Excelent point made by twofish:
You need to ask what situation personally benefits the managers that make decisions.
With Chinese companies, the more money you have in your bank account, the higher the salary and benefits of the managers.
If you have large amounts of cash in the bank, you are more able to pay yourself large salaries and give yourself a better car. It doesn’t matter to the management where the cash comes from, but as banks have tightened lending, it becomes harder to use bank loans to create large cash accounts, so the tendency has been to hoard cash from operations. Also it’s not the ratio that matters but the absolute amount of cash. You can have company with huge amounts of cash, but even larger amounts of debt.
By contrast, American managers are rewarded if they have high stock prices and high stock prices come from having large amounts of return on equity. This encourages American companies to borrow heavily and have as little in cash reserves as possible. Also US corporate law makes if very dangerous for a large company to have large amounts of cash because any company with huge amounts of cash is susceptible to a leveraged buyout.
The theory behind American corporate governence is that by rewarding companies based on profitability you are encouraging efficient use of capital, unencouraging people not to keep capital and to move capital from low return uses to high return uses.
The problems with this idea are that:
1) you get high returns by boosting risk, and by boosting risk, you are putting the people you are borrowing from at risk
2) if you are highly leveraged, you are very vulnerable to economic shocks, and
3) this sort of structure encourages people to borrow short term liquid instruments to fund long term illiquid investments, once this funding runs out, you are in some serious trouble.
My belief is that Chinese companies and banks will find themselves in better shape than American companies and banks because the companies that were not shut down have large supplies of cash and hence are more shock resistant. Being shock resistant is important since it gives you time.
If you are highly leveraged, you could go from seemingly healthy to dead in a few days (see Bear-Stearns and Lehman Brothers) and if you have an economy which is highly leveraged you run the risk of a domino effect that can bring down the entire financial system. By contrast, if you have a lot of cash, and something bad happens, you have a few weeks, months, or in some cases years, to do something about it.
viernes, 19 de diciembre de 2008
miércoles, 17 de diciembre de 2008
FED direct assets purchase
The sooner journalist and commentators stop talking of fiscal stimulus in the US, the better.
As long as the words conserves their meaning the word fiscal has always meant financed through taxes. At ZIRP fiscal and monetary policy blurs.
And yet, from Bloomberg:
"The new strategy is likely to involve unusually close cooperation with the Treasury of President-elect Barack Obama, which is still formulating its economic-rescue plans. The aim is to kick-start borrowing and spending to propel the economy toward a recovery by the middle of next year.
“It’s going to take a combination of fiscal and monetary stimulus to get the job done,” said former Fed Governor Lyle Gramley, now senior economic adviser at Stanford Group Co. in Washington. The central bank has signaled it will “make sure that the fiscal stimulus package, which is going to be a big one, is fully supported” and “in effect financed by the Fed.”
Back IbnBattuta.
Will them succeed? Hard to say. The only thing that even the economic layman can foresee is inflation, an hidden and regressive tax that hit harder on wage earners and small savers, and it's the equivalent of a light default for bond holders.
Because either the currency of bondholders country float free(they avoid inflation) and they take the hit with the decrease in the face value of their bonds or they keep the currency pegged and instead import inflation from the the US, without the chance to finance their deficit through the emission of treasuries with a US$ interest rate negative in real terms(as in the post-Volker super cycle).
Many are starting to worry, here nakedcapitalism:
"Consider further: the Fed assumes it has no constraints, because it can bloat its balance sheet to any size. But it has limits of staff, focus, expertise that restrict what it can do. For it to succeed in its aims, it is going to have to intervene on behalf of every type of troubled credit and make allocation decisions among them. Going on auto pilot (that is, dealing with the "presenting problems", the ones that surfaced first, means that they get priority when that might not be the best use of collective resources (it is not desirable from a competitive standpoint to bloat our housing sector back to status quo ante)".
Hard to feel relieved
As long as the words conserves their meaning the word fiscal has always meant financed through taxes. At ZIRP fiscal and monetary policy blurs.
