Posts of April 2011

Anti-Globalization Protesters Outlast Royals, Too

♠ Posted by Emmanuel in Anti-Globalization at 4/29/2011 09:00:00 PM

I am sure that had they been on the parade route of a Middle East royal wedding, they'd have met a grislier fate: anti-war, anti-globalization protester Brian Haw and friends have been in the vicinity of Parliament Square--right across the Parliament building--since 2001. Afghanistan, Iraq, Libya...Blair, Brown, Cameron...wars and prime ministers have come and gone, but these folks remain a literally immovable fixture of the British political landscape. They even have a fairly elaborate website if you're curious.

My favourite placard obviously remains "CAPITALISM ISN'T WORKING." Despite being a rather unpleasant eyesore at first, at least some Londoners may have come to view the so-called Peace Camp as a tourist attraction in its own right. Although Parliament Square was fenced out a few months ago, Brian Haw and a number of his hardcore holdout Peace Camp buddies remain on its perimeter. And so it has proven that their lasting power is again validated as today, as billions of persons around the world focussed their eyes on Central London, they remained in its midst. This despite the best efforts of Tory PM Cameron, Home Secretary Teresa May, and Mayor Boris Johnson to eject them prior to the wedding:

Prince William and Kate Middleton will be driven past anti-war campaigners and rag-bag of other protestors on Parliament Square after a failure by the combined might of David Cameron, Boris Johnson, Theresa May and Westminster City Council to get them moved in time for the royal wedding. The unsightly collection of placards, sheds and tents will remain in place on the day of the royal wedding, yards from the entrance to Westminster Abbey. The cars carrying the bride and groom will pass alongside Parliament Square on the way to the Abbey.

The Prime Minister and the Mayor of London have both made it clear in the weeks and months leading up to today’s event, which will be beamed to millions around the world, that the so-called “peace camp” would be dismantled. Mrs May created a specific amendment in the Police Reform Bill to deal with the protestors but that has still to become law. Westminster City Council is hopeful that legal action next month will result in the protestors' removal, but it will be too late to stop the environment around the Abbey being disfigured by the signs and daubed slogans.

While you may not agree with their message in its entirety, you have to admire the persistence of this ragtag bunch. Neither the passage of a decade nor the combined might of the British political establishment has dislodged them. In a way, they are as British as the royal wedding as their dogged persistence demonstrates the fabled "stiff upper lip."

UPDATE: Brian Haw and the rest claim they were harassed some more today ("Day 3618") for good measure; the pictures of them along the parade route say a lot nonetheless. Watching the footage, the BBC cuts out as soon as Wills & Kate's carriage reach Parliament Square [!] I wonder why. Brian Haw gets the last hee-haw.

BRICs Poised to Benefit London More Than NY?

♠ Posted by Emmanuel in Europe at 4/28/2011 12:03:00 AM

So says the man who coined the term "BRICs," Jim O'Neill. Time differences mean that the more centrally located London bridges trading hours among the emerging centres of Asia, obviously those of Europe, and America later in the day:

If it were just football and London house prices, I could see the benefits as more questionable, but it extends much further. I have often thought that if New York were to have the same time zone as us, modern life for London could be so different. The five hours' difference means New York is an awkward time for Beijing, Shanghai, Delhi, Mumbai and Moscow [BRICs capitals and financial centres].

Of the four Bric countries, only Brazil works on a vaguely similar time zone. For international business of all shapes and varieties, London is perfectly placed. Centre of the world's time zones, well connected through technology and of course, our language the modern choice for communicating. For my business, international financial services, it is perfect. Despite the concerns about UK government policies towards banks, as well as a rolling back of tax benefits to non-domicile residents, London is highly attractive for international finance.

On London house prices benefiting from BRICs, see a previous post of mine on why London residential real estate is more robust than in New York.

More Research on Remittances from the US

♠ Posted by Emmanuel in Latin America,Migration at 4/27/2011 12:01:00 AM

Despite its obviously more limited prospects for international workers at the current time, the United States remains the world's largest source of workers' remittances--especially to nearby Latin America. It is thus with no small interest that I've been flipping through this new Congressional Budget Office report Migrants' Remittances and Related Economic Flows. For those of you interested in migration in general or are into area studies, this should be worth a look.

What follows is the summary, though the rest is well worth reading if the subject matter catches your fancy:

Migrants to the United States often send money to people in their home country or take it with them when they return home. Those transfers can involve sending money through banks or other institutions to family members or others in the home country, making financial investments in the home country, or returning to the home country while retaining bank accounts or claims on other financial assets in the United States. All three types of actions are similar in their economic effects, even though only transfers of money through banks and other financial institutions to foreign individuals are commonly thought of as migrants' remittances.

As one of the most important destinations of global migration, the United States is the largest national source of remittances. The opportunity to send or bring remittances home is one of the important motivations for migration, and policies that affect migration to the United States could affect outflows of remittances. In turn, the flow of remittances can affect economic growth, labor markets, poverty rates, and future migration rates in the United States as well as in recipient countries.

This document updates and expands upon the Congressional Budget Office's previous analysis of remittances—Remittances: International Payments by Migrants (May 2005)—and presents data through 2009. The new presentation provides a better view of people's total transfers of money between the United States and other countries but, because of changes in the way the data are collected and reported, does not provide as much information as was previously available on the portion of those transfers that is attributable to migrants. (See "Notes and Definitions" at the beginning of the full document for a summary of terminology and the appendix for a discussion of recent changes in the classification of remittances.) The existing data on global remittances and related economic flows are not of very high quality, and the comparisons and trends reported here should be viewed only as approximations.

A constant theme among reports of this kind is that "data on migration and remittances are patchy." You would hope that nations can get together and figure out better ways to track movements of persons and their monies as globalization continues apace.

Singapore Gets on the RMB Trading Bandwagon

♠ Posted by Emmanuel in China,Hegemony,Southeast Asia at 4/26/2011 12:07:00 AM

In case you missed it, here is more news of the internationalization of the yuan. Singapore and Hong Kong usually duke it out for bragging rights as the financial centre of East Asia. For some time now, the Hong Kong Monetary Authority has experimented with facilitating trade settlement with the Chinese yuan--a first step in making it a more widely used vehicle currency in the region. In the longer time frame which China looks at things unlike shortsighted Americans, first the region then the world. It's a different perspective when you're on the way up instead of the way down.

Being ever so hip to the times, the Singaporeans have gotten on the RMB bandwagon as well. While Hong Kong will still retain advantages dealing in renminbi--it is an erstwhile part of China, after all--it is wary of being left behind. That said, Singapore like Hong Kong possesses the requisite financial know-how, market liquidity, and trading outpost status to make it worthwhile for the (mainland) Chinese to extend RMB trading to. From Reuters:

Beijing's desire to redenominate more of its trade into yuan is giving rise to a new offshore centre in Singapore, but don't expect the same breakneck speed of growth there as in Hong Kong. Many of the commodities that trade in Singapore are the stuff that China needs, though Singapore's trade volumes with China make up only 2 percent of the mainland's total trade, compared with 8 percent in Hong Kong.

Even given Singapore's status as a redistribution center for Southeast Asia and even Western markets, the trade volumes are smaller than Hong Kong. That makes it less likely the city state will see a big spike in renminbi-denominated trade settlement, as Hong Kong saw last year, if China indeed chooses a clearing bank for Singapore's yuan trade.

Then there is the issue of liquidity. Singapore does not disclose official figures on yuan deposits, though the amount is probably a fraction of the roughly 408 billion yuan in Hong Kong's banking system. The market cap of Chinese companies listed in Hong Kong after all is 20 times Singapore's.

All that is not to say Singapore's offshore yuan market would not be successful. Having a clearing bank would accelerate the growth for Singapore's yuan deposits, which on an average earn less than in Hong Kong because of the People's Bank of China backstop line and as the city state's banks have to clear any outstanding yuan deals with Hong Kong, earning lower income in the bargain.

Plus, the city state's big lenders including the likes of DBS [Development Bank of Singapore] and funds like Income Partners and Barclays Capital Fund Solutions already offer renminbi products to customers, forming a launching pad of sorts for an offshore market, albeit a mini version of Hong Kong's.

"As an analogy, if RMB is the product, then China should be regarded as the factory, Hong Kong as the main wholesale market and Singapore something of a retail outlet," Deutsche Bank said in a note [my emphasis].

What is effectively being enabled is access to RMB in Singapore itself for trade settlement without having to course transactions through financial institutions situated either in Hong Kong or the mainland. It is, to be sure, still a more limited system than what Hong Kong has in place since Singapore's availability of RMB is contingent on outside authorities' discretion [read: Chinese capital controls]. Still, it's a significant step in internationalizing the yuan's role as a vehicle currency--especially for Southeast Asia's financial heart.

