history doesn't repeat itself, it rhymes. During its first 30 years of recovery and industrialization after WW2, Japan experienced several "growth recessions" when its growth halved from the boom times. But in the mid 1970s recession, it got much worse. Industrial production growth went from +16% y-o-y throughout the first half of 1973 to -19% in February 1975! Real y-o-y GDP growth went from more than 10% to solidly negative for a few quarters in late 1974 and early 1975.
While it's always dangerous to draw direct analogies from one country to another or from one time period to another, a country that is 25+ years into its industrialization, that is heavily dependant on both net exports to the world at the time of a global GDP and trade collapse, and that is also dependant on its real estate construction, has to get into deep trouble.
Can the rest of the fixed infrastructure investment help (infrastructure investment commands by far the highest % of GDP)? If you exclude investments in factories etc. (which will plunge with plunging exports) and home and office building construction (which are already plunging), what's left has already peaked. 2008 should have been the peak railroad construction year based on their 5-year plan. 2009 will, at best, match it if the Chinese government does move up some of the planned future construction. Road construction already peaked couple of years ago. The same is likely true for ports. Airports should have a brighter future, but only long-term. So, no help from this largest sector of the economy either.
I don't think there will be any help from consumer spending either. While the Chinese were not buying stocks in Shanghai on margin as the US investors did in 1929, they still lost a lot of money there. And since that was an epic bubble (based on cyclically-adjusted P/E ratios, it exceeded the Japanese bubble of 1989 and vastly exceeded the US 1929 and 2000 bubbles), it has still to deflate. What's more important is that wage growth in China didn't match its GDP growth over the years, so wages declined as a share of GDP. Consumption as % of GDP has roughly matched that fall.
As all kinds of businesses downsize now not only because of the recession, but also because of the new labor law, wages as % of GDP will further decline. Confidence has also been hit by multiple factors -- hey, all you need to do is read the papers (anywhere in the world, for that matter). These two factors will hurt consumption growth. You can already see this in declining car sales. Auto manufacturing was, along with its upstream industries like car parts, one of the strongest growing industries in China during the boom times.
So there will be no place to hide in 2009. But, that's not all...
Japanese growth never exceeded 10% after 1975. It never got even close to 10% while it routinely exceeded it prior to the mid 1970s. I believe that China will experience the same. It is not only much a more mature economy now, but the one that has already completed a good chunk of its industrialization and its exports are currently so high compared to the world GDP (much higher than Japan’s ever were) that one can't expect their super high growth to persist. Long-term demographics don't work in their favor either.
While this doesn’t mean that a great Chinese growth story ends, it will be a shock to many. For instance, while the current recession will hit hard the immediate Chinese demand for oil, metals and other commodities, the secular growth slowdown along with a more efficient energy and metals usage (they have just decided to raise taxes on oil, for instance, which will lead to more efficient usage over time) will hit the long-term demand, as well. Is the world ready to contemplate a much slower growing China? It better be.
"Remember the hype about "decoupling"? Not so long ago, Western analysts -- in particular investment-bank economists -- were peddling the idea that China had become a powerful economic center of its own, able not only to drive its own growth independent of the United States but also to power the global economy forward.
To the extent that these Wall Street economists are still employed, few would make that argument now. The economic numbers emerging out of China are sobering. Exports, still the backbone of the economy, are contracting for the first time in seven years, according to the latest data. They're being driven down by slackening demand overseas. Even worse is the sharp decline of imports, a sure sign of falling domestic demand. These two developments taken together signal monumental economic challenges ahead. Clearly China is not bucking global trends.
So how did all the decoupling theorists get it so wrong? This isn't an idle question. The decoupling theory itself was the product of faulty economic analyses that persist today, even as the decoupling theory falls out of favor. Debunking these claims carries important policy implications.
The fundamental problem, and a mortal bias of economists, is a fixation with simple measurements -- especially GDP data. Ask a professional economist how many provinces China has and you are likely to draw a blank stare. But ask him what the GDP growth of China has been and he'll quickly be able to tell you that China has grown at a double-digit rate for 30 years and that at this rate China will overtake the U.S. by 2035 (or some other date). GDP-centrism is endemic, and often comes at the expense of deeper analysis. Just look at the enthusiasm with which economists and analysts greeted Goldman Sachs's famed "BRIC" report forecasting dramatic booms in Brazil, Russia, India and China -- a report based on little more than fifth-grade mathematics.
This obsession with China's impressive GDP growth often ignores discussion of what's causing that growth and whether it's self-sustained. This is where the decoupling enthusiasts stumbled, and where policy makers can still go seriously wrong. Consider, for example, data about the very slow growth of household incomes in China. This is particularly apparent in rural households. For the past 20 years or so, rural household income has grown at a rate half that of GDP growth. The slow household income growth, combined with rapid GDP growth, means that China has created a huge production capacity but it has done so at the expense of its own consumption base. This fact alone should have disproved the decoupling hypothesis. All the new "excess" production had to go somewhere, i.e., to the U.S. What's more, the persistence of this gap suggests that over time, China's growth has become more, not less, a derivative of America's consumption appetite.
