RMB Internationalization's Coming Along Fine, TY

This is a short follow-up to a post I recently made about how the RMB was becoming more integrated into the global SWIFT interbank transfer system as well as the emergence of RMB libor creating reference rates for yuan-denominated borrowing. All point towards inroads the renminbi is making towards becoming a global reserve currency. Today's post dwells on the recent figures for the Hong Kong-based offshore renminbi market. To be sure, the headline numbers are mixed but positive overall. Yuan offshore holdings that usually show some variability are down (a negative for the store of value function), but there is a marked and steady increase in yuan-denominated trade (a positive for the unit of exchange function). From our friends over at Reuters:

While CNH deposits in Hong Kong banks fell by more than 6 percent to 588 billion yuan at end-December from the previous month, trade settled in renminbi logged a remarkable 239 billion yuan. That is the highest monthly volume [since] June 2009, when Beijing began an experiment to denominate more of its trade in the Chinese currency.

The numbers suggest that the offshore yuan market is now being used not just by smart mainland importers looking to boost their profit margins by arbitraging between the two markets, but as a viable trade channel by exporters and importers. And more "two way" yuan flows between the onshore and offshore markets via trade channels and increased usage of direct investment channels signal a rising level of maturity of the CNH market.

"The renminbi is now increasingly being used in the real economy than just for arbitrage purposes [through the difference in the onshore and offshore yuan exchange rates] between the borders which is a healthy sign for the longer-term growth of the market," said Becky Liu, a strategist at HSBC in Hong Kong.

The increased use of yuan in trade or the current account coincides with long-awaited reforms on the capital account including the launch of a sizeable 20 billion yuan cross-border investment scheme in December and relaxing rules on yuan foreign direct investment. Officials from the Hong Kong Monetary Authority say the export-import mix of cross-border yuan trade has reached a balanced level from the 1:3 ratio seen in the second half of 2010, HSBC analysts wrote in a note [my emphasis].

The changes couldn't have come at a better time. Yuan gain expectations have decreased noticeably and CNH trades in Hong Kong are more volatile, increasing pressure on authorities to allow offshore investors more access to the mainland markets to ensure the yuan internationalisation experiment doesn't falter.

Since yuan FDI rules were first announced in mid October, a total of 21 billion yuan in 10 projects have been approved until end-December and total CNH loans has grown to more than 25 billion yuan by end-November from nowhere a few months earlier. All of which will increase the cross-border flow of money, deepening the CNH market, but will also slow the growth in offshore yuan deposits, which has grown by a factor of ten in only two years.

Credit Agricole expects the pool of CNH deposits in Hong Kong to rise to only 610 billion by end 2012, marginally higher than the 588 billion at the end of 2011. "The negative headline such as decline in deposits is more of a short-term nature, and might not make the regulators overly concerned about the situation," HSBC's Liu said. She expects the speed at which authorities have been moving to support the offshore market and open the capital account to continue.

At first I too was rather sceptical about the idea that the renminbi would supplant the dollar's role in a decade's time. But, with such rapid gains, who knows? It's the same story with growth figures with the PRC posting lurid numbers year in and year out. Surely both the Chinese currency and economy can surpass their American counterparts in the matter of a few decades if they keep up this torrid pace?

Ry Cooder's Fine Soundtrack to American Decline

Whoa, how I missed this album the first time around I dunno but I guess it's never too late to rectify that error. Never let it be said that this blog doesn't offer you the full panoply of American decline. Oftentimes, the most memorable art and literature doesn't cover success stories but rather demise and decay. Such is the case with that sick joke the American dream. A few months ago I discussed two fine novels that described darkly humorous yet possible scenarios for the future of that benighted land. Now comes the musical accompaniment care of the venerable singer-songwriter Ry Cooder. Most of you probably know him as the driving force behind the Buena Vista Social Club series of recordings with Cuban artists and its accompanying Win Wenders documentary.

This time around, however, our man Ry casts a wry eye to the ills of modern America. I was looking for suggestions on new things to listen to from the entertainment review compilation site Metacritic when I came across his new album Pull Up Some Dust and Sit Down. Scoring an average of 92/100, I was intrigued about its songs about, well, American decline. Mostly acoustic numbers, the album's songs echo the heyday of protest songs in the 60s.

