Brought over from the French thread Juggling the Dollar Blowout http://www.translatorscafe.com/cafe/MegaBBS/thread-view.asp?threadid=3751&messageid=49354#49354

Not quite off topic:

Dollar at mercy of central banks
By Chris Giles, Economics Editor
Published: January 24 2005

During the past few years the US has become dependent, not so much on millions of investors around the globe but on a few individuals in a few of the world's central banks.

In 2003, the most recent year with full international statistics, central banks financed 83 per cent of the US current account deficit, with Asian central banks accounting for 86 per cent of flows.

A similar picture is emerging for 2004. Despite a good start to the year, when the private sector was a large net purchaser of dollar assets, central banks came to the rescue again. The People's Bank of China has let it be known that China increased dollar reserves by $207bn (€159bn) in 2004, financing nearly a third of the US current account deficit, estimated at $650bn.

Self-interest has supported much of this flow of cash. The US has lapped up cheap finance to fund its unquenchable appetite to spend. Asian governments have until now been keen to oblige, in order to keep their currencies from appreciating. But all investors have their limits and they may start worrying about their degree of exposure.

If new official flows to the US were to be curtailed, the dollar would plunge, creating a huge hole in the accounts of central banks holding dollars.

"The risk exposure for Asian central banks is already great," concluded Matthew Higgins and Thomas Klitgaard of the Federal Reserve Bank of New York in a recent paper.

In November, Alan Greenspan, US Federal Reserve chairman, suggested foreign investors would reach a limit in their desire to finance the US current account deficit and diversify into other currencies or demand higher US interest rates, "elevating the cost of financing" the deficit and "rendering it increasingly less tenable".

Until recently there had been little evidence to back up these fears but this has begun to change. Members of the Organisation of Petroleum Exporting Countries have cut the proportion of deposits held in dollars from 75 per cent to 61.5 per cent in the past three years.

The Bank of Thailand said this month it was considering reducing the proportion of its $50bn reserves held in dollars from 80 per cent to 50 per cent. Russian officials have made similar noises.

A detailed survey out today suggests that central banks are increasingly moving official reserves out of the dollar and into the euro.

Asian central banks are unlikely to pull the plug on dollar assets altogether. But they may be close to ending their willingness to provide cheap financing for an ever increasing US current account deficit. http://news.ft.com/cms/s/bd52ee06-6dad-11d9-ae0d-00000e2511c8.html

Three of the most important prices in the world economy are set by means other than markets. At the weekend, OPEC declared itself happy with the price of oil. On Wednesday, the Federal Reserve will probably raise American interest rates. And on Friday, the G7 will declare itself unhappy with the price of the dollar.

http://www.economist.com/agenda/displaystory.cfm?story_id=3620794

"The China price." They are the three scariest words in U.S. industry. In general, it means 30% to 50% less than what you can possibly make something for in the U.S. In the worst cases, it means below your cost of materials. Makers of apparel, footware, electric appliances, and plastics products, which have been shutting U.S. factories for decades, know well the futility of trying to match the China price. It has been a big factor in the loss of 2.7 million manufacturing jobs since 2000. Meanwhile, America's deficit with China keeps soaring to new records. It is likely to pass $150 billion this year. (...)

More innovation. Better goods. Lower prices. Newer plants. America will surely continue to benefit from China's expansion. But unless it can deal with the industrial challenge, it will suffer a loss of economic power and influence. Can America afford the China price? It's the question U.S. workers, execs, and policymakers urgently need to ask. http://www.businessweek.com/magazine/content/04_49/b3911401.htm

A foot in both camps:

http://www.euobserver.com/?sid=9&aid=18548

EUOBSERVER / BRUSSELS - Brussels has launched a pan-European anti-smoking campaign of 72 million euro. At the same time, the EU gives out about a billion euro in subsidies for tobacco producers every year.

Statistics show that around 650,000 EU citizens die in relation to smoking annually, while EU member states pay about 100 billion euro per year in tobacco-related health care costs.

From Foreign Affairs, March/April 2005

Summary: The United States' current account deficit and foreign debt are not dire threats to its global position, as would-be Cassandras warn. U.S. power is firmly grounded on economic superiority and financial stability that will not end soon.

David H. Levey recently retired after 19 years as Managing Director of Moody's Sovereign Ratings Service. Stuart S. Brown is Professor of Economics and International Relations in the Moynihan Institute of Global Affairs at Syracuse University's Maxwell School of Citizenship and Public Affairs.

http://www.foreignaffairs.org/20050301facomment84201/david-h-levey-stuart-s-brown/the-overstretch-myth.html

For relative median employee earnings in Europe in February 2005 go to http://www.fedee.com/payineurope.shtml

The richest country (Denmark) pays 61x the median pay of the poorest country (Moldova), yet:

03.03.2005 By Lucia Kubosova

The gap in salaries across Europe is narrowing, as the richest states adapt to global competition and the poorest Europeans enjoy a rapid pay rise due to economic growth and inward investments in their countries.

The revelations come as part of the study "Pay in Europe 2005", published on Wednesday (2 March) by the Federation of European Employers (FedEE).

Its authors refer to the case of Denmark and Romania. "While in 2001, hourly pay in Denmark was 39 times greater than in Romania, but by February 1st this year the gap had narrowed to just 22 times. The reason for this is that during the period 2001-5, hourly pay in Denmark has risen by only 18%, whilst in Romania it has risen by 115%".

Among the reasons behind a general trend towards a narrowing pay gap in Europe, the report mentions that there is a more coherent labour market in the EU countries due to greater mobility.

Also, Western European countries have reduced their labour costs in the face of global competition, while poorer states in the east have enjoyed significant investment and economic growth, leading to pay rises for their citizens.

The paper also mentions the declining power of trade unions as one of the reasons for the decreasing gap.

* * *

Child poverty on the rise in rich nations

The report by UNICEF, released on 1 March, shows that the proportion of children living in poverty has risen in 17 of the 24 industrialised countries examined.

The report defines child poverty as children living in households with an income below 50 percent of the national median.

The figures show that of the EU countries surveyed, only France, Greece and the UK showed a reduction in child poverty.

In Poland, Luxembourg and the Czech Republic, by contrast, the child poverty rate rose by 4.3 percent, 4.2 percent and 4.1 percent respectively.

EU countries with the highest child poverty rates are Italy with 16.6% of children living in poverty; Ireland with 15.7 percent and Portugual with 15.6%.

At the other end of the poverty scale, nordic countries do the best. Denmark tops the league with 2.4 percent followed by Finland with a 2.8 percent child poverty rate. http://www.euobserver.com/?sid=9&aid=18562

Warren Buffett, one of the world's most successful investors, has launched his most withering attack to date on the US trade deficit, describing Americans as "rich spending junkies" who could turn into a nation of "sharecroppers".

Mr Buffett said in the last 10 years foreign powers and their citizens had accrued about $3 trillion worth of US debt and assets such as equities and real estate. At current rates, he predicted that in another 10 years' time the net ownership of the US by outsiders would amount to $11 trillion.

http://www.guardian.co.uk/usa/story/0,12271,1432051,00.html

President Bush's nomination of Paul Wolfowitz to lead the World Bank has garnered much controversy. Yet, Wolfowitz could hardly do more damage than the outgoing bank president, Jim Wolfensohn. His personal failings and misguided policies have muddled the bank's mission and highlighted the hypocrisy of its rich shareholder nations.

By Stephen Fidler: http://www.foreignpolicy.com/Ning/archive/archive/126/fidler.pdf

GUESS who's paying for America's spending binge - for the ballooning credit card bills, the scramble for homes, the country's gaping budgetary hole? Poor countries have become the financiers of the United States, fueling one of the most extravagant consumption drives in world history.

From 1996 to 2004, the American current account deficit - which includes the trade deficit as well as net interest and dividend payments - grew to $666 billion from $120 billion, swelling the nation's demand for foreign financing by $546 billion.

The cash has come mostly from what the International Monetary Fund defines as emerging markets or developing countries - nations that have piled up mountains of cash even though most of their citizens are poor. High on the list is China, whose per-capita gross domestic product of $1,300 last year was a thirtieth that of the United States. Others are Russia, where G.D.P. per head was $4,100, and India, where it barely topped $600.

The current accounts of developing countries swung from a deficit of $88 billion in 1996 to a surplus of $336 billion last year - a $424 billion change that has covered some four-fifths of the increase in the deficit of the United States.

This pattern troubles some policy makers in the United States. In speeches in March and April, Ben S. Bernanke, the Federal Reserve governor nominated by President Bush to be chief economic adviser, argued that a main reason for America's swelling external deficit is "the very substantial shift in the current accounts of developing and emerging-market nations, a shift that has transformed these countries from net borrowers on international capital markets to large net lenders."

The poor-country money, Mr. Bernanke said, pushed the current account of the United States deeper into the red. As the money arrived, it first lifted stock prices, encouraging both consumption and investment. When stocks tanked, it moved to the bond market, fueling the housing boom and yet more spending.

There's nothing inherently wrong with taking money from poor places - it's not as if the United States is stealing it. Developing countries are providing the funds willingly.

But it is rather odd. Conventional economic thought suggests that funds should flow the other way. Capital-rich industrial nations like the United States, where workers already have a large stock of capital goods to work with - like high-tech factories and advanced information technology networks - should be sending money to places rich in labor but with a meager capital stock.

Developing countries, of course, use this money to grow out of poverty, investing in their own factories and schools. And precisely because capital is scarce and labor abundant, money invested in these countries should achieve a higher return.

"For the developing world to be lending large sums on net to the mature industrial economies is quite undesirable as a long-run proposition," Mr. Bernanke said.

So what's going on? http://www.nytimes.com/2005/06/05/business/yourmoney/05view.html?ex=1118203200&en=da6d1498f8231d55&ei=5070

Originally written by Arthur Borges on June 7, 2005 2:50 PM ....if those beastly governments and their heartless central banks stop buy US Government paper...

Your friend China and our friends' friend Russia featuring prominently among them:

In case you are not up to date:

What is Live 8?

Live 8 is a series of concerts and events across the world which are being staged to highlight the problem of global poverty. It's a chance for ordinary people to call on world leaders at this year's G8 summit and tell them to put a stop to the needless deaths of 30,000 children every single day.

On 6th July 2005, the leaders of Great Britain, the USA, Canada, France, Germany, Italy, Japan and Russia will meet at Gleneagles in Scotland to talk about world affairs, including Africa. They will be presented with a workable plan to double aid, drop the debt and make trade laws fair.

The G8 summit is our opportunity to demand that the world's most influential leaders take action now.

Live 8 has organised concerts in Philadelpia, Berlin, London, Rome, Paris and Edinburgh, with 100 artists, a million spectators, two billion viewers and one message: Make Poverty History.

Want to find out more?

For information on Live 8 and the organisations involved: http://live8.technorati.com/about/live8.html

* * *

The flip side:

JULY 11, 2005   

COVER STORY

Too Much Money
A global savings glut is good for growth -- but risks are mounting

[snip] Look around the world, and extra money is piling up in all sorts of places. Japanese corporations are recording record profits, but not doing much spending. Chinese companies are on an investment tear, but the country is getting so much money from exports that it has billions to spare, including $18.5 billion that China National Offshore Oil Corp. (CNOOC) bid for Unocal. The surge in oil prices -- now about $60 a barrel -- is giving oil-producing countries such as Russia and Saudi Arabia far more money than they can use right away. And the aging workers of Europe are building nest eggs for an uncertain future.

The International Monetary Fund predicts that in 2005 the worldwide savings rate should hit its highest level in at least two decades. Surprisingly, even in the profligate U.S., businesses have been accumulating huge sums as undistributed corporate profits -- running at a record annual rate of $542 billion in the first quarter -- have almost doubled in the past two years. This corporate hoarding explains why the U.S. national savings rate, which includes governments and businesses as well as households, rose to 14.7% of national income in the first quarter, up from 12.8% two years ago. ...

Skittishness
But the savings glut is creating new risks for the global economy, which is having a tough time absorbing the unanticipated flood of funds. Instead of going into productive investments, cheap money may be overheating spending and sending asset prices soaring too high, setting the stage for a future bust. "The odds of a catastrophic scenario have gone up," says Kenneth S. Rogoff, former chief economist at the IMF and a professor at Harvard University.

History shows that excess liquidity can disappear overnight if investors start getting skittish and lose confidence, causing severe disruptions to markets that have gotten used to cheap money. A unexpected rise in inflation or interest rates could tank the bond market and burst the global housing bubble, which now stretches from Barcelona to Shanghai to San Francisco. Doubt about the U.S. ability to finance its huge trade deficit could trigger a steep downturn in the dollar and a monetary crisis. And China's factory-building spree may leave it saddled with excess capacity for years to come.

Full story: http://www.businessweek.com/magazine/content/05_28/b3942001_mz001.htm

A very Interesting thread, Jacek, though I have never come across the expression,' cheap money'. before.

CHEAP MONEY!!!

Nanna

• credit available at low rates of interest

 (You know that the rich never buy anything with their own money.)

Yes, but why not call it a low-interest loan. Calling it 'cheap money' is merely a "smartism" that deflects from the article's seriousness.

Nanna 

Originally written by Marc Prior on July 3, 2005 6:09 AM Nanna, Expressions like "cheap money", "the price of money", etc. are by no means new when referring to the cost of credit. Marc

Tak! Så ved jeg det.

Nanna

The same with "expensive money." It means "at high interest rates." Here is how someone explains the difference with "tight money":

> By a "tight money" policy, I meant an attempt to control the rate
>of growth of the money supply. The period I was referring to--
>of a conservative government in Australia--was from 1975
>till 1982; Leigh's example of a high-interest rate "tight
>money" policy is of 1988 and 1989, when monetary targetting
>had been abandoned. I wouldn't call the policy in that period
>a "tight money policy" either, but "expensive money". http://archives.econ.utah.edu/archives/pkt/1995m12-c/mbox1995m12-c.txt

On a less tight note, here is from https://booktrade.cambridge.org/catalogue_excerpt.asp?isbn=9780521531924:

Children’s talent for language is strangely limited – they’re good at learning language, but not so good at knowing what to say and what not to say.

“Why don’t you get some expensive money?” – three-year-old daughter, when told by her mother that she could get a small toy, but that the ones she had asked for were too expensive

About Africa:

Over the last 43 years, Africa has received $568 billion in foreign aid (in 2004 dollars). Some 25% of this aid went toward consultant salaries. (Washington Post via http://www.theglobalist.com/DBWeb/StoryId.aspx?StoryId=4524)

But according to Oxfam, total support being paid by rich countries to their farmers stands now at $250 billion a year. http://www.boston.com/business/articles/2005/06/14/oxfam_us_eu_must_cut_farm_subsidies/ It allows the flooding of Third World markets with cheap produce that has devastated local producers.

