The Agonist - Economics

China and US spar over currencies ahead of Obama visit

Sun, 15 Nov 2009 01:51:17 -0800

Nov 15

Reuters - The United States and China sparred over exchange rates at a meeting of Asia Pacific leaders today, pointing to tricky talks ahead for President Barack Obama when he flies to China to address economic tensions.

The discord surfaced at a summit of the Asia Pacific Economic Cooperation (APEC) forum in Singapore when a reference to "market-oriented exchange rates" was cut from a communique issued at the end of two days of talks. An APEC delegation official said Washington and Beijing could not agree on the wording.

That underscored strains likely to feature when Obama flies to Shanghai later on Sunday following moves by Washington to slap duties on various Chinese-made products and a growing drumbeat of pressure on Beijing to let its yuan currency strengthen.

Chinese officials have grown testy about the pressure over the yuan. Chinese banking regulator Liu Mingkang told a forum in Beijing on Sunday that ultra-low interest rates in the United States were fuelling speculation in overseas asset markets and threatened the global economic recovery.

Obama pledged on Saturday to deepen dialogue with China rather than seek to contain the rising power, which is set to overtake Japan next year as the world's second largest economy.

But issues ranging from the yuan and trade tensions to human rights could complicate what many regard as the most important relationship of the 21st century.

Italy: Mock funeral for ' Venice's death'

Sat, 14 Nov 2009 07:22:24 -0800

November 14

BBC -
Venetians have been taking part in a mock funeral procession to highlight the city's dwindling population. Organisers of Saturday's event say the population has dipped below 60,000, with many native Venetians choosing to live in more affordable areas. City officials have refuted the claims that Venice is simply a "ghost town", filled only with tourists.

The Venetian architect and historian, Francisco da Mosta, told the BBC that the government needed to step in to make the city habitable for its residents. He said Venice is not being run "with intelligence or dignity". The city's population has dropped by two-thirds since the 1950s and much of the blame has been put on tourism. It has driven up food and property prices, forcing many people to move to the mainland.

Residents carried an empty coffin in a procession of boats to the mayor's office.

Why This Economic Recovery is Destined for Disaster

Mon, 09 Nov 2009 17:48:15 -0800

A most revealing comment was made today by The Maestro, Alan Greenspan, speaking at a conference in Alberta on energy and the global economy:

We have been very fortunate that the stock markets moved back and are re-liquifying the whole process.

He pointed to the “wealth effect” created by a rising stock market, especially when investors cash in their capital gains.

In olden times, before Alan Greenspan spent over a decade as Federal Reserve Chairman, Fed officials worried about the growth in money supply, the level of prices in the economy, unemployment, and the strength of the dollar overseas. In fact, if you read the enabling legislation for the Fed, these are the things the Board of Governors should be concentrating on.

Greenspan of course is no longer the Chairman of the Federal Reserve – his protégé Ben Bernanke is. For the most part, when he was Chairman he never spoke about the stock market for fear of influencing its direction. Now that he is a private citizen, he can blurt out whatever he wants to say, and how illuminating it is to hear him talk about the stock market “re-liquifying” the economy.

Not for nothing was he given the sobriquet “Bubbles Greenspan” when he was in office. Economists, Fed watchers, traders, investors – all sorts of people suspected Greenspan never met a financial bubble he didn’t like. He cheered on the 1990s tech bubble as an example of a paradigm shift in the economy. He sat back idly while the housing bubble in this decade blew out of all proportions. The best he could say was that central bankers were helpless in the face of growing financial market distortions, and all they could do was clean up the mess afterwards.

The reality was that he encouraged these bubbles through deliberate inaction. After the end of the tech bubble he was terrified of deflation, pushed interest rates to 1%, and kept them there long enough for a housing bubble to ignite. He gave speeches encouraging home buyers to take out adjustable rate mortgages – the type that have blown up disastrously in the face of thousands of homeowners. He wanted the explosion in consumer spending that resulted from the housing bubble. He didn’t care if he caused asset inflation, as long as it didn’t seep into the general price levels of the economy.

Were he still at the Fed, he’d obviously be very pleased with the stock market recovery this year, because it makes people more confident, it gives them the illusion of being wealthier, and in some cases if they cash in their gains, it gives them real money to spend. Maybe he’d be happy with the weak dollar, and the fact that the infamous “carry trade” has moved from Japan to the U.S. Now the speculators of the world borrow dollars at 0%, driving the exchange rate down for the dollar, and they invest in the hottest commodities, like gold, Chinese real estate, oil, equity markets everywhere, high yield bonds, and even mortgage backed securities.