This raises the important policy question of why and how Chinese growth systematically undermined its own consumption potential. To answer this, one has get a grip on how China's rapid GDP growth happened in the first place. Part of that growth is a result of economic liberalization, but the market-driven part is small and has been diminishing. Fixed asset investment, heavily controlled by the government, has risen to nearly 45% today, from a level of 30-35% during the 1980s. Much of the GDP growth since the mid-1990s has been a result of government-organized massive investment drives -- in infrastructure, urban construction and urbanization. This government-heavy growth has done the most damage to China's consumption potential, pushing the country further to a dependency on the markets of the rich nations.
Let me illustrate this point by an example. The following proposition will sound familiar to many foreign investors who have done business with Chinese local officials eager to get their investment capital: "Do you want 10 acres of densely populated land for your new factory? No problem. We will clear the land for you in three weeks." Many foreign investors marvel at the "business friendly" attitude of local governments in China, especially in sharp contrast to the seeming incompetence of the Indian government to get things done.
But this "business friendliness" is the heart of the problem: The Chinese households often reap almost no financial benefits from the conversion of their residential land into industrial or commercial development. The Chinese government, thanks to its formal ownership of all land assets, can relocate households on a scale unthinkable in a market economy, often with compensation far below the fair market value of the land. This is why factory owners incur far lower costs in setting up operations in China as compared with other countries, and also is why thousands of skyscrapers can mushroom seemingly out of nowhere overnight in Chinese cities.
But China is not exempt from a basic economic principle: A cost to one person is an income to another. The fact that factory owners and developers in China incur lower costs means that the income to some other economic participant is low. Those who derive low income in China happen to be the majority of the population, especially the rural Chinese who have little political power to protect themselves. Thus one sure mechanism of private wealth creation -- urbanization achieved when small landholders sell out to developers at market prices -- is almost completely missing in China despite the fact that the country is urbanizing at a dizzying rate on the surface.
All this is significant beyond the esoteric confines of the decoupling debate. To truly rebalance the Chinese economy requires the Chinese government to focus on income growth of the Chinese people rather than being fixated with GDP growth. One straightforward way to do this is to adopt market pricing of land by permitting and encouraging competition when acquiring land from Chinese peasants as a part of its current stimulus package. In the past two years, the Chinese leadership has done a good job reducing the expenditures -- such as taxes, education and health fees -- of the Chinese peasants. It is time now to raise their income.
China is one of the few countries in the world endowed with the land mass, the energetic and talented population, and the entrepreneurship to become a true global economic powerhouse. But that potential has been squandered by a misguided development strategy that privileges production at the expense of consumption and uses political power to suppress costs rather than relying on market mechanisms to boost income. In the midst of a global recession, China, along with its 1.3 billion people, is paying a dear price for that mistake now".
Now a much gloomier piece taken from a NakedCapitalism:
Yves Smith here: George Jankovic, serial entreprenuer (former president of NutriSystem) and quantitatively oriented investor, sent us a guest post that questions conventional wisdom about the growth prospects for China. Analysts have raised the specter that GDP growth would drop to 5%, which internally would be allegedly be tantamount to a recession (5% growth is necessary to absorb the increase in workforce). But just about no one seems to take seriously that China could have zero or negative growth.
From Jankovic:
Power generation in developing economies where manufacturing is a high % of GDP should correlate well with GDP growth. China's power generation declined more than 8% in November. In his FT.com Long Room posting, Joules Watt concludes that would correspond to a GDP growth of only 1.5% y-o-y based on his regression analysis of power generation vs. GDP growth. I think things will get even worse for China in 2009 and secular growth will never return to the levels we have gotten accustomed to during the last 30 years. The impact of these cyclical and secular slowdowns on a variety of products, such as oils and metals, will be huge.
Whether the official GDP data will confirm it or not, Chinese yoy real GDP growth will turn negative in the first half of 2009. Perhaps for all of 2009. This is the first time that China has been hit by both an external shock and an internal one. They are still blaming the US for their problems, but they were a co-participant in this bubble: their T-bill purchases fueled the credit bubble in the US which, in turn, fueled their export bubble. Everybody's credit bubbles fueled everybody's export bubbles, and vice versa, worldwide. So the Chinese export bubble has to collapse, as well. The same is true for their real-estate bubble (although this one was much smaller than US and UK bubbles).
Rare is an analyst willing to even contemplate low-digit growth rates for China in 2009, let alone NO GROWTH (Jim Walker from Asianomics (ex CLSA) predicts 0-4% growth). But, while history doesn't repeat itself, it rhymes. During its first 30 years of recovery and industrialization after WW2, Japan experienced several "growth recessions" when its growth halved from the boom times. But in the mid 1970s recession, it got much worse. Industrial production growth went from +16% y-o-y throughout the first half of 1973 to -19% in February 1975! Real y-o-y GDP growth went from more than 10% to solidly negative for a few quarters in late 1974 and early 1975.
