Budget 2010 highlights

[Disha]

Budget 2010 is about to come and all sectors in India are affected
with budget. So how the “AAM AADMI BUDGET ” affects the Indian share
market, it is in all Indians mind and if you are a trader you are more
anxious for the budget than the AAM AADMI.

Do you want to knoww hat is the effect of budget 2010 on share market.
Click on the following link or copy paste it and know more about
Indian Budget. View our report on..
http://ur.lc/hrz.

[Sid Harth]

Post by Disha
Budget 2010 is about to come and all sectors in India are affected
with budget. So how the “AAM AADMI BUDGET ” affects the Indian share
market, it is in all Indians mind and if you are a trader you are more
anxious for the budget than the AAM AADMI.
Do you want to knoww hat is the effect of budget 2010 on share market.
Click on the following link or copy paste it and know more about
Indian Budget. View our report on..http://ur.lc/hrz.

Bloomberg

Krugman Versus Roach Is Right Fight for Don King: William Pesek
March 21, 2010, 4:20 PM EDT
by William Pesek

March 22 (Bloomberg) -- Don King, hop on a plane to China for the
fight of the year.

The world of economic forecasting just became more exciting, with even
a threat of violence. The legendary boxing promoter King can put Nobel
laureate Paul Krugman in one corner. In the other, Stephen Roach,
Morgan Stanley’s Asia chairman.

Location: Beijing, the focus of their spat.

Format: Steel cage, of course.

Prize: Bragging rights in world’s most heated debate.

Roach says a “baseball bat” should be taken to Krugman over his call
for a stronger yuan. Krugman is miffed that Roach is criticizing his
view that “China is adding to the problems of the rest of world.”

It hardly matters who wins the “Battle of Beijing.” The real story is
that this matchup is even necessary. It shows we are still only
debating the global imbalances we have been obsessing over for years
now -- not addressing them. The blame game continues.

Roach versus Krugman echoes the verbal clash between the U.S. and
Chinese governments. As this epic finger-pointing contest unfolds, we
are all losers. That goes for the richest investors, the savviest
corporate executives and the most unassuming of households from New
York to New Delhi.

Roach Versus Krugman

The trouble with Roach’s spat with Krugman is that both men are a bit
right, and both are a bit wrong. I am not taking the middle road here
or offering an ambiguous on-the-one-hand-on- the-other-hand analysis.
The truth really does lie somewhere in between, and that’s just the
point.

The Group of Two nations needs to get into a room and negotiate a
rebalancing of the world’s most important economies. Not take cheap
shots, not assign blame, but agree to do X, Y and Z over the next 12
to 24 months.

Yes, China needs to let the yuan appreciate (as Krugman argues). It
would reduce the pressure on China’s economy and trim a trade gap that
may eventually lead to a U.S. credit downgrade. The U.S. drastically
needs to increase savings (as Roach says). It must begin exporting
something other than debt to return the biggest economy to health.

One nation acting isn’t enough to fix the other’s problems. Nor is
unilateral action a panacea for global markets. These steps must be
taken in tandem and telegraphed transparently to both nations’
populations and markets.

Looking in Mirror

The opposite is happening. If only U.S. Senators Charles Schumer of
New York and Lindsey Graham of South Carolina, who are introducing
legislation to make it easier to punish China, looked in the mirror.
Spend less time beating up on China and more telling Americans to stop
living beyond their means.

If only U.S. lawmakers were more focused on financial reforms needed
to avoid another crisis. If only they would tell Americans that shared
responsibility is what’s needed to restore the U.S. brand. Tell
Americans that tax cuts aren’t always the answer. Why bother, when
China is assuming the scapegoat role that Japan played in the 1980s
and early 1990s?

And then there’s Chinese Premier Wen Jiabao. If only he would admit
how many of China’s problems are wrapped up in the currency peg.
Forget the ill will it generates. Focus, instead, on inflation risks,
hot money flows and those $2.4 trillion of currency reserves with
which China is stuck.

Hypocrisy Reigns

China’s embryonic financial system won’t grow up until it can do more
borrowing in yuan and investors have a real bond market in which to
hedge stock holdings. Things won’t cool down until Chinese have
something to buy other than overpriced property. China is like an
Airbus A380 super-jumbo flying with a broken engine. It’s huge, it can
go a long way yet it’s operating unsteadily.

As hypocrisy reigns, think of the global economy as a game of musical
chairs. Everyone is tiptoeing around the dwindling number of chairs,
hoping to have one when the music stops. That might be fine if we had
more growth engines on which to rely.

The U.S. is still sputtering, Europe isn’t much better amid Greece’s
crisis, and Asia is still developing, but not without risks.
Politicians in Washington and Beijing seem to think that as long as
they find a chair when the game is over, all’s well.

Not so in this G-2 world. A Chinese crisis would reverberate
everywhere, including the U.S. as it’s beginning to stand again.
Another U.S. crisis could be even more devastating for China. Rapid
growth aside, it’s a developing economy that will find it harder to
generate domestic growth.

It would be fun to be a fly on the wall the next time Roach and
Krugman bump into each other. It would be highly entertaining if King,
who staged bouts for fighters such as Mohammad Ali and Mike Tyson,
could match the two economists.

If we can’t stop debating who is to blame for the sorry state of
global affairs, let’s get ready to rumble.

Click on “Send Comment” in the sidebar display to send a letter to the
editor.

--Editors: David Henry, James Greiff.

To contact the writer of this column: William Pesek in Bangkok at
***@bloomberg.net

To contact the editor responsible for this column: James Greiff at
***@bloomberg.net

More From Businessweek

Roach Spars With Krugman Over Call to Pressure China (Update1)
http://www.businessweek.com/news/2010-03-21/krugman-versus-roach-is-right-fight-for-don-king-william-pesek.html
O’Neill Says Renminbi Importance Less Than What West Thinks
http://www.businessweek.com/news/2010-03-17/o-neill-says-renminbi-importance-less-than-what-west-thinks.html
Roach Rebuffs Krugman Call to Pressure China on Yuan (Update2)
http://www.businessweek.com/news/2010-03-18/roach-says-baseball-bat-should-be-taken-to-krugman-on-yuan.html
Inner Mongolia Baotou Surges Most in China on Reserve Approval
http://www.businessweek.com/news/2010-02-11/inner-mongolia-baotou-surges-most-in-china-on-reserve-approval.html
Europe Relies on Exports to China as U.K., U.S. Sales Shrink
http://www.businessweek.com/news/2010-03-18/europe-relies-on-exports-to-china-as-u-k-u-s-sales-shrink.html

http://www.businessweek.com/news/2010-03-21/krugman-versus-roach-is-right-fight-for-don-king-william-pesek.html

Monday March 22, 2010
Promoting economic recovery
GLOBAL TRENDS
By MARTIN KHOR


A new report on the global economy suggests the US should solve its
over-consumption while Germany, Japan and China should boost their
domestic consumption.

FOR the past few weeks, there has been a shrill attack on Chinese
economic policy emanating from US Congress members and economists.

According to them, China’s policy of linking its currency to the US
dollar has undervalued the yuan, led to China’s large trade surplus
and is a major reason for America’s economic problems.

Some economists even try to blame this for the imbalances in the world
economy.

This blame game is now going beyond the rhetorical or the academic
realm.

If the US Treasury labels China as a country practising currency
manipulation in a report on April 15, it could trigger actions in
Congress to slap on an import surcharge on Chinese goods.

Economist Paul Krugman, one of those urging actions to “take on
China”, is suggesting a hefty 25% surcharge.

Such a drastic measure could trigger a trade war, which nobody needs
today when the global economy is trying to find its feet following the
worst recession in 60 years.

A recent report of the South Centre by its Special Economic Adviser
Yilmaz Akyuz (formerly chief economist of Unctad) throws interesting
light on the global economic imbalances, the situation in the major
countries, and what needs to be done.

The report, Global economic prospects: The recession may be over but
where next?, recognises that the US economy (that has high household
debt and trade deficit) has to adjust, and its over-consumption
problem has to be tackled.

But this adjustment will cause its own problems for many developing
countries as it may result in increased interest rates (which is bad
for indebted countries) and a higher dollar (exerting downward
pressure on currencies in developing countries in deficit, and on
commodity prices).

So far, the United States and China have adopted the strongest policy
response to the crisis with big fiscal stimulus packages and
aggressive easing of monetary policy.

In China, there has been high growth in exports, and this in turn
accounted for one third of Chinese GDP growth in the years before the
crisis.

But in the debate on the global economy, attention has focused on US-
China relations, to the neglect of the role of Germany and Japan,
according to the report.

These countries, like China, have been having large current account
surpluses (7.5% of GDP in Germany and 4.8% in Japan, before the
crisis).

They also have large trade surpluses with the United States (US$50bil
for Germany and US$75bil for Japan).

The overall trade surplus of China (11% of GDP) and its trade surplus
with the United States (US$270bil) is higher.

“However the contribution of Japan and Germany to global demand and
growth is much smaller than China’s, and their reliance on exports is
much greater,” says the report.

Firstly, the real domestic value of China’s trade surplus with the
United States is actually lower than the gross figure because there
are a lot of imported components in Chinese exports.

Thus in 2005, the trade surplus of China with the United States was US
$172bil in conventional terms, but it was only US$40bil in value-added
terms (the amount after deducting the import content of the exports of
both counties).

In the same year, Japan’s surplus with the United States was US$85bil.
Since the foreign content of Japan’s exports is lower than the foreign
content of US exports, in value added terms Japan’s surplus with the
United States turns out to be higher than China’s surplus.

Secondly, and more importantly, “Japan and, particularly, Germany have
been siphoning global demand without adding much to global growth,”
says Akyuz.

During 2002-07, exports grew 25 times faster than domestic demand in
Germany and 8.5 times in Japan, while the figure is less than three
for China.

While exports contributed 34% to GDP growth in China, they contributed
50% to Japan’s GDP growth and 143% to Germany’s growth in 2002-07.

In other words, even if there had been no export growth in China, the
GDP would still have enjoyed high growth; but without export growth,
Germany’s GDP would have fallen by about 1% a year during 2002-07.

The paper cites under-consumption as a major problem in Germany and
Japan. In Germany, there has been high unemployment and stagnant wages
because of an over-focus on price stability. In both countries, the
share of wages has fallen, thus suppressing consumption.

These two advanced countries need to increase their contribution to
global demand (and thus to the global recovery) by expanding their
domestic consumption through faster wage growth. Their increased
domestic demand and higher growth is needed to spur more imports and
reduce their trade surplus, which would contribute to other countries’
exports and GDP growth.

China, through its high growth and its reliance on both its own
domestic demand and exports, has contributed relatively more than the
two industrial countries to global growth, the report implies.

However, China obviously also needs to adjust. It cannot rely as much
as previously on exports due to the expected adjustment in the United
States and the slowdown in Europe, and it thus has to generate
domestic demand through significantly increasing its consumption,
whose share of GNP fell from 55% in the late 1990s to 36% at present.

Under-consumption is thus a major problem. Consumption has to grow
faster than both national income and investment in China in the
future. The significant fall in the share of wages would need to be
reversed.

Akyuz suggests a combination of policies promoting higher wages,
elimination of the gap between wage and productivity growth, incre­
ased budgetary transfers especially to rural households, and increased
public spending on health, education and housing in order to reduce
household precautionary savings.

However, even if China maintains its high GDP growth by switching from
exports to domestic demand, it cannot be expected to become the
locomotive for global growth. This is because there is a lot of
imported inputs going into China’s exports, whereas imports make up
only 8% of China’s domestic consumption.

“Consequently, a US$100 shift in the composition of aggregate demand
from exports to domestic consumption would reduce Chinese imports by
some US$40,” says the report. This has serious implications especially
for South-East Asian countries which supply a lot of the parts and
components to China for its exports.

As for exchange rates, the paper says that it is an important issue in
the adjusting of global trade imbalances, but currency movements do
not create additional demand for the global economy. Thus, they alter
relative growth rates rather than raising the overall global growth.

“Briefly, currency movements cannot address the problem of global
under-consumption associated with sluggish wages,” says Akyuz.

A depreciation of the dollar against the Chinese currency could reduce
Chinese exports and its trade surplus with the United States but would
not solve the under-consumption in China nor bring an increase in
domestic demand to offset the decline in exports.

It could even aggravate the under-consumption problem. Thus, the
exchange rate is not an appropriate instrument to address the under-
consumption problem and excessive reliance on exports in China.

The paper adds it is not clear how dollar depreciation against the
Chinese currency would address the root cause of the US problem of
over-consumption. It is unlikely to produce significantly faster
growth of exports to China.

Even if it reduces China’s exports to the United States, this may be
replaced by imports from other developing countries as long as US
consumers continue to live beyond their means.

Akyuz notes that the United States has run current account deficits in
the past four decades regardless of the strength of the dollar against
the currencies of its main trading partners, blaming Germany in the
1970s, Japan in the 1980s and now China. The yen has been rising
against the dollar during this period but this had no impact on the
surplus of Japan with the United States.

Thus, concludes the paper: “The solution should be sought primarily in
national policies designed to address problems of over-consumption in
the US and under-consumption in surplus countries.”

http://thestar.com.my/columnists/story.asp?col=globaltrends&file=/2010/3/22/columnists/globaltrends/5908821&sec=Global%20Trends

Greek Crisis, Europe And New Risks For Economic Recovery
Source: By Uri Dadush, Carnegie Endowment for International Peace
Posted on: 21st March 2010
The global recovery is strengthening, with GDP growth estimates being
revised upward, emerging markets returning to long-term trend output
levels, and world trade, industrial production, and services
expanding.

Though still relatively mild by historical recovery standards, growth
in 2010 is likely to be modestly higher than consensus estimates, as
pointed out in the January Bulletin.

A rebalancing of demand in favor of emerging markets, especially
China, and confirmation that policy makers are resisting an early exit
from stimulus policies have buttressed prospects for the recovery to
continue into next year.

However, the Greek crisis and its possible spread to other
uncompetitive and fiscally vulnerable Euro area countries that
together account for 7.5 percent of world GDP has emerged as a
significant risk.

Global Recovery Strengthening

Upward revisions of GDP growth estimates for the fourth quarter of
2009 in the United States and the UK are signs of strength in the
global recovery. The Asian Development Bank is revising its 2010
economic growth forecast for developing Asia to around 7 percent, up
from 6.6 percent last December.

Several emerging markets are returning to trend growth, including
China, India, Indonesia, and Argentina.

World trade remains below its pre-crisis peak but is expanding very
rapidly. World trade rose at a record monthly pace of 4.8 percent in
December, following a 1.1 percent increase in November. Imports in
emerging economies grew 7.8 percent (m/m) in December while import
growth in advanced economies rose 2.7 percent that month.

The manufacturing sector has continued to expand as well. The United
States, Japan, and Germany all exhibited strong industrial production
(IP) growth in January. Surveys point to continued expansion: the Euro
area’s manufacturing PMI rose to 54.2 in February, up from 52.4 in
January (a reading above 50 represents expansion).

Importantly, growth also appears to be extending into services. The
U.S. Institute for Supply Management (ISM) Non-Manufacturing Index
rose from 50.5 in January to 53.0 in February. While the UK’s
corresponding index grew at a faster pace, the Euro area’s expansion
slowed.

Despite these improvements, however, private sector demand growth in
the advanced countries remains fragile and overly dependent on
government stimulus amid high unemployment, weak housing markets, and
hesitant consumers.

Rebalancing is Happening

Declining external deficits and surpluses represent another
encouraging development that enhances the sustainability of the
recovery. Total current account imbalances, the sum of current account
balances across deficit and surplus countries in absolute value terms,
narrowed to 3.6 percent of world GDP in 2009, down from 5.7 percent in
2008. Imbalances are expected to expand only marginally in 2010.

The U.S. current account deficit, the world’s largest, declined from
5.2 percent of GDP in 2007 to 3 percent in 2009. Given the relative
strength of the recovery, however, the U.S. deficit is projected to
widen to 3.4 percent in 2010. The euro’s weakness will also delay
rebalancing in the United States by bolstering the dollar. The U.S.
Dollar Index, which tracks the dollar against a trade-weighted basket
of currencies, has risen by about 8 percent since November. On the
other hand, China’s current account surplus declined from 9.6 percent
of GDP in 2008 to about 6 percent in 2009 and, helped by strong
domestic demand and import growth, is projected to fall further to 4.7
percent in 2010.

Emerging Market Growth Sustained—So Far

Capital flows to emerging markets have regained strength, with the IIF
predicting that net private inflows will rise to over $700 billion in
2010, up two-thirds from 2009, but still down 45 percent from their
peak in 2007. Returns in equity and bond markets there have also been
spectacular, with the MSCI Emerging Markets Index doubling over the
last year, though there has been little change since December 2009.
Strong growth and balance sheet fundamentals appear to justify these
advances.

At the same time, according to JP Morgan, the MSCI Emerging Market
Index’s price-to-book-value ratio was 2.45 in February, above its
average of 2.1 since 2000, and there are other indications that some
markets may be overreaching. The Brazilian Bovespa and Mexican Bolsa,
for example, are only 6.3 percent and 1.2 percent below 2008 and 2007
peaks, respectively. In China, property prices in 70 cities rose 10.5
percent (y/y) in February, the fastest pace in 23 months, while
consumer prices rose a higher than expected 2.7 percent (y/y), the
most in sixteen months.

Though it is too early to speak of a speculative bubble in emerging
markets, prospects for very low interest rates in the advanced
countries continuing well into 2011 and the wide growth gap favoring
emerging markets suggest that the classic conditions for a bubble may
be starting to build.

