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Monthly Archives
10:08PM

Why the global imbalances issue will not go away

OPINION: "Global 'Imbalances' and the Crisis," by David Backus and Thomas Cooley, Wall Street Journal, 12 January 2010.

Sort of an odd-duck piece: says, in effect, just because we're the world's reserve currency and that keeps our money so cheap, we can't blame global trade imbalances for our bad behavior. True enough.

But also true that, absent those conditions, the bad behavior wouldn't have likely emerged, and NOT dealing with the imbalances hardly seems the right choice.

Better argument here: it'll be almost impossible to change the imbalances any time soon, or at least, we shouldn't disrupt the system trying.

Why?

No serious challenger as global reserve currency is in the offing.

U.S. Treasuries are so desired because they represent "the deepest and most liquid market of safe securities in the world." Despite all those whacked TV commercials, they are the real "gold" in the system.

Finally we have great institutions and favorable demographics--our hidden strength.

10:05PM

Tapping that BOP market in PRC

COMPANIES|INTERNATIONAL: "Carlyle to set up renminbi-based fund in Beijing: Drive to increase activities in China; Group eyes remote areas of country," by Sundeep Tucker and Jamil Anderlini, Financial Times, 13 January 2010.

BUILDING BRICS: "Shopper power rises in 'Chicago' hinterland," by Geoff Dyer, Financial Times, 19 January 2010.

Not hard to see why Carlyle's moving in--deeper. Carlyle was an early mover and already has about $2.5B invested there, "the biggest by a single foreign private equity group."

We are told that foreign equity players are increasingly running into tough competition from domestic firms--just like in every other field. So Carlyle seems to be looking for breakthrough positions by going deeper into the interior, where international firms have yet to penetrate.

Second article details why Carlyle is smart to be so aggressive: the major coastal cities (Shanghai, Zhejiang, Guangdong) are growing annually in the 5-7% range, but the "Chicagos" (Hubei, Sichuan, Chongqing, Hunan) are growing more in the 10-12% range.

Whether you're talking internet users per 1,000 people, or TVs, or energy consumption, or daily newspapers, the BRIC all rank below the West by a substantial margin--save mobile phones where Russia oddly enough leads the world (Stalin must be spinning).

So, yeah, a rebalancing is in the works. Just don't expect it by Tuesday as it's more a 2020-2025 thing.

10:04PM

China poised for great collapse; China poised to become world's second biggest economy (pick n' save!)

WORLD NEWS: "China Targets Inflation As Economy Runs Hot," by Terence Poon and Andrew Batson, Wall Street Journal, 22 January 2010.

The raw numbers from 1999: U.S. @ $9.35T, Japan @ $4.4T and PRC @ $1.1T.

Fast forward to 2009: U.S. @ $14.27T (not bad for the "Big Zero" decade), Japan at $5.1T and PRC at $4.9T (trusting those Chinese government statistics . . . mmmm . . . not so well, as the economy always seems to just break the 8% growth rate every year--like magic!).

Article worries about China's exit strategy from all that public spending on infrastructure--aka, future consumption.

11:56PM

Haiti shows our SysAdmin need

OP-ED: Haiti Lessons: A Search and Rescue Corps ... , By MATT KLAPPER and JAMES J. RILEY, New York Times, February 13, 2010

OP-ED: ... And One for Doctors, Too, By VANESSA BRADFORD KERRY, New York Times, February 13, 2010

Another chunk of the SysAdmin force/function proposed as a result of Haiti

The gist:

THE United States should create a service corps of doctors, nurses and medical technicians to deploy to humanitarian disasters like the one that struck Haiti last month.

Members of this corps would also be available to countries where violence, neglect and poverty are breeding extremism. History has shown that there is a significant correlation between adequate health care and a country's stability and security. It is no coincidence that terrorism often thrives in places that lack basic services like education, clean water and rudimentary medical care.

The program would be modeled on the Peace Corps, with the added incentives of loan forgiveness and scholarships in exchange for a committed period of service.

Of course, it is described as a "force multiplier" in the struggle against terror/instability/etc. True enough.

The call comes alongside another one for a search & rescue corps.