While it's always dangerous to draw direct analogies from one country to another or from one time period to another, a country that is 25+ years into its industrialization, that is heavily dependant on both net exports to the world at the time of a global GDP and trade collapse, and that is also dependant on its real estate construction, has to get into deep trouble.
Can the rest of the fixed infrastructure investment help (infrastructure investment commands by far the highest % of GDP)? If you exclude investments in factories etc. (which will plunge with plunging exports) and home and office building construction (which are already plunging), what's left has already peaked. 2008 should have been the peak railroad construction year based on their 5-year plan. 2009 will, at best, match it if the Chinese government does move up some of the planned future construction. Road construction already peaked couple of years ago. The same is likely true for ports. Airports should have a brighter future, but only long-term. So, no help from this largest sector of the economy either.
I don't think there will be any help from consumer spending either. While the Chinese were not buying stocks in Shanghai on margin as the US investors did in 1929, they still lost a lot of money there. And since that was an epic bubble (based on cyclically-adjusted P/E ratios, it exceeded the Japanese bubble of 1989 and vastly exceeded the US 1929 and 2000 bubbles), it has still to deflate. What's more important is that wage growth in China didn't match its GDP growth over the years, so wages declined as a share of GDP. Consumption as % of GDP has roughly matched that fall.
As all kinds of businesses downsize now not only because of the recession, but also because of the new labor law, wages as % of GDP will further decline. Confidence has also been hit by multiple factors -- hey, all you need to do is read the papers (anywhere in the world, for that matter). These two factors will hurt consumption growth. You can already see this in declining car sales. Auto manufacturing was, along with its upstream industries like car parts, one of the strongest growing industries in China during the boom times.
So there will be no place to hide in 2009. But, that's not all...
Japanese growth never exceeded 10% after 1975. It never got even close to 10% while it routinely exceeded it prior to the mid 1970s. I believe that China will experience the same. It is not only much a more mature economy now, but the one that has already completed a good chunk of its industrialization and its exports are currently so high compared to the world GDP (much higher than Japan’s ever were) that one can't expect their super high growth to persist. Long-term demographics don't work in their favor either.
While this doesn’t mean that a great Chinese growth story ends, it will be a shock to many. For instance, while the current recession will hit hard the immediate Chinese demand for oil, metals and other commodities, the secular growth slowdown along with a more efficient energy and metals usage (they have just decided to raise taxes on oil, for instance, which will lead to more efficient usage over time) will hit the long-term demand, as well. Is the world ready to contemplate a much slower growing China? It better be.
The Value of Reliable Information
Rating agencies are widely discredited but from where are the new tools to evaluate securities riskiness expected t come from.
Until(as long as) we don't re-established the confidence we will not see many investment.Unemployment will grow and governments will face the kind of challenge from anti-system forces that for long time we have thought confined into a remote past.
What to do? Here's the flash forward to the answer of Mark Thoma:
"The solution to this problem, then, is to provide insurance against the risks caused by the lack of information during the time period when the information flows are being restored".
And here the analysis:
"Analysts writing about the credit crisis often have more certainty about the source of the problems in financial markets than I think is warranted. Thus, rather than advocating robust solutions, these analysts tend to come up with narrow answers to the problems they have identified. Yet evidence from previous crises suggests that America needs to take a broad approach to the current turmoil.
(...)
There may be a single key to unlocking the whole mess, but if there is we aren't sure what it is, and that also points to a multi-pronged approach. Capital injections are one part of that approach, but capital injections do not, by themselves, adequately address(...) all of the elements of the problem.
So where do the solutions that have been suggested come up short? If you read across the spectrum of serious proposals, and look at what has actually been implemented, most of the underlying problems have at least been recognised. But one area that has not received nearly enough attention is the information problem. Previous financial crises did not cause us to seriously question our informational architecture like this one has. This crisis has wiped out or discredited major sources of financial-market information that are crucial for credit markets to function. The ratings agencies are an obvious example. They are supposed to solve an asymmetric information problem between borrowers and lenders by giving those doing the lending a reliable assessment of the riskiness of financial investments. They failed in that mission.
Likewise, the balance sheets of financial institutions are no longer trusted—assessing a firm's solvency is largely a guess at this point. People are not going to part with their money until they are confident that the information about potential investments, and about the firms managing those investments, is reliable. That is true for both depositors and potential equity holders who could help with recapitalisation. We can take toxic assets off the books, but how will investors know for sure that new financial assets are safe, or that the firms doing the investing won't repeat the mistakes of the past and take huge losses yet again? How will investors know that the mathematical models used to assess these assets in terms of risk and return are reliable?
I don't think anything trustworthy can replace the ratings agencies in the short-run—nobody has much faith in the risk-assessment models being used in the industry—and that will be a problem as firms begin to issue new securities, a step that is needed to get credit flowing. There might be more we can do with respect to balance-sheet information, but this problem also seems to stem from the difficulty investors have in valuing financial assets.
