EU Freezing Over: UK Adopting Euro, Turks Joining

♠ Posted by Emmanuel in , at 11/30/2011 10:30:00 AM
Even while commentators as mainstream as the FT's Wolfgang Munchau are already counting the days towards EU breakup and the Economist ponders its inevitability, we have some interesting countervailing forces at work. They're something to think about if you've tried totting up the trillions upon trillions said to be necessary to keep the monetary union intact.

While the current Tory-led coalition is very Thatcher-esque in pooh-poohing the EMU, remember that there remains an older generation of Conservative politicians who believed the UK would eventually adopt the single currency. Remember Kenneth Clarke and Chris Patten. To this list we should add Michael Heseltine:
Former Deputy Prime Minister Lord Heseltine has said he still expects the UK to eventually join the euro. The Conservative peer, one of his party's most pro-European figures, said the eurozone had real problems but he hoped it would survive as its collapse would be "catastrophic" for the UK.

All three of the largest Westminster parties have ruled out joining the euro in the foreseeable future...Prime Minister David Cameron has faced opposition to his European policies within Conservative ranks, with more than 80 MPs defying the government and calling for a referendum on EU membership [let alone joining the Eurozone].
He places current EU-phobia against the historic trend towards greater UK economic interaction with the EU:
Asked by the BBC's Politics Show if he still felt the UK would ultimately join the single currency, he replied: "I think we will join the euro." He acknowledged that the eurozone was in crisis but said he believed it would endure, largely due to the determination of Germany and France to preserve its "cohesiveness".

"I think the chances, and it is a balance, are that the euro will survive. They (Germany and France) have got a hell of a problem, let's be frank about that, but my guess is that they will find a way through. I hope they will because the downside for the British economy of the eurozone going under is catastrophic. People have no idea of the scale of money British banks are owed by European banks." He said European co-operation since the 1950s had been "remarkably successful".
So that may be a long shot, but here's yet another--Turkish EU membership. I've long discussed what I believe are fundamentally racist attitudes behind French and German opposition to Turkish membership. With Turkey now in the ascendant relative to both (and its PM on TIME's cover besides), now may be as good a time as any to prompt a reappraisal. That is, buoyant Turkey would join a bunch of troubled European nations to hopefully add dynamism instead of a troubled Turkey bringing its own problems to European nations:
The Turkish President, Abdullah Gul, says his country still wants to join the European Union despite the euro zone crisis...

Mr Gul said: "Some people who think in a narrow scope and who do lack a strategic perspective consider Turkey's membership a burden". He said Turkey can be the EU's "growth engine". Britain supported Turkey's right to became an official candidate for EU membership and formal accession negotiations began in 2005. If it joined Turkey would be the first EU nation with a majority Muslim population.
Especially with the EU-Turkey question, who knows? Especially during these times, things change, my dear.

Mitt Romney & the Republicans' Sinophobic Turn

♠ Posted by Emmanuel in ,, at 11/28/2011 01:23:00 PM
Obama the candidate in 2008: What we need to do is to just be better bargainers and say, 'Look, here's the bottom line: You guys keep on manipulating your currency; we are going to start shutting off access to some of our markets,'

Romney the candidate in 2011: We can't just sit back and let China run all over us. People say, 'Well, you'll start a trade war.' There's one going on right now, folks. They're stealing our jobs. And we're going to stand up to China. We have right now something they need very badly, which is access to our market. And our friends around the world have that same power over China.

Fareed Zakaria has an interesting new TIME op-ed on how China should shoulder more of the burden of providing global public goods (no argument from me there). In so doing, he cites the seeming change in Republican presidential frontrunner Mitt Romney on the longstanding virtue of free trade as a warning of how things may worsen if China doesn't change its (evil?) ways. Granted, Obama was making similar noises about China-bashing to curry favour with the Democrats' labour-heavy base. But, the curious thing is that Romney does not need to pander to the likes of the Teamsters and so forth. If you are a believer in the median voter theorem, then the implication of the "Romney Republican" position is that Joe Average has demonstrably turned against free trade. Moreover, China in particular is an "unfair" trade parter.

What our man Fareed Zakaria does is talk about how Republican presidents have, since the time of Nixon thawing the US relationship with China--ping-pong diplomacy and all that--supported closer economic ties. Nixon, Reagan, Bush Major and Bush Minor have not really gone against that tide. But, with Romney becoming nearly indistinguishable from Democratic protectionist blowhards and an unpopular incumbent, who knows if an avowed Republican China-basher can gain the highest office in the land:
The Republican primary campaign has not been noteworthy for its discussion of foreign policy. But one set of statements stands out: Mitt Romney’s on China. In a series of speeches, responses and op-eds, Romney has taken a fierce line, accusing Beijing of cheating “on almost every dimension” in its economic relations with the U.S. and promising to brand it a currency manipulator on his first day as President. “If you are not willing to stand up to China, you will get run over by China,” he said in a debate in October. Romney’s stance is significant because he is breaking with 40 years of Republican foreign policy.

Ever since Richard Nixon and Henry Kissinger opened the door, the Republican Party has been the party of engagement with China. Democrats have often campaigned on tougher platforms. So why is Romney—a moderate Republican who is trying his best not to make news during this primary campaign—­making this sharp break? The answer can be found in the polls. One of the consequences of this Great Recession is that the American public now has an unreservedly hostile view of China as a job stealer and economic threat. A recent Pew Research Center poll found that more than half of Americans see China’s growth as bad for the U.S. Romney’s shift reflects the fact that even business—the core constituency for good relations with China—is changing its views. As Beijing has adopted policies to favor Chinese companies over foreign ones and refused to crack down on rampant intellectual-property theft, businessmen in the U.S. have become less starstruck and more worried.
So there is another nuanced argument here of China not only losing the support of Joe Average but also of business elites as time goes on. Still, possible shifts in an ostensibly pro-free trade party may mean that fewer mainstream American politicians will hold such views in the near future. While Romney's China-bashing rhetoric may be an Obama-like electioneering ruse, it does point to a larger, worrisome trend.

Attn World: Eurozone Will End on 7 December

♠ Posted by Emmanuel in , at 11/28/2011 12:50:00 PM
This assertion may brand Wolfgang Munchau a genius or a laughingstock for life on the level of Francis "End of History" Fukuyama or the Dow Jones 36,000 jokesters, but for what it's worth, the German commentator is definitely going all-in:
I have yet to be convinced that the European Council is capable of reaching such a substantive agreement given its past record. Of course, it will agree on something and sell it as a comprehensive package. It always does. But the half-life of these fake packages has been getting shorter. After the last summit, the financial markets’ enthusiasm over the ludicrous idea of a leveraged EFSF evaporated after less than 48 hours.

Italy’s disastrous bond auction on Friday tells us time is running out. The eurozone has 10 days at most.
Mark your calendars for December 7 and look for that old R.E.M. greatest hits CD if your Internet connection isn't fast enough for streaming video.

Marx Revisited: Overproduction & Inevitable Crises

♠ Posted by Emmanuel in , at 11/27/2011 01:18:00 PM
I am teaching Marxist perspectives in International Political Economy class this week in the usual sequence of tackling it together with liberalism and mercantilism/realism. In other words, the three main perspectives in the discipline. Those with just a passing familiarity with Marxist theory probably know Das Kapital's Chapter 32 of "one capitalist always kill many" and "the expropriators are expropriated" fame. While looking around for additional material, I came across a (relatively) expanded and more up-to-date take on the Historical Tendency of Capitalist Accumulation by the late Ernest Mandel that to me makes quite a lot of sense given today's ongoing events.