The number which has received the most attention thus far is "No Banker Left Behind":

Well the bankers called a meetin', to the White House they went one day
They was going to call on the president, in a quiet and a sociable way
The afternoon was sunny and the weather it was fine
They counted all our money and no banker was left behind

I too enjoy the mock spiritual of "Lord Tell Me Why" in which the singer complains to the man above about the plight of the white man in the 21st century. Indeed, it reminds me of the economic blogosphere: written mostly by the white malestream, there's much b--ching and moaning as the lyric goes about "why a white man ain't worth nuthin' in this world no mo" as if this world revolves around the hang-ups of relatively privileged Anglos. It is bookended by "Dreamer" in which the protagonist has a hankering for the good ole days when the non-whites knew their place in this world: "can you remember trolleys passing by, quiet streets, leafy trees--at twilight time?"

Another good one from so many to choose from is his criticism of the hypocrisy in the migration debate in "Dirty Chateau":

She started life in the lettuce fields
Up in Salinas where the farm work is done
You go streaking by in your automobiles
You don't even know where your lettuce comes from
The short handled hoe it scarred my hands
Tell me why do they love it so
It broke mama down; daddy too
Now I work for you in your dirty chateau

Along the way he predictably tackles those brilliant exercises in nation building in Afghanistan and Iraq, albeit with a jaundiced eye. It all ends with Cooder's turnaround on Woody Guthrie where he bleakly states "this land should have been our land" in "No Hard Feelings."

The United States is irreparably broken so I suppose you might as well enjoy its decline instead of quixotically waiting for things to improve. Listen to this album and read those novels I discussed earlier. More honest and perceptive Americans generally understand that things are bad there and will only get worse. At least you know some forms of entertainment are better (not only in the truthfulness department) than others.

Attn Deficit Lovers: Why China Should Rule World

Balancing one's budget is the most fundamental money management task one faces. If there's eomething that so graphically illustrates Western decline, it is the inability to do anything other than run up massive debts that are a burden on future generations, all the while spouting all sorts of utterly contemptible free lunch stories of the "deficits don't matter" variety. Who knows? Maybe it's in the American genes.

With that in mind, it's heartening to hear that Hong Kong is having an old lady in a shoe-type problem when it comes to government finances. It has so many revenues it doesn't know what to do. Let's just say success begets success instead of the other way around. In contrast to various Western wasteleands alike the Washington wonderless-land, it's running out of ideas about how to redistribute a bountiful largesse. A fiscal surplus; what a concept:

The United States is shrinking its military and debating whether to cut social spending, raise taxes or both. European governments from Greece to Ireland are struggling to maintain payments to the unemployed and retirees. Japan is borrowing heavily to pay for earthquake reconstruction and care for a graying population.

And then there is Hong Kong.

Financial Secretary John Tsang announced a budget for the coming fiscal year that cuts income taxes, corporate taxes and real estate taxes. Household electricity bills will be subsidized, and people living in public housing will receive two months’ free rent.

Education spending will jump 7 percent. Senior citizens will receive an extra month’s pension payment; government hospitals will expand; and 10 billion Hong Kong dollars, or $1.29 billion, will be put in a special fund to help the needy buy medicine.

Perhaps most impressive, the budget is forecast to be roughly in balance – and Hong Kong’s budget forecasters have a reputation for consistently underestimating surpluses. The city, an autonomous region of China ever since Britain handed it back in 1997, has accumulated a rainy-day fund equal to more than a year and a half of government spending.

Hong Kong is running another large budget surplus for the current year, which ends on March 31, despite giving 6,000 dollars to each adult permanent resident. Economists attribute the bonanza to a series of factors: tight limits on senior citizen spending, no military spending and an economy that grew 5 percent last year, mostly because Hong Kong has cashed in on China’s economic boom.

Reuters has more on the specifics. It begs the question: Given the influence of Westerners at international financial institutions alike development agencies, what right do they have to teach LDCs about running a country? No one except the most imperceptive Yankee dolt would champion their nation spilling endless amounts of red ink as a global exemplar. No one respects a bankrupt since a bankrupt lacks self-respect by getting into such dire financial straits to begin with.

As a student of political economy, I humbly suggest that closer attention be paid to the China's example. Cheneynomic apologists aside, their money-management skills look far superior to those of their Western counterparts who still believe in the white man's burden via their laughable freedom 'n' growth shtick.