Does Ben Bernanke believe in the re-liquifying dreams of The Maestro? In the infamous words of Sarah Palin, “You Betcha!” Just look at his actions. He has pushed interest rates to zero and said they will stay there for a long, long time. He is knowingly encouraging the carry trade and devaluing the dollar. Neither the Fed nor the Treasury has lifted a finger to support the dollar on the exchange markets. He has thrown trillions of dollars at the banks and encouraged them to revive their speculative practices from a few years ago before the crash. He is trying desperately to get the securitization business up and running again, and he would love the hedge fund and leveraged buyout boys to get back into the equity extraction game.

Of course, he would also love to see more controls on leverage this time, smaller bonuses being paid to bankers, and less swagger emanating from Wall Street, but he’s not pressing too hard on these points. The important thing is to get the economy back to where it was before 2007. Nor is he alone in this desire; the G-20 countries this weekend said the same thing – it is way too early to remove the excessive liquidity that has been pumped into the global economy.

This stock market rally is therefore both welcome and engineered by our financial masters. So is the bubble in gold, the collapse of the dollar, and in Asia, the construction of even more high rises and industrial parks that are destined to remain empty.

Not a single lesson has been learned from the market collapse last year. Every effort is being made to avoid letting anyone suffer any pain for their mistakes. The great global reflation that is underway is nothing but a repeat of the bubble-inducing liquidity push that occurred at the start of this decade. The whole effort is a tremendous gamble – a hope that real and substantive economic activity will be ignited by all this speculative activity.

But remember what Greenspan said is the end result of the stock market rally – a “wealth effect” – spending on vacations, McMansions, luxury automobiles, and other goodies for the wealthy who happen to own an equity portfolio. You yourself won’t be getting a decent raise in your salary; it certainly didn’t happen during the last two bubbles. The cost of education or medical care isn’t going down. In short, the real economy is not going to rebound based on the most recent bubbles.

Inevitably these bubbles too must burst. Where will we be then? For one thing, there will be a lot of embarrassed economists, almost all of whom now are predicting a slow but steady recovery, because that’s what the Leading Economic Indicators say, along with the stock market, credit spreads, and all the usual auguries. Few people are willing to say “this time is different”, but it really is different. The old tools of the past don’t work anymore. We are not suffering through a typical recession caused by overinvestment, excess inventories, and so on. This is much rarer – a recession caused by the collapse of credit, by too much outstanding debt that must now be paid or defaulted on, by deflation, and by a government that won’t be there this time to lift us up.

Perhaps then our central bankers will learn that asset bubbles are just another form of inflation, one that benefits a few of the wealthiest in the world, and hardly anyone else. Unfortunately, when an asset bubble bursts, we all share the pain.

logi Energy Determines Saudi Oil Production Has Peaked

Tue, 27 Oct 2009 12:20:30 -0700

TODAY, OCTOBER 27, 2

HedgeCO Net - In a discussion with Jim Puplava, FS Radio, Jeffrey Brown described his analytical work with Dr. Samuel Foucher, also part of logi Energy, where they determined that annual production in Saudi Arabia has never exceeded the production in 2005 and believe it never will.

Jeffrey went on to discuss his land export model and the ramifications of depleting oil fields and increasing demands within exporting countries by their own citizens. He and Dr. Foucher have determined, through deep analytics, that the exports from the top 5 exporting countries has peaked and half of all oil ever to be exported after 2005 by these countries will be exported within 4 years, by 2013.

If this proves to be true, the biggest ramification for this prediction is that there will be global oil shortages in the US and other OECD countries before 2013 even at the current low demand levels. The practical application of this statement is less exports resulting in an increased likelihood of gas rationing in the US.

Emphasis Added

Rich Germans demand higher taxes

Fri, 23 Oct 2009 10:00:08 -0700

Berlin | October 23

BBC - A group of rich Germans has launched a petition calling for the government to make wealthy people pay higher taxes.

The group say they have more money than they need, and the extra revenue could fund economic and social programmes to aid Germany's economic recovery.

Germany could raise 100bn euros (£91bn) if the richest people paid a 5% wealth tax for two years, they say.