And yet, from Bloomberg:
"The new strategy is likely to involve unusually close cooperation with the Treasury of President-elect Barack Obama, which is still formulating its economic-rescue plans. The aim is to kick-start borrowing and spending to propel the economy toward a recovery by the middle of next year.
“It’s going to take a combination of fiscal and monetary stimulus to get the job done,” said former Fed Governor Lyle Gramley, now senior economic adviser at Stanford Group Co. in Washington. The central bank has signaled it will “make sure that the fiscal stimulus package, which is going to be a big one, is fully supported” and “in effect financed by the Fed.”
Back IbnBattuta.
Will them succeed? Hard to say. The only thing that even the economic layman can foresee is inflation, an hidden and regressive tax that hit harder on wage earners and small savers, and it's the equivalent of a light default for bond holders.
Because either the currency of bondholders country float free(they avoid inflation) and they take the hit with the decrease in the face value of their bonds or they keep the currency pegged and instead import inflation from the the US, without the chance to finance their deficit through the emission of treasuries with a US$ interest rate negative in real terms(as in the post-Volker super cycle).
Many are starting to worry, here nakedcapitalism:
"Consider further: the Fed assumes it has no constraints, because it can bloat its balance sheet to any size. But it has limits of staff, focus, expertise that restrict what it can do. For it to succeed in its aims, it is going to have to intervene on behalf of every type of troubled credit and make allocation decisions among them. Going on auto pilot (that is, dealing with the "presenting problems", the ones that surfaced first, means that they get priority when that might not be the best use of collective resources (it is not desirable from a competitive standpoint to bloat our housing sector back to status quo ante)".
Hard to feel relieved
domingo, 14 de diciembre de 2008
Middle East Demography: 80 million new jobs needed within 2020
Isobel Coleman, Senior Fellow for U.S. Foreign Policy
An old(but crucial) article from Dallas Morning News:
An old(but crucial) article from Dallas Morning News:
While the Middle East lurches from crisis to crisis, its greatest challenge today is probably not what most people think. It’s jobs.
With 65 percent of the region’s population under the age of 25, the Middle East has the fastest-growing labor force of any part of the world. This youth bulge is surging onto the labor market like a massive demographic tsunami. Just to keep pace with population growth, the Middle East must create 80 million new jobs over the next 15 years. And if it hopes to put a dent in its already high unemployment rate of 15 percent, it must create 100 million new jobs by 2020—a near doubling of today’s total employment.
To put this into perspective, the Middle East must create jobs at twice the pace of the United States in the go-go Clinton years, in an increasingly competitive international environment that is already accommodating the rise of India and China. Without making deep structural reforms, Middle East governments will never be able to meet the employment needs of its increasingly disaffected youth—a stark fact that, left unaddressed, leaves an entire generation ripe for radicalization.
M:i:IV or, how to spend 2 trillion dollar before Hyperinflation or US$ devaluation(or both) wipe it out?
Today fabiusmaximus has a great post about shopping madness in the US.
Another shopping that we all should be more concerned about is that of China. The use that they will finally give to their 2 trillions(and counting) of Forex.
In this blog I will write quite a bit about the issue.
Take it as the ultimate financial and geopolitical Great Game.
The mission?
For China to get the most from its Forex before the US$ collapse.
Their long term strategies have been limited by the short-term self-interested choice of financing US household's consumption.
Keynes put it out pretty clearly: "If you owe your bank a hundred pounds, you have a problem. But if you owe a million, it has."
For the US the mission is to prevent the treasury bubble from bursting and the dollar from collapsing. Preserve its AAA creditworthiness and the possibility to run a twin deficit that finance its overstretched military expenditures.
On the one hand US officials would certainly prefer to have the trade-surplus countries retaining big stakes in the US economy. But since they cannot really prevent China to buy dollar denominated assets with its reserves, they can do their best to impede them to acquire strategically important assets, both in the US territory and abroad.
The big issues is that we still cannot really see whether the deflationary or inflationary outcome will prevail.
Here (and here)you can find a very good (and possibly final) post by London Banker, a former central banker and securities regulator, that takes issue with some of the conventional wisdom surrounding the efforts to remedy our economic crisis via liberal applications of monetary easing and fiscal stimulus.