The solution to this problem, then, is to provide insurance against the risks caused by the lack of information during the time period when the information flows are being restored. Private-sector agents may not want to risk putting their money into the banking system right now as equity holders if they believe they might lose everything. But if the downside risk is limited through some insurance provision—something that puts a limit on losses—they might not be so reluctant (and government may be the only one capable of such guarantees). Similarly, private-sector agents may be unwilling to invest in financial assets, or to trust money managers if they believe their money can suddenly disappear. Again, though, if the downside losses are limited, they might not be so reluctant. There are many, many forms this type of insurance can take, and the solutions can be based in both the public and private sectors. The important thing is to get the insurance into place.
So my recommendation would be to continue to pursue a broad-based strategy that addresses the many problems that have been suggested as potential causes of the crisis, and to bolster the initiatives that help to overcome the information and credibility issues that have arisen as big barriers to the flow of new credit. On the information and credibility issue, it's important to recognise that even if we recapitalise every bank that is in trouble, remove every existing toxic asset on every bank balance sheet, and refinance every mortgage so that it is not in danger of default, we still will not have fully repaired financial markets. We will still be left with a lack of trust—for good reason—in the informational architecture people use to make financial decisions. Until that is repaired—which will require a new regulatory structure, among other things—these markets will not perform to their full potential without some sort of insurance against the lack of credible information
domingo, 21 de diciembre de 2008
Niall Ferguson and the case for homeowners debt reduction
Professor Niall Ferguson is not only a marvelously insightful historian but also eager to use his knack for the "big picture" to help address systemically crucial issues.
In 2005, for instance, together with Professor Lawrence J. Kotlikoff he called for an entire set of fiscal and income security policies in the US.
As disprejudiced as he might be, I cannot but feel a pro-finance bias not in the argument itself but in what he left aside.
The case he made here is a pragmatic one and yet he is too clever to miss that his recipe would only provide temporary relief to a chronically ill patient.
Waiting for more comprehensive proposals, surely in the pipeline, I leave the reader with an abstract from the FT article:
"Excessive debt is the key to this crisis; it is the reason we are confronting no ordinary recession, curable by a simple downward adjustment of interest rates. It is the reason we still have to fear, if not a second Great Depression, then very likely the biggest recession since the 1930s. We are living through the painful end of an age of leverage which saw total private and public debt in the US rise from about 155 per cent of gross domestic product in the early 1980s to something like 342 per cent by the middle of this year.
With average household debt rising from about 75 per cent of annual disposable income in 1990 to very nearly 130 per cent on the eve of the crisis, a large proportion of American families are submerging under the weight of their accumulated borrowings. British households are in even worse shape.
Looking back, we now see just how big a proportion of US growth since 2001 was financed by mortgage equity withdrawals. Without that as a means of financing consumption, the economy would barely have grown at 1 per cent a year under President George W. Bush. Looking forward, we see just how hard it will be to stabilise property prices and the prices of the securities based on them. Already, at the end of September, one in 10 American home owners with a mortgage was either at least a month in arrears or in foreclosure. One in five mortgages exceeds the value of the home it was used to purchase.
The financial sector’s debts grew even faster as banks sought to bolster their returns on equity by “levering up”. According to one recent estimate, the total leverage ratios (on- and off-book assets and exposure divided by tangible equity) for the two biggest US banks were 88:1 for Citibank and 134:1 for Bank of America. The bursting of the property bubble caused such ratios, which were already too high on the eve of the crisis, to explode as off-balance-sheet commitments and pre-arranged credit lines came home to roost. Only by borrowing from the Federal Reserve on an unprecedented scale have the banks been able to stay in business.
(...)
Although commentators like to draw parallels with Franklin Roosevelt’s New Deal, in truth the measures taken since the crisis began in August 2007 more closely resemble those taken during the world wars. After 1914, and again after 1939, there was massive government intervention in the financial system. Banks and bond markets were reduced to mere channels for the financing of huge public sector deficits. That is what is happening today, but without the stimulus to manufacturing that the world wars provided. We are having war finance without the war itself.
Yet the effect of these policies is essentially to add a new layer of public debt to the existing debt mountain. Added together, the loans, investments and guarantees made by the Fed and the Treasury in the past year total about $7,800bn, compared with a pre-crisis federal debt of about $10,000bn. The Treasury may have to issue as much as $2,200bn in new debt in the coming year.
For the time being, the distress-driven demand for dollars and risk-free assets is pushing down the cost of all this borrowing. Treasury yields are at historic lows. But it is not without significance that the cost of insuring against a US government default has risen 25-fold in little over a year. At some point, with most big economies adopting the same fiscal policy, global bond markets are going to start choking.
Is it really plausible that the cure for excessive leverage in the private sector is excessive leverage in the public sector? Might there not be a simpler way forward? When economists talk about “deleveraging” they usually have in mind a rather slow process whereby companies and households increase their savings in order to pay off debt. But the paradox of thrift means that a concerted effort along these lines will drive an economy such as that of the US deeper into recession, raising debt-to-income ratios.
