Joseph Horne for OWI Catholic Evidence Guild, Logan Circle, Washington, D.C. July 1943
Both Japan and China have poured huge amounts of stimulus into their banking systems lately (yeah, sort of like the US). What they have to show for it is the – fully predictable – disaster of the born of despair, three arrowed Abenomics (fiscal stimulus, monetary easing and structural reforms) in Japan and a Chinese financial system that grew from $10 trillion to $24 trillion in just 5 years. Enter the Piper, stage left.
Japan’s current account deficit widened to a record $15 billion in January, most since records began in 1985. That’s right, the country that was once the world’s producer and exporter just had its worst current account deficit. Ever. Even as the value of the yen has plummeted – it lost 25% against the USD in Q2 2013 compared to Q2 2012. That was supposed to have lifted exports. And it did do temporarily and partly (Toyota did well). No more though, the party’s over. In January Japan’s trade deficit also rose to a new record, up 71% (!) to $28 billion.
None of this should come as a surprise, as explained by Patrick Barron of the Ludwig von Mises Institute of Canada, quoted by Tyler Durden:
… why Japan’s trade deficit seems to be increasing rather than decreasing after massive monetary intervention to reduce the purchasing power of the yen: Monetary debasement does NOT result in an economic recovery, because no nation can force another to pay for its recovery. [..] Eventually the monetary debasement raises all costs and the initial benefit to exporters vanishes. Then the country is left with a depleted capital base and a higher price level. What a great policy!
Japan’s economic growth numbers were also revised downwards. Its economy grew by 0.7% in 2013, down from an estimate of 1%. In Q4 2013 Japan’s economy grew by just 0.2%, against an estimate of 0.3%. That is even more disappointing because people were expected to buy more, especially big ticket items, ahead of the April 1 sales tax raise. Now that’s evaporated too. Consumer spending rose just 0.4% in the Q4 2013.
Obvious questions: How much longer will Shinzo Abe be PM of Japan? How much worse can the domestic economy get? Abe lost his fight against deflation, it cost Japan a ton of money, it has huge energy issues, and its currency debasement will make all imports much more expensive than they were pre-Abenomics.
As for China, it announced over the weekend that its exports plunged a mind-numbing 18.1%. Analysts’ estimates were for a 7.5% increase… And China had a $22.98 billion trade deficit in February. That’s today’s no 1 world exporter for you … It had a surplus back in February 2013, but there are still analysts claiming the difference was due to the Chinese Lunar New Year holiday. And if not that, US weather perhaps?! Chinese producer prices fell 2%, and consumer prices rose 2% in February, the slowest rate in 13 months. No more spunk.
As I said a few days ago, the US economy has no more resilience, no more flexibility left. If what is happening right now in Asia continues, and what would stop it?, all that’s needed is one little spark, either in Ukraine or in economics somewhere, Japan, China, Europe, and things can unravel in a split second with no turning back. What is the Fed going to do when things run off the rails this time that would get people back into the S&P, or the housing market? More debt? Doesn’t work for anyone else …
Remember March 4, 2014 — a day that will go down in Wall Street history as the beginning of the end for this latest bull market, which is about to celebrate its fifth birthday. On March 4, the Dow Jones Industrial Average rose 227 points based on a report that Russian troops were pulling back from Ukraine’s border. This “news” lit the market on fire, a sign that the market is heading into a mania stage where it doesn’t take much to boost stocks. Indeed, nowadays instead of the “Nifty Fifty” stocks that defined the late 1960s market, we have the likes of Facebook, Tesla Motors, and Chipotle Mexican Grill — the new new things.
Can the market go higher? Sure, although the higher it goes, the more dangerous it becomes. Often, during the latter stages of a bull market, the market separates itself from reality and appears to be on another planet. Such red flags are everywhere:
1. Retail investors have been pouring money into stock mutual funds. The fear of missing out on the sixth year of a bull market has created something close to a buying panic. Although not as maniacal as we saw in 1999, the stock cheerleaders are back and rooting for their stocks and mutual funds to go higher — just like they always do before a crash or bear market.
2. The Investor’s Intelligence survey is concerning. The closely watched II survey shows a low proportion of bears (less than 20%), which some have pointed out is the lowest proportion since just before the 1987 crash.
3. Sentiment indicators are pessimistic. The VIX, the put-call ratio and other major sentiment indicators suggest that investors and traders are getting complacent. Apparently, market participants believe that the Fed, or their fund manager, will protect them in a worst-case scenario.
4. Fundamentals are being ignored. Obscenely high P/E ratios are passed over, along with soft economic readings (i.e. GDP and ISM). When the fundamentals are weaker than expected, the weather is blamed.
5. The stock market crash of 2008 has been forgotten. Investors forget, but the market never does. Those who do not heed the lessons of the past will once again learn a painful lesson.
6. The Nasdaq is soaring. The three-year chart of the Nasdaq has gone nearly parabolic, hitting a 14-year high of 4,351 on March 4. It’s the Go-Go years all over again. (And that late 1960s bull market ended with the 1973-74 bear market.)
7. Fear and greed are taking over. When the market reaches the tipping point (and we’re getting closer), investors and traders buy “ATM” (anything that moves). The fear of missing out causes a buying panic.
What to do now:
There have been numerous crash predictions over the last five years. As a result, many investors have closed their ears, and who can blame them? The market has ignored the warnings and continued to go up. One thing about crashes: They can’t be predicted (but it won’t stop people from trying). However, it is possible to recognize a dangerous market, which is what we have now.
Just like the emperor, the market is wearing no clothes. Right now, many people see only what they want to believe. It’s been a long time since investors felt full-throated fear, and many have forgotten what it feels like. The panic to buy will be replaced by the urgency to get out at any price. No one can know what will cause perceptions to change, but they will.
At the moment, emerging markets are in deep trouble, and what is happening in Ukraine didn’t help. Nevertheless, the CEOs of several major brokerage firms have urged investors to “go long” emerging markets because they are so “cheap.” Once again, these well-educated salesmen are wrong. Emerging markets will recover one day, but not soon. Urging investors to buy on the dip is disgraceful.
If we are in the mini-mania stage of the bull market, the market will continue to go higher based on rumors, hope, and greed. Sitting on the sidelines and waiting for the bull market to top out takes tremendous discipline. Trying to capture that final 5% can be costly if you get the timing wrong (and most people do). Be prepared for increased volatility as we get closer to the end.
Of course, it’s not easy to sit on the sidelines when everyone else seems to be making money. Although many investors are dreaming of another 30% return this year, the odds are good that it will be a difficult year. Yes, during a mania stage anything is possible, but with each passing week, the clock is ticking. Those who have studied market history have seen this story before, and the ending is always the same. No matter how many warnings you give, no many how you urge people to avoid buying the speculative Go-Go stocks and move to the sidelines, few listen until it is too late.
A number of warning signals are flashing in the stock market, and while not indicative of an imminent crash, they’re telling investors to exercise caution, say market strategists. Stocks finished higher last week, ending on a choppy Friday highlighted by the release of a better-than-expected job report. The Dow Jones Industrial Average advanced 0.8%, the S&P 500 Index rose 1% to close at another record high of 1,878.04, and the Nasdaq Composite Index finished up 0.7% for the week. All except the Dow are higher for the year, which is still down 0.8% in 2014.