In particular, the incorporation of China into the world economy (or modern world-systems for those who know of [not my namesake BTW] Immanuel Wallerstein's famous work) is simultaneously a problem of what to do with additional manufacturing capacity on one hand and where to park surplus value (from an export-orientation) on the other. Witness the US subprime crisis borne of "vendor finance" and that in Europe's periphery as it became more uncompetitive with China joining the WTO at roughly the same time the single currency was coming into usage. The irony is rich: integration of an ostensibly socialist state is promoting a crisis of capitalism. Let's begin...
Capitalist economic crises are always crises of overproduction of commodities (exchange values), as opposed to pre- and post-capitalist economic crises, which are essentially crises of underproduction of use-values. Under capitalist crises, expanded reproduction - economic growth - is brutally interrupted, not because too few commodities have been produced but, on the contrary, because a mountain of produced commodities finds no buyers. This unleashes a spiral movement of collapse of firms, firing of workers, contraction of sales (or orders) for raw materials and machinery, new redundancies, new contraction of sales of consumer goods etc. Through this contracted reproduction, prices collapse, production and income is reduced, capital loses value. At the end of the declining spiral, output (and stocks) has been reduced more than purchasing power. Then production can pick up again; and as the crisis has both increased the rate of surplus-value (through a decline of wages and a more ‘rational’ labour organisation) and decreased the value of capital, the average rate of profit increases. This stimulates investment. Employment increases, value production and national income expand, and we enter a new cycle of economic revival, prosperity, overheating and the next crisis.
And, as no one should be surprised, there is no real way to "manage" our way out of an unworkable system according to Marxist thought as we stumble from one crisis to the next:
No amount of capitalists’ (essentially large combines’ and monopolies’) ‘self-regulation’, no amount of government intervention, has been able to suppress this cyclical movement of capitalist production. Nor can they succeed in achieving that result. This cyclical movement is inextricably linked to production for profit and private property (competition), which imply periodic over-shooting (too little or too much investment and output), precisely because each firm’s attempt at maximising profit unavoidably leads to a lower rate of profit for the system as a whole. It is likewise linked to the separation of value production and value realisation.
Accordingly, the solution is largely incompatible with modern economic thought in ridding ourselves of property rights and the divide between capitalist and labourer classes--or doing away with capitalism altogether:
The only way to avoid crises of overproduction is to eliminate all basic sources of disequilibrium in the economy, including the disequilibrium between productive capacity and purchasing power of the ‘final consumers’. This calls for elimination of generalised commodity production, of private property and of class exploitation, i.e. for the elimination of capitalism.
Food for thought, I must say.

All the Way to Reno: UK Gilts Outdo German Bunds

♠ Posted by Emmanuel in , at 11/25/2011 06:41:00 AM
Humming...all the way to Reno
You've dusted the non-believers
And challenged the laws of chance
Now, sweet--you're so sugar sweet
You may as well have had 'kick me'
Fastened on your sleeve

Reno, Nevada of R.E.M. song fame is a popular gambling destination for Northern California residents alike some of my relatives in the Bay Area. While nowhere near as large a gambling mecca as Las Vegas, its location near the California-Nevada border makes it more accessible to Californians fancying a game of chance on a day or overnight trip. Reno further bills itself as "The Biggest Little City in the World."

In more ways than one, the United Kingdom too is a comparatively small gambling destination dwarfed by the continental EU economies. Despite its reluctance to become thoroughly intermeshed with regional integration and its attendant regulatory pressures--especially by not joining the eurozone--the UK has obtained significant benefits nonetheless from being adjacent to the eurozone. Given its status as a more liberal financial centre that facilitates 'casino capitalism,' the City of London has benefited more than 'real' EMU nations from expanded trade in euro-denominated bonds and euro currency. It seems that such 'close distancing' is reaping particular advantages at the present time. To be honest, the UK is currently in a mess. Student protests in addition to widespread worker protests, next-to-no growth and what else have you, people are unhappy when there's no money to go around.

But, on the bright side, the moribund UK economy's sovereign debt is now outperforming its German equivalent by non-implication in the EMU debt crisis. That is, over a decade, the UK's borrowing costs are now lower than Germany's. Go figure; a recent German failed auction where bidders for 10-year bunds were few and far between certainly didn't improve confidence. From Investment Week:
Germany will have to take its share of the pain caused by the crisis in Europe, which will cause yields on its debt to climb. "In the medium term there has to be burden sharing in Europe, and Germany has to play its part in that," [bond fund manager Stephen Snowden] said. Snowden said as bund yields rise, it will leave the UK looking more and more like one of the few real safe havens. "For me it all reaffirms gilts' status as a safe haven."

His comments came ahead of a shock climb in bunds seen today, with yields jumping above 2% for the first time in weeks after a disastrous debt auction. Germany said the bid-to-cover ratio was only 0.65 times [!], with the German debt agency selling just €3.644bn of its new 10-year bund, well under the €6bn targeted. Yields on the country's 10-year bonds have climbed to 2.06%, well above last Friday's level of 1.89%.

Snowden said while bund yields looked set to continue to rise over the medium term, gilts have a lot of support at these levels. "Gilts are well supported at these levels and I certainly do not see an imminent collapse. "You would not want to be shorting gilts now as the Bank will continue to buy them and international investors will look to them more and more as one of the few safe havens left."
Perhaps the UK really has written its own directions and whistled the rules of change in terms of the EU pecking order despite everything.

UPDATE: Bloomberg suggests Japanese investors shunning bunds and moving into gilts helps explain these market movements.

Japan's Trading Houses Vie for Copper Supremacy

♠ Posted by Emmanuel in ,, at 11/23/2011 12:04:00 PM
In competitive market economies, the battle for the commanding heights is conducted by corporations as well as countries. Now, Japan's massive trading houses that underpin the keiretsu system of business groups (Mitsui, Mitsubishi, etc.) have often been criticized as inefficient middlemen by Westerners who deal with them. However, the recent global financial crisis may have provoked a reassessment of their worth. Given the credit squeeze that resulted when trust became scarce in "arm's-length" financial markets, these trading houses kept the credit flowing given that they were more trust-based institutions. Count it as another demerit for neoliberal orthodoxy.

Another important function they are performing nowadays though is securing raw material availability for the manufacturing arms of their groups (alike Mitsubishi Steel, Motors, and what else have you). What, after all, would Japan Inc. be without such RM inputs to create world famous export-oriented outputs?

Although the heyday of Japanese industrial policy--Ministry of International Trade and Industry (MITI) coordination with keiretsu and all that--may have passed, there is still a lot of it being formulated. Witness for instance the current government initiative to capitalize on the mighty yen to secure natural resource supplies worldwide (presumably in the face of the Chinese attempting to do the same). Here we encounter a similar story, and who else is there to get the job than other than these trading houses? Once more onto the breach...
Japan's top trading house are likely to come head-to-head again while competing for copper mines across the globe, armed with an unprecedented ability to spend on what they see as a long-term bull market. The competition is likely to drive up asset prices for potentially lucrative properties holding the base metal, with the trading houses jostling for the prize of becoming the top supplier for the world's fifth biggest copper market and to tap surging demand in China and other emerging markets.

Japan's six big trading firms, which derive up to 80 percent of their profit from commodities, plan a combined 2.76 trillion yen ($36 billion) investment, a record high, in the year to March 2012 on the back of strong earnings growth in the past few years largely due to gains in oil and other commodity prices. About a half or a third of that amount will be reinvested in natural resources.
This great game between conglomerates' trading houses naturally spans the globe:
In the latest round of the battle for copper, Mitsubishi Corp and Mitsui & Co stood against each other in the high-profile face off between mining giants Anglo American and Codelco in Chile. Anglo shocked Chile's state copper giant last week when it announced it had sold a 24.5 percent stake in its southern Chilean copper properties to Japan's biggest trading house Mitsubishi for $5.4 billion.

The move signalled an aggressive stance in Anglo's negotiations with Codelco on the Chilean firm's option to buy 49 percent of the properties. Codelco has sued Anglo to prevent further sales and says it is still entitled to exercise that option, while Anglo says after the sale Codelco only has an option on 24.5 percent.