Here's hoping these experiments work, demonstrating to the PRC that making the yuan more freely traded brings benefits to its issuer. From such experiments flow bigger things desirable in remedying global financial imbalances. The end point, of course, would be making the RMB an openly traded currency on world markets--for all that implies to Chinese capital flows. Full convertibility is not an unrealistic long-term possibility.

Remember, 7% of all trade with China is reportedly now being invoiced in RMB from virtually none two years ago. At such a rate...well, you can extrapolate the endgame. I hope I live to see the day when the Chinese tell the Americans to pay them in RMB after getting fed up with never-ending dollar decimation. That will be the day that the world is freed from dollar hegemony. Maybe we should make it a global holiday ;-)

UPDATE: The FT has a neat story on the Hong Kong v Singapore rivalry.

London Wants to Get on the RMB Trading Bandwagon

♠ Posted by Emmanuel in China,Europe,Hegemony at 4/26/2011 12:01:00 AM

To accompany today's other blog feature, may I just point out that it's not only the Asian crowd that wants to get on the RMB bandwagon. It may be confusing to my international readers, but to repeat, the Lord Mayor of London (Michael Bear) is different from the Mayor of London (Boris Johnson). The former represents merely the City of London where the financial services industry is concentrated, while the latter represents the much larger Greater London Authority. Moreover, the latter post was only created in the year 2000--the first directly elected mayor in the UK.

Unsurprisingly, one of the Lord Mayor of London's tasks is to represent the interests of the financial services industry. And what better cause is there than to make trading in the currency of the future available right here in old Europe? There's already a City of London Advisory Council for China to help promote this effort. From Dow Jones:

Mayor of the City of London Alderman Michael Bear said the city wants to be an offshore yuan center to take advantage of the internationalization of the currency, state-run Xinhua News Agency reported Wednesday. 'The yuan will become a meaningful component of international trade and even become an important reserve currency,' Bear said.

'Developing several offshore trading centers can help to enlarge the yuan market, with Hong Kong playing the role of pioneer. Singapore and New York also have opportunities to join the offshore yuan market. We hope and have confidence that London will join the market as soon as possible,' Bear was quoted as saying. Bear was on a business trip in Shanghai seeking to boost cooperation between the two cities in areas including financial services, shipping and education.

If and when London begins offering RMB for trade settlement, three of the four most cosmopolitan financial centres--London, Singapore, and Hong Kong--will be on board the RMB bandwagon. Whether out of pride or shortsightedness--I think it's a combination of both--the Americans aren't yet launching charm offensives aimed at a similar goal of obtaining the 21st century's currency. As if you needed any more reason to short America, short the dollar, and for the purposes of this article--short New York. It's a rapidly diminishing financial centre for a has-been nation that needs to begin sucking up to those who wear the pants in today's world economy.

Ditch typical American human rights BS and get your *ss in Shanghai pronto, Bloomberg!

Trouble Among BRICs: Brazil v PRC Imports, Pt 2

♠ Posted by Emmanuel in China,Latin America at 4/25/2011 12:06:00 AM

Here's another angle on the incipient troubles of one major emerging economy dealing with imports from another in the traditional domain of more labour-intensive manufacturing. A few weeks ago, I dubbed the importation of cheap Chinese garments in Brazil--land of the famously skimpy swimwear--the "bikini wars" in honour of China's previous entanglement with the EU known as the "bra wars."

As it turns out, the story is a bit more complex. In an odd rerun of the so-called "Wal-Mart effect" wherein Chinese imports by the leviathan US retailer are attributed to keeping inflation in check Stateside over the past few decades, we have similar dynamics in Brazil at present. As commodity prices spiral upwards, affecting food, energy, and so forth, Brazilian authorities have been of two minds about Chinese imports. On one hand, Brazilian retailers and certain other firms keep on lowering manufacturing input costs are welcoming the influx of Chinese goods to keep costs down. For instance, Casas Bahia is an important retailer of furnishings and housewares in Brazil that has pioneered selling on an instalment basis to less well-off segments who would otherwise be unable to purchase these goods given that consumer credit is scarcely available to them. However, it is raising more than one eyebrow in that, alike Wal-Mart, most of its goods come from China.

On the other hand, Brazilian finished goods manufacturers are crying foul over the usual things--cheap Chinese labour, an undervalued currency, etc:

Cheap imports from Asia help to reduce the price of household goods but they are also accused of undermining domestic manufacturers. The government is being forced to choose between local industry and protecting the poor from inflation. “Imports have a deflationary impact; they act as a brake on rising prices,” said Hugo Bethlem, vice-president of Pão de Açúcar, Brazil’s biggest retailer.

Fuelled by rapid credit growth in the lead-up to last year’s presidential election, Brazil’s economy expanded 7.5 per cent in 2010. The government is forecasting that it will grow about 4.5 per cent this year, but the slowdown has not been enough to reduce the overheating in the economy.

Economists expect inflation to breach the central bank’s target level this month and to peak in August at about 7 per cent. Meanwhile, the central bank has responded by raising interest rates – it was expected to increase the benchmark Selic rate of 11.75 per cent late on Wednesday by another 25-50 basis points.

But Brazil’s interest rates are already the highest of any large economy. Further increases are only attracting more hot money inflows from abroad, worsening what Brazil calls the “currency war”, the steady appreciation of its currency, the real, against the US dollar. In recent weeks, the real has appreciated from a level of about R$1.65 against the dollar to between R$1.55 and R$1.60.

To augment the interest rates increases, the government is implementing capital controls that seek to dampen consumer credit growth – one of the sources of overheating in the economy. It is also introducing taxes that aim to discourage companies from borrowing dollars abroad at low interest rates and then repatriating the proceeds to Brazil, a trend that is strengthening the real.

It's now little wonder why Brazil has been most critical of the BRICs on IMF efforts to prescribe guidelines on capital controls...when their own folks are inundating them with speculative inflows! The speculative element of (presumably unhedged) foreign borrowing is interesting. The Asian financial crisis famously exposed Southeast Asian borrowers who thought going abroad to borrow in yen and other low-interest rate currencies was a smart thing--until their currencies faced massive devaluation, that is. Now we have nearly the opposite situation: the real is more likely than not to appreciate given the tightening bias at home while the US remains a money-for-nothing enthusiast. Certainly, few are betting that the US will do better than Brazil in the near future. End result? Not only is it possible to save on interest expense, but also gain on anticipated BRY (Brazilian real) appreciation.

It looks like a one-way bet a the moment, increasing the local currency's strength in the process, as more and more take it. There's no easy way out for Brazilian officials, and I am not quite sure if Beijing will be sympathetic to Brazilian financial authorities despite both pretty much agreeing on the harmfulness of American free-money policies.

How to manage China? Well, slapping tariffs is being tried:

In the meantime, [Brazil] is trying to protect domestic manufacturers from the stronger real, which is leading to a flood of cheap imports, by raising tariffs, particularly on Chinese goods. Only a few days before [Brazilian President Dilma] Rousseff left on a five-day trip to China this month, Brazil slapped an anti-dumping tariff of $4.1 per kilogramme on Chinese-made synthetic fibres, in response to growing pressure from domestic industry lobby groups.

Make no mistake: in global currency war, it's not just rich versus poor countries, but poor versus poor countries as well (inter alia). It's not just a matter of LDCs appreciating their currencies vis-a-vis those of industrialized nations as some commentators believe it is--see and hear Martin Wolf at the LSE on this point--but of LDCs moving in lockstep to avoid South-South entanglements of this nature in the process. A Hobbesian currency war of all against all, then? That's how it stacks up for now as America has completely lost its bearings and its ability to stabilize the system.

QE2, Hand Westminister Abbey Back to Us Catholics

♠ Posted by Emmanuel in Religion at 4/22/2011 10:07:00 PM

[NOTE: This is the first of two royal wedding overload "specials" from your cranky correspondent. Blogging is not usually an activity for the well-adjusted.] A few days ago, I eagerly watched the BBC documentary "Does Christianity Have a Future?" which focused on the fate of various Christian churches here in the UK. To be sure, the statistics look fairly alarming as weekly attendance for the two major denominations, Anglicanism and Catholicism, has fallen steadily.

There is an important caveat, however: the Roman Catholic church has actually become the dominant religion in this here land by virtue of losing followers at a somewhat slower rate. Being Catholic, I am not quite sure of whether to be proud or wary of this fact. Immigration helps: an influx of God-fearing people--the Polish--has improved matters. Moreover, the Anglican church is busy self-destructing from my point of view with its "anything goes" approach to religion. While it has had gay and women priests for quite some time, the Anglican church ordaining female bishops was one step too far for many. Famously, the presenter of the documentary, Ann Widdecombe, converted to Catholicism in its wake. The UK Catholic Church also made a huge event out of three Anglican bishops--their wives in tow--being ordained as Catholic priests. Or so I kept being reminded while attending Westminster Cathedral where they were ordained--the mother church of Catholicism in the UK.