Greek Crisis a Major Source of Risk

Greece is a small economy, but its problems—a massive secular loss of
competitiveness and rapidly rising public debt—are shared to different
degrees by at least four other Euro area members (Portugal, Ireland,
Italy, and Spain), whose combined GDP is 30 percent larger than
Germany’s. A sovereign debt crisis affecting all or a subset of these
countries will slow European growth, depress the euro, and could
eventually spill over into a global confidence crisis that would
affect some vulnerable emerging markets (Turkey is one example) and
other advanced countries. Japan, whose public debt/GDP burden—though
held domestically—is on track to be almost twice that of Greece, could
also come into the markets’ crosshairs.

Europe Under Stress

Greece is likely to be rescued by the IMF or its European partners, or
at least supported in an orderly restructuring of its debt, but its
competitiveness problem will persist for years to come. Even if its
structural adjustment measures succeed, they will take years to
complete and Greek growth will remain depressed. The same will apply—
though to a lesser degree—in the other vulnerable European countries.
These problems will severely test the political support for the
European project in the vulnerable countries as well as in Germany and
the other countries that will have to come to the rescue. One or more
countries leaving the Euro area, though still a low probability
scenario, can no longer be ruled out.

Exit Strategies Will Remain Cautious

Though countries are already paving the path to exit from stimulus,
and some, like Australia, have taken steps along it, the larger
advanced economies are maintaining expansionary monetary and fiscal
policies and are likely to continue to do so at least into 2011,
reflecting the weakness of private sector demand. Although the Fed may
raise U.S. interest rates later this year from their record low
levels, the still-low rate will continue to powerfully stimulate
activity. Given the serious risk of prolonged stagnation in the
European periphery, there are worthy arguments for Germany, and other
countries that can afford it, to increase fiscal stimulus in the
coming years, and for the European Central Bank to maintain its
expansionary stance for the foreseeable future. Monetary policy will
remain expansionary in Japan as well.

In emerging Asia, where the recovery began, policy makers have already
begun to wind down stimulus efforts. Over the past two months, China
has increased reserve requirements several times and repeatedly urged
banks to curb lending. India has also outlined plans to unwind its
$162 trillion fiscal stimulus package.

As economies continue to recover at different speeds and international
interest rates remain low, the coming years will be marked by
increased carry trades and exchange rate fluctuations, implying a
heightened risk of bubbles and speculative attacks. Sovereign debt
problems, which had disappeared from sight in the pre-crisis years,
have again become a central source of risk—underscoring the need for
policy makers to develop credible, long-term fiscal consolidation
frameworks and to build the political consensus necessary to execute
them once the global recovery is on firmer footing.

Uri Dadush is a senior associate in and the director of Carnegie’s
International Economics Program.

http://thegovmonitor.com/world_news/united_states/greek-crisis-europe-and-new-risks-for-economic-recovery-26423.html

m the Mano Economic Intelligence Forum, Japan, looking at COP 16 of
the UNFCCC in Cancun, history shows that tendencies by countries to go
it alone, including on environment, lead to worldwide economic
decline.

Posted on Sustainabilitank.info on March 21st, 2010
by Pincas Jawetz (***@SustainabiliTank.com)


JAPANESE PERSPECTIVES

Climate change battle demands cooperation, not new appliances
By TERUHIKO MANO
Special to The Japan Times, Monday, March 22, 2010.
The Japanese economy posted growth in the last quarter, but I would
like to make a few observations about the components of the growth.





The revised figures for gross domestic product in October-December
2009, announced on March 11, showed that economic activity grew 0.9
percent on the previous quarter for an annualized rate of 3.8 percent.
While faster than anticipated progress in inventory adjustment was one
of the factors that contributed to the downward revision of the
preliminary quarterly GDP figure of 1.1 percent (4.6 percent
annualized), capital investment managed to rise 0.9 percent for the
first growth in seven quarters.

Based on the revised data, the government last Monday reported the
first improvement in the Japanese economy since July 2009, describing
its as “picking up steadily,” even though its sustainability is weak
and unemployment remains high.

But closer examination of the data behind the rosy results raises some
questions.

First, it should be noted that the 0.9 percent growth can be broken
down to 0.4 point for internal demand and 0.5 point for external
demand. Personal consumption — the largest component of GDP — expanded
a robust 0.7 percent, an uptick that could be attributable to the Eco-
point and subsidy programs launched by the government to promote
replacement demand for energy-efficient appliances and fuel-efficient
cars.

However, we need to be aware that these programs are eating into
future demand. Consumers are believed to be pushing up purchases of
new cars and TVs to beat the deadline for the popular programs whether
their older products are still usable or not.

Naturally, these programs cannot be continued indefinitely. Similar
campaigns in other advanced economies show that spending can drop off
rapidly once the incentive programs end.

In the past, Japan was in the habit of declaring an “economic
recovery” whenever GDP grew for three consecutive quarters. This time
the optimism was muted — perhaps because officials are well-aware of
the risk of a fallback in consumer demand.

A second point is that governments are pushing for these incentive
programs not just as environmental campaigns, but also as a way to
shore up consumer spending battered by recession.

The global financial crisis jacked up unemployment in many advanced
economies as competition against emerging economies climbed and much
of the world entered recession.

The slump is deep and eating into consumers’ disposable income,
including overtime pay and bonuses. As the effects of globalization
sink in, wages are decoupling from earnings in many advanced
economies.

Third, the amount of energy supposedly saved by “eco-friendly”
products needs to be weighed against the energy expended to make them
and to dispose of the old ones being replaced.

A household may be able to halve its electricity bill by buying a new,
energy-efficient air conditioner, but if the savings are canceled out
by the cost of the energy needed to make the new appliance and get rid
of the old one, can you say the process is really environment-
friendly?

The mass production and mass consumption Japan embraced after the war
contributed to its “miracle” economic growth, but it also caused
rampant pollution and the loss of the traditional Japanese belief of
the value of making good use of things.

Of course we need to save energy. But we should also take a look at
the additional burden being placed on the global environment by the
introduction of energy-saving products.

These are not Japan’s problems alone. Countries around the world need
to cooperate to assess the overall burden on the environment and deal
with the problem. When the economy goes bad, each country tends to put
priority on its own interests. History shows such tendencies lead to
worldwide economic decline.

Progress eluded the COP15 climate change conference in Copenhagen in
December as national interests trumped international cooperation on a
global issue. The author hopes that both the advanced and developing
economies can overcome these issues and seek a more cooperative path
toward progress at the COP16 conference in Mexico in November.

Teruhiko Mano is chairman of the Mano Economic Intelligence Forum.

http://www.sustainabilitank.info/2010/03/21/from-the-mano-economic-intelligence-forum-japan-looking-at-cop-16-of-the-unfccc-in-cancun-history-shows-that-tendencies-by-countries-to-go-it-alone-including-on-environment-lead-to-worldwide-econ/

Bloomberg

Yen Near Week High Against Euro; Central Banks May Raise Rates
March 21, 2010, 11:01 PM EDT
By Ron Harui

March 22 (Bloomberg) -- The yen reached a one-week high against the
euro on speculation more central banks will follow India in raising
interest rates, damping demand for higher- yielding assets.

Japan’s currency strengthened versus all of its 16 major counterparts
after the Reserve Bank of India unexpectedly raised borrowing costs on
March 19, fueling expectations policy makers in nations such as China
will do the same. The euro was near a two-week low against the dollar
on concern the European Union will fail to agree on financial aid for
Greece, reducing the appeal of assets in the 16-nation region.

“We’ve had India, and we’re assuming China is not too far away from a
formal rate hike,” said Sean Callow, a senior currency strategist at
Westpac Banking Corp. in Sydney. “It’s something the market is going
to have to deal with, and it may unnerve markets a little bit. The yen
and dollar might be supported.”

The yen traded at 122.26 per euro as of 11:57 a.m. in Tokyo from
122.51 in New York last week, after rising to 122.20, the strongest
level since March 10. Japan’s currency was at 90.44 per dollar from
90.54. The dollar bought $1.3518 per euro from $1.3530 on March 19,
when it climbed to $1.3503, the highest since March 2.

Japan’s financial markets are closed today for a holiday.

Increase ‘Imperative’

The yen and the dollar extended gained versus most higher- yielding
currencies after India’s central bank said controlling price gains
became “imperative” after inflation accelerated to a 16-month high.
Policy makers raised the benchmark reverse repurchase rate to 3.5
percent from 3.25 percent and the repurchase rate to 5 percent from
4.75 percent. The decision came a month before the bank’s scheduled
policy meeting.

Central banks in Australia and Malaysia already raised borrowing costs
this month and China boosted its reserve- requirement ratio by half a
percentage point on Jan. 18 and Feb. 25. India’s Reserve Bank will
probably raise its benchmark again next month as the first increase in
two years is only the initial step in its fight against inflation,
according to BNP Paribas SA and Standard Chartered Plc.

“The surprise factor in the RBI’s action was not that they hiked
rates, but that it took place ahead of the next policy meeting, a fact
that reflects the urgency to tackle inflation pressures,” Mitul
Kotecha, head of global currency strategy at Credit Agricole CIB in
Hong Kong, wrote today in a research note. “Further rate hikes are
likely over coming months as the bank moves further to contain
inflation.”

Ringgit, Won

Malaysia’s ringgit and South Korea’s won led Asian currencies lower as
Asian stocks declined following India’s interest-rate increase.

The ringgit extended last week’s decline, falling 0.4 percent to
3.3125 per dollar and the won slid 0.4 percent to 1,137.30. The MSCI
Asia-Pacific Index of regional shares dropped 0.6 percent.

The euro fell for a fourth day versus the yen after German Chancellor
Angela Merkel told investors they shouldn’t expect this week’s EU
summit to agree on any aid package for Greece.

EU leaders must not create “illusions” for markets by building
expectations for Greek aid, she said in an interview with
Deutschlandfunk that aired yesterday. Her remarks came after Greek
Prime Minister George Papandreou and European Commission President
Jose Barroso said the EU should spell out its rescue plan at the March
25-26 summit in Brussels.

‘Weigh on the Euro’

“Ahead of the EU summit, concerns about Greece’s funding difficulties
are expected to weigh on the euro,” said Danica Hampton, a senior
markets strategist at Bank of New Zealand Ltd. in Wellington.
“Meantime, the dollar will likely remain firm as investors fret about
how the global economy will cope with further stimulus removal.”

Advanced economies face “acute” challenges in tackling high public
debt, and unwinding existing stimulus measures will not come close to
bringing deficits back to prudent levels, said John Lipsky, first
deputy managing director of the International Monetary Fund, in a
speech yesterday at the China Development Forum in Beijing.

The Dollar Index, which tracks the U.S. currency against those of six
major U.S. trading partners including the euro, rose 0.1 percent to
80.810.

Australia’s dollar fell for a third day after gold, the nation’s third-
most valuable commodity export, slumped the most in six weeks on March
19.

Gold futures for April delivery dropped 0.1 percent today after
sliding 1.8 percent on March 19, the biggest loss for a most-active
contract since Feb. 4. Crude oil, Australia’s fourth most valuable
commodity export, declined for a third day.

“There’s a little bearishness creeping into the market with gold
falling and a lack of confidence on the Greek rescue package,” said
Ian Fowler, senior corporate foreign exchange dealer at OzForex Ltd.
in Sydney. “The first sniff of negative news over Greece and the
resulting sell-off in commodity prices and the Aussie comes down.”

--With assistance from Patrick Donahue in Berlin, Joyce Koh in
Singapore and Candice Zachariahs in Sydney. Editors: Nicholas
Reynolds, Garfield Reynolds

To contact the reporter on this story: Ron Harui in Singapore at
***@bloomberg.net.

To contact the editor responsible for this story: Nicholas Reynolds at
***@bloomberg.net.

More From Businessweek

Dollar, Yen Rise as U.S.-China Tensions Spur Demand for Safety
http://www.businessweek.com/news/2010-03-15/dollar-yen-rise-as-u-s-china-tensions-spur-demand-for-safety.html
Japan’s Bonds Head for Third Weekly Decline on Recovery Signs
http://www.businessweek.com/news/2010-03-18/japan-s-bonds-decline-for-third-day-on-global-recovery-signs.html
Bundesbank’s Weber Sees No Need to Revise German Growth Forecast
http://www.businessweek.com/news/2010-03-09/bundesbank-s-weber-sees-no-need-to-revise-german-growth-forecast.html
Most German Stocks Advance; Deutsche Bank, Commerzbank Climb
http://www.businessweek.com/news/2010-03-19/german-stocks-advance-deutsche-bank-commerzbank-bmw-gain.html
Corporate Bond Risk Falls in Europe, Credit-Default Swaps Show
http://www.businessweek.com/news/2010-03-01/corporate-bond-risk-falls-in-europe-credit-default-swaps-show.html

http://www.businessweek.com/news/2010-03-21/yen-near-week-high-against-euro-central-banks-may-raise-rates.html

Bloomberg

China Bubble Anxiety Doesn’t Mean Shun Stocks: John Dorfman
March 21, 2010, 9:16 PM EDT
by John Dorfman

March 22 (Bloomberg) -- In the 1980s, a crucial question for portfolio
managers was what to do about Japan. Today, the parallel question is
what to do about China.

From 1978 through 1989, Japan gave the U.S. heavy competition for
world leadership in business and finance. Japanese stocks rose 12
years in a row, gaining a cumulative 700 percent, or almost 19 percent
a year, compounded.

Since then, the Nikkei-225 Stock Average has fallen 73 percent, or 6.3
percent a year, with 11 down years in the past 20. Clearly, those
managers who were overweight Japan in the 1980s did great, while those
who have favored Japan in more recent years did poorly.

Today it is China that challenges the U.S. for world economic
leadership. Since the end of 1990 the Shanghai Stock Exchange
Composite Index has risen more than 2,400 percent, for an annual
return of -- you guessed it -- almost 19 percent a year.

Is China an echo of Japan, destined to flash and then flame out? No
one knows for sure. Personally, I doubt it.

There are powerful reasons to invest in China, and also some strong
reasons not to. Let’s start with the negatives.

China’s big cities, notably Shanghai and Beijing, have been overbuilt,
a situation that might hurt both real-estate owners and banks. The
country’s one-child policy means the population is shrinking. The
Chinese government doesn’t embrace free speech or property rights as
understood in the U.S.

Some people fear that the rapid growth in China’s economy and stock
market is a bubble, soon to be pricked.

In China’s Favor

Now, let’s turn to the positives. China’s budget deficit is mild
compared with that of the U.S. Its population is younger. And its
economy is growing faster.

China’s gross domestic product growth exceeded 7 percent in eight of
the past 10 years. During that time the best the U.S. did was 3.8
percent in 2003. In eight of the past 10 years the U.S. has achieved
less than 3 percent growth.

China’s education system is pretty good, and so is its infrastructure
(roads, bridges, railroads, communications). Its people have a strong
work ethic, and its government is determined to make China a world-
class competitor in most industries.

In the worldwide economic crisis of the past three years, China held
up better than most countries. In 2009, for example, China’s GDP
increased 10.7 percent. That compares with growth of 0.1 percent in
the U.S., shrinkage of 3.9 percent in Japan, and shrinkage of 2.4
percent in Germany.

Is China fudging its growth figures? Intelligent people have raised
the question, but on the whole it seems to me that independent
variables such as imports of steel and copper are consistent with the
picture the Chinese government paints.

Five Picks

On balance, I believe it is reasonable for U.S. investors to put a
portion of their assets in China. I suggest 5 percent for most
investors and 10 percent for those with high risk tolerance.

More than 200 Chinese companies trade in the U.S., and more than 100
of them have a market value of $100 million or more. Here are five
Chinese stocks that I think deserve consideration.

China Marine Food Group Ltd., based in Fujian, processes, distributes
and markets fresh fish and seafood. I like its profit margins (pretax
margin of 26 percent in 2008) and low debt (less than 8 percent of
equity). The stock sells for 12 times earnings.

Tianyin Pharmaceutical Co., with headquarters in Chengdu, makes
medicines based on traditional Chinese herbal remedies. Its debt is
low (less than 3 percent of equity) and it earned an admirable 21
percent return on equity in the fiscal year ended June 2009. The stock
sells for 11 times earnings.

Going Mobile

Sutor Technology Group Ltd., based in Changsha, makes galvanized
steel, steel pipe and steel sheet for appliances and cars. Its stock
is selling well below book value (assets minus liabilities) per share.

Universal Travel Group, located in Shenzhen, is a travel agency that
has grown to $98 million in revenue last year from $10 million in
2006. Since the company started trading publicly in 2005, earnings
have risen each year except for 2009. The company is debt-free and the
stock sells for eight times earnings.

One can also get exposure to China by buying stock in companies that
have their headquarters in Hong Kong but do most of their business in
mainland China. One that I like is China Mobile Ltd., the world’s
largest phone operator by market value.

China Mobile’s revenue is running at an annualized pace of about $64
billion, up from about $30 billion in 2005. Analysts estimate that it
earned 83 cents a share (in U.S. currency) in 2009, up from about 80
cents the year before. The company has increased its earnings each
year since 1999. The stock sells for about 12 times earnings and has a
dividend yield of 3.7 percent.

Disclosure note: For clients and personally, I own shares of China
Mobile. I have no long or short positions in the other stocks
discussed in this week’s column.

Click on “Send Comment” in the sidebar display to send a letter to the
editor.

--Editors: James Greiff, Laurence Arnold.