The petition has 44 signatories so far, and will be presented to newly re-elected Chancellor Angela Merkel.

UK economy in its longest recession on record

Fri, 23 Oct 2009 09:49:14 -0700

Ashley Seager, Julia Kollewe & Kathryn Hopkins | London | October 23

The Guardian - The British economy is mired in its longest recession on record, as government figures out this morning showed a shock 0.4% drop in gross domestic product (GDP) in the third quarter of the year.

The figures confounded widespread hopes that the economy had returned to growth after five consecutive quarters of recession.

City economists had almost unanimously expected a small increase in GDP. Quarterly records go back to 1955 and show there has never until now been six quarters of contraction in a row.

The pound fell sharply against the dollar and euro as dealers digested the bad news. The figure left output 5.2% lower than the same quarter last year and about 6% lower overall in this recession.

Straight after the figures were released, Alistair Darling reiterated his view that growth will return to Britain by the end of the year. "I've always been clear that growth will return at the turn of the year, as my budget forecast confirmed," he said. "We're facing the worst global financial crisis and recession in 60 years. We've always said that we remain cautious as a result of the high degree of economic uncertainty."

Economists were unimpressed. Nick Parsons at National Australia Bank said: "Darling says he stands by his 2009 growth forecast. This is utter nonsense. He forecast -3.5% at budget time and if we are to hit the forecast, we would need to see growth of more than 4% in the fourth quarter.

Economists revolt over surprise recession data

The Times, By GraÍnne Gilmore and Rebecca O'Connor, October 23

Economists today cast doubt on official data showing that British gross domestic product (GDP) contracted by 0.4 per cent between July and September, claiming the surprise fall is far worse than economic reality.

The shock figures from the Office for National Statistics (ONS) revealed that the country remained mired in recession during the third quarter — the sixth consecutive quarter of contraction, signalling the country’s longest downturn since records began in 1955.

Economists had widely expected that the country had emerged from recession between July and September.

Longest recession on record grips UK

Press Association, By Russell Lynch, October 23

The UK is now in the grip of the longest recession since records began, according to gloomy official figures published today.

Hopes for an end to recession were scuppered as the economy shrank by a shock 0.4 per cent between July and September - a record sixth quarter in a row of decline.

Output has now slumped 5.9 per cent since the onset of recession - almost as bad as the 6 per cent slump seen in the early 1980s - the Office for National Statistics said.

Oil prices hit high but report warns of supply crunch

Tue, 20 Oct 2009 01:44:13 -0700

Ashley Seager | Oct 20

The Guardian - * US light crude oil futures pushes above $79 a barrel
* Report blames government for ignoring supply problem

World oil prices hit their highest point for a year yesterday, as a major new report urged governments around the world to take drastic action to head off an approaching oil supply crunch.

US light crude futures pushed above $79 a barrel, supported by the view that a recovering world economy would raise demand for crude. Oil prices have more than doubled from the low point they hit in the spring, but are still around half the all-time high of nearly $150 a barrel they reached in early summer last year.

Analysts have been surprised at the recent resilience of oil prices given the impact on energy demand of the global recession. In spite of this year's volatility in the oil price, the underlying trend for a decade has been for it to rise steadily.

A report from the non-governmental organisation Global Witness – famous for its exposé of so-called "blood diamonds" – pointed to an impending supply shock that could be so severe that many of the world's poor countries would simply be shut off from the world of energy by sky-high prices.

Two years in the preparation, Global Witness's report, Heads in the Sand, accused governments of ignoring the fact that the world could soon start to run short of oil. This would lead to huge consequences in terms of price shocks and much higher levels of violence around the world than last year's food riots.

The Report: Heads in the Sand: Governments Ignore the Oil Supply Crunch and Threaten the Climate

What Would We Produce?

Mon, 19 Oct 2009 14:17:36 -0700

I have some sympathy for a weak-dollar policy. But I have one question, which arises out of this graf from Dean Baker over at the Guardian:

Suppose that the Fed doesn't intervene and lets interest rates rise. This will have some negative impact on growth, but there will also be a very positive side from China's decision to stop buying dollars. The dollar would fall in value against China's currency. This would make Chinese goods more expensive in the United States, leading US consumers to purchases fewer imports from China and more domestically produced goods.

My question: what domestically produced goods would we buy? Seriously, as I mentioned in an earlier post, our manufacturing capacity has been eviscerated the last fifteen years. We can't buy our own weapons, can we?