To paraphrase our very own Martin Jacques, what exactly is there to fear When China Rules the World compared to today's example of assorted Western spendthrifts and prodigals? It's a no-brainer. With which will you gain more spillover effects and positive externalities? Take your pick--do you want to be Atlanta or Hong Kong? Having something of a brain left, I'll go for the latter, thank you very much.

Asshat Stripping: RBS' Fred Goodwin De-Knighted

Pardon the title but I thought it appropriate for the subject matter. At any rate, here's something you don't see everyday. Typically, HM Queen Elizabeth knights not only those who've worked to improve social conditions in the Commonwealth alike Sir Bob Geldof and Sir Bono but also captains of industry. Of the latter we've had many Great British Industrialists who've been knighted--especially during the New Labour years. In 2004, one of those who were knighted was none other than the Royal Bank of Scotland's erstwhile agent of moral hazard, Fred Goodwin, for his 'services to banking." That was when New Labour was still in power and the neoliberal turn towards financialization of the British economy was still regarded as something favourable in the inner sanctums of the UK elite. It's taken some time, but it seems that the political winds in the growth-free UK have shifted enough to make this remarkable declaration come true. To be sure, it's been long-awaited one.

The winds of change are always blowing, and they just carried Fred away. I suppose that making the taxpayer foot a GBP 45.5 billion bailout (about $71.4B) can make even Her Majesty the multibillionaire several times over cringe. And of course there's the not-insignificant matter of putting the financial health of the nation into dire straits while placing one of its largest industries into disrepute.

The official announcement goes as follows:

It will soon be announced in the London Gazette that the Knighthood conferred upon Fred Goodwin as a Knight Bachelor has been cancelled and annulled. This decision, not normally publicised in advance, was taken on the advice of the Forfeiture Committee, which advised that Fred Goodwin had brought the honours system in to disrepute. The scale and severity of the impact of his actions as CEO of RBS made this an exceptional case.

In 2008 the Government had to provide £20bn of new equity to recapitalise RBS and ensure its survival and prevent the collapse of confidence in the British banking and payments system. Subsequent increases in Government capital have brought the total necessary injection of taxpayers' money in RBS to £45.5bn.

Both the Financial Services Authority and the Treasury Select Committee have investigated the reasons for this failure and its consequences. They are clear that the failure of RBS played an important role in the financial crisis of 2008-9 which, together with other macroeconomic factors, triggered the worst recession in the UK since the Second World War and imposed significant direct costs on British taxpayers and businesses. Fred Goodwin was the dominant decision maker at RBS at the time.

It's funny how the former Fred "The Shred" Goodwin who acquired his moniker for cost-cutting now has to pay the ultimate price in terms of honours by being himself asset stripped. He joins a not-so-illustrious list of others having this dubious distinction alike Comrade Bob Mugabe of chicken commercial fame and Romanian dictator Nicolae Ceausescu. Political misdeeds usually get you ejected more readily, but Sir Fred's business disaster was so huge as to be non-ignorable politically.

There's been a whiff of discontent--obviously from now old-line New Labour stalwarts--about the lynch mob quality of it all. Why pillory just Fred the Shred when there were so many others culpable in these financial misdeeds? I suppose it's to set an example. Then again, I'd personally prefer to have him hanged, drawn and quartered alike in the olden times--albeit for the modern high treason of the gravest sort of financial misdeed. Just as honours should go to the biggest contributors to the welfare of the Commonwealth, so too should they be removed from its most egregious offenders.

Unlike what some others say, it's not simply a boiling over of anti-business sentiment. There is a line that must be drawn when boundaries are crossed on the assumption of being too big too fail alike RBS during the global financial crisis. To those given more wealth or power on this earth comes more responsibility; that's all.

Indeed, it's a very British humiliation.

Lamborghini Aventador, US-Subsidized Supercar

Now for one of my occasional Robb Report impersonations--albeit with an IPE twist. (We've got style, baby.) In 1998, Lamborghini became a wholly-owned subsidiary of Audi AG, which in turn is a luxury brand of the almighty Volkswagen Group--the real largest automaker in the world. What if the Germans overran not the world's territory but the global automobile industry? I'd venture that it would look a lot like the present-day VW Group: (British) Bentley, (French) Bugatti, (Italian) Lamborghini, (Spanish) SEAT, (Czech) Skoda and the father brands (they're from the Fatherland, right?) Audi, Porsche and Volkswagen. Being made to point out this fact because of Obama's disingenuous SOTU address jogged my memory of this post which I planned to write sometime ago. Many blogging ideas; too little time.