Mitsubishi paid a hefty $520 million, or 10 percent, premium to Codelco's valuation of the assets, Jiro Iokibe, analyst at Daiwa Securities Capital Markets Co, said. [OTOH] Codelco has secured a $6.75 billion bridging loan from Mitsubishi's rival Mitsui & Co to buy the assets, in which the Chilean company has given Mitsui an option to take the 24.5 percent stake which Mitsubishi has bought for $4.88 billion.
Certainly the omens are with even higher prices in the future due to good ol' supply and demand:
Japan's trading firms have been chasing copper assets as they see the prospect for rising demand and limited supply leading to higher prices for the industrial metal used in products ranging from cars to electric wiring. They expect demand in China, which accounts for 40 percent of global demand, to continue rising for at least the next five to six years while supplies remain tight due to a falling ore grade, analysts said.

"Demand will be particularly tight in the next two years as new mines will not come onstream until after 2014," Yasuhiro Narita, analyst at Nomura Securities, said. "Copper is one of their preferred assets, which has a large trading volume, meaning less volatility, and there is no concern of new substitutes emerging from technology development..."

While demand is rising, falling ore grade and increasingly difficult development conditions have boosted development costs. "Most mines currently being developed are located in inlands far from ports, causing development cost to balloon," said an official at the Agency for Natural Resources and Energy.

Japanese companies' copper development costs have risen to an average of $5,600 a tonne since 2008, up from the average of $2,500 during 1988 and 2005, according to government data. The official said the copper content of ore has now fallen to about 0.4 percent down from about 1 percent in 2000.
Very interesting stuff, and it's much like the current scramble for oil supplies--less accessible supplies become more economically viable as commodity price rises continue apace.

Honest Jian's Used Cars: China's Next Auto Market

♠ Posted by Emmanuel in , at 11/22/2011 10:45:00 AM
In 2009, China ended the United States nearly century-long reign as the world's largest auto market. But, we probably should add a qualifier--that's the new car market. Also, although the Chinese make some nifty products, let's just say that mostly homegrown products may not yet have similar stature with Western brands (who many Chinese concerns make for on an OEM basis anyway). In cultural anthropology, there is a phenomenon of "colonial mentality" that may be at work of colonized countries displaying an inferiority complex towards the products or even the culture of the former colonizer. The reasoning is that they must be superior since they managed to occupy us for some time.

China has of course undergone occupation and domination by Japan and Western powers in recent centuries. Given the long-term memory of many Chinese compared to the zero-planning horizon of most Americans for example, this history may also play out in consumer attitudes towards the superiority of foreign brands to domestic makes.

Accordingly, the WSJ has an interesting new article on how this longstanding preference for foreign brands may be advantageous for the same at this point in time. You see, the Chinese used car (pre-owned, if you prefer that euphemism) market is dwarfed by the new care one--something that isn't really the case in many Western nations with their extensive secondary dealerships, auctions for used vehicles and so forth. Foreign brands introducing used car sales with official warranties and other guarantees may be fuelling a trend of "colonial mentality" in motion by eating into Chinese brand new automobile sales by offering more car for less via used vehicles. That is, the "lemon" issue is solved by clever marketing via backing from established foreign brands which command a premium in the PRC:
China's auto industry is so new that there are few used-car businesses today and little involvement by big dealers. Buyers and sellers now meet at stadium-size, open-air markets, some with luxury-car sections. That's about to change with used-car sales likely to reach 4.1 million vehicles this year, up 7% from last year, according to an estimate from Daimler AG's Mercedes-Benz.

In response, auto makers including Daimler, Nissan Motor Co. and Volkswagen AG are racing to build used-car operations that can take trade-ins for new cars and offer dealer guarantees and services on used vehicles. One big Chinese auto retailer says it plans to increase its focus on used cars to help improve profit margins.
China's used-car sales today are less than a quarter of the 19 million new cars expected to sell in the country this year. But the number of used-car sales should soar as the new-car market in China slows and matures, industry officials say. "How we handle this as an auto maker will determine who is going to be a winner and decide who is going to survive and possibly thrive long term in China," says Hideki Kimata, a senior sales executive for Nissan's China sales arm, based in Guangzhou.

The biggest threat they pose is to China's homegrown brands, such as BYD and Zhejiang Geely Holding Group Co. Chinese consumers generally prefer foreign brands; an overwhelming majority of China's top selling cars in recent months were from global auto makers' joint ventures with Chinese car makers.

One reason for that is the lack of cachet among home-grown Chinese auto makers, stemming from their "lack of competitiveness" in creating quality cars, says Dong Yang, deputy chairman of the China Association of Automobile Manufacturers.
It's an increasingly competitive market, and homegrown Chinese manufacturers do need to improve their overall image in terms of providing dependable vehicles, superior customer service, lengthy warranties and so forth to compete not only in the new car market but also in the used car market. As we have seen again in many Western countries, second-hand cars are quite attractive given the longevity of modern designs as well as their significantly lower prices since someone else has already borne the brunt of most of the depreciation.

Lastly, the emergence of a used car market highlights the growing sophistication of Chinese consumers. Used cars are a potential minefield with tampered odometers, incomplete service records, and other cheap tricks. Sellers thus need to establish good reputations in helping to alleviate "moral hazard"-type problems.

Yanks Foresee Yuan as World's Top Currency?

♠ Posted by Emmanuel in ,, at 11/21/2011 12:49:00 PM
There's interesting stuff from Reuters on the contents of the just-released 2011 Annual Report to Congress of the US-China Economic and Security Review Commission. The latter body, as most of you probably know, was created by the US congress in 2000 with some foresight that China was becoming an increasing force in the global political economy that the US had to deal with. Although some members of this commission are definitely scaremongers, their views are for the most part counterbalanced by more nuanced opinions.

I have yet to sift through this mammoth 400-page report which you can avail of by e-mailing a request to However, the parts concerning the yuan AKA renminbi (RMB or people's money) becoming an international standard currency are quite interesting. Indeed, these folks may be playing up the role of the yuan more than their Chinese counterparts who still follow a strategy of not drawing too much attention to their currency machinations. Rest assured, though, that the Yanks staffing this commission sense the Chinese are up to something:
China's economy is moving up the value chain and its currency could "mount a challenge" to the U.S. dollar in five to 10 years, a congressionally created commission reported Wednesday. "Similarly, it no longer seems inconceivable that the RMB could mount a challenge to the dollar, perhaps within the next five to 10 years," the commissioners said, 10 years after China joined the World Trade Organization...

The Chinese authorities are laying the groundwork for internationalization of the currency via bilateral arrangements with foreign companies and financial centers, particularly Hong Kong, the report said. Goldman Sachs representatives told commissioners that Hong Kong had been tapped to be China's offshore currency platform "because Beijing would be able to fully control the terms of the market," the report said. Hong Kong was returned by Britain to Chinese sovereignty in 1997.
There's also a reference to the imminent PRC leadership succession being an occasion to outline a push to issue more Chinese bank-issued RMB bonds marketed to an international investor crowd:
More mainland-based financial institutions will be able to issue RMB-denominated bonds in Hong Kong under plans outlined by Li Keqiang, China's likely next premier, during an August visit to the financial center, the commission said...

William Reinsch, this year's chairman, said he did not expect the yuan to "supersede" the dollar in coming years unless Beijing floats its currency and removes capital controls. However, "certainly what they're doing in Hong Kong suggests an impending challenge," Reinsch, president of the National Foreign Trade Council, a private U.S. business group, said in a telephone interview with Reuters.
But there is still a long ways to go:
Dollar-denominated financial instruments dwarf their yuan-denominated counterparts in terms of new issuances. But the RMB markets have made remarkable progress in less than a year to achieve 11 percent of the daily trading volume of dollar-denominated markets, the report said.

Still, trade in yuan accounts for a mere 0.3 percent of the $4 trillion changing hands daily in international currency markets, the commission said, with the U.S. dollar making up one side of 85 percent of all trades.
Things can turn quickly, though. Think of the knock-on effects that the US debt debacle will have on dollar confidence in the next few years. It will be interesting to see how the currency game plays out. That is, will China be willing and able to provide public goods in the Asia-Pacific region by making its currency freely traded and (yes) "floating" in a manner it hasn't really up to now? For sure, many financial centres want in on the RMB trading action [1, 2]. Ditto with some of the world's largest multinationals. Then again, teething problems in experimenting with offshore yuan use are evident that need to be ironed out during this, what..."pilot" stage.

