One of my favourite groups.
As I have written before, the US tax treatment of its ex-pats is draconian and stupid. We end up paying accountants hundreds of dollars each year only to learn we might owe the IRS some paltry some like $67, if anything.
To makes things even more stressful, the implementation of FATCA [the US tax on off-shore assets] swings into full effect starting on July 1, 2014. This drag net, enacted to catch non compliant U.S. taxpayers with funds located abroad, is causing many U.S. citizens living in Canada sleepless nights in anticipation of a call from the IRS.
I have seriously considered renouncing my US citizenship as a result of this law. But it turns out, I may decide not to do that after all. Here is why [from this site]:
Assuming that the proper tax compliance steps have been or will be taken to avoid the imposition of the exit tax under section 877A, the actual process of renouncing one's U.S. citizenship also has immigration issues of which to be wary. Under the U.S. Immigration and Nationality Act,35 additional amendments were added to deny re-entry to the United States if it was determined by the U.S. Attorney General that the former citizen renounced their U.S. citizenship for the purpose of avoiding U.S. tax.36 [emphasis added] This provision became known as the Reed Amendment because of its introduction by then U.S. Representative Jack Reed of Rhode Island. Although it appears that this law is seldom enforced, there is no guarantee that it will continue to be in the future. Under this provision, an individual who is found to have renounced for U.S. tax avoidance purposes will be denied access into the United States and will be considered "inadmissible" for immigration purposes. The Reed Amendment is intended to prevent a tax motivated expatriate from returning to the United States. Representative Reed, in proposing the amendment stated:
"In an instrumental way, I would hope in the future if those very slick and smart tax lawyers advising their clients about how to avoid their taxes suggest expatriation they should also indicate very clearly that the consequences are you cannot return at will to the United States."37
Well hell. The only reason I'm going through all this nonsense is so I can freely visit my son and his family, who live in the US.
I could argue that I renounced my US citizenship not to avoid paying US taxes but to avoid having to pay accountants to demonstrate that I no longer owe the US any taxes. But I wouldn't want to take a chance on winning that argument at the border.
And since I have made it quite clear on this blog that the only reason I would go through the process of renouncing my US citizenship is to avoid having to file US tax returns, I would be clearly in sights of the Reed Amendment.
Albania was the only European country whose Jewish population after the Holocaust was far larger than that before the Holocaust.
Although a predominantly Muslim country, Albania practices a tradition known as Besa, or faith, in which hospitality and taking care of the needs of others and ensuring their safety and security is paramount.
The first Jews came to Albania in the second century CE and, according to Ditmir, there has never been any history of anti-Semitism in the country.
“Nations that have suffered themselves understand the pain and suffering of others,” said Bushati, adding that Albania demonstrates the goodwill of one nation to another and serves as a model of tolerance and compassion.
Albania’s accession to the European Union will be reviewed this week, and if all goes well, the country will not only be a beneficiary but will also be able to influence European policy against the spread of anti-Semitism, Bushati said in response to a question.
Long-time readers of EclectEcon will remember that I have been skeptical about the effects of "Fair Trade" designations, wondering to what extent, if at all, they help the downtrodden workers of the world. For example, see this, this or this; also, see this at Marginal Revolution. I remain even more skeptical, having seen the results of this study, reporting that workers on "fair-trade" coffee farms do noticeably worse than workers on the larger coffee plantations [via JR].
There is much more. If you think buying "Fair Trade" products helps the downtrodden workers of the world, read this report. And then think again, especially about whether you are helping the workers or helping bureaucrats of well-meaning organizations.
My friend Salim Mansur is part of a group of friends who are hosting/sponsoring a showing of a documentary, Honor Diaries, on Friday, May 29th at the Wolf Performance Hall, 6:30 - 8:30pm. He has written to me,
The showing of this documentary about the status of women in the Arab-Muslim world -- the misogyny, the persecution and abuse of women -- has brought the Council of American-Islamic Relations (CAIR) and other Muslim Brotherhood (MB) and Jamaat-i-Islami (JI) related Islamist organizations to mount their offensive to stop public showing of this documentary....They succeeded in forcing the University of Michigan and the University of Illinois to withdraw the screening of the documentary. At Brandeis University these organizations forced the university administration to dis-invite Ayaan Hirsi Ali and withdraw the presentation of an honorary degree that had already been publicly announced. ...It will be shown at the Wolf Performance Hall, London Public Library, 251 Dundas Street, London, Ontario.The date and time are: Thursday, May 29, 2014, 6:30-8:30 pm.
Please come out and see this documentary, and support the struggle against honour-killings, female genital mutilation, child marriage, and women sold into slavery, as we now witness the horror of kidnapping of young girls in Nigeria by Boko Haram and their being sold into slavery.At least one of the women in the documentary, Raheel Raza, will be among us. ... Raheel has very bravely agreed to engage in a Q & A following the showing of the documentary with the audience members.It cannot be emphasized how important this documentary is in bringing to the North American public the awful reality of gender exclusion and gender oppression in the Arab-Muslim world, and equally important to screen it in public despite the opposition and the equally awful silence of the mainstream media on the subject and the effort mounted to prevent public screening of "Honor Diaries."
Quite frankly, I would love to hear the feedback about this film from all the people in Regina who gave Salim such a hard time while he was there a few years ago.
Whenever people accuse Israel of practicing apartheid, I am flabbergasted. What about all the serious discrimination that goes on in all the other countries of the middle east?
From this column [via MA]:
The dirty little secret is out. It is the Arab countries, not Israel, that have to be considered apartheid states. ...
It is easy to illustrate the general behavior of denial of rights by Arabs by specific reference to racial, ethnic, religious, and gender discrimination against black Africans, the Kurds, Christians and Jews, and women. It is more potent to illustrate it by actions or non-actions regarding the Palestinians, the very people regarded as being “oppressed” by Israel.
One telling feature is the frequent refusal, usually for financial reasons, of Arab hospitals to provide medical treatment for Palestinians, compared with the hospitality of Israeli hospitals that have treated thousands of Palestinians every year, even wounded would-be suicide bombers, from the West Bank and Gaza.
The policy of Arab apartheid was made clear by the Arab League's Resolution 1457 of 1959. Though there is supposed to be an “Arab nation,” the Arab countries would not grant citizenship to applicants of Palestinian origin deliberately in order to prevent their assimilation into the host countries.
A statement by Mahmoud Abbas, published in the official PLO journal in March 1976, complains of this policy. The Arab armies that invaded Israel “forced [the Palestinians] to leave their homeland, imposed on them a political and ideological blockade and threw them into prisons similar to the ghettos in which the Jews used to live in Eastern Europe.” [emphasis added]
In Syria, Palestinian refugees in 1954 were granted partial rights, though not political rights. For many years they were not allowed to hold property, and they have never been allowed to become citizens. The Assad regime, controlled by the Alawites, 14 percent of the population, are in charge not only of the government, but of a considerable part of business.
The Kurds have traditionally been excluded from the political, economic, and cultural life of the country and have been subjected to denial of basic human rights, to persecution, to mass murder, and to arbitrary police behavior. ...
Jordan has been the only Arab country to grant citizenship to Palestinians, but since 1988 it has arbitrarily withdrawn that nationality without notice from thousands. In 1983, Jordan introduced different color-coded travel cards for Palestinians to and from the West Bank.
This has created different levels of citizenship rights, in access to education at all levels, and in fees for drivers’ licenses. Above all, Palestinian non-nationals require a residency permit, thus suffering in the job market. They still are generally not allowed to practice some of the organized professions.
The claim that Israel is an apartheid state has always been a malicious falsehood.
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.