Opinion

The Great Debate

from MacroScope:

What are the risks to growth?

Mike Dicks, chief economist and blogger at Barclays Wealth, has identified what he sees as the three biggest problems facing the global economy, and conveniently found that they are linked with three separate regions.

First, there is the risk that U.S., t consumers won't increase spending. Dicks notes that the increase in U.S. consumption has been "extremely moderate" and far less than after previous recessions. His firm has lowered is U.S. GDP forecast for 2011 to 2.7 percent from a bit over 3 percent.

Next comes the euro zone. While the wealth manager is not looking for any immediate collapse in EMU, Dicks reckons that without the ability to devalue, Greece and other struggling countries won't see any great improvement in competitiveness. Germany, in the meantime, has sped up plans to cut its own deficit.  It leaves the Barclays Wealth's euro zone GDP forecast at just 1 percent for next year.

Finally, Asian growth is under threat from tightening policies. Dicks says this is the least problem of the three, but there are indications that powerhouse China needs a period of slower growth to get things under control.

So,  there are three problems -- and a not very bright outlook. Are there any others? Or are these three all being overstated?

from MacroScope:

Spend Save Man Woman

Far from being lauded as a virtue, China's high savings rate has been blamed for the economic imbalances underlying the global financial crisis. The criticism being that the Chinese spend too little and rely too much on exporting to Western consumers.

The IMF and World Bank have long called for Beijing to ramp up social spending so its citizens will feel less need to save for a rainy day and instead consume more.

But in their intriguingly named paper,  'A Sexually Unbalanced Model of Current Account Imbalances', New York-based researchers Du Qingyuan and Wei Shang-Jin suggest China's gender imbalance could also be a significant factor in the persistence of its high savings rate. spendsavemanwoman

Euro woes increase risk of trade wars

Europe won’t just be exporting deflation to the rest of the world, it will export serious trade tensions as well: first between the United States and China, and, possibly, eventually between Europe and the United States.

The austerity required to get Greece and other weak euro zone nations’ budgets in shape will exert a powerful deflationary force, as many countries which formerly imported more than they exported will be forced to cut back.

As well, the euro has dropped very sharply. Germany’s quixotic campaign against speculators — banning naked short selling against government debt and government credit default swaps — gave the euro its latest shove downward, but the trend has been strong for months. The euro is now about 15 percent below where it started the year against the dollar, making U.S. exports less competitive and adding to pressure on the United States to be the world’s foie gras goose: being force-fed everyone else’s exports while its own unemployment rate remains high.

Goodbye America, Hello China? Think again

For the growing number of Americans who see China heading for inevitable global dominance, nudging aside the United States, a brief walk down memory lane helps put long-term predictions into perspective.

Not so long ago, Japan was seen as the next (economic) number 1. American executives studied the 14 management principles of The Toyota Way, developed by the automobile manufacturer that grew into the world’s biggest car maker and is now recalling millions of defective vehicles.

Between the mid-1980s and early 1990s, books with titles such as Trading Places – How We Are Giving Our Future to Japan and How to Reclaim It (by Clyde Prestowitz) were required reading in Washington. Learned panelists expounded on the wondrous efficiency of “Japan Inc.”

American nightmare: Al Qaeda at home

berndforblog- Bernd Debusmann is a Reuters columnist. The opinions expressed are his own -

It has been a recurring nightmare of American counter-terrorist officials for years — growing numbers of home-grown al Qaeda recruits drawn from the Muslim-American community, plus blue-eyed, blond-haired would-be suicide bombers travelling on American passports.

That notion clashes with the widely-held belief that Muslims in the United States are not nearly as prone to being seduced by Al Qaeda propaganda as their co-religionists in Europe. But a series of recent terrorism cases involving American citizens have challenged old assumptions and thrown question marks over a host of surveys meant to show the American Muslim communities’ resistance to radicalization.

Incidents spiked in 2009 and included the arrest of five U.S. citizens in Pakistan, where they allegedly tried to link up with extremists, and the arrest of Daniel Boyd, a white convert to Islam who was accused of plotting to attack soldiers at the U.S. Marine Corps base in Quantico, Virginia. Early in the year, Bryant Vinas, a Hispanic American convert, pleaded guilty to having trained with al Qaeda in Pakistan.

from Commentaries:

Why Russia needs America

In the wake of President Obama's decision to scrap the U.S. missile defence shield in eastern Europe, many are pondering Russia's response. The relationship will remain in the spotlight this week, when President Medvedev heads to the U.S. for the G20 summit. Although the precise nature of Russia's reaction remains to be seen, it has a big incentive to improve relations. It badly needs American investment and co-operation to help solve serious economic problems at home.