11:53PM

Iran's rise is an opportunity

DIPLOMATIC MEMO: Iran Policy Now More in Sync With Clinton's Views, By MARK LANDLER, New York Times, February 16, 2010

Clinton speaking the obvious pathway WRT to a nuclear Iran:

The consequences of a nuclear Iran, Mrs. Clinton said, would be disastrous. She said that leaders in other Middle Eastern countries would say, "If Iran has a nuclear weapon, I better get one, too, to protect my people."

She added, "Then you have a nuclear arms race in the region; then you have all kinds of opportunities for problems that could be quite dangerous."

Let's hope she's up to that task, because it is coming, despite all the "getting tough" talk to come.

As I have often stated (for almost six years now), Iran will get the bomb, others will follow, and this will be an opportunity for strategic peace in addition to "problems" of the most familiar sort.

11:51PM

Samuelson's bad take on China

OP-ED: The danger behind China's 'me first' worldview, By Robert J. Samuelson, Washington Post, February 15, 2010

A strangely emotional, over-the-top piece from Samuelson, who is usually less hyperbolic. He's read a new book and apparently has found religion as a China-basher.

The notion that China plays by its own rules and levers its strength for economic imperialism is a stretch. It obeys plenty of rules and seeks maximum advantage wherever possible, acting like every rising power before it. Attaching the word "imperialism" to that is about as overwrought as most charges of "imperialism" are when directed at the U.S.

The notion that, somehow, by now, Beijing and Washington should have international interests that have converged is equally immature. How can a country with 300 million people and a per capita income north of $40,000 have the same interests as a country with 1.3B people (same land mass) with a per cap of about 1/10th that number, to include 700m impoverished rural poor?

Invite every poor person in South America and Sub-Saharan Africa to live in the U.S. and then maybe we'd have convergent interests.

Until then, feigning hysteria on the subject is useless posturing, especially from somebody as smart as Samuelson.

Bad sign.

(Thanks: David Emery)

11:49PM

Regionalize an Afghan solution

OP-ED: Let India Train the Afghan Army, By SUMIT GANGULY, Wall Street Journal, FEBRUARY 16, 2010

Couldn't agree more. Let the Indians train the military and the Chinese train the cops and border.

Above all, regionalize the solution set beyond just the Pakistanis.

(Thanks: Our man in Kabul)

11:43PM

Smart to cover our Iranian bets

OP-ED: On Iran, all of the above, By David Ignatius, Washington Post, February 14, 2010

Nice piece by Ignatius. When all the levers are accounted for, there is good logic in approving this menu of multiple bets placed. It strikes me as very Cold War-ish but in a good way: we are familiar with this sort of tired authoritarianism and know how to wait it out while applying pressure and always being open for talks.

In sum, a fairly sensible approach, unlike the mounting demonization of China.

(Thanks: Terry Collier)

11:00PM

Mixed results in AfPak

ARTICLE: Coalition Troops Storm a Taliban Haven, By C. J. CHIVERS and DEXTER FILKINS, New York Times, February 12, 2010

ARTICLE: Secret Joint Raid Captures Taliban's Top Commander, By MARK MAZZETTI and DEXTER FILKINS, New York Times, February 15, 2010

ARTICLE: Taliban Arrest May Be Crucial for Pakistanis, By CARLOTTA GALL and SOUAD MEKHENNET, New York Times, February 16, 2010

Evidence of the big push in the south: the biggest Taliban haven is captured along with the top military commander.

The latter score seems more crucial, as it provides evidence of Pakistan's desire to be credited as this effort goes down:

Pakistan has removed a key Taliban commander, enhanced cooperation with the United States and ensured a place for itself when parties explore a negotiated end to the Afghan war.

The complication? Mullah Baradar, very close to top boss, Omar, was viewed as the crucial leader within the Taliban advocating for, and working on, reconciliation with the Kabul government.

Thus, Pakistan's reach for a confirmed reservation at the table comes at Karzai's expense--quelle surprise.