Jacek

Here is what happens if you have too much money at your disposal: http://mahalanobis.twoday.net/stories/800388/

A trader from Fubon in Taiwan accidentally bought NT$7 billion ($223 million) worth of shares yesterday (see chart of yesterday's intraday price chart for the TWSE Index above, note the spike). It's called a "fat finger" error, because it is like an error caused by mistakenly typing letters due to a fat finger.

from Bloomberg: The trader, who wasn't named, will be fired

The Trade-And-Aid Myth
History suggests that internal economic policies fight poverty best
—By Dani Rodrik, TomPaine.com

August 18, 2005 Issue

G8 nations talk as if the pairing of free trade and aid is the key to economic salvation for every country struggling with the realities of poverty. But providing aid, relieving debt, and increasing developing countries' access to privileged markets are not the answers to lessening economic hardship, Dani Rodrik argues on TomPaine.com. As the cases of Vietnam and Mexico demonstrate, it's internal policies that do the most to boost economies. (...)

A broader global trend illustrates that, as with Vietnam and Mexico, the countries that institute strong economic development programs internally succeed in improving economic growth and alleviating poverty. South Korea, China, and India all pulled their economies up by their bootstraps, according to Rodrik, and all three have flourishing economies today.

Rather than continuing to focus on opening market access to cultivate trade and providing aid to developing countries, the economically powerful should, Rodrik claims, work at making it easier for individual nations to improve their own economic development policies. He urges rich countries to help this process by sharing financial information, expanding the ability for citizens of developing nations to work abroad, and loosening WTO regulations.
-- Rose Miller

Story: http://www.utne.com/webwatch/2005_212/news/11746-1.html

Folks are indeed having problems facing medical care costs in China.

But Caesarean deliveries are rising in France too as private sector care tries to optimise use of obstetrical facilities and physicians want to be home in time for dinner with lots of undisturbed sleep.

Then too, I would suspect that recourse to labour-inducing molecules would be very limited if the patient is low-income, though surely routine now in China's upscale private hospitals.

Ammesso all'Università di Varsavia (management e marketing) ci è andato a fare una gita organizzata di un paio di settimane.

Jacek

He got back a few days ago and landed in BO this afternoon, on his way to VE and FI...

WASHINGTON (AP) -- The United States is the largest supplier of weapons to developing nations, delivering more than $9.6 billion in arms to Near East and Asian countries last year.

The total worldwide value of all agreements to sell arms last year was close to $37 billion, and nearly 59 percent of the agreements were to sell weapons to developing nations, according to the Congressional Research Service report. http://www.nytimes.com/aponline/national/AP-Weapons-Trade.html

Incidentally, yesterday a woman has died in childbirth here in Italy. No place in the hospital. Is this a fair price to pay for miracles such as "global economy" and "free market"?

And what about the amount of weapons sold within the US? A few days ago two cart retrievers (18 and 20 years old ) were killed in a parking lot at a Wal-Mart store here in Phoenix. The guy that killed them was a middle aged mentally deranged individual who, however, had a collection of weapons in his home. The Arizona Governor has started an investigation to find out how a wacko could have been allowed to purchase and keep those weapons.

Bertha

http://www.economist.com/agenda/displaystory.cfm?story_id=4400014&fsrc=nwl

[excerpts] Though Europe has been sluggish and the global economy hasn’t quite lived up to last year’s lively pace of growth, world GDP is still growing at an above-average clip. Even Japan, stuck in an economic quagmire for the past decade, has begun looking perky.

But dark clouds have been gathering on the horizon for some time. Emerging-market economies, particularly in Asia, are running high current-account surpluses, keeping their economic fires stoked with a steady stream of exports, especially to America. In mirror image, America’s current-account deficits have soared past 5% of GDP. Household savings have dwindled to negligible levels as Americans have run down assets and taken on debt to keep the spending binge going. Yet if the American consumer falters, as things stand now, the rest of the world will tumble too.

Moreover, economists are increasingly worried that America’s economic health (and by extension the world’s) rests on a housing market that looks decidedly bubbly. When the bubble bursts, they fear, the whole thing could come crashing down.

But if economists are agreed that America’s debt levels are dangerous, they cannot agree on whom to blame. ...

...the part about "scrimping consumers" sending their money to the West. Sure, take a nice middle class wage-earner who sees his cost of living double in a matter of weeks till he's dipping into savings to cover daily essentials and this is the guy who's turning his baht kip and rupiah over into Swiss francs? With all the banking fees and commissions they charge?

http://www.economist.com/printedition/displayStory.cfm?Story_ID=4424648

[snip] THE cover carries a fresco by Diego Rivera, a Mexican revolutionary and artist. The text within bemoans the many ways, overt and covert, in which elites protect their interests and hold down the poor. In response, it advocates policies that will challenge the privileged and empower the disenfranchised. The World Bank's latest World Development Report (WDR), published this week, is heady stuff: more than 200 pages arguing that the Bank itself, as well as the governments it helps, should put “equity” at the forefront of their thinking.

The WDR is not quite as radical as this sounds. By “equity”, it means equality of opportunity, not equality of outcome (except that people who squander their opportunities entirely should be spared the worst of outcomes). A person's fate should be decided by effort, talent and luck, not race, caste, gender or inherited privilege. Philosophers will wonder why the talented, who did not earn their God-given abilities, deserve their rewards any more than the well-born, who did not choose their parents. Such cavils aside, there is little here to which a liberal could object. (...)

In addition, banks and other lenders maintain a spread between the rate they pay on deposits and the rate they charge on loans. This is, of course, how they make their money. But in poor countries, this spread widens to alarming proportions. The same 1989 report found that India's informal “finance corporations”—which act much like banks, although they cannot issue cheques or transfer funds—paid 12% at most on deposits of less than a year, while charging at least 48% on loans. (...)

In the end, the WDR would probably disappoint the revolutionary who provided its cover image. The Bank is in no position to overturn dominant elites. (...)

http://www.foreignaffairs.org/20051101fareviewessay84612/joseph-e-stiglitz/the-ethical-economist.html

Now which empire?

Eco-Labels Could Face WTO Ban
By Staff, Environment News Service
Energy-efficiency, recycled content, and other green consumer info could be banned from product labels if proposals before the World Trade Organization succeed, warns Friends of the Earth UK. "Countries including Korea, the United States and China are claiming that eco-labeling damages their competitiveness and acts as a barrier to trade," the Environment News Service reports. Fortunately, it looks like disagreements on other issues may bring the upcoming WTO summit in Hong Kong to a halt, like earlier meetings in Cancun and Seattle. -- Leif Utne
http://www.ens-newswire.com/ens/oct2005/2005-10-21-04.asp (via Utne Reader)

Outsourcing in eastern Europe

Dec 1st 2005 | BUDAPEST, TALLINN AND WARSAW
From The Economist print edition

[snip] In the Czech Republic alone, that has prompted companies such as DHL, Siemens and Lufthansa recently to move big data-processing operations there. “The quality of work is world-class. It matches and sometimes even surpasses the best we do in India,” says Amitabh Chaudhry, chief operating officer of Progeon, a division of India's Infosys IT group that deals with business-process outsourcing. It has opened a centre in the Czech city of Brno, with roughly 100 people working in 13 languages. Mr Chaudhry also highlights the friendly time-zone, good political and regulatory environment, multilingual workers and “cultural affinity”. ...

At a recent outsourcing conference in Budapest organised by Ms Gulyás's firm, a bunch of consultants and providers swirled round Jackie Raybould, a director of SCC, a $3 billion company that is considering moving its expert multilingual IT support for big international companies from call-centres in London and southern Europe to somewhere like Hungary. “There's a ready pool of IT-literate, multilingual graduates. But the management experience isn't as developed,” says Ms Raybould. ...

Call-centres are rather better placed, as central Europe's language skills give it a big advantage over most other locations. German, French and English are all widely enough spoken to create a good pool of potential workers. And other languages can be learnt quickly. One Bulgarian call-centre, for example, reckons that it takes only four months to teach German-speaking employees to answer calls in Dutch as well. http://www.economist.com/business/displaystory.cfm?story_id=E1_VNQGNDP

* * *

INTERNATIONAL COVER STORY

Rise Of A Powerhouse

How the young knowledge workers of Central Europe are pushing the region to a new level: http://www.businessweek.com/magazine/content/05_50/b3963021.htm

China signals reserves switch away from dollar
By Geoff Dyer in Shanghai and Andrew Balls in Washington
Published: January 5 2006
China indicated on Thursday it could begin to diversify its rapidly growing foreign exchange reserves away from the US dollar and government bonds – a potential shift with significant implications for global financial and commodity markets.

Economists estimate that more that 70 per cent of the reserves are invested in US dollar assets, which has helped to sustain the recent large US deficits. If China were to stop acquiring such a large proportion of dollars with its reserves – currently accumulating at about $15bn (€12.4bn) a month – it could put heavy downward pressure on the greenback. http://news.ft.com/cms/s/f39fa8e4-7e25-11da-8ef9-0000779e2340.html

* * *

Global malaise in 2006? —Joseph E Stiglitz

The almighty American consumer had another banner year in 2005, helping sustain global economic growth, albeit at a slower pace than in 2004. As in recent years, he consumed at or above his income level, and the United States as a whole spent well beyond its means, borrowing from the rest of the world at a feverish pace in 2005 — more than $2 billion a day.
A year ago, most pundits argued that this was unsustainable. It evidently was sustainable, at least for one more year. But it nonetheless remains true that whatever is unsustainable will not be sustained, which creates great risks for the US and global economy in 2006. http://www.dailytimes.com.pk/default.asp?page=2005%5C12%5C31%5Cstory_31-12-2005_pg3_3

ExxonMobil announced that it had a $36.1 billion profit in 2005, more than any company in any year ever, then announced that its profits were actually moderate: http://seattletimes.nwsource.com/html/businesstechnology/2002772953_exxon31.html (via Harper’s magazine)

Moderate profits

Moderate profit is a 1/2percent non-compounded and taxed interest on a savings account. Mine.

Nanna

You are still ahead of the following game: Eternal Debt: Who Can Beat the IMF?

http://harpers.org/EternalDebt.html

* * *

And you are ahead of this guy: A Rhode Island man who attempted to pay down a large balance on his JCPenney charge card was told that the payment would be delayed because it first had to be approved by Homeland Security: http://www.shns.com/shns/g_index2.cfm?action=detail&pk=RAISEALARM-02-28-06 (via Harper's magazine)

New York Stock Exchange was considering a merger with the London Stock Exchange (Harper's magazine): http://go.reuters.co.uk/newsArticle.jhtml?type=businessNews&storyID=1185759&section=finance&src=rss/uk/businessNews

http://euobserver.com/9/21530

The study reveals that Germany, which is the EU's largest economy, is currently only the 11th-richest of the 15 "old" western European EU member states in terms of income per person.

In 2008, Germany is set to be overtaken by Spain and by 2014 by Italy, which means that Europe's former economic engine would be trailed only by Greece and Portugal.

Excerpts from http://www.tcsdaily.com/article.aspx?id=050506J

The right to live and work in another European Union country is enshrined in the club's founding treaty and is one of the four so-called "freedoms" all EU citizens are meant to enjoy. But when the former communist states of the Czech Republic, Poland, Hungary, Estonia, Latvia, Lithuania, Slovenia and Slovakia joined the EU on May 1, 2004, this basic right was denied them, along with a host of other perks and privileges of EU membership....

It is no coincidence that almost all the states that have opened their borders enjoy relatively high growth rates and lower-than-average unemployment levels, whereas those that have shut off their labor markets from outside competition suffer from low growth and high jobless rates.

It is also unsurprising to learn that economic growth in the new member states, with their low taxes and pro-market policies, is two to three times higher than old EU countries. A paper to be published by the European Commission this week is expected to show the spectacular progress made by the eight countries that shrugged off four decades of communist rule just 15 years ago. Their per capita incomes have risen from 44 percent of the average for the old EU-15 in 1997 to 50 percent last year.

"All animals are equal, but some animals are more equal than others," proclaimed one of the ruling pigs' edicts in George Orwell's Animal Farm. The EU has been based on a two-tier system ever since the eight former Soviet satellite states joined two years ago; but it is the countries on top that are rapidly slipping down the league and the countries handed second class status just two years ago that are rising the fastest.

Tehran, 5 May (AKI) - In July Iran will ditch the dollar in favour of the euro as the currency in which it will accept payments for its oil and natural gas exports, Iranian president Mahmoud Ahmadinejad announced Friday. http://www.adnki.com/index_2Level_English.php?cat=Politics&loid=8.0.294707730&par=0

Does this all depend on whom you are listening to?

http://www.nybooks.com/articles/18998

Italy fell behind the rest of Europe under the Berlusconi government. Between 1996 and 2001, years of center-left government and of the dot-com boom, Italy grew at an annual rate of 2.2 percent while the EU averaged 3.1 percent; in the Berlusconi years, Europe grew by 1.45 percent and Italy by just 0.35 percent. The gap between Italy and Europe grew from 0.9 to 1.1 percent. At the same time between 2001 and 2005, Italy sank from twenty-fourth in the world in competitiveness to forty-seventh, according to World Economic Forum rankings. Productivity and exports have fallen and the standard of living—above average for Europe in 2000—has dropped by 7 percent. Italy is last among the major countries of Europe in research and development, last in investments in technology, last in filing for scientific patents, and last in percentage of university graduates. In short, Italy in the Berlusconi era has become a more provincial and mediocre country. ...

Germany, which was near the bottom with Italy in the past ten years, has undertaken painful reforms that appear to be paying off. As Prodi notes in his 281-page program, Germany has improved its productivity so that its labor cost for each unit of goods produced went up by only 1 percent since 2000. In Italy labor costs per unit went up by 20 percent.

An obituary from http://www.economist.com/people/displaystory.cfm?story_id=6877092

[snip] For several of those decades, Mr [John Kenneth] Galbraith—much to the chagrin of his academic colleagues—could claim to be the best-known economist in the world. His books, more than 40 of them, were spectacularly successful. All this made him an extraordinary public intellectual. But for many, particularly on America's left, he was much more. Mr Galbraith embodied a creed (a broad scepticism of markets and unshakeable belief in a strong state to balance them) and an era, the 1960s, when that sort of liberalism reached its peak. In many eyes, and perhaps his own, Mr Galbraith was America's Great Liberal Economist, the intellectual heir to John Maynard Keynes, whose contributions to economics are underappreciated by a profession obsessed with mathematical formulae. ...

AMY GOODMAN: Investigative reporter Greg Palast joins us in the studio right now. He has a brand new book. It's called Armed Madhouse, and the subtitle is Who's Afraid of Osama Wolf?, China Floats, Bush Sinks, the Scheme to Steal ‘08, No Child’s Behind Left and Other Dispatches from the Frontlines of the Class War. Welcome to Democracy Now! (...)

GREG PALAST: Yeah, that's why I wrote a book, because it does link the whole thing together. I mean, I just got back from meeting with Chavez, as you know, and you showed our interview a few weeks ago. He's offered the U.S. $50-a-barrel oil. That’s a third off of what we're paying right now. Now, you would think our president would be down in Caracas kissing Hugo Chavez's behind and saying, “Thank you, thank you for dropping the price of oil by a third, and let's make a deal,” because Chavez wants a deal.