The gains haven’t come without a share of fretting that the good times can’t last. Among the warnings signs: The indexes’ string of record highs; high levels of margin debt, or borrowings to finance stock buys; the slim number of prior bull markets that have lasted past this point; and valuations that are close to levels when stocks last peaked.
Margin debt, which tends to spike alongside stock rallies and pullbacks, has been rattling investors for months . “As that debt goes up, the market’s foundation gets shakier and shakier,” said Brad McMillan, chief investment officer for Commonwealth Financial. “The correction could be deeper.”
Also of concern is the bull market’s fifth birthday on Monday. The average bull market only lasts about 4.5 years, putting the current one in rarefied territory. Of the 12 bull markets since World War II, only half have lasted five years, and only three have made it to their sixth birthday. Speculation about bubbles returned last week. Technical analysts pointed to a possible bubble formation in biotech stocks . Dallas Federal Reserve President Richard Fisher raised concern about “eye-popping levels” of some stock metrics like margin debt.
Valuations, or the prices of stocks compared to the companies’ underlying earnings, have passed levels last reached in 2007, or the top of the last bull market. Bull markets tend to expire when trailing 12-month P/E ratios get into 17x or 18x territory, says LPL Financial’s Jeff Kleintop. They’re approaching 18x now. Caution, for some strategists, means buying stocks selectively. But there are others who note the market is still moving on broad swings in sentiment, just as it did during the post -2009 recovery from the bottom. That tendency lumps quality and risky stocks together, throwing careful selection out the window. “This is still very much a risk-on, risk-off market,” McMillan said. “We saw that with Ukraine.”
Asian shares fell on Monday after both China and Japan released disappointing economic data, worrying investors about a slowdown in the region. Both Hong Kong’s Hang Seng index and the Shanghai Composite fell by more than 1.6%, and the benchmark Nikkei 225 closed down 1% as well.
On Monday, Japan revised down its 2013 growth estimates and reported a record deficit. Over the weekend, China said exports plunged 18.1%, surprising analysts. The country also reported a rare $22.98 billion trade deficit in February, compared to a surplus during the same period last year. Some analysts speculated that the figures could be distorted due to the impact of the Chinese Lunar New Year holiday.
China also reported a slowdown in inflation, to 2% in February from 2.5% in January – the slowest rate in 13 months. The sluggish economic data come as the Chinese government said during its annual meeting that it was targeting a growth rate of 7.5% in 2014.
However, China’s finance minister Lou Jiwei later said that it would be acceptable if the government slightly missed this target. “Whether GDP [gross domestic product] growth is to the left or to the right of 7.5%, that is not very important,” said Mr Lou, according to Reuters. He added that what was most important was job creation. Separately, Japan revised its 2013 economic growth from 1% to 0.7%, and also reported its largest deficit since 1985.
"It's the weather" That's all Abe has left to pretend that 'recovery' is right around the corner. Japan just printed its worst current account deficit on record and its worst GDP growth since Abenomics was unveiled – both missing by the proverbial garden mile and both confirming that all is not well in Asia. As for the perpetual hope of a J-curve (or miracle hockey-stick reversal)? There won't be one! As Patrick Barron noted, "monetary debasement does not result in an economic recovery, because no nation can force another to pay for its recovery."
Worst current account deficit ever – and a chart that shows absolutely no hope of a turn anytime soon…
and the worst GDP growth since Abenomics was unveiled and 2nd quarter missed in a row…
Perhaps I can shed some light on Japanese Prime Minister Abe’s missing J-curve; i.e., why Japan’s trade deficit seems to be increasing rather than decreasing after massive monetary intervention to reduce the purchasing power of the yen. Monetary debasement does NOT result in an economic recovery, because no nation can force another to pay for its recovery.
Monetary debasement transfers wealth within an economy by subsidizing exports at the expense of the entire economy, but this effect is delayed as the new money works it way from first receivers of the new money to later receivers. The BOJ gives more yen to buyers using dollars, euros, and other currencies, as the article states, but this is nothing more than a gift to foreigners that is funneled through exporters. Because exporters are the first receivers of the new money, they buy resources at existing prices and make large profits. As most have noted, exporters have seen a surge in their share prices, but this is exactly what one should expect when government taxes all to give to the few.
Eventually the monetary debasement raises all costs and this initial benefit to exporters vanishes. Then the country is left with a depleted capital base and a higher price level. What a great policy!
The good news is that Japan does know how to rebuild its economy. It did it the old-fashioned way seventy years ago–hard work and savings.
And the latest joke from Asian trading floors: "when asked what he thought of the recovery, Shinzo Abe responded "Depends!""
The result of all this total and utter disaster for the Japanese economy – a melt-up in JPY crosses (i.e. JPY weakness with USDJPY back over 103) supporting US equity futures into the green… because what do you do when Chinese credit markets are collapsing, the Japanese economy is imploding, and the fate of Germany (and therefore Europe's) economy lies with Russia… you BTFATH…
The message from last week’s carefully choreographed annual legislative session was business as usual. China’s leaders kept in place a target of 7.5% economic growth for the year ahead. But a more somber mood was also evident: Meals for delegates were apparently alcohol-free and self-service, while attractive ladies serving tea were replaced by simple bottles of water.
In the past, economists would happily hang their forecasts on this number — what Beijing wants, it usually gets by pushing its foot down on the credit tap. But now, even before the National People’s Congress (NPC) makes it into its second week, sizeable holes are appearing in the forecast for another year of “medium-high” growth. The double-whammy of credit defaults and a deteriorating trade position point to a new reality for Beijing: The days of backstopping growth with ever more credit look to be numbered.
Friday saw China’s first-ever onshore corporate default on a 1 billion yuan ($163 million) bond, which was followed by the weekend release of an unexpected trade deficit in February — the first since April 2013. Both these events point to risks the market will enforce tighter monetary conditions going forward.
The failure of Chinese solar-equipment maker Shanghai Chaori Solar Energy to make a deadline on interest payments last Friday came after it warned it was struggling to raise funds. The significance of this default is that it ends the belief Chinese corporate debt came with a de-facto government guarantee.
The glass-half-full view is that this will be a positive development, as it helps to inject risk and proper pricing into a $1.5 trillion domestic bond market. The less sanguine take is that introducing market pricing at this stage in China’s cycle comes a bit late to instill real discipline. Instead, prepare for an ugly unraveling, as the removal of the ‘Beijing put’ opens the floodgates on credit defaults.
[..] Meanwhile, the other hurdle Beijing faces in terms of keeping the credit taps flowing is that its days of ever-increasing trade surpluses could be over. The release of February’s trade figures showed China racked up a $22.89 billion trade deficit in February after exports fell 18.1%. These numbers wrong-footed most economists, even if there was some distortion from the Lunar New Year holiday, which fell in February, rather than January as the year before. Perhaps we now have an explanation for the recent weakness in the yuan: It was simply due to a deteriorating trade position.
The question now is whether trade deficits will become the new normal. We already know China is facing constraints on production capacity from land, labor and pollution, as well as steadily rising costs that are displacing large chunks of low-end manufacturing. If this is the case, the impact of a reversal to years of trade surpluses and foreign-reserve accumulation could be far-reaching.