The debate over whether Volkswagen or General Motors is the world's largest automaker obscures a number of things we should also consider in which firm outdoes the other. First, VW has never, ever needed any bailout from the state of Lower Saxony (which owns part of it) or Germany itself. This is partly down to the astute management of Ferdinand Piech--a real automotive genius who is none other than the grandson of Ferdinand Porsche (of the eponymous marque and the designer of the VW Beetle). Piech has proven himself to those in the motor trade by, among other things, designing the Le Mans-winning Porsche 917 in his early days. Second, VW's profitability is secured by owning a lot of luxury brands that can command higher margins on the market. The cachet of Audi, Bentley, Porsche and so on is unmatched by anything Goverment Motors offers.

Recently, I've succumbed to an admittedly unproductive diversion I've had growing up which should be familiar to males the world over: reading car magazines. Having not read these darned things in a while despite watching Top Gear fairly regularly, I like many was struck by today's supercar du jour, the Lamborghini Aventador. Just watch that mighty beast in action. To achieve truly astounding performance feats alike accelerating from 0 to 60 MPH in 2.9 seconds, this "Italian" supercar embodies among the most advanced technologies you can find in a production car.

Thus the third point that underscores just how far the once-mighty GM has fallen is the advancement of VW Group designs over their American counterparts. In particular, the carbon frame pictured above of the megabuck Lamborghini Aventador is impressive, combining very low weight with very high strength. The most galling thing for USA #1 cheerleaders--and there are too many out there in the part of the blogosphere I come across--is that this technology comes from the American commercial jetliner maker Boeing. In turn, Boeing gained this technological edge via subsidies from the US government. Don't believe me? Fine. How about a WTO ruling which suggests just that?

Boeing received at least $5.3 billion in improper subsidies from the United States government to develop its 787 Dreamliner and other jet models, giving it an unfair advantage against its European rival, Airbus, the World Trade Organization confirmed...

In an 850-page report, the Geneva-based trade body accepted a claim by the European Union that research and development grants provided by United States space programs contributed substantially to the technologies used in building the 787, Boeing’s latest flagship aircraft.

Trade watchers will want to scrutinize the nitty-gritty details of DS 353 - Measures Affecting Trade in Large Civil Aircraft which are available on the WTO website. As for the rest of us, just keep in mind that the Lamborghini Aventador shares the carbon fibre space frame technology found on the 787 Dreamliner. Notably, the Aventador has not only starred in a car show but also an advanced materials show:

Whoever said “beauty is only skin deep” apparently never watched a Lamborghini get built. Thanks to the Italian automaker, those shallow types can head over to the Paris 2011 JEC composite show, and see their latest supercar, sans skin.

Built with a reinforced carbon fiber composite that was developed in conjunction with Boeing, the Aventador LP700-4’s naked chassis looks right at home in the showcase of materials and technology. And since composites also comprise many of the car’s other components, including wheels, frame and seats, there’s a little more to look at than just a carbon tub.

And here's the Lambo press blurb:

Automobili Lamborghini's participation in the 2011 edition of the JEC Composite Show in Paris - one of the world's most important exhibitions of composite materials - is intended to emphasize the company's leadership in this highly specialized sector, not only in applying these materials in mass production (as shown by the new Aventador LP 700-4), but also in the investigation and development of new manufacturing technologies and the resulting product spin-offs.

The use of composite materials reinforced with carbon fiber is becoming increasingly widespread in the automotive sector, as revealed by a study by Lucintel that foresees a growth of 65% over the next 5 years. Many manufacturers are working on developing and applying these technologies so they can build lighter vehicles that make an important contribution to reducing fuel consumption and air pollution, through improvements that include increasing the strength of the vehicle's structures.

The overall point is that the main beneficiary of Boeing's advancements in carbon fibre technology which are partly down to DoD and NASA inputs are not fellow US companies but a German-Italian concern. In other words, what's best for Boeing is not what's best for GM. With their superb application in road cars as exemplified by the Lamborghini Aventador, this knowledge gap between automakers will only become larger. There is a "trickle down" of technologies here, but for the benefit of non-Americans' bottom line. While you can of course argue that GM cannot sell such a premium vehicle, it calls into question why its marketing prowess does not extend to luxury cars. Remembering GM's Saab fiasco gives me shivers.