But he's not doing that, our president, even though the high prices are costing about a million jobs right now. And the reason he's not is that what Chavez will not do is that Chavez will not return the money. It's not about petroleum, it's about petrodollars, as I explain in the book. In other words, when George Bush rides around King Abdullah in his little golf cart on the Crawford ranch, he's not trying to get Abdullah's oil. Abdullah can't drink the stuff. He’s got to sell it to us and Japan. But Abdullah takes the money back from the -- when you fill up your SUV, you give your money to Saudi Arabia, the big oil companies, Saudi Arabia. But then he returns it the form of petrodollars, and that is what is funding George Bush’s mad spending spree.

We have a president who has racked up $2 trillion in extra debt, you know, stone sober, apparently. And someone’s got to pay for that. And basically we're paying for it by effectively an oil tax, which is returned to us, because the Gulf states and our other trading partners are now buying up $2 trillion in U.S. Treasury bonds and debt. So, in other words, they're recycling the money back and paying for George Bush's spending spree on ending inheritance taxes, you know, several wars, etc.

Now, Hugo Chavez says, “I'll give you cheap oil, not only to the poor, but to everyone. But I'm not giving you back the money. That money is going to stay in Latin America to build our nations.” And he just withdrew $20 billion out of the U.S. Federal Reserve. You have to understand, this is a punch in the face of the U.S. administration, far more than withholding oil, withholding and withdrawing petrodollars, as I explain in the book, and that's why you have that little nice floater from -- balloon thrown out by Reverend Robertson, Pat Robertson, saying “Hugo Chavez thinks we're trying to assassinate him, and I think we ought to just go and do it,” because they have got to get that -- it’s not that they need that oil, they need that oil money. And if they can't get it, they have to eliminate Hugo Chavez.

RUSH TRANSCRIPT

This transcript is available free of charge. However, donations help us provide closed captioning for the deaf and hard of hearing on our TV broadcast. Thank you for your generous contribution. http://www.democracynow.org/article.pl?sid=06/05/15/1334249

In case you missed the rest of http://www.democracynow.org/article.pl?sid=06/05/15/1334249:

GREG PALAST: Is the war in Iraq for oil? Yes, it's about the oil, but not for the oil. In my investigations for Armed Madhouse, I ended up with a story far more fascinating and difficult than I imagined. We didn't go in to grab the oil. Just the opposite. We went in to control the oil and make sure we didn't get it. It goes back to 1920, when the oil companies sat in a room in Brussels in a hotel room, drew a red line around Iraq and said, “There'll be no oil coming out of that nation.” They have to suppress oil coming out of Iraq. Otherwise, the price of oil will collapse, and OPEC and Saudi Arabia will collapse.

And so, what I found, what I discovered that they’re very unhappy about is a 323-page plan, which was written by big oil, which is the secret but official plan of the United States for Iraq's oil, written by the big oil companies out of the James Baker Institute in coordination with a secret committee of the Council on Foreign Relations. I know it sounds very conspiratorial, but this is exactly how they do it. It's quite wild. And it's all about a plan to control Iraq's oil and make sure that Iraq has a system, which, quote, “enhances its relationship with OPEC.” In other words, the whole idea is to maintain the power of OPEC, which means maintain the power of Saudi Arabia.

And this is one of the reasons they absolutely hate Hugo Chavez. (...)

Bush does not -- you have to remember, he doesn't like cheap oil. When we talk about paying $3-a-gallon gasoline, Bush’s benefactors, donors and his own family collects the $3 a gallon.

AMY GOODMAN: What do you mean?

GREG PALAST: Well, we're paying three bucks a gallon. ExxonMobil is collecting $3 a gallon. There's a chapter called “Trillion-Dollar Babies.” When Bush came in, we had oil as low as $18 a barrel. It was like water. Bush has successfully built up the price of oil from 18 bucks a barrel to over $70 a barrel. That's the “mission accomplished.” He didn't make a mistake here. That's the “mission accomplished.”

ExxonMobil, which after Enron is the biggest lifetime donor to the Bush campaigns, its value of its reserves, of its oil reserves, because of the Bush wars and Bush actions, has gone up by almost exactly $1 trillion in value. Just one company. A trillion-dollar windfall to a single company. That's the Bush benefactors.

(...)

http://www.slate.com/id/2142640/nav/tap1/

One of the engineers of China's transition to a market economy and consultant to most Asian governments, Henry CK Liu now has his own website:

http://www.henryckliu.com

If you thought you would never understand economics or the actual dynamics of the world dollar economy, this is one place where a little effort will suffice to help change your mind.

In Goldman we trust...

From www.latribune.fr:

La Bourse de New York (NYSE) et la Bourse paneuropéenne Euronext, qui regroupe les places de Paris, Bruxelles, Amsterdam et Lisbonne, ont annoncé cette nuit à New York qu'elles s'étaient entendues sur les termes de leur fusion.

D'une capitalisation comprise entre 15 et 20 milliards de dollars, NYSE Euronext sera la place boursière la plus liquide au monde, avec des échanges quotidiens compris entre 80 et 100 milliards de dollars et dont la capitalisation boursière des entreprises atteint 27.000 milliards de dollars, soit 21.000 milliards d'euros.

From Utne.com:

Beyond Bills: Using Complementary Currencies to Diversify Risk and Create Sustainable Economies
By Kirsten Liegmann, GreenBiz.com
Imagine a future in which money printed down the street could be used to buy local goods and services, without the US Secret Service banging down your door for using counterfeit cash. According to Kirsten Liegmann, that vision is right on track. By using "complementary" currencies, cities and towns could protect their local economies by encouraging earning and spending within, as well as providing an alternative to a country's currency, should the national or global economy crash. This future is already a reality in Ithaca, New York, where Ithaca HOURS are successfully used at cash registers. (Thanks, Origo.) -- Suzanne Lindgren
http://www.greenbiz.com/news/columns_third.cfm?NewsID=31718

President Bush's declaration that the United States is "addicted to oil" stands in sharp contrast to his lack of leadership in the drive for true energy independence.  Americans' car-centered lifestyle is still utterly dependent on often hostile foreign regimes.  What's more, the administration's continued alienation of the Arab world may be threatening our access to Middle East oil.  Pointing to this Chicago Tribune series that traces the oil that goes into our tanks back to its origins, Mother Jones Editor Monika Bauerlein recently noted on the MoJo blog that "kicking the oil habit is no longer just a matter of virtue, or environmental responsibility, or even finite resources."  Rather, it is about "getting out of the way of the inevitable collapse" of the fragile energy network America has come to rely on so much.
Read: Bush Advisor: Oil Future "Looking So Ugly Nobody Wants to Face It"

Oil is a finite resource, and experts say we're about to run out of it.  The technology to replace it, however, is lagging far behind, and U.S. energy policies remain focused on finding new oil supplies while doing nothing to curb demand.  Paul Roberts examines our readiness to make the move away from oil to "something cleaner, more sustainable, and far less vulnerable to political upheaval."
Read: Over a Barrel

Interested in learning more?  In a MotherJones.com interview, Paul Roberts discusses gas prices, Iraq's oil, the Bush administration's energy policies, the potential of alternative fuels, and many other topics.
Read: The End of Oil

Last week the Senate passed a bill that opens up 8.3 million acres of Gulf of Mexico coastline to oil and natural gas drilling.  Yet again, Congress emphasized increased supply while failing to restrain oil demand.  MotherJones.com Editor Julian Brookes comments.
Read: Senate Okays Drilling in the Gulf of Mexico. Or, "Back to Drill, Drill, Drill..."

Shortly after President Bush's State of the Union statement that "America is addicted to oil," Michael Klare looked into just how addicted to this scarce resource we are and considered the potential consequences of a serious energy crisis and our ability to avert economic catastrophe.
Read: Just How Addicted to Oil Are We?

The Chicago Tribune series is worth a read, so here's a link to it again.  Paul Salopek takes the reader across the globe to the sources of our gasoline -- the oil wells in Africa, South America, and the Middle East.  In the process, he unveils just how insecure and unsustainable our current oil-based system is.

The National Resources Defense Council (NRDC) has a detailed analysis of the failings and consequences of American oil policy as well as recommendations for energy policies that will curb oil use and keep the United States and its economy out of harm's way.

Want to stay up to date with the latest news?  Check out the Energy Bulletin for the most recent headlines on oil, energy, and sustainability from all over the Internet.

Americans for Energy Independence has a comprehensive collection of useful resources, ranging from articles on hybrid vehicles to links to organizations working to promote energy independence and security.

The Apollo Alliance has been working to create solutions for America's dependence on foreign energy sources on the state level.  Its efforts have been endorsed by numerous labor unions and environmental organizations, among them Greenpeace, NRDC, and the Sierra Club.  You can find tools for contacting your governor regarding the Apollo Alliance's state-based proposals here.

According to NRDC, transportation accounts for two-thirds of U.S. oil use, yet the average gas mileage of American vehicles has dropped to its lowest level since the 1980s.  The Vehicle and Fuel Choices for American Security Act, a bill currently circulating through Congress, would help remedy that.  Find out more and contact your representatives.

Public Citizen has started a petition calling on Congress to reduce U.S. gas consumption by raising the fuel economy standard for cars.

Interested in learning more about what personal lifestyle choices you can make to reduce your own oil consumption?  This website, run by the U.S. Department of Energy and the Environmental Protection Agency, is a good place to start.  You can find plentiful information on hybrid cars, alternative fuels, and energy efficiency.  Check out the tools for comparing gas mileage, greenhouse gas emissions, air pollution ratings, and safety information for new and used vehicles.

Each year the Center for Global Development and FOREIGN POLICY look past the rhetoric to measure how rich-country governments are helping or hurting poor countries. How much aid are they giving? How high are their trade barriers against imports such as cotton from Mali or sugar from Brazil? Are they working to slow global warming? Are they making the world’s sea lanes safe for global trade? To find out, the index ranks 21 nations by assessing their policies and practices across seven areas of government action: foreign aid, trade, investment, migration, environment, security, and technology. [continues after chart and table]

Commitment to Development Index 2006 

Story: http://www.foreignpolicy.com/story/cms.php?story_id=3547

http://www.economist.com/world/europe/displaystory.cfm?story_id=E1_SRVVQVN

Aug 31st 2006 | SARAJEVO
From The Economist print edition

ANYONE interested in doing business in the region that used to be called Yugoslavia might be tempted not to bother—on the ground that its successor states were all very small, obsessed with minor linguistic and cultural differences, and generally not worth the effort.

A few years ago this might have been true, but now things have changed. Have a browse in a branch of Buybook, a Bosnian bookseller. In one section are shelves of “foreign” titles (by British or French writers, for example), and in another books by “local” authors. But “local” in this case does not mean only Bosnian. It means anyone writing in the language once called Serbo-Croatian—which is spoken, with only small variations, in Serbia, Croatia, Bosnia and Montenegro.

In business and economics, as well as linguistics and culture, the old Yugoslav space is re-emerging. Damir Uzunovic, the director of Buybook, complains that it is still hard to sell Bosnian books in Serbia; but otherwise the book trade between all the countries which speak nas jezik—our language, as it is sometimes called in a desperate effort to sound neutral—has been flourishing.

After all, together the populations of Serbia, Montenegro, Croatia and Bosnia make up a market of some 16m people. Macedonians and Slovenes, also ex-Yugoslavs, speak different but closely related tongues; if you add them, the number swells to 20m. It grows to 22m if you throw in the Kosovo Albanians—most of whom understand the common Slavic language even if they abhor it. In any case, the simple fact that all members of the quarrelsome ex-Yugoslav family can understand one another (linguistically at least) makes it easy to market products of every kind. [...]

Even though Serbia is a long way from joining the European Union, its interpreters had been licking their lips at the thought of thousands of pages of EU rules and regulations needing translation. Imagine their disappointment when the Croats, keen to smooth Serbia's European path, simply sent their Serbian colleagues all the translations they had already made. This left just a little tidying up (and a change of script from Latin to Cyrillic) to be done in order to convert the documents from the Croatian language to the slightly different Serbian.

Other Economies are Possible!
By Ethan Miller, Dollars & Sense
Many people dissatisfied with the current economic system already have created alternatives like worker cooperatives, community currency initiatives, community gardens, and housing collectives. Now these myriad groups are linking together as a network called the Data Commons Project. The idea is to collectively bolster a "solidarity economy" -- a bottom-up alternative to both pan-capitalism and state socialism that puts social gain on par with material profit. (Thanks, AlterNet.) -- Suzanne Lindgren
http://www.dollarsandsense.org/archives/2006/0706emiller.html (Utne.com)

http://www.nytimes.com/2006/09/03/business/yourmoney/03shelf.html?ex=1314936000&en=f6a092813220bacd&ei=5090&partner=rssuserland&emc=rss

Dr. Stiglitz’s new book, “Making Globalization Work” (Norton, $26.95), is billed as a sequel to his “Globalization and Its Discontents” (2002). ...

Two notions still animate the author. The first is that neoliberal economics — derided as “market fundamentalism” or the “Washington consensus” — vandalized the developing world. This supposed reign of neoliberal economic terror (privatization, open capital markets) has become a bogeyman of political liberalism (social justice, environmentalism), in whose ranks Dr. Stiglitz enjoys cult status globally. The second is that smart people in Washington and New York with the correct ideas can help set the world right. This supposition — even when cast in terms of promoting democracy rather than proffering special expertise — is an occupational hazard, and it enthralls many conservatives, too.

Dr. Stiglitz’s vision for more equitable globalization — with caveats about the toughness of the task — entails freer trade (no more loopholes for rich countries or corporate lobbies), curtailed intellectual property rights (“monopolies”) and green accounting (factoring resource depletion and ecological damage into G.D.P.). It also means more transparency in international finance (to curb corruption), debt forgiveness (foolhardy creditors must take responsibility, too) and democracy (less secretive procedures opened to nongovernmental organizations and others). ...

In his most intriguing chapter, Dr. Stiglitz explains how the United States benefits from other countries holding vast quantities of dollars, while those countries incur substantial costs, from depressed growth to instability — the very condition that such foreign reserves are meant to forestall. He observes that in Asia — which drives globalization more than Washington does — an alternative reserve system may be emerging. Dr. Stiglitz imparts his spin to this issuing of money substitutes, calling them “global greenbacks,” which could be used to finance global public goods like health vaccines. “This single initiative,” he suddenly concludes deep into the book, “could do more to make globalization work than any other.”

And instead of waiting for the United States to act in the interests of global humanity, he says, a coalition of Asian countries could move to this new reserve system even if America objected. Here is the new global economy already upon us.

Professor Dr. Muhammad Yunus is a Bangladeshi banker and economist. He is the developer and founder of the concept of microcredit, the extension of small loans to entrepreneurs too poor to qualify for traditional bank loans. Yunus is also the founder of Grameen Bank. In 2006, Yunus and the bank were jointly awarded the Nobel Peace Prize, for their efforts to create economic and social development from below.