With the US down for the count, it's probably wise for the Chinese not to allow themselves to be dragged down along with Washington's gutter politics. Bite the bullet, good burghers of Beijing, and provide the rest of the world with a clear alternative to dollar detritus that has helped roil the world economy to no small extent. Multipolarity is good.

Twitter Revolution My Sassafrass: Back to Egypt

♠ Posted by Emmanuel in , at 11/20/2011 04:40:00 PM
The self-styled American digerati has me ROFL even more now with their belief about the central importance of digital media in the Arab Spring events. A few days ago, we gathered that Egypt was in many ways worse off economically now than under President Mubarak. For, without a figure to provide basic law and order, the result would be what it is at present-chaotic. From today's headlines, we now gather that they're back in Tahrir Square. With civilians getting shot once more, we've seen this movie before.

So far, what can we reasonably deduce?
  1. Digital technologies are mere communication tools, not instruments for lasting change or even "revolution" as some hype it to be;
  2. Mob rule with people taking to the streets time and again is still mob rule even when using Twitter etc. to gather. It's inimical to establishing order;
  3. Hence, exporting these technologies in the belief that it would promote freedom and economic growth is far-fetched. Take Egypt with its resulting reversion to military rule, endless protests and continuous credit downgrades;
  4. Insofar as we haven't yet left the Westphalian system as far as I can tell, states should be left alone to determine their policies regarding these technologies--just as the United States is busy trying to prosecute WikiLeaks founder Julian Assange for leaking US diplomatic cables;
  5. Fair is fair: China should be left alone as unpalatable as its policies towards the Internet may be to some white people. National laws regarding non-intervention and non-interference with regard to media--whether they be those of the US or China--still have validity in a bordered world.
It's long overdue to consign the hypocritical, incredulous notion of "Internet freedom" to the dustbin of similarly awful American wheeze alike the "strong dollar" policy and the "Washington Consensus."

Let US Debt Supercommittee Finish Off America

♠ Posted by Emmanuel in at 11/19/2011 04:12:00 PM
It's hilarious that some delusional Americans think they're getting the better of things by putting off fiscal adjustments Europeans have either voluntarily undergone or are being forced to undergo. (Ditto with the EU itself.) In many ways, it's the same kind of deficits-don't-matter happy-go-lucky attitude they've exuded right before the global financial crisis they literally financially engineered and afflicted the Eurozone with for good measure. Trot out all the old reasons for good measure: the dollar remains the world's standard currency, the US makes problems for everyone else and not the other way around, we can still borrow so cheaply despite an S&P downgrade, etc.

Well, for those waiting for the United States to get its (much-deserved and long overdue) comeuppance, there is a worthwhile event on the horizon: the imminent failure of the so-called debt supercommittee. The latest word is that it has not only failed to meet its $1.2 reduction target over a 10-year period, but that it failed to agree on an amount which already falls well short of that amount:
A high-profile congressional effort to trim stubborn budget deficits appeared near collapse on Friday as Democrats rejected a scaled-back proposal from Republicans that contained few tax increases.

With Democrats and Republicans on a deficit-cutting "super committee" deadlocked ahead of a Wednesday deadline, House of Representatives Speaker John Boehner floated an offer to try to break the logjam on tax increases and benefit cuts. The plan would save $643 billion over 10 years, about half of the panel's goal of $1.2 trillion, but the two sides were unable to even agree what was in the plan.
As you probably know, automatic reductions--about half each to military and civilian spending--will kick in during 2013 worth $1.2 trillion should the debt supercommittee fail to identify particular programmes for the chopping block. Recall my recent post about how failure to come up with a credible (read: real, not fictional revenue increases or budget reductions with bipartisan support) agreement to address future budget deficits.

Alike in Europe, there are already obvious hints emanating from Washington that further scrutiny of these credit agencies should they have the cheek to deliver further much-needed downgrades to US sovereign debt:
The controversial companies known as credit-rating agencies are drawing fresh scrutiny from officials in the United States as they weigh whether to downgrade U.S. government debt should Congress fail to come to an agreement to reduce borrowing.

The credit-rating firms — Standard & Poor’s, Moody’s Investors Service and Fitch Ratings — have said that they could downgrade U.S. debt if Congress does not find at least $1.2 trillion in budget savings over a decade, or if the economy worsens significantly in coming months...Congress is set to automatically cut $1.2 trillion in domestic and military spending starting in 2013 if the committee deadlocks. But the U.S. credit rating would be imperiled if lawmakers tried to postpone or reduce the automatic budget cuts.
There is a lot of opinion out there on what would trigger a downgrade. Some believe that it would be reneging on the automatic $1.2T worth of cuts starting in 2013. I, however, believe that the quotations above from S&P and Moody's respectively spell things out in a straightforward fashion (as far as credit rating agencies are concerned). That is, no credible plan to deal with gargantuan deficits the US is running into perpetuity = a second S&P downgrade and a first from Moody's in the next few months.

As certain other countries have demonstrated, the road to junk status is not a particularly long one. A severely messed up one should get there in no time whatsoever. With that in mind, I fully expect the US debt supercommittee to continue the process of finishing off America. In the final analysis, the United States fully deserves the leaders it gets.

Of EU-Wide Bonds & Gerhard Schroeder's 'Harikiri'

♠ Posted by Emmanuel in at 11/16/2011 02:19:00 PM
There's interesting stuff c/o the Globalist's Stephan Richter on how German austerity measures under previous German Chancellor Gerhard Schroeder of the Social Democratic Party (SPD) actually set the stage for his CDU successor Angela Merkel to reap the benefits. The straightforward narrative here is that he effectively sealed his political fate as his traditionally left-leaning party could not stomach downsizing the welfare state. Ironically, Schroeder's actions set Germany as a pace-setter for European reform that have now put it in good stead when various economic commentators were literally crying Wolf way back when:
A key ingredient of Germany’s success in today’s increasingly dismal global economic environment was that a former chancellor, Gerhard Schroeder, mustered the courage to jump over his shadow.

Thanks to the fact that he, a man of the center-left, was principled enough to launch structural reforms to Germany’s welfare state via the so-called (and aptly titled) Agenda 2010, Germany’s economy is now performing relatively well. Commentators such as the Financial Times’ Martin Wolf had claimed at the time that the German economy would fail due to high price and benefit levels, which the country would not be able to reduce. As a consequence, they argued, it would catapult itself out of a competitive world market.

Things have turned out differently. Although controversial, Schroeder’s historic achievement was to bring German unemployment benefits down to the American level. The fact that Germany’s unemployment rate, long an albatross around the country’s neck, is now at the lowest level in two decades (and in line with U.S. levels during good economic times) proves the architects of the project right.
From what I can gather, Germany's success at implementing reform first does not necessarily mean that other countries should follow its example. Rather, just as Schroeder of the SDP put into place uncharacteristically "neoliberal" reforms, so should the CDU be more charitable toward its European neighbours as opposed to being German-centred all the time:
However, now she faces a similar test of political courage. Just as it was a test of character for Schroeder and his Social Democratic Party (SPD) to trim the welfare state, so it is now a test of character for Mrs. Merkel and her Christian Democratic Union (CDU) to accomplish the rightsizing of the nation state.

While in a completely different domain, that is a challenge on par with what the SPD had to accomplish. Basically, the CDU’s voter base consists of proudly patriotic people. But rather than bask in the illusory glory of Germany doing marvelously, thank you, Mrs. Merkel has to move her base to accept that, in the end, Germany does have to provide a significant back-up mechanism for Europe. Making the case for sharing a nation’s wealth with others is certainly no easy task.
While there are problems with the identification of CDU as being more domestically oriented--think of Helmut Kohl--I do agree that the challenge of a conservative party accepting "ever closer union" especially at this time are enormous and at least on a par with Agenda 2010 for the SPD. Hopefully statesmanship wins out. That is, you may even sacrifice your political career, but what matters to you most in the end?

And so bring on those EU-wide bonds signed severally by Eurozone member countries--Germany included first and foremost...
Just imagine the firestorm the German unions would have unleashed against the CDU had it been the one to implement the structural reform package called Agenda 2010. The beauty of the political dialectic governing Germany is that it is now the CDU that must act in the overall national interest by overcoming the overly nation-state-oriented thinking in its conservative wing.

Conservatives cannot continue basking in self-satisfaction at the good things the EU delivers to Germany’s balance sheet, while refusing to accept any debits. That is why Mrs. Merkel has quite a task ahead of her. She must, and she will, make the case for a truly historical transition toward a deeper integration process.

Austerity Victim: APEC Leaders' Fancy Dress Party

♠ Posted by Emmanuel in at 11/15/2011 09:08:00 AM
Once upon a time there was a tavern
Where we used to raise a glass or two
Remember how we laughed away the hours
And dreamed of all the great things we would do...

Those were the days, indeed, as Mary Hopkin once sang. Remember in bygone years when Asia-Pacific Economic Cooperation (APEC) leaders would show unity by wearing national costumes that made Western heads of state in particular look ridiculous? I am afraid that we may have moved on from that tradition when the world was younger and somewhat more innocent. In a twisted form of hegemony, it appears that our American friends started and have now done away this tradition--at least for now. According to the UK Independent, Clinton started this gimmick in 1993 after giving each APEC leader a bomber jacket to be photographed in what has become known as the "APEC leaders' family photo."

I hope that you immediately noticed what was very conspicuously missing in the group photo above at the completion of the APEC leaders' meeting in Honolulu this year. Instead of your traditional jaunty outfits alike in the photo below taken from the 2006 gathering in Vietnam, they have apparently reverted to bog-standard business formal attire. Talk about a disappointment! Admittedly, though, Obama has never looked out of place the way Bush used to while wearing traditional garb.

So, why did Obama allegedly ditch the fancy dress when the hosting city was Honolulu--certainly a rich source of sartorial possibilities? For what it's worth...
Obama seemed content to play the stuffed shirt. Never mind that he is a native of the islands and having the Pacific Rim leaders show off the shirts might have provided a nice boost to tourism. A braver host might have offered the leaders other fashion options: grass skirts perhaps, or surfer-dude attire. Even the famously dour Richard Nixon once sported an Aloha shirt when campaigning for the White House on the archipelago. (His was of lurid hibiscus design...)

[Obama said:] "I got rid of the Hawaiian shirts because I looked at pictures of some of the previous Apec meetings and some of the garb that appeared previously and I thought this might be a tradition that we might want to break," Mr Obama told reporters. "I didn't hear a lot of complaints about breaking precedent."
Well the region is all the poorer for it, I say. The explanation going around for this decision was that, during these difficult times, leaders are wary of looking frivolous. While the White House did commission special outfits beforehand, there was some kind of consensus around not wearing them this time:
Honolulu clothing company Tori Richard, Ltd., designed both the APEC shirts worn by organizers and volunteers and a special APEC-themed shirt for the 21 world leaders, said Josh Feldman, company president and chief executive officer. Feldman said Tori Richard was contacted directly by the White House earlier this year and commissioned to design the shirt.

"We produced 21 shirts in the design that at the White House's request, we not show to the public until the leaders were given the shirt as a gift," Feldman said in an email. "While we are disappointed a decision was made not to wear them for the iconic photo, we were still honored to be selected."
Once again demonstrating how Bill Clinton understands politics more than Barack Obama, here's the former's take on the tradition he helped establish:
In her autobiography, Cherie Blair, wife of former British Prime Minister Tony Blair, revealed some of the political calculations that could lie behind even the simple act of donning a fancy outfit overseas. She said that her husband was given a lesson in international politics at a summit in Japan where she said Clinton chose the most hideous shirt offered to world leaders.

“Why on earth did you do that?” Tony Blair asked Clinton, according to the book written by the wife of the British leader then. “Take it from an old-timer,” Clinton told the British prime minister before explaining to the latter that his less offensive shirt was a naive political choice.

“Now you, Tony, wearing that particular shirt, people at home might conceivably think that you chose to wear it,” Clinton was quoted as saying. “Me, wearing this shirt, everybody at home is going to think, Boy is that Clinton diplomatic, being so nice to those foreigners. There’s no way he would have chosen to wear that. What a good man he is.”
IMHO, Obama lost a chance to "humanize" himself and his peers at a time when political elites are increasingly becoming seen as a homogeneous suit-wearing class. Not a very good show--take it from the big dog Clinton himself.

Those were the days, oh yes those were the days.

PRC SWF Official: European Welfare Undid Europe

♠ Posted by Emmanuel in ,, at 11/12/2011 03:09:00 PM
In the past, I have poked fun at poor investments the China Investment Corporation (CIC) has made as the PRC's sovereign wealth fund. If there ever was an example of a buy at peak price strategy, then CIC would have it: Blackstone, Morgan Stanley...the list goes on and on.

Now, however, its Chairman Jin Liqun offers an assessment that partly gets at the rather mixed performance of some of CIC's Western investments. Having reportedly been approached by European powers-that-be to invest in European debt--again, it beats me why an SWF whose normal purpose is to diversify away from sovereign debt of reserve currency issuers should buy more of that--he also needs to explain his newfound reluctance. As many Asians believe, the culprit for Western budgetary woes is the unsustainable welfare state as per a recent Al Jazeera interview:
If you look at the troubles which happened in European countries, this is purely because of the accumulated troubles of the worn out welfare society. I think the labour laws are outdated. The labour laws induce sloth, indolence, rather than hardworking. The incentive system, is totally out of whack.

Why should, for instance, within [the] eurozone some member's people have to work to 65, even longer, whereas in some other countries they are happily retiring at 55, languishing on the beach? This is unfair. The welfare system is good for any society to reduce the gap, to help those who happen to have disadvantages, to enjoy a good life, but a welfare society should not induce people not to work hard.
It's the oldest explanation in the book--they fail because they're lazy. While Jin's opinions are not necessarily those of current PRC leadership, they do hint at continuing Chinese reluctance to become the world's new lender of last resort as every country running into trouble nowadays--various European states, Pakistan, and so forth--are inevitably linked to PRC bailouts.

Does US Want to Isolate China Via an APEC FTA?

♠ Posted by Emmanuel in ,,,, at 11/12/2011 12:49:00 PM
Oops, I may have spoken too soon when I mentioned that the US would not seek to antagonize China by excluding it from an Asia-Pacific FTA. This is just a brief follow-up to a recent post I made pooh-poohing prospects for an expanded Trans-Pacific Partnership composed of APEC member countries.

First, after dilly-dallying a bit, PM Yoshihiko Noda now says Japan will join the negotiations:
Japan's decision to join talks on a trade deal spanning the Pacific marks a major boost for the US bid to shape the new order in Asia, but it will likely mean longer, rockier negotiations...The move by Japan, announced by Prime Minister Yoshihiko Noda just before heading to Honolulu, leaves China as the conspicuous outlier in the emerging trade deal which will now encompass more than one-third of the global economy.
Second, it may be or likely is the case that Japan--a heavyweight with a complex domestic political economy similar to the US--will further complicate negotiations. Think of the WTO Doha Development Agenda and its non-completion due to the ever-expanding number of members and their different agendas. We even have the Stone Age fear of US automakers and Japan Inc [?!]:
But Japan's political leaders decided that "it is a strategic agreement to ensure that Japan is part of the rule-making process," said Michael Green, a Japan expert who was a top aide to former president George W. Bush. Green, now a scholar at the Center for Strategic and International Studies and Georgetown University, said US trade negotiators are likely nervous as they must now contend with a "large and sophisticated and complicated counterpart.""It may complicate the negotiations in the short-run by having the third largest economy entering, but it also makes the TPP a much more credible pillar for an Asia-Pacific-wide free trade agreement," he said.

The United States has said it wants to move quickly to wrap up the Trans-Pacific Partnership, but many observers believe that the deal will take years -- especially now that Japan is involved.

While the United States has saluted Japan's decision to join the talks, a number of US lawmakers and industries are haunted by bruising trade negotiations with the Asian ally in the 1980s. The American Automotive Policy Council, which represents General Motors, Ford and Chrysler, said that a free trade agreement with the land of auto giants such as Toyota would devastate a recovering Detroit. "Providing preferential trade benefits to Japan, while they continue to embrace closed-market policies, would only serve to undermine the competitive gains made by American automakers," said Matt Blunt, the council's president. US automakers had initially fought against a US free trade agreement with South Korea, which was approved last month by Congress after marathon talks and concessions to Detroit.
American automakers have kept trying to sell their crapmobiles--often oversized left hand-drive vehicles in an RHD country--but haven't learned their lesson is all I have to say about the latter.

Third, China is indeed coming around to being excluded from the process despite after all being an APEC member country:
But the trade pact also has a political dimension. Chinese media have characterized it as a way to isolate the growing power, although a senior official, Yu Jianhua, said in Hawaii that China would consider the pact if invited.
Fourth, here's the most galling part. In a recent speech at the East-West Center in Honolulu, Hillary "Internet Freedom" Clinton recycles her freedom 'n' growth schtick in describing the rationale for expanding TPP. Not exactly China-friendly talk, eh?
There is new momentum in our trade agenda with the recent passage of the U.S.-Korea Free Trade Agreement and our ongoing work on a binding, high-quality Trans-Pacific Partnership, the so-called TPP. The TPP will bring together economies from across the Pacific, developed and developing alike, into a single 21st century trading community. A rules-based order will also be critical to meeting APEC’s goal of eventually creating a free trade area of the Asia Pacific.

The United States will continue to make the case that, as a region, we must pursue not just more growth but better growth. This is not merely a matter of economics. It goes to the central question of which values we will embrace and defend. Openness, freedom, transparency, and fairness have meaning far beyond the business realm. Just as the United States advocates for them in an economic context, we also advocate for them in political and social contexts.
While I appreciate the mom, apple pie & Guantanamo Ghraib sentiment, there are two big troubles with this shtick. Let's start with founding TPP member Brunei. It is an absolute monarchy with next to no press freedom. Do you think it's appropriate for Johnny-come-lately USA to dictate to Brunei what standards TPP member countries should be held to, or the other way around? Next let's move on to Vietnam. Returning to the AFP article...
Critics say that communist Vietnam's membership weakens the US message that the deal is about fundamental freedoms.
You don't need to ask Freedom House about that one.

Message to Hillary Clinton: Save it for the next Sarah Palin rally, girlfriend (even if you should not personally deliver the message if you knew any better). Nevertheless, why do certain folks keep thinking that this schmaltz pass without notice?

UPDATE: Reuters has more on China and the TPP. As an important aside, shouldn't news agencies point out that the TPP is a preexisting FTA instead of one that is just coming into fruition due to US-led efforts fer crying out loud?
China is not part of these trade talks, and views them warily. The differing views were captured on Friday in a politely pointed public exchange between top American and Chinese trade officials.

Asked whether China would join the TPP, as the talks are known, a Chinese official, Assistant Commerce Minister Yu Jianhua, noted that no invitation had been sent to Beijing. "If one day we receive such an invitation, we will seriously study" it, Yu said.

U.S. Trade Representative Ron Kirk responded that the trade deal "is not designed to be a closed clubhouse. All are welcome. But it is also not one where you should wait for an invitation."
A commentary in China's state-owned news agency Xinhua said Washington was using the trade deal as a way to enhance its influence in Asia on its own terms. "The United States' primary reason for actively promoting the development and expansion of the TPP is to raise its leadership in the Asia-Pacific region," Xinhua wrote.

"The United States does not want to miss a golden opportunity with the economic development in the Asia-Pacific, and at the same time it hopes to install a fixed set of rules to guide changes in the region's future political and economic structure."

Japan Returns to 'Stealth Intervention' Tactics

♠ Posted by Emmanuel in at 11/11/2011 09:00:00 AM
Since we once more encountered Japanese intervention to drive down the value of the mighty yen in September of 2010 after a hiatus of about six years, there has been a pattern in place. Tha Bank of Japan makes a big announcement concerning market volatility or the unduly strong yen. In turn, this is followed up by the BoJ wading into the spot market, selling yen and buying dollars in a major way to achieve an implicitly desired dollar/yen level.

Let's just say that this has not been an approach that has yielded sustainable results from the Japanese point of view. Forex traders have learned to wait the BoJ out insofar as its recent efforts have been one-day wonders not backed up by subsequent dollar buying. It appears though that Japanese officials are returning to what they hope are subtler, more effective tactics. That is, the past week has not seem any dramatic BoJ denunciation of forex market evils accompanied by massive intervention. Instead, it is more or less keeping silent to not give away timing cues. Plus, intervention is not a one-shot deal but a continuing effort dubbed 'stealth intervention' said to be similar to the 2004 campaign:
Japan's stealth intervention replicates an approach employed in the massive yen-selling intervention in 2003-04 that totaled about ¥35 trillion, or about $450 billion at today's exchange rates. But the new use of the tactic caught market participants off guard because many believed the latest intervention was a one-day operation.

To maximize the impact and preserve secrecy, the Finance Ministry and Bank of Japan select a limited number of private banks for intervention in the direct deals, refraining from electronic trading systems such as EBS. The designated banks were cautioned by authorities not to leak the information outside.
Sworn to secrecy, Japanese banks facilitate the deed clandestinely so as not to reveal BoJ presence on forex trading platforms. While the Japanese hope that keeping things under wraps results in a more tolerable USD/JPY exchange level for exporters, it too probably wishes that it won't collect as much opprobrium from fellow G7 members. Why is one of their own setting a bad example when global 'rebalancing' is supposedly being encouraged, especially among G20 emerging economies?

US & Roping Japan Into Trans-Pacific Partnership

♠ Posted by Emmanuel in , at 11/10/2011 09:46:00 AM
There's a new article in Foreign Affairs by Bernard K. Gordon on further broadening the mooted expansion of the Trans-Pacific Partnership (TPP) to include Japan. Right now, the existing hole-hearted TPP includes trade-deal hungry countries Brunei, Chile, New Zealand and Singapore. The US is in a group of countries including Australia, Malaysia, Peru and Vietnam that is currently negotiating to join the TPP. A large part of TPP's appeal to America is that it includes many issues near and dear to the US alike intellectual property and services trade.

By contrast, I've been quite sceptical of this grouping from the get-go. The latest US tack is expanding a pre-existing Asia-Pacific "coalition of the willing" to ensure that it remains deeply involved in this fast-growing region. As I've mentioned though with regard to Hillary Clinton's recent and rather hackneyed speech on why the US should remain involved in this region, it's yet another in a long line of failed American initiatives to launch a broad FTA among APEC members. The latter have indicated time and again that they are more interested in capacity-building. Which, to me, makes perfect sense insofar as LDCs need to have the infrastructure to handle trade liberalization before actually undergoing it.

At any rate, Gordon now sees the inclusion of Japan as crucial to ensuring that TPP encourages bandwagon effects and produces tangible gains for the US:
  1. First is the fear generated by the U.S. free trade agreement with South Korea. [For instance, having the tariff applied in America to Korean automobile imports reduced from 2.5% to nothing.] Japan’s export industry has long been worried about near-identical Korean products in foreign markets, and Seoul’s access to U.S. consumers will only grow once the pact is implemented.
  2. The second element is the declining political clout of Japanese agricultural interests. This group was long opposed to a free trade agreement with the United States because it feared that Japan’s small-scale and highly protected farmers would be overrun by lower-priced imports. But agriculture now accounts for less than 1.5 percent of Japan’s GDP, which has also meant a sharp decline in farm-related employment. The need to rebuild the economy in the wake of the March disasters amplified calls for reform of Japan’s outdated farming sector. This has eased the way for Japan’s exporters, led by the business federation Keidanren, to step up their pro-trade agenda.
  3. The final factor is China’s new foreign policy assertiveness. An early sign was Beijing’s revival, in 2010, of claims to islands in the South China Sea, an issue that has roiled relations between China and its neighbors since the mid-1990s. In 2002, China and its neighbors in the Association of Southeast Asian Nations agreed to resolve the claims multilaterally, but China later insisted on dealing bilaterally with each neighbor. China’s foreign minister argued at the time, “China is a big country and other countries are small countries, and that’s just a fact.”
While I acknowledge Gordon's Sinophobia in particular, is TPP expansion really a trade counterbalance to China in the region? In previous discussions, I certainly got the feeling that all APEC members were being welcomed to maximize America's bang for the buck in promoting its very expansion. Why is Gordon keen on antagonizing China where US previous efforts regarding TPP do not?

At any rate, the APEC leaders' meetings over the weekend will tell us more about the state of TPP. There already are signs that Japan may not be anxious to be involved as evidenced by its recent delay of an announcement to join TPP negotiations:
Japanese Prime Minister Yoshihiko Noda abruptly postponed a news conference Thursday at which he had been expected to announce that his government will join negotiations on a trans-Pacific free trade pact.

Japanese news reports say the prime minister planned to announce the decision to the Japanese people Thursday and personally notify U.S. President Barack Obama when the two meet in Hawaii on Saturday. But officials announced late Thursday that the Tokyo press conference has been pushed back to Friday.

Participation in the talks is highly controversial in Japan, where thousands of farmers and fishermen marched late last week to oppose membership in the Trans-Pacific Partnership . Politically powerful rice farmers, who have been excluded from previous Japanese free trade deals, are adamantly opposed.
Watch this space.

Decline's Bright Side: BRICs Tourists Do America

♠ Posted by Emmanuel in ,, at 11/09/2011 12:36:00 PM
If there's any consolation to going down the plumbing system of economic history, it's probably this: Chinese and Brazilian tourists are taking advantage of their strengthening currencies to go on shopping binges in America--where goods are admittedly still among the cheapest in the world. They're also seeing the sights while they're at it:
The U.S. is struggling to keep up with surging demand for visas in China and Brazil, as the growing middle class in the world’s two biggest emerging markets flock to American shopping malls and tourist meccas.

The U.S. plans to boost by 100 people this year its staff dedicated to processing visas in the two countries after it issued 35 percent more travel permits in China this year and 44 percent more in Brazil, Ed Ramotowski, managing director for U.S. visas, said in a conference call with reporters yesterday.

“It’s a function of the robust economy in Brazil,” Donald Jacobson, who oversees visa operations at the U.S. Embassy in Brasilia, said in the same conference call. “Their currency is very strong against the dollar and Brazilians are coming to America to visit Disney World and do lots of shopping.”

To promote job growth and welcome more visitors from the increasingly affluent countries, the U.S. hopes it can handle up to 4 million visa applications in the two countries by 2013, more than double the current amount, Ramotowski said. Together the two countries accounted for about 1.8 million of the 7.5 million visas issued last year.
Ooh, the irony. Consider: (1) America's bad habit of relying too much on consumer spending to fuel growth in recent decades may now have put into place an infrastructure for accommodating tourists visiting the US in its sunset years before its hegemony passes into The Great Strip Mall in the Sky. Also, (2) with any number of consumer goods now Made in China, the Chinese may in more than a few instances be buying products made at home that have become relatively more affordable Stateside due to dollar devaluation.

You're 'Developed'? Italian vs LDC Bond Yields

♠ Posted by Emmanuel in ,, at 11/08/2011 12:59:00 PM
Ah Italy, G7 member country and the land of bunga bunga parties (but until when?) With Italian bond yield spreads over German Bunds now in orbit somewhere above Brussels and Strasbourg, I came across an interesting chart from Trading Economics that compares 10-year bond yields of a number of developed and developing nations. From this (abridged) list alone we see that Singapore (kinda obviously), Thailand, China, Malaysia, South Korea, Brazil, Russia, Mexico, Indonesia are able to borrow at cheaper rates for debts due in a decade than Italy's 6.59%--or fellow EMU members Ireland, Portugal or Greece for that matter. Moseying over to the ADB bond site, we too should add the Philippines to this list. Why is this important? After doing so, we find that all five original ASEAN members (Indonesia, Malaysia, the Philippines, Singapore and Thailand) now have lower 10 year borrowing costs than an erstwhile G7 stalwart undergoing difficult times.

As it so happens, pop financial writer Michael Lewis has a book just out entitled Boomerang: Travels in the New Third World that features him embarking on journeys to recent crisis-hit Western countries alike Iceland (chapter title "Wall Street On the Tundra"), Greece ("And They Invented Math?") and Ireland("'s Original Sin"). While his characterization of each new third world country's failings may border on the simplistic, he does hint at a wider question that I increasingly find harder and harder to answer: Does it still make sense to divide this world of ours into developed and developing countries or first and second or third world ones?

Remember, it was not so long ago during the Asian financial crisis that the likes of Thailand, South Korea, and Indonesia mentioned above had their own catastrophic run-ins with financial contagion. Being a charitable sort to those willing to atone for past misdeeds, I mention all this not out of schadenfreude but out of a wish that these peripheral European economies recover just as quickly.

Here's my parting thought for you: Why is the world's foremost regional grouping headed by someone from a nation whose borrowing costs are definitely third world (Portugal's Jose-Manuel Barroso) and its central bank by, well, someone from Italy circa the end of 2011 (Mario Draghi)?

As you ponder that, the development divide blurs more when it comes to borrowing costs.

CSR: Milton Friedman Would OK Both Jobs & Gates

♠ Posted by Emmanuel in at 11/03/2011 05:21:00 PM
There's a much-read article taken from Harvard Business Review by Maxwell Vessel circulating on the Businessweek website. He argues that while the late, great Apple chief Steve Jobs and his Microsoft counterpart were both admirable business leaders, Bill Gates deserves to be idolized more for his subsequent philanthropic work after leaving day-to-day operations at MS:
As much as I love Apple, Inc, I would happily give up my iPhone to put food on the plates of starving children. Steve Jobs turned his company into a decade long leader in the truly new space of mobile computing. Bill Gates decided to eliminate malaria. Who do you think we should be putting up on a pedestal for our children to emulate?
To those familiar with the CSR literature, there is a false argument in place here that is exacerbated by the quotation above. Let me explain. Even the arch-critic of CSR Milton Friedman did not disapprove of do-gooding. Rather, he thought that devoting time and effort to worthwhile causes should be separate from the regular business of doing business:
[H]ow much cost is he justi­fied in imposing on his stockholders, customers and employees for this social purpose? What is his appropriate share and what is the appropri­ate share of others?

And, whether he wants to or not, can he get away with spending his stockholders', cus­tomers' or employees' money? Will not the stockholders fire him? (Either the present ones or those who take over when his actions in the name of social responsibility have re­duced the corporation's profits and the price of its stock.) His customers and his employees can desert him for other producers and em­ployers less scrupulous in exercising their so­cial responsibilities.
The important thing to remember, dear readers, is that neither Steve Jobs' Apple nor Bill Gates' Microsoft for that matter have devoted the bulk of their companies' activities to social causes per se. activity. While both Apple and Microsoft do conduct CSR-related activities--supplier audits for labour and environmental standards, for instance--that is pretty much par for the course among their peers. The purpose is primarily defensive in avoiding Nike-and-sweatshops-like entanglements.

Rather, what does set Bill Gates apart is that he devoted his post-Microsoft work to funding socially beneficial initiatives alike coming to terms with HIV/AIDS, tuberculosis and malaria. In a Friedman-friendly way, he did not plow Microsoft's retained earnings into philanthropic ventures. They instead conducted using his own funds (along with those of other fellow billionaires, it should be added) and on his own time. Here's Friedman again:
Of course, the corporate executive is also a person in his own right. As a person, he may have many other responsibilities that he rec­ognizes or assumes voluntarily–to his family, his conscience, his feelings of charity, his church, his clubs, his city, his country. He may feel impelled by these responsibilities to de­vote part of his income to causes he regards as worthy, to refuse to work for particular corporations, even to leave his job, for example, to join his country's armed forces.