In recent years, China’s current-account surpluses have fueled its prodigious money-supply growth within a largely pegged currency. As foreign exchange piled up, the People’s Bank of China would print more yuan. According to some estimates, China’s banking system has grown from $10 trillion to $24 trillion since 2008. Authorities could now face a very different dynamic.
Instead the reverse will be now true, where if the yuan weakens, the central bank will effectively have to buy its own currency using foreign reserves to maintain its peg. This would mean the external trade position would now lead the central bank to shrink — rather than expand — domestic money supply. If this is the case, Beijing will need to get used to the market forcing deleveraging and slower growth, no matter what it targets. The unwind of China’s giant credit spree could be painful. NPC delegates might need to get used to supping water for a few more years.
China’s biggest drop in exports since 2009 and deepening factory-gate deflation highlight the challenges for Premier Li Keqiang in achieving this year’s economic-growth target of 7.5%. Overseas shipments unexpectedly declined 18.1% in February from a year earlier, customs data showed March 8, compared with analysts’ median estimate for a 7.5% increase. Producer prices fell 2%, the most since July, according to a statistics bureau report yesterday, extending the longest decline since 1999.
Asian stocks fell and metals including copper declined as the data stoked concern over the outlook for the world’s second-biggest economy, while the central bank weakened the yuan’s reference rate by the most since 2012. Distortions from the Lunar New Year holiday and false invoices that inflated trade numbers last year, along with larger-than-projected imports, make it harder to assess the true picture.
“There is an intrinsic inconsistency in their policy target and the reality of the economy,” Liu Li-Gang, head of Greater China economics at Australia & New Zealand Banking Group Ltd. in Hong Kong, said in a phone interview. Growth below 7.5% in the first half may spur the government to use fiscal stimulus, and “they do have room to do that but by doing so it will compromise China’s economic reform agenda,” he said.
China needs to regulate booming online financial services firms to curb the risks they pose to the wider financial sector, the former president of Industrial and Commercial Bank of China, Yang Kaisheng, said on Thursday. Tens of millions of people have flocked to Internet companies’ wealth management products since last year, attracted by interest rates on deposits higher than those the banks offered to customers, which remain subject to a cap of 3.3% for one-year savings.
Individual savers have not been the traditional target market for China’s commercial banks. “If they (online financial firms) are allowed to do whatever they want for too long, the chances that something could go wrong will become bigger and the impact on the stability of financial markets will be bigger,” Yang said on the sidelines of China’s annual parliament meeting. Yang went on to say that the China Banking Regulatory Commission, China Securities Regulatory Commission and the People’s Bank of China are currently working on rules to regulate the nascent industry, but he was not aware of their timetable.
Chinese e-commerce giant Alibaba kickstarted China’s online finance industry with the high-yield Yu’e Bao money market fund, which has attracted 400 billion yuan in assets under management in less than eight months, more than the customer deposits held by the five smallest listed Chinese banks. Rival Internet heavyweights Baidu and Tencent quickly followed suit, drawing the ire of China’s banks, who are lobbying regulators to introduce curbs on the growth of online funds offered by non-banks. Yu’e Bao was dubbed a “vampire” by state broadcaster CCTV, which accused it of sucking the life out of China’s banks.
Money market funds offered by Alibaba, Baidu and Tencent contributed to a fall of one trillion yuan in traditional bank deposits in January. Non-finance specialist Internet companies offer these products online by partnering with fund companies. Alibaba has applied to invest in a 51% stake in Tianhong Asset Management, which is currently going through a regulatory approval process.
Japan’s current account deficit widened to a record 1.5tn yen ($15bn; £8.7bn) in January, the largest since records began in 1985. In further bad news, the country’s economic growth figures were also revised downwards. Japan’s economy grew by 0.7% in 2013, down from an initial estimate of 1%. Investors reacted with disappointment to the news, with the benchmark Nikkei 225 index falling by 95 points, or more than 0.6%. From October to December 2013 Japan’s economy grew by just 0.2%, after earlier estimates showed an increase of 0.3%.
The sluggish growth and growing deficit come just before a planned sales tax increase, scheduled to take effect in April. Many economists had expected growth to pick up towards the end of 2013, as consumers spent ahead of the tax rise. But the latest revisions show consumer spending increased by 0.4% in the fourth quarter of 2013, revised downwards from 0.5%.
Japan’s trade gap also rose to a new record last month, increasing by 71% to 2.79tn yen in January, official figures showed. That was largely down to weak export figures, which were impacted by global turmoil in emerging markets and a weakening yen. Japanese Prime Minister Shinzo Abe says he plans to push ahead with the sales tax hike as a way to tackle Japan’s debt. However, to counteract the increase, which is scheduled to go from 5% to 8% – Mr Abe unveiled a stimulus package of 5.5tn yen in December.
Let’s see this through to the deep deep end, shall we? Restore some confidence and all, you know…
Bank of England Governor Mark Carney will face his toughest public testimony to date as he seeks to defend the integrity of an institution that’s become embroiled in the currency-manipulation scandal. Lawmakers will grill Carney tomorrow after the BOE suspended an employee and released minutes of meetings showing officials knew of concerns the foreign-exchange market was being rigged almost eight years ago. The central bank said last week that an internal review has found no evidence so far that staff were involved in collusion.
The controversy marks a major test of Carney’s leadership after he took over the BOE less than a year ago and began overhauling its monetary policy, communications regime and structure. It’s the second rigging scandal to hit the central bank following its entanglement in 2012 in the manipulation of the London interbank offered rate. Lawmakers criticized how it handled that affair, calling it naive.
“The statement on the internal review is only an early staging post in what is likely to develop into a very significant issue,” said Simon Hart, a lawyer at RPC LLP in London. “The statement left open as many questions as it answered. It was noticeably silent on what the Bank knew about other FX market participants.”
Carney, along with Markets Director Paul Fisher, is due to appear before Parliament’s cross-party Treasury Committee at noon in London to answer questions on the foreign-exchange inquiry and the central bank’s governance. That session will follow hearings at 9:30 a.m. on the BOE’s Inflation Report and at 11 a.m. on currency unions and Scottish independence.
The testimony comes as regulators investigate allegations that traders at the world’s largest banks worked together to rig the $5.3 trillion-a-day foreign-exchange market. More than 20 traders from banks including Deutsche Bank, Citigroup and Barclays — the three biggest currency traders, according to a May Euromoney survey — have been fired, suspended or put on leave. The suspended BOE employee, who hasn’t been named, is being investigated and “no decision has been taken on disciplinary action,” the central bank said on March 5.
According to minutes of meetings released alongside that statement, BOE officials knew of concerns the foreign-exchange market was being manipulated as early as July 2006, more than seven years before regulators opened formal probes. The minutes also show BOE officials discussed with traders concerns that currency benchmarks such as the WM/Reuters 4 p.m. London fix were being manipulated. Foreign-exchange benchmarks like WM/Reuters are used to compute the day-to-day value of holdings and by index providers. Even small movements can affect the value of what Morningstar Inc. estimates is around $3.6 trillion in funds.
The allegations drag the BOE into another market-rigging scandal less than two years after it was criticized by politicians for failing to act on warnings that Libor was vulnerable to abuse. The central bank had no responsibility for regulating U.K. lenders at the time, authority it received in April 2013.
I have zero confidence in this one. There’s been too much talk before anything happens, a bad sign.