Wikipedia is Communism

From Wikipedia, the free encyclopedia

The purpose of the Nobel Peace Prize has become muddled. It may be better to withhold it next time, says http://www.economist.com/agenda/displaystory.cfm?story_id=8045069&fsrc=nwl:

[snip] Withholding the prize for a year, or possibly five, might seem rather callous. But the institute would not be suggesting that the world has become sufficiently peaceful now. Some do argue that wars are generally in decline. Last year a think-tank in Canada released a “Human Security Report” which noted that 100-odd wars have expired since 1988. Their study found that wars and genocides have become less frequent since 1991, that the value of the international arms trade has slumped by a third (between 1990 and 2003), and that refugee numbers have roughly halved (between 1992 and 2003). Yet, despite all that, there are clearly enough problems today—Darfur, Sri Lanka, Somalia, Afghanistan, Iraq, international terrorism—to keep the hardest-working peace promoters busy. ...

In searching out individuals to praise for a variety of good deeds, to make celebrities of the well-meaning in various walks of life, is to confuse the purpose of the prize: to promote peace. The organisers could recall that on 19 occasions since the prize was first given out in 1901, the institute declared that it could find no fitting winner. During much of the first and second world wars, for example, no winner was named. ...

To borrow lyrics from http://en.wikipedia.org/wiki/UB40: "It's a long long way from here" (http://www.teksty.org/u/ub40/it_salonglongway.php). The following article appeared in 1995:

The Grameen Bank, in Bangladesh, which makes small loans to some of the poorest people on earth, has become a model for economic developers all over the world. http://www.theatlantic.com/doc/199512/grameen-bank

Jacek

http://www.thenation.com/doc/20061030/bello

As economic journalist Gina Neff notes, "after 8 years of borrowing, 55% of Grameen households still aren't able to meet their basic nutritional needs--so many women are using their loans to buy food rather than invest in business."

By Gabor Steingart

The dollar is still the world's reserve currency, even though it hasn't deserved this status for a long time. The devaluation of the dollar can't be stopped -- it can only be deferred. The result could be a world economic crisis.

Editor's Note: The following essay has been excerpted from the German best-seller "World War for Wealth: The Global Grab for Power and Prosperity" by SPIEGEL editor Gabor Steingart. SPIEGEL ONLINE is publishing a series of excerpts from the book.

http://www.spiegel.de/international/0,1518,440054,00.html

Saluting Yunu's invention as 'real progress', the editorialist Philippe Frémeaux notes that "micro-credit is not however a miraculous solution for all problems of development. Development cannot only follow 'bottom-up' logic. He also presumes that a developing state invests massively in education and infrastructures, guaranteeing the stability of the judicial system and limiting corruption. How, then, to justify the general enthusiasm for micro-credit ? The answer is simple. Explaining that Third World masses are going to be pulled out of poverty by allowing them to finance an activity satisfies both the NGOs and the liberal technocrats who populate the World Bank. Alternatives économiques (France) further articles on the theme http://europe.courrierinternational.com/eurotopics/article.asp?langue=uk&publication=08/11/2006&cat=ECONOMY&pi=1#1

Snippets from http://search.ft.com/searchArticle?queryText=1.46&y=5&Java­ScriptEnabled=true&id=061014001162&x=15:

In a paper he prepared for a recent Federal Reserve Bank of Boston conference, Richard Freeman, a Harvard labour economist, estimates that the entry of China, India and the former Soviet bloc roughly doubled the number of workers in the market economy, from 1.46 billion to 2.93 billion. Since those countries brought little capital with them, the number of workers in the system shot up while the amount of capital increased very little. As the law of supply and demand might suggest, when labour is abundant and capital scarce, the returns to labour tend to fall and those to capital rise. ...

At the same time, wages in one sector respond to those in another. If globalisation depresses wages in tradable sectors but leaves them unaffected in, say, retailing, then more people will seek jobs in retailing, depressing wages in that sector too. ...

While wages in the advanced countries are stagnant, wages in the developing world are rising rapidly, albeit from a small base. Freeman estimates that if Chinese wages double every decade, as they did in the 1990s, they will reach the levels found in the advanced countries today in about 30 years. Absorbing the labour forces of other countries could take a little longer but the transition could be complete in 40 to 50 years - at which point, presumably, western wages will start rising again and the balance between capital and labour will be restored. ...

Still: imagine, at the birth of globalisation, western politicians had made an amazing proposition to voters. "Together," they could have said, "we are going to end world poverty. In order to achieve this, we are going to ask you to accept a pay freeze in real terms for as long as it takes for the wages of workers in the developing countries to catch up, which we estimate will be about half a century. Until the adjustment is complete, the reduction in labour costs will produce the side-effect of extraordinarily high profits for companies, enriching many of those who are already among the richest in society.

"So there will be winners and losers. The bad news is that you, the ordinary, middle-class employees of the west, will be losers and everybody else will be winners. But the good news is, your sacrifice will make poverty history."

Would you have voted for this?

© Copyright The Financial Times Ltd

On the death of Ronald Reagan, whom he advised, Mr. Friedman wrote on these [WSJ] pages that “few people in human history have contributed more to the achievement of human freedom.” The same can and long will be said of Milton Friedman. http://www.opinionjournal.com/editorial/feature.html?id=110009260

On another money-related note, from Science 17 November 2006 (Vol. 314. no. 5802, pp. 1154 - 1156):

Money can be exchanged for material goods that are essential for our physiological and psychological well-being, but are there direct effects of money on our psychological state and behavior? Vohs et al. (p. 1154; see the Perspective by Burgoyne and Lea) primed human subjects to think about having money and found that these subjects acted in a more self-sufficient fashion than those who were not primed. Possessing money made it less likely that subjects would ask for help in solving a problem, or offer help to another person, or make donations. In addition, subjects with money would distance themselves--literally and figuratively--from others. http://www.sciencemag.org/cgi/content/abstract/314/5802/1154?etoc

I guess that's another way of making money...

Jacek

Allan Greenspan is alive and kicking.

"he has also restarted his earlier career as an economic consultant and forecaster, speaking to groups of institutional investors, on average, twice a week for a fee of up to $150,000." http://www.nytimes.com/2007/03/02/business/02greenspan.html?_r=2&em&ex=1172984400&en=c4a7d11f341e0732&ei=5087%0A&oref=slogin%20;%20http://www.spokesmanreview.com/local/story.asp?ID=176534%20;%20http://www.npr.org/templates/story/story.php?storyId=7662634&oref=slogin (via Harper's magazine)

While Allan Greenspan slogs away, the rest of Americans...: http://www.slate.com/id/2161309/

[excerpt] "When professors Mark Aguiar and Erik Hurst combined the results of several large surveys (including studies where randomly chosen subjects kept detailed time diaries), they found that by any definition, the trends are clear.

In 1965, the average man spent 42 hours a week working at the office or the factory; throw in coffee breaks, lunch breaks, and commuting time, and you're up to 51 hours. Today, instead of spending 42 and 51 hours, he spends 36 and 40. What's he doing with all that extra time? He spends a little on shopping, a little on housework, and a lot on watching TV, reading the newspaper, going to parties, relaxing, going to bars, playing golf, surfing the Web, visiting friends, and having sex. Overall, depending on exactly what you count, he's got an extra six to eight hours a week of leisure—call it the equivalent of nine extra weeks of vacation per year.

For women, time spent on the job is up from 17 hours a week to 24. With breaks and commuting thrown in, it's up from 20 hours to 26. But time spent on household chores is down from 35 hours a week to 22, for a net leisure gain of four to six hours. Call it five extra vacation weeks."

Which means, according to new research emerging from many quarters, that our continued devotion to growth above all is, on balance, making our lives worse, both collectively and individually. Growth no longer makes most people wealthier, but instead generates inequality and insecurity. Growth is bumping up against physical limits so profound—like climate change and peak oil—that trying to keep expanding the economy may be not just impossible but also dangerous. And perhaps most surprisingly, growth no longer makes us happier. http://www.motherjones.com/news/feature/2007/03/reversal_of_fortune.html

Originally written by Jacek Krankowski on April 12, 2007 3:47 PM Once considered the bastion of American capitalism, free trade is freefalling out of favor among the public and politicians alike . . .

The push had come from the American MNCs and capitalists all along and not really the public (just need to be convinced by their politicians). Not only the US firms get to manufacture overseas at lower cost but their service providers (banks, transport, insurance, communications, legal firms, education, consultancy, government procurement, technical services, etc) get to penetrate the foreign markets and grow in size, many of which may also not be cost effective for them to do out of the US in the first place.

Once the Americans get tired of expanding FTAs, the size and economies-of-scale of their manufacturers and service providers would not grow as fast but you can probably then expect China to pick up the slack and push for FTAs all over the place.

A piece for Shiong-Fong to comment on: http://www.sciencedaily.com/releases/2007/05/070514123808.htm

I feel targeted!

Originally written by Jacek Krankowski on May 16, 2007 4:04 PM However, the stricter legislation in the USA compelled the automotive industry to come up with an alternative solution which it did in the form of hybrid cars.

GM led the way initially but now trailing far behind Toyota and Honda. Toyota Prius has an annual production in the hundreds of thousands and a waiting queue even with the Prius factories spanning Japan, US, China(still minor), etc.

Originally written by Science Daily In the Californian example, mandates were instituted that required zero-emission vehicles (ZEVs) to make up a certain percentage of car production and sales, with fines imposed for not reaching targets.  Both the oil and auto industries opposed this and lobbied heavily against it.

Arnold Schwarzenegger living up to his screen image?

He also switched his fuel-guzzling hulks of eight Hummers for the likes of a fuel-sipping Toyota Prius! Free advertising mileage from Arnold?

First in Oil Consumption:

The United States burns up 20.7 million barrels per day, the equivalent of the oil consumption of China, Japan, Germany, Russia, and India combined.

First in External Debt:

The United States owes $10.040 trillion, nearly a quarter of the global debt total of $44 trillion.

http://www.tomdispatch.com/index.mhtml?pid=196017

http://www.tomdispatch.com/post/174810

During Operation Desert Storm in 1991, the average American soldier consumed only four gallons of oil per day; as a result of George W. Bush's initiatives, a U.S. soldier in Iraq is now using four times as much. If this rate of increase continues unabated, the next major war could entail an expenditure of 64 gallons per soldier per day. ...

And foreign wars, sad to say, account for but a small fraction of the Pentagon's total petroleum consumption. Possessing the world's largest fleet of modern aircraft, helicopters, ships, tanks, armored vehicles, and support systems -- virtually all powered by oil -- the Department of Defense (DoD) is, in fact, the world's leading consumer of petroleum. It can be difficult to obtain precise details on the DoD's daily oil hit, but an April 2007 report by a defense contractor, LMI Government Consulting, suggests that the Pentagon might consume as much as 340,000 barrels (14 million gallons) every day. This is greater than the total national consumption of Sweden or Switzerland.

Within a decade, the US will be heavily dependent on African oil. Little wonder the Pentagon is preparing a strategy for the region: http://www.newstatesman.com/200706180024

http://www.iht.com/articles/2007/07/11/business/economics.php?page=1

[snip] ....Those who doubt the naturally beneficial workings of the market are considered either deluded or crazy.

But in recent months, economists have engaged in an impassioned debate over the way their specialty is taught in universities around the United States, and practiced in Washington. They are questioning the profession's most cherished ideas about not interfering in the economy. ...

And free trade is not the only sacred subject, Blinder and other like-minded economists say. Most efforts to intervene in the markets - like setting a minimum wage, instituting industrial policy or regulating prices - are viewed askance by mainstream economists, as are analyses that do not rely on mathematical modeling. ...

In addition to Blinder, other eminent economists like Lawrence Summers and the Nobel Prize winner George Akerlof have pointed out what they see as the failings of laissez-faire economics. ...

Other economists, however, go much further, and try to chip away at the field's underlying theoretical foundations. So while Blinder, Card and Rodrik might be considered mere heretics, this second group has earned the label "heterodox."

Although the meaning of the term is slippery, Frederic Lee, an economist at the University of Missouri-Kansas City who edits the Heterodox Economics Newsletter, says it refers to those who reject the neoclassical model, which Milton Friedman helped create, and which Ronald Reagan championed when he took over the White House.

Reny and others point out that the increasing popularity in the mainstream of behavioral economics, which looks at people's complex psychological reactions to events, has offered a fuller picture of how consumers operate in the marketplace. Still, Lee criticizes neoclassical economics for maintaining that the market, if left alone, would ultimately find a happy balance. ...

In Lee's view, for example, oil companies - not the natural workings of the market - determine gas prices.

According to his estimates, 5 to 10 percent of America's 15,000 economists are heterodox, which includes an array of professors on the right and the left (post-Keynesians, Marxists, feminists and social economists).

Heterodox economists complain that they are almost completely shut out by their more influential neoclassical colleagues who dominate most American university departments and prestigious peer-reviewed journals that are essential to gaining tenure.

There are a few university departments where these iconoclasts are welcome, like Amherst in Massachusetts, the New School in New York and Lee's home base, the University of Missouri-Kansas City, but these are exceptions.

Michael Klare's latest piece offers perhaps the crucial context within which to consider Cheney's urge to launch an air assault on Iran. ...

Such an attack would, of course, be a straightforward act of global economic madness; but, given the cast of characters – a classic neocon quip of the pre-Iraq invasion period was ""Everyone wants to go to Baghdad. Real men want to go to Tehran..." -- that hardly takes the possibility off the hypothetical "table" where all "options" so obdurately remain. An assault on Iran aside, Klare, author of the indispensable Blood and Oil: The Dangers and Consequences of America's Growing Dependence on Imported Petroleum, suggests the nature of the hair-raising energy world we are now entering. Tom

Story: http://www.tomdispatch.com/post/174829

The certitude that central institutions will always be ready to cough-up crazy sums of money in order to bring business back to normal is an incentive to crime. There will be a price to pay for this lesson: so far, almost 200 billion euros for Europeans [the sum of liquidity injected by the European Central Bank last week]. Who hasn't got a little voice in their head pointing out how this money could have been used to alleviate some of the planet's misery? La Vie (France) http://europe.courrierinternational.com/eurotopics/article.asp?langue=uk&publication=16/08/2007&cat=ECONOMY&pi=0#0

You can find lots and lots of things for sale on [US] Craigslist.org -- everything from electronics to used mattresses. You can also find people offering sex for money, a form of digitally arranged prostitution that police are just now beginning to crack down on.
http://www.switched.com/2007/09/05/police-crack-down-on-craigslist-sex-industry/

New Labour's misogyny

[snip] If you know anything at all about the federal student loan program, you will not have been surprised by the scandal of recent months. The only amazing thing is that it has taken so long to arrive. Here's how the program works: Banks and other private companies lend money to students. The federal government pays part or all of the interest—currently 7 percent or 8 percent. The government also guarantees the loans. ...

If the government can borrow money at 3 percent or 4 percent, why should it be paying 7 percent or 8 percent for the privilege of guaranteeing loans to someone else? Wouldn't it make more sense for the government to loan out the money itself?