From London Banker: "For a while now I have been on the fence on the inflation/deflation issue – whether the massive monetisation of bad debts by central banks and governments will lead to rapidly escalating inflation as currencies are debased or, alternatively, lead to deflation as bad debts and illiquidity undermine all commercial and financial activity in the economy. I’m now coming down on the side of deflation for a very simple reason: there is no longer any incentive to save or invest, and so debt and investment cannot increase much beyond current bloated levels.
(...)
While it may take the Asian and the Gulf State investors longer to embrace my analysis, I have no doubt that they too will eventually conclude that parting with their savings under the terms now on offer will only deepen their losses. They would be better off keeping the money at home, investing locally under local laws and vigilance, and letting the US and UK implode. The argument against this has always been that with trillions already invested in the US during the deficit years, the Chinese and Gulf States would suffer even more horrible losses from a collapse of the western economies. This is accurate, but not complete, as it ignores the relative value of cash investment at the top and bottom of a bursting bubble. Once the collapse has bottomed out, so long as a globalised economy survives, there will be even better opportunities for those with savings to invest selectively in businesses with clearer prospects and more certain profitability under regulatory frameworks which have been restored to a proper balance of investor protection and intermediary oversight.
Yves Smith also make some very good point.
From nakedcapitalism: "London Banker argues that punitively low yields will lead foreign investors eventually to retreat even from government debt. He argues that they will tire at throwing good money after bad, and will prefer to seek returns closer to home.
(...)
If investors come to doubt the fairness of the markets, or think that the rot in its economy is not being cleared out and will undermine growth, that will hold investment back. As Brad Setser has pointed out, foreign capital flows have consisted almost entirely of central bank purchases of Treasuries and Agencies for quite some time, hardly a vote of confidence. We also have the question of how long the high dollar/low Treasury interest game can go on. Bernanke wants rates low to try to stimulate economic activity and has even broached the idea of long bond purchases to keep yields on the long end of the curve down. But the poster child of deflation and low interest rates is Japan, which due to its high savings rate, was not dependent on external funding. The US should want the dollar cheaper to boost exports, but that risks the ire of our creditors, who would take big losses on their FX reserves (many economists argue this idea is specious, but try explaining the loss in paper wealth to a populace not schooled in such niceties. FX losses, when the dollar was weakening earlier in the year, produced a lot of ire in China, including among bureaucrats). Similarly, even if you subscribe to the deflation outlook, 3%ish 30 year bonds is a pretty risky bet independent of the currency risk. So it looks like our friendly funding sources are likely to get burned one way or another, perhaps both. There is a real risk of a disorderly fall of the dollar, and it is hard to tell what the collateral damage would be.
(...)
There is another huge extenuating circumstance with the war spending that observers choose to forget. The US's problem in 1929, like China's appeared to be (at least in part) overproduction, that there might be too much global capacity relative to consumer demand.
Back IbnBattuta.
I feel compelled to end this post with the ultimate philosophical demonstration that overcapacity doesn't exist. I only wonder what Parmenides would have thought.
More on the topic in the next posts.
Another shopping that we all should be more concerned about is that of China. The use that they will finally give to their 2 trillions(and counting) of Forex.
In this blog I will write quite a bit about the issue.
Take it as the ultimate financial and geopolitical Great Game.
The mission?
For China to get the most from its Forex before the US$ collapse.
Their long term strategies have been limited by the short-term self-interested choice of financing US household's consumption.
Keynes put it out pretty clearly: "If you owe your bank a hundred pounds, you have a problem. But if you owe a million, it has."
For the US the mission is to prevent the treasury bubble from bursting and the dollar from collapsing. Preserve its AAA creditworthiness and the possibility to run a twin deficit that finance its overstretched military expenditures.
On the one hand US officials would certainly prefer to have the trade-surplus countries retaining big stakes in the US economy. But since they cannot really prevent China to buy dollar denominated assets with its reserves, they can do their best to impede them to acquire strategically important assets, both in the US territory and abroad.
The big issues is that we still cannot really see whether the deflationary or inflationary outcome will prevail.