European Union governments and parliamentarians will try to reach a compromise this week on how to wind down failing banks, in marathon talks intended to settle who decides to close banks and who picks up the bill. A deal in the negotiations, set to span three days, would be the final step in a European banking union that would mean one supervisor for all eurozone banks, one set of rules to close or restructure those in trouble and one common pot of money to pay for it. The banking union, and the thorough clean-up of banks’ books that will accompany it, is meant to restore banks’ confidence in one another and boost lending to other businesses and households.
New lending has been throttled by banks’ efforts to raise capital and reduce the bad loans that proliferated in the recession triggered by the global financial crisis and deepened by the eurozone’s sovereign debt crisis. Policymakers agreed last year that the European Central Bank (ECB) will be the single supervisor for all eurozone banks and will take on its new responsibilities from November.
But talks on a single European agency to wind up or close failing banks, and on a single fund to back it up, have entered a crucial stage: EU governments, represented by finance ministers of the 28-nation bloc, and the European parliament must reach a deal next week. If they don’t, there won’t be enough time to complete the legislative process for the resolution mechanism before the last sitting of the current parliament in mid-April. The key law would be delayed by at least seven months, probably more.
Standing tall: the USD , the only game in town.
“Lumpy, unpredictable, potentially large”: that was how Tim Geithner, then head of the New York Federal Reserve, described the need for dollars in emerging economies in the dark days of October 2008, according to transcripts of a Fed meeting released last month. To help smooth out those lumps, the Fed offered to “swap” currencies with four favoured central banks, as far off as South Korea and Singapore.
They could exchange their own money for dollars at the prevailing exchange rate (on condition that they later swap them back again at the same rate). Why did the Fed decide to reach so far beyond its shores? It worried that stress in a financially connected emerging economy could eventually hurt America. But Mr Geithner also hinted at another motive. “The privilege of being the reserve currency of the world comes with some burdens,” he said.
That privilege is the subject of a new book, “The Dollar Trap”, by Eswar Prasad of Cornell University, who shares the world’s ambivalence towards the currency. The 2008 financial crisis might have been expected to erode the dollar’s global prominence. Instead, he argues, it cemented it. America’s fragility was, paradoxically, a source of strength for its currency.
In the last four months of 2008 America attracted net capital inflows of half a trillion dollars. The dollar was a haven in tumultuous times, even when the tumult originated in America itself. The crisis also “shattered conventional views” about the adequate level of foreign-exchange reserves, prompting emerging economies with large dollar hoards to hoard even more. Finally, America’s slump forced the Fed to ease monetary policy dramatically. In response, central banks in emerging economies bought dollars to stop their own currencies rising too fast.
Could Fed swap lines serve as a less costly alternative to rampant reserve accumulation? If central banks could obtain dollars from the Fed whenever the need arose, they would not need to husband their own supplies. The demand is there: India, Indonesia, the Dominican Republic and Peru have all made inquiries. The swap lines are good business: the Fed keeps the interest from the foreign central bank’s loans to banks, even though the other central bank bears the credit risk. The Fed earned 6.84% from South Korea’s first swap, for example. But it is not a business the Fed wants to be in. As one official said, “We’re not advertising.”
Swap lines would help emerging economies endure the dollar’s reign. But will that reign endure? Mr Prasad thinks so. The dollar’s position is “suboptimal but stable and self-reinforcing,” he writes. Much as Mr Prasad finds America’s privileges distasteful, his book points to the country’s qualifications for the job.
America is not only the world’s biggest economy, but also among the most sophisticated. Size and sophistication do not always go together. In the 1900s the pound was the global reserve currency and Britain’s financial system had the widest reach. But America was the bigger economy. In the 2020s China will probably be the world’s biggest economy, but not the most advanced.
America’s sophistication is reflected in the depth of its financial markets. It is unusually good at creating tradeable claims on the profits and revenues that its economy generates. In a more primitive system, these spoils would mostly accrue to the state or tycoons; in America, they back a vast range of financial assets.
Mr Prasad draws the obvious contrast with China and its currency, the yuan, a “widely hyped” alternative to the dollar. China’s GDP is now over half the size of America’s. But its debt markets are one-eighth as big, and foreigners are permitted to own only a tiny fraction of them. China’s low central-government debt should be a source of strength for its currency. But it also limits the volume of financial instruments on offer.
America has a big external balance-sheet, if not an obviously strong one. Its foreign liabilities exceed its overseas assets. But this worrying fact conceals a saving grace: its foreign assets are unusually adventurous and lucrative. Its liabilities, on the other hand, are largely liquid, safe and low-yielding. America therefore earns more on its foreign assets than it pays on its foreign liabilities.
The economy isn’t recovering, the S&P is. Not the same thing.
Like the Italians, the British cannot help ploughing their cash into activities that earn diminishing returns. It’s a cultural thing. The Italians are earning paltry returns from knocking out white goods in competition with the Chinese and Koreans. Every year, the trade deficit with China gets bigger, but the metal bashers of the Po Valley just keep doing what they have always done.
In London, the major banks are struggling to wean themselves off casino trading, even though the returns are tiny compared to the vast amount of capital needed just to sit at the gambling tables of the derivatives markets. Barclays is a case in point. Last month, chief executive Antony Jenkins was caught throwing millions of pounds at his traders to keep them from defecting. He argued that he needs them.
More than half of Barclay’s profits come from the casino investment bank arm. But shareholders are selling out in droves because Jenkins needs more of their money every year to earn what are very volatile returns. Productivity at Barclays, or the amount of profityielded per turn of the roulette wheel, is therefore low when averaged out over a number of years.
Then there is North Sea oil. For the past 30 years, much of our foreign exchange has come from Aberdeen’s rigs. Every year, it takes more people and more effort to extract each barrel. It is cash and it pays some wages, but it represents a fall in productivity. Low productivity has bedevilled the economy since the crash. The ratio of inputs to every unit of production is supposed to recover quickly following a recession, as firms shed employees and either produce the same thing with fewer resources, or switch into producing something with higher returns.
It seems that for the past four years British businesses have struggled on, producing largely the same things with the same labour force. Where they have gained is by shelving plans to buy new equipment and paying people less – either by reducing their wages in real terms or by reducing their hours. This policy might have worked in the short term, but it bodes badly for the future. Last week, George Osborne was confronted by a forecast that the public finances will be £20bn shy of his last estimate, largely because low productivity will slow the recovery and rob him of tax receipts.
Research by the Financial Times, using a model like that adopted by the Office for Budget Responsibility (OBR), finds that the UK’s capacity for growth in future has deteriorated and a cyclically adjusted deficit target of £85bn for 2013-14 will need to be ditched in favour of the actual £111bn deficit. The OBR’s boss, Robert Chote, has lamented that much of the UK’s lost productivity cannot be considered cyclical, but lost forever. His estimate of lost productivity is going to rise.
Oh Canada. All those years wasted when you had time to protect yourself from what’s about to come.
Job losses and trade deficits suggest the Canadian economy is slowing in the first quarter of this year with businesses failing to drive growth as policy makers predicted. Employment fell by 7,000 in February, the second decline in three months, according to Ottawa-based Statistics Canada, as a 50,700 drop in government workers exceeded a 35,200 gain at private companies. January’s trade deficit reported today was the 23rd in 25 months, subtracting from growth as export volumes fell faster than imports.