That is the $4 billion question (the approximate annual cost of the interest subsidy). And the answer is: Of course that would make more sense. It is what any levelheaded businessperson would do. And what is stopping the government from behaving like a levelheaded businessperson? Not those head-in-the-clouds Democrats. It's Republicans, who adopted the student loan "industry" in its infancy, like a stray cat, and have nurtured it and protected it ever since. There actually is a parallel student loan program that does use government funds. It was started in the early days of the Clinton administration. It costs less to operate, and it has not been tainted by scandal. But when the Republicans regained control of Congress in 1994, they pushed through a law forbidding the Education Department to encourage the use of this program. As a result, direct federal loans account for only 25 percent of all student loans. ...

http://www.slate.com/id/2174000/fr/flyout

http://www.yourish.com/2007/10/16/3841

Yesterday, I wondered how many of the three winners of the Nobel prize in economics were Jewish. ...

The answer: All of them. ... In fact, they’re all three American Jews.

People talk about the brain drain of various nations’ top scientists and doctors coming to the U.S. because here’s where the action is. But let’s not forget the incredible addition of talent America has received due to the persecution of European Jewry for the last few centuries. The waves of Jewish immigrants from Europe brought America a lot more than the Hollywood studio system. It brought us top scientists, thinkers, doctors, technologists, and authors. ...

That makes 155 Jewish Nobel prize winners in total, most of them American Jews.

Sorry, Raymond, I have no clue, but TC has as many as 49 RU>EN translators (according to http://www.translatorscafe.com/TCUtils/search/default.aspx?op=search&tcm=1&ls=129&lt=42) and 52 EN>RU translators (according to http://www.translatorscafe.com/TCUtils/search/default.aspx?op=search&tcm=1&ls=42&lt=129), so I am sure someone from among them will know something.

Have a good weekend!

Jacek

http://www.nytimes.com/2007/10/30/technology/30poor.html?pagewanted=1&ei=5070&em&en=c63128298005cc7a&ex=1193976000

The best-known networking sites in the industry connect computer-savvy elites to one another. Babajob, by contrast, connects India’s elites to the poor at their doorsteps, people who need jobs but lack the connections to find them. Job seekers advertise skills, employers advertise jobs and matches are made through social networks.

For example, if Rajeev and Sanjay are friends, and Sanjay needs a chauffeur, he can view Rajeev’s page, travel to the page of Rajeev’s chauffeur and see which of the chauffeur’s friends are looking for similar work. ...

Mr. Krishna found that many poor Indians in dead-end jobs remain in poverty not because there are no better jobs, but because they lack the connections to find them. Any Bangalorean could confirm the observation: the city teems with laborers desperate for work, and yet wealthy software tycoons complain endlessly about a shortage of maids and cooks.

Mr. Blagsvedt’s epiphany? “We need village LinkedIn!” he recalled saying, alluding to the professional networking site. ...

In India, a businessman looking for a chauffeur might ask his friend, who might ask his chauffeur. Such connections provide a kind of quality control. The friend’s chauffeur, for instance, will not recommend a hoodlum, for fear of losing his own job.

To re-create this dynamic online, Babajob pays people to be “connectors” between employer and employee. In the example above, the businessman’s friend and his chauffeur would each earn the equivalent of $2.50 if they connected the businessman with someone he liked.

* * *

http://www.nytimes.com/2007/10/31/business/worldbusiness/31butler.html?em&ex=1193976000&en=b0731a056762100e&ei=5070

Adrianne Yamaki, a 32-year-old management consultant in New York, travels constantly and logs 80-hour workweeks. So to eke out more time for herself, she routinely farms out the administrative chores of her life — making travel arrangements, hair appointments and restaurant reservations and buying theater tickets — to a personal assistant service, in India.

Kenneth Tham, a high school sophomore in Arcadia, Calif., strives to improve his grades and scores on standardized tests. Most afternoons, he is tutored remotely by an instructor speaking to him on a voice-over-Internet headset while he sits at his personal computer going over lessons on the screen. The tutor is in India. ...

TutorVista has 600 tutors in India and 10,000 subscribers in the United States....

Recession? What Recession?

By BOB HERBERT

[excerpt] Mr. Bernanke executed a flawless version of the Washington waffle. He said: “Our forecast is for moderate, but positive, growth going forward.” He said: “Economists are extremely bad at predicting turning points, and we don’t pretend to be any better.” He said: “We have not calculated the probability of recession, and I wouldn’t want to offer that today.”

With all due respect to the chairman, he would see the recession that so many others are feeling if he would only open his eyes. While Mr. Bernanke and others are waiting for the official diagnosis (a decline in the gross domestic product for two successive quarters), the disease is spreading and has been spreading for some time.

The evidence is all around us. Representative Elijah Cummings of Maryland told Mr. Bernanke that many members of Congress are holding forums in their districts “to help people who are coming to our doors, literally with tears in their eyes, and trying to figure out how they’re going to manage a foreclosure that’s right around the corner.”

The housing meltdown is getting the attention, but there’s so much more. Bankruptcies and homelessness are on the rise. The job market has been weak for years. The auto industry is in trouble. The cost of food, gasoline and home heating oil are soaring at a time when millions of Americans are managing to make it from one month to another solely by the grace of their credit cards.

The country has been in denial for years about the economic reality facing American families. That grim reality has been masked by the flimflammery of official statistics (job growth good, inflation low) and the muscular magic of the American way of debt: mortgages on top of mortgages, pyramiding student loans and an opiatelike addiction to credit cards at rates that used to get people locked up for loan-sharking. …

Northern Rock bidders want interest on Bank of England loan written off

Bidders are arguing for more lenient lending conditions to Northern Rock in return for safeguarding valuable jobs ....

The government has been trying to secure a buyer for Northern Rock since it had to be rescued by the Bank of England in September. Since then, Northern Rock has borrowed close to £20bn from the Bank at a penal rate of interest believed to be close to 7%.

Mervyn King, the Bank's governor, agreed to rescue the stricken mortgage lender, Britain's fifth largest before it crashed in September, on condition it pay the penal rate as the price of its rescue. But Northern Rock has not yet paid any interest and the bill will continue to rise until the bank is more financially stable.

Mr King believes the bank should pay a higher rate of interest to protect taxpayers from potential losses if it goes bust. He has spoken several times of the dangers he would create if reckless lending by banks was bailed out using taxpayers' money, only for them to repeat the same mistakes with even more disastrous results. ... http://www.guardian.co.uk/business/2007/nov/14/northernrock.bankofenglandgovernor1

At the third OPEC summit in 47 years, held in Riyadh, Saudi Arabia, Venezuelan President Hugo Chavez said that the price of crude oil could reach $200 a barrel. “The basis of all aggression,” said Chavez, “is oil.” During a private meeting that was accidentally televised, the oil minister of Venezuela suggested to the oil minister of Iran that OPEC stop using the crippled dollar for pricing; the foreign minister of Saudi Arabia countered that public discussion of the weak dollar would cause U.S. currency to lose value. “Kill the cable!” shouted a security guard as he ran into the meeting room, “Kill the cable!” (Harper's Magazine)

Unfortunately his words and those of everyone at the meeting were being broadcast via a live television feed to a group of astonished reporters. 'I couldn't believe it,' said one who was there. 'When I realised they didn't know they were being broadcast live, I frantically started taking notes.' ...

The weakness of the dollar is one reason why oil prices are so high, as cartel members seek to compensate for their lower earnings. This means a further drop in the dollar is likely to be accompanied by a rise in oil prices. http://observer.guardian.co.uk/world/story/0,,2212899,00.html

This guy disagrees: 

I sit in wonderment at the story of W. Lance Anderson, the president of NovaStar Financial in Kansas City, who while handing out subprime mortgages to any applicant wearing shoes and a shirt managed to sink the company's stock from $40 in June to $1.72. This is a man who earned $1.7 million in salary and bonuses last year, plus $711,386 in deferred compensation, plus more dough in various arrangements that dopes like me can't quite grasp. http://www.salon.com/opinion/keillor/2007/11/21/subprime/index_np.html?source=newsletter

Rising oil wealth is lifting Islamic banking - banking that adheres to the laws of the Koran and its prohibition against charging interest - into the financial mainstream.

Big banks like Citigroup, HSBC and Deutsche Bank, as well as financial capitals like London, Tokyo and Hong Kong, are all going into the Islamic banking business: http://www.iht.com/articles/2007/11/21/business/islamic.php

http://www.nytimes.com/2007/11/25/opinion/25robb.html?em&ex=1196312400&en=f6847837e44ae04e&ei=5070

In September, at the General Assembly of the United Nations, President Sarkozy proposed “un New Deal écologique et économique,” but without explaining how economic growth can be reconciled with conservation. If he is serious about saving the planet, and if he wants to reassure the unions that workers will still have time with their families, he should consider introducing tax incentives for hibernation. The long-term benefits of reduced energy consumption would counterbalance the economic loss. There has never been a better time to stay in bed.

[snip] ... The dollar's share of worldwide currency reserves has shrunk from 80 percent in the 1970s to about 65 percent today. China, Russia and Malaysia have already partially uncoupled their currencies from the dollar, and Kuwait plans to follow suit in May 2008. ...

According to a high-ranking official in the Finance Ministry, exchange rates of $2 per euro are possible in the medium term, even if, as some conjecture, there is a short-term correction next year.

"From the US's perspective, there is little pressure to do anything about the weak dollar," says Michael Heise, chief economist with German insurance giant Allianz. "Pressure on the government and the Federal Reserve will only grow if there is a true crisis of confidence in the currency and the flow of capital begins to ebb as a result." But this is a risk Heise doesn't see materializing, not yet, at least.

Because the Americans are apparently unwilling to take any steps against the weak dollar, there is growing support for the Europeans to take a more proactive approach and boost the US currency by buying dollars and selling euros on the currency markets. "The ECB (European Central Bank) must make it clear that it will not accept a continued rise of the euro and could even intervene," says Gustav Adolf Horn of the Düsseldorf-based Macroeconomic Policy Institute, a group with ties to trade unions.

However, interventions in the foreign currency market are usually effective only if all central banks cooperate, as happened seven years ago. Securities dealers are only impressed when they notice that all major players have joined forces. Then they no longer have the confidence to bet on a declining dollar. Those who speculate against the combined power of the central banks have rarely walked away as winners.

But the central banks and their governments are a long way from the necessary unanimity. The Americans, most of all, would not play along.

Besides, there is disagreement over whether interventions would even be effective in the current situation. Joachim Poss, the deputy head of the Social Democrats parliamentary group in the German parliament, believes "an attempt to bolster the dollar could dissipate all too quickly."

The reason being that there are enough countries that are simply waiting for the right opportunity to shift at least some of their dollar reserves to euros. If the ECB intervened against the dollar, there would be great temptation in these countries to take advantage of higher dollar prices to buy euros.

"Additional dollars would enter the markets again, which would fully or partially eliminate the intended stabilization," says Poss. ...

http://www.spiegel.de/international/business/0,1518,520700,00.html

http://www.foreignpolicy.com/story/cms.php?story_id=4060

Don’t let all the chatter about the “incredibly shrinking dollar” fool you. The Almighty Greenback is here to stay, and there are far more serious dangers lurking for the global economy.

....It is quite possible for the United States to retain global monetary preeminence while simultaneously experiencing real economic stagnation. America could lead the global economy into a period of economic doldrums, yet the dollar’s status would be unaffected because all are dragged down together. ...

By ROGER COHEN

Published: January 21, 2008

...The non-relation between expensive wars and exempt non-warriors, a mirage Bush has fostered, has become unsustainable.

Roach estimated U.S. net national savings at a tiny 1.4 percent of national income and household debt at 133 percent of personal disposable income. That last figure means middle class families are tapping into home equity - borrowing against their homes - to buy their kids socks. ...

http://www.nytimes.com/2008/01/21/opinion/21cohen.html?em&ex=1201150800&en=ca23ba3ef053a67a&ei=5070

* * *

Credit in the US becomes cheaper:

Fed Cuts Key Interest Rate as Global Markets Drop

Now that we can quietly resume borrowing:

Why the Debt Crisis Is Now the Greatest Threat to the American Republic: http://www.tomdispatch.com/post/174884

http://www.tomdispatch.com/post/174888

The U.S. economy has come to a "virtual standstill." ... Though any reader of newspaper business pages has surely noticed that oil news, oil deals, and oil prices have been front and center, the role of oil in our new economic moment has been underemphasized of late. It's hard even to remember -- now that the price of a barrel of crude oil has hit the $100 mark and still hovers around $91 -- that, in the week after September 11, 2001, oil was still under $20 a barrel. Think of this as another modest accomplishment of the Bush administration, helped along by its rash war in Iraq, which actually took oil off the market. In a mere six years, we've gone from the era of cheap oil to the era of pricy petroleum or "tough oil", with a new spike at the gas pump expected as early as this spring. The results are now there for all to see -- in growing misery at home as well as stunning global financial and power shifts.

Michael Klare has long been ahead of the curve. In the late 1990s, he was already writing about "resource wars" in the coming century; as that century dawned, his next book, Blood and Oil, arrived; and now, just in time for a new global era, his latest book, Rising Powers, Shrinking Planet: The New Geopolitics of Energy, is ready to appear. You could say that he saw much of this coming and here he offers us an assessment of the missing role that energy played in the bursting of the American bubble.

http://dissentmagazine.org/article/?article=990

In current debates about the world economy, “growth is good” often appears as a truism. Growth leads to wealth, it is said, and greater wealth is surely desirable, especially for the poorer developing countries. Closer inspection, however, leads to a far more nuanced assessment. ...

When growth is accompanied by rising inequality, this matters for the poor in two ways: It reduces or even negates gains in their absolute share that would otherwise result from economic growth. And it also diminishes their relative share. ...

The table shows that, even though the U.S. has the highest per capita GNI (PPP) in the table, its poor have only about half as much income as the poor of Norway and Japan and little more than the Hungarian poor. Taking relative share into account as well, the U.S. poor do much worse than the poor in the other countries. From their standpoint, less economic growth more evenly distributed would have been much better. ...

Some optimists may contend that China’s rich or its political leaders will be so imperturbably committed to the common good, including poverty avoidance, that the economic interests of the rich will not affect the design of China’s economic order. Such optimism is risky, even naive. ...

High-inequality countries like those of Latin America have been highly resistant to inequality-lowering reforms, because any government must cooperate with those whose economic power enables them severely to damage the country’s economy. By contrast, low-inequality countries like those of Scandinavia find it easy to keep inequality low. ...

Much of China’s export-driven success has come at the expense of other poor countries. It is therefore a grave mistake to conclude from China’s example that all poor countries could have done, or could still do, similarly well. ...

The U.S. financial crisis has already begun to infect other countries: http://melcoulter.newsvine.com (originally from Foreign Policy)

John (and everyone),

Would you mind using the Quote function in your replies so that we know what exactly you are referring to? As it is, your last post says "Post #140950—in reply to #51970," but #51970 is just the opening post of this thread and it doesn't look like you are replying to it.