Here (and here)you can find a very good (and possibly final) post by London Banker, a former central banker and securities regulator, that takes issue with some of the conventional wisdom surrounding the efforts to remedy our economic crisis via liberal applications of monetary easing and fiscal stimulus.
From London Banker: "For a while now I have been on the fence on the inflation/deflation issue – whether the massive monetisation of bad debts by central banks and governments will lead to rapidly escalating inflation as currencies are debased or, alternatively, lead to deflation as bad debts and illiquidity undermine all commercial and financial activity in the economy. I’m now coming down on the side of deflation for a very simple reason: there is no longer any incentive to save or invest, and so debt and investment cannot increase much beyond current bloated levels.
(...)
While it may take the Asian and the Gulf State investors longer to embrace my analysis, I have no doubt that they too will eventually conclude that parting with their savings under the terms now on offer will only deepen their losses. They would be better off keeping the money at home, investing locally under local laws and vigilance, and letting the US and UK implode. The argument against this has always been that with trillions already invested in the US during the deficit years, the Chinese and Gulf States would suffer even more horrible losses from a collapse of the western economies. This is accurate, but not complete, as it ignores the relative value of cash investment at the top and bottom of a bursting bubble. Once the collapse has bottomed out, so long as a globalised economy survives, there will be even better opportunities for those with savings to invest selectively in businesses with clearer prospects and more certain profitability under regulatory frameworks which have been restored to a proper balance of investor protection and intermediary oversight.
Yves Smith also make some very good point.
From nakedcapitalism: "London Banker argues that punitively low yields will lead foreign investors eventually to retreat even from government debt. He argues that they will tire at throwing good money after bad, and will prefer to seek returns closer to home.
(...)
If investors come to doubt the fairness of the markets, or think that the rot in its economy is not being cleared out and will undermine growth, that will hold investment back. As Brad Setser has pointed out, foreign capital flows have consisted almost entirely of central bank purchases of Treasuries and Agencies for quite some time, hardly a vote of confidence. We also have the question of how long the high dollar/low Treasury interest game can go on. Bernanke wants rates low to try to stimulate economic activity and has even broached the idea of long bond purchases to keep yields on the long end of the curve down. But the poster child of deflation and low interest rates is Japan, which due to its high savings rate, was not dependent on external funding. The US should want the dollar cheaper to boost exports, but that risks the ire of our creditors, who would take big losses on their FX reserves (many economists argue this idea is specious, but try explaining the loss in paper wealth to a populace not schooled in such niceties. FX losses, when the dollar was weakening earlier in the year, produced a lot of ire in China, including among bureaucrats). Similarly, even if you subscribe to the deflation outlook, 3%ish 30 year bonds is a pretty risky bet independent of the currency risk. So it looks like our friendly funding sources are likely to get burned one way or another, perhaps both. There is a real risk of a disorderly fall of the dollar, and it is hard to tell what the collateral damage would be.
(...)
There is another huge extenuating circumstance with the war spending that observers choose to forget. The US's problem in 1929, like China's appeared to be (at least in part) overproduction, that there might be too much global capacity relative to consumer demand.
Back IbnBattuta.
I feel compelled to end this post with the ultimate philosophical demonstration that overcapacity doesn't exist. I only wonder what Parmenides would have thought.
More on the topic in the next posts.
viernes, 12 de diciembre de 2008
gold(en) rules' presentation
Ibn Battuta is writing his first post from Buenos Aires.
I'm about to rent the commercial property that will finance my journey.
What's the journey most important goal?
To help appreciate the great differences within Muslim world and
to strengthen mutual knowledge among people from different cultures and religions.
To highlight what we have in common without downplaying the differences that exists, something extremely dangerous.
I'll never shy away from clear value judgement , whenever there will be ground to sustain them.
No politically correct platitudes, no gratuitous provocation.
Too abstract and wordy? Here's an example:
What would have been my position in the Muhammad cartoons controversy of 2005?
Well, nobody can question the right of individual freedom, but our freedom ends where others people's freedom begins.
The Right is just one side of the coin.
The other being Duty. We are entitled of Rights only as long as we accept the responsibility for the Duties that comes with them.