The Bank of Canada said earlier this week the world’s 11th-largest economy may slow in the first quarter while keeping its key lending rate at 1%, citing weak exports and investment. Today’s employment figures suggest consumers may struggle to keep driving the expansion. The job report “speaks to the bank remaining on the sidelines, just monitoring the data, and getting a sense if this handoff to exports and investment does seem to be happening or not,” Paul Ferley, assistant chief economist at Royal Bank of Canada, said by telephone from Toronto.
The Bank of Canada has said that company spending and shipments abroad need to take over from consumers burdened by record debts to power growth. “Future growth, if it is to last, needs to draw more support from business fixed investments and exports,” Bank of Canada Deputy Governor John Murray said in a speech yesterday. “The household sector is now largely played out.”
The payroll decline contrasted with economists surveyed by Bloomberg who predicted a gain of 15,000 jobs. The unemployment rate, which was unchanged at 7%, probably won’t drop much this year because of the modest economic expansion, according to Doug Porter, chief economist at BMO Capital Markets in Toronto. “The kind of expansion we’re going to rotate into isn’t going to be very friendly for the labor market in the next year or two,” Porter said by telephone. The economy will grow 2% this year, Porter said, slower than the 2.9% annualized fourth-quarter expansion Statistics Canada reported a week ago.
Any idea what New Zealand is in for if and when the Chinese slowdown picks up pace?
Ariana Gifford didn’t think things could get much worse when the Christchurch quake traumatized her children and smashed possessions. Three years on, she’s struggling to make ends meet after a 30% jump in rent. “The nightmare is never ending,” says Gifford, 32, a single mother with three young daughters who expects another 18% rent increase soon. “There’s such demand for rentals that landlords are just charging whatever they want. Day-to-day living is a constant struggle.”
Surging housing costs are adding to inflation as the rebuilding of Christchurch fuels a construction boom that has also pushed up wages. The dynamic is putting pressure on the central bank to raise interest rates, the opposite end of where it found itself three years ago today. It cut the cash rate to a record-low 2.5% in the aftermath of the quake that killed 185 people and destroyed thousands of buildings.
Reserve Bank of New Zealand Governor Graeme Wheeler is set to become the first central banker of a major developed economy to shift away from the current era of record-low borrowing costs. He’ll raise his benchmark rate by 25 basis points on March 13, according to all 15 economists surveyed by Bloomberg News. The median estimate is for a rate of 3.5% by the end of the year.
As the NZ$40 billion ($34 billion) Christchurch rebuild gathers pace, there are signs that rising construction costs are starting to spill over into the rest of the country, Wheeler said in a speech in the South Island city on Jan. 31, when he also reiterated he’s likely to increase rates “soon.” Booming house prices in Auckland, the biggest city, are also worrying Wheeler, who last year introduced mortgage restrictions to try to curb demand.
“Cost pressures are probably most acute down in Christchurch,” said Darren Gibbs, chief New Zealand economist at Deutsche Bank AG in Auckland. “Across the rest of the country those pressures are more subdued. But if the economy continues to grow strongly for the next six months or so, you just know you will get a higher rate of inflation.” Inflation will accelerate to 2.1% by the end of this year, according to economists in a Bloomberg survey, exceeding the midpoint of the 1%-to-3% range that Wheeler targets. Consumer prices rose 1.6% in the fourth quarter from a year earlier, more than the RBNZ projected.
Nationally, house construction costs rose 4.7% last year, the fastest annual pace since early 2008, according to Statistics New Zealand. In Canterbury, they surged 9.5%. “There’s no question costs are going up and are going to continue to go up,” said Julian Mace, a director at quantity surveyors Rawlinsons Ltd., whose projects include the NZ$50 million Awly Building in inner-city Christchurch. “The local market has become saturated and it has become hard to get competitive pricing.”
Economic growth may climb to 3.5% this year, the RBNZ projected in January. It reviews its forecasts this week. Export prices have surged, fanned by Chinese demand for dairy products, and business confidence rose to the highest in almost 20 years last month. Manufacturing volumes rose 5.7% in the fourth quarter from the third, the most in 19 years, a report showed today. By contrast, the Reserve Bank of Australia last week kept its benchmark at 2.5% and reiterated it sees a period of steady rates as likely. Central bankers in Canada, the U.K. and Europe have held borrowing costs at record lows.
The prospect of higher rates in New Zealand is underpinning the local dollar, which has gained 3.3% against its U.S. counterpart this year — the best performer among 16 major currencies tracked by Bloomberg. The so-called kiwi has surged 19% since the first in the series of earthquakes hit Christchurch and the surrounding Canterbury province in September 2010.
Aah! The delights of discussing Keynsianism while Rome burns…
The euro zone is used to being criticized by the mainstream economics profession. Since the start of its debt crisis, the currency union has been attacked for imposing too much fiscal austerity, for failing to create jointly guaranteed euro-zone bonds and for refusing to directly recapitalize weak banks from common euro-zone funds.
Even now that the economy is recovering, its policies remain controversial. Last week, Christine Lagarde, the managing director of the International Monetary Fund, called yet again for the euro zone to loosen both fiscal and monetary policy to boost demand to head off the threat of deflation. Many in the U.S. government and U.S. Federal Reserve share her concerns, as do many economists. One might call it the new Washington Consensus, albeit this time based on neo-Keynesianism rather than the neo-Liberalism of the 1990s.
Yet the euro zone has again ignored the advice. Despite weak growth, low inflation and high unemployment, the European Central Bank last week left its monetary policy unchanged, dashing hopes that it would follow the Fed and other major central banks in embarking on a major bond-buying program or announce a package of cheap loans for banks.
What explains Europe’s continued rejection of mainstream economic thinking? One answer is that the ECB simply doesn’t share the IMF’s gloomy analysis. Core euro-zone inflation in February is estimated to have been 1% compared with 0.8% in January, and the ECB has raised its growth forecasts to 1.2% this year and 1.5% in 2015. Although it expects inflation to remain very low for the next two years, only reaching 1.7% in the fourth quarter of 2016, the ECB doesn’t believe the euro zone will tip into outright deflation.
It reckons that two-thirds of the fall in inflation since early 2012 is attributable to lower energy prices and that the appreciation of the euro since 2012 has reduced inflation by 0.5 percentage points. Falling prices are anyway part of the crisis-country adjustment process the so-called internal devaluation and can help the economy by boosting spending power. It would make no sense for the ECB to lean against this sort of disinflation.
Of course, this doesn’t tell the full story. After all, the IMF thinks the ECB should embark on quantitative easing even if outright deflation is likely to be avoided, since even low inflation can be harmful as it makes it harder for crisis countries to bring down debt-to-GDP ratios or to regain competitiveness. If wages are stagnant in Germany, then workers elsewhere will struggle to become relatively more competitive without politically difficult wage cuts. But even though many euro-zone policy makers share these concerns, there are practical, political and philosophical obstacles to loosening fiscal and monetary policy. These relate to the nature of the currency union.
Take fiscal policy: Any scope for looser policy is limited by the euro zone’s tough fiscal rules. These rules and the new mechanisms for budgetary oversight may not make sense from a Keynesian demand-management perspective, but that misses the point. Binding fiscal rules have played a vital role not only in convincing the markets that countries are serious about paying down debt but also in persuading member states to agree to vital steps toward greater integration, such as the creation of a banking union or common bailout funds.