Bailouts aside, the world has moved on. Isn't it great that all those US government subsidies that funded Boeing are helping...a German-Italian automaker? VW is rolling on the tarmac laughing all the way to the bank. American industrial policy (whatever that is) is so inept and uncoordinated that they can't even tilt the playing field in the favour of their own companies consistently.

NOTE: Making these carbon fibre thingamajigs is a costly, proprietary process as demonstrated by the even more exclusive (if not higher performance) Lexus LF-A.

2012: Year of the Dragon, Year of the Renminbi!

A week ago today, the Chinese and their vast diaspora celebrated Chinese New Year. As it so happens, it also ushered in the Year of the Dragon. Famously the most auspicious of characters, this too may be the year that the PRC powers-that-be become serious about internationalizing the RMB with the long-term goal of reforming the international monetary system in mind. Just as red envelopes like those above are used to give gifts in cash, 2012 may be the year the Chinese give the gift of renminbi internationalization to the world in a meaningful way. I've mentioned recent efforts to make RMB use more widespread worldwide, but I forgot to mention these two that point towards the same trend.

First, Chinese authorities are improving RMB payment handling systems' integration with the international standard SWIFT (Society for Worldwide Interbank Financial Telecommunication):

The People's Bank of China, the country's central bank, is in the process of upgrading what is known as China's National Advanced Payment System, or Cnaps [I pronounce it as 'Schnapps' ;-)], to better facilitate cross-border trade denominated in yuan, according to government officials and executives at Chinese banks. The processing of yuan payments isn't at the same level of efficiency as a cross-border payment in other major currencies like U.S. dollars, with a hands-on system that often leads to high transaction costs, some observers said.

"The processing cost of yuan payments must come down, so that when corporations do start to put significant yuan volumes through, banks can handle them smoothly and efficiently," said Patrick de Courcy, head of markets in the Asian-Pacific region for Swift, which operates a world-wide financial-messaging network between banks and other financial institutions.

Mr. de Courcy said China's central bank has agreed to use messaging standards adopted by Swift to support electronic payments into its system. A central-bank official confirmed the bank is upgrading the yuan-payment system. The bank declined to comment further.

Next, aside from payment handling, another obvious avenue for making the yuan more widely used is establishing a benchmark interbank lending rate alike LIBOR (London Interbank Offered Rate) and its various offshoots. This process has begun (where else?) in the Hong Kong offshore lending market:

Hong Kong's banking association this week began widely disseminating yuan-lending rates offered by three of the city's biggest banks to their peers, marking an important step toward the development of benchmark rates that could spur growth in the market for offshore yuan loans.

The Treasury Markets Association's daily interbank reference rates from HSBC Holdings PLC, Standard Chartered PLC and BOC Hong Kong (Holdings) Ltd. involve loans ranging from overnight to one year. The association has said it aims to increase the number of banks contributing rates, in a bid to set benchmark yuan-lending rates.

Setting benchmark levels for yuan loans similar to the London interbank offered rate, or Libor—the most common global benchmark for short-term borrowing costs—is necessary so that banks can better price loan risks and measure borrowing costs, bankers and analysts say.

Elsewhere, currency-watching stalwart Jeffrey Frankel handicaps prospects that the RMB will overtaker the dollar in short order based on historical precedents. Also note how African nations are gearing up in a similar fashion to handle RMB. Regardless, all I can say is that Chinese authorities are committing substantial efforts in making the RMB an international currency. Indeed 2012 may be remembered as the year the currency broke ground on the world stage in a major way.

Long Time Coming: Int'l Derivatives Court, Now Live

Here's something that I found in the LSE employee newsletter, of all places. Given the often legalistic culture of Western economies, it is no surprise that they prefer the settlement of economic disputes in formal fora. The WTO's dispute settlement mechanism exemplifies that for trade. Meanwhile, the likes of the International Court for the Settlement of Investment Disputes (ICSID) and the International Chamber of Commerce (ICC) Court of Arbitration do the same for disputes involving foreign investors and governments. Think of Hugo Chavez's latest fulminations against international energy companies.

Whatever you think of derivatives or financial instruments that derive their underlying value from that of another instrument, there is no denying their proliferation. Trade volumes have simply exploded, with notional amounts of existing contracts now amounting to the hundreds of trillions of dollars. Some even implicate them in both the US subprime crisis and the European debt crisis. Warren Buffett famously called them "financial weapons of financial destruction"--before taking out some derivatives of his own and losing money on them in the process. Ah well, I guess that it underscores their ubiquity.