If we wish, we may refer to some of these responsibilities as "social responsibilities." But in these respects he is acting as a principal, not an agent; he is spending his own money or time or energy, not the money of his employers or the time or energy he has contracted to devote to their purposes. If these are "social responsibili­ties," they are the social responsibilities of in­dividuals, not of business.
In essence, Milton Friedman would have approved of both Steve Jobs and Bill Gates. Yes, Microsoft's stock has not done as spectacularly well as Apple's in recent years, but hey, it's not as if Gates still runs the show there. Returning to the first quote above from the article's author, it is thus far-fetched to assume that buying Microsoft products instead of iDevices will better serve the cause of saving the world. Again, separate MS (the company) from Bill Gates (the philanthropist). In Friedman's terms, investing in Apple stock should even prove to be the more humanitarian action insofar as it would provide a socially responsible citizen with more capital to do good deeds--hopefully as a principal and not just as an agent.

Will a US Tax Holiday Boost US Interest Rates?

♠ Posted by Emmanuel in , at 11/03/2011 10:11:00 AM
There's an interesting video clip over at Reuters Breakingviews on how measly yields on interest-bearing instruments may increase Stateside in the aftermath of the declaration of a tax holiday. Designed to repatriate profits that US multinationals hold abroad by offering concessions on the statutory 35% tax rate to, say, 5.25% (which most corporations dodge anyway--witness those allegedly paying no taxes despite being profitable), the seemingly unrelated and surprising result may be higher yields.

In a nutshell, the argument is that firms which hold a collective $1.4 trillion or so overseas would have to liquidate their existing US Treasury holdings to bring home their foreign income. While I do have doubts about (a) the amount of Treasury holdings firms have and (b) the need to sell such holdings to effectuate repatriation, the video clip presents some thought-provoking ideas.

There's also talk of tax holiday "Dutch disease" insofar as benefits from additional government revenue may be blunted by a stronger dollar from these inflows hurting exports according to the Congressional Report Service.

Either way--the tax holiday's normative implications aside--there are interesting economic implications that may mitigate the revenue-enhancing argument for such an act.

11/4 UPDATE: Here is the text from Reuters Breakingviews if you're unable to access the clip above. Their reasoning involves MNCs having substantial holdings overseas kept not in cash but in nearly as liquid US Treasuries:
Another snag exists: much of the money is invested in Treasuries. The side effects of companies dumping all that paper need to be factored into the equation. Most of the overseas money is on the balance sheets of blue-chip pharmaceutical, technology and consumer goods companies with significant foreign sales and profits.

They include Pfizer, Microsoft, Cisco Systems and Procter & Gamble. Bringing the money home would mean paying taxes, so companies are hoping for a break from the current 35 percent top rate. Microsoft, for example, has $56 billion of cash on its books, $51 billion of which is outside the United States and almost entirely invested in Treasuries.

Securities filings suggest this is typical of multinationals. Investing in United States government bonds mitigates currency fluctuations, carries very little risk and keeps holdings liquid.

Business "B-20": Screw the $, Internationalize RMB

♠ Posted by Emmanuel in ,, at 11/02/2011 04:07:00 PM
Darn, just when you thought the states-and-markets IPE literature was becoming increasingly stale comes this news. But first, did you know that there's now a "B-20" parallel to the "G-20" composed of 200 major companies from G-20 countries? I suppose that firms desire a larger stake in the current global governance picture. So, just as the World Economic Forum spawned a concurrent alter-globalization doppelgänger (of sorts) in the World Social Forum, we now have a B-20 convening alongside the upcoming G-20 summit in Cannes, France.

There will of course be less of The Beautiful People in Cannes this time around, and a heckuva lot more of The Angry People. What we may have in a few days is not the Cannes Film Festival but the Cannes Rioter Festival. All the same, businesses the world over have a new gripe that may be unexpected to some. You would think that having the dollar as the world's reserve vehicle currency is generally desirable especially among MNCs that would prefer to deal less with foreign exchange losses and uncertainty over the same. But wait, the answer is a big, bold NO. All this Yankee helicopter dropping is prompting the B-20--which includes several American firms, no less--to call for the further internationalization of a currency of the future and not of the past with an appreciating and not a depreciating bias in the Chinese renminbi.

The Wall Street Journal covers this clamour for real money:
Business leaders meeting alongside the Group of 20 industrial and developing nations summit in France on Wednesday endorsed a move toward a "multipolar" global currency system, with a greater role for the Chinese yuan. But they also called on China to allow full convertibility and greater flexibility for the yuan, saying such a move would be in China's own interest.

The B-20, a group of dozens of top executives from firms around the world, made the recommendations in a report released one day before the start of two-day G-20 summit in Cannes, France. "The current U.S. dollar-dominated system amplifies the risks of the global economy," the group said in a statement. A multi-polar currency system, it said, would reduce uncertainties and transaction costs for companies, "and would lead to a more balanced global economy."

"In a multi-polar system, the dollar and the euro should be followed by the Chinese yuan and other emerging market currencies," the report said. At the same time, a fully convertible yuan would facilitate global trade and investment with China, and "is necessary to enhance the international importance of the nation's currency."

China maintains a broad range of controls on the currency, limiting its convertibility for investment-related transactions on the capital account. Analysts say the country is likely to move gradually towards greater convertibility over the next five years, but Chinese officials haven't given a specific timeline for reaching full convertibility...

The B-20 was assembled by the Mouvement des Entreprises de France, an association of French employers, with assistance by the World Economic Forum and the International Chamber of Commerce.
Fairly mainstream research indicates that more financial crises are occurring in the post-Bretton Woods era (1973 and onwards) than during the Bretton Woods era of the dollar-gold standard. When one country has a practically unlimited ability to abuse the international monetary system, you end up with...well, the world economy circa 2011. To paraphrase Winston Churchill, Americans will %^&* it up if the world has exhausted all other alternatives and the US is left to its devices. As portfolio theory suggests, the impacts of shocks is mitigated if folks collectively hold less of the same sort of thing.

In an increasingly multipolar world where economic activity is less concentrated in Western metropoles, it makes more sense if we had another vehicle currency (or two). Although China is understandably cautious in making the RMB take up that role given the lasting success of its current growth model, it admits that capital account openness and currency convertibility are among its medium- to long-term goals. It's just good to know that even the movers and shakers of the world economy back the idea of such an eventuality. Don't forget who called for and eventually got the creation of the World Trade Organization. When big firms move in unison, they have tremendous political clout.

Being all for a multipolar, superpowerless world--not simply another unipolar one with China in charge, for instance--I fully endorse this idea. Take that, America #1 cheerleaders--the business community is fully fed up with your dollar detritus.

UPDATE: Searching around a bit, I found the lengthier earlier version of the document ultimately given to Sarkozy. Among the signatories are many heads of MNCs; indeed, including several American ones. If anything else, the version described above is even more downcast on the dollar. On p. 51 are the bits concerning the "key policy message" about reserve currency arrangements...

On the other hand, there is a broader debate about the gradual shift of the global monetary system from a dollar-based system towards a multi-currency monetary system...

As regards the latter, the development of the reserve currency regime will ultimately depend on the choices of economic actors and thus be the result of a market-led (and presumably lengthy) process[:]
  • A global monetary system in which the role of the reserve currency is based more broadly than is the case in the present system is a logical corollary of the shifts in the economic weight amongst national economies. It also reflects a geographically more balanced structure of trade, production and investment at the regional level which creates incentives for countries to re-balance their currency reserves in light of these interlinkages.
  • A multi-polar reserve currency regime will be possible only if financial markets in those currencies currently used less become deeper and more liquid. Hence, the development of financial markets (indeed, in some cases the transition to full convertibility) will be a pre-condition for this process. Indeed, we would note that the share of the USD in international currency reserves has already started to decline; this, in our view, is a reflection of the greater attractiveness of non-dollar capital markets.
  • Compared to the dollar-standard, the transition towards as well as the existence of a multi-polar currency regime can, theoretically, be marked by greater instability, as major shifts in reserve currency allocation – and ensuing capital flows – can occur. Consequently, in a multi-polar currency regime, predictability, sustainability and transparency of economic policies by reserve currency countries (areas) become even more important.