This roundabout discussion bring me to nearby Westminster Abbey. In a few days' time, you will unavoidably see snippets of the made-for-TV special known as the royal wedding between Prince William (Windsor) and Kate Middleton. However, as the abovementioned documentary asks, does the Anglican church still deserve to be the state religion of the United Kingdom given that it is not even the largest religion in the land--while Catholicism is?

I needn't dredge the history of the Anglican church--to facilitate the divorce of Henry VIII from Catherine of Aragon and all that--but I have a more contemporary chip on my shoulder. Like many things formerly the dominion of the Catholic faith, Westminster Abbey itself was decommissioned as such in 1536 (the same year Catherine of Aragon and Anne Boleyn met her grisly fate). So, let's just say that I have always viewed a church that got its start to facilitate a divorce as suspect. Add in its current self-destruct mode in which young people in the UK give it little notice and its failure to market itself in growth markets in the developing world and I wonder why it still receives official sanction.

Coming from an unwritten constitution tradition, I guess it's time the UK moved along with the times. While disestablishing the Anglican church may be a step too far for some nostalgic for days gone by, there is one thing I would like more than anything else to acknowledge the changing tide of religious presence in the country: Just as the Benedictine monks helped set up Westminster Abbey in the first place, so should their Catholic forebears take over the running of this UNESCO World Heritage Site. It's only fitting. Face it: the revenge of popery is at hand as it supplants whatever remains of Anglicanism.

Indeed, with its financial sustainability in question, Anglicanism is further in doubt. There are few to pack the pews with an ever-greying demographic of parishioners being the norm across most of the country. Rather (in)famously), there's also the matter of Anglican bishops serving in the House of Lords, making the UK the only country other than Iran to require the presence clerics in the legislature. Prospects for much-ballyhooed Anglican-Catholic reunification are remote, so it's time some notion of popular legitimacy manifested itself in the UK when it comes to religious observance.

Westminster Abbey should thus reflect the reconquista. Some churches are becoming extinct at a faster than others. Give the Catholic church its due for its ostensibly superior performance in saving British souls. Our marketing programme has proven its worth even in an increasingly secular age. Witness Pope Benedict XVII's rapturous, sold-out reception among other things. Given us back Westminster Abbey. And if the Anglicans want to stage made-for-TV events every so often featuring balding guys getting hitched, well, I have no problems with that ;-)

UPDATE: There's also an interesting discussion of the pillaging of monasteries by Henry VIII right about 1536. More fuel for righting historical grievances, I say.

Shorting America: $ Swoon Chronicles, 2011 Edn

♠ Posted by Emmanuel in Cheneynomics,Currencies at 4/21/2011 08:29:00 PM

[NOTE: It's time for rubbish collection again, and today's point of collection is familiar to all.] I am rather incredulous about others' fixation on the minimal movement on Treasury yields since S&P dropped its credit warning on the unsuspecting American public. First, it's early days--other agencies have yet to follow. Second, it's only a warning, not an actual downgrade. So, there's plenty to, well, look forward to if your interested in obtaining a (marginally) more honest picture of American fiscal decrepitude, moral turpitude towards the global economy, and overall bad attitude. Then again, Americans famously have no idea of long-term outlook, so you shouldn't expect any better from its commentariat class.

In the meantime, fear not for general sentiment towards the US dollar is falling hard pretty much across the board: against currencies of developing countries and developed countries; commodities; and what else have you. Let's just say that, alike the credit warning, there are plentiful signs of folks losing faith in America. As you can see in the chart above, the dollar index spot (DXY) has hit a three-year low, while all-time lows are not far away last plumbed in 2008.

It's during these times--when dollar weakness threatens to turn into an outright dollar rout--when the Treasury Secretary usually starts taking about "strong dollar" policy. In reality, of course, he's more interested in seeing it devalue--but not become a runaway situation which dents whatever confidence remains in holding greenbacks--AKA American junk. From Reuters:

The dollar fell broadly for a third straight day on Thursday as record low interest rates and the crushing weight of the U.S. budget deficit pushed it closer to an all-time trough against major currencies. The dollar's slide accelerated days after Standard & Poor's slapped a negative outlook on the United States' top AAA credit rating. The agency said a downgrade was possible if authorities can't slash the massive U.S. budget deficit within two years. That prompted investors, from fund managers to foreign central banks that hold trillions of dollars in assets, to opt for anything but the U.S. currency.

"The combination of loose monetary policy and chaos on the fiscal front has people very worried," said Boris Schlossberg, head of research at GFT Forex in New York. "That fear is being reflected in the dollar." Mohamed El-Erian, co-chief investment officer of PIMCO, with $1.2 trillion in assets under management, said, "Absent problems elsewhere in the world, history and economics suggest that America's current fiscal and monetary policy stance will put continued pressures on the dollar."

The dollar index, a gauge of the greenback against six advanced country currencies, fell to 73.735 .DXY, its lowest level since August 2008. Analysts said that sets up a possible run toward its record low of 70.698 touched in March 2008.

People are losing faith in the common currency? You must be reading blogs populated with USA#1-style cheerleaders and other reality-challenged folks:

The euro soared to a 16-month high above $1.46 before easing to $1.4550 EUR=, while the dollar fell 0.8 percent to 81.82 yen JPY=. The Australian dollar rose above $1.07, its highest in nearly three decades, as Australia's 4.75 percent interest rate and its role as a supplier of raw materials to booming Asian markets attracted investors.

Some investors fear a fragile U.S. economic recovery could sputter if the White House and Congress agree to cut the deficit with significant spending cuts or tax hikes. That would likely force the Federal Reserve to hold interest rates at record lows even as other central banks raise them. "There is no clear sign that the U.S. is going to raise interest rates, and that is causing the dollar to depreciate by the day," said Jonathan Xiong, who helps manage about $30 billion at Mellon Capital Management in San Francisco...

Analysts said the euro was on course for a move toward $1.50 if the current momentum continues, despite the possibility of a Greek debt restructuring. Talk that China may invest in Spain had investors shrugging off worries for now about euro zone debt.

So the market is guessing America's woes are far worse than those of the Eurozone--and I use a non-fallacious indicator via their currencies. Factor in endless bouts of depreciation and extraordinarily low rates and investing in America is as raw a deal as you can get. If you're dumb enough to do so, well, you'll have no one to blame but yourself for the worst is yet to come--and few will argue about that.

Rumour: Carlos Slim, Rupert Murdoch Want F1

♠ Posted by Emmanuel in Latin America,Sports at 4/21/2011 12:05:00 AM

Ah, Bernie Ecclestone. The F1 impresario was mugged late last year outside his tony office in Knightsbridge, about twenty minutes from where I live. However, if the rumour proves to be correct--which I kind of doubt--he may now be falling into the clutches not of street thugs but of two of the world's wealthiest persons who are allegedly keen on the pinnacle of motorsports. Which, to be honest, is not quite an achievement given that probably its biggest competition is American NASCAR--a race series proudly featuring antique technologies alike carburettors {?!] Seen any production cars running on those recently? Like America itself, its racing series is a thing of the past.

So it's the silly season as financial news dries up this Holy Week. The latest rumour has it that Mexican multibillionaire Carlos Slim--the world's richest man and whose worth is currently pegged at an astronomical $74 billion--is teaming up with media mogul Rupert Murdoch (who isn't even on the Forbes Top 100 Rich List this year) to make an unsolicited bid for the commercial rights for Formula One. Call it a Latin habit: Just as Hugo Chavez has involved state enterprises in sponsoring Williams' Venezuelan driver Pastor Maldonaldo, Slim is sponsoring Sauber's Mexican driver Sergio Perez. (The above picture is of Sergio Perez and Carlos Slim Jr):

Formula One Chief Executive Officer Bernie Ecclestone said there are no plans to sell the car racing competition to media company News Corp. (NWSA) or Mexican billionaire Carlos Slim. News Corp., owner of cable-television channels including Speed, may make a bid with partners for motor racing’s most popular series, a person familiar with the matter said yesterday. Sky News, which is controlled by News Corp., reported the company had talked to Slim.

Formula One owner CVC Capital Partners Ltd., a London-based private equity company, recorded losses of $660 million last year on costs associated with a $2.5 billion loan the firm took out to pay for the 2005 acquisition of Formula One, according to accounts published for its Delta (3) U.K. Ltd. unit on April 6.