For Related Company News: CMFO US <Equity> CN TPI US <Equity> CN SUTR
US <Equity> CN UTA US <Equity> CN CHL US <Equity> CN 941 HK <Equity>
CN

To contact the writer of this column: John Dorfman at
***@thunderstormcapital.com

To contact the editor responsible for this column: James Greiff at
***@bloomberg.net

More From Businessweek

China’s Stocks Fluctuate; Lenders Gain, Mining Companies Fall
http://www.businessweek.com/news/2010-03-21/china-s-stocks-rise-to-three-week-high-lenders-lead-advance.html
Hong Kong Stocks Drop; Developers Fall on China Land Sales Halt
http://www.businessweek.com/news/2010-03-21/china-bubble-anxiety-doesn-t-mean-shun-stocks-john-dorfman.html
China Rail Stocks Rally Most in Shanghai on Exports (Update1)
http://www.businessweek.com/news/2010-03-22/china-rail-stocks-rally-most-in-shanghai-on-exports-update1-.html
China Telecom Profit Misses Estimates on Mobile Costs (Update2)
http://www.businessweek.com/news/2010-03-22/china-telecom-profit-misses-estimates-on-mobile-costs-update2-.html
China’s Stocks Advance to Three-Week High; Banks Lead Gains
http://www.businessweek.com/news/2010-03-22/china-s-stocks-rise-to-three-week-high-banks-lead-advance.html

http://www.businessweek.com/news/2010-03-21/china-bubble-anxiety-doesn-t-mean-shun-stocks-john-dorfman.html

Bloomberg

Asian Stocks Fall the Most in a Month on Concern Over Stimulus
March 21, 2010, 11:50 PM EDT
By Shani Raja

March 22 (Bloomberg) -- Asian stocks fell the most in a month after an
International Monetary Fund official said advanced economies will
struggle to tackle public debt and on concern central banks will boost
efforts to curb inflation.

BHP Billiton Ltd., the world’s largest mining company, lost 1.7
percent in Sydney as commodity prices slumped after India’s central
bank unexpectedly raised interest rates last week. PetroChina Co., the
nation’s biggest energy producer, slumped 2.7 percent in Hong Kong
after agreeing to a takeover of Australia’s Arrow Energy Ltd. Posco,
Asia’s biggest maker of stainless steel, sank 2.9 percent in Seoul on
speculation global demand will slow.

“Investors are increasingly jittery about the inflationary outlook and
high levels of sovereign debt,” said Tim Schroeders, who helps manage
about $1.1 billion at Pengana Capital Ltd. in Melbourne. “The IMF’s
comments switch the spotlight to a medium-term limitation of the
global economy.”

The MSCI Asia Pacific ex Japan Index fell 1.2 percent to 416.23 as of
12:30 p.m. in Tokyo, with four times as many stocks declining as
advancing. The gauge gained 1.3 percent last week after the U.S.
Federal Reserve pledged to keep borrowing costs near zero for an
“extended period” and as the Bank of Japan expanded a bank-loan
program.

Japan’s markets are closed today for a holiday. Hong Kong’s Hang Seng
Index dropped 2 percent, the biggest decline among Asia-Pacific equity
benchmarks. South Korea’s Kospi Index lost 1.2 percent, Australia’s
S&P/ASX 200 Index retreated 0.8 percent, and China’s Shanghai
Composite Index was little changed.

Rate Surprise

Futures on the Standard & Poor’s 500 Index fell 0.7 percent. The gauge
declined 0.5 percent on March 19 as India’s surprise rate decision
that day spurred speculation that withdrawal of economic stimulus
policies will curtail global growth. India’s central bank raised
interest rates for the first time in almost two years, saying that
controlling price-gains was imperative after inflation accelerated to
a 16-month high.

“India raising rates is seen as a precursor to other big- spending
economies tightening fiscal measures, and we know how traders will
react to that,” said Chris Weston, a Melbourne- based research analyst
at IG Markets. “The narrative from the IMF shows it’s going to be a
bumpy ride for 2010, but the potential pullback should also entice
some fresh investment opportunities.”

‘Acute’ Challenges

Advanced economies face “acute” challenges in tackling high public
debt, and unwinding existing stimulus measures won’t come close to
bringing deficits back to prudent levels, John Lipsky, first deputy
managing director of the International Monetary Fund, said in a speech
yesterday at the China Development Forum in Beijing.

Materials- and energy-related companies fell the most among the 10
industry groups in the MSCI Asia Pacific ex Japan Index. BHP Billiton
dropped 1.7 percent to A$42.45, and Rio Tinto Group, the world’s third-
biggest mining company, lost 1.5 percent.

Crude oil retreated the most in three weeks in New York on March 19,
slumping 1.9 percent to settle at $80.68 a barrel, while copper
futures for May delivery dropped 0.7 percent to $3.3725 a pound.

Cnooc Ltd., China’s biggest offshore oil explorer, sank 2.5 percent in
Hong Kong, while in Sydney, Santos Ltd., Australia’s third-biggest oil
and gas producer, dipped 0.8 percent to A$14.13. PT Bumi Resources,
Asia’s largest exporter of power- station coal, fell 2.9 percent to
2,500 rupiah in Jakarta trading.

Commodities, Valuations

PetroChina slumped 2.7 percent to HK$8.97. The company, along with
Royal Dutch Shell Plc, agreed to buy Australian coal- seam gas
producer Arrow Energy after raising their offer to A$3.5 billion ($3.2
billion). Arrow shares fell 3 percent to A$5.13 in Sydney.

Today’s decline in the MSCI Asia Pacific ex Japan Index wiped out its
increase this year. Concern that governments will withdraw policies
that have fueled economic growth, and that Greece will struggle to
curb its deficit, has offset optimism from reports showing improving
U.S. manufacturing and employment.

Shares in the Asian gauge trade at 14.4 times estimated earnings,
compared with 15.1 times for the MSCI World Index. The world index has
risen 1.8 percent this year.

“There is still cause for optimism,” said Pengana’s Schroeders.
“Valuations overall remain attractive, bolstered by increasing levels
of merger-and-acquisition activity as consolidation amongst companies
in certain sectors continues.”

Posco sank 2.9 percent to 531,000 won in Seoul, while in Hong Kong,
Aluminum Corp. of China Ltd. lost 3.2 percent to HK$8.13. Baoshan Iron
& Steel Co., China’s largest publicly traded steelmaker, declined 1.9
percent to 8.12 yuan in Shanghai. BlueScope Steel Ltd., Australia’s
biggest steelmaker, retreated 1.4 percent to A$2.78 in Sydney.

--Editors: Nicolas Johnson, John McCluskey.

To contact the reporter for this story: Shani Raja in Sydney at
***@bloomberg.net.

To contact the editor responsible for this story: Nicolas Johnson in
Tokyo at ***@bloomberg.net.

More From Businessweek

Argentine Bonds Posts Third Weekly Gain on Debt Exchange Bets
http://www.businessweek.com/news/2010-03-19/argentine-bonds-posts-third-weekly-gain-on-debt-exchange-bets.html
U.S. Stock Futures Advance; S&P 500 May Extend 17-Month High
http://www.businessweek.com/news/2010-03-21/asian-stocks-drop-on-concern-over-stimulus-bhp-posco-decline.html
JFE Shoji Shares Jump After Nomura Recommends Steel Wholesaler
http://www.businessweek.com/news/2010-03-11/jfe-shoji-shares-jump-after-nomura-recommends-steel-wholesaler.html
Asian Stocks Drop on Concern Over Stimulus; BHP, Posco Decline
http://www.businessweek.com/news/2010-03-21/asian-stocks-drop-on-concern-over-stimulus-bhp-posco-decline.html
China’s Shanghai Composite Index Fluctuates, Gains 0.2 Percent
http://www.businessweek.com/news/2010-03-22/china-s-stocks-enter-bullish-triangle-wang-says-update1-.html

http://www.businessweek.com/news/2010-03-21/asian-stocks-drop-on-concern-over-stimulus-bhp-posco-decline.html

Bloomberg

Euro Trades Near Three-Week Low Amid Signs Greek Aid in Doubt
March 22, 2010, 11:28 AM EDT
Ben Levisohn

March 22 (Bloomberg) -- The euro traded near the lowest level in
almost three weeks versus the dollar as European leaders debated what
measures may be needed to aid Greece in tackling its budget deficit.

The yen rose against all of its major counterparts. Ulrich Wilhelm, a
German government spokesman, said European Union leaders may decline
to make a decision on financial aid for Greece at a summit this week
because the country hasn’t asked for help. Australia’s dollar and the
South African rand fell versus the greenback on concern global
sovereign debt burdens will stifle the economic recovery.

“The euro has been pretty volatile,” said Camilla Sutton, a Bank of
Nova Scotia currency strategist in Toronto. “It’s just ongoing
uneasiness about what will transpire in terms of support for weaker
euro members.”

The euro touched $1.3464, the weakest level since March 2, before
trading little changed at 1.3522 at 11:25 a.m. in New York, compared
with $1.3530 on March 19. The yen rose 0.6 percent to 121.79 per euro,
from 122.51 on March 19. It gained 0.5 percent to 90.06 per dollar,
from 90.54.

The euro may fail if European leaders don’t decide quickly on helping
Greece in financing the region’s biggest budget deficit, Reuters
reported that Deputy Prime Minister Theodoros Pangalos said. Without a
speedy decision, the euro will make no sense and it will take decades
to recover, Pangalos said in Athens, Reuters reported.

EU leaders must not create “illusions” for markets by building
expectations for Greek aid, German Chancellor Angela Merkel said in an
interview with Deutschlandfunk radio that aired yesterday. Her remarks
came after Greek Prime Minister George Papandreou and European
Commission President Jose Barroso said the bloc should spell out its
rescue plan at the March 25- 26 summit in Brussels.

--With assistance from Keith Jenkins in London. Editors: Greg Storey,
Dave Liedtka

To contact the reporter on this story: Ben Levisohn in New York at
***@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at
***@bloomberg.net

More From Businessweek

Amylin, Alkermes Gain as FDA Needs No New Byetta Data (Update1)
http://www.businessweek.com/news/2010-03-15/amylin-alkermes-gain-as-fda-doesn-t-need-more-byetta-data.html
Obama Said to Send Volcker Rule Legislation to Congress
http://www.businessweek.com/news/2010-03-03/obama-said-to-send-volcker-rule-legislation-to-congress.html
Paulson Tells Buffett Banks to Repay ‘Every Penny’ (Update1)
http://www.businessweek.com/news/2010-02-09/paulson-tells-buffett-u-s-to-get-back-every-penny-from-banks.html
Mexican Peso Bonds Posts Biggest Weekly Advance in Nine Months
http://www.businessweek.com/news/2010-02-12/mexican-peso-bonds-poised-for-biggest-weekly-gain-since-may.html

http://www.businessweek.com/news/2010-03-22/yen-reaches-week-high-versus-euro-on-rate-outlook-stock-losses.html

The safest stockmarket in the world today Mar 22, 2010

The loss of momentum that most of the world's stock markets suffered
since last October has been followed by potential top formations which
could result in a return to equity markets travelling south.

For the time being, on low volume, stock markets continue to
consolidate; like the Sirens of Greek mythology they offer
considerable but potentially fatal temptations. It is evident that the
"Big Story" is not sufficiently imposing itself upon the minds of
investors, although volume is light and, as Michael Kahn said in
Barron's on 17th March: "Ignore the market's low volume at your
peril."

He also quoted from the bible of technical analysis, Edwards & Magee's
Technical Analysis of Stock Trends, which says "Volume is of the
utmost importance in all technical phenomena." Volume tells us of the
conviction of the marketplace. We recently identified that the high
volume days since October were mostly associated with selling. Such a
situation is indicative of distribution; investors moving out of the
market. Hence the loss of momentum.

Mohamed El-Erian of PIMCO recently wrote an article in the Financial
Times headlined "How to Handle the Sovereign Debt Explosion". He
opened with the following statement: "Every once in a while the world
is faced with a major economic development that is ill-understood at
first and dismissed as of limited relevance, and which then catches
governments, companies and households unawares." PIMCO runs the
world's biggest bond fund and bond investors are very savvy. PIMCO's
top guns quite clearly see the gorilla in the room (the "Big Story")
which other investors conveniently ignore but which, when it is ready,
will manifest itself.

Low interest rates continue: both the UK and US have yet again held
them unchanged. A signal of economic fragility, not economic recovery.

In spite of the Federal Reserve over the last year expanding the
monetary base by 35%, M2 grew by only 2.1% as commercial and personal
loans contracted an unprecedented 20%. Moreover, the key indicator M3,
which the US government chooses no longer to calculate but which is
calculated by John Williams of Shadow Government Statistics, shrank
3%. Historically every time M3 has contracted, the economy has turned
lower. The approaching double dip is like a performer in the wings
waiting to go on for an encore. For effect he keeps the audience
waiting longer than seems comfortable, timing his entry to gain the
maximum impact. Likewise the double dip but, when it happens, it will
overwhelm.

There has been a distinct weakening of the housing market on both
sides of the Atlantic. These last two weeks in the US it was reported
that pending house sales had fallen in January by 7.6% and in February
housing starts fell 5.9%, although the weather might have had
something to do with that.

The US market for new houses remains plagued by the large inventory of
distressed properties for sale with prices less than construction
costs - and more foreclosures to come. If there was one key indicator
for both the US and the UK economies it would be the house market,
which was until 2007 the lynchpin for households' finances.

Most stock markets today are like houses without foundations built in
a flood area; whilst the weather remains OK, the risk is invisible but
it will, in due course, have its way, and that moment is getting
nearer.

Might Japan be different? David Rosenberg, of Gluskin Sheff &
Associates, recently wrote, "By the way, the Japanese economy is
turning into the 'sleeper' of the year – very quietly turning in some
very impressive data of late and it has been the best performing
economy in the industrialized world since the bottom a year ago and
few realise this – there are press reports out of the Nikkei that the
government is about to lift its assessment of the economy. Investors
take note that the Japanese equity market is one of the few in Asia
that is in the green column year-to-date".

Unquestionably, Japan is different. The Nikkei today is just below
11,000 - almost 75% below its high of 20 years ago. On scanning the
history books for any kind of comparison we come up with America in
1929. In 1929 the Dow fell 90% and did not regain its 1929 level until
1954 – 25 years later. When the Nikkei Dow regains its old high of
almost 40,000 it will have climbed almost 300% on its current levels.

Above is the long term chart for the Nikkei, showing the huge support
level. Two arrows indicate a possible long-term double bottom. If ever
this market is to recover, it would at first look a bit like that.

The five year weekly price chart (above) shows that the downtrend from
2007 has been overcome and is followed by a period of consolidation. A
breakout above 11,000 would be a positive signal.

• This article was written by Full Circle Asset Management , and was
published in the threesixty Newsletter on 19 March 2010.

http://www.moneyweek.com/investments/stock-markets/ditch-the-stockmarkets-fading-rally-01201.aspx

Google and China's Future
Posted by Michael Schuman Monday, March 22, 2010 at 5:59 am

Google's dispute with the Chinese government has taught us a lot about
modern China. The disagreement was sparked by the company's January
decision to stop filtering Internet searches by its Chinese users and
could lead to the closure of Google's Chinese search engine, or
perhaps an even more drastic withdrawal from China. (An announcement
from Google could come this week.) The case has exposed the myth that
China is a great place to do business for foreign companies. Google's
step also moves China closer to having a “different” Internet than the
rest of the world, one dominated by Chinese companies and policed by
the Chinese government.

China's leadership doesn't appear to care much about the impact of
Google's possible departure. But should they? The Google case begs a
fundamental question about China's future:

Is there a connection between human rights and economic progress?

Americans like me were brought up to believe that free enterprise and
free societies are inseparable, that you can't have one without the
other. The demands of a successful market-based economy, we've always
believed, require the open flow of information in order for investors,
businessmen and bankers to make proper decisions. Civil liberties are
the basis for the innovation and inspiration that make capitalist
economies thrive. Curtailing personal freedoms – such as restricting
people's access to the world wide web – would eventually come back to
haunt a country's economic development, by disconnecting the economy
from the rest of the world, stifling crucial information and hampering
creativity. In other words, the traditional thinking on the
relationship between politics and economics tells us that China's
stand on human rights could cause it to miss out on crucial
opportunities necessary for its future growth.

China sees things very differently. Its leadership believes democracy
is not a requirement for a market-oriented economy; instead, you can
have economic success without political openness. That's what the 1989
massacre on Tiananmen Square was all about. Deng Xiaoping, China's
most influential leader back then, believed political reform would
undermine his efforts to develop the economy. Not much has changed in
China's thinking over the past 20 years on this issue. President Hu
Jintao and Premier Wen Jiabao simply won't believe that allowing
Chinese citizens to surf freely on the Internet about sensitive topics
-- Falun Gong, Tibet, the Tiananmen Square massacre itself -- will in
any way enhance its economic prospects.

So far, it's easy to say that China's leadership is correct. After
all, China's economy has been the world's fastest-growing for the past
forever, and is likely to become the second largest economy next year
(surpassing Japan, a democracy, no less). Meanwhile, the free
democracies of the West weren't saved from financial catastrophe by
their free Internet policies; in fact, some would argue, the recent
economic crisis was caused by too much freedom, and not enough
government regulation and control.

At the same time, it's notable that there are hardly any countries
around the world that have regimes that severely restrict civil
liberties and also have thriving economies. It is true that out here
in Asia, most of the region's rapid-growth economies were governed by
dictatorships or something akin to one-party systems in their early
years of development. (India is the glaring exception.) But that's no
longer the case. Just about everywhere, they've either become vibrant
democracies (South Korea, Taiwan, Indonesia) or more politically open
over time (Malaysia). The question to ask is: Are these economies
better off because of democratization and the improvement of human
rights? The only way to know for certain is to hop into a time
machine, zip back to the late 1980s, engineer continued autocratic
rule and see what happens. But it is intriguing that in the more
advanced economies (I'm thinking South Korea and Taiwan here) there
has been a tremendous improvement in recent years in product
development and design, innovation, branding and marketing, and that
these trends have coincided with the advancement of civil society and
the arts – and the use of the Internet – under liberal political
systems.