The Right implies that nobody can prevent you from express any idea that you may feel crucially important(possibly not just to yourself but to your community as well)
Even if we now consider that Human Rights are Natural Rights, it does help to take a more broad historical view to the way in which our ancestors has obtained them.
That is by taking great personal risks fighting centuries of status quo.
We should really blush out of sheer shame whenever we invoke High Principles to justify petty actions.
This is not rocket science, just something that we should teach to our children very early. Hurting other people's (feelings) is bad. And we have to avoid it.
Since life is complicated we can face situations in which as Alessandro Manzoni wrote "non resta che far torto o patirlo"(we have to hurt or being hurt). The ancient Greeks did rationalize this painful process and create one of the most sublime form of art that western civilization have known, it's called tragedy.
Now, doesn't sound grotesquely inappropriate to use the best of our civilization to defend the rights of the authors and publishers of the vignettes.
of course any threat to their incolumity is unacceptable and grossly disproportionate to the offence.
The embarrassing "public debate" reached pretty soon the level of intellectual probity that you can expect in wartime and the necessity for assessing the "Principles of western individual liberties" vibrantly advocated.
We should never forget that so-called Principles have serve pretty well throughout history as a gimmick for chancelleries to induce war-prone sentiment in the public opinion.
I was born in 1975 and I haven't experienced wars from within.
Yugoslavia was close but as a foreigner I wasn't really exposed to the kind of nuances that I mean.
Karl Kraus in his review Die Fackel(The Torch), almost a blog ante-litteram, wrote some the best account of the kind of collective insanity that a war can provoke.
Back to the Blog presentation.
In my journey I'll pay special attention to the differences within Islam and even though I'll visit each and any countries where Muslims lives, I will privilege a reduced number of crucially important ones, namely: Turkey, Iran, Saudi Arabia, Bangladesh and Indonesia.
The blog isn't about middle-east.
Middle east to me sound geopolitics. And geopolitics sound like "the-world-from-some-state-perspective". That's too much zero-sum-game for my taste!
It's about trying to understanding history in process of making by applying the widest variety of angles and lenses.
It's about trying to be honest and bias-aware.
Currently I'm building a network of people that I will ask for advise.
Academics, Religious leaders, Consultants, Journalist and Artists.
Gold(en) Rules entries will constitute a book in itself, although in the form of a pastiche of juxtaposed genres.
For the first period most of my writing will be dedicated to the current global crisis, although focused on long term trends and imbalances.
Since I'm not an economist it will be mostly an editing process of articles that I find stimulating with some open-ended questions, trying to make the most out of Paul Krugman's "dare-to-be-silly" attitude. I hope it will work also for an economic layman.
I'm about to rent the commercial property that will finance my journey.
What's the journey most important goal?
To help appreciate the great differences within Muslim world and
to strengthen mutual knowledge among people from different cultures and religions.
To highlight what we have in common without downplaying the differences that exists, something extremely dangerous.
I'll never shy away from clear value judgement , whenever there will be ground to sustain them.
No politically correct platitudes, no gratuitous provocation.
Too abstract and wordy? Here's an example:
What would have been my position in the Muhammad cartoons controversy of 2005?
Well, nobody can question the right of individual freedom, but our freedom ends where others people's freedom begins.
The Right is just one side of the coin.
The other being Duty. We are entitled of Rights only as long as we accept the responsibility for the Duties that comes with them.
The Right implies that nobody can prevent you from express any idea that you may feel crucially important(possibly not just to yourself but to your community as well)
Even if we now consider that Human Rights are Natural Rights, it does help to take a more broad historical view to the way in which our ancestors has obtained them.
That is by taking great personal risks fighting centuries of status quo.
We should really blush out of sheer shame whenever we invoke High Principles to justify petty actions.
This is not rocket science, just something that we should teach to our children very early. Hurting other people's (feelings) is bad. And we have to avoid it.
Since life is complicated we can face situations in which as Alessandro Manzoni wrote "non resta che far torto o patirlo"(we have to hurt or being hurt). The ancient Greeks did rationalize this painful process and create one of the most sublime form of art that western civilization have known, it's called tragedy.