The alternative must surely be a more radical reduction of debt. Historically, such reductions have been done in one of four ways: outright default, restructuring (for instance, bankruptcy), inflation or conversion. At the moment, more and more American households are choosing the first as a way of dealing with the problem of negative equity, while more and more companies are being driven towards bankruptcy. But mass foreclosures and bankruptcies are not a pretty prospect.
Inflation, by contrast, is hard to worry about in the short term, not least because the Fed’s expansion of the monetary base is leading to no commensurate expansion of the broad money supply; the banks would rather shrink than expand their balance sheets.
That leaves conversion, whereby, for example, all existing mortgage debts could be wholly or partly converted into long-term, low and fixed-interest loans, as recently suggested by Harvard’s Martin Feldstein. (In his scheme, the government would offer any homeowner with a mortgage the option to replace 20 per cent of the mortgage with a low-interest loan from the government, subject to a maximum of $80,000. The annual interest rate could be as low as 2 per cent and the loan would be amortised over 30 years.
At the very least, this would rescue many homeowners from the nightmare of negative equity. A similar operation might also be contemplated for the debts of those banks that have been partially or wholly recapitalised by the state. This would not add to the federal debt in net terms and would reduce the interest burden, if not the absolute debt burden, of households.
Such radical steps would naturally represent a haircut for creditors, notably the holders of mortgage-backed securities and bank bonds. Yet they would surely be preferable to the alternatives. And they would certainly be a less extreme solution than the general debt cancellation envisaged in the Old Testament.
In 2005, for instance, together with Professor Lawrence J. Kotlikoff he called for an entire set of fiscal and income security policies in the US.
As disprejudiced as he might be, I cannot but feel a pro-finance bias not in the argument itself but in what he left aside.
The case he made here is a pragmatic one and yet he is too clever to miss that his recipe would only provide temporary relief to a chronically ill patient.
Waiting for more comprehensive proposals, surely in the pipeline, I leave the reader with an abstract from the FT article:
"Excessive debt is the key to this crisis; it is the reason we are confronting no ordinary recession, curable by a simple downward adjustment of interest rates. It is the reason we still have to fear, if not a second Great Depression, then very likely the biggest recession since the 1930s. We are living through the painful end of an age of leverage which saw total private and public debt in the US rise from about 155 per cent of gross domestic product in the early 1980s to something like 342 per cent by the middle of this year.
With average household debt rising from about 75 per cent of annual disposable income in 1990 to very nearly 130 per cent on the eve of the crisis, a large proportion of American families are submerging under the weight of their accumulated borrowings. British households are in even worse shape.
Looking back, we now see just how big a proportion of US growth since 2001 was financed by mortgage equity withdrawals. Without that as a means of financing consumption, the economy would barely have grown at 1 per cent a year under President George W. Bush. Looking forward, we see just how hard it will be to stabilise property prices and the prices of the securities based on them. Already, at the end of September, one in 10 American home owners with a mortgage was either at least a month in arrears or in foreclosure. One in five mortgages exceeds the value of the home it was used to purchase.
The financial sector’s debts grew even faster as banks sought to bolster their returns on equity by “levering up”. According to one recent estimate, the total leverage ratios (on- and off-book assets and exposure divided by tangible equity) for the two biggest US banks were 88:1 for Citibank and 134:1 for Bank of America. The bursting of the property bubble caused such ratios, which were already too high on the eve of the crisis, to explode as off-balance-sheet commitments and pre-arranged credit lines came home to roost. Only by borrowing from the Federal Reserve on an unprecedented scale have the banks been able to stay in business.
(...)
Although commentators like to draw parallels with Franklin Roosevelt’s New Deal, in truth the measures taken since the crisis began in August 2007 more closely resemble those taken during the world wars. After 1914, and again after 1939, there was massive government intervention in the financial system. Banks and bond markets were reduced to mere channels for the financing of huge public sector deficits. That is what is happening today, but without the stimulus to manufacturing that the world wars provided. We are having war finance without the war itself.
Yet the effect of these policies is essentially to add a new layer of public debt to the existing debt mountain. Added together, the loans, investments and guarantees made by the Fed and the Treasury in the past year total about $7,800bn, compared with a pre-crisis federal debt of about $10,000bn. The Treasury may have to issue as much as $2,200bn in new debt in the coming year.
For the time being, the distress-driven demand for dollars and risk-free assets is pushing down the cost of all this borrowing. Treasury yields are at historic lows. But it is not without significance that the cost of insuring against a US government default has risen 25-fold in little over a year. At some point, with most big economies adopting the same fiscal policy, global bond markets are going to start choking.
Is it really plausible that the cure for excessive leverage in the private sector is excessive leverage in the public sector? Might there not be a simpler way forward? When economists talk about “deleveraging” they usually have in mind a rather slow process whereby companies and households increase their savings in order to pay off debt. But the paradox of thrift means that a concerted effort along these lines will drive an economy such as that of the US deeper into recession, raising debt-to-income ratios.
The alternative must surely be a more radical reduction of debt. Historically, such reductions have been done in one of four ways: outright default, restructuring (for instance, bankruptcy), inflation or conversion. At the moment, more and more American households are choosing the first as a way of dealing with the problem of negative equity, while more and more companies are being driven towards bankruptcy. But mass foreclosures and bankruptcies are not a pretty prospect.
Inflation, by contrast, is hard to worry about in the short term, not least because the Fed’s expansion of the monetary base is leading to no commensurate expansion of the broad money supply; the banks would rather shrink than expand their balance sheets.
That leaves conversion, whereby, for example, all existing mortgage debts could be wholly or partly converted into long-term, low and fixed-interest loans, as recently suggested by Harvard’s Martin Feldstein. (In his scheme, the government would offer any homeowner with a mortgage the option to replace 20 per cent of the mortgage with a low-interest loan from the government, subject to a maximum of $80,000. The annual interest rate could be as low as 2 per cent and the loan would be amortised over 30 years.
At the very least, this would rescue many homeowners from the nightmare of negative equity. A similar operation might also be contemplated for the debts of those banks that have been partially or wholly recapitalised by the state. This would not add to the federal debt in net terms and would reduce the interest burden, if not the absolute debt burden, of households.
Such radical steps would naturally represent a haircut for creditors, notably the holders of mortgage-backed securities and bank bonds. Yet they would surely be preferable to the alternatives. And they would certainly be a less extreme solution than the general debt cancellation envisaged in the Old Testament.
Looting: The Economic Underworld of Bankruptcy for Profit - George Akerlof 1993
A couple of great articles found on Jesse's Café Américan.
Hedge funds gain access to $200bn Fed aid(from Financial Times)
Japan plans to buy $227 billion in shares to boost market(from Market Watch)
But there is more. A 1993 Brookings paper from Nobel Laureate George Akerlof called,
Looting: The Economic Underworld of Bankruptcy for Profit. (via Yves Smith, Naked Capitalism)
Here the abstract quoted by Yves:
"Our theoretical analysis shows that an economic underground can come to life if firms have an incentive to go broke for profit at society's expense (to loot) instead of to go for broke (to gamble on success).
Bankruptcy for profit will occur if poor accounting, lax regulation, or low penalties for abuse give owners an incentive to pay themselves more than their firms are worth and then default on their debt obligations.
Bankruptcy for profit occurs most commonly when a government guarantees a firm's debt obligations. The most obvious such guarantee is deposit insurance, but governments also implicitly or explicitly guarantee the policies of insurance companies, the pension obligations of private firms, virtually all the obligations of large or influential firms. These arrangements can create a web of companies that operate under soft budget constraints. To enforce discipline and to limit opportunism by shareholders, governments make continued access to the guarantees contingent on meeting specific targets for an accounting measure of net worth. However, because net worth is typically a small fraction of total assets for the insured institutions (this, after all, is why they demand and receive the government guarantees), bankruptcy for profit can easily become a more attractive strategy for the owners than maximizing true economic values...
Unfortunately, firms covered by government guarantees are not the only ones that face severely distorted incentives. Looting can spread symbiotically to other markets, bringing to life a whole economic underworld with perverse incentives. The looters in the sector covered by the government guarantees will make trades with unaffiliated firms outside this sector, causing them to produce in a way that helps maximize the looters' current extractions with no regard for future losses...."
And here Yves:
"Dick Fuld(former Lehman's Ceo) reportedly spends much of his days allegedly wondering why he didn't get a bailout. He should instead be thanking his lucky stars he is not in jail. Bankruptcy fraud is criminal, and fraudulent conveyance is subject to clawbacks. How could Lehman possibly have been producing financials that showed it had a positive net worth, yet have an over $100 billion hole in its balance sheet when it went under? No one has yet given an adequate answer on where the shortfalls were.
Commonwealth countries have a much simpler solution. If a company is "trading insolvent," that is, continuing to do business when it is in fact broke, its directors are personally liable.
We have said repeatedly that one of the triggers for the crisis was permitting investment banks to go public (prior to 1970, no NYSE member firm could be listed). We had dinner with one of our long-standing colleagues who was responsible for Sumitomo Bank's investment in Goldman Sachs and had (and continues to have) close and frequent dealings with the firm. He said that the change in the firm's behavior after it went public was dramatic. Before, it would deliberate (one might say agonize) important business decisions,. Waiting two years to enter a new field was not unheard of. But after the partners cashed in and were playing with other people's money, the firm quickly became aggressive in its use of capital in expanding the size and scope of its activities.
Hedge funds gain access to $200bn Fed aid(from Financial Times)
Japan plans to buy $227 billion in shares to boost market(from Market Watch)
But there is more. A 1993 Brookings paper from Nobel Laureate George Akerlof called,
Looting: The Economic Underworld of Bankruptcy for Profit. (via Yves Smith, Naked Capitalism)
Here the abstract quoted by Yves:
"Our theoretical analysis shows that an economic underground can come to life if firms have an incentive to go broke for profit at society's expense (to loot) instead of to go for broke (to gamble on success).