I'm not going to venture a guess as to whether China will or will not
require political reform to keep its growth story going. Yet we'll
find out soon enough. The real test of China's political and social
policies will come as it attempts to shift from an economy that makes
cheap stuff to one that innovates and invents advanced products and
technologies. Only then will we find out if the government's control
of information and personal freedoms will hamper its efforts to catch
up with the United States, Japan and South Korea. Perhaps then China
will realize the importance of having Google in its economy rather
than outside of it.

http://curiouscapitalist.blogs.time.com/2010/03/22/google-and-china%E2%80%99s-future/

Page last updated at 06:52 GMT, Wednesday, 17 March 2010
Japan's central bank seeks to boost lending

Deflation tends to make consumers delay purchases as prices fall
Japan's central bank has increased a stimulus measure aimed at
encouraging financial institutions to lend more.

It has doubled to 20 trillion yen (£145bn; $220bn) the amount of cheap
short-term loans it is offering banks.

The scheme, which lends money at a rate of 0.1%, was introduced in
December to try to tackle the deflation which is threatening Japan's
economic recovery.

The Bank also voted to hold interest rates at 0.1% - the level at
which they have been since December 2008.

Bank pressure

Data released last week showed that Japan's economy grew by less than
first estimated in the final quarter of 2009.

The Cabinet Office said the economy expanded by 0.9% between October
and December of last year, down from its initial estimate of 1.1%.

That downward revision increased pressure on the Bank of Japan to ease
monetary policy.

However, with interest rates already down to 0.1%, it does not have
much room to move.

The continuing problem of deflation is bad for an economy as it tends
to make consumers and businesses delay major purchases in the
expectation that prices will fall further in the future.

Japan has a history of struggling with deflation. The 1990s are often
referred to as Japan's "lost decade" because of its 10-year struggle
with falling prices.

The period followed a collapse in prices in the housing market and the
stock market at the end of the 1980s.

http://news.bbc.co.uk/2/hi/business/8571624.stm

Labor reforms? Japan limits on part-timers please no one.

In Japan, labor reforms approved last Friday to protect temporary
workers – now about one-third of the workforce – were met with
criticism on both sides. Firms say they need a flexible workforce,
while laborers say too many loopholes remain.

A man and cars are reflected on windows in Tokyo March 11. In Japan,
labor reforms were approved last Friday to protect temporary workers.

Toru Hanai/Reuters

.By Jonathan Adams, Correspondent / March 22, 2010

Nagoya, Japan
Japan's center-left government approved a bill limiting the hiring of
temporary workers Friday, in a bid to reverse years of labor
deregulation that it says went too far in favoring big business at the
expense of workers.

.But the proposals have drawn fire from all sides. Businesses and some
economists say firms need flexible labor to remain lean amid fierce
global competition. Meanwhile, some workers and small unions argue
that the reforms don’t go far enough.

The cool reception reflects growing disillusionment with the
Democratic Party of Japan (DPJ), which took power last year with lofty
ambitions but is now being dealt a reality check on some of its pet
policies.

It's been forced to retreat on several issues – scaling back a
populist pledge to slash highway tolls, for example, and cutting in
half its proposed child-rearing subsidy, from 26,000 to 13,000 yen
($145), at least in the first year of implementation.

Meanwhile, the DPJ cabinet's approval ratings have plunged to 34
percent, from around 70 percent when it took power, according to the
latest poll from the Japanese daily Asahi Shimbun.

The labor bill is just the latest example of the DPJ's struggle to
balance competing priorities while playing complex coalition politics.

"People are getting more and more frustrated about increasing
inequality, and the DPJ has to take care of this national
frustration," says Koji Murata, a professor at Doshisha University in
Kyoto, about the labor bill.

"But this type of regulation may decrease Japanese companies'
competitiveness. That's a catch-22 for the Japanese economy."

Promises, promises
The measure fulfills a campaign pledge made by the DPJ during last
summer's election campaign.

The bill approved by the cabinet Friday will ban "dispatch" work, or
short-term contract work arranged through a third company, in the
manufacturing sector. That rolls back liberalization measures in 2004
under the more business-friendly Liberal Democratic Party (LDP)
government.

The new measures would also ban one-or two-day dispatch work
contracts.

The bill now goes to the Diet, or parliament, where it is expected to
pass within weeks.

Such measures are a response to widespread indignation over the mass
firing of dispatch laborers when the recession hit in 2008.

Dispatch workers, along with part-time, subcontract, and other
nonpermanent labor, now make up about one-third of Japan's 56 million-
strong workforce.

The labor reforms are supported by Rengo, Japan's largest trade union
confederation and a pillar of DPJ support. Most of its nearly 7
million members are permanent, full-time workers at big-name firms
like Toyota and Panasonic.

But former dispatch workers, activists, and smaller unions
representing temp workers say the changes won't take effect for three
to five years, and that firms will easily find ways to sidestep the
new measures.

‘Just in time’ workforce
As recently as the 1980s, Japan was famous for its social bargain.
Salarymen gave firms long hours and unquestioned loyalty, and in
return, companies took care of them for life.

Firms began relying on temporary labor in the late 1990s, with the
help of LDP-led deregulation, says Yasushi Iguchi, a labor expert at
Kwansei Gakuin University. Prime Minister Junichiro Koizumi's policies
accelerated that trend.

Firms took on more part-time workers, dispatch labor, migrant labor
from depressed regions like the northern island of Hokkaido, and
foreign labor, especially Brazilians of Japanese descent and low-paid
Chinese "trainees."

.In 1999, 26 specialized sectors were allowed to hire dispatch labor,
he said, and in 2004, dispatch work was allowed in manufacturing
firms. Dispatch labor boomed, peaking at 2.2 million in 2007, only to
plunge during the global recession as firms shed workers.

Japan’s economic downturn pushes more onto streets
How Japan views Toyota recall woes

.Iguchi called such dispatch labor a "just-in-time" workforce,
complementing the famous "just-in-time" manufacturing model of Japan's
corporate titans like Toyota. Workers are hired only when needed, and
cut when orders are slack.

Such an arrangement has helped Japanese firms control costs. But it
provides little security for workers, who are paid less and receive
fewer benefits than permanent, directly-hired employees.

Skeptical workers
At a union office in Japan's manufacturing heartland, one tousle-
haired former dispatch worker, who did not want his name used, told a
typical tale.

He worked for 6-1/2 years as a dispatch worker for Mistubishi
Electronics in Aichi Prefecture. He clocked 60-hour weeks and had the
same responsibilities as permanent workers. But he earned less than
half of what they made, only 1,120 yen (about $12.40) per hour.

Mitsubishi sometimes gave two or three dispatch workers permanent
jobs, giving hope to the rest. "Me and my coworkers thought, maybe one
day we'll be taken on, too," he says.

Instead, in December 2008 he and 40 other dispatch workers in his unit
were summoned by Mitsubishi bosses and fired, with a week's notice.
The recession had hit with full force and they were no longer needed;
the unit's 20 permanent employees would stay on.

Now, he's supporting his wife and child with a job training allowance
provided by the government, which he can receive for six months.

He and two other former dispatch workers have taken legal action
against Mitsubishi. They're asking for 6 million yen ($66,000) each in
compensation. They argue that under labor regulations, Mitsubishi was
required to offer permanent employment after three years of work.
Mitsubishi Electric declined comment, saying the case was still in
litigation.

The worker says the DPJ's reforms don't go far enough. "They're no
good," he says flatly. "People will still be able to be fired easily,
and in practice nothing will change for workers like me."

The wrong solution?
Chie Matsumoto, a Tokyo-based labor rights activist, agrees. "There
are other temporary employment systems in Japan that would still leave
working conditions unstable," she says.

Iguchi, the labor economist, says firms will simply turn to other
avenues of hiring non-permanent workers. He says that improving
unemployment benefits would have more impact.

The government should also enforce equal pay for equal work, he says,
to close the wage gap between regular and "irregular" workers. He
cites research showing that a full-time male worker in Japan typically
makes more than three times what a part-time female worker makes for
the same work.

"The idea that if you ban dispatch labor you'll have no 'working poor'
– it's an illusion," he says.

Saichi Kurematsu, chairperson of the Aichi Prefectural Federation of
Trade Unions, says some of the new measures were welcome, such as
banning one-day contracts.

But he says 70 percent of the dispatch workers fired during the recent
recession were on monthly contracts, not daily ones. He called for
better unemployment benefits, and said companies should be required to
offer permanent employment to any temps who work for them for longer
than a year.

"During the Koizumi government, the liberalization of labor rules
created a very difficult situation for workers," says Kurematsu. "We
were very happy to see that administration thrown out. But after six
months [of DPJ-led government], we're less happy."

"We think the reforms are insufficient," he says. "They don't deal
with the real problems."

http://www.csmonitor.com/World/Asia-Pacific/2010/0322/Labor-reforms-Japan-limits-on-part-timers-please-no-one

Why The Yuan Will Replace The Dollar As The World’s Largest Reserve
Currency
Published on: Monday, March 22, 2010 Written by: William Patalon
III

China owns world's largest consumer population, and their economy is
projected to become as large as the United States within the next ten
years. With that in mind, many believe that China's growing status as
an economic superpower will create a global market where the yuan, US
dollar and euro will become the core of the world's currency markets.
Some analysts are even going so far as to say that the yuan will
eventually surpass the US dollar as the world's chief reserve
currency. See the following article from Money Morning for more on
this.

Back in May, just after he'd completed his latest investing tour of
China, Money Morning Chief Investment Strategist Keith Fitz-Gerald
made a bold prediction: China's currency, the yuan, is destined to
dethrone the U.S. dollar as the world's chief reserve currency.

Earlier this week, Fitz-Gerald's prediction acquired a powerful new
disciple: Goldman Sachs Group Inc. (NYSE: GS) Chief Economist Jim
O'Neill.

In an essay that's part of a report published Friday for Chatham
House, a London-based foreign-affairs researcher, O'Neill wrote that
China's yuan is destined to become a global reserve currency on par
with the U.S. dollar or European euro.

China's emergence as an economic superpower will escalate the demand
for the Asian giant's currency, which is also known as the renminbi,
or "people's money." Beijing will "eventually" permit the yuan to
trade freely on foreign-exchange markets, discarding the current
system under which the government controls the currency's value, wrote
O'Neill, whose essay was part of the Chatham House report titled,
"Beyond the Dollar: Rethinking the International Monetary System."

"As China moves in this direction, other large emerging economies will
presumably gradually move in the same direction and the end result
will be something approximating to today's Western monetary system,"
O'Neill wrote. "Under such a system, the renminbi, dollar and euro
would all form the linchpin of the world's currency markets."

Back in May, in a news-analysis piece titled "China Seeks to Dethrone
the Dollar, Transforming the Yuan into the Dominant Global Currency,"
Money Morning's Fitz-Gerald outlined a series of high-level currency
swap agreements worth more than $95 billion (650 billion yuan) that
China had reached with an array of nations - a core piece of a
strategy Beijing is deploying to elevate the yuan's global status.

Fitz-Gerald was actually among the group of investing gurus who years
ago predicted that China would ascend to a position of world
leadership. As part of that thesis, Fitz-Gerald also said that China’s
currency would move up in importance and would one day become a key
reserve currency.

When China initiated the currency-swap strategy last May, he issued a
formal prediction that underscored those beliefs. "The Chinese yuan is
already well on its way to becoming that globally accepted standard
unit of exchange," Fitz-Gerald wrote in the Money Morning essay. "In
fact, I'd even go so far as to say the dollar's days of dominance are
numbered and with each new round of bailout chicanery, the clock is
winding down ever faster."

By subscribing to this viewpoint, Goldman Sachs Group's O'Neill has
given Fitz-Gerald's prediction even greater credibility. Back in 2001,
in a research paper titled "The World Needs Better Economic BRICs," it
was O'Neill who coined the term "The BRICs" to refer to the emerging
economies of Brazil, Russia, India and China. That term has become so
universal - having moved beyond specialty investing circles - that
it's even used in mainstream conversations today.

Of the four BRIC countries, China is likely to have the biggest impact
in the near term. Sometime this year, in fact, the Asian giant is
likely to leapfrog Japan to become the world's No. 2 economy behind
the United States. In the next 10 years, China is likely to approach
the U.S. economy is size, O'Neill wrote.

Referring to O’Neill’s statements about the yuan’s potential to serve
as a global-reserve currency, Money Morning’s Fitz-Gerald said that “I
think a statement like this is a solid endorsement of what we’ve been
saying for a number of years, now.” The Chatham House "Beyond the
Dollar" report makes several recommendations, including the creation
of a multi-currency-reserve system, and increased use of "Special
Drawing Rights," or SDRs, as a supranational currency, Bloomberg News
reported. SDRs are a unit of account, based on a basket of currencies,
used in International Monetary Fund transactions.

Created by the IMF in 1969 to support the Bretton Woods [Agreement]
fixed-exchange-rate system, the SDR was redefined in 1973 as a basket
of currencies. Today the SDR consists of the euro, Japanese yen, pound
sterling, and U.S. dollar.

The Chatham House report stated that "the dollar-based monetary system
is no longer adequate for a larger and more integrated world economy.
Prominent developing economies are increasingly demanding to be
included in any multilateral dialogue that aims to shape the new
economic order."

This is all a very logical progression, Fitz-Gerald says. “For 18 of
last 20 centuries, China has had the world’s largest GDP,” Fitz-Gerald
said. “Therefore it’s only logical that this country would eventually
have the world’s largest reserve currency. If anything, the notion
that America – with a mere 300 million people – can have a bigger
economy than China, with 1.3 billion people, is the anomaly.” This
transition will take years play out. And U.S. investors needn’t fear
that it will serve as the death knell for the U.S. economy. “Contrary
to what some people are going to say, I don’t think this spells the
end of the dollar and I don’t think that this spells the end of the
American economy,” Fitz-Gerald says. “But I do believe it will prompt
a complete realignment of what we know to be the currency markets of
today.”

This article has been republished from Money Morning. You can also
view this article at Money Morning, an investment news and analysis
site.

Like what you read? Subscribe to our free weekly newsletter:

Countries Continue To Disinvest From The US Dollar
http://www.nuwireinvestor.com/articles/countries-continue-to-disinvest-from-the-us-dollar-53908.aspx
China's Currency Policy Draws Criticism From IMF
http://www.nuwireinvestor.com/articles/chinas-currency-policy-draws-criticism-from-imf-54826.aspx
Forex Investment Market
http://www.nuwireinvestor.com/articles/forex-investment-market-51165.aspx
China's Currency Swaps Are Undermining The Dollar
http://www.nuwireinvestor.com/articles/chinas-currency-swaps-are-undermining-the-dollar-53971.aspx
Global Central Banks Backing Away From US Dollar
http://www.nuwireinvestor.com/articles/global-central-banks-backing-away-from-us-dollar-53859.aspx
US Dollar Is The Cheapest Funding Vehicle For Carry Trades
http://www.nuwireinvestor.com/articles/us-dollar-is-the-cheapest-funding-vehicle-for-carry-trades-53724.aspx
US Dollar Expected To Continue To Fall Against Euro
http://www.nuwireinvestor.com/articles/us-dollar-expected-to-continue-to-fall-against-euro-53927.aspx
Profit Opportunities In The Weak Dollar
http://www.nuwireinvestor.com/articles/profit-opportunities-in-the-weak-dollar-53734.aspx

http://www.nuwireinvestor.com/articles/why-the-yuan-will-replace-the-dollar-as-the-worlds-54895.aspx

...and I am Sid Harth

[bademiyansubhanallah]

Sunday, March 21, 2010
China and U.S.: There Really Is NO Trade Imbalance

Click to enlarge.

Don Boudreaux picks a nit about "trade imbalances" with Jeremy
Warner, who writes an otherwise excellent article in the London
Telegraph about Paul Krugman's misguided suggestion of a 25% surcharge
tax on China's imports American consumers and U.S. companies who buy
goods from China for their low prices and great value:

"You write as if the alleged trade imbalances between the U.S. and
China are real. They are not. The Chinese sell Americans goods; we pay
with dollars; the Chinese then use many of these dollars to buy IOUs
issued by Uncle Sam. Although the result is a measured U.S. current-
account deficit with China, there’s no more any economically
meaningful “imbalance” in such a result than there would be if, say,
Texans lent a lot more of their dollars to Uncle Sam.

Talk of imbalances in trade diverts attention from the real problem:
Uncle Sam’s gargantuan debt. That fast-accumulating debt is a huge
problem. It is caused, though, not by trade with China but, rather, by
Washington’s lack of fiscal discipline. Unless you believe that
protectionism (and only protectionism) would induce Congress to be
more fiscally disciplined, you should avoid all talk of imbalances in
trade and instead talk of imbalances in political institutions that
encourage politicians to give disproportionate weight to the demands
of current voters and to ignore the resulting ill-consequences that
will curse future generations."

MP: The graph above illustrates Don's point that there is no "trade
imbalance" once all international transactions are accounted for:

1. In 2009, the U.S. imported more from China ($354 billion) than it
exported ($93 billion), resulting in a "trade deficit" of -$263
billion on our "current account" (data here).

But that is only part of the international trade story, since there
are also financial transactions that have to be accounted for, and
that deficit on the current account has to be offset somehow, since
all international trade has to balance (it's based on double-entry
bookkeeping).

2. The offsetting balance came from the $263 billion capital account
surplus in 2009, as a result of $263 billion of net capital inflow to
the U.S. from China to buy our Treasury bonds and other financial
assets.