10:45PM

Growing jet fuel

ARTICLE: Algae to solve the Pentagon's jet fuel problem, By Suzanne Goldenberg, Guardian, 13 February 2010

POST: DARPA: Biofuel from Algae Could Cost Only $1 Per Gallon, by Michael Hoven, HeatingOil.com, February 15, 2010

I do believe this is coming. Have seen plenty of evidence that buttresses this claim.

(Thanks: Wayne Yin and Pete Johnson)

10:08PM

Latest car market data from China/BRICs

CORPORATE NEWS: "China Passes U.S. as World's Top Car Market," by Patricia Jiayi Ho, Wall Street Journal, 12 January 2010.

BUILDING BRICS: "Promise of growth lures carmakers," by Jonathan Wheatley, Financial Times, 21 January 2010.

Chart says it all in terms of demand-center shift: U.S. at roughly 17m units/yr going back to late 1990s while China then just maybe 2m. Now (2009) China at about 14m and US down to roughly 10-11m. China's total skyrocketed 46% thanks to gov subsidies from a mere 8.6m in 2008.

Before you get freaked about losing our "lead" (whatever that is) realize we have something like a bit over 500 cars per 1,000 people while China has something like 30-35 and India even less (Russia and Brazil are under 200), so no question where the growth is heading in the system, as projections foretell all four BRIC with penetration rates that will be in the same zip code as the US by 2050.

FT says that by 2020 China's market could top 30m per year, while we're likely to be sitting at the replacement rate of about 15m (a mature market).

India's now at 1.7m and could reach 8.4 by 2020.

Brazil goes from 2.7m to 5.7, and Russia goes from 3.0m to 5.7.

So the BRIC jumps from 16m in 2008 to a whopping 50 MILLION UNITS by 2020! That's a three-fold increase in a dozen years, or the system adding an entire American-sized market every six years!

10:06PM

The new Russia's only about 20 years old

INTERVIEW: Russia's elite will grow up! (2), Dmitry Trenin and Boris Dolgin, Open Democracy, 21 January 2010

A very interesting interview with Dmitry Trenin, whom I consider to be the best analyst--bar none--on Russia's evolution.

The way he describes how Russia and its elite will "grow up" captures exactly my expectations:

[Dmitry Trenin]

We can talk about democracy as much as we like, but there's not much demand in our country for democracy. We've got a lot of consumers now, and that's a good thing. But these consumers haven't yet become citizens. One day they will, I hope. But it's going to take some time. When they do, then we can start talking about real democracy.

You could say that our country is authoritarian, because it is. It is mildly authoritarian. In politics, one group has a monopoly on power. But the people who really support this regime aren't really interested in politics. They're interested in the size of their salaries, what they can buy with their money etc. This is normal. People have the got the right to decide what interests them and what does not.

They did not bring communism down in order to establish democracy, but so that they could have food and freedom in their private lives - and they've got that, more or less. People got what they were fighting for.

[interviewer]

How can you turn consumers into citizens? What is it going to take?

[D.T.]

I think that the consumers need to get established. 15 years ago some of us were still unsure whether or not there was going to be a civil war, whether we might have to leave the country. Now that's no longer an issue. There's going to be no civil war, and no one's going to have to leave the country - or you can if you like. You can live in Moscow, and you can live in Voronezh. Everyone can go where they like - that's settled now. It's no longer a question of 'sauve qui peut'.

And once people settle down, they start trying to make things work. Look at the way the rich live in Moscow. It's fairly normal, fairly like life in the West. They've got decent cars. I look at the cars parked in the courtyard of my completely non-elite building in the centre of Moscow: they've changed a good deal over the last 15 years, and crisis or no, they go on changing. But once you leave your personal space, your house, you find yourself in a place which no one looks after. People regard that as the responsibility of various organizations, officials, councils, the building maintenance board, etc.

As long as you stay in your apartment it's fine. But as soon as you go out onto the stairwell things aren't so great. They may not be terrible, but they're not great. Considering what people earn, and what they could do, it could be better. People aren't getting their act together to improve things for everyone. Though in some respects this is starting to happen. People with cars - you know what a problem parking has become - don't want just anyone to be able to park in the courtyard, and so they decide to get together and put up iron gates, so that only people with an electronic key can enter. That's a small improvement for a small territory.