Really, it's a serious question, one I would love for someone to answer: what do we produce that could replace the cheap goods that China makes?

Peru Indian tribes join forces to fight off Amazon sale to oil companies

Thu, 08 Oct 2009 16:47:15 -0700

Ramita Navai | Washintsa, Peru | October 9

The Times - They emerged from the thick, green jungle clenching their spears: a long file of barefoot chiefs and elders, their faces painted with their tribal markings and crowns of red, blue and yellow parrot feathers.

They had been summoned by the chief of Washintsa village for a meeting to discuss an oil company’s efforts to buy the rights to their land. Most had travelled for hours, padding silently through the dark undergrowth.

They came from Achuar Indian communities scattered along the Pastaza River, one of the most remote parts of the Peruvian Amazon near the border with Ecuador.

These men are part of a growing resistance movement crystallising deep in the jungles of Peru. For the first time isolated indigenous groups are uniting to fight the Government’s plans to auction off 75 per cent of the Amazon — which accounts for nearly two thirds of the country’s territory — to oil, gas and mining companies.

Trouble breaks out at G20 summit

Thu, 24 Sep 2009 16:24:17 -0700

Pittsburgh | September 24

BBC - Trouble has flared as world leaders gather in the US city of Pittsburgh for the G20 summit.

Reports said riot police used pepper gas and fired rubber bullets at protesters on a march near the venue.

Demonstrations were widely expected and thousands of extra police are on duty. The previous G20 meeting, in London in April, was marred by clashes.

Economic stability, financial regulation, climate change and bankers' bonuses are set to top the G20 agenda.

The clashes are thought to have begun after hundreds of protesters tried to march, without permission, towards the convention centre where the summit is being held.

Protesters Are Met by Tear Gas at G-20 Conference

New York Times, By Ian Urbina, September 24

Pittsburgh — As the two-day Group of 20 summit brought leaders of the world’s industrialized nations here Thursday, the police were out in force, patrolling on bicycles, foot and horseback, by river and by air.

In the afternoon, protesters trying to march toward the convention center where the summit is being held encountered roaming squads of police officers carrying plastic shields and batons. After firing a sound cannon that emitted shrill beeps, causing demonstrators to cover their ears and back up, the police threw tear gas canisters that released billowing clouds of white smoke and concussion grenades that exploded with sharp flashes of light.

The protesters, who did not have a permit to march, at one point rolled a large blue metal trash container down 37th Street. It tipped over, stopping short of several police vehicles and in front of a women’s clothing and show boutique called Pavement.

“It was scary,” said Alissa Martin, the shop’s owner. “You feel like you’re living in a war zone.”

[...]

Trevor Griffith, 21, was part of the march after driving 16 hours from Pensacola, Fla., with three fellow students from the University of West Florida.

“The fact that 20 or so individuals right now are determining economic trade policies for 4 to 5 billion people just isn’t right,” Mr. Griffith said. “That’s why we’re here.”

AP Video: "Anarchy is fun!"

Why capitalism fails

Mon, 14 Sep 2009 11:32:07 -0700

The man who saw the meltdown coming had another troubling insight: it will happen again

The Boston Globe, By Stephen Mihm, September 13

Since the global financial system started unraveling in dramatic fashion two years ago, distinguished economists have suffered a crisis of their own. Ivy League professors who had trumpeted the dawn of a new era of stability have scrambled to explain how, exactly, the worst financial crisis since the Great Depression had ambushed their entire profession.

Amid the hand-wringing and the self-flagellation, a few more cerebral commentators started to speak about the arrival of a “Minsky moment,” and a growing number of insiders began to warn of a coming “Minsky meltdown.”

“Minsky” was shorthand for Hyman Minsky, a hitherto obscure macroeconomist who died over a decade ago. Many economists had never heard of him when the crisis struck, and he remains a shadowy figure in the profession. But lately he has begun emerging as perhaps the most prescient big-picture thinker about what, exactly, we are going through. A contrarian amid the conformity of postwar America, an expert in the then-unfashionable subfields of finance and crisis, Minsky was one economist who saw what was coming. He predicted, decades ago, almost exactly the kind of meltdown that recently hammered the global economy.

In recent months Minsky’s star has only risen. Nobel Prize-winning economists talk about incorporating his insights, and copies of his books are back in print and selling well. He’s gone from being a nearly forgotten figure to a key player in the debate over how to fix the financial system.