3. The $263 billion capital account surplus exactly offsets the
current account deficit.

Bottom Line: As Don correctly points out, there really is NO trade
imbalance, when we account for: a) exports and imports of goods and
services, AND b) capital inflows/outflows. Stated differently, the
balance of payments is always ZERO. We buy more of China's goods than
they buy of ours, but then China buys more of our financial assets
(bonds and stocks) than we buy of theirs. So in the end, international
trade with China, is balanced, not imbalanced.

Posted @ 10:09 AM Post Link 23 Comments links to this post

23 Comments:

At 3/21/2010 11:10 AM, PeakTrader said...
Government has been successful shifting blame. Consequently, the
private sector is a failure, e.g. the Bush economy, health care, Wall
Street, etc.

The imbalance is government draining dollars from the private sector,
causing a recession, and then refusing to redirect enough dollars
where needed to employ idle resources. So, the U.S. economy has
underperformed over the past three years.

At 3/21/2010 11:20 AM, PeakTrader said...
It's ironic a communist government helped turned the U.S. into a
Marxist-socialist country.

At 3/21/2010 12:55 PM, Anonymous said...
Balance of payments is NOT trade balance.

If a 5-year old boy understands this, I wonder why makes you and your
friend Don not too.

At 3/21/2010 1:51 PM, Benny The Man said...
Well, if Uncle Sam wiped out that Red State Socialist Empire,
demilitarized like the Soviet Union did, and cut other federal
outlays, and then actually balanced the federal budget, then China
would have to buy something else from us other than federal IOUs--
probably our assets, such as our factories, land, and operating
companies.
I guess we would all be speaking Chinese already.

That damn Chinese written language looks effing impossible to learn.
Why can't the Spanish conquer us, or the French?

At 3/21/2010 2:07 PM, Anonymous said...
That damn Chinese written language looks effing impossible to learn.

One language at a time. First, you need to learn English.

At 3/21/2010 3:24 PM, sethstorm said...
I'd like to know how that balance gets restored with regards to
offshored jobs that don't really come back.

That country doesn't seem to be one that will be using robotics
anytime soon. They rely on a constant employer-friendly glut and
currency pegging to keep things the same.

At 3/21/2010 4:10 PM, Lyle said...
SethStorm, there have been stories suggesting that the chinese labor
pool is getting low. Note also that in 5 years the working age
percentage of the population in China starts decreasing. There is now
talk of more doing like where I buy my clothes making them in Pakistan
and other lower cost countries. China has to move up the food chain in
production, to survive just like Japan did. However compared to Japan
they did not get rich enough fast enough to avoid the aging population
problem. Ultimatly we may see clothes made in sub sahahan africa as
the last low cost labor location left.

At 3/21/2010 4:33 PM, PeakTrader said...
Seth, we could stop offshoring and produce the goods ourselves, e.g.
at twice the costs. Given there would be fewer goods to buy, we can
close half the shopping malls in the U.S.

At 3/21/2010 4:44 PM, sethstorm said...

Note also that in 5 years the working age percentage of the population
in China starts decreasing.

It's still a large enough glut to be felt in the US. No matter what
hell-hole you use, that always is the case.

China has to move up the food chain in production, to survive just
like Japan did.

The problem is that they show no sign in moving up. If they can
produce junk that's pegged to be cheaper than most other places, they
can suffer the few products that don't respond.

I'm not sure this would give rise to better conditions out the sake of
running out of people to kill or blacklist into subsistence.

Even Japan is showing signs of moving downward in quality. Yes,
downward.

There is now talk of more doing like where I buy my clothes making
them in Pakistan and other lower cost countries

Already a solid practice for decades. My issue is with limiting the
damage such that very few industries do get offshored.

At 3/21/2010 4:55 PM, sethstorm said...

Seth, we could stop offshoring and produce the goods ourselves, e.g.
at twice the costs. Given there would be fewer goods to buy, we can
close half the shopping malls in the U.S.

The question is would it be suffering more in variety or increasing
the quality of what does exist.

I draw the line when it's being sent to places just to get around US-
derived market forces(where quality usually is forgotten). Usually
this means some undeveloped country that perpetually undercuts US/
Western Europe.

At 3/21/2010 4:58 PM, gettingrational said...
Which foreign coutry holds the most U.S. Treasuries?

Is it China with its vast U.S. reserves because or its 58% share of
the U.S. trade deficit?

The biggest creditor is Japan.

BTW, conflating trade account and current account to counter inbalance
arguments is wrong -- the free exchange of goods and services is being
hijacked by mercantilism.

At 3/21/2010 4:59 PM, sethstorm said...
Further, I'd have no problem with killing the current iteration of it.
Perhaps it would start the discussion as to making a more US-citizen-
friendly form that isn't simply a "job & industry funnel to Third
World".

It's all fun and games until your industry gets attacked (doubly so if
you got out of manufacturing and into another one).

At 3/21/2010 5:07 PM, sethstorm said...

The biggest creditor is Japan.

The only signal that should be given by that is to turn the screws
harder on China.

At 3/21/2010 5:23 PM, PeakTrader said...
Seth, why stop or slow improvements in living standards and the
inevitable shifts into new industries? Moreover, there are quality
standards.

Of course, there could be better policies to deal with displaced
workers e.g. subsidizing college degrees in demand rather than all
college degrees.


At 3/21/2010 7:21 PM, OA said...
gettingrational said...
Which foreign coutry holds the most U.S. Treasuries?
...
The biggest creditor is Japan.

gettingrational, I just popped into the US Treasury website to check
if things changed. And the table has been revised significantly.

It seems like the prior Treasury table was incorrect as the figures
for China are now over $100 billion higher, all the way back to June
2009. It is disturbing that for nearly a year, the Treasury data has
been wrong, and that someone only seemed to notice once that flip
between Japan and China was widely reported.

There actually are two columns reported for June 2009. New 5/series
and Old 5/series. Then the new number carries on from that point.

http://www.ustreas.gov/tic/mfh.txt

At 3/21/2010 8:00 PM, sethstorm said...

Of course, there could be better policies to deal with displaced
workers, e.g. subsidizing college degrees in demand rather than all
college degrees.

Indeed. It is time enough to not presume that the displaced will
automatically transition (or can be with how things are now).

The current policy seems to be optimized for political uses that focus
on harming US citizens. It is too far optimized at destroying than
rebuilding and creating. Creation is just an unintended & selective
side effect.

Halting it would put the issues of fraud and dishonesty front and
center. It would ask if it's really worth using it as a weapon against
having to respond to the US market.

Another part of it would revisit the idea of what really needs a
degree, and what requires it out of liability/legal issues. A degree
is hardly the thing to use to save (or damn) someone (or their
profession).

At 3/21/2010 8:05 PM, gettingrational said...
OA, thank you for the correction to the treasuries report. My source
was the Bangkok Post. Our friends in Asia must be thinking the U.S.
has so much debt they can't keep up with it all -- so do I.

At 3/21/2010 9:13 PM, Frank said...
Of course ther is no trade imbalance with China, the Chinese buy all
the U.S made, televisions, computers, refrigerators, clothes, shoes,
cars, trucks, toys and countless other cheap plastic gadgets.

At 3/21/2010 9:37 PM, juandos said...
sethstorm apparently can't use google: "I'd like to know how that
balance gets restored with regards to offshored jobs that don't really
come back"...

Did YOU sethtsorm support politicos that pushed Sarbanes - Oxley?

Did YOU sethtsorm support politicos that pushed stronger and stronger
CAFE standards?

Did YOU sethtsorm support politicos that pushed harsher punishments
for industries that alledgedly flouted some asinine EPA standard?

Did YOU sethtsorm support politicos that pushed higher corporate tax
rates?

Did YOU sethtsorm support politicos that pushed ObamaCare?

Did YOU sethtsorm support politicos that foisted off the myth that
diversity training was useful?

A 'YES' to anyone of these questions means the odds of more jobs going
offshore is increasing...

At 3/21/2010 10:29 PM, sethstorm said...

A 'YES' to anyone of these questions means the odds of more jobs going
offshore is increasing...

Thank you for proving my point of it being used as a political weapon.
You could have made the case for the opposition and it still wouldn't
have mattered.

At 3/22/2010 4:18 AM, Ron H. said...
Anon @ 12:55

Trade balance is a PART of balance of payments. We buy cheap stuff
from China with dollars, China buys Treasury Bills from US with those
dollars. Balance=0

At 3/22/2010 10:12 AM, juandos said...
"Thank you for proving my point of it being used as a political
weapon"...

No sethstorm, I proved your inability to get a grip on reality...

All those things I mention impinge on the bottom line and the
resulting costs can't be continously foisted off onto the customer
since others will sell a product or service cheaper due to the fact
that they aren't burdened with these sorts of government overheads...

At 3/22/2010 11:51 AM, Mike Razim said...
Many are also claiming that the US manipulates its own currency. So is
the US being a hypocrite: http://bit.ly/aoI5nB Or do we have room to
talk?

About Me

Name:
Mark J. Perry
Location:
Washington, D.C., United States
Dr. Mark J. Perry is a professor of economics and finance in the
School of Management at the Flint campus of the University of
Michigan. Perry holds two graduate degrees in economics (M.A. and
Ph.D.) from George Mason University near Washington, D.C. In addition,
he holds an MBA degree in finance from the Curtis L. Carlson School of
Management at the University of Minnesota. Perry is currently on
sabbatical from the University of Michigan and is a visitor at The
American Enterprise Institute in Washington, D.C.

View my complete profile

Previous Posts

Obamacare Odds on Intrade: 84%
http://mjperry.blogspot.com/2010/03/obamacare-odds-on-intrade-84.html
From 100-1 to 18-1: Improved Disparity for Double-...
90 Seconds to Government Run Healthcare
http://mjperry.blogspot.com/2010/03/90-seconds-to-government-run-healthcare.html
Health Insurance Monopoly: Myths vs. Facts
http://mjperry.blogspot.com/2010/03/health-insurance-monopoly-myths-vs.html
Quotes of the Day: Libertarians
http://mjperry.blogspot.com/2010/03/quotes-of-day-libertarians.html
Cartoon of the Day: Self-Execution
http://mjperry.blogspot.com/2010/03/self-execution.html
Words of Wisdom on Markets
http://mjperry.blogspot.com/2010/03/words-of-wisdom-on-markets.html
Fact of the Day: 200 Million Transactions Per Week...
http://mjperry.blogspot.com/2010/03/fact-of-day-200-million-transactions.html
Why Canada Avoided a Mortgage Meltdown
http://mjperry.blogspot.com/2010/03/why-canada-avoided-mortgage-meltdown.html
Spending on Clothing and Footwear Falls Below 3% o...
http://mjperry.blogspot.com/2010/03/spending-on-clothing-and-footwear-falls.html

http://mjperry.blogspot.com/2010/03/china-and-us-there-are-no-trade.html

Sunday, March 21st, 2010 at 6:16 am
First Moody’s, Now IMF Warns America on Economy
By Andrew Zarowny

First, it was Moody’s, warning the U.S. and other Western nations this
past week about having their bond ratings lowered. Their language was
harsh. “…require fiscal adjustments of a magnitude that, in some
cases, will test social cohesion.” Wow! They have also issued a
warning this week about a potential junk bond bubble. “An avalanche is
brewing in 2012 and beyond if companies don’t get out in front of
this.” By 2012, the U.S. government will need to borrow another $2
Trillion dollars AND refinance existing debt. Now, the International
Monetary Fund is warning about national debts for America and most of
the Western, industrialized nations, too.

You have to wonder just how many canaries must die first before you
exit the coal mine? Despite the warnings, America is now perched to
leap into a whole, new entitlement program, which will increase the
debt and restrict economic growth. Our politicians in Washington are
digging us into a ‘progressively’ deeper hole.

Speaking in China this weekend, IMF official, John Lipsky, told the
audience at the China Development forum that the United States, “a
higher public savings rate will be required to ensure long-term fiscal
sustainability.” How high and how long? He calculates an 8 point swing
over the next ten years will return us to the pre-crisis Debt/GDP
ratio of 60% by 2030. How do you spell AUSTERITY?

Yet, here we are today, facing the first in a wave of more of Obama’s
agenda, which will push government sending higher and further hamper
any growth in our GDP. Moody’s and the IMF are both warning us that we
cannot keep up this pace of government spending. We cannot even keep
up the pace of private equity borrowing! Yet, that is exactly what the
dummies in Washington and Wall Street are proposing to do. Obama
cannot even pick a winner for his brackets of the NCAA basketball
tournament, something he claims he’s an expert at! For all his
education (Harvard, Columbia, and THE prep school in Hawaii), Obama
has yet to demonstrate any rational thinking. America is being led
down a blind alley by an idiot! As I’ve said before, “…woe is us that
Edward George Ruddy died!”

http://www.rightpundits.com/?p=5890

How Much Does Poverty Cost?
by Kathryn Baer March 21, 2010 07:30 AM (PT)

.Commenter Jan Lightfootlane responds to my thoughts on permanent
supportive housing with a terrific question: Do we have research on
how much society would save if it ended poverty?

The closest I know are two major studies that look at how much child
poverty costs the U.S. economy. These are lifelong costs -- in other
words, what our society loses because so many poor children grow up in
poor households.

Eliminating child poverty wouldn't save these costs in the way that
permanent supportive housing has been found to save taxpayer dollars
on health care, imprisonment and so forth. But I think it's fair to
assume that society would gain the same amount if it made the right
investments to lift every child out of poverty. Hard to imagine how
this could be done without lifting parents out of poverty too.

Back in 1997, the Children's Defense Fund published a book entitled
Poverty Matters: The Cost of Child Poverty in America. It's available
only for purchase, alas. But we know from a more recent CDF paper that
the author put the cost at $130 billion in future economic input,
based on an estimated 12 million or so children.

A team of economists led by Harry Holzer took a deep dive into the
same issue in a report from the Center for American Progress issued in
early 2007, The Economic Costs of Poverty in the U.S.: The Subsequent
Effects of Children Growing Up Poor.

The team reviewed studies that estimated the average statistical
relationships between children growing up poor and their earnings,
tendency to commit serious crimes and quality of health in later life.
They also reviewed estimates of the per person costs of crime and poor
health. Then they aggregated the average costs per poor child across
the total number of children growing up poor. (Elegant methodology
but, like the rest of the report, not for the casual reader.)

At the end of the day, they concluded that child poverty costs the
U.S. about $500 billion a year, the equivalent of nearly 4 percent of
the GDP (the total market value of all the goods and services our
country produces). To see your state's share of the costs, check the
table in this report from the University of Washington's Human
Services Policy Center.

Measured as percents of GDP, the costs divided fairly equally between
reduced productivity and economic output (what the grown-up children
would have been likely to earn if their parents hadn't been poor),
higher crime costs and a combination of higher health care
expenditures and reduced value of health (lost quality and years of
life).

As the authors say, these costs understate the full amount our economy
loses due to poverty. They don't include the costs of poor adults who
weren't poor as children. Nor do they include other costs poverty
might impose -- environmental costs, for example, and "much of the
suffering of the poor themselves." Hard to put a dollar value on that.

When the authors crunched their numbers, about 17.4 percent of
children lived below the poverty line. By 2008 (the latest year for
which we have figures), the child poverty rate had increased to 19
percent.

Still, a potential gain of $500 billion a year isn't chump change. So
there's a good economic argument, as well as compelling social and
moral arguments, for investing significantly more than we do in anti-
poverty strategies that work. We don't know as much as we need to
about these. But we know more than enough to get started.

The Center for American Progress followed up on the Holzer team's
study by developing 12 recommendations for cutting poverty in half
within the next 10 years. It asked the Urban Institute to estimate the
impacts and costs of four of these:

•Increase the minimum wage to 50 percent of the average non-
supervisory wage (about what it was during much of the 1950's and
60's).

•Increase the Earned Income Tax Credit, extend it to 18 to 24-year-
olds who aren't full-time students and allow the exclusion of half the
earnings of the lower-income spouse.

•Make the Child Tax Credit fully refundable, rather than a capped 15
cents per dollar per child as it is now.

•Provide a child care subsidy to all families with incomes below 200
percent of the federal poverty line and, at the same time, make the
Child and Dependent Care Tax Credit larger and refundable.

The Urban Institute found that these four, hardly radical measures
would reduce poverty by nearly 26 percent in all and 46 percent for
children, at a net cost of $37.2 billion. CAP says the cost of
implementing all its recommendations would be about $90 billion.

Considering what we're losing due to child poverty today, that seems
like a good return on investment to me.

Thanks for asking, Jan. Hope this helps.

Photo credit: psd

Kathryn Baer

Kathryn is an independent consultant in policy research, analysis and
communications. In addition to for-fee assignments, she provides pro
bono communications services for the advocacy department of a local
nonprofit that serves homeless and other poor people and for
coalitions that work on similar issues. She also maintains her own
blog, Poverty and Policy.
Make a Difference & Spread the WordFacebook
TwitterE-Mail

The Projects Get a Museum Comments (5)
Mar 21, 2010 @ 03:24PM PT
jan Lightfootlane
I am so delighted that someone answered me. I asked our local Maine
group, which is suppose to be the voice of the poor. But we have to
throw out an idea and wait until the leaders of the pack, make's it
their idea. They gave me all the financial, and other reasons, they
could not learn this information.

They have done wonderful things like introduced the "Parents for
Scholars" programs, and made it become real. That means TANF Mothers
and the few fathers can go back to school, to learn more and perhaps
have that reflected in a few more dollars in wages.

I am one of those who wants to remove near 100% of poverty. That means
changing attitudes. To do that we must show how erasing poverty will
improve the lives of the rich.