It has been the willingness of Greece, Portugal and Spain to do “whatever it takes” as much as the ECB that has ensured the euro’s survival. Sure, there is plenty of scope to make fiscal policy in many countries more growth-friendly shifting the balance between tax rises and spending cuts and raising indirect taxes to fund cuts to taxes on labor but there is little appetite in the euro zone to loosen its fiscal targets.
Similarly, the bar for QE in the zone is set very high. That’s not just because credit risks on acquired assets must be shared among member-state taxpayers, but because the risk of moral hazard is higher in a currency union. The ECB’s offer of cheap loans reduced the pressure on regulators and governments to recapitalize weak banks. Similarly, once the ECB starts buying government bonds, pressure to cut debts and reform broken economic models is sure to ease, leaving the ECB at the mercy of profligate governments.
Indeed for many euro-zone policy makers, the risk that countries will abandon reforms outweighs the risks associated with low inflation. This is the key economic point of difference with the Washington Consensus. Of course, most Keynesians insist they recognize the importance of supply-side reforms Ms. Lagarde referred to them in her speech last week. But throughout the crisis, many have tended to treat them as secondary to macroeconomic policy best left until the economy is stronger.
But Europe’s structural rigidities aren’t a secondary issue. One reason why the recession was so deep is that rigid labor and product markets, excessive bureaucracy and inefficient justice systems prevented the reallocation of resources. As Greece’s central-bank governor, George Provopoulos, acknowledged in a speech last month, the reforms Greece has undertaken during the crisis have been overdue for decades. The reforms being discussed in France and Italy are equally overdue.
Long term, the euro zone’s prosperity depends on boosting productivity and fostering investment and innovation; if short-term steps to boost demand undermine those efforts, then economic imbalances will worsen once again destabilizing the currency. That means that the euro zone’s recovery is likely to be slower, and unemployment is likely to remain higher than if it were to find a way to overcome the practical obstacles and follow the Keynesian prescriptions. Or at least, that is what most macroeconomic models predict. But then those models are based on neo-Keynesian theories that have proved to be far from robust both before and during the crisis.
Indeed, those models have consistently underestimated the recovery in Europe over the past year; estimates of Spanish GDP growth this year have doubled in six months to about 1% and some in the Spanish government now privately believe growth this year could hit 1.5%. It wouldn’t be the first time the Washington Consensus was wrong.
I’m shocked, I tell you. Shocked!
Federal safety regulators received more than 260 complaints over the last 11 years about General Motors vehicles that suddenly turned off while being driven, but they declined to investigate the problem, which G.M. now says is linked to 13 deaths and requires the recall of more than 1.6 million cars worldwide.
A New York Times analysis of consumer complaints submitted to the National Highway Traffic Safety Administration found that since February 2003 it received an average of two complaints a month about potentially dangerous shutdowns, but it repeatedly responded that there was not enough evidence of a problem to warrant a safety investigation. The complaints — the most recent of which was filed on Thursday — involved six G.M. models that the automaker is now recalling because of defective ignition switches that can shut off engines and power systems and disable air bags. G.M. said the first recall notices were mailed on Friday to the owners of the vehicles.
Many of the complaints detailed frightening scenes in which moving cars suddenly stalled at high speeds, on highways, in the middle of city traffic, and while crossing railroad tracks. A number of the complaints warned of catastrophic consequences if something was not done. “When the vehicle shuts down, it gives no warning, it just does it,” wrote one driver of a 2005 Chevrolet Cobalt. “I drive my car to and from work praying that it won’t shut down on me while on the freeway.” Another driver wrote of the same model: “Engine stops while driving — cannot steer nor brake so controlling the car to a safe stop is very dangerous.”
To the mounting complaints, the safety agency sometimes responded with polite but formulaic letters similar to one it sent in December 2010 to Barney Frank, then a congressman from Massachusetts, who had written on behalf of a distraught constituent whose 2006 Cobalt kept stalling. In the letter to Mr. Frank, the agency said it had reviewed its database of complaints to determine if a “safety defect trend” existed. “At this time, there is insufficient evidence to warrant opening a safety defect investigation,” the letter concluded.
Failure to recognize a pattern in individual complaints has been a problem for the safety agency before. In the late 1990s, it was criticized for failing to detect a wave of highway rollovers in Ford Explorers with Firestone tires, a problem that was eventually linked to 271 deaths.
In response, Congress passed a law in 2000 requiring automakers to report to the safety agency any claims they received blaming defects for serious injuries or deaths, so the government would not have to rely only on consumer reports. Since 2003, G.M. has reported at least 78 deaths and 1,581 injuries involving the now-recalled cars, according to a review of agency records. Though the records mention potentially defective components, how many of these records were related to the ignition problem is unclear. Even with that additional information, regulators appear to have overlooked disturbing complaints of engine shutdowns.
Don’t quite know what to make of this. We’ll see more on the topic if it has substance.
Speculation was growing last night that American mercenaries had been deployed to Donetsk after videos emerged of unidentified armed men in the streets of the eastern Ukrainian city. At least two videos published on YouTube earlier this week show burly, heavily armed soldiers with no insignia in the city, which has been gripped by pro-Moscow protests. In one of the videos onlookers can be heard shouting ‘Blackwater! Blackwater!’ as the armed men, who wear no insignia, jog through the streets.
Donetsk was this week the scene of civil unrest as pro-Russian elements among its citizens seized control of the regional administration headquarters and another government building. Yesterday thousands of people gathered in the city centre waving Russian flags and calling for a referendum to determine the status of the strategically important coal-mining region. Both the videos which purport to show ‘Blackwater’ mercenaries in Donetsk were uploaded last Monday, with their descriptions written in Russian. The context of the videos is not clear, but it appears that the armed men had turned up at a street protest against the new regime. They wander around brandishing their weapons before suddenly fleeing the scene as passers-by shout ‘Blackwater! Blackwater!’
Since the videos emerged, Twitter has been alive with speculation that mercenaries linked to Blackwater, now known as Academi, are active in Ukraine, helping to prop up the embattled new pro-western government. And a Russian diplomat in Kiev told the Interfax news agency on Wednesday that 300 employees of private security companies had arrived there. ‘These are soldiers of fortune proficient in combat operations. Most of them had operated under private contracts in Iraq, Afghanistan and other states,’ the source said. Interfax reported that the diplomat did not disclose the nationalities of the mercenaries but said, ‘Most of them come from the United States’.
Asked whether the soldiers seen in the videos could be from Academi, Dr Nafeez Ahmed, a security expert with the Institute for Policy Research & Development, said: ‘Difficult to say really. It’s certainly not beyond the realm of possibility – Academi have been deployed in all sorts of theatres. ‘I think the question is whether the evidence available warrants at least reasonable speculation. ‘On the face of it, the uniforms of the people in the videos are consistent with US mercs – they don’t look like Russian soldiers mercs. On the other hand, why run around in public making a show of it?’ He added: ‘Of course the other possibility is it’s all Russian propaganda.’
A tad over the top perhaps?
If someone had told me a decade ago that the British government would deliberately starve my fellow countrymen in an attempt to bully them into slave labor jobs that wouldn’t even pay the bills, I would have laughed in their face. But now I know I would have been the fool. This is indeed the breathtaking strategy of David Cameron’s LibDem-Tory coalition.