Thanks!

Jacek

Originally written by John Bunch on March 12, 2008 5:49 PM I thought I was just replying to the post immediately above

Logical and works most of the time, except that frequently new posts get inserted before we complete our reply, so as a rule it's safer to quote what we are replying to, particularly with older threads, or when we don't immediately see previous posts because a new page starts, or without the page being refreshed the reader's browser just doesn't volunteer to show previous posts.

Jacek

…and the Rise of the New Energy World Order

Michael T. Klare is a professor of peace and world security studies at Hampshire College and the author of Resource Wars and Blood and Oil. Consider this essay a preview of his newest book, Rising Powers, Shrinking Planet: The New Geopolitics of Energy, which has just been published by Metropolitan Books. A brief video of Klare discussing key subjects in his new book can be viewed by clicking here.

http://www.tomdispatch.com/post/174919

And where did all that burst-bubble money go?

Hedge fund managers are making money on a scale that once seemed unimaginable, even on Wall Street: http://www.nytimes.com/2008/04/16/business/16wall.html?em&ex=1208577600&en=1cc00586f1bdfb07&ei=5070

To continue from Post #143746:

The riots over the soaring prices of foodstuffs have grown across the world over the last weeks. Several governments have announced measures controlling the trade of these commodities. The European press seeks the causes of the lack of basic foods and proposes solutions to the crisis.

Le Monde (France) According to the daily, "new eating habits in developing countries, for the most part imported from developed countries, largely explain the explosion of demand, and thus the price tensions. But it's not the only reason. Competition from biofuels is another essential one. The United States, so generous with the World Food Program, confirmed its desire to double the acreage currently devoted to growing fuel crops. Faced with the American driver, the Haitian peasant can't compete. It's the case in Europe. Not only does Europe want to develop biofuels, but, during international negotiations, it maintains protectionist policies that have for so long destabilised third world agriculture and hampered the fight against poverty."

Der Tagesspiegel (Germany) Gerd Appenzeller sees the International Assessment of Agricultural Knowledge, Science and Technology for Development presented by the Food and Agriculture Organisation (FAO) as confirmation that the Western world is protecting its prosperity at the cost of less developed countries: "To put it simply, the accusation directed in particular at the US, Canada, Australia and Western Europe is that these states - the richest in the world - are treating the rest of the planet like colonies. ... By imposing their supposedly superior economic and agrarian system on the Third World - albeit with the best intentions - and exploiting their economic power, the industrialised nations are ruining these countries. There are plenty of straightforward examples. The European Union is subsidising the construction of increasingly large fishing fleets and purchasing all the fishing rights for Africa's coasts. As a result, Portuguese and Spanish trawlers are taking over the traditional fishing grounds of, for example, the Senegalese, so the latter, totally impoverished, are forced to sail the coasts of the Canary Islands on dilapidated fishing boats in the hope of finding a better future there."

Financial Times (United Kingdom) Columnist Victor Mallet argues in the financial daily that the worldwide food crisis is not due to a lack of supply - for the time being - but rather to interruptions in free trade. "The immediate cause of this crisis is not - perhaps surprisingly - a shortage of food. The problem is the sudden reluctance of traditional exporters to sell their surpluses. As with credit providers in the seized-up credit markets, each producer is hoarding its own supply in case of hard times at home, because it suspects trading partners will do the same. Trust in the efficiency and liquidity of the market has collapsed. Farm protectionism is not new. ... International farm trade has nevertheless managed to satisfactorily for decades redistribute surpluses of staple foods. The current seizures in the markets are therefore a cause for general alarm."

Dagbladet Information (Denmark) Two of the major EU states have proposed entirely different schemes for combating the global food crisis. British Prime Minister Gordon Brown spoke out in favour of a new trade agreement and trade facilitations for the world's poorest countries, while the French Minister of Agriculture Michel Barnier calls for more protectionism and subsidies for EU farmers. The daily comments: "The solution is not a 'pure market economy' but the combination of what the European Commission calls 'liberalisation of production' with intelligent political measures aimed at protecting the environment, the climate and the many poor and hungry of this world. The EU must work hard for a plan like this. It requires a sensible and coordinated European response - and an end to the feuding between London and Paris."

http://europe.courrierinternational.com/eurotopics/article.asp?langue=uk&publication=17/04/2008&cat=DOSSIER&pi=0#0

Meanwhile:

"Hunger bashed in the front gate of Haiti’s presidential palace. Hunger poured onto the streets, burning tires and taking on soldiers and the police. Hunger sent the country’s prime minister packing. Haiti’s hunger, that burn in the belly that so many here feel, has become fiercer than ever in recent days as global food prices spiral out of reach, spiking as much as 45 percent since the end of 2006 and turning Haitian staples like beans, corn and rice into closely guarded treasures. …  That anger is palpable across the globe. The food crisis is not only being felt among the poor but is also eroding the gains of the working and middle classes, sowing volatile levels of discontent and putting new pressures on fragile governments.

 “It’s the worst crisis of its kind in more than 30 years,” said Jeffrey D. Sachs, the economist and special adviser to the United Nations secretary general, Ban Ki-moon. “It’s a big deal and it’s obviously threatening a lot of governments. There are a number of governments on the ropes, and I think there’s more political fallout to come.”

[…]

http://www.nytimes.com/2008/04/18/world/americas/18food.html

---------

Nanna, who had breakfast: orange juice, organic yoghurt with fresh strawberries and a banana… and one cup of just-ground coffee with cream 

http://www.nytimes.com/2008/05/14/business/worldbusiness/14food.html?em&ex=1210910400&en=a6f52cceeb359c5b&ei=5070

The developing nations, and in particular China and India, are being blamed for global problems, including the rising cost of commodities and the increase in greenhouse gas emissions, because they are consuming more goods and fuel than ever before. But Indians from the prime minister’s office on down frequently point out that per capita, India uses far lower quantities of commodities and pollutes far less than nations in the West, particularly the United States.

There may be some foundation to Indians’ accusations of hypocrisy by the West. The United States uses — or throws away — 3,770 calories a person each day, ..., compared with 2,440 calories per person in India.

I, unfortunately, agree. We (United States) are a wasteful society as a whole. Although I don’t like what is happening with our economy (loss of houses, jobs, rising prices, etc.), it may take an economic bottoming out to get things back in line. Basically, imho, we became spoiled and too often do not appreciate the little things in life.

David

From http://www.nytimes.com/2008/05/28/opinion/28sen.html?em&ex=1212206400&en=076840b203b7d12c&ei=5070:

It is a tale of two peoples. In one version of the story, a country with a lot of poor people suddenly experiences fast economic expansion, but only half of the people share in the new prosperity. The favored ones spend a lot of their new income on food, and unless supply expands very quickly, prices shoot up. The rest of the poor now face higher food prices but no greater income, and begin to starve. Tragedies like this happen repeatedly in the world. ...

Much discussion is rightly devoted to the division between haves and have-nots in the global economy, but the world’s poor are themselves divided between those who are experiencing high growth and those who are not. The rapid economic expansion in countries like China, India and Vietnam tends to sharply increase the demand for food. This is, of course, an excellent thing in itself, and if these countries could manage to reduce their unequal internal sharing of growth, even those left behind there would eat much better.

But the same growth also puts pressure on global food markets — sometimes through increased imports, but also through restrictions or bans on exports to moderate the rise in food prices at home, as has happened recently in countries like India, China, Vietnam and Argentina. Those hit particularly hard have been the poor, especially in Africa. ...

Snippets from http://www.7dvt.com/2008non-consumer-confidence:

Wall Street and its business-page boosters shout optimism from the rooftops, as if to convince themselves, and the rest of us, that it’s time to get out there and rally. ...

But if the economy is going to depend on the populace feeling good, it needs to give us something better than cars and TVs to feel good about. I’d start with sustainability, which would also reduce a lot of anxiety.

Meanwhile, by miring dreams of building and buying in melted-down credit and $125-a-barrel oil, the recession forces us to take time out, and gives us time to experience some different kinds of happiness, and new reasons for optimism.

It’s already working for me. Each proposed monster ski resort or McMansion village that bites the dust makes me feel a little bit better.

From http://www.bohemian.com/bohemian/05.28.08/news-0822.html:

[snip] "Wanna know something?" he asked. "There's gonna be a new gold rush. It's called swaps and derivatives."

"What are swaps and derivatives?" I asked. "Never heard of 'em."

"You will, Johnny," Vince said. "You will."

We leaned against a log fallen from a roofless cabin. "It's a market that's gonna be in the trillions of dollars," he said. "And it's gonna be a very esoteric market. Too hard for lawmakers and regulators to understand. So lawmakers and regulators won't even try.

"It's gonna be an unregulated and unrestricted market. We traders are gonna have this gold rush all to ourselves. Swaps and derivatives are also gonna be hard for auditors to value. So auditors won't bother us either."

I blinked stupidly.

"Swaps and derivatives are gonna be hard even for the senior executives at the companies we work for to understand. So our bosses won't bother us. How cool is that?"

He smiled. "And guess what? Swaps and derivatives are gonna be virtually hidden from the American public. No class-action investor lawsuits. No pension funds blowing up. No stories on the front page of the Wall Street Journal. No election year calls for reform. Swaps and derivatives won't ever be a campaign issue, because no one will have ever heard of them. At least not for a while. I'll give us 10 years."

Vince poked my ribs. "We're gonna make a ton of money originating and underwriting this shit, and then another ton of money trading this shit. We're gonna be able to gamble with borrowed money and take really crazy risks. How beautiful is that, huh?"

I nodded.

"But the really beautiful thing is that, if we get into trouble, the American taxpayer is probably going to have to bail us out."

He paused."That isn't true for stocks and bonds, of course." He winked. "Stocks and bonds are fuckin' old school."

T he late CNBC commentator Seth Tobias once told me, "Hedge funds do not lie. They have no secrets. Investment performance over time tells the whole tale."

Two words resonate: lies; secrets. Which brings us to swaps and derivatives.

As the name would imply, derivatives are "derived from" something else. In calculus, derivatives are measurements of how a function changes when the values of its inputs change. Loosely speaking, that's a pretty good definition for what happens on Wall Street, too.

When traders trade derivatives, they aren't trading on the prices of stocks, bonds, treasuries, commodities or foreign currencies—the usual stuff. They're trading on things related to, or derived from, "the usual stuff." ...

On Wall Street, you can bet on anything that goes into the pricing structure of anything else that is formally traded as a registered security.

Currently, some derivatives are exchange-traded, but most are not. Most trade in secret, in markets called dealer markets, and there are many more flavors of derivatives than Baskin-Robbins ever had ice cream flavors.

I'll pick just one letter of the alphabet. How about C? Here are just a few flavors of derivatives beginning with the letter C: calendar spreads, capital guarantees, cash-flow matches, collateralized debt obligation, commodity ticks, constant maturity swaps, constant proportion portfolio insurance, contango, contracts for difference, correlation trades, credit default swaps, credit default swap indexes, credit derivatives, credit spreads on bonds, credit spreads on options, credit spread warrants, currency futures and currency swaps.

That's just one letter of the alphabet. The total value of derivatives in the derivative markets beginning just with the letter C is in the many trillions of dollars.

S waps are a type of derivative. In a swap, two parties agree to exchange one stream of cash flow for another stream of cash flow generated by underlying assets. Those cash flow streams are called "legs."

These cash flows are calculated as coming from what's called a "notional principal amount." The notional principal amount is usually backed by a real asset, like a bond. (But lately, a lot of junk wants to be called bonds.) Other words for popular bond-type investments in today's Wall Street parlance are CMOs (collateralized mortgage obligations), CDOs (collateralized debt obligations) and SIVs (structured investment vehicles).

But it's not always a bond or bond wannabe that backs a swap. It could be a basket of foreign currencies. It could be a basket of commodities. Assets indexed to the price of oil are very popular right now, as oil is extremely volatile and hitting new highs almost every day.

The important thing about some of the underlying swap assets is that they can be exotic or opaque. These particularly weird assets are usually thinly traded or hard to value, and sometimes they are nearly worthless, although this is often not immediately obvious. Regardless, the underlying asset backing a swap must throw off streams of cash or cash equivalents, at least in the beginning—that's why they're called legs. But legs slow down. Sometimes they stop. Ideally, legs work together, like the legs of a centipede. But sometimes, the centipede goes spastic.

As the assets behind swaps are usually not exchanged between the parties, swaps can create an unfunded exposure with respect to the underlying asset or principal amount. Parties can earn profits or losses from the price movements of the assets without ever actually having to own or control them or post a penny in collateral for the notional value of the asset.

When used properly, swaps can be used to hedge against certain risks, like big fluctuations in interest rates. They can also be a sort of insurance against companies going bankrupt and their bonds going into default.

When used improperly, swaps can be used to irresponsibly speculate without ever having to put up any real cash and they can be used to manipulate markets in gross and ugly ways. ...

"Considering this amplification effect, unethical executives could engineer the bankruptcy of their own company, and thus, arrange for their company to needlessly default on their bonds so as to collect on their credit derivatives contracts in secret, offshore accounts. The trick to pulling this fraud off is that the bankruptcy must be sudden and unexpected, with unavoidable loss in the company's bonds."

Sounds a lot like Bear Stearns, doesn't it?

Since their demise, I have heard from more than one credible source that the bankruptcy of Bear Stearns was a highly sophisticated pump-and-dump scheme. While the Bear Stearns bailout probably cost the American taxpayer something like $35 billion, Bear Stearns held credit default contracts carrying an outstanding value of $2.5 trillion.

Gulp.

Regardless of the $35 billion price tag, the rescue at Bear Stearns did nothing but buy time. The rescue did nothing to protect the broader economic system. One could even argue that the federal government's intervention will ultimately encourage riskier, more speculative behavior on Wall Street. Maybe even corrupt, criminal behavior. ...

At the podium, Soros said, "I consider this to be the biggest financial crisis of my lifetime. The superbubble that has been inflating for the last 25 years is finally bursting." Soros warned that the hyperinflating consequences of funny money, like swaps and derivatives, may last through "our lifetime, maybe the lifetimes of our children."

Soros saw the seizing up of credit markets at about this time last year. He bet his hedge fund on it. Seeing something that very few other people saw or intuited, he came into his office and made a few bets. By the end of the summer, the subprime mess was front-page news, and his last-minute bets paid off roughly $4 billion, a 32 percent return for his fund. ...