I will look up these sites and learn from them. This might not be
exactly What I am looking for But it IS a great place to start. Your,
writing this, might get others thinking on if they end human lack,
there could be more possibilities' for a better life. Not just a
better for the poor, but the affluent will have a better life. I can
not Thank you enough! You are one of my top 5 authors here at
Change.org.

I will express my thoughts on ending poverty which you wrote about,
when I stop dancing on the ceiling. Being heard, is an elixir of life.
Thanks again

Mar 22, 2010 @ 06:40AM PT
Kathryn Baer
Glad to be of help, Jan. Here are a couple of further thoughts.

The Parents for Scholars program sounds indeed like a wonderful thing.
Would it be possible for the program to track results-specifically,
the number of participants who find jobs (or better jobs) and the
amount they earn? The number who earn enough to "graduate" from TANF?
These figures would speak directly to costs. And they would be very
interesting to other organizations.

The Half in Ten Coalition was organized specifically to advocate for
strategies that will cut poverty in half in 10 years. It grew out of
the Center for American Progress work I wrote about. The coalition
hasn't thus far produced the kinds of figures you're looking for, but
their site is worth monitoring. It's at http://halfinten.org.

CLASP has just produced recommendations for the reauthorization of
TANF. It too calls for a comprehensive poverty-reduction strategy,
with TANF as one component. It wants the program to shift toward
outcome-based measures so that states would be responsible for how
well (or poorly) their programs alleviate poverty. If Congress adopts
this recommendation, we can look forward to much better figures on
impacts. CLASP specifically wants data on child well-being. Such data
can readily converted to cost/savings estimates. Would it be suitable
and feasible for your local Maine group get behind this
recommendation?

Mar 22, 2010 @ 08:43AM PT
jan Lightfootlane
I will ask them if they have any data the group does not meet until
the second thursday of April. My guess is the Maine Department of
Health & Human Services might have that information.

Must admit, I have not the time right off to read the data, but will
get to it. These Groups are not addressing the attitude changes which
is required to end poverty. The first Report does say Itys being
treated as a moral issue. But Poverty, is not being fully adressed on
morality alone.

My thinking is in the long run everyone saves by ending human lack. We
do not need Governmental gimmacks which serves 1/4 of the people with
1/3 of the need. We need what the son of god said when asked How much
do we give to the poor? Without missing a beat he said we give the
full need.

To me that means we pay the working poor the full need to cover the
basic's. To me that is the solution, directly from the bible. Its a
solution which is seldomly quoted, but it should be. Then it should
be placed into practice. Kathryn, If this wisdom was quoted, then
someone would want America forego Dawerism Economics of survivial of
the fittest, then to apply the Love economics.

Again thank you for answering with information I will read by this
week end.

Mar 22, 2010 @ 09:25AM PT
Desiree Michaels

Another example is the elephant left under the rug during the
discussiong surrounding health reform - costs to adults and their
families. If childless adults weren't forced into both disability AND
poverty to get medical assistance, imagine what they might be able to
contribute to their (OK, it's OUR since I am one) own incomes and to
society via things like taxes and what society would save via things
like Medicaid, foodstamps, etc. OTOH, think about what we ARE
unnecessarily spending because we DO force childless adults into both
disability AND poverty to get medical assistance - Medicaid, Medicare,
disabilty (in many forms), housing programs, costs to their families
(and sometimes friends too), costs to the tax base (and our numbers
include people who run the gamut from minimally trained and educated
to very well trained and educated - like I'm college educated and have
IT certs as are several friends on disability), etc. We're being
penny-wise and pound foolish.

Mar 22, 2010 @ 11:52AM PT
jan Lightfootlane
Yes Desiree They are a penny wise an a Euro Foolish. But we must
educate.

Mar 22, 2010 @ 12:20PM PT
Desiree Michaels
That we must, but it would help if those needing the education would
listen. It currently feels like having a conversation with a brick
wall.

Most Viewed

Changing the Food Access Paradigm
4791 Views
http://uspoverty.change.org/blog/view/changing_the_food_access_paradigm
The Median Net Wealth of Black Women Is $5
4613 Views
http://uspoverty.change.org/blog/view/the_median_net_wealth_of_black_women_is_5
Why Equal Pay Is Key to Fighting Poverty
4113 Views
http://uspoverty.change.org/blog/view/why_equal_pay_is_key_to_fighting_poverty
Why the 2010 Census Is So Important For Poor People
3980 Views
http://uspoverty.change.org/blog/view/why_the_2010_census_is_so_important_for_poor_people
If Junior Skips School, Should Mom and Dad Lose Their Benefits?
3786 Views
http://uspoverty.change.org/blog/view/if_junior_skips_school_should_mom_and_dad_lose_their_benefits

http://uspoverty.change.org/blog/view/how_much_does_poverty_cost

Fascism -- There is a point of no return
Meta-metaDepartment of All The Damn Gall
Sun, 03/21/2010 - 11:32am — jeffroby

It’s ironic that teabaggers are now raising the cry of American
Exceptionalism. The term has a long history, generally along the lines
of U.S. as a beacon of Democracy, young, free, blessed by God. The
Communist Party USA in the 1930’s re-defined the term to claim they
could achieve socialism peacefully, paving the way for their
accommodation with Roosevelt. The teabaggers are today re-defining it
again as America having the right to rule the world, unrestrained by
treaty, law or human decency. America uber alles, you might say.

They have the audacity to call Obama a fascist, even as a U.S. rep at
a teabagger rally proclaims in Huffington Post:

"Fill this city up, fill this city, jam this place full so that they
can't get in, they can't get out and they will have to capitulate to
the will of the American people," he said.

"So this is just like Prague under communist rule?" the Huffington
Post asked.

"Oh yeah, it is very, very close," King replied. "It is the
nationalization of our liberty and the federal government taking our
liberty over. So there are a lot of similarities there."

Earlier, King implored the crowd to bring the nation's capital to a
sort of paralysis. Warning, erroneously, that the health care bill
would fund abortion and fund care for 6.1 million illegal immigrants,
he demanded that concerned citizens "continue to rise up."

"I look back 20 years ago in the square in Prague... when tens of
thousands showed up there and they shook their keys peacefully and
they took over their country and they achieved their freedom back
again," he said. "If you can keep coming to this city, fill up the
congressional offices across the country but jam this city. If you can
get on your cell phones, get on your Blackberries and your email, and
ask people to keep coming to this town. Storm this city, fill up
Washington D.C., jam this capital so they can't move. And if tens of
thousands, hundreds of thousands of you show up, we will win. We will
defeat this bill and you will have your liberty back."

Harks back to the Nazi mobs that prowled the streets of Berlin and
Munich well before Hitler took power. They would bring on the very
thing they profess to decry. Yet the teabagger ranks can’t be
completely reduced to a cynical ploy.

The totalitarian provisions of the Patriot Act are restored at Obama’s
behest, and many teabaggers don’t like the Patriot Act. They’re smart
enough to know that throwing in the word “patriot” doesn’t give carte
blanche. The mandate in Obama’s healthcare bill is indeed an outrage
against individual liberty. Government does intrude more every day,
and who among us would say that this is a benign government. Some of
the complaints are beneficial or relatively trivial, such as anti-
smoking laws or forbidding holding a cell phone while driving. Others,
such as schools spying on their students through their laptops are
more ominous. The total computerization of society gives the
government awesome control to track us, take our bank accounts,
completely paralyze us -- if they so choose.

The government is out of control. Democracy is being rendered
meaningless. A handful of fat cats on Wall Street are bringing on
economic catastrophe. Clear explanations are defied. Meanings are
stood on their head. Things fall apart. Yes, the movement to fascism
must be stopped. Note that I say movement, not a static state of
affairs.

Terminal Crisis

Karl Marx was not a merry old soul. He developed a brilliant model of
capitalist society, much of which is considered liberal truism today.

To put it very crudely, there are capitalists and workers. For
capitalists to profit they have to underpay their workers (extraction
of surplus value in commie lingo). But in underpaying their workers,
they end up with a realization crisis, i.e., they realize there is not
enough money out there to buy their products. This produces a series
of ever-deepening economic crises.

At the same time, capitalism organizes and develops a concentrated
industrial working class (proletariat, as they used to say) which, in
response to these ever-deepening crises, will finally cast off their
chains in socialist revolution. Thus, revolution is seen as
inevitable. There are two major problems here. But this is, after all,
only a model.

Luxemburg

To the extent that Rosa Luxemburg is remembered, it is that she was a
Polish Jew who emigrated to Germany and married communist leader Karl
Liebknicht. They made a courageous but unsuccessful stand against
Germany going to war in 1914. Following the Bolshevik revolution, she
was sharply critical of Lenin’s authoritarianism. The end of World War
I brought on a revolution of sorts led by the Social Democrats. In
January 1919, German workers in Berlin rose up in what is known as the
Spartacist Uprising. It failed. At the behest of the Social Democratic
regime, police smashed in Rosa Luxemburg’s skull with their rifle
butts and threw her body into a canal where it remained frozen until
Spring.

Less known is that Rosa Luxemburg was also a brilliant economist. She
made two revisions to Marxist theory that are relevant here.

(1) Marx’s model was only a model. In reality, capitalism exists
alongside non-capitalist or pre-capitalist modes of production. It can
loot them either through theft by armed force or by imposing unequal
trade relations arising from capitalism’s greater efficiency. Thus
crisis is forestalled or softened. And a segment of the working class
can be bought off.

(2) Capitalist subjectivity is a factor. If they believe they can
continue to invest at a profit, they will continue to invest, even if
the foundation of that belief is false (CDO’s, derivatives, etc.).

In contrast to Marx’s socialist inevitability, Luxemburg put forth the
slogan of “socialism or barbarism.” If revolution failed, the means of
production could be so destroyed that there would be no foundation on
which socialism could be built. (Consider how the socialist
revolutions in Angola and Mozambique turned out.)

But this is just theory.

Fast forward to the 1930’s

Let’s first not focus on why Germany turned fascist but rather why the
U.S. didn’t.

Remember that democracy is the preferred capitalist mode. Yes, they
need to hold down or prevent unionism. Yes, they need to sometimes
stifle dissent to pursue their imperial wars of choice. Other feudal
holdovers like restrictions on abortion and religious fervor can be
useful. But capital thrives best under free trade, a flexible
political process, a mobile workforce freed of any ties that would
restrict it from being deployed -- or laid off -- at capital’s
convenience. An educated, healthy, moralized workforce is the most
productive workforce.

Fascism, on the other hand, is a relatively inefficient, self-
devouring system. Capitalism as a whole, the most powerful, the ones
with the most interest in the total system, at least, will only turn
to it in times of crisis. Of course, the 1930’s were a time of crisis.
Elements of the U.S., oh, let’s get all bolshie and call them the
ruling class, were definitely pro-Hitler. Southern populism had
varying strains, some distinctly progressive, others rabidly racist
and right-wing. The Ku Klux Klan had re-emerged, with a membership of
over 5 million in the 1920’s, with interests going far beyond its
original racial politics (but of course retaining them).

In opposition was a very powerful industrial union movement, with the
Communist Party anchoring it on the left, just as the Christian
Fundies anchored George Bush, and as the teabaggers do for the
Republicans today. And there was the matter of ruling class
subjectivity, per Luxemburg. The “enlightened” elements surrounding
Roosevelt saw prospects in a world in turmoil. The French and British
colonial empires were teetering.. The U.S. was militarily modest but
an economic powerhouse. It was Germany’s largest creditor. Empires in
Asia and Africa would be up for grabs. The U.S. came to terms with the
unions and the CP, and vice versa -- the whole New Deal thing. The
industrial unions were recognized and the country began to arm.

It made moves to cut off Japan’s oil supplies, and the U.S. was
actually spoiling for war in the Pacific.

It DID happen there

Germany was another matter. As is generally known, Germany was in
crisis, crushed by reparations to England and France, rampant
unemployment and inflation, massively indebted to the U.S., ostensibly
disarmed but still lacking the colonial empire that it had gone to war
to acquire in 1914. So the German rulers had turned to Hitler in 1933,
renounced reparations, crushed the unions, set a course to exterminate
the Jews, and launched wars of conquest to Germany’s east.

There are a couple of distortions in this popular impression:

(1) Germany had begun to re-arm well before 1933, and had already been
defaulting on its reparations under the tutelage of the U.S. Thus, in
many ways, Hitler was a continuation of standing German developments,
not a complete break.

(2) The whole picture has an aura of inevitability which is
dangerously misleading.

In Wages of Destruction, a fascinating study of the Nazi economy, Adam
Tooze writes:

In the 1920s, faced with an earlier American effort to reconstitute
the international order, Stresemann’s strategy had been to position
Germany as a key ally of the United States. By contrast, from 1932 the
governments of Franz von Papen, General Kurt von Schleicher and
finally Adolf Hitler adopted a contrary position. Rather than seeking
prosperity and security in multilateral arrangements guaranteed by the
power of the United States, they sought to secure unilateral German
advantage ...

If we are to avoid a depoliticized economic history of the Nazi
regime, we must always bear in mind that even in 1933 there were
alternatives to the economic strategy pursued by Hitler’s government.
And not only that these alternatives might well have brought greater
material benefits to the majority of the German population

In other words, Germany had a choice between becoming a junior partner
of the U.S. or embarking on a course of war. Fascism was a choice. We
will come back to this later.

Fast forward to today

This is a crisis we are in. No one pretends that manufacturing jobs
are coming back. Outsourcing is permanent. When you call the support
line, the Indian-accented voice on the other end is more confident,
more competent. No longer a joke. Jobs aren’t coming back. Jobs people
do have are lower-end. You need a B.A. to even apply for work as a
receptionist. Poverty is spreading. The safety net is collapsing. Tent
cities are becoming a normal part of the landscape, as are police
raids to tear them down. The only way there will be any recovery at
all is if recovery itself is redefined to mean a rising stock market
amid mass hunger, homelessness and despair. The Fed keeps pumping out
devalued cash, the international finance folks hold each other’s hands
over the abyss. This is all very bad, but this is not fascism.

Teabaggers march confident through the halls of Congress. Elected
officials call for the overthrow of their own government. Obama
reaffirms preventive detention and the worst tyrannies of the Bush
regime. Be named an enemy combatant and disappear forever. This is
also very bad, but this is not fascism.

We wage open war in Iraq and Afghanistan, and openly wage covert war
in Pakistan. We threaten war with Iran, and some threaten war with
Islam itself. This too is bad, but it is not fascism.

Abortion, while sort of legal, is inaccessible to millions of American
women. Healthcare is a disaster that the Democratic healthcare bill
will not salvage. Rape and domestic violence are on the rise. The
skill level of the American workforce is deteriorating. The social
fabric is unraveling. We have long surpassed the world of 1984 and
Network, as Escape from New York looms on the still-distant horizon.
This is bad, but it is not fascism.

Fascism is not a state of affairs. It doesn’t reduce to a checklist
extrapolated from the characteristics of Nazi Germany. It is a
process, it is a movement.

Obama the tactic of choice

Certainly a fascist movement is afoot. Teabaggers prowling Congress,
bussed from confrontation to confrontation with corporate dollars and
Fox News their wholly-owned subsidiary (or vice versa). Minutemen
“defend” our southern borders, national convention cities turned into
police states (they’re practicing up). Yet our rulers have not decided
to pull the fascist trigger. Obama -- funded by Wall Street and big
Pharma -- is their agent of choice. A Republican carrying out current
policies would engender resistance, if only out of Democratic Party
craven self-interest. As mentioned before, capitalism operates best
under democracy.

Repression and brute force are expensive and clumsy. Better to have
the consent of the governed. Thus domestically, Obama’s job is to co-
opt progressives into supporting his policies, or at least disarm
them. So far so good. Internationally, a go-it-alone approach to the
economic collapse would bring on speedy catastrophe. Maintaining the
current illusion of a functioning international economic system
requires a degree of cooperation and simple tact that a Republican
regime would be incapable of, and which the teabaggers -- with their
revival of American Exceptionalism -- explicitly reject.

Unfortunately, the current equilibrium cannot be maintained
indefinitely.

Back to Luxemburg

Recall that Rosa Luxemburg put forward two ways that capitalism could
postpone terminal collapse. First was by devouring pre-capitalist
modes of production. That process has by-and-large run its course.
Large swaths of the earth are now reduced to utter destitution, e.g.,
Africa. The rest have now become industrial powers of varying
strength, with emerging powerhouses India and China leaping forward as
they absorb the remnants of their peasant economies. China, India,
Russia and Brazil now constitute a viable power bloc resistant to U.S.
capital penetration. While weaker than the U.S., especially
militarily, they grow with a solid manufacturing base, while U.S.
industry rots behind its fortress walls.

It now lives based on the second factor -- capitalist subjectivity.
The ruling class either believes or hopes it can maintain itself by
continuing to pile paper wealth upon paper wealth through gimmicks
like derivatives, CDO’s, swaps, and outright bailouts, while imposing
austerity on everyone else. It may be a bad plan, but it’s a plan
nonetheless. It’s not a plan that can work indefinitely.

For unfortunately, the world is running out of oil

There is no way to predict when -- or even whether -- the ruling class
will decide that democracy no longer serves its interests. We can only
look at the forces in play and consider possibilities.

We like to think that our rulers are crazy, and in fact they are. But
there is usually some underlying logic behind their policies. Take our
wars in the Middle East. We are setting the Muslim world (to say
nothing about the rest of it) against us. We are bankrupting
ourselves. The teabaggers are quite certifiable, though not as much as
the politicians nurturing them.