Despite private equity firms not exactly being known as long-term investors, Ecclestone pooh-poohs the alleged bid:

“CVC are not in the slightest bit interested in selling,” Ecclestone said in a telephone interview today. “A lot of people approach them but they are there for the long term.” Ecclestone helped set up the series, which hosts Grand Prix races from Monaco to Abu Dhabi. The sport has attracted wealthy team owners like U.K.-based billionaire Richard Branson and Indian liquor magnate Vijay Mallya. Car companies like Fiat SpA’s Ferrari group, Renault SA and Daimler AG’s Mercedes compete for the constructors’ championship.

Ecclestone, 80, has become a billionaire since setting up the sport. He said he knows Slim and News Corp. chairman Rupert Murdoch. “If they were interested for sure they would have called me and they haven’t,” he said. Yesterday, Julie Henderson, a spokeswoman for News Corp., declined to comment, as did Arturo Elias, a spokesman for Slim...

Ecclestone said that though CVC is committed to owning the series, he couldn’t rule out a sale if an “enormous” bid was tabled. “If someone was to come along with an enormous offer,a lot more than it were worth, then they have to look at it,” he said. “They have never talked about selling, though.”

Given the nasty walling-off habits of his enterprises--exclusive cable channels and pay-per-view on Sky on one hand and newspaper online paywalls (Wall Street Journal, Times of London, and even the tabloid News of the World) on the other--Murdoch has an uphill struggle if he thinks he can "privatize" the sport's viewer access. For, the infamously complex Concorde Agreement between Bernie Ecclestone's firm and the FIA stipulates that free-to-air is one of the preconditions for its maintenance. Free-to-air obviously maximizes the viewer audience of F1's sponsors, hence its commercial importance. In other words, Slim and Murdoch would have to rewrite the commercial agreement behind the sport even if the agreement is up for renegotiation soon:

One obstacle to a deal with News Corp, the co-owners of Sky, could be the existence in the Concorde Agreement of a clause specifying that transmission of the races must be available on free-to-air terrestrial television, a stipulation supported by major sponsors. That could be a subject for discussion in any redrafting of the next agreement, which has already been drawn up and is due to be signed in 2012. But Formula One already splits its television deals in Austria and Germany, where Sky share the rights with ORF and RTL, each of them transmitting the qualifying sessions and races simultaneously.

If there's one thing for sure, though, it's that the man who's run the show for years on and while growing the business tremendously will be richly rewarded whatever the outcome is since he knows the ins and outs of the business he has built:

Despite his advanced age, however, Ecclestone will be playing a long game, giving himself plenty of room for manoeuvre. His recent criticisms of Todt and of the new technical regulations scheduled for 2013 will be part of that game. Murdoch and Slim may well get whatever it is they are after. But, deal or no deal, Formula One's ringmaster will not be the loser.

And yes, this is a story of globalization pure and simple as a race series spanning several prosperous (or increasingly prosperous) countries is being fought over by a wizened Englishman against a purported combination of a wealthy Latin American seeking to join forces with the most recognizable media titan--an Australian--of our age. Heck, Ecclestone may decide to sell at the top given signs of declining attendance and potential troubles over connivance with authoritarian regimes alike that of Bahrain. Sometimes the smartest know when to just walk away.

UPDATE: To pile one rumour atop another, it's said that the Slim/Murdoch bid would need to gain approval from each of the 12 teams (in addition to the above proviso of broadcasting free-to-air wherever possible).

PM Cameron to Block Gordon Brown Heading IMF?

♠ Posted by Emmanuel in Credit Crisis,Europe,IMF,Neoliberalism at 4/20/2011 12:30:00 AM

The House has noticed the Prime Minister’s remarkable transformation in the last few weeks from Stalin to Mr Bean...Creating chaos out of order rather than order out of chaos - then-UK Shadow Chancellor Vince Cable on Gordon Brown in November 2007

Poor Gordon Brown. During the early years of New Labour, he was widely considered a master of public financial management. He famously coined the so-called golden rule of fiscal policy that over the economic cycle, the UK will borrow only to invest and not to fund current spending. In other words, net borrowing must be close to zero during an economic cycle. Of course, many pounced on this notion as problematic. How do you define an "economic cycle" being the most obvious question left unanswered.

The global financial crisis put paid to the golden rule rhetoric in a way that the later Blair years were already beginning to hint at. Tight-fisted control of the public purse? You must be joking. It's Brown's misfortune to come into office when a dramatic deterioration of public finances due to bailouts, eroded revenues, etc. began to take their toll. However, while Gordon Brown's reputation lies in tatters here in Britain, he may still be better received in Washington among the global financial elite. After once being mooted to be an IMF managing director, he still has not formally said "no" to the idea.

In the past day on the BBC's Today radio programme, current PM David Cameron was asked if he would endorse Gordon Brown as the next IMF managing director given that its current head, Domonique Strauss-Kahn (DSK), is widely believed to be heading home to France next year to be the Socialist Party's standard bearer against Nicolas Sarkozy.

I made a post sometime ago--Stupid European Tricks, I called it--on how this system works in Europe. Leaders here are often keen on allowing rivals from other parties to gain key posts in international institutions, thereby removing them from domestic politics. Think of Silvio "Bunga Bunga" Berlusconi allowing Romano Prodi to become the EU commissioner. Or, think of Nicolas Sarkozy encouraging the aforementioned DSK to become the IMF managing director.

Given that Gordon Brown is pretty much a spent force in the UK, we actually have PM Cameron discouraging the idea of Brown heading to Washington (not that he asked for it, but anyway.) With Brown more or less silent on the Westminster scene, there is no benefit for Cameron in giving a former rival a chance to rehabilitate his reputation elsewhere. Churlish? You decide. From the Evening Standard:

Gordon Brown's hopes of heading the International Monetary Fund were dealt a serious blow as David Cameron indicated he was ready to block his predecessor's appointment to the role. The Prime Minister said Mr Brown was not the "most appropriate person" to take over as managing director of the IMF because he failed to understand the dangers of excessive debt.

His intervention raised the prospect of a UK veto amid heightened speculation that Mr Brown is emerging as a leading contender to take over from Dominique Strauss-Kahn who is deciding whether to be the socialist candidate in the French presidential elections next year...

But, asked whether he would veto the move, Mr Cameron said: "I haven't spent a huge amount of time thinking about this but it does seem to me that, if you have someone who didn't think we had a debt problem in the UK when we self-evidently do have a debt problem, then they might not be the most appropriate person to work out whether other countries around the world have debt and deficit problems."

Encouragingly, Cameron is aware of the world economy's changing centre of gravity and says it's time we broke with the convention of choosing a European to head the IMF (and an American to do the same for the World Bank?):

Speaking on BBC Radio 4, the Prime Minister suggested that the IMF should look to "another part of the world" for its next leader in order to increase its global standing...If you think about the general principle, you've got the rise of India and China and South Asia, a shift in the world's focus, and it may well be the time for the IMF to start thinking about that shift in focus," he said.

"Above all what matters is: is the person running the IMF someone who understands the dangers of excessive debt, excessive deficit? And it really must be someone who gets that rather than someone who says that they don't see a problem."

To be sure, the Bretton Woods institutions have backed away from strict neoliberal strictures on fiscal prudence when the financial centres they came from went astray. Review IMF Chief Economist Olivier Blanchard when rich countries instead of poor countries ran into trouble during the global financial crisis. You know the excuses: their margin of error is higher, markets are more forgiving of them, their status as reserve currency issuing countries helps, the balance of risks today is different, etc.

So, in a post-crisis IMF, Brown's later American-style spending spree and implicit deficit denial may not be entirely out of place. Then again, how would you push the austerity message on others given his track record? At any rate, the FT avers that Brown is not even one of the top candidates for the predicted IMF job opening [1, 2] but a host of other European financial bigwigs. Christine Legarde? Too many French in international institutions IMHO.

It's too speculative for me at the moment, and I for one would fully endorse an LDC successor to DSK wholeheartedly. We can all hope, eh?

UPDATE: An audio clip of the interview is available from Auntie.

Easy to Tell if China or Japan US Ally After S&P

♠ Posted by Emmanuel in Cheneynomics,China,Japan at 4/20/2011 12:14:00 AM

Whose strategic interests are more aligned with those of the US, China or Japan? While the latter occasionally acts up such as after being asked to open its market to unsaleable US cars in the 90s, it knows when to toe the line. Geopolitically speaking, Japan relies on the US military to keep its own defence expenditures down and to sort out troublesome neighbours alike North Korea and, for that matter, China.