"Despite some eerie parallels between the position of the United States today and that of the British Empire a century ago, there are key differences. Britain's decline was driven by bad economics."

http://www.foreignaffairs.org/20080501facomment87303/fareed-zakaria/the-future-of-american-power.html

Originally written by Jacek Krankowski on March 18, 2008 4:21 PM I have a lot of respect for Dan Gross over at Slate.... That said, I have some significant reservations about his article currently headlining the site, "The Rise of American Incompetence." Dan posits that America's failure to get its financial house in order is causing foreign investors in our currency to look elsewhere. So far so good. But then he uses this to argue, without strong evidence, that such flight from American public-finance mismanagement shows the world is giving up on American business management. ... This is, first off, a category mistake, conflating two types of management. There's the management of the budget and the economy, and then there's corporate management. ... Where is the evidence that because of poor decisions on the government's part, our executives and corporate titans are now "laughingstocks"? http://blogs.tnr.com/tnr/blogs/the_plank No, US corporate titans are not, repeat: not, laughingstocks! Far from it: With the assistance of the Federal Reserve, JPMorgan Chase acquired its rival Bear Stearns for about 1 percent of the bank's value two weeks ago. Bear Stearns Chairman Jimmy Cayne was playing cards in a tournament last week as the buyout transpired, AND HE WAS WINNING: http://www.reuters.com/article/bankingFinancial/idUSN1649428620080317 (via Harper's Magazine)

Chinese managers are better trained, educated and more commercially-aware than Western managers, says http://www.personneltoday.com/articles/2008/06/24/46444/chinese-managers-are-better-trained-educated-and-more-commercially-aware-than-western.html 

Western managers are falling behind their Chinese counterparts in education and training, research has warned.

China has the fastest growing global economy and - according to a study by the Institute of Leadership & Management (ILM) - also boasts a highly ambitious, sophisticated and commercially astute management population that poses a challenge to managers and businesses in the West.

The Global Management Challenge, which surveyed 327 managers in the UK, US, France and China, reveals that Chinese managers are underestimated by their Western counterparts and are launching a serious challenge to established Western business and management practices.

On the issue of management training, Western managers are falling behind their Eastern counterparts not only were Chinese managers better educated to begin with, they also received more in-house training than their peers in the West.

Penny de Valk, ILM chief executive, said: "Messages we traditionally receive about China portray an authoritarian, sweat shop economy that has scant regard for the environment or concepts such as corporate social responsibility.

"In contrast, our report reveals a more sophisticated picture of Chinese managers. They see themselves as having a high regard for rules, customer focus and their impact on the environment. They value wisdom and knowledge, and while willing to acknowledge weaknesses, are also determined to correct them."

So is Joseph Stiglitz...

Fannie’s and Freddie’s free lunch

By Joseph Stiglitz

Much has been made in recent years of private/public partnerships. The US government is about to embark on another example of such a partnership, in which the private sector takes the profits and the public sector bears the risk. The proposed bail-out of Fannie Mae and Freddie Mac entails the socialisation of risk – with all the long-term adverse implications for moral hazard – from an administration supposedly committed to free-market principles.

Defenders of the bail-out argue that these institutions are too big to be allowed to fail. If that is the case, the government had a responsibility to regulate them so that they would not fail. No insurance company would provide fire insurance without demanding adequate sprinklers; none would leave it to “self-regulation”. But that is what we have done with the financial system.

http://www.ft.com/cms/s/0/c6999a06-5994-11dd-90f8-000077b07658.html?nclick_check=1

* * *

http://www.economist.com/daily/news/displaystory.cfm?story_id=11784836&fsrc=nwl

THE Big Mac Index is The Economist's light-hearted guide to exchange rates. The index is based on the theory of purchasing-power parity, which says that exchange rates should move to make the price of a basket of goods the same in each country. Our basket contains just one item, a Big Mac hamburger. The exchange rate that leaves a Big Mac costing the same everywhere is our fair-value yardstick. Many of the currencies in the Fed's major-currency index, including the euro, the British pound, Swiss franc and Canadian dollar, are overvalued and trading higher than last year's burger benchmark. Only the Japanese yen could be considered a snip. The dollar still buys a lot of burger in the rest of Asia too. China's currency is among the most undervalued, but a little bit less so than a year ago.

AP

http://www.economist.com/daily/news/displaystory.cfm?story_id=11819514&fsrc=nwl

Last week Zimbabwe's central bank unveiled a 100 billion dollar banknote to cope with inflation running at 2.2m%. ... But Robert Mugabe has some way to go before he can claim for his country the accolade of printing the highest-denomination banknote. A note issued in post-war Hungary came with a mind-boggling 19 digits.

Corbis

Record earnings for Exxon, the world’s largest publicly traded oil company, have become routine as the surge of oil prices in recent years has filled its coffers. The company’s income for the second quarter rose 14 percent, to $11.68 billion, compared to the same period a year ago. That beat the previous record of $11.66 billion set by Exxon in the last three months of 2007: http://www.nytimes.com/2008/08/01/business/01oil.html

Senator “Uncle” Ted Stevens, the longest-serving Republican in the [US] Senate and “Alaskan of the Century,” was indicted for seven felonies related to unreported gifts worth $250,000 from an oil-services company. The alleged gifts included a Land Rover, a Viking gas grill, and construction that doubled the size of his home. “There is a lot of comity on our committee,” said an unnamed Republican on the Senate Appropriations Committee. “I don't think any of this is going to have an impact on his earmarks.” (Harper's Weekly Review)

Everyone seems to be watching the economy a little more closely, whether they're most concerned about the foreclosure crisis, credit card debt, or paying for college. Media coverage often misses the boat on these complex issues, but lively economics blogs have stepped in to fill the void, delving into politics and media criticism while deciphering the latest research. Here are a few to get you started: http://www.utne.com/2008-08-06/Media/Econ-101-A-Crash-Course-in-Economics-Blogs.aspx?blogid=34&utm_medium=email&utm_source=iPost

A beneficial slump The British housing bubble seems to have burst: The most recent figures show the largest slump in housing prices since 1992. The Times finds that this has "clear benefits for the economy": "If we are now set for a prolonged period of modest, or negative, returns from housing, then this should encourage a more rational allocation of household wealth. People will think more seriously about the attractions of renting rather than owning their home. With a larger and more active rental sector of the housing market, people will be freer to move home in order to take up attractive new jobs for which they are suited. There will consequently be fewer people who commute long distances to work. That will lessen the burden to them, and reduce the costs to the environment. ... Those who have invested heavily in property have not been 'greedy': they have made rational decisions given the bias in our economy to owner-occupation. That bias has real costs, and there should be few tears if it is now passing." The Times (United Kingdom) http://europe.courrierinternational.com/eurotopics/article.asp?langue=uk&publication=08/08/2008&cat=ECONOMY&pi=1#1

The German government has passed a new foreign trade act giving it a right of veto when foreign investors from outside the EU and the European Free Trade Association seek to acquire a stake of more than 25 percent in German companies. The Frankfurter Allgemeine Zeitung criticises the law: Frankfurter Allgemeine Zeitung (Germany) http://europe.courrierinternational.com/eurotopics/article.asp?langue=uk&publication=21/08/2008&cat=ECONOMY&pi=0#0

Confused about the credit crunch? See this Subprime Primer.

Jacek

The above system is now officially bailed out and guaranteed with US taxpayers' money.

Nationalization is bad unless it allows us to continue selling junk for a huge profit.

From http://www.thenation.com/blogs/notion/356921:

The 2008 election has many unusual aspects, but none is more bizarre than the sorry spectacle of the bailout for Fannie Mae and Freddie Mac.

American voters are like the lambs being led to slaughter and at the very height of the presidential campaign. Yet not a peep of protest from John McCain and Barack Obama, not even a hint of the righteous anger injured taxpayers will rightly feel as they figure out the deal for themselves. The rescue of the two giant mortgage firms is another huge expenditure of the public's money--one or two hundred billion dollars this time--to reassure bankers and financiers the government stands by them in their troubles, whatever the costs.

Even the Wall Street Journal has second thoughts, though, about Goldman Sachs et al. pocketing such huge windfall profits...

From http://online.wsj.com/article/SB122108823814621239.html?mod=djemEditorialPage:

Bailout for Billionaires

Although Congress created the moral hazard that has become the taxpayer rescue of Fannie Mae and Freddie Mac, the Members plan to hold hearings to opine about it anyway. They should put themselves at the witness table. But since they won't, the least they can do is ask Treasury to explain its bailout for billionaire subordinated debt holders.

We're referring to the holders of some $11 billion in Fannie and $4 billion in Freddie subordinated debentures. ...

With the weekend bailout, however, those investors can buy another vacation home, or three. On Monday, yield spread premiums on Fannie Mae subordinated debt maturing in 2011 plunged by three full percentage points to a bid of 3.50 points. Investing rarely gets better than this: Buy paper you know carries a higher risk but also a higher return, and then have Uncle Sugar eliminate that risk so you also make a windfall profit.

At the very least Mr. Paulson could have gone to these investors with a restructuring proposal, asked for some cash and given them a new piece of paper. Instead, the Treasury Secretary has set a terrible precedent, leaving subordinated debt holders at other large financial institutions to calculate that they too will receive a government bailout if they stumble.

Both Treasury and the Federal Housing Finance Agency said they don't know who now holds Fan and Fred sub debt. But it's a fair guess it is mostly some of the world's richest people and largest financial institutions. Pimco's Bill Gross, who manages the world's biggest bond fund, had been agitating for weeks for a bailout. Asked about his Fannie and Freddie positions, a spokesman told us, "we don't discuss our holdings." Our guess is Mr. Gross is a lot richer after the bailout than he was last week. Ditto for Goldman Sachs, which also declined comment and where Mr. Paulson used to work.

We hope someone on Capitol Hill asks Mr. Paulson for a list of these big winners, so taxpayers can understand who is getting richer on their dime.

* * *

But it's a vicious circle: http://www.slate.com/id/2199760/

"Decoupling" is the notion that the rest of the global economy could power ahead even as its biggest single motor, the United States, stalled. Decoupling was trumpeted by many of the international grandees at the World Economic Forum in Davos, Switzerland, last January and gained currency in certain circles (including the one surrounding my desk). But now it, too, seems to have been cancelled.

Originally written by Jacek Krankowski Although Congress created the moral hazard that has become the taxpayer rescue of Fannie Mae and Freddie Mac, the Members plan to hold hearings to opine about it anyway.

Wow, they're going to hold hearings?  Who knows what they might do next?  They might - gasp - prepare a report!  Now they're getting serious.

Time to start a new fundraiser for our friends over at Lehman and Merrill: Post #4597

4. Having lost their jobs, what have some Lehman employees done in an attempt to make money?

1. Auctioned Lehman paraphernalia on eBay
2. Announced plans to sell the rights to their life story to Hollywood producers
3. Auctioned Lehman paraphernalia outside the bank's New York office in Times Square
4. Announced plans to publish a book of investment banking tips
   http://www.guardian.co.uk/world/quiz/2008/sep/16/wallstreet.lehmanbrothers

Originally written by Jacek Krankowski on September 17, 2008 3:26 AM Even "Senator John McCain, who was criticized by Democrats Monday for saying that the fundamentals of the economy were strong on a day that the bankruptcy of Lehman Brothers and the sale of Merrill Lynch sent stocks plunging, went out of his way Tuesday to make it clear that he understood that Wall Street was in “crisis.’’ "

Classic Orwellian double-speak; McCain wants to simultaneously state that everything is OK and that everything is not OK.

Must be more reassuring for the folks in the heart of America than some Harvardspeak:

Ohio	FOX News/Rasmussen	McCain 48, Obama 45	McCain +3
Florida	FOX News/Rasmussen	McCain 49, Obama 44	McCain +5
Virginia	FOX News/Rasmussen	McCain 48, Obama 48	Tie
Colorado	FOX News/Rasmussen	Obama 46, McCain 48	McCain +2
National	Gallup Tracking	McCain 47, Obama 46	McCain +1

The CEO’s that rode the bubble not considering it would bust get a bailout, and although reputations may be tarnished I doubt any will worry about the day to day needs of gas, food, shelter. The average worker, however, will not receive a bailout and will worry about gas, food and shelter. Possibly a good title for the report would be, “Your screwed!”

David

This article about the UK was written last May: http://www.telegraph.co.uk/news/uknews/2022636/City-bonuses-defy-credit-crunch-and-hit-new-record-of-andpound13bn.html

A Telegraph analysis of government figures shows how bonuses for City workers and other financial services professionals have continued to soar, exceeding previous records by more than £500 million.

The £12.6 billion sum would almost match the £15 billion hole that has emerged in the accounts of British banks as much of their profitability proved temporary. ...

City commentators had expected financiers' annual bonus tallies to fall this year. But calculations using the Office for National Statistics' wage figures show that the financial sector made £12.6 billion in bonuses alone in the first three months.

That is up by about four per cent on last year, when first-quarter payments totalled £12.1 billion. The figure for the same period in 2006 was £9.7 billion.

Most of the bonus money went to investment bankers and hedge fund managers. Dozens at Goldman Sachs each had £5 million bonuses over Christmas, with one trader taking more than £10 million. Bob Diamond, of Barclays, received £35 million, despite the bank writing off £2.2 billion in bad debts. ...

The following is a July article about US credit unions (unlike translators, they do talk about their salaries, even in the US): http://www.allbusiness.com/labor-employment/compensation-benefits-wages-salaries/11465809-1.html

The median base salary for CEOs in the 2008 survey is $162,750, compared to $142,480 in 2007, with base plus bonus at $176,371 ($154,565 in 2007) and total compensation at $178,265 (compared to $157,500 for the previous year). ...

The disparity in cash compensation between bank CEOs and credit union CEOs continues, especially when comparing the combination of base salary and bonus pay. That gap widened between the chief executives of smaller financial institutions, those with less than $250 million in assets. For example, at organizations with less than $100 million in assets, the median base plus bonus pay of bank executives increased from $119,400 in 2007 to $148,100, while compensation for credit union CEOs rose more slowly from $100,000 in 2007 and $103,767 in this year's survey. ...

The survey's executive summary includes an eye-opening 10-year comparison of CEO compensation. In 1998, the median base salary was $82,860 and the compensation total was $92,825, compared to $162,750 and $178,265 this year. That's a 96.4 percent and 92 percent increase, respectively. Over the same period, the average bonus increased from $11,943 (or 10.25 percent of average base pay) to $32,693 (13.91. percent). ...

If I were only bigger I, too, could make financial blunders in the billions and receive a bailout. Instead, I must work hard, watch my pennies, and live within my meager budget. Too bad there isn't such a thing as a "Translator Lifeline", or is there?

David

By MADLEN READ, AP Business Writer  http://news.yahoo.com/s/ap/20080917/ap_on_bi_st_ma_re/wall_street

The Federal Reserve is giving a two-year, $85 billion loan to AIG in exchange for a nearly 80 percent stake in the insurer, after it lost billions in the risky business of insuring against bond defaults.

Yeah, but it's also thanks to the money from your savings or deposits (as used for frivolous loans) that all the bailouts were possible. Without the frivolous lending, we would have no credit crunch and no bailouts. So know the power of your money in the hands of US bankers! You may not be bailed out but they, thanks to your money and the way they have used it, will!

Your Helpline

There is even better news than that about your money doing wonders in the hands of bankers:

Why the Economy Might Benefit McCain
When asked which party can best handle the economy, voters give Democrats a 20-point advantage over Republicans. Consequently, the timing of the Wall Street collapse would seem to boost Democratic candidate Barack Obama's popularity. Not so, according to John Dickerson. Listen to the segment. http://www.slate.com/id/2200283/

Your Helpline

Indeed!