But, along with their ubiquity comes the realization that these are not often technically straightforward contracts to interpret--especially the more esoteric derivatives. Hence, the lack of many nation's courts of the necessary technical understanding means that there is much scope for interpretation, especially when things go awry. From the press blurb:

A tribunal devoted to settling the world's most complex and contentious financial cases opened for business today in The Hague. Comprised of a group of judges and other international legal and market experts with more than 2,000 years of relevant collective experience, the P.R.I.M.E. Finance Disputes Centre will take on cases which are too specialised for many national or local courts.

It also aims to create an internationally-agreed body of law in areas where different countries often hand down conflicting rulings. It was the brainchild of Professor Jeffrey Golden of LSE's Law Department and he is chairman of its management board. The tribunal expects to handle multi-billion-dollar cases in fields such as derivatives and structured financial transactions. Its role is all the more urgent, argue its founders, because of the uncertainty created by world financial crisis.

P.R.I.M.E. Finance (the Panel of Recognised International Market Experts in Finance) is backed by the Dutch government and will hear cases at the Peace Palace in The Hague, where it will be formally opened by Jan Kees De Jager, Finance Minister of the Netherlands. Its advisory board is chaired by Lord Woolf, former Lord Chief Justice of England and Wales.

Our Professor Golden [great name, that, for what he does] explains the rationale for P.R.I.M.E. in terms of there being a need to reconcile often conflicting opinions passed down in national bodies:

Professor Golden said: "This project emerged against a backdrop of financial market crisis and legal uncertainty. The amounts at stake are staggering, the legal and contractual issues are complicated and the volume of complex cases is increasing.

"To date, national courts and ad hoc arbitration have been unable to produce a settled and authoritative body of law. Decisions are unpredictable, too decentralised, often taken too slowly and not always enforceable in other jurisdictions. The global marketplace needs a more innovative method of settling disputes and we believe this tribunal is the answer."

P.R.I.M.E. sounds too close to S.U.B.P.R.I.M.E. to my tastes. All this finance makes me want to cry U.N.C.L.E., but there is definitely a niche market to be found here. Even a necessary one insofar as there has been no great climbdown in the use of these instruments.

Lastly, do note that P.R.I.M.E. is not a free-floating body but one which aims to institute the arbitration rules set forth by the UN Commission on International Trade Law (UNCITRAL).

Yay! Our LSE IDEAS, World's 4th Best Uni Thinktank

Well here's a nice bit of news concerning LSE IDEAS, the research centre I am associated with. The good folks at the University of Pennsylvania Think Tank and Civil Societies Program recently came out with the 2011 edition of their authoritative report on the world's leading thinktanks. To my personal surprise considering that LSE IDEAS only started in 2008, we are now considered the world's fourth most influential university thinktank alongside our colleagues from the Public Policy Group. Launched at the United Nations no less, the UPenn report is not a trifling one. Here is the relevant table with the 30 top-ranked university thinktanks:

Those who come ahead of us are obvious given their advantages in being longer-established and better-funded. However, consider as well those we've bested that I would not have suspected to have surpassed at all. Being a blogosphere minnow myself, I was bemused to see that the Mercatus Center of Marginal Revolution and Koch Industries-funding of the Tea Party variety fame came in 8th. Or, consider that we bested the mega-famous Jeffrey Sachs' very own Earth Institute at Columbia. The same sort of surprise comes from outranking the likes of the Institute of Development Studies at Sussex, the Weatherhead Center for International Affairs at Harvard, and the Center for the Study of Globalization at Yale. (On another note, I am chuffed by the emergence of so many influential think tanks from outside the West. There are more folks in developing countries who also can benefit from considering policy advice, right?)

Perhaps one of the sources of strength of LSE IDEAS is its unity in having a diversity of opinions. Whether you like libertarian thought or not, the Mercatus Center is certainly consistent in its advocacy and vantage point. For us, though, our co-directors don't even agree on such basic things as a power shift from the West to the East occurring in the world economy. The same holds true with our visiting fellows and their ideological perspectives. On one hand we've hosted Niall Ferguson who styles himself as a "punk Tory." On the other hand we've also had Martin Jacques of "When China Rules the World" fame--a former editor of Marxism Today and a columnist for The Guardian.