Speaking of which, China is more of a free agent willing to honour the principle of non-intervention to seek raw material and energy supplies where it pleases, Western human rights happy talk aside. In a more strictly financial sense, we see the contrast most clearly in the aftermath of S&P rightly putting the US on a negative outlook for its triple-A credit rating. Having had the experience of being banished from triple-A status itself, the Japanese should know.

What's more, Japan is wary of criticizing the US for obvious reasons given its own bloated public debt (but not so much of the foreign-sourced variety; more on this later). While Japan strives to preserve a system that saw itself rise on America's coattails in the postwar world economy, the Chinese are looking to chart a course of their own. Yes, it may take decades or centuries, but never let it be said that the Chinese don't plan ahead:

While Japan played down concerns about US creditworthiness after the decision, China’s foreign ministry on Tuesday urged Washington to protect investors in its debt. “We hope the US government will take responsible policies and measures to safeguard investors’ interests,” it said.

The Chinese government has repeatedly called on Washington not intentionally to debase its currency and to protect the interests of foreign investors in its bonds. China’s foreign reserves increased by $197bn in the first quarter to $3,050bn, exceeding the symbolic $3,000bn mark for the first time. The reserves are the world’s largest by far and although their exact composition is regarded as a state secret, about two-thirds are believed to be invested in US dollar assets.

According to US data, China held $1,154.1bn in US Treasuries at the end of February, making it the largest foreign holder of US debt ahead of Japan’s $890.3bn. The Federal Reserve is the largest overall holder of US Treasuries with $1,368bn on its books.

Senior Chinese officials, including Zhou Xiaochuan, central bank governor, have said that China needs to reduce its foreign exchange holdings and to improve and to diversify its reserves from any over-reliance on US dollar assets. However, the sheer size of China’s reserves means there are no other asset markets in the world large or liquid enough for China to stash its increasing cash pile.

$1 trillion in reserves was already unfathomable to me; $3 trillion is utterly incomprehensible. To be sure, the Chinese keep complaining about America's evident death wish on the dollar's value for all that implies on China's holdings. As I've said before, those fooled by the free-spending fool are the bigger fools. Still, China's willingness to berate the Americans is potentially another warning.

Or maybe not. On to $4 trillion in reserves!? Talk about subprime globalization. In any event, it's clear who owes more to whom among Asia's economic giants and is more willing to play by a set of rules from an increasingly bygone era.

Mideast Migrant Spillover II: UK; Italy v France

♠ Posted by Emmanuel in Development,Europe,Middle East,Migration at 4/18/2011 09:47:00 PM

On my walk home from work, I regularly pass by the statue of Bernard "Monty" Montgomery--a British war hero whose exploits in the desert sands made him famous. So, I just wanted to make a follow-up post on what I wrote on the "Pottery Barn" effect of European countries becoming involved (so there, I avoided using the word "intervention") in the Middle East / North Africa. We have two stories here. On a positive note, the land of Monty--Bernard Montgomery, 1st Viscount Montgomery of Alamein to be exact--appears to be returning to the desert in a big way. No, the UK isn't confronting Erwin Rommel's successor. Rather, it's supporting a ragtag army of rebels going up against the erstwhile Gadhafi regime. Given its involvement in the conflict, it's good the UK at least recognizes an obligation to evacuate the worst affected:

The UK is to help free 5,000 migrants trapped by fighting in western Libya, the UK's international development secretary has said. Andrew Mitchell said funds of £1.5m would pay to charter ships to get people out of the rebel-held town of Misrata and provide medical supplies. The minister is in New York attending a UN meeting to discuss the humanitarian situation in Libya.

Aid workers and Misrata residents have said the situation there is "dire". They have reported shortages of food, power, water and medicine, as forces loyal to Libyan leader Col Muammar Gaddafi intensify their shelling of the city. The BBC's Barbara Plett, reporting from the United Nations, said some of the most desperate were thousands of migrant workers from the Middle East, Africa and South Asia.

Mr Mitchell said Britain would help fund their evacuation in ships chartered by the International Organization for Migration. Further funds would go towards the International Medical Corps (IMC) to provide medical aid for those caught up in violence across western Libya, he added. The money comes from the department's humanitarian aid funds.

On a negative note, however, Italy's plan to let the migrant overflow from MENA go to neighbouring EU countries has not gone down well with the others to no one's real surprise. Given that France's desert involvement exceeds that of Italy, it's highly questionable why France tries to wall itself off from refugees coming from Italy. Let's first recount France's resurrection of borders in the post-EU age:

The migration wave unleashed by North African unrest has prompted France to resurrect its border with Italy—a barrier that was supposedly consigned to history's dustbin with Europe's unified economy.

A couple of miles from the beach town of Ventimiglia, nestled along the Italian Riviera, French police have restaffed a formerly abandoned checkpoint along the country's Mediterranean border with Italy. In the nearby French town of Menton, French police in riot gear board trains crossing into France, grilling passengers while other police forces are monitoring roads and foot trails that lead into French territory from Italy.

The operation is part of France's attempt to stop a wave of North African migrants who, having fled violence back home, regard Italy as a way station as they travel by boat, train and foot toward jobs and family in French cities. More than 700 migrants who have crossed into French territory via Italy have been detained by French police and escorted back, Italian officials said.

More recently, the Italians have lodged a diplomatic protest against the French over the matter. Towards a common EU migration policy? You must be joking:

A train carrying Tunisian immigrants from Italy was halted at the French border Sunday in an escalation of an international dispute over the fate of North African migrants fleeing political unrest for refuge in Europe. But France blamed what it said were hundreds of activists on the train planning a demonstration in France, and posing a problem to public order. Traffic was re-established by evening - but not before Italy lodged a formal protest.

“At no time was there a ... closing of the border between France and Italy,” French Interior Ministry spokesman Pierre-Henri Brandet said. It was an “isolated problem,” he said by telephone, “an undeclared demonstration. He estimated that up to 10 trains may have been affected, five on each side...

Italy has been giving temporary residence permits to many of the roughly 26,000 Tunisians who have gone to Italy to escape unrest in northern Africa in recent weeks. Many of the Tunisians have family ties or friends in France, the country’s former colonial ruler, and the Italian government says the permits should allow the Tunisians to go there under accords allowing visa-free travel among many European countries.

Dreams of a borderless Europe are fading as the French have come up with this excuse that activists were also on the train planning public disorder there. Let's see how long that excuse holds up as these inflows will certainly not come to a rapid halt:

France says it will honor the permits only if the migrants prove they can financially support themselves and it has instituted patrols on the Italian border - unprecedented since the introduction of the Schengen travel-free zone - bringing in about 80 riot police last week. Germany has said it would do the same. A spokesman for the Italian rail company, Maurizio Furia, told The Associated Press in Rome that the train carrying migrants and political activists who support them wasn’t allowed to pass into Menton, France, from the border station of Ventimiglia on Sunday.

Italy lodged a protest with the French government, calling the move “illegitimate and in clear violation of general European principles” the Italian Foreign Ministry said. Foreign Minister Franco Frattini ordered his envoy in Paris “to express the strong protest of the Italian government...”

“We have given the migrants travel documents, and we gave everything (else) that is needed, and the European Commission recognized that, it has said that Italy is following the Schengen rules,” Italian Interior Minister Roberto Maroni said in an interview on Italy’s Sky TG24 TV. Visa-“free travel is legitimate for all those with the papers and who want to go to France,” said Maroni, a top official of the anti-immigrant Northern League party, a main coalition partner of Premier Silvio Berlusconi.

To which we now arrive at the main problem of Sarkozy himself. Despite backing all sorts of uprisings in MENA, he also adopts an anti-immigration rhetoric. Are freedom of speech and association incompatible with freedom of movement? That's what I would like to ask President Sarkozy as further blowback from mucking about in his backyard is imminent:

While he has robustly backed pro-democracy movements in the Arab world, triggered by the Tunisian uprising, conservative President Nicolas Sarkozy is also trying to cut back on the number of migrants arriving in France, whose former colonies in North Africa already provide the majority of immigrants.

With muscular rhetoric must come deeds that back them up. One avenue is to promote sufficient stability and development in MENA states that reduces pressures to immigrate. I am certainly unsure whether European efforts at nation building will succeed where those of the Americans failed. Remember that the Europeans have a longstanding colonial history there and are bound to invite suspicion. Moreover, remember who preceded the Americans in Vietnam--an eventual economic success story...after the white people finally gave up and let the "freedom-hating" Communists have a go. (Is there a lesson in here somewhere?)

Until then, Sarkozy's lip service for freedom of speech and association will sit ill at ease with the French government's hardline policies on freedom of movement.

Yippee, S&P Cuts US Credit Outlook to Negative!!!