The price per word has gone up. Substantially.  

“Treasury’s 840-word legislative bailout proposal comes to more than $830 million per word,” Stephen Ellis, the vice president of Taxpayers for Common Sense, a fiscal watchdog group, said in a statement on Monday, adding that “when they come up with a title, that will drive the average dollar per word down.”

Very funny. Now why didn't I think of that?

Thanks for making me laugh.

Nanna

That was a quick overview.

On to an executive summary from http://harpers.org/archive/2008/09/WeeklyReview2008-09-23:

“My first instinct,” said President George W. Bush, “was to let the market work, until I realized, being briefed by experts… It turns out that there's a lot of interlinks through the financial system.” The Bush Administration's three-page draft bill would permit the Treasury Department to buy up to $700 billion—$2,000 per American—in bad, mortgage-related debt, and would exempt the Treasury from administrative supervision, from legal challenges by any court, and from rules pertaining to government contracts.

Finance industry lobbyists tried to stop lawmakers from limiting executive salaries at bailed-out companies, and fought to get their companies hired to control the assets that the Treasury will oversee.

Why has getting yourself into debt become the latest trend in Romania? Sorin Ionita, a political scientist, asks in the Romanian daily Evenimentul zilei: "In my grandfather's day owing money to friends or to the bank was something to be ashamed of. Such a situation was looked upon with disapproval. This is not to say that people did not borrow back then, but social pressure prevented them from flinging themselves headlong into adventures, real estate speculation and the like. Everyone pointed at a neighbour who had gotten into debt. Yet he was still treated like a good friend with a passing illness who needed to be closely monitored until he recovered. ... Nowadays being in debt is by definition a sign of having mastered the intricacies of modern capitalism. After 1990 the Romanians were quick to realise that it's not cool to have no debts. Like the Americans they preferred to swim on a huge wave of cryptic and apparently safe loans ... No doubt among your own circle of acquaintances there is a successful shop-owner who lives according to the well-known aphorism: Brothers, only the poor have their savings in the bank, the rich have loans." Evenimentul Zilei (Romania) http://europe.courrierinternational.com/eurotopics/article.asp?langue=uk&publication=23/09/2008&cat=ECONOMY&pi=1#1

Jacek (still believing that frightening them and shackling them in debt is the best way to go)

Wall Street disagrees and vehemently so:

The stratospheric pay packages of Wall Street executives have become a lightning rod issue as Congress shapes a $700 billion bailout for financial firms. Proposals circulating on Capitol Hill vary, but they all would impose some limits or approval authority on salaries of executives whose firms seek help.

The moves in Washington mirror the popular outcry — in constituent e-mail messages and postings in the blogosphere — over the prospect of Wall Street’s tarnished titans walking away with tens of millions of dollars a year while taxpayers pick up the bill.

But Wall Street, its lobbyists and trade groups are waging a feverish lobbying campaign to try to fight compensation curbs. Pay restrictions, they say, would sap incentives to hard work and innovation, and hurt the financial sector and the American economy. ...

http://www.nytimes.com/2008/09/24/business/24pay.html?_r=1&hp&oref=slogin

Huh? Using other people's money, I receive huge compensation for taking incredible risks and when I lose other people's money, I retain my own big slice of the pie, declare bankruptcy, and leave you fools with not even a crumb...

What is wrong with this picture?

Nanna

Why such a tough nut to crack first thing in the morning, Nanna? I have been puzzling over this one for the last 10 minutes and still can't see anything wrong about it. So I have looked up all the individual terms in various dictionaries:

• banking = using other people's money for one's own profit

• responsibility, hence taking risks, does require adequate compensation

• when you lose everything, the law protects you with various bankruptcy chapters, bailouts, etc., so that you can get a fresh start

• fools, by definition, deserve no crumbs

So will you, please, tell me whether there is something wrong with your picture and if so, WHAT IS IT?

Jacek (racking his brains)

To quote Marcus Tullius Cicero:

Meminerimus etiam adversus infimos justitiam esse servandam

--------

I am afraid that I used Cicero for my own ends.

The lowest among us are not necessarily those on the lowest rung of the ladder, i.e., those without a crumb left to share...

Nanna

Well, that's why the current $700 million bailout means only just $2.33 per statistical American... Surely those without a crumb left to share can also afford that, even if they lost all their savings. And if those who do have a crumb left to share bothered to take more seriously my Post #4597, we would all get a fresh start sooner and could go back to business as usual.

Jacek

Finally someone has listened...

The billionaire Warren Buffett will invest $5 billion in the investment bank Goldman Sachs as part of the bank's efforts to raise $7.5 billion in fresh capital, a Goldman Sach spokesman said Tuesday: http://www.iht.com/articles/2008/09/24/business/24goldman.php

Looking for a fresh start...

The Danish Bankers Association Chairman Peter Schültze tells Berlingske Business that the sector is working around the clock to find a model to ensure that no banks go bankrupt as a result of insufficient liquidity.
Competitiveness
Schültze says a model is being sought to ensure that illiquid banks and financial institutions can be taken over without going bankrupt. But the model must be acceptable to all parties and must not be anti-competitive due to EU rules. 

 http://politiken.dk/newsinenglish/article572083.ece

Meanwhile: Best pals, our beloved Head of State, Fogh and the honorable Head of Other States, Bush, meet in New York for business as usual.

 

Nanna

I am glad Americans are not up yet to correct my contribution to A costly error thread.

It was just a typo. Should be $700 billion instead of million. The average cost to an American is not $2.33 but $2.33K. What the heck! Still no big deal.

Jacek

That's the way the cookie crumbles - nothing but crumbs

N.

The cost per captia is not particularly meaningful, as it supposes that babies would also pay.  One needs to look at the cost per taxpayer.  I don't have those numbers, but once you remove children and others who don't pay taxes (the unemployed, the disabled, those who are too poor to have taxable income), the figure would be significantly higher.  Thousands of dollars, for families that can't pay their mortgages or health care premiums, is serious money.

Well, David, you've got a point about infants, but I would not be so indulgent to older children whom we could put to work to get that couple of thou back from everyone. I don't mean Asian sweatshops, God forbid, but like schools used as factories after hours, with nice MTV on, I do see some hidden potential there we could tap to reduce the burden for the American families you have mentioned. (Which burden I would not exaggerate because every year we spend at least $500 billion on our essential defenses, so the proposed bailout is just slightly over the one-year indispensable military expenditure.)

Jacek

An informative way to look at the cost of the bailout is the cost per household, as that is an economic unit, and the numbers I've heard are that it will cost around 10,000 USD per household.

The first thing that should be done is to seize all of the assets of the CEO’s that ran the companies into the ground. Hmmm, come to think about it the “overseers” should have their assets seized too. It won’t by any means correct the problem, but future CEO’s would be very cautious in carrying out such atrocities, perhaps.

David – who doesn’t have an extra $10,000 to spare at the moment. Anyone with an extra 10K is welcome to contribute on my behalf.

By JENNIFER LOVEN, Associated Press Writer            http://news.yahoo.com/s/ap/bush_markets

WASHINGTON - President Bush on Wednesday warned Americans and lawmakers reluctant to pass a $700 billion financial rescue plan that failing to act fast risks wiping out retirement savings, rising foreclosures, lost jobs and closed businesses. "Our entire economy is in danger," he said.

Hmmm. Has he (Bush) been outside of the White House lately? Many have lost their retirement savings due to failed companies. Foreclosures have been rampant for some time. Layoffs are a very common occurrence, and just driving down the street one can see the number of closed businesses.

Although a bailout would benefit the here and now, I sometimes wonder if it would be better to let the pieces fall where they may and then see what needs to be done to get us going in the right direction. I am for helping out Main Street America, but I am against helping huge corporations and their management.

David - who is still waiting for a 10K contribution from his fellow translators.

When I lived in the States, it was cheaper to simply pay out of pocket for routine medical check-ups. Then I got older! When the health insurance premium hit approx. $ 900.00 per month, I knew Post #156094 it was time to leave.

"Although inflation in insurance premiums has moderated in recent years, the Kaiser survey found that employees were continuing to spend more in medical costs, including their share of yearly insurance premiums. Employees are paying an average of $3,354 in premiums for family coverage, more than double the amount they paid in 1999. The total cost for family coverage now averages $12,680 a year, up 5 percent from 2007.

And as people are paying more, they are finding the higher expense less affordable. In the study by the nonpartisan Center for Studying Health System Change, based on its national survey of households, nearly one of every five families had problems paying medical bills last year. More than half of these families said they borrowed money to pay these expenses, and nearly 20 percent of those having difficulty said they contemplated declaring personal bankruptcy as a result of their medical bills. … 

http://www.nytimes.com/2008/09/25/business/25health.html?_r=1&hp&oref=slogin

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Nanna

Have no fear!

Andy Kessler: The Paulson Plan Will Make Money for Taxpayers
The government will be able to turn a big profit on currently distressed assets.

Andy Kessler is a former (!) hedge fund manager writing for The Wall Street Journal, so he must know what he is saying. (Although, I think, in Poland we simply refer to those tricks as pyramid schemes...)

Jacek

David,

Before Kessler, Paulson and the WSJ make the 10K for you, you can act on your own on the following piece which I just got in the mail and for which I am not responsible. I have only highlighted my favorite pick below:

Fellow Investor,

Since the Conventions ending, I'm starting to get extremely nervous.

Why? Because the result of the 2008 Presidential Election is now 100% predictable.

You see, whether McCain or Obama ends up in the White House come January, one thing is clear: The Democrats will retain control of both houses of Congress and the Bush tax cuts that we investors have enjoyed for so long will be GONE FOR GOOD!

The increase in capital gains taxes will create a stock selling frenzy for investors to grab profits before taxes jump from 15% to 35%!

If you fail to understand this undeniable fact-—you’ll likely get crushed come November…and miss out on some truly spectacular profits after that as the market will favor a new set of companies in new sectors.

For these reasons, I urge you to read my new special report “Surprise Winners andLosers of the 2008 Election Year.”

It’s yours FREE by going here now.

If you follow our lead and reposition your assets as I’ll show you, you could find yourself 50% richer by Election Day. Go here for your FREE copy of “ Surprise Winners and Losers of the 2008 Election Year” now.

Here’s A
Quick Overview
Your FREE Report

* 256 stocks to sell now. Each one of these companies has been a major profit-taker under the old tax system and will get crushed in the months and year ahead.

* 5 stocks you can safely buy RIGHT NOW for potential gains of 50%-75% by this time next year. These are the best-positioned companies in today’s top growth industries that will side-step the carnage that's headed your way.

* Why commodities and oil services socks will surge again in 2009 no matter which direction oil goes.

* The next Apple—and a Canadian profit-taker to boom! Up just 212% in 18 months with more on the way.

* Europe's explosive solar boom—two best US stocks to own Now.

PLUS: How to invest $50,000 NOW in light of the changes that are headed your way.

Jacek

P.S. One thing I would like to endorse is the Central and Eastern Europe's explosive solar boom. We have just ended 2+ weeks of 100% cloudiness in Poland at 10 centigrades. Those were the two last weeks of the astronomic summer so you can imagine the explosive solar boom here in the fall and winter. So

DOWNLOAD YOUR FREE COPY NOW

(But... what's in it for me??????)

Yes, I have seen the recommendations in Post #152412 and the posts following, but I still don't understand the most basic of issues related to the Subprime mess and the Bail-out package. I have bought and sold two houses and my experiences don't match any of this. To sound modern: I can't relate. I am thoroughly confused. I am missing the boat somewhere, hence these "door-knob" questions.

My questions are in italics under each paragraph.

Consider the Bear Stearns Alt-A Trust 2006-7, a $1.3 billion drop in the sea of risky loans. Here’s how it worked:

As the credit bubble grew in 2006, Bear Stearns, then one of the leading mortgage traders on Wall Street, bought 2,871 mortgages from lenders like the Countrywide Financial Corporation.

1. Bear Stearns (BS) bought low hoping to sell high? 

2. Were the mortgages on sale/sold because the homeowners had defaulted on their loans?

3. Or, did BS move at the earliest 'delinquent borrower' moment, thus not giving the borrower any chance of recovering?

The mortgages, with an average size of about $450,000, were Alt-A loans — the kind often referred to as liar loans, because lenders made them without the usual documentation to verify borrowers’ incomes or savings. Nearly 60 percent of the loans were made in California, Florida and Arizona, where home prices rose — and subsequently fell — faster than almost anywhere else in the country.

We know that banks/lenders make loans without documentation and charge sky high interest rates for the favor.  

1. Are the sky-high interest rates partly or wholly the reason why borrowers default?

3. Can one suppose that the lender lends hoping that the borrowers will default?

4. Were foreclosures the main reason why home prices rose and fell so quickly?

5. Do borrowers borrow knowing they will default? Why?

I have questions about the following, but I'll leave them for the moment...

Bear Stearns bundled the loans into 37 different kinds of bonds, ranked by varying levels of risk, for sale to investment banks, hedge funds and insurance companies.

If any of the mortgages went bad — and, it turned out, many did — the bonds at the bottom of the pecking order would suffer losses first, followed by the next lowest, and so on up the chain. By one measure, the Bear Stearns Alt-A Trust 2006-7 has performed well: It has suffered losses of about 1.6 percent. Of those loans, 778 have been paid off or moved through the foreclosure process.

But by many other measures, it’s a toxic portfolio. Of the 2,093 loans that remain, 23 percent are delinquent or in foreclosure, according to Bloomberg News data. Initially rated triple-A, the most senior of the securities were downgraded to near junk bond status last week. Valuing mortgage bonds, even the safest variety, requires guesstimates: How many homeowners will fall behind on their mortgages? If the bank forecloses, what will the homes sell for? Investments like the Bear Stearns securities are almost certain to lose value as long as home prices keep falling.

http://www.nytimes.com/2008/09/25/business/25value.html?em=&adxnnl=1&adxnnlx=1222416042-4j1vvqz03p14wtjc1fd5jg

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Nanna, looking for enlightenment    

Post #147404 one page back is also important to understand why and how the whole mess is actually meant not to be understood... For one of the easier terms see http://en.wikipedia.org/wiki/Collateralized_debt_obligations.

Hth

Jacek

We'll see. I am taking the dog for a walk  

I realise that in order to get a good answer, I have to ask the right question.

Thanks.

Nanna

Straddling (Live to) 100 and (Econ.) 101: http://www.nytimes.com/2008/09/25/fashion/25money.html?em

While it is difficult to pinpoint the number of patients or practitioners, experts in psychology and financial planning say the number of professionals offering to treat money disorders has multiplied in the last few years. ...

The financial storm thundering from Wall Street is likely to force many people to examine their relationships with money well beyond their portfolios and bank accounts, some psychologists say. Even before this month’s dire news, an online survey by the American Psychological Association in June found that 75 percent of the more than 2,500 adults said money was the No. 1 source of stress in their lives.  ...

I almost prefer this simple and transparent, er..., option: