Now that the US and The West have been shown to have made more empty threats and promises, Putin will likely be emboldened to go further. To get a good grasp of the situation check out this post at Outside the Beltway. The maps, like this one, are quite informative.
Be sure to read the comments, too.
Eventually the U.S. will accede to Russia's demand that Crimea and the Eastern Ukraine be hived off and essentially given to Russia. The U.S. and Nato will sign an agreement, and, a la Neville Chamberlain, will declare "Peace in our Time".
This does not look good. Verbal condemnations and false red lines only encourage bullies.
AFP reports that the Russians have crossed into Ukraine’s Crimean peninsula. Ukraine is accusing Russia of “armed invasion.”
“Thirteen Russian aircraft landed at the airport of Gvardeyskoye (near Simferopol) with 150 people in each one,” Sergiy Kunitsyn, the Ukrainian president’s special representive in Crimea, told the local ATR television channel, adding the air space had been closed. It was not immediately clear if Russia had the right to use the base or send additional troops there under its agreements with Ukraine.
This follows reports that Russian troops have been on the streets in Crimea, and follows by a day reports that unidentified, masked, professional gunmen had seized the parliament building in Simferopol, Crimea’s capital, and raised the Russian flag.
Why not? They know that the US will huff and puff and condemn them but not risk a head-on confrontation.
The Russians should remember, though, that the US usually pays/supports insurgents to fight the battles. They may bluster in public but they will also resist expansion by the Russians, using many very different methods.
Suppose Russia and Putin decide to continue the proclamation that the "unrest" in Ukraine is mostly vandalism and illegal activities all designed to overthrow the properly elected gubmnt. Will Russia invade the Ukraine?
Who is going to stop them?
Whether the invasion will actually occur, or how likely it is to occur, is already probably well-known by the CIA and other intelligence groups. They surely have satellite photos of troup and equipment movements. But so what? What are they going to do about it? Take it to the UN? Sure.
Will the Ukraine be like another Hungary or Czechoslovakia? Or will it turn into another puppet war with Russia supporting, arming, and re-arming the eastern, Russian-speaking Ukraine and the west (i.e. the US, primarily) supporting, arming, and re-arming the rebels? I am far from alone in suggesting that Russia might launch an invasion. See this.
Or will the Ukraine split, as I mentioned in my previous post? If so, can the split be done somewhat/comparatively peaceably?
Addendum: For more see the current issue of The Economist.
While politicians in Kiev are scared to mention federalisation because of its separatist undertones, in reality it is already happening. The biggest danger for Ukraine’s integrity is not federalisation, but that Russian interferes and exploits it. That could involve an attempt to annex Crimea, carelessly given to Soviet Ukraine by Nikita Khrushchev in 1954. Over the weekend 20,000 people were out on the streets in Crimea, welcoming back riot police from Kiev as heroes. Russian armoured vehicles have already been spotted around Sevastopol, home to the large Russian naval base.
From Foreign Policy Alerts:
This is hardly surprising. It will take a lot to heal the rifts, if that is even possible.
Top News: Ukraine's interim President Olexander Turchynov warned of the threat of separatism after the ousting of President Viktor Yanukovych.
There remains significant opposition to the new government in Ukraine's eastern, Russian-speaking regions.
In no particular order:
On Iran Deal, U.S. Lawmakers on Both Sides Question Administration - Anne Gearan (via the Daily Agenda)
More than two weeks after a landmark deal with Iran, House Republicans and Democrats called the Obama administration's approach to nuclear negotiations naive and signaled that they will slap more sanctions on the country. On Tuesday a bipartisan lineup of House lawmakers challenged Secretary of State John Kerry's assertion that punitive new trade measures would undermine fragile diplomacy with Iran's government.
The chairman of the Senate Banking Committee, Tim Johnson (D-S.D.), said Tuesday that he would hold off "for now" on advancing a bill to impose new sanctions on Iran, giving the White House some elbow room. Many in Congress believe that applying further pressure on the Iranian government is the only way to ensure Iran never develops nuclear weapons.
Kerry got no public support for the argument that the interim deal, or a potential final one, makes Israel and the world safer. He allowed that his dealings with Iranian officials leave doubts about whether they are willing to make the difficult concessions that a final deal would require. (Washington Post)
No foolin'. What took 'em so long??
From this site:
In October 2011, she apparently posted this photo to the social networking site Vkonttakte.
But for those who do not understand the subject line, see this.
Update: It looks as if the pressure is mounting for people to study economics with EclectEcon. There are even subliminal messages out there, like this recent graph of the number of visitors to the blog:
On the face of it, it looks as if Iran is giving up next-to-nothing in the deal and will now have the economic sanctions lifted, during which it can repatriate zillions of dollars worth of foreign assets.
Stratfor is far from optimistic but hopeful. See this.
The logic here suggests a process leading to the elimination of all sanctions in exchange for the supervision of Iran's nuclear activities to prevent it from developing a weapon. Unless this is an Iranian trick to somehow buy time to complete a weapon and test it, I would think that the deal could be done in six months. An Iranian ploy to create cover for building a weapon would also demand a reliable missile and a launch pad invisible to surveillance satellites and the CIA, National Security Agency, Mossad, MI6 and other intelligence agencies. The Iranians would likely fail at this, triggering airstrikes however risky they might be and putting Iran back where it started economically. While this is a possibility, the scenario is not likely when analyzed closely.
Apparently Stratfor thinks that speaking quietly and carrying a big stick is still a viable option in the Middle East.
Melanie Phillips heaps scorn on this view [see this]. [update: the link and quote are now correct]
Phillips goes on to list 17 different points about the agreement that should be raising eyebrows everywhere.
The Canadian gubmnt is also concerned about the apparent lop-sidedness of the deal [see this]:
Canada vowed Sunday to keep its sanctions regime against Iran after a preliminary deal on the Islamic republic's nuclear program, calling for a more conclusive accord. ...
But Canadian Foreign Minister John Baird insisted that Ottawa would keep its "tough" sanctions "in full force" until negotiators clinch a permanent agreement, because "Iran has not earned the right to have the benefit of the doubt."
I worry that Phillips is right. Elsewhere I have pondered whether it is a case of John Neville Kerry-lain and "Peace in our time."
Scott Sumner at Money Illusion does some interesting comparisons of unemployment rates and the minimum wage for countries in Western Europe. Anyone want to collect the data to plot a scatter diagram? The section quoted below is all sort of an addendum to a different post, but is intriguing [ht Cafe Hayek]. I find it especially interesting that the Scandinavian countries have no minimum wage law. Here are his observations:
Regarding minimum wage,* here is some data for Western Europe:
There are nine countries with a minimum wage (Belgium, Netherlands, Britain, Ireland, France, Spain, Portugal, Greece, Luxembourg). Their unemployment rates range from 5.9% in Luxembourg to 27.6% in Greece. The median country is France with 11.1% unemployment.
There are nine countries with no minimum wage (Iceland, Norway, Sweden, Finland, Denmark, Austria, Germany, Italy, Switzerland.) Five of the nine have a lower unemployment rate than Luxembourg, the best of the other group. The median country is Iceland, with a 5.5% unemployment rate. The biggest country in Europe is Germany. No minimum wage and 5.2% unemployment.
Still want to raise our minimum wage to $10? Germany used to have really high unemployment. Then they did labor reforms to allow more low wage jobs, combined with subsidies for low wage workers. Now they don’t have high unemployment.
Still want to raise our minimum wage to $10?
You can easily say, "Yeah, yeah, but there are other things going on that aren't taken into consideration with a simple two-variable comparison." Okay, but how do they affect unemployment? Or are those things AND a high minimum wage functions of something else?
If it isn't a perfect analogy, the willingness to sell out principles is common to the two.
Apple defers to China to increase its profits.
Hollywood deferred to Hitler to increase profits.
Okay. I can see that to clarify the analogy, I should say "Germany" instead of "Hitler"; also, Apple is a single corporation, whereas Hollywood refers to many of the major film companies of the 1930s. However, all the film companies were forced to act together through the Hays Office by Germany and their consul in Los Angeles, Georg Gyssling:
Gyssling had the option of informing the Hays Office, a private group that represented the major Hollywood studios, that if the [distinctly anti-Nazi] film were made then his government might place a ban on all American movies in Germany. It is uncertain whether Gyssling actually did this – the evidence is inconclusive – but he probably did,
Last night we were watching the beginning of the NHL game between Trono and Philadelphia, and I mentioned to my granddaughters that I had once played hockey. They were quite taken aback for some reason, which I am sure had nothing to do with my general lack of athleticism and my clear disinterest in the NHL these days.
So I went to the closet and dug out my old hockey jersey.
Economists may recognize the stylistic version of the Edgeworth Box Diagram. I think the designer sketched an example and then the sweater producer just used some circles to make the curves, leading to interesting negative marginal utilities. The curves on the sweater aren't necessarily incorrect, but they were not the shapes of curves we saw in standard textbooks 40 years ago. E.g.:
Remember the principled stance taken by many in Denmark when the cartoons featuring Muhamed were published there? There clearly is a dark side in Copenhagen as well, evincing serious anti-semitism [ht MA]. This is tragic. I hope everyone fights against things like this, regardless of the ethnic group.
As MA said when he sent me the link, "Not so wonderful Copenhagen."
The son of a Muslim father and an Israeli Jewish mother, Jacob began his education at a private Muslim school, where he was bullied because of his Jewish background and had to keep his distance from the other kids during recess. When he was transferred to a regular school, the abuse grew even worse; it wasn’t even safe for him to walk home alone. In eighth grade, his teacher told him to say that he was Palestinian and that his mother was Russian. “I had to lie about who I was,” he recalls. But it didn’t work. They knew. Eventually, a group of his classmates ganged up on him and stabbed him in the leg. “You can’t go here anymore,” his teacher said. ...
Jacob’s testimony was featured in the media – and, as Jyllands-Posten now reports, the hubbub just made his life even tougher. Some time after the hearing, two Middle Eastern men passed him in the street. “That’s him,” one of them said. “Jew pig!” shouted the other. On Facebook, strangers called him a “Jew pig” and “Nazi pig” and “Jew dog.” (Plainly, the imagination of these people is severely limited.)
In the wake of his moment in the media spotlight, Jacob’s mother was advised by several school officials to transfer him to a school outside of Nørrebro. She was stunned by the suggestion: Jacob had lived in the neighborhood almost his entire life; neither of them wanted to flee. But in August, he finally gave up, packed up, and moved out. He now resides in what he considers a safer part of town. Not that it’s made his life a bed of roses: a couple of weeks ago, he was on Strøget, the main pedestrian street in Copenhagen – Tourist Central, basically – when a couple of “Arabic kids” grabbed hold of him and made a serious effort to drag him away with them. Who knows what they had in mind. Fortunately, two companions of Jacob’s managed to come to his aid. (As someone familiar with Strøget, which is almost always quite a busy, bustling thoroughfare, I can’t help but notice that no passersby appear to have tried to help.)
The War of 1812 involved lots of burning and killing all over eastern North America. The ultimate losers were the Indians of the midwest who were driven farther west as a result of the treaty agreement between the US and Britain. One area that suffered during the war was in southwestern Ontario, where the US attacked from both the east (via Niagara) and the west (via Detroit).
TV Ontario is airing the premiere showing of a documentary "The Desert Between Us and Them" this coming Saturday, October 5, from 9-11pm. The film describes the daily trials and tribulations of settlers in SW Ontario as the Brits harassed them to join the war effort and the US confiscated considerable food, etc., after the successful invasion at Amherstburg. From the TVO website promoting the airing of the film (which has a short video as well):
A cinematic documentary that explores those stories that make the War of 1812 a "modern war" by stepping back in time to experience the conflict through the eyes of the people of Southwestern Ontario, who spent several years living in a War Zone. Saturday October 5 at 9pm (ET).
Unless it ended up on the cutting room floor, there is a brief portion of the film in which I appear as Kentucky Governor (and successful general) Isaac Shelby. The scene was filmed over a year ago. In it, a group of women pleaded with me not to destroy their homes. From Wikipaedia,
On July 30, 1813, General Harrison again wrote Shelby requesting volunteers, and this time he asked that Shelby lead them personally. Shelby raised a force of 3,500 volunteers, double the number Harrison requested. Future governor John J. Crittenden served as Shelby's aide-de-camp.Now a Major General, Shelby led the volunteers to join Harrison in a campaign that culminated in the American victory at the Battle of the Thames.
The Battle of the Thames was fought exactly 200 years earlier than the date of the premiere showing of this documentary. Leading up to, and during that battle, it became clear that the Brits were going to sell out Tecumseh and their Indian allies. From the Wikipaedia entry on Tecumseh,
During the War of 1812, Tecumseh's confederacy allied with the British in The Canadas (the collective name for the colonies of Upper Canada andLower Canada), and helped in the capture of Fort Detroit. American forces killed Tecumseh in the Battle of the Thames, in October 1813. His confederation fell apart, the British deserted their Indian allies at the peace conference that ended the War of 1812, the dream of an independent Indian state in the Midwest vanished, and American settlers took possession of all the territory south of the Great Lakes, driving the Indians west or into reservations.
I have no idea whether my scene made the cut, but we have the PVR set to record it.
Even if you don't buy and read this book by Nina Munk, be sure to read this review of it. It is careful, on-the-ground research that leads to scathing condemnation of Jeffrey Sachs and his grand plans in Africa. Sachs is a quintessential elitist interventionist who would love to take over the lives of others --- to make them better off, of course. At least Bono has seen the light, but I doubt if Sachs ever will. Here are some selections from the review:
The Idealist: Jeffrey Sachs and the Quest to End Poverty is a devastating takedown of Mr. Sachs’s technocratic fantasies. It is essential reading for anyone who thinks that brilliant people with the right interventions can save the world. ...
In Dertu, Jeffrey Sachs was revered as the Great Professor. But gradually it became clear that even he didn’t have all the answers. As Ahmed Mohamed, the local Millennium Fund project manager, sighed, “What can we do? We cannot enforce. We try to explain. We want to empower. But no one can come and change them if they do not want to change themselves.”
In other ways, the project did change Dertu. The population exploded from hundreds to thousands. People were attracted to the town by the free food, water and medicine. They gave up their pastoralist ways and built shantytowns. And then the money ran out. The doctor left, and the project manager was fired, and the good times came to an end.
... What makes Ms. Munk’s critique so compelling is the legwork she put in on the ground. In Dertu and other villages, she got to know the people that Mr. Sachs set out to help. He is famous for being combative and ill-tempered, and has ferociously attacked her book. But as she points out in an interview, “I’ve spent more time in these places than he ever has or will.”
Recent history is littered with the wreckage of grand plans to save Africa. So why should we care about another? Because, Ms. Munk argues, “Oversimplification is terribly dangerous.” Promises that can’t be kept invariably result in disappointment, cynicism and donor fatigue. Western taxpayers are increasingly reluctant to fund foreign aid without some assurance that it works.
As for Africa, Ms. Munk energetically rejects the notion that there’s nothing that can be done. The good news is that things are gradually improving. And Africans themselves are increasingly taking the lead. The moral of her story is that the last thing Africa needs is more Great Professors. As she says, “I think we’d all be a lot better off if we were a little more humble.”
I added the emphasis to the last sentence of that review [quoted above]. It is very Hayekian and very true. From the conclusion of Hayek's acceptance speech when he received the Nobel Prize in Economics,
The recognition of the insuperable limits to his knowledge ought indeed to teach the student of society a lesson of humility which should guard him against becoming an accomplice in men's fatal striving to control society - a striving which makes him not only a tyrant over his fellows, but which may well make him the destroyer of a civilization which no brain has designed but which has grown from the free efforts of millions of individuals.
In this photo, Foreign Minister Lavrov is smiling, even laughing. The Russians have now (temporarily) headed off (explicit) US intervention against the Russian/Iranian puppet.
But the US is allegedly supplying arms to the rebels via the CIA. From a broad perspective, the US is likely hoping for a lengthy stalemate between two anti-US factions in many respects.
At the same time if the rebels are more pro-western (is that possible?), say like the rulers of Saudia Arabia or UAE, then supporting the rebels would eventually undercut the Russian natural gas monopoly over Europe and might very well be a good strategy. But to do that, they US must support the right rebels (assuming that is possible and such a group even exists).
But it looks like a short-term Russian diplomatic victory. No wonder Lavrov is laughing and Kerry appears to be grimacing.
Nope, it's not a soccer/football team. It is a political party in Australia. Judging from information sent to me by my sister, the party is at the wacko extreme end of Keynesian stuff: cut taxes, spend more, and don't worry about how to fund all that.
Anyway, she sent me the following poster that she adapted, which is pretty amusing:
Do you think maybe there is a chance, given all this time, that Assad has moved his air force (such as it is) and chemical weapons to Iran?
If so, do you think the US (with France's encouragement!!) will feel obliged to go bomb them in Iran?
How this possibly end well for the US?
I wonder if the US is just hoping that after the Egyptian military takes power, they'll become nice guys (eventually), stop killing the opposition, and (eventually) hold free elections, and (eventually) with proper guidance from smart economists, the economy will grow and people will be much better off.
After all, isn't that what happened in Chile? Pinochet and military had the socialists ousted from office and, in the process, many were killed. But eventually with help from many bright economists the economy grew much faster than it possibly could have under Allende and the socialists, and eventually democracy was restored.
But the Muslim Brotherhood is not the socialists of Chile. Its members are not nearly so likely to give in, be swallowed up, and become part of the mainstream. I hope the US is not being myopic in its strategic planning about what to do and how to react to the recent military coup and the killings of people from just about every group by members of just about every other group.
During an interview at the Rocky Mountain Economic Summit last week, James Bullard, President of the St. Louis Fed, said something to the effect of
"Just in broad terms, we have to hope that Europe comes out of its recession soon and there will be at least some growth there, and we have to expect that the slowdown story in China only has a certain probability attached to it, and most likely China will meet its target growth rate of 7.5%."
Fortunately Bullard is a flexible guy who seems to be able to adjust; it is not at all clear what the actual rate of growth will be over the next year or so in China. From Foreign Policy,
Chinese economic growth slowed to 7.5 percent in the second quarter of the year amid efforts by the country's new leaders to rein in credit and pivot toward reforms.
Monday's economic figures are the second straight quarter of weaker economic growth in what is the world's second and largest economy and came on lower investment and declining trade figures....
But there is no sign from the Chinese central government that they plan to intervene in the economy and inject more stimulus. The government has set a growth target for 7.5 percent for 2013, and Monday's economic news raises the spectre that the country could miss it [emphasis added]...
"I think the second half will be even weaker. The government's tolerance for slower growth is definitely higher," Zhu Haibin, a JP Morgan economist, told the Financial Times. "Seven per cent is probably the growth floor."
But that's not all. There has long been some doubt about the accuracy (and veracity) of China's growth data. From a fascinating Forbes article (ht Jack):
What is the real growth figure? Seeking Alpha thinks it is around 6.7%, but even that figure is high. Among other factors, the severe contraction of aggregate financing in June, the marked fall in exports in May and June, and the evident shrinkage of the manufacturing sector throughout the quarter all point to an economy growing in the low single digits.
Moreover, it is unlikely that NBS, in releasing the Q2 number, had made proper adjustments to account for two phenomena. First, Beijing’s official statistics have not been adequately adjusted for inflation, as Standard Chartered ’s Stephen Green has pointed out. Second, fake trade invoicing substantially inflated GDP numbers. Rampant falsification has resulted in the simply unbelievable report of 14.7% export growth in April, the first month of the just-ended quarter. Although some say export growth was about 6% then, it seems like it was actually closer to 3%.
The most intriguing Q2 indications, however, are the comments of China’s finance minister, Lou Jiwei. Mr. Lou, speaking in Washington on Thursday, said growth in the first half of 2013 was probably less than 7.7%, “but not too far from it.” Then he spoke these words: “Our expected GDP growth rate this year is 7%.” ...
The National Bureau of Statistics has been issuing obviously incorrect data since the fourth quarter of 2011, but so far most everyone has largely bought the official storyline. Yet there is always a tipping point. Soon, Seeking Alpha will be right, and the issuance of obviously false data will trigger a collapse in confidence in China’s economic management. Beijing’s haphazard censorship of Lou Jiwei signals that the collapse could be soon.
China did not grow anywhere near 7.5% in Q2, and signs of leadership discord tell us this number is the biggest fib of the year.
There is much more in the Forbes article. Read the whole thing! And this morning, Paul Krugman writes in the NYTimes,
All economic data are best viewed as a peculiarly boring genre of science fiction, but Chinese data are even more fictional than most. Add a secretive government, a controlled press, and the sheer size of the country, and it’s harder to figure out what’s really happening in China than it is in any other major economy.
Yet the signs are now unmistakable: China is in big trouble. ...
Concerns like these should raise some important questions about the assumptions on which the Fed is basing its decisions.
My attendance at the summit was supported by several sponsors, including the Department of Economics at The University of Regina.
When the US Federal Reserve increases the money supply, in the short run that puts downward pressure on the nominal rate of interest. The lower rate of interest induces investors to shift out of US Treasury bills and bonds into something else, seeking more preferable risk-return combinations. Some of that money will eventually find its way into investment spending, but in the meantime many investors look around for some other financial investment that will offer better risk-adjusted returns.
That is what happened, in part, with the financial crisis as people snapped up those inappropriately rated AAA mortgage-backed securities via the shadow banks.
Nowadays, this short term money (sometimes called "hot money" because it is moved quickly in response to changes in interest rates, exchange rates, and expectations) is flowing into and out of the financial markets in other countries. It is, after all, a global market.
Catherine Mann (Brandeis University) presented numerous charts showing some tendencies in the market for this to happen. Unfortunately I'm not able to find a link to the charts; I'm hoping they will become available soon here.
Her emphasis was on the problems faced in emerging markets that result from quick and sudden short-term cash flows into and out of their economies. I wasn't entirely convinced by her graphs and data, but I'd like to have a closer look at them at some point. All the same, her point is one I hadn't considered before: short-term movements of very large amounts of financial capital into and out of a country can play havoc with that country's attempts to control its own monetary positions.
A priori, this position makes some sense. One of the reasons for the phenomenal growth in the MSBs was the massive inflow of financial capital to the US pre-2007. At the same time, though, emerging markets face different problems. Massive inflows of financial capital can distort the local economy, putting considerable downward pressure on short-term interest rates. When that financial capital moves elsewhere, there is then pressure that causes the short-term interest rates to rise.
I viewed this phenomenon with less of an "ain't it awful" perspective than was hinted at both by Catherine Mann and in this piece by Patrice Hill, a media bench partner at the Rocky Mountain Economic Summit. Instead, I see it as a healthy flow of capital. It is this ebb and flow of capital throughout the world markets that tends to equalize the risk-adjusted interest rates and which sends signals to investors about the global cost of capital.
If the large-scale movement of short-term funds can wreak havoc on a local economy, the players in that economy are not adequately accounting for these potential movements in their decision-making. If you get a bunch of short-term money injected into your economy, there is no guarantee it will stay there for long. Counting on those funds as being anything other than short-term funds can lead to bad decisions.
My attendance at the summit was supported by several sponsors, including the Department of Economics at The University of Regina.
One topic I didn't have a chance to pursue and that has puzzled me and led to some discussion among friends has to do with savings in China, the flow of capital into the US (and the west in general).
We have seen this phenomenon at work for quite some time. There have massive capital inflows into the US as China exports more goods in exchange for coloured pieces of paper.
In the interview session, I asked Jim Bullard, "Why have global interest rates been so low for so long?" He said "I honestly don't know for sure, but we can go back to Alan Greenspan's statement that there has been a glut of savings in the world, and it started in about the year 2000." In other words, he attributes the long period of low interest rates to a dramatic increase in the supply of lendable funds.
When I asked Charley Plosser the same thing, he looked at the demand side instead. He said that there are just no better options out there. This is consistent with the position of many people who see the US gubmnt debt as a safe haven, which I guess it is in comparison with so many other economies.
But what will happen if/when China faces a credit crunch, as seems possible if not likely? One of my former students who works in finance told me that won't be a problem because the world is SO awash with liquidity from everywhere that even if the funds from China are diminished, it won't make much difference.
I'm not sure I agree. I see a potential black swan out there. If China were to suddenly face a big liquidity crunch, that would affect not only them, but would withdraw a sizeable chunk of liquidity from the US and other economies, which would surely drive interest rates up. The only question is, "how much?"
And to that extent, I'm not nearly so optimistic for the long run as many of the speakers were at the summit.
My attendance at the summit is supported by several sponsors, including the Department of Economics at The University of Regina.
I was surprised that up until the last presentation there had been little mention of the relationship between the Chinese and US economies. There was some mention of China now and then, but it was generally only in passing.
Michael Drury on China. A fun presentation with lots of surprise statements.
The CPI in China is near 2%; also the PPI is low, too, near zero. Inflation has not run rampant there....yet.
Growth is slower than expected and than it has been. That shows up in real GDP, rail shipments, electricity production.
"The people in power in China are not all that different from those in Russia. It’s a kleptocracy." Whoa. Yes, he really said that. And then he followed it up with,
"Don’t invest in the Chinese stock market because it doesn’t really exist."
As a result of these observations, he is skeptical about the effectiveness of proposed banking reforms.
It is and would be a difficult project breaking up the state-owned enterprises. There are too many vested interests.
Environmental controls are really important. Pollution in the major cities is serious and Chinese officials are trying to do something(s) about it.
Fun concluding note (paraphrased):
The most important price in the world is not the price of oil. It is not the price of gold. It is the price of pork in China, which affects the world price of corn. The two move together.
My attendance at the summit is supported by several sponsors, including the Department of Economics at The University of Regina.
The interview sessions with Jim Bullard and Charley Plosser occurred right after their formal session, and went on for quite awhile as about six members of the media asked questions. As a result, I missed some of the final session of the day which was directed toward investment strategy. So here are a few cryptic notes:
Martin Barnes on Investment strategies
Bonds aren’t good. Cash isn’t good. Stocks may not do any better unless profit margins continue to grow.
A stunning (though I guess I'd known it) fact: Some institutions require funds to pay out 5%/year. ARGH. Encourages too much risk-taking. Why would anyone require annual payouts higher than the real rate of interest. It has to erode the working capital.
Stockmarkets will be fine if/when/as interest rates go up SO LONG AS at the same time the economy is stronger and growing.
On a return basis alone, it looks as if buying stocks from Japan, Spain, Uk, Italy, might be good, but of course there are greater risks, too. Well, duh. Australian stocks might be a better value over the long term, but he thinks the US still looks like the best bet of bad lot. Near the end, he presented a great graph on long-run real commodity prices, showing constant long-run decline (recalling for me the famous Julian Simon-Paul Ehrlich bet.
Kozo Koide again. Japanese Economy and implications for investment.
Koide's second presentation seemed to be a presentation defending Abenomics, interestingly, Catherine Mann had said she doesn't subscribe to during her morning presentation. Too bad they weren't on the same panel!
Japan has suffered from recession, slow growth, and deflation, but Koide forecasts there will be positive cpi growth, lessening the deflation and eventually moving to a positive rate of inflation of possibly as much as 1.5% in two years.