A vast underclass of between 5 and 10 million people has been created in Britain of desperate, destitute and now-dying people. While government and media alike tell of “hopeful signs” that the nation’s getting better off, they are just ‘talking it up’ from their ivory towers. Even Lord Rothschild, who invests over 2 billion pounds of his own dynasty’s and other depositors’ cash through RIT Capital Partners, is ringing alarm bells this week: “With the world recovery still fragile and reliant to a large extent on policy support [QE/money printing]”, he warns, “it is not hard to envisage markets having to deal with shocks in the coming year.” Yes, “shocks.”
I remember the collective horror we felt in 1980 when homeless beggars appeared sleeping in London’s shop doorways for the first time since the Second World War. Then again, it was the first term of a Tory government, taking their orders from the City of London, cutting off public assistance from the people that needed it most. The people least able to fight back.
The creation of misery, of third-world style divisions in British society is no ‘accident’. It plays to The City and Downing Street’s ‘Lords of Misrule’s’ disarmingly simple, if taboo, ‘higher purpose’. Yes, it makes the anti-democratic European Union ‘look good’. All national administrations in Europe are being subsumed, by trickery, foul means or loans, into Brussels’ unelected ‘United States of Europe’ whether they like it or not. Britain’s destitute, dying and dead are just what they now call ‘collateral damage’ in a ‘noble cause’.
When government ‘Job Centers’ or privatized ‘Work Program providers’ consider a UK welfare claimant has not done everything possible to find work that person and their family is ‘sanctioned’. For a period of several weeks, or months, that person has to survive on no money at all, which usually means borrowing or not eating. Some are tempted into the black economy, or to throw their lot in with organized criminal gangs, where those ‘jobs’ haven’t already been taken by economic migrants.
Right leaning London think tank Policy Exchange this week published a report revealing the number of Britons incorrectly sanctioned. One hundred and forty-five thousand people have been placed on ‘starvation row’, often with an entire family to support, though they had done nothing wrong.
To make matters worse the Lord Freud and his Department for Work and Pensions (DWP) is trying to introduce a system of welfare payments called ‘Universal Credit’ which bundles housing payments in together with money for electricity and food. When individuals are ‘sanctioned’ in future they will not just be starved but cast out into the street, to lose the roof over their head too.
For those facing short-term crises such as being flooded out of their homes, suffering severe illness or being forced to flee a violent partner, government had a 350-million-pound ‘Local Welfare Assistance Fund’ to pay for emergency food and shelter. Last week Tory Chancellor George Osborne scrapped that too. The timing of this cut will not be lost on the hundreds of Brits flooded out of their homes in recent weeks, including the disabled, who were simply left to fend for themselves.
A BIT of a joke?
Wendell Berry wrote about and practiced “sustainable agriculture” long before the term was widely used. His 1977 book, The Unsettling of America: Culture and Agriculture, in which he argued against industrial agriculture and for small-scale, local-based farming, had a strong influence on the environmental and local food movements in the US.
Berry has long balanced the diverse roles of writer, activist, teacher, and farmer. At age 79, he still lives on the farm near Port Royal, Kentucky, where he grew up, and uses traditional methods to work the land there. And he still speaks eloquently about the importance of local communities and of caring for the land, while warning of the destructive potential of industrialization and technology.
In an interview with Yale Environment 360 editor Roger Cohn, Berry talked about his Kentucky farm and why he has remained there, why he would risk arrest to protest mountaintop removal mining, why the sustainable agriculture movement faces an uphill battle, and why strong rural communities are important. “A deep familiarity between a local community and a local landscape is a dear thing, just in human terms,” Berry said. “It’s also, down the line, money in the bank, because it helps you to preserve the working capital of the place.”
Yale Environment 360: You’ve been writing about and practicing what is now known as sustainable agriculture since before that term was widely used. In recent years, there’s been a movement among some people toward sustainable agriculture. Do you feel sustainable agriculture is gaining ground in a significant way that could slow the growth of industrial agriculture, or is it more of a boutique type of thing?
Wendell Berry: Well, we are a young country. By the time settlement reached Kentucky it was 1775, and the industrial revolution was already underway. So we’ve been 238 years in Kentucky, we Old World people. And what we have done there in that time has not been sustainable. In fact, it has been the opposite. There’s less now of everything in the way of natural gifts, less of everything than what was there when we came. Sometimes we have radically reduced the original gift. And so for Americans to talk about sustainability is a bit of a joke, because we haven’t sustained anything very long — and a lot of things we haven’t sustained at all.
The acreage that is now under the influence of the local food effort or the sustainable agriculture effort is at present tiny, and industrial agriculture is blasting ahead at a great rate. For instance, in the last two years, the high price of corn and soybeans has driven that kind of agriculture into the highly vulnerable uplands of my home country. I can show you farms that in my lifetime have been mostly in grass that are now suddenly covered, line fence to line fence, with monocultures of corn or beans…. So we have these two things, a promising start on what we call, loosely, sustainable land use, and we have a still far larger industrial extractive agriculture operating, really, against the land.
e360: On your place where you live now and farm, what are some of the practices that you employ and use to take good care of the land and make it sustainable?
Berry: The farm that my wife and I have is in every way marginal. Every foot of it is either steep, which is most of it, or it floods [Laughs]. So it’s land that you can learn a lot from in a hurry because it is so demanding of care. The way to deal with that land is to keep it covered with permanent pasture or woodland. We have some slopes in pasture that ought to have remained woodland, but we’ve kept most of it going the way it came to us.
e360: And do you do forest logging there as well?
Berry: Most of our woodland we don’t use, but some we use for firewood, an occasional saw log, fence posts, that sort of thing. The emerald ash borer [a destructive beetle] is now among us, and we are cutting the large trees that the emerald ash borer has killed. The ash wood is valuable as sawed lumber, and it’s also wonderful firewood… My son does woodworking, and so it’s worthwhile to him to have supplies of sawed boards laid up.
e360: You write a lot about local agriculture and the local economy, about local traditions and the importance of connections to the land. Why do you think this is so important?
Berry: That starts with the obvious perception that land that is in human use requires human care. And this calls for keeping in mind the history of such land, of what has worked well on it and the mistakes that have been made on it. To lose this living memory of what has happened to the place is really to lose an economic asset. I’m more and more concerned with the economic values of such intangibles as affection, knowledge, and memory. A deep familiarity between a local community and the local landscape is a dear thing, just in human terms. It’s also, down the line, money in the bank because it helps you to preserve the working capital of the place.
e360: You along with Wes Jackson of the Land Institute have proposed a 50-year farm bill. Can you explain what that is and how it would differ from typical US farm bills?
Berry: Unlike the typical US farm bill, the 50-Year Farm Bill attempts to address the real and ongoing problems of agriculture: erosion, toxicity, loss of genetic and species diversity, and the destruction of rural communities, or the destruction, where it still survives, of the culture of husbandry. It begins with the fact that at present, 80% of the land is planted annually in annual crops such as corn and beans, and 20% in perennials. It proposes a 50-year program for the gradual inversion of that ratio to 80% perennial cover and 20% annuals. It’s pretty clear that annual plants are nature’s emergency service. They’re the plants that come in after, say, a landslide, after the land has been exposed, and they give it a temporary cover while the perennials are getting started. So our predominantly annual agriculture keeps the land in a state of emergency.