♠ Posted by Emmanuel in Cheneynomics at 4/18/2011 05:21:00 PM

Sometimes I'm so glad to be mistaken. I've often thought that the political economy of credit rating agencies went like this: The likes of Standard and Poor's, Moody's, and Fitch's would never downgrade American sovereign debt since the US government held the ultimate ace. That is, it could remove their status as Nationally Recognized Statistical Rating Organizations (NRSROs) if they did not play along. Just as these credit rating agencies happily slapped "AAA" ratings on all sorts of subprime securities which turned out to be utter rubbish, they've been more than willing to grant the US government the highest credit rating of them all. I've always attributed it out of fear of being cast out of the world's biggest capital market by losing their designation as NRSROs. Certainly, an entity that is for all intents and purposes bankrupt and is intent on staying the course deserves Grecian doubt.

But wonder or wonders, S&P has now downgraded the outlook on American sovereign debt to negative. Which, of course, is the prelude to a full-blown credit downgrade. As you'll read below, there is now a one-in-three chance of this happening in the next two years. While I write, the DJIA is down 200+ points as a knee-jerk reaction (to the inevitable?) Just when I was set to enjoy a peaceful Holy Week, these folks butt in. From the ever-reliable Bloomberg:

Standard & Poor’s put a “negative” outlook on the AAA credit rating of the U.S., citing a “material risk” the nation’s leaders will fail to deal with rising budget deficits and debt. “We believe there is a material risk that U.S. policy makers might not reach an agreement on how to address medium- and long-term budgetary challenges by 2013,” New York-based S&P said today in a report. “If an agreement is not reached and meaningful implementation does not begin by then, this would in our view render the U.S. fiscal profile meaningfully weaker than that of peer ‘AAA’ sovereigns.”

Longer-term Treasuries fell, reversing earlier gains, after S&P lowered its outlook to negative from stable. The cost to protect against a default by the government and the nation’s banks jumped and stocks declined after the New York-based ratings firm’s action, which assigns a one-in-three chance that it will lower the U.S. rating in the next two years.

As noted, the markets are in disarray. The cost of insuring American trash--I mean Treasury bonds--has been rising, too:

“It’s truly a shot across the bow and a message to Washington, which has been clowning around on this and playing politics when they should toss ideology aside and focus on achievement,” said David Ader, head of government bond strategy at CRT Capital Group LLC in Stamford, Connecticut. “The bond market is still trying to find out what to make of it. People don’t know what to do. If you sell Treasuries, what do you go in to? No one knows...”

The cost to protect against losses on Treasuries in the credit-default swaps market jumped to the highest in 11 weeks. Credit-default swaps on U.S. Treasuries climbed 7 basis points to 48.5 basis points as of 10:25 a.m. in New York, according to data provider CMA. That’s the highest level since reaching 49.4 basis points on Feb. 1 and means it would cost the equivalent of 48,500 euros a year to protect 10 million euros of debt against default for five years...

Why so? I don't think there's any mystery here as the US has been the only major industrialized country to pile on debt at an astonishing pace. So it is that there is now a 33% chance of America losing its AAA status within two years:

The U.S. is the only large AAA rated country that saw its debt rise during the crisis that until recently had no plan that would reverse the trend, Steven Hess, senior credit officer at Moody’s, said last week.

The negative outlook by S&P means that the firm views a one-in-three chance it will cut a borrower’s rating within a two-year horizon, David Beers, S&P’s global head of sovereign and international public finance ratings, said in a Bloomberg TV interview. “This debate in the country really is just beginning and hard choices are going to have to be made,” Beers said. “We’re not saying that no agreement is possible. We’re just unsure as to the time frame and whether it’s going to be seen as credible not just by us but by the broader marketplace.”

A welcome development indeed. As before, I am fully on board with the idea that whacking America via penalty rates is the way to go to get some semblance of normalcy in the world economy. Among other things I would like to see:

The other two major agencies (Moody's & Fitch's) following suit with a negative outlook;
Rising long-term interest rates Stateside sufficient to dent the housing-industrial complex; and my absolute favourite...
US default on its debt due to failure to raise its debt ceiling come May--the starkest foretaste of them all

Serves them right. More of this, please!!!

UPDATE: The FT has a copy of the S&P credit watch report. The following reasons are given as to why "peer" AAA countries (the UK, France, Germany and Canada) are on a more sustainable path than the US, having already begun processes of fiscal consolidation:

While thus far U.S. policymakers have been unable to agree on a fiscal consolidation strategy, the U.S.'s closest 'AAA' rated peers have already begun implementing theirs. The U.K., for example, suffered a recession almost twice as severe as that in the U.S. (U.K. GDP declined 4.9% in real terms in 2009, while the U.S.'s dropped 2.6%). In addition, the U.K.'s net general government indebtedness has risen in tandem with that of the U.S. since 2007.

In June 2010, the U.K. began to implement a fiscal consolidation plan that we believe credibly sets the country's general government deficit on a medium-term downward path, retreating below 5% of GDP by 2013. We also expect that by 2013, France's austerity program, which it is already implementing, will reduce that country's deficit, which never rose to the levels of the U.S. or U.K. during the recent recession, to slightly below the U.K. deficit.

Germany, which suffered a recession of similar magnitude to that in the U.K. (but has enjoyed a much stronger recovery), enacted a constitutional limit on fiscal deficits in 2009 and we believe its general government deficit was already at 3% of GDP last year and will likely decrease further.

Meanwhile, Canada, the only sovereign of the peer group to suffer no major financial institution failures requiring direct government assistance during the crisis, enjoys by far the lowest net general government debt of the five peers (we estimate it at 34% of GDP this year), largely because of an unbroken string of balanced-or-better general government budgetary outturns from 1997 through 2008. Canada's general government deficit never exceeded 4% of GDP during the recent recession, and we believe it will likely return to less than 0.5% of GDP by 2013.

I've blogged about how the Canadians set the standard for intelligent discussion on how to broach the issue of fiscal consolidation to the public. Contrast this to the pro wrestling-inspired shenanigans Stateside and I needn't explain why the US is such a train wreck. Next stop: going off the rails on the crazy train America.

LDCs to IMF: Shove Yer Capital Control Guidelines

♠ Posted by Emmanuel in IMF at 4/18/2011 04:56:00 PM

Boys and girls, here's an interesting development as we rejoin the currency wars. Sometime ago, I discussed the Strauss-Kahn era IMF warming up to the idea of capital controls--at least in certain situations deemed unusual such as excess speculative inflows or too-rapid currency appreciation. Most likely, this warming up is attributable to IMF-organized research which finds that capital inflows are negatively associated with economic growth. According to Messrs Prasad, Rajan, and Subramanian:

Taken at face value, our results suggest that there is a growth premium associated with reduced reliance on foreign finance-—though we do not have strong evidence to suggest that this is a causal relationship. The reliance of nonindustrial countries solely on domestic savings to finance investment comes at a cost, however. There is less investment and consumption than there would be if these countries could draw in foreign capital on the same terms as industrial countries.

So, have we embarked on a new era where the IMF grants LDCs much-vaunted "policy space" in setting up capital controls when they believe they're warranted? Er, no. In fact, the IMF has been trying to get LDCs to agree to a set of guidelines which make capital controls a "last resort" after other avenues have been exhausted. At the recently held World Bank/IMF Spring Meetings, capital controls were among the main topics on the agenda of updating the IMF's global monitoring role. You may take the IMF's inability to get these LDCs to play along at the current time as another demonstration of America's inability to get its preferences across via international financial institutions. From the WSJ:

Representatives of emerging nations rebuffed an International Monetary Fund plan to guide them on managing huge flows of capital into their economies, viewing it as a way to constrain their actions rather than help. The IMF's policy-steering committee, at its spring meeting over the weekend, responded by effectively delaying the plan, which would influence the use of capital controls—tools such as taxes and restrictions on foreign investment. The committee agreed to study the issue more in coming months [translation: shelve it for now].

The IMF's recent endorsement of capital controls marked a reversal in its longstanding opposition to limits on the free flow of capital around the world. IMF officials had come to acknowledge emerging markets' need to curb surging inflows, which can fuel asset bubbles and inflation and hurt domestic exporters by driving currency values higher. The IMF's plan would have encouraged nations to treat capital controls as a last resort, after they had first tried use other tools, such as policies on interest rates, currency values and government budgets.

But ministers of developing economies resisted vehemently, viewing the proposal as an effort by advanced economies to hamstring their policies. Brazil, Turkey, South Korea and several other developing countries have adopted capital controls over the past year to limit surging inflows. "We oppose any guidelines, frameworks or 'codes of conduct' that attempt to constrain, directly or indirectly, policy responses of countries facing surges in volatile capital inflows," Brazil's finance minister, Guido Mantega [of international currency war fame], told the IMF's steering-committee meeting.