He presented fairly compelling graphs comparing the purchasing power parity [PPP] exchange rate with the foreign exchange [FX] rate. For the past 20 years, the Yen has been overvalued and Korean currency undervalued when PPP rate is compared with FX rate.
In one of the first mentions of China all day, Koide said China faced rapid CPI (as he constructed it) increase before wage inflation, which has caught up.
In another graph, he showed that real labour earnings in business in Japan are the same today as they were in 1985.
My attendance at the summit is supported by several sponsors, including the Department of Economics at The University of Regina.
Wouldn't it be wonderful if everyone understood the problems of scarcity, the problems involved with relying on subsidies, and that it is extremely difficult to consistently and persistently try to consume more than is being produced?
The incoming Prime Minister, Hazem el-Beblawi, has his work cut out for him. From Foreign Policy,
As the fault lines of Egypt's ongoing political crisis continue to harden, the country's military leader announced that he had named Hazem el-Beblawi, a former finance minister, as its new prime minister, a move that installs a respected technocrat in a position where he will have to confront Egypt's daunting economic problems.
... With Beblawi's appointment to the position, the military tapped a man who served as finance minister during the previous military transitional government and who has said that he knows exactly what it will take to cure Egypt's struggling economy.
"The thing is we have a situation whereby we have to tighten the belt. And this means we have to pay a price," Beblawi told the Washington Post in October. " [emphasis added] And it is difficult to ask people to sacrifice, particularly after the revolution, where everyone was expecting to get rewards for past experiences."
He clearly knows what the problem is, and he knows what must be done to address it. Implementation of any particular scheme, though, may lead to additional unrest. I do not envy him his job, but here is hoping that the transition is not too horrible.
I just ran across these photos of events at the 5th Annual Silk Road Festival in the Afghanistan highlands. A description of the event from Foreign Policy Magazine:
I don't see any women in the photos.
This past weekend, at the 5th Annual Silk Road Festival, Afghans gathered to celebrate the heritage and relative security of the country's isolated highlands (Guardian). Key activities of the festival included buzkashi - a game similar to polo that uses a dead goat instead of a ball - jousting, horse racing, and a tug of war. There was also a poetry contest. See photos of the event here.
Wow. What a difference (via Daily Alert):
The Arab American institute last week published the results of an opinion poll of over 5,000 Egyptians titled "After Tahrir: Egyptian Attitudes Toward Morsi and the Muslim Brotherhood." More than 70% believe the economic and security situations have worsened. Among those who support the Muslim Brotherhood, 98% say their lives have improved. Among the rest of the population, over 80% say their lives have worsened. 92% of Muslim Brotherhood supporters reject the contention that the Brotherhood intends to control the state and Islamize it. On the other hand, 93% of the rest of the country said that is precisely what the Brotherhood is doing. (Al-Ahram-Egypt)
Prices in shops should be rounded up or down in an effort to do away one and two cent coins, a report recommends today.
... The Central Bank found that one and two cent coins are not actively used by consumers and are expensive to mint. In many countries, including the Netherlands and Finland, low denomination coins have effectively been removed from circulation through the use of the rounding rule. [EE: also Canada, Australia, and New Zealand]
With this rule, goods and services are still priced in multiples of one or two cent but are rounded up at the till. For expample [sic] a bill of €56.21 is rounded down to €56.20 while a bill of €56.23 is rounded up to €56.25.
The NPP says a pilot should be run in a mid-sized Irish town to investigate consumer and merchant reaction to the use of a rounding rule in Ireland. Bray, Co Wicklow, and Drogheda and Dundalk in Co Louth are in the running to be chosen to pilot the scheme.
Do a pilot study? why? They've done the reading and the research, and eliminating the low-value coins is a plan whose time has come. Just do it. The entire Euro block should do it.
If they have some doubts, they should hire EclectEcon as a special consultant!
Brian also wondered if there is any symbolic meaning in the photo that accompanied the article. It is from a mint in Athens, Greece:
For my testimony before the Senate Finance Committee, see this.
Addendum: For considerable precedent in many other countries, see this section at Wikipaedia.