If you've got children - not a lot of those being born right now, but still - you don't want alcoholics hanging around their playground. You try and get something done about that. And so on and so on.

The way I see it is that people who live in a place and have decided that they're going to go on living there - in Moscow, Kostroma or wherever - are starting to want to do something to make it nicer.

No one is working on building democracy. Democracy grows out of a need, as I see it. You have to want to take part in a common cause. Democracy means a republic. As we do not have a republic, there's no common cause - everyone sticks to their own private affairs - so we don't feel much of a need for democracy. It'll happen. I'm sure will in due course.

[interviewer]

You mean the public will grow out of the private, from the ground up?

[D.T.]

Yes. People have different kinds of interests too, not only playgrounds. People who've made fortunes, who've got factories, newspapers and ships. They'd like to hold on to their fortunes, to pass them on to their descendents. Then some group comes along that's got connections with those who've got a monopoly on power and they try and take it away. And you start to resist. But you realize that resisting on your own is dangerous, pointless and useless. As an owner, you don't think in terms of revolution, of using rocks as weapons, you think about the law. You want law in the country, for everything to be done according to the law. Things were very different when those fortunes were made. That was 20 years ago. That's over now. From now people are going to want to start seeing that the law is upheld. I'm not saying that this will happen quickly, painlessly and easily, but I' m sure that's the direction in which we need to be going.

Then, though this may not have been what they set out to do, those elites will start building a nation. It'll come about as a by-product of their wanting to improve not literally the buildings they live in, but the social order, the common house of that elite. Whatever their taste or background, they'll find they have interests that coincide. And that's when a national elite will start to emerge, one whose interests are wider than those of a ruling bureaucracy governing a virtual, non-existent nation. One whose interests will be truly national.

We'll have to wait until then to get a decent foreign policy, in my view.

Very sensible stuff that dovetails nicely with my thinking that we're looking at the usual five-decade-or-so cycle post-"revolution," which for this version of Russia, dates back to the 1989-1991 period, meaning Russia's about 20 years old and we should look for the serious maturation that Trenin describes here in the 2030s time frame, meaning our expectations remain sensibly generational.

10:04PM

China's stock markets: a serious step forward

MARKET NEWS & COMMENT: "Beijing paves way for short selling: 'Milestone in China's financial history'; Traders can hedge against volatility," by Patti Waldmeir and Robert Cookson, Financial Times, 10 January 2010.

This is good news. When there's no short selling, bubbles are harder to burst.

More volatility for everyone in the shorter run? Yes, but better to process it in smaller chunks.

11:48PM

Sensible stuff from the WSJ on the emerging China-is-the-devil dynamic here

EDITORIAL: "Trading Barbs with China," Wall Street Journal, 10 February 2010.

Starts off with Obama's rather implausible State-of-the-Union pledge to double America's exports in five years.

Not easy to do when you decide you wanna take the fight to China.

The tats have quickly followed upon the tits: China's Min of Commerce just proposes antidumping duties on US poultry.

It's BS, of course, but it's retaliation for what Beijing considers to be equal BS on tires.

Point being: if you think Obama's got to respond to domestic pressure, well, so too does the Chinese leadership, setting up both sides for some potentially self-destructive stupidity in coming months, as both sides may commit themselves to teaching the other guy a "lesson."

Summing up at the end:

As foolish as China's chicken duties are, they at least offer a useful lesson in the U.S. Mr. Obama has often highlighted the virtues of "trade enforcement" such as antidumping cases, including in his State of the Union. The problem is that the U.S. isn't the only country that can play this game and the danger of tit-for-tat retaliation is real.

Oh yeah.

11:46PM

A clear sense of how scared New Delhi is of the Naxalites

WORLD NEWS: "India's Maoist insurgency: New Delhi offers to suspend mine deals; Plan aims to pacify leftwing militants; Ministers seek to enter negotiations," by James Lamont and Martin Wolf, Financial Times, 10 February 2010.

The central gov offers to suspend extant mining deals in the east and south to persuade the Naxalites to stop fighting. The subtext? Bigger royalties to local governments.

New Delhi just began what should be a 3-year counterinsurgency effort against the Naxalites, currently active in 11 of 28 states--almost all resource-rich, meaning we're talking India's true internal Gap regions.

Over 800 have died in 2009 as a result of the fight.

11:42PM

The U.S. defense budget deconstructed

ANALYSIS: "Arms and the man for change," by Daniel Dombey, Sylvia Pfeifer and Jeremy Lemer, Financial Times, 11 February 2010.

The 2010 total, when overseas contingency ops (Iraq/Afghanistan @ $159B) are included, comes to $708B. Procurement and R&D alone come to $189B (rising 2%), a total equal to the combined and total defense budgets of China #2 and France #3, with $30B to spare. Put our O&M (operations and maintenance) together with milcon (military construction), and you're talking a total that equals #2, #3 and #4 (UK).

Some perspective for the defenders of the Leviathan.

Looking at the bar chart going forward through 2015, I see the investment share staying steady (procurement, R&D, testing) and the fixed costs (labor, med, etc.) rising slowly. The assumption on smaller budgets lies exclusively with lower optempo concerning overseas contingency operations--always a favorite future "negative wedge."

Does it happen? Usually, no. But prices should come down this time, simply because the scale can be diminished reasonably in the years ahead.

The trick, of course, is to avoid picking up new obligations--easier to promise but hard to deliver.

10:58PM

Chinese social scientist: Let my currency go!

INTERNATIONAL FINANCE: "A Voice From Within China: Let Yuan Rise 10%," by Liu Li and Victoria Ruan, Wall Street Journal, 7 January 2010.

Point is less that some prominent academic said this but merely to remind readers what a lot of policy types in Beijing told me several years ago: the Party is eager to build up a public policy infrastructure to generate all manner of voices and opinions (always with the caveat that Party rule goes unchallenged) on complex issues like this one--namely, how fast and under what conditions does China let its currency rise.

This guy's voice simply suggests, as the article argues, that the "debate over China's economic policy continues to heat up."

10:56PM

Peak-oil peaking?

IN DEPTH: "Endless Oil: Technology, politics, and lower demand will yield a bumper crop of crude," by Stanley Reed, Bloomberg BusinessWeek, 18 January 2010.

An exploration of enhanced-recovery techniques that see oil companies going back to areas long considered washed-up and starting anew, tapping hard-to-reach remaining reserves. The "pressure to innovate" apparently beats the lack of geologic pressure (no skyrocketing geysers of oil but still plenty to access).

Story comes with nice Cambridge Energy Research Associates chart that shows:

1) conventional crude capacity (the pessimists' case) going from about 80 mbd (million barrels per day) now to less than 40mbd by 2050;

2) layered on top of that, the conventional case according to the optimists, which sees us stay at about 80mbd through 2050; and finally

3) the unconventional oil cases cited by optimists yielding somewhere in the range of 110-120mbd through 2050.

Thing is, even that roughly 50% increase, which I believe will occur, won't be enough if current usage projections hold, so the peak that will occur will happen on the demand side, not the supply side, as economies will simply have to choose a beyond-oil course for a mix of investment, geopolitical and environmental reasons.

10:55PM

What it takes to get me in the movie theater

ARTICLE: "Box-Office Supercharger: Why IMAX's outsize screens are a requirement for any Hollywood studio counting on a big opening weekend," by Ronald Grover, Bloomberg BusinessWeek, 18 January 2010.

I saw three films in movie theaters this year where I did not attend the show under child-driven duress: "Watchmen," "Star Trek," and "Avatar." I paid a large amount in each instance to take most or all of my family to see each movie in an Imax theater.

Frankly, if we're not talking a movie worthy of IMAX, I'd just as soon wait for the DVD to watch at home in a better theater with better people (or at least, people I can make shut up if required, or where I can rerun a scene when I can't).

10:54PM

The logic of a frontier-integrating age: commodities beat stocks

NUMBERS: "In the last decade, stocks flopped and commodities rocked," by Tara Kalwarski and David Foster, Bloomberg BusinessWeek, 18 January 2010.

Nothing really to add beyond the post title, other than to say, "no surprise."