But if Minsky was as right as he seems to have been, the news is not exactly encouraging. He believed in capitalism, but also believed it had almost a genetic weakness. Modern finance, he argued, was far from the stabilizing force that mainstream economics portrayed: rather, it was a system that created the illusion of stability while simultaneously creating the conditions for an inevitable and dramatic collapse.

In other words, the one person who foresaw the crisis also believed that our whole financial system contains the seeds of its own destruction. “Instability,” he wrote, “is an inherent and inescapable flaw of capitalism.”

h/t Calculated Risk, A Moment With Minsky

A Better Perspective on the Tea Party Rally

Sat, 12 Sep 2009 18:25:21 -0700

The newest and increasingly favored blogger on my RSS Feed is J.R. Boyd, posting at Lady Poverty. His take on the Tea Party rallies is refreshing:

...By and large, these are working people with grievances stemming from economic hardship, who feel that government is too large and unresponsive, and otherwise fails to represent them. They have been organized to confront Obama on behalf of the same corporate concerns that pay Glenn Beck's salary and own his network. They articulate a general dissatisfaction with government in addressing their needs, then carp about "socialism" -- perhaps the natural enemy of the pro-business entertainer; not so much the average American trying to find a job.

From a class perspective, the interests of working people deserve to be consolidated and advanced by working people as a class. This means that people without work or without health care, or anyone vulnerable in this regard, have more important things in common than who they vote for, what God they worship, or whether or not they would have an abortion. After all, one does not go bankrupt and lose their home owing to their party affiliation, but thanks to a different set of relations entirely...

Click here to read the rest. I'd also recommend scrolling through some of his older posts--they tend to be short and to the point, with longer entries only appearing in the last couple weeks.

U.S. lists countries exploiting child labour

Sat, 12 Sep 2009 10:04:18 -0700

Washington | September 11

CBC - Children around the world are producing numerous goods being sold globally, says a report released by the U.S. Department of Labour.

The report released Thursday found that 218 million children work worldwide, and that 126 million of them perform dangerous jobs.

The U.S. Labour Department has identified 122 goods from 58 countries it believes to be produced by forced labour, child labour or a combination of the two. Children commonly work to produce products or crops such as: Cotton, Sugar cane, Tobacco, Coffee, Rice, Cocoa, Bricks, Garments, Carpets, Footwear, Gold, and Coal.

"Three of the ones I would single out are cocoa, cotton and rubber," Tim Newman, the campaign director for the workers' advocacy group, the International Labour Rights Forum in Washington, D.C., told CBC Radio's As It Happens.

He said Cameroon, Nigeria, Ivory Coast, Guinea and Ghana were the worst offenders when it came to using children to produce cocoa, while 15 countries were listed as using child labour to pick and process cotton. Newman said Liberia was singled out for child labour abuses in the rubber industry.

International Scene: Child Labor & Forced Labor Reports Released Today

The Department's International Labor Affairs Bureau (ILAB) released three reports today on child labor and/or forced labor in foreign countries, including the initial List of Goods Produced by Child or Forced Labor [PDF] (required by the Trafficking Victims Protection Reauthorization Act of 2005). The report lists more than 120 goods from 58 countries that ILAB believes are produced by forced labor, child labor or both. ILAB also released a proposed update to its List of Products Produced by Forced or Indentured Child Labor, which will be available for public comment beginning tomorrow. The eighth annual Findings on the Worst Forms of Child Labor [PDF], a report mandated by the Trade and Development Act of 2000, was also released today.

Read the News Release
Read the Secretary's Statement

Krugman: A Brief 8-Page History

Thu, 03 Sep 2009 19:00:17 -0700

of Everything Economic entitled

How Did Economists Get It So Wrong?

http://www.nytimes.com/2009/09/06/magazine/06Economic-t.html?pagewanted=1&_r=1

"All I know is just what I read in the newspapers." - Will Rogers

China to start the ball rolling again?

Tue, 01 Sep 2009 10:59:18 -0700

Lots of sources reporting on China's derivative threat today. So where do I come for enlightenment? :-)

In short, the reports are that the Chinese have threatened to unilaterally terminate commodities contracts in an attempt to cut losses on derivatives. Lots of speculation amid a general selloff, but could this be the beginning of the next wave?