Bankruptcy for profit will occur if poor accounting, lax regulation, or low penalties for abuse give owners an incentive to pay themselves more than their firms are worth and then default on their debt obligations.
Bankruptcy for profit occurs most commonly when a government guarantees a firm's debt obligations. The most obvious such guarantee is deposit insurance, but governments also implicitly or explicitly guarantee the policies of insurance companies, the pension obligations of private firms, virtually all the obligations of large or influential firms. These arrangements can create a web of companies that operate under soft budget constraints. To enforce discipline and to limit opportunism by shareholders, governments make continued access to the guarantees contingent on meeting specific targets for an accounting measure of net worth. However, because net worth is typically a small fraction of total assets for the insured institutions (this, after all, is why they demand and receive the government guarantees), bankruptcy for profit can easily become a more attractive strategy for the owners than maximizing true economic values...
Unfortunately, firms covered by government guarantees are not the only ones that face severely distorted incentives. Looting can spread symbiotically to other markets, bringing to life a whole economic underworld with perverse incentives. The looters in the sector covered by the government guarantees will make trades with unaffiliated firms outside this sector, causing them to produce in a way that helps maximize the looters' current extractions with no regard for future losses...."
And here Yves:
"Dick Fuld(former Lehman's Ceo) reportedly spends much of his days allegedly wondering why he didn't get a bailout. He should instead be thanking his lucky stars he is not in jail. Bankruptcy fraud is criminal, and fraudulent conveyance is subject to clawbacks. How could Lehman possibly have been producing financials that showed it had a positive net worth, yet have an over $100 billion hole in its balance sheet when it went under? No one has yet given an adequate answer on where the shortfalls were.
Commonwealth countries have a much simpler solution. If a company is "trading insolvent," that is, continuing to do business when it is in fact broke, its directors are personally liable.
We have said repeatedly that one of the triggers for the crisis was permitting investment banks to go public (prior to 1970, no NYSE member firm could be listed). We had dinner with one of our long-standing colleagues who was responsible for Sumitomo Bank's investment in Goldman Sachs and had (and continues to have) close and frequent dealings with the firm. He said that the change in the firm's behavior after it went public was dramatic. Before, it would deliberate (one might say agonize) important business decisions,. Waiting two years to enter a new field was not unheard of. But after the partners cashed in and were playing with other people's money, the firm quickly became aggressive in its use of capital in expanding the size and scope of its activities.
Signs that Russia and Iran are starting to feel the "40 dollars/barrel" pain
Boris Kagarlitsky from Moscow Times:
"In starting their latest campaign against used imported cars, government officials were prepared to encounter protests. They knew that there would be demonstrations in Vladivostok. What's the big deal? Let them yell and scream a bit, and then they'll settle down again.
The unpleasantness of having to deal with a little dissatisfaction from residents in the Far East is nothing in comparison to the problem of trying to save Russia's car industry. Factories are shutting down, companies are crippled with debt, and cars are not selling. The measures that the government is taking are unlikely to change the situation. It is far from certain that higher tariffs and a ban on importing cars with right-hand steering wheels will lead to sharply increased demand for new Russian models -- after all, consumers' buying power is falling because of the crisis, and banks are not giving out loans as freely as before. People will simply buy fewer cars than before.
What's more, the political fallout brought on by the new measures outweighs whatever benefits they might eventually provide for the economy. The flurry of protests that broke out in Siberia and the Far East were on such a scale that they can no longer be considered only isolated affairs. There were demonstrations across all of Russia, including Moscow, St. Petersburg and Kaliningrad, where a significant number of drivers also own used imports. As might have been expected, the protests in Vladivostok were the most dramatic, including clashes with riot police and a blockade of the airport. It was revealing that a major protest was also held last week in Novosibirsk, a city that the authorities had considered quiet and less prone to activism.
Aside from mass protests by pensioners in 2005, Russia has not seen anything like these nationwide protests before. All past efforts by protest organizers to urge nationwide turnouts have ended with small and ineffective demonstrations. There have been frequent rallies for this or that cause, but the number of attendees never exceeded a few hundred. Not a single local flare-up of discontent ever escalated into a serious problem prompting intervention by law enforcement agencies, and they definitely did not represent a threat to political stability.
It appears that the government's decision has unintentionally created an occasion not only for protest, but for disenchanted citizens to mobilize. Demonstrating motorists began shouting radical slogans that clearly had no direct connection with the problem of higher tariffs. They were not calling for the authorities to reconsider their decision, but for the current leadership to step down".
And Yevgeny Kiselyov, also from Moscow Times:
"Under a new amendment to the law on treason, which was sent to the State Duma on Dec. 12 for approval, I could get 12 to 20 years in prison for the article you are about to read.
The changes would give authorities extremely wide latitude to interpret what constitutes treason. This is how the old definition of treason reads: "a hostile act directed at damaging the external security of the Russian Federation." If the Duma approves the new amendment, the phrase "hostile act" would read simply "act," and "external security" would be broadened to "security." In addition, treason would also include the following activities: "rendering financial, technical, consultative or other assistance to a foreign state, international or foreign organizations or their representatives in activities directed against the security of the Russian Federation, including its constitutional order, sovereignty and territorial and state integrity."It is not surprising that the authorities cannot explain why these changes are necessary. They only offer a vague explanation that the current wording in the Criminal Code makes it extremely difficult for investigative agencies to prove the guilt of suspected traitors -- as if the law needs to be rewritten to help prosecutor's increase their conviction ratio.
Human rights advocates are in shock. The definition of an "act" of treason is so loosely defined that prosecutors and law enforcement agencies can interpret it any way they see fit. Moreover, even inactivity could qualify as an "act" of treason. Imagine that a journalist or political commentator submits to the foreign press an article that criticizes the constitutional amendment to extend the presidential term from four to six years or expresses the same idea to a foreign diplomat during an embassy reception. That could easily qualify under the new law as consulting a foreign organization on a subject directed against Russia's "constitutional order."
From France Presse:
"Iranian police shut down the office of a human rights group headed by Nobel peace laureate Shirin Ebadi on Sunday, the deputy head of the Human Rights Defenders Centre, Narges Mohammadi, told AFP".
"In starting their latest campaign against used imported cars, government officials were prepared to encounter protests. They knew that there would be demonstrations in Vladivostok. What's the big deal? Let them yell and scream a bit, and then they'll settle down again.
The unpleasantness of having to deal with a little dissatisfaction from residents in the Far East is nothing in comparison to the problem of trying to save Russia's car industry. Factories are shutting down, companies are crippled with debt, and cars are not selling. The measures that the government is taking are unlikely to change the situation. It is far from certain that higher tariffs and a ban on importing cars with right-hand steering wheels will lead to sharply increased demand for new Russian models -- after all, consumers' buying power is falling because of the crisis, and banks are not giving out loans as freely as before. People will simply buy fewer cars than before.
What's more, the political fallout brought on by the new measures outweighs whatever benefits they might eventually provide for the economy. The flurry of protests that broke out in Siberia and the Far East were on such a scale that they can no longer be considered only isolated affairs. There were demonstrations across all of Russia, including Moscow, St. Petersburg and Kaliningrad, where a significant number of drivers also own used imports. As might have been expected, the protests in Vladivostok were the most dramatic, including clashes with riot police and a blockade of the airport. It was revealing that a major protest was also held last week in Novosibirsk, a city that the authorities had considered quiet and less prone to activism.
Aside from mass protests by pensioners in 2005, Russia has not seen anything like these nationwide protests before. All past efforts by protest organizers to urge nationwide turnouts have ended with small and ineffective demonstrations. There have been frequent rallies for this or that cause, but the number of attendees never exceeded a few hundred. Not a single local flare-up of discontent ever escalated into a serious problem prompting intervention by law enforcement agencies, and they definitely did not represent a threat to political stability.
It appears that the government's decision has unintentionally created an occasion not only for protest, but for disenchanted citizens to mobilize. Demonstrating motorists began shouting radical slogans that clearly had no direct connection with the problem of higher tariffs. They were not calling for the authorities to reconsider their decision, but for the current leadership to step down".
And Yevgeny Kiselyov, also from Moscow Times:
"Under a new amendment to the law on treason, which was sent to the State Duma on Dec. 12 for approval, I could get 12 to 20 years in prison for the article you are about to read.
The changes would give authorities extremely wide latitude to interpret what constitutes treason. This is how the old definition of treason reads: "a hostile act directed at damaging the external security of the Russian Federation." If the Duma approves the new amendment, the phrase "hostile act" would read simply "act," and "external security" would be broadened to "security." In addition, treason would also include the following activities: "rendering financial, technical, consultative or other assistance to a foreign state, international or foreign organizations or their representatives in activities directed against the security of the Russian Federation, including its constitutional order, sovereignty and territorial and state integrity."It is not surprising that the authorities cannot explain why these changes are necessary. They only offer a vague explanation that the current wording in the Criminal Code makes it extremely difficult for investigative agencies to prove the guilt of suspected traitors -- as if the law needs to be rewritten to help prosecutor's increase their conviction ratio.
Human rights advocates are in shock. The definition of an "act" of treason is so loosely defined that prosecutors and law enforcement agencies can interpret it any way they see fit. Moreover, even inactivity could qualify as an "act" of treason. Imagine that a journalist or political commentator submits to the foreign press an article that criticizes the constitutional amendment to extend the presidential term from four to six years or expresses the same idea to a foreign diplomat during an embassy reception. That could easily qualify under the new law as consulting a foreign organization on a subject directed against Russia's "constitutional order."
From France Presse:
"Iranian police shut down the office of a human rights group headed by Nobel peace laureate Shirin Ebadi on Sunday, the deputy head of the Human Rights Defenders Centre, Narges Mohammadi, told AFP".
Types of illiquidity
BradDeLong had a great slide called "On not making the same mistakes that we did in the Great Depression".
Especially important seems to me page 4 where he talks about the "types of illiquidity".
Especially important seems to me page 4 where he talks about the "types of illiquidity".
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