But one underlying factor is what is known as Peak Oil. The supply is
running out. Tomorrow, no, next year might be the peak, or 5 years if
we keep digging hard enough, or longer, who knows? But it is running
out. And the China/Russia/India/Brazil bloc is making deals to get an
increasing cut of what’s left. If the U.S. tactic of choice is
confrontation, then confrontation it will be. In that case, however
stupid our current wars may seem, it might be downright handy to have
our armed forces hanging around the neighborhood ready to grab the oil
fields. Of course, that would mean short-term damage to world oil
supplies. In fact, the trigger for such a move (whatever anti-Muslim
pretext is cooked up) would probably emerge from some kind of crisis,
some major shocks to the economy.

This would have additional aftershocks to the U.S. economy, and not
good ones. Of course, the American people might want to resolve it
through heavy taxation on rich corporations. Or they might be crushed
politically as they have been under ObamaCare. Yes, the teabaggers are
as crazy as waltzing mice, but with the American economy -- no picture
of health -- taking more economic hits, it might be convenient for the
ruling class to have fascist mobs ready to crush any resistance in the
name of God and the American way.

Following this track along generally pessimistic lines, this is
actually the OPTIMISTIC scenario.

Consider what might be unleashed should there be a major terrorist
attack in the U.S., say a major bridge blown up, a chemical plant
exploded, assassinations (gee, that couldn’t happen here). Then it all
goes out the window. We saw how alleged progressives caved in to Bush
after 911. That would be Davy Crockett at the Alamo compared to what
would be unleashed now (sorry to lose you, Fess Parker).

Not saying this will happen. But you can’t say it’s not a distinct
possibility.

Point of no return

Either of the two scenarios could lead to a point of no return.
Assuming that the China/Russia/India/Brazil bloc could fend off
nuclear America gone berserk (not a sure thing), what would it mean if
the teabaggers were in control and Michelle Bachmann was president?
Palin as Minister of Defense? The U.S. has a hopelessly tattered
industrial base even now. Oh, I leave it to your imaginations.

Last week, in a comment, I was asked in good faith, “[W]hat is your
game plan? How would something like the [Full Court Press] morph into
that which could frustrate the social forces leading to fascism?”

How the hell should I know? The Full Court Press is envisioned as one
very small part of a movement that I hope emerges. If you ask a
general what her plan is for defeating the army on the opposing ridge,
and she didn’t know what army she had -- how many tanks, 100 troops, a
division, trained or untrained -- the question would be unanswerable.
The question above is even more difficult. And it’s a much tougher
question than it was in the 1930’s.

My favorite scene of the first Superman movie was where Lois Lane
falls off a wrecked helicopter, and Superman swoops down and catches
her. “I’ve got you!” he exclaims. “But who’s got you?” she answers. In
the 1930’s, there were anchors. The Soviet Union, whatever its ills,
was a bulwark against German fascism. The Soviet Union was an anchor
for communist parties throughout the world, including the U.S. The
CPUSA, whatever its ills, was an anchor for the trade movement. There
was an organized force that other progressives could cluster around,
even as some of those forces vocally despised the CPUSA and the Soviet
Union.

Additionally, when Germany launched its war of eastern conquest, there
was democratic America -- even more powerful.

But if fascism descends today, there are no anchors. The U.S. would be
cast as villain, and the Soviet Union is no more. There is now just an
unruly mob. Again off to the movies, this time the Tin Star. At the
end, Sheriff Tony Perkins (Henry Fonda behind him) stands down a
drunken lynch mob, then guns down its leader, and western democracy is
preserved (it was a western). Personally, I would like to identify
with Tony Perkins, but I fear that we progressives more closely
resemble the drunken mob. The mob had no cohesion, to every member it
was him staring down the barrels of Tony Perkins’ shotgun. And on that
basis, each one backed off and went back to the saloon, leaving the
villainous (in this case) leader dead in the dust.

Too historical for you? Then take the healthcare fiasco (please).
Robust public option, rah, rah, rah. Wiener caves. Grijalva caves.
Sanders caves. Kucinich caves. No one can trust anyone, each one backs
down. WE can’t trust any of them. Hope of stopping it rests with the
vile Stupak, for Chrissake. Whether it passes or not, they’ll head
back to the saloon muttering, “We’ll improve it, yeah, that’s it,
we’ll make it better next month. Or next year. Whenever.” And they and
we all know it’s a lie.

Patriot Act? That didn’t even get a squeak. Not from progressive
politicians. Barely from us. And that’s heavy shit.

There is no WE! Some people know me as a royal pain in the ass. Pushy.
People write heroic stuff about we must do this, and we should call
for that, and we must expose whatever. And I simply ask, “who is the
we?” and “through what organization?” And ... nothing. The question is
apparently unworthy of answer.

Perhaps there is an assumption that we is understood as all of us as
we now are, and that if we keep exposing the atrocity of the hour
(which we should certainly keep doing) and roaring our indignation
(indignation is good), then somehow WE will magically coalesce into a
coherent force? Or the masses will be sufficiently educated by our
plaints so that THEY will magically coalesce into a coherent force? Or
that there ARE good organizations who will be bulwarks against
fascism, even if their activity isn’t manifest at this moment?

Yes! There ARE good organizations out there who could be bulwarks
against fascism. But then it would seem the task is to specifically
identify them, debate whether they truly fill the bill, and discuss
HOW to unite them into a cohesive force.

And better yet, how they, as a cohesive force, will draw in the many
being destroyed at this very moment and make them part of that
cohesive force. The poor. Blacks and Latinos and Arab-Americans. Those
marginal to current-day progressivism. I can’t do it. I can call for
worker-peasant-soldier self-defense committees against fascism, but it
would be bullshit. Nor does this force have to have the label “anti-
fascist.” The unions in the 1930’s weren’t set up as anti-fascist
armies. They were set up as unions. They were a force against fascism
because it was in their interest, and because they were independently
organized.

Likewise, I’m not calling for explicitly anti-fascist organizations.
All I’m calling for is independent organizations. Whether working
within the Democratic Party or 3rd party, or non-electoral, the key is
being independent. The healthcare issue has turned out so badly, and
the jobs issue is going to turn out so badly, because there is no
independence, progressives are all hooked to the conveyor belt, the
key issue, it seems, is whether passing the healthcare bill will be
good for the Democratic Party or this or that politician’s career, and
its effect on real people is only a bloody shirt they drag out for the
cameras.

But there is a point of no return. Barbarism is a possibility. If you
don’t believe it, look out your window. Yet, remember what I said
about Germany. It had a choice of whether to choose fascism or not. So
while I project the very real possibilities of fascism, I by no means
consider it inevitable. This country also faces choices. In our case,
it looks something like whether the United States desperately tries to
maintain its position by brute force, or whether it is willing to
become an economic partner -- if not the ruling partner -- in a world
economy increasingly led by the China/Russia/India/Brazil bloc. That
is also a real possibility, though some will resist it to the death.

I refer at times to the ruling class, but one thing to note is that
the ruling class is no longer American. Wherever they were born, they
have long become detached from U.S. soil. They operate among the
countries of the entire world, see Empire by Hardt and Negri. From
their perspective, capitalism does not rise or fall according to the
well-being of the United States specifically. These are among the
people who have done the NAFTA deals and outsourced my job to the
Philippines. They have no inherent interest in the U.S. going fascist.
They would prefer, I guess, it go down with a whimper, keep selling
everyone else lots of wheat and beef at cheap prices.

We, the people

You ask what I recommend? Engage the “we” question, as squishy and
uncomfortable as that may be. Who are “we” and how do we both become
and create a larger organized force? Traditional trade unionism is
dead. What is an alternative? What is the critical mass with which the
blogosphere becomes a power projector rather than an angry mob? I can
make up stuff, but if no one follows it, so what?

There is a point of no return.

Nice perspective on the tea-partiers
By lambert on Sun, 03/21/2010 - 12:03pm
Let the pros take care of that; it's what they're paid to do. No
reason for us to do their work. Opportunity cost!

Excellent point on "independent."
"First they ignore you, then they ridicule you, then they fight you,
then you win." -- Mahatma Gandhi

you mention (I paraphrase)
By Rangoon78 on Sun, 03/21/2010 - 12:29pm
you mention (I paraphrase) Tea Party folks being budded around by
corporate dollar weilding Astroturfers; isn't that a lot like the
Obama permanent campaign highlighted by theri caucus goons:

http://www.correntewire.com/the_tx_caucu...

yes
By jeffroby on Sun, 03/21/2010 - 12:32pm
pseudo-masses. But it works.

If the system is broke, don't fix it!

Wow...
By mass on Sun, 03/21/2010 - 1:06pm
great post. Reminds me a little of Reich's Mad as Hell Party proposal
although this is much meatier.

"When a social movement adopts the compromises of legislators, it has
forgotten its role, which is to push and challenge the politicians,
not to fall in meekly behind them."--Howard Zinn

My opinion?
By CMike on Sun, 03/21/2010 - 1:14pm
This post is too long for this medium. That said, I enjoyed reading
it.

Given the misunderstanding of macroeconomics at the time and your
concession that "Germany was in crisis, crushed by reparations to
England and France ...," I'm not following your "Germany had begun to
re-arm well before 1933, and had already been defaulting on its
reparations under the tutelage of the U.S. [*]" and your "[Germany]
had a choice of whether to choose fascism or not" points. Whohad
exactly whatchoice in Germany before Hitler became Chancellor?

According to Wikipedia:

Chancellor Franz von Papen called another Reichstag election in
November [1932], hoping to find a way out of this impasse. The result
was the same, with the Nazis and the KPD [the Communist Party of
Germany] winning 50% of the vote between them and more than half the
seats, rendering this Reichstag no more workable than its predecessor.
But support for the Nazis had fallen to 33.1%, suggesting that the
Nazi surge had passed its peak – possibly because the worst of the
Depression had passed, possibly because some middle-class voters had
supported Hitler in July as a protest but had now drawn back from the
prospect of actually putting him into power.

The Nazis interpreted the result as a warning that they must seize
power before their moment passed. Had the other parties united, this
could have been prevented, but their shortsightedness made a united
front impossible. Papen, his successor Kurt von Schleicher, and the
nationalist press magnate Alfred Hugenberg spent December and January
in political intrigues which eventually persuaded President Hindenburg
that it was safe to appoint Hitler Reich Chancellor at the head of a
cabinet which included only a minority of Nazi ministers, which he did
on 30 January 1933.

By convention, it's BRIC not CRIB.

If you haven't seen it all ready, you might find this Q & Chomsky A of
some interest.

I too wince at its length
By jeffroby on Sun, 03/21/2010 - 2:34pm
Germany was on a course of re-armament, including battleship
construction, before 1933. Other moves were made to rebuild the
military under seemingly innocent guises, some based on the Freikorps,
others like adult boyscouts undergoing military training but not
carrying guns. France and Britain were reluctant to stop this, partly
out of fear, partly because a MODERATELY re-armed Germany was a
barrier between them and the Soviet Union.

There were various moratoriums on the reparations, I believe, by 1931.
There was a complex web of debt. Britain and France were also deeply
in debt to the United States. If Germany didn't pay, they couldn't
pay. There were variations of the U.S. forgiving the British/French
debt if they forgave the German reparations. Part of the deal was that
Germany would remain unarmed, with the U.S. providing its security
guarantee against the British and French, who were military stronger
than Germany even in 1939.

The U.S. did not do this because the U.S. was a beacon of freedom.
Germany was massively in straight-out debt to the U.S. Not
reparations. Just debt. The U.S. was not forgiving this. Germany's
choice was to agree to a subservient relationship with the U.S. or
cancel both reparations and U.S. debt payments. The former was viable
because, as you note, "the worst of the Depression had passed." That
it hadn't passed was largely because of the collapse of the payment
arrangements. Once Germany decided to cut loose, the drive to war was
on. Did Hitler make a difference in how it played out? Of course.

I'm aware that Nazi vote totals had declined slightly. But my point is
that were was a drive towards war that existed independently of the
Nazis. You quote, "it was safe to appoint Hitler Reich Chancellor."
Another interpretation might be that they had to strike while the iron
was hot or a non-Nazi government might not have given them their war.

If the system is broke, don't fix it!

thank you for writing this
By DCblogger on Sun, 03/21/2010 - 1:12pm
I have been thinking that we should abandon the Versailles metaphor
for Wiemar. Obama and the Dems have done nothing to prevent the slide
to fascism. Having seen the tea party in person in DC, I can tell you
they strike me very mujch as proto storm troopers.

the sad thing is that I think that Obama & Co think it is clever to
use the tea party as a foil to fool us into supporting corporate Dems.
Some people are fooled, but not enough, not nearly enough. Ian is
right. If you value your liberty, leave the US.

If, like most of us, that is not an option, well, just do the best you
can to not be part of what is to come.

Heartily agree that fascism isn't...
By tarheel-leftist85 on Sun, 03/21/2010 - 1:19pm
...a checklist, but i would suggest that it can be distilled into one
thing: corporatism, or the use of state power to extract wealth
(rents?) from the public and transfer said wealth to corporations.
Everything else on the checklist flows from this. Scapegoats and
identity politics are invoked to consume the public and displace
anger. Rabid reactions to creeping socialism reinforce the idea that
fascism is ideological--specifically, anti-socialist. And though we
have two "competing" legacy parties, there is the one neoliberal/
corporatist ideology--effectively making this a one-party state. So in
the sense that fascism is, or at least requires, corporatist
governance, we are living in a fascist state. I would also argue that
people are on solid ground when they call Obama a fascist, rather than
calling him or any of the Democrats socialist.

The problem with much of the tea party crowd is that they conflate two
antithetical ideologies with one another. Socialism would have meant
removing the parasite that is our current financial system and
nationalizing banks, or something like a North Dakota-like public bank
in every state; fascism would involve extracting tax dollars from the
public and transferring that wealth to private banks. Socialism would
have meant removing the parasite that BHIPs are through combinations
of nationalizing the pharmaceutical and insurance sectors or going
with an NHS-type program; fascism involves extracting rents from the
public that are then transferred to insurance, pharmaceutical,
hospital-system parasites. Socialism would involve a completely
publicly-operated national security and defense; fascism involves
extracting rents from the public and transferring that wealth to
companies that drive our "foreign" policy--including invasions and
occupations to open up markets and privatize sectors that once-
sovereign nations had agreed should be removed from the market.

I agree that independent movements are the way to go. I would caution
against using the Democratic Party as any sort of vehicle, however.
Because the corporatism has metastasized to every single member (I'm
afraid even the congresscritters that vote against the BHIP bailout),
good policy and good ideas will go to die in something as cancerous--
no matter how potent the treatments are administered. A non-partisan
independent movement would have the benefit of denying the public
signals, perhaps compelling citizens to look at candidate policies. It
would avoid the marketing strategies of both legacy parties. The two
legacy parties "competing" for market share or viability don't care
about majority status; rather, they care about maintaining the
perception of viability (that they could eventually assume the
majority). It's like taking a duopolistic market, where each company
sustains the other with the mutual goal of extracting as much wealth
from their customer base as they possibly can.

And it makes sense that there is no "we" in such a system. How are
people to unite to combat the corporatist duopoly? A third party, i
suspect, would result in a corporatist triopoly. This might even be
the case in places like the UK, where there is a multi-party system.
Instead of a two-party neoliberal/corporatist consensus, there is a
three-party neoliberal/corporatist consensus. A non-partisan alliance
with a common policy platform, i believe, would stress the system such
that one of two things happens: (1) over many iterations, the non-
partisan candidates begin to defeat members of legacy parties, with
each legacy party truly turning against one another to prevent the
viability of independent candidates/ideas, or (2) both legacy parties
unite with the mutual goal of preventing the viability of independent
candidates/ideas (at which point the public may begin to recognize the
common goals of the legacy parties and move en masse towards
independent candidates with the common platform (maybe the Justice
Platform, instead of a Justice Party?) and from a candidate/party-
centric politics towards a more policy-centric orientation.

More immediately, what can be done? Boycott all corporate news, move
your money out of the big six, and avoid the legacy parties like the
plague. The do's: teach-ins, general labor and consumption strikes,
civic disobedience, etc.

It's all about rents and rent-seeking.

Your analysis is spot-on, though ...
By jeffroby on Sun, 03/21/2010 - 2:40pm
When you say:

So in the sense that fascism is, or at least requires, corporatist
governance, we are living in a fascist state

The reason why I call fascism a movement rather than a state of
affairs is that the possible options you suggest indicate we have not
reached a point of no return. That's where I say, "fascism is here."

But I'm not going to quibble about labels. You understand the forces
in play. That's the important thing.

If the system is broke, don't fix it!

reperations
By DCblogger on Sun, 03/21/2010 - 2:46pm
I was struck by what you said about Hitler stopping payment on
reparations in 1933. What do you want to bet the Sarah Palin
repudiates the debt early in her administration? I know that that
would be anti-corporatist, but it would solve many of her problems.

except the debt is part of how the people are held down, and she would
want to maintain that.

Came across this yesterday: Witness says police overwhelmed
By jawbone on Sun, 03/21/2010 - 1:36pm
by Tea Partiers, quoting report by Brian Beutler at TPMDC:

Standing next to Lewis, emerging from a Democratic caucus meeting with
President Obama, Carson said people in the crowd yelled, "kill the
bill and then the N-word" several times, while he and Lewis were
exiting the Canon House office building.

"People have been just downright mean," Lewis added.

And that wasn’t an isolated incident. Early this afternoon, standing
outside a Democratic whip meeting in the Longworth House office
building, I watched Rep. Barney Frank (D-MA) make his way out the
door, en route to the neighboring Rayburn building. As he rounded the
corner toward the exit, wading through a huge crowd of tea partiers
and other health care protesters, an elderly white man screamed
"Barney, you faggot"–a line that caused dozens of his confederates to
erupt in laughter.