Now, doesn't sound grotesquely inappropriate to use the best of our civilization to defend the rights of the authors and publishers of the vignettes.
of course any threat to their incolumity is unacceptable and grossly disproportionate to the offence.
The embarrassing "public debate" reached pretty soon the level of intellectual probity that you can expect in wartime and the necessity for assessing the "Principles of western individual liberties" vibrantly advocated.
We should never forget that so-called Principles have serve pretty well throughout history as a gimmick for chancelleries to induce war-prone sentiment in the public opinion.
I was born in 1975 and I haven't experienced wars from within.
Yugoslavia was close but as a foreigner I wasn't really exposed to the kind of nuances that I mean.
Karl Kraus in his review Die Fackel(The Torch), almost a blog ante-litteram, wrote some the best account of the kind of collective insanity that a war can provoke.
Back to the Blog presentation.
In my journey I'll pay special attention to the differences within Islam and even though I'll visit each and any countries where Muslims lives, I will privilege a reduced number of crucially important ones, namely: Turkey, Iran, Saudi Arabia, Bangladesh and Indonesia.
The blog isn't about middle-east.
Middle east to me sound geopolitics. And geopolitics sound like "the-world-from-some-state-perspective". That's too much zero-sum-game for my taste!
It's about trying to understanding history in process of making by applying the widest variety of angles and lenses.
It's about trying to be honest and bias-aware.
Currently I'm building a network of people that I will ask for advise.
Academics, Religious leaders, Consultants, Journalist and Artists.
Gold(en) Rules entries will constitute a book in itself, although in the form of a pastiche of juxtaposed genres.
For the first period most of my writing will be dedicated to the current global crisis, although focused on long term trends and imbalances.
Since I'm not an economist it will be mostly an editing process of articles that I find stimulating with some open-ended questions, trying to make the most out of Paul Krugman's "dare-to-be-silly" attitude. I hope it will work also for an economic layman.
jueves, 11 de diciembre de 2008
EU: Cultural Diversity - Welfare Spending Theme Park for the rest of the world?
José Ignacio Torreblanca from El Pais(spanish version) and ECFR(english version).
Abstract:
...It is no secret that China has also picked up on the weakness stemming from Europe's divisions, and like Russia for some time now, has begun to enjoy watching Europeans fight it out amongst themselves to see who can give more in exchange for less. Just last week, China decided to cancel the EU-Chinese Summit, a date of strategic importance for Europe at a time of severe economic crisis. Peking alleged that Sarkozy's meeting with the Dalai Lama amounts to a major slight on its sovereignty. The Chinese decision, however, is not just surprising, it is also absurd.
First of all, Sarkozy was invited to a meeting in Warsaw with Nobel Peace Prize winners, which obviously includes the Dalai Lama, the world leader with the highest approval ratings by the way. Secondly, no European country supports anything beyond talks between the Dalai Lama and the Chinese authorities which might lead to the concession of regional autonomy for Tibet, all of this in the context of an express renunciation of violence (in actual fact, not even the Dalai Lama is demanding Tibetan independence any longer). Worse still, the Chinese decision took place just a few days after the British government publicly announced a change in its traditional policy on Tibet, recognising it as forming part of Chinese territory, a volte face which comes in exchange for absolutely nothing, completely gratis. Once again, Peking's actions highlight just to what extent it loves flexing its muscles when it can, not when it wants, because Bush also received the Dalai Lama and yet no reprisals were adopted by China against Washington.
According to estimates by the consultancy Goldman Sachs, the Chinese economy will have caught up with Germany by 2010 and with Japan by 2015 (and indeed it has already caught up with Italy, France and Britain). Things look different if we consider Europe as a whole, because then China would not reach parity with the EU in economic terms, or the US for that matter, until 2035. You don't have to be very shrewd to work out that the US still has 25 years ahead in which to exert influence on China, whilst so long as it fails to act in unison, Europe lacks any kind of leeway altogether.
The analytical timeframe set by the Reflection Group on the future of the EU headed up by Felipe González stretches out to 2020-2025. The Group will have to present its findings during the Spanish Presidency of the EU, in the first half of 2010. The first question the Group should ask itself, and relay to European public opinion at large, is a very simple one: do you want Europe to be a relevant actor on the world stage in 2020? Or are you happy for it to simply be a cultural diversity - welfare spending theme park for the rest of the world?