Critics of Obama's decision worry that it will "embolden" Russia, causing more aggressive behaviour abroad. Yet they forget that the Bush administration's antagonistic policies failed to provide security to Russia's neighbours. These policies didn't prevent Russia's war with Georgia, the repeated gas disputes with Ukraine, and a serious cooling of relations with countries such as Poland. Far from being restrained, Russia's confrontational attitude had a lot to do with its perception that the U.S. was busy encircling the country with missile bases and alliances.

The critics also imply that Russia is preoccupied with external expansion, but that hardly seems appropriate today. Russia's GDP is set to plummet by 8 percent this year. Russian analysts estimate that the country needs up to $2 trillion to renovate its dangerously clapped-out infrastructure. In major industrial cities, Russia's dilapidated factories are mulling huge job losses. For the foreseeable future, Russia's leaders are likely to be preoccupied with thorny domestic problems.

Faced with such daunting challenges, it's entirely logical that both Medvedev and Putin say they are keen to kick-start American trade and investment. Responding to Obama's decision -- which he described as "brave and correct" -- Putin immediately linked it to economic issues. He called for the U.S. to back Russia's entry into the World Trade Organisation (WTO), and scrap Soviet-era trade restrictions against Russian companies, especially those that regulate technology transfer to Russia.

from Commentaries:

Shelved missile shield tests NATO unity

foghAfter just six weeks as NATO secretary-general, Anders Fogh Rasmussen has his first crisis. The alliance may be slowly bleeding in an intractable war in Afghanistan, but the immediate cause is the U.S. administration's decision to shelve a planned missile shield due to have been built in Poland and the Czech Republic.

The shield, energetically promoted by former President George W. Bush, was designed to intercept a small number of missiles fired by Iran or some other "rogue state". But Russia saw it as a threat to its own nuclear deterrent and NATO's new east European members saw it as a useful deterrent against Russian bullying, by putting U.S. strategic assets on their soil.

President Barack Obama's decision to drop plans to install it on Polish and Czech territory leaves those former Soviet satellites feeling betrayed -- because they expended political capital to win parliamentary support -- and more exposed to a resurgent Russia, especially after its use of force against Georgia last year.

from Commentaries:

Banking? Keep it simple stupid

In 1873, Walter Bagehot wrote that "the business of banking ought to be simple; if it is hard it is wrong." He would have struggled to recognize today's banking system.

It is not just ever more ornate derivatives that bend the mind. Financial firms themselves have become fabulously complicated. Citigroup lists 2,061 subsidiaries and affiliates while the institutional chart of JPMorgan Chase is 267 pages long.

Complexity -- as Bagehot predicted -- has become a curse. If nobody can understand financial firms, they will become ever more accident prone.

from Commentaries:

Where the job seekers aren’t

Even in weak employment markets, the United States has typically had a trump card to play. The nation's workers are legendary for their willingness to travel across the country for new opportunities.

The result has been a speedier recovery of job growth than in Europe and possibly a higher productivity rate, since skilled workers are better matched to openings.

With the August employment report on Friday expected to show little improvement in the job market, America has never needed this flexibility more. Yet, at the risk of adding to the gloom, this advantage appears to be fading fast. The good news is that the United States still boasts one of the most dynamic labor markets of any rich nation. OECD rankings of its 30 wealthy member nations put the U.S. far
ahead of other large countries. (It comes second only to Denmark, which has unmatched programs to help the unemployed back to work.)

from Commentaries:

GM blog lifts hood on power struggle over Opel

cfcd208495d565ef66e7dff9f98764da.jpgIt's not often you get to lift the hood and watch a power struggle going on in the engine room of General Motors. But the vice-president of GM Europe, John Smith, has just provided tantilising details of the arguments over the rival bids for Opel/Vauxhall, the main European arm of the fallen U.S. auto giant. Smith is the chief negotiator on the sale of Opel.

In a blog apparently intended to reassure Opel staff, but accessible to the public, he insisted GM had not specified a preferred bidder. But he made clear his own preference for the bid from Belgian financial investor RHJ International, which is loosely related to U.S. private equity fund Ripplewood, over the offer by Canadian-Austrian car parts maker Magna and its Kremlin-backed Russian partner Sberbank.

Smith's post is entitled "Clearing the Air" and was ostensibly written to clarify GM's intentions and dispel erroneous reports ascribed to interested parties. But his account shows just how poisonous the atmosphere appears to be between GM and Magna, and GM and the German government, which backs Magna's bid. It also suggests that the air is not too clear within GM's top management either.

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