After that incident, Capitol police threatened to expel the protesters
from the building, but were outnumbered and quickly overwhelmed. Tea
party protesters equipped with high-end video cameras were summoned to
film the encounter and the officers ultimately relented.

Walmart hit by ginned up anger against immigrants, blacks:
By jawbone on Sun, 03/21/2010 - 1:47pm
In Turnersville, NJ (Gloucester County in southern NJ) Walmart, a
teenager got onto the PA system and announced blacks had to leave the
store.

The teenager has been arrested.

At a local Walmart here in Morris Plains, NJ, a notice was taped to
the inner entry doors saying that emails and text messages that
Walmart was arranging raids on illegal immigrants shopping there were
totally false. I didn't write down the exact wording, but I made the
connection.

Z
By DCblogger on Sun, 03/21/2010 - 1:54pm
four minutes into this clip from Z shows what the tea party is like.
notice the attacks on all political parties.

http://www.correntewire.com/fascism_there_point_no_return

AGENDAMARCH 22, 2010

Resolvinging Europe's Economic Dilemma Will Require More Than Sleight
of Hand By IRWIN STELZER..ArticleCommentsmore in Europe Home
».EmailPrintSave This ↓ More.

.U.S. President Harry S Truman, weary of hearing his economists
conclude "on the one hand, but then on the other hand," famously asked
for a one-armed economist. He's fortunate he never found one. For any
economist who feels certain about his reading of the economic tea
leaves, who sees no "other hand," is, to put it mildly, more than a
little overconfident.

All by way of excuse for this attempt to figure out just what is going
on in the European Union and euroland.

View Full Image

Associated Press

Luckily for U.S. President Harry Truman, he never found a one-armed
economist
.On the one hand, things are brighter than they were last year, when
the areas' economies were contracting at a rapid rate. No one is
expecting that dismal performance to be repeated this year or next.
But on the other, neither is anyone expecting anything like
satisfactory growth. The Economist Intelligence Unit is guessing that
growth will be at an annual rate of 1.0% and 1.1%, this year and in
2011, respectively.

The move out of recession is the result of an increase in exports. On
the one hand that's good news: Otherwise, the EU economies would
continue to shrink. But on the other hand, some of the increased
exports, especially those from Germany to other euro-zone countries,
are exacerbating serious imbalances. Germany's trade surplus with its
EU partners is causing serious problems, especially for the struggling
periphery countries.

"Germany's…trading partners cannot sustain deficits forever," notes
the Economist.

Germany's surplus is its EU partners' deficits, which they have to
finance by borrowing. And borrowing is precisely what Greece and
similarly situated countries need less of. Europe needs Germany to
base more of its growth on domestic demand, its consumers to start
spending and stop paying down debt, neither of which they show signs
of doing.

As Jefferies, the securities and investment-banking firm, points out
in its latest report, consumption in Germany comes to only 57% of
gross domestic product, compared with closer to 70% in the U.S. and
the U.K.

Then there is the news coming out of Berlin, Athens and Brussels.
Greece won't cut spending unless it is guaranteed that its euro-zone
partners will somehow enable it to borrow at lower interest rates.
Otherwise, argues Greek Prime Minister George Papandreou, the premium
the country now pays— more than three percentage points above what
Germany is charged— will eat up a good portion of the savings from his
austerity program.

But German Chancellor Angela Merkel, after dithering and trying to
find some way to avoid becoming the banker of last resort for
profligate, inefficient members of the euro zone, finally hit on an
alternative. She told Mr. Papandreou to take his troubles to the
International Monetary Fund, outraging her euro-zone partners who find
that a humiliating admission of their inability to manage their
currency without outside help.

As Mrs. Merkel's partners see it, Greece would be merely the first
domino to fall. Spain might well be next. Its socialist government is
having some second thoughts about the extent and speed at which it
should impose an austerity program, inflicting pain on public-sector
workers, or begin cleaning up the mess in its banking system. The
country's 44 small regional banks, or cajas, have some half of their
$1.8 trillion in assets tied up in property loans. Of those, somewhere
between $220 billion and $330 billion (estimates vary) are loans to
property developers, many of which are in no position to repay. The
government says one-third of the cajas are insolvent, and is hoping to
solve the problem by organizing mergers with healthy institutions, but
is running into opposition from regional politicians, who would much
prefer some sort of bailout. If the IMF rescue team heads to Europe it
might just as well visit Madrid as Athens, pain-averse Spanish
politicians might decide.

All of these problems have driven the euro down from its November peak
of around $1.50 to about $1.37. With the U.S. economy recovering at a
more rapid rate than Europe's, and with the Federal Reserve likely to
raise interest rates sooner than the European Central Bank, experts
are expecting the euro to continue to weaken against the dollar. On
the one hand, this is good news. Europe's exporters now find their
goods more competitive in world markets, even against those made in
China, which pegs its yuan to the strengthening dollar.

On the other hand, a weaker euro raises the price of imports,
especially those, like oil, that are denominated in dollars. That
increases the possibility that when the EU economies do start to
recover, inflationary pressures will force the European Central Bank
to tighten sooner than it might otherwise want to do. On the one hand,
that is good news: It would contain inflation. On the other hand, it's
bad news: It would slow the recovery.

All proof that Harry Truman was wishing for something that just
doesn't exist.

—Irwin Stelzer is a business adviser and director of economic-policy
studies at the Hudson Institute.

http://online.wsj.com/article/SB10001424052748704534904575132061301158560.html?mod=WSJ_hpp_RIGHTTopCarousel

Meirelles Says U.S.-China Imbalance Won’t Hurt Brazil (Update1)
By Jonathan J. Levin

March 21 (Bloomberg) -- Brazil’s Central Bank President Henrique
Meirelles said an imbalance between the U.S. dollar and Chinese yuan
would be resolved over time and is unlikely to hurt the Brazilian
economy.

“I’m expecting the imbalance between these two countries to be
resolved over time,” said Meirelles, speaking to reporters in Cancun,
Mexico, on the sidelines of the annual Inter-American Development
Bank’s annual meeting.

Meirelles said that Brazil would not be affected by a rebalancing of
the two currencies because its trade portfolio is diversified.

U.S. lawmakers are urging President Barack Obama to step up pressure
on China to allow the yuan to rise, accusing Beijing of keeping its
currency unfairly cheap to gain export advantage. The Treasury
Department is set to decide in April whether to label China as a
currency “manipulator.”

China has kept the yuan at 6.83 per dollar since July 2008 to shield
the exporters from the global recession. It allowed the currency to
appreciate 21 percent in the previous three years.

“Our economy is diversified and is growing now basically led by
domestic demand, which means that we are prepared to face these kinds
of scenarios,” Meirelles said.

Meirelles said the greatest foreign threat to the Brazilian economy is
increasing risk aversion caused by credit problems in some Europe
nations.

To contact the reporter on this story: Jonathan Levin in Cancun,
Mexico at ***@bloomberg.net

Last Updated: March 21, 2010 15:52 EDT

http://www.bloomberg.com/apps/news?pid=20601086&sid=ahy8AxoSk.g8

NZ Dollar Outlook: Speeding economy may limit dips
13:53 March 22, 2010Article 0 comments
Article – Businesswire

March 22 (BusinessWire) – The New Zealand dollar may be supported this
week by data expected to show the domestic economy grew at its fastest
pace in two years, limiting the currency’s dips below 70 U.S. cents.

NZ Dollar Outlook: Accelerating economy may limit dips in kiwi
By Paul McBeth

March 22 (BusinessWire) – The New Zealand dollar may be supported this
week by data expected to show the domestic economy grew at its fastest
pace in two years, limiting the currency’s dips below 70 U.S. cents.

Five of seven economists and strategists in a BusinessWire survey
predict dips below 70 U.S. cents will be limited. Three strategists
forecast the kiwi will trade in a range this week, while one is
picking it will edge lower, though won’t fall below 70 cents. Two
economists expect the kiwi will decline this week, and one predicts it
will gain.

GDP expanded 0.8% in the three months ended Dec. 31, its fastest pace
since the same quarter of 2007, according to a Reuters survey, with
forecasts ranging between 0.5% and 1.2%. The central bank forecast a
0.6% expansion for the period in its March monetary policy statement.
In June last year, New Zealand climbed out of its worst recession in
19 years, though the fourth quarter is expected to show the first
period of marked growth in what has been a tepid recovery.

“If the data comes in line with expectations, the kiwi probably won’t
do anything” this week with global pressures likely to weigh on risk
sentiment, said Ben Potter, research analyst at IG Markets in
Melbourne. “The kiwi will probably move back towards 70.50 U.S. cents
or 70 even – there’s pretty good support there.”

The kiwi sank to 70.61 U.S. cents from 71.16 cents on Friday in New
York as investors became wary about higher-yielding, or riskier,
assets after the Reserve Bank of India hiked both the reverse
repurchase rate and repurchase rate by 25 basis points to 3.5% and 5%
respectively.

Potter said the surprise hike, which came a month before a scheduled
monetary policy meeting, bolstered support for the greenback as
investors prepare for potential rate hikes in China, which will damp
demand for so-called commodity currencies such as the Australian and
New Zealand dollars.

Derek Rankin, director of Ranking Treasury Advisory Ltd., said the
kiwi would face downward pressure this week from the ongoing problems
coming out of Europe. Questions remain over the viability of an EU
bail-out for Greece after German Chancellor Angela Merkel told her
Parliament that the International Monetary Fund may be the only
solution to the Mediterranean nation’s debt woes.

“It’s deeply unpopular in Germany to bail out other nations,” Rankin
said. He predicts the kiwi will push down to about 69.50 U.S. cents.

The European Union will hold a summit at the end of this week, and
Bank of New Zealand currency strategist Danica Hampton expects this
will dominate global sentiment for riskier assets such as the New
Zealand dollar. Hampton predicts the kiwi will trade between 70 U.S.
cents and 71.50 cents this week, with dips below the 70 mark to
attractive for buyers.

Imre Speizer, markets strategist at Westpac Banking Corp., said the
greenback was finding a lot of support due to the ongoing concerns
about Europe, which in turn weighed on the kiwi against the U.S.
dollar.

Still, the weakness was underpinning support for the New Zealand
currency on the cross-rates against the euro and the pound, which he
predicts will hold above 52 euro cents and 47.50 pence this week.

The kiwi dropped to 52.22 euro cents from 52.33 cents on Friday in New
York, and edged up to 47.07 pence from 46.98 pence.

Other New Zealand data out this week is the current account on
Wednesday probably showed the balance of payments in the fourth
quarter shrank to $3.62 billion, or 1.9% of GDP, from $5.7 billion, or
3.1%, according to a Reuters survey. Meanwhile, data on Friday will
show the trade balance was a surplus of $480 million in February,
according to Reuters.

Tim Kelleher, vice president of institutional banking and markets at
Commonwealth Bank of Australia, said New Zealand’s stronger economic
data should undo any weakness in the kiwi from concerns in the Euro-
zone, and was the only strategist to pick the currency up on the week.
He predicts it will trade between 70 U.S. cents and 71.25 cents.

The kiwi dollar will probably gain on a trade-weighted basis this
week, according to three of seven strategists surveyed by
BusinessWire. The other four expect the trade-weighted index, or TWI,
a measure of the currency against the greenback, yen, euro, pound and
Australian dollar, will remain in recent ranges, though faces an
upward bias. The TWI sank to 65.47 from 65.71 on Friday in New York.
The kiwi dropped to 63.92 yen from 64.36 yen last week, and declined
to 77.30 Australian cents from 77.34 cents.

On the radar this week will be the U.K. budget out on Thursday, which
comes after the Bank of England’s Monetary Policy Committee member
Andrew Sentance said the U.K. could face a “double-dip recession” in
an interview on CNBC. Meanwhile, the Reserve Bank of Australia’s
Assistant Governor Philip Lowe and Governor Glenn Stevens will give
speeches on Thursday and Friday respectively.

(BusinesWire)

Content Sourced from scoop.co.nz
Original url http://www.scoop.co.nz/stories/BU1003/S00572.htm

http://business.scoop.co.nz/2010/03/22/nz-dollar-outlook-speeding-economy-may-limit-dips/

Will U.S. yuan calls make for a stubborn China?
Simon Rabinovitch
BEIJING
Mon Mar 22, 2010 4:20am EDT

BEIJING (Reuters) - Beijing's groans over U.S. demands to let the yuan
rise have been grand theater, but domestic currents favoring a
stronger currency are likely to prevail when Chinese leaders cool down
to plot policy.

China's denunciations of U.S. pressure have, combined with other
recent tension between the two powers, fostered the view that Beijing
will put stubborn resistance to foreign hectoring ahead of arguments
for yuan appreciation.

The core of this view is the assumption that the Communist Party and a
nationalist public would find it intolerable to appear to cave in to
external pressure.

But this image of a China boxed in by pride does not stand up to
scrutiny. In a country where maintaining economic strength is
sacrosanct policy, even prickliness over perceived U.S. bullying could
fade way.

Government advisers and analysts say Beijing still has plenty of
political space to implement currency appreciation if it decides that
a stronger yuan makes economic sense.

"If we didn't adjust the exchange rate just because of U.S. pressure,
that really would be manipulation. China is still moving toward market-
based reforms of its exchange rate, but is waiting for the economy to
improve," said Li Wei, head of the Americas division in the commerce
ministry's research unit.

"The main thing is that we will do it according to our own judgment."

Regardless of U.S. threats, Beijing is likely to resume appreciation
in the second half of this year when the global economy strengthens
and Chinese exporters indisputably find themselves on more solid
ground, Li said.

China has in effect re-pegged the yuan at about 6.83 to the dollar
since mid-2008 to shield its exporters from the financial crisis.

CURRENCY MANIPULATOR?

President Barack Obama's government is under pressure to call Beijing
a "currency manipulator" in a Treasury department report due on April
15.

The possible use of that designation, not invoked since 1994, has been
greeted with thunderous rebuttals from Chinese officials.

Yet for all the denunciations, Beijing may be able live with the ugly
label.

"Calling China a manipulator and passing some kind of punitive
legislation are different," said Tao Xie, an expert on Sino-U.S.
relations at Beijing Foreign Studies University. "A label does not
come with any punishment."

If China is deemed a currency manipulator, the U.S. Treasury must
quickly launch talks with Beijing, though no sanctions are required.

A newly introduced Senate bill would be tougher, demanding tariffs on
Chinese products if the yuan does not rise.

Beijing can be excused for feeling that it is has seen this movie
before. Lindsey Graham and Charles Schumer, the U.S. senators behind
the bill, crafted similar legislation in 2005. Their attempt fizzled
out when China launched gradual appreciation in July 2005.

The yuan climbed 21 percent over the next three years.

"The Chinese government may be thinking, 'Let's wait and see. The
storm will pass'," Tao said.

Commerce Minister Chen Deming hinted at the distinction between words
and actions in a speech on Sunday.

"If the U.S. Treasury gave an untrue reply for its own needs, we will
wait and see," he said. "If such a reply is followed by trade
sanctions, we will not do nothing."

PREPARING THE GROUND

There are signs that China is preparing the ground for a resumption of
yuan appreciation.

Since the re-pegging nearly 22 months ago, the rhetoric out of Beijing
has grown predictable: a stable yuan has helped the economy and the
global recovery.

In the last few weeks, this has started to change.

State newspapers have run a series of reports about officials visiting
export hubs to 'stress test' how firms would cope with appreciation.

And in his most important news conference of the year, Zhou Xiaochuan,
China's central bank governor, described the "special yuan policy" as
a temporary stimulus policy that would end "sooner or later."

It will probably be for President Hu Jintao and Premier Wen Jiabao to
decide whether to let the yuan rise again.

The official policy description -- keeping the yuan "basically stable
at a reasonable and balanced level" -- has been consistent since 2005,
leaving them with considerable discretion to resume mild appreciation,
said Victor Shih, a political scientist at Northwestern University in
Illinois.

"Things change very fast. If inflation does increase, arguments can
change. If exports do recover very quickly, arguments can change,"
Shih said.

"They can say, 'no, we are not doing it because some laowai
(foreigner) is telling us to do it. We are doing it for these other
reasons'."

Hence the relatively mild market jitters thus far.

While the war of words with the United States has made headlines,
forecasts of a pick-up in both exports and inflation still dominate
the outlook for the yuan.

The yuan fell to a five-week low in offshore forwards on Monday, but
the implied expectation of a 2.3 percent rise over the next 12 months
was still well within the range tracked since late last year.

(Editing by Chris Buckley & Jan Dahinten)

After reading this article, people also read:

WRAPUP 2-Chinese media launches new attack on Google
Mar 21, 2010
http://www.reuters.com/article/idUSTOE62L03V20100322?loomia_ow=t0:s0:a49:g43:r1:c0.171429:b32101828:z0

Case for yuan appreciation strong but not iron-clad
Mar 21, 2010
http://www.reuters.com/article/idUSTRE62L15F20100322?loomia_ow=t0:s0:a49:g43:r2:c0.102041:b32101828:z0

Google moves China search service to Hong Kong
Mar 21, 2010
http://www.reuters.com/article/idUSTRE62L14V20100322?loomia_ow=t0:s0:a49:g43:r3:c0.091837:b32101828:z0

U.S. shares give world markets lift, euro bounces
Mar 21, 2010
http://www.reuters.com/article/idUSTRE61718520100322?loomia_ow=t0:s0:a49:g43:r4:c0.057143:b32101828:z0

Democrats face dubious voters on healthcare
Mar 21, 2010
http://www.reuters.com/article/idUSTRE62L0I020100322?loomia_ow=t0:s0:a49:g43:r5:c0.055102:b32101828:z0

http://www.reuters.com/article/idUSTRE62L15A20100322

...and I am Sid Harth