Abstract:
...It is no secret that China has also picked up on the weakness stemming from Europe's divisions, and like Russia for some time now, has begun to enjoy watching Europeans fight it out amongst themselves to see who can give more in exchange for less. Just last week, China decided to cancel the EU-Chinese Summit, a date of strategic importance for Europe at a time of severe economic crisis. Peking alleged that Sarkozy's meeting with the Dalai Lama amounts to a major slight on its sovereignty. The Chinese decision, however, is not just surprising, it is also absurd.
First of all, Sarkozy was invited to a meeting in Warsaw with Nobel Peace Prize winners, which obviously includes the Dalai Lama, the world leader with the highest approval ratings by the way. Secondly, no European country supports anything beyond talks between the Dalai Lama and the Chinese authorities which might lead to the concession of regional autonomy for Tibet, all of this in the context of an express renunciation of violence (in actual fact, not even the Dalai Lama is demanding Tibetan independence any longer). Worse still, the Chinese decision took place just a few days after the British government publicly announced a change in its traditional policy on Tibet, recognising it as forming part of Chinese territory, a volte face which comes in exchange for absolutely nothing, completely gratis. Once again, Peking's actions highlight just to what extent it loves flexing its muscles when it can, not when it wants, because Bush also received the Dalai Lama and yet no reprisals were adopted by China against Washington.
According to estimates by the consultancy Goldman Sachs, the Chinese economy will have caught up with Germany by 2010 and with Japan by 2015 (and indeed it has already caught up with Italy, France and Britain). Things look different if we consider Europe as a whole, because then China would not reach parity with the EU in economic terms, or the US for that matter, until 2035. You don't have to be very shrewd to work out that the US still has 25 years ahead in which to exert influence on China, whilst so long as it fails to act in unison, Europe lacks any kind of leeway altogether.
The analytical timeframe set by the Reflection Group on the future of the EU headed up by Felipe González stretches out to 2020-2025. The Group will have to present its findings during the Spanish Presidency of the EU, in the first half of 2010. The first question the Group should ask itself, and relay to European public opinion at large, is a very simple one: do you want Europe to be a relevant actor on the world stage in 2020? Or are you happy for it to simply be a cultural diversity - welfare spending theme park for the rest of the world?
miércoles, 10 de diciembre de 2008
IMF as a car insurance
Sebastian Mallaby made a good point comparing IMF with a car insurance:
“Car insurance makes driving possible by pooling the cost of crashes. If I had to pay out of pocket any time I had an accident, I might never get behind the wheel; I would want to have 80 grand in the bank in case I totaled someone's Mercedes. But since the number of expensive cars that get smashed is actually quite small, I can deal with this risk cheaply by sharing it with other drivers. We all pay $5 weekly into the Mercedes fund, and suddenly there's no need for vast sums in the bank. I'm so much better off that I'm visiting the Mercedes showroom“.
IbnBattuta here: Since we don´t lend them money in their currency(we would loose money in case of inflation - sound familiar?) and they don’t trust IMF and World bank anymore, they have decided that they need the 80 grand in their bank account. Can we blame them?
We have failed both on the stability side and on the poverty alleviation. Is anyone really shocked that they don't trust us anymore?
“Car insurance makes driving possible by pooling the cost of crashes. If I had to pay out of pocket any time I had an accident, I might never get behind the wheel; I would want to have 80 grand in the bank in case I totaled someone's Mercedes. But since the number of expensive cars that get smashed is actually quite small, I can deal with this risk cheaply by sharing it with other drivers. We all pay $5 weekly into the Mercedes fund, and suddenly there's no need for vast sums in the bank. I'm so much better off that I'm visiting the Mercedes showroom“.
IbnBattuta here: Since we don´t lend them money in their currency(we would loose money in case of inflation - sound familiar?) and they don’t trust IMF and World bank anymore, they have decided that they need the 80 grand in their bank account. Can we blame them?
We have failed both on the stability side and on the poverty alleviation. Is anyone really shocked that they don't trust us anymore?
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