The fight over capital controls comes amid a continuing battle over who is to blame for the flood of capital flowing primarily from sluggish advanced economies into faster-growing developing countries. Developing countries blame the U.S. Federal Reserve, in particular, as a fountain of excess capital because it is holding short-term interest rates near zero and pumping money into the economy by buying government bonds. Developed countries trace the problems primarily to China's policy of tightly controlling its currency's value, and also to the tendency of investment capital to flow to the economies with the fastest growth.

The IMF committee directed the fund to study the issue with more focus on the sources of capital inflows. Mr. Mantega called capital controls "self-defense" measures. "Ironically, some of the countries that are responsible for the deepest crisis since the Great Depression, and have yet to solve their own problems, are eager to prescribe codes of conduct to the rest of the world, including to countries that are overburdened by the spillover effects of the policies adopted by them," he said in a statement to the policy committee.

That's one version of the story. Here's the American take:

U.S. Treasury Secretary Tim Geithner called the IMF proposal a "good start." He blamed the currency policies of countries such as China, saying they drive capital into economies with freer exchange rates. "A few emerging markets run tightly managed currency regimes, deploying extensive capital controls and accumulating excess reserves well beyond precautionary levels," he said. "This asymmetry magnifies capital flows into emerging markets with open capital accounts, heightening upward pressure on exchange rates that are flexible and fueling inflation in economies with managed, undervalued exchange rates."

The IMF had opposed capital controls for decades. Nations employing them risked criticism from the fund, spurring resentment from some members who feared a stigma from investors or other nations. But the IMF stance has shifted in recent years amid huge volumes of "hot money," or short-term flows, into many economies.

The LDCs have a valid point: if an orgy of liberalization, deregulation, and privatization did not bring America to the promised land--it look quite pitiful from where I stand--who's to say that others should follow its example? Indeed, America's recent return to deliberalization, reregulation, and nationalization--same with many other industrialized economies--contradicts its stance on what LDCs should adopt.

I'd say "shove yer capital control guidelines, white man" is an understandable response to this characteristically hypocritical American behaviour as its free-money policies cause LDCs misery through higher energy prices, food prices, etc. The US ain't got no street cred on these matters; I wonder why.

China's Material Girls II: No Home, No Marriage

♠ Posted by Emmanuel in China at 4/18/2011 12:03:00 AM

Numerous studies in anthropology, social psychology, sociology and so forth corroborate findings that men value physical appearance most in their partners, while women value financial security most among theirs. This phenomenon generally holds across cultures. As it turns out, China's economic boom is exacerbating it in interesting ways.

A year ago, I featured a story on how China's demographic imbalances are causing a commoditization of marriage markets, with services aimed at matching rich men and beautiful women. Well, a year later, we have another story in a similar vein. Not only does it implicate gender imbalances, but the increasing choosiness of marriageable women for men who own real estate. Demographics mean that women can literally afford to be choosier. With home prices rising in China due to its economic renaissance, let's just say the material girls now think the man with the cold, hard, er...property is Always Mr. Right:

There have been many undesirable repercussions of China’s unrelenting real estate boom, which has driven prices up by 140 percent nationwide since 2007, and by as much as 800 percent in Beijing over the past eight years. Working-class buyers have been frozen out of the market while an estimated 65 million apartments across the country bought as speculative investments sit empty.

The frenzy starts with the local governments that sell off land at steep prices, and is frothed up by overeager developers who force residents out of old neighborhoods, sometimes prompting self-immolations among the dispossessed. But largely overlooked is the collateral damage to urban young professionals, especially men, who increasingly find themselves lovelorn and despairing as a growing number of women hold out for a mate with a deed.

Although there are few concrete ways to measure the scope of involuntary bachelorhood, more than 70 percent of single women in a recent survey said they would tie the knot only with a prospective husband who owned a home.

Among the qualities they seek in a mate, 50 percent said that financial considerations ranked above all else, with good morals and personality falling beneath the top three requirements. (Not surprisingly, 54 percent of single men ranked beauty first, according to the report, which surveyed 32,000 people and was jointly issued by the Chinese Research Association of Marriage and Family and the All-China Women’s Federation.)

We're living in a material world, indeed:

The marriage competition is fierce, and statistically, women hold the cards. Given the nation’s gender imbalance, an outgrowth of a cultural preference for boys and China’s stringent family-planning policies, as many as 24 million men could be perpetual bachelors by 2020, according to the report.

The PRC's material girls would certainly do Reagan and Thatcher proud. It's like the go-go 80s, China style. What's next, Cosmopolitan China?

The Hugo Chavez - Formula One Connection

♠ Posted by Emmanuel in Energy,Latin America,Sports at 4/16/2011 03:07:00 PM

It seems colourful regimes and Formula One go hand in hand given that the latter is already populated with several colourful characters. From S&M fetishists to crash artists, F1 has all the shenanigans going on. Given that it is one of if not the world's most-watched sport depending on who you're listening to, there's also the allure of a vast global audience. While watching the qualifying session for tomorrow's Shanghai Grand Prix, my early morning daze failed to dim my awareness of one of Williams' sponsors: PDVSA. That, of course, is the national energy company of Venezuela and a vehicle for various Hugo Chavez pet projects. Remember when Hugo Chavez made the PDVSA-owned CITGO chain in the US sell discounted heating oil to poor American citizens to show up el diablo Jorge Bush?

Just as Fernando Alonso brought Spain's Santander Abbey from McLaren to his current team Ferrari, drivers tend to bring their national sponsors with them for obvious reasons as the home audiences tune in to watch their compatriots. And so it is with Williams F1's new driver, Pastor Maldonaldo, the reigning GP2 champion. Our man Pastor's website is swathed with Venezuelan flag colours, while nearly all his sponsors are affiliated with the Venezuelan government. As a vehicle for jingoism, sports has few peers, and so PDVSA signed a long-term contract with Williams F1 worth $14M at the start of the year:

Williams has followed up its signing of driver Pastor Maldonado with a long-term sponsorship deal with Venezuela's state-owned oil company PDVSA. Venezuelan driver Maldonado took the GP2 title last term and will drive alongside veteran Brazilian Rubens Barrichello in 2011. And the cars will carry the livery of the world's fifth largest oil exporter.

The country's president Hugo Chavez announced the deal in Caracas and team owner Frank Williams feels it will make a huge difference to their competitiveness following the loss of a number of sponsors at the end of the 2010 season. "They are a substantial partner and can make a meaningful difference to our fighting ability," Williams said in a statement.

PDVSA's head of corporate affairs Julio Gonzalez added: "Pastor will fly our flag this year and carry the hopes of an entire country in this new chapter of his career." Williams finished sixth behind the dominant Red Bull outfit in last year's Constructors' Championship.

Although it has fallen on hard times in recent years without a major engine supplier, Williams is a storied name in F1. It has won 9 constructors and 7 drivers titles. It is also a paragon of British motorsport, with Sir Frank Williams obviously having been knighted. Certainly, there is political risk being involved with an outfit like PDVSA that may result in reputational damage.

In particular, I am thinking of another storied British institution that decided to accept funding from another oil-rich country with a chequered past. For Williams' sake, I hope it won't become another LSE-Libya episode. Meanwhile, the Guardian has a wryly amusing take on Hugo's newfound fondness for bourgeois recreational activities alike motor racing:

Chávez has embarked on a little revisionism, recognising the importance of sport to his nation's economy and the value of having Venezuela represented on the global sporting stage. This year the state-owned oil company PDVSA will put $14m (£9m) into the Williams Formula One team, which will this season have the Venezuelan Pastor Maldonado as one of its drivers – a decision that led to Chávez being accused of hypocrisy (capitalism surely has no greater sporting expression) and misusing his patronage (Maldonado is an avowed supporter of the president).

Last, I found it curious that the description of PDVSA on the Williams website states "Between 2004 and 2010, PDVSA contributed $61.4 billion to social development projects across the country." I'd settle for exchanging this sort of braggadocio for rising not falling Venezuelan petroleum production and not sending away auditors to hide this fact.

American Hypocrisy on Libya & Int'l Criminal Court

♠ Posted by Emmanuel in Middle East,Security,United Nations at 4/16/2011 12:54:00 AM

I read with no small amount of amusement the grandiosely titled op-ed "Libya's Pathway to Peace" by Barack Obama, David Cameron, and Nicolas Sarkozy. One way or another, none are free from hypocrisy to keep things lively. When the Libya mess erupted, Cameron was on a junket to the Middle East selling arms. Meanwhile, Sarkozy in the not-too-distant past was encouraging Western defence firms to hawk their wares in Libya.

As usual, though, the Americans take the grand prize in the hypocrites' sweepstakes. Sometime ago, Secretary of State Hillary Clinton had the chutzpah to suggest China and the Southeast Asian countries disputing islands in the South China Sea resort to "international law" when the US was famously not even a signatory to the UN Convention on the Law of the Sea (UNCLOS). In the grand American tradition of paying international cooperation lip service but flouting the United Nations' various conventions and instruments, the lead author and president of a country that hasn't signed up to the International Criminal Court had this to say:

Our duty and our mandate under U.N. Security Council Resolution 1973 is to protect civilians, and we are doing that. It is not to remove Qaddafi by force. But it is impossible to imagine a future for Libya with Qaddafi in power. The International Criminal Court is rightly investigating the crimes committed against civilians and the grievous violations of international law. It is unthinkable that someone who has tried to massacre his own people can play a part in their future government. The brave citizens of those towns that have held out against forces that have been mercilessly targeting them would face a fearful vengeance if the world accepted such an arrangement. It would be an unconscionable betrayal.

That's pretty rich stuff, Obama. Why don't you get Congress to sign up to the ICC, then you can talk about it investigating "grievous violations." Indeed, US policy concerning the ICC is built around non-signatories being free from its jurisdiction. From a rather helpful article comes this summation of US policy concerning this very issue:

This article examines the jurisdiction of the International Criminal Court (ICC) over nationals of states not party to the ICC Statute. The article first addresses the US argument that the exercise of ICC jurisdiction over nationals of non-parties without the consent of that non-party would be contrary to international law.

As I've said, one reason for UN dysfunction is its ill treatment at the hands of its hosts. As for Obama's obvious vexation with international law and the ICC, let's just say he's even worse than Clinton. Clinton's hypocrisy was wanting to subject others to laws the US itself did not follow. Obama's hypocrisy is claiming that Libya should be investigated by the ICC in accordance with international law when the unrevised US position is that the ICC exercising jurisdiction over citizens of non-signatories is a contravention of international law.

These US foreign policy statements are strictly amateur nite.

Bailout Fatigue, Casual Racism & EU Tea Parties

♠ Posted by Emmanuel in Credit Crisis,Europe,Migration at 4/15/2011 12:02:00 AM

For obvious reasons, yours truly is particularly attuned to shifting political sentiment towards migration here in Europe. Earlier on, I had a post on the electoral gains made by parties with openly xenophobic agendas. Sour times breed sour sentiments; that much is obvious. While far-right parties are worrisome, I've previously thought that mainstream parties co-opting this message in a more offhand manner is actually more dangerous. Here in Britain, Prime Minister David Cameron is no stranger to stirring this particular pot. For instance, he like Germany's Angela Merkel has declared multiculturalism dead while not grasping what it means to begin with. Now, he his stated intention to reduce migration to the tens of thousands has prompted a rebuke by his Lib Dem coalition partner Business Secretary Vince Cable that Cameron risked inflaming extremism.

While the UK is not as big on the European financial stage as Germany for the obvious reason of not being in the Eurozone, both share the burden of bailing out various ailing European nations. And so it has proven that these, alike many other countries asked to pony up emergency funds, are experiencing unrest among restless natives weary of bailouts. By not condemning migration baiting but actually giving it lip service when it suits, mainstream parties may be opening the door to the rise of extreme right outfits as what I call casual racism against immigrants is mainstreamed. The earlier diagram in the first link above aside, we may see the rise of extremism through the ostensibly "friendlier" guise of anti-EU sentiment:

Chroniclers of Europe’s populist fringe have long focused on the anti-immigration rhetoric of many of these parties, particularly the National Front in France and Mr Wilders’ Dutch Freedom party. But many, such as Mr Soini in Finland or Flemish nationalist Bart De Wever, have either shunned or played down their anti-foreigner roots and re-branded themselves for the economically angry mainstream. Softening her party’s hard-edge approach to race and immigration helped Marine Le Pen, the sunnier face of her father’s [Dominique Le Pen] angry French nationalism, woo white working-class voters disillusioned with Mr Sarkozy’s economic policies.

We are witnessing Europe’s own Tea Party moment. Like Barack Obama, US president, leaders of European nations with the might to rescue a continent from crisis are hamstrung by voters who have had enough bailing out others. Much like Mr Obama, these leaders are having a hard time figuring out how to win voters back. Angela Merkel, the German chancellor, has shown just enough solidarity to help the eurozone but her begrudging approach has only heightened popular resentment at profligate southerners.

I must admit it's getting pretty ugly out here in old Europe for us non-EU, non-white folks. While the LSE churns out among the most desirable of international graduates in the UK, persistent negativity about their contributions to the British economy as either students or workers later on is not encouraging. If the purported cream of the crop is being told to go, who'll remain?

As for me, it's probably time to move on.

Euro Mideast Intervention = Own the Refugees?

♠ Posted by Emmanuel in Europe,Middle East,Migration at 4/14/2011 12:05:00 AM

We've heard this story before. Former US Secretary of State Colin Powell is usually credited for applying the Pottery Barn principle to foreign intervention. For international readers, Pottery Barn is a housewares retailer in the US. Instead of breaking what the Brits call "crockery," Powell asserts that breaking a country results in the interventionist taking responsibility for the "broken" country. Among these, of course, are its people.

Alike the quarrels over a two-speed Eurozone with stalwart countries alike Germany and the Netherlands outperforming their southerly peers, we appear to have something of another North-South divide in dealing with crumbling Middle East / North African states. Just as there is no "one-size-fits all" policy rate, there may be no pan-EU migration policy as countries bordering the Mediterranean are inundated with refugees. So, as some European heads of states act as cheerleaders for "the spread of democracy" and some actively participate in armed intervention, they have another hot topic for integration on their hands. The Italians in particular are keen on passing refugees through to other European states. What's Italy to do with the 23,000 or so who've landed on Lampedusa? From the New York Times:

Since the global financial crisis, the European Union has been deeply divided over economic policy. With the Libya intervention, it has split over foreign policy. But today few issues are proving more divisive within the bloc than immigration. That much was clear this week, when the fractious 27-member European Union rejected Italy’s idea to make it easier for immigrants who first land in Italy to travel elsewhere in Europe. At a time when a wave of immigrants fleeing the unrest in North Africa shows no signs of abating, the rejection raised the possibility of tightened intra-European border controls for the first time since visa-free travel was introduced in the 1990s.

Frustrations have been building here for weeks, and over the weekend Prime Minister Silvio Berlusconi finally said enough was enough. Visiting the Italian island of Lampedusa, the point of entry for thousands of North African immigrants to Europe, he said: “Either Europe is something that’s real and concrete or it isn’t. And in that case, it’s better to go back to each going our own way and letting everyone follow his own policies and egotism.”

Mr. Berlusconi’s statement, echoed by other members of his government and criticized by his European counterparts, highlighted a looming showdown within Europe over how to handle the 23,000 migrants who have arrived in Italy since January. Fears of immigrants, fanned by right-wing parties and voter discontent over economic malaise, have deepened already profound divisions within Europe. Experts say the issue is proving to be at least as problematic — and potentially as destabilizing — as Europe’s struggle to manage a succession of financial crises. And it adds a new source of friction over NATO’s intervention in Libya.

The majority of Africans seeking work or refuge in Europe are Tunisians, but a growing number are sub-Saharan Africans fleeing Libya. To reduce tensions in the makeshift tent camps in Italy where officials shipped the migrants who first arrived on Lampedusa, Italian officials said they would issue temporary residence permits to qualified migrants.

Italy had asked fellow European Union member states to recognize the permits as valid for entry — essentially condoning the migrants’ passage to France and beyond. At a meeting of European Union interior ministers in Luxembourg on Monday, other member states, chief among them France and Germany, said no. In response, Italy’s interior minister, Roberto Maroni, asked, “I wonder if it makes sense to stay in the European Union?”

While European neighbors have criticized the Italians for their poor handling of the immigration situation, the stalwarts of Mr. Maroni’s Northern League party, known for its anti-immigrant stance and fierce Euro-skepticism, have criticized the interior minister for not being tough enough.

Will bribing the states refugees want to flee work? I have my doubts, but some Europeans apparently hope so:

Instead, Europe’s policy has been to hope that immigrants will not come and to try to persuade North African nations to compel their citizens to stay home. Although the collapse of governments in Tunisia and Egypt and the unrest in Libya have undone a variety of bilateral treaties with European countries, including agreements on migration, that policy is still in place.

Expanding the pottery barn argument, I suppose it becomes a valid question of who broke these MENA countries. Is it the "EU," its more busybody states, even "NATO"? The answer points to both the fate of supranational migration policy and the aftermath of these conflicts in terms of handling refugee flows.