While the IPE Zone is for now an orbiting offshoot of LSE IDEAS, note that there too is an official LSE IDEAS blog (to which I contribute to sometimes in, er, more sedate fashion).

Recalling early last year, attempts to tar us with the Libyan involvement at LSE may have actually done us good by bringing attention to our unique work alike inviting Chinese foreign ministry officials to come and share with us "What China Wants" instead of embarking on the umpteenth rehash of "Why America is So Great and You Stupid Coloured People Should Fall In Line" and its corresponding whitebread echo chamber. While some pitiably misinformed tabloid linked the presence of many top British diplomats here to being "useful idiots" of Moammar, the Woolf Report found no links between us and the the previous Libyan leadership. Sorry, there are no Moammar outfits in our closet.

Ah, but enough of that. I must salute the powers-that-be at LSE IDEAS for I did not really appreciate the comprehensiveness of their vision. It has come a long way from its humble start as the Cold War Studies programme--understanding the collapse of the Soviet bloc is the key to understanding contemporary globalization, they kept telling me--to its current recognition as one of the world's finest academic thinktanks.

Fact-Checking Obama: GM World's #1 Automaker?

Obama's 2012 State of the Union address was your typical flag-waving, USA #1 cheerleading exercise. It's to be expected with these kinds of events, to be fair. Particularly notable on the trade end though was Obama declaring the creation of a "Trade Enforcement Unit that will be charged with investigating unfair trade practices in countries like China"--your official China-bashing unit. Those trade evildoers must be punished, eh?

Together with the formation of this odious agency, however, we too have an egregious misstatement of fact concerning the bailout of various troubled American automakers in the aftermath of the (self-inflicted) 2008/09 subprime crisis. To quote from Obama:

On the day I took office, our auto industry was on the verge of collapse. Some even said we should let it die. With a million jobs at stake, I refused to let that happen. In exchange for help, we demanded responsibility. We got workers and automakers to settle their differences. We got the industry to retool and restructure. Today, General Motors is back on top as the world’s number one automaker [my emphasis].

GM's claim to being the world's top automaker is iffy. Germany's Volkswagen Group has a better claim to the title. Since dodgy accounting and America are practically synonymous, we must look into the GM claim. It says that it sold 9.03 million vehicles in 2011. But, this total was achieved with the sleight of hand of including the output of a Chinese subsidiary that it has interests in but does not own:

GM's rivals also point out that the big U.S. auto maker's numbers are boosted by ownership stakes in China's SAIC Motor Corp. and Liuzhou Wuling Motors Co. While SAIC builds GM cars in China, Wuling's 1.2 million vehicles last year are mostly cheap commercial vehicles used only in China.

Some analysts prefer not to count the Wuling vehicles in GM's global total because GM doesn't have a controlling stake in its partner [my emphasis]. "We have to draw the line somewhere and this at least gives us some consistency around the globe," said Jeff Schuster, an analyst with forecasting firm LMC Automotive.

The VW Group previously reported that it sold 8.16 million vehicles in 2011. Unlike GM, it did not count the numbers of its commercial vehicle subsidiaries MAN SE and Scania AB (formerly of Saab-Scania for you trivia buffs). Attention GM: it helps with the bragging rights that VW actually owns these concerns. Adding both in boosts VW figures by about 200,000. So, subtract the 1.2 million Wuling vehicles gives you legitimate GM sales of 7.83 million vehicles. The once and future king of all things automotive however is the maker of the people's car with [8.16 + 0.20 =] 8.36 million in vehicle sales.

Bottom line: American automakers AND politicians are economical with the truth if not necessarily with taking away the well-being of future generations. Yanquis attempting to pull an (amateurish) fast one; what a surprise. Germans have a reputation for being plainspoken; certain others for being emptily boastful. I would also love to hear the response of unionized and protectionist crowds Obama is pandering to when they find out that GM's (bogus) claim largely boils down to Chinese production. "Made in America?" Not quite.

Why doesn't this glib assessment of US bailouts for all and sundry money losers not discuss, say, mortgage lenders Fannie Mae and Freddie Mac? How about the airline industry? Yesterday was a more appropriate moment to call Obama out on this untruth.

As a parting shot and returning to the notion of a level playing field (whatever that is to these folks), given Obama's thumbs-up to massive government intervention, he compounds untruth with hypocrisy in the SOTU with special reference to China:

It’s not fair when foreign manufacturers have a leg up on ours only because they’re heavily subsidised.

Having claimed to have "saved" the US auto industry, I guess that logic legitimizes the PRC slapping tariffs on large automobiles imported from the US, doesn't it? Revisit the good book and what it says about casting the first stone.

Goin' Down: Those Crappy US Airlines, Cruise Lines

For those of you who remember your high school literature, Charon in Dante Alighieri's Inferno was the ferryman of Hades who transported the souls of the dead across the river Styx on a journey to farther reaches of the underworld. In today's international political economy, you can argue that American travel services now perform similar functions. Perhaps ol' Charon has hung up his oars for good and struck a deal with Satan himself to outsource these devilish duties. At any rate, modern American travel services epitomize America itself circa 2012: an economically unviable entity that should be put out to pasture ASAP if our contemporary era of subprime globalization had any sense (which it doesn't).

For a country that pioneered the concept of services marketing, its cutting-edge research, and its application to real-world business, it remains astounding how poor the United States' travel services are. Truly subprime, in fact. Let us begin with the most egregious violator of economic logic, the US airline industry. Given how flying into and around the US presents America's face to the world at large, this industry drags the USA's tarnished reputation further into the mud. We all know the maths of it: In no small part due to American warmongering in Iraq and perhaps Iran in the near future via the Bushite doctrine of pre-emptive strike, oil prices have shot through the roof and caused American carriers already on shaky ground post-9/11 to cease being businesses in the commonly understood sense. In the decade since, these airlines have lost over $50 billion. Especially if you're of the "deficits don't matter" persuasion, you can of course argue that this amount pales in comparison with the US federal deficit. But, the larger point is that the constant need to subsidize this money loser and keep interstate/international air travel is but another leech on the decaying body politic of America.

At the end of last year, we received news that American Airlines entered bankruptcy proceedings. This action completed the cycle of every single major US carrier (save for Southwest, but some would say it doesn't count as a discount carrier) declaring insolvency at least once. Hilariously, it was not long before that when American Airlines proudly proclaimed that it made the largest order in airline history with Airbus and Boeing. Again it's symptomatic of America nowadays: speaking loudly, carrying no stick. The truth is more straightforward: US carriers have among the oldest fleets, poorest customer ratings, surliest and highly unionized flight crew, lousiest on-time performance, a chequered history with lost baggage...the list goes on and on. Let's just say you won't be hearing "Relax" playing in the background with this lot. That they run old jets exacerbates their status as perennial money losers given that older designs are less fuel-efficient than modern ones. America and its airlines: misery loves companies.

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We also received truly appalling news of the Costa Concordia sinking in Italy. My first reaction was, "That's impossible! European cruise lines aren't into PR fiascoes." Its online advertising states "Experience the Costa Concordia cruise ship for a cruise vacation you will never forget." Quite so. Ever-so-slightly more investigation reveals that the parent company of the doomed liner is none other than the former Carnival Cruise Lines. Having a long memory--sometimes a blessing, often a curse--I recall the good ol' days of its operation when the worst sort of maltreatment passengers encountered on Carnival was chronic food poisoning [1. 2, 3]. Apparently unsatisfied with such offences to passenger health, they hired some nutter to run a $600 million vessel into something.

You can argue that Carnival improved somewhat by linking up with a British cruise line. You can further argue that it has done reasonably well compared to its airline counterparts. All I can say is wait till the lawyers are done with Carnival. There may have been a smidgen of improvement via the British involvement, but traditional American hallmarks of harming the customer never really go away in these sorts of services. How about giving a 30% discount to survivors of the ill-fated Costa Concordia on future Carnival trips to add insult to injury? Let's say the PR geniuses at Carnival will never get over that blunder. US airlines may be terrible, but outright termination is admittedly seldom on the cards. It's even pulled much advertising out of sheer shame.

And don't get me started on how US airports have suffered from neglect alike the rest of America's rotting infrastructure. With New York's JFK Airport ranked worst in the world, America's shame is only increased. Got that, America #1 cheerleaders? Instead of telling us how great your nation is and how stupid us primitives are, why not address your thoroughly rotten transportation services that reveals the joke is on you?

Certainly Obama's drive to double exports in five years should benefit from services people actually can, ah, stomach using? That such matters appear like a pipe dream in modern America tells you how far it's fallen. Hellbound, in fact--go ask Charon.