It’s hard to make a permanent agriculture on the basis of an emergency strategy. By now the planted acreages have grown so large that most soybean and corn fields, for instance, are not seeded to cover crops, and so they lie exposed to the weather all winter. You can drive through Iowa in April before the new crops have been planted and started to grow, and you don’t see anything green mile after mile. It’s more deserted than a desert. And the soil erosion rates in Iowa are scandalous.
e360: I know you’ve had people tell you that your writing has inspired them to think about chucking their jobs and their city life and go farm. What do you tell them?
Berry: Well, I try to recommend caution. You don’t want somebody who’s 45 or 50 years old, who doesn’t know anything about farming, to throw up his or her present life and undertake to make a living from farming at a time when farmers, experienced farmers, are failing and going out of business. So characteristically I’ve said, “If you do this, keep your town job. If you’re not independently wealthy, you’ve got to have a dependable income from somewhere off the farm.” And I’ve tried to stress the difference between depending on the weather, on nature, for an income and depending on a salary. There’s a very wide gulf between those two kinds of dependence.
If you want it enough, there’s always a nail to hammer in. But does Francis strive to be made a saint?
There is a place in Rome where miracles are collected and examined, inspected and screened, and purged of all thirst for glory or pagan superstition. It is called the Congregation for the Causes of Saints. The Vatican’s outpost in the Lateran Palace is on Piazza Giovanni Paolo II. The marble street sign, a more recent addition, will have to be redone soon, when a mason chisels the word “San,” or “saint” into the sign.
That will occur by no later than April 27, when Karol Wojtyla, aka Giovanni Paolo II, will be declared a saint in Rome, only nine years after his death. Rarely has the Vatican been in such a hurry to complete a canonization. John Paul II was a global pope, and now he is to become a saint of the 21st century, a global saint. He has already been beatified. But to attain the second level of godliness, sainthood, another miracle, one that has been officially examined and cannot be explained by the laws of science, is required.
The necessary research is undertaken at the office on Piazza Giovanni Paolo II. Slawomir Oder, 53, is the “postulator” of “Causa Ioannis Pauli.” He handles the red tape surrounding the canonization, acting as an intermediary between Heaven and earth, a sort of central collecting point for evidence, witness testimony and reports of miracles. His staff has inspected all of the writings of Karol Wojtyla, from an early play called “The Jeweler’s Shop” to the words of his last, almost inaudible address.
The monsignor is a representative of the new Poland, multilingual, efficient and, most recently, sporting a neatly trimmed goatee. He looks like someone who could be managing a tech start-up. His office on the fifth floor of the Lateran Palace is filled with files, images of popes and souvenirs from his travels. A glass case next to the door contains a white cap and a pencil case. Monsignor Oder answers the question before it is even asked: “Yes, they are originals.” He points to a round reliquary, which contains a piece of material with gray spots on it. “They are from the day of the assassination attempt,” May 13, 1981. It’s the most valuable item in his collection.
Oder’s office is also responsible for the management of relics, which are divided into three classifications. The most valued are parts of John Paul’s body, which include mostly hair or blood. Second are “contact relics,” or clothing and accessories the deceased pope once wore. Finally, items that came into contact with a contact relic also make the list. There are currently about 400 “first-class relics” in circulation, and about 40,000 second-class relics, which consist almost exclusively of nine square-millimeter snippets of one of the pope’s chasubles.
The number of third-class relics is potentially infinite, following the homeopathic principle whereby substances are effective, even in the greatest possible dilution. However, as Oder is quick to point out, such relics are not to be used as a talisman. A relic, he says, is no good-luck charm, but rather an object of meditation and a window into the faith. “Take a few,” says the monsignor.
The “Positio,” or final report, is kept in the safe. One copy was given to Pope Francis, while the original remains in Monsignor Oder’s safekeeping. The Karol Wojtyla file weighs about four kilograms (nine pounds) and consists of four volumes, bound in apostolic eggshell-white material, and comprising a total of 2,709 pages. The file is titled “Positio super vita, virtutibus et fama sanctitatis,” or “Report on the Life, Virtues and Reputation of Sanctity.” The report includes, for example, the testimony of a certain Dr. Helmut Kohl (the former German chancellor), as well as that of the Dalai Lama and about 100 other contemporaries. Oder has visited all of them in the last few years. Each of those interviewed, if Catholic, was asked to swear upon his or her soul that he or she was telling the truth.
The “Positio” also contains a long, wondrous story that unfolded three years ago and 10,000 kilometers away, or, to be more precise, in the right temporal lobe of the brain of Floribeth Mora Díaz.
The house of Mora’s family is on a steep street on the outskirts of San José, where the Costa Rican capital gradually gives way to the rain forest. Mora – 50, wearing tight, red stretch jeans – is a grandmother nine times over. She has constructed an altar on her veranda, a colorful, shimmering private shrine, complete with plaster cherubs, Sacred Heart candles, and printouts of prayers for John Paul II, who will soon be Saint John Paul II. “My saint,” says Mora; there is no doubt that her claim is correct.
On April 13, 2011, Señora Mora was convinced that her head was about to explode. She could no longer feel her left leg and she was constantly vomiting. Her doctor had diagnosed Mora with “migraines,” but she refused to believe him. Her husband, Edwin Arce, took her to the emergency room at the Hospital La Católica in San José. He was determined that only the best would do for his wife, and La Católica was the best hospital in the city, despite the fact that some of the patients were admitted in handcuffs, owing to the prison located right around the corner.
The neurologist who evaluated Mora was Dr. Alejandro Vargas, a doctor so young, attractive and clever that he could easily be taken for a telenovela actor. Before Vargas operates on a patient’s head, he likes to say: “With the help of God, vamos…” Mora decided to interpret his words as a positive omen.
“My head felt like it was swollen, I didn’t even dare to sneeze. The doctor gave me a contrast agent and did his examination. Then he told me I had an aneurysm” — a bulge in the wall of a blood vessel. Aneurysms are not unusual in individuals over 50, especially when they are somewhat overweight and have hypertension. “Her blood pressure was very high. She was suffering from a fusiform aneurysm,” Vargas would later write in his report. “It could have been clamped, but the problem is that we don’t have the technology for that. An operation was too risky.”
Mora’s aneurysm looked to be located in a region of the brain that was inaccessible to the surgeons. “Dr. Vargas said that he couldn’t clamp the blood vessel,” Mora relates. “He said that if he operated, I could fall into a coma or become permanently paralyzed. He told me there was nothing he could do.”
Mora remembers how a priest came to administer her last rites. Dr. Vargas recalls that he had only said that nothing could be done for Mora in his hospital. “This type of case is certainly operated on in Mexico or the United States. I prescribed anti-hypertensive medication for the señora, as well as a sedative. After all, the aneurysm hadn’t ruptured. There was still hope.”
But Mora didn’t think so. She had a problem in her head, one that not even the best doctor in Costa Rica could solve. She was in tears as her husband Edwin drove her back to Tres Ríos. “I called my brothers so that they could get the family together. I wanted to tell them they should always stick together, even without me, and that their mother had only a month left to live.” Mora wept for three days and took the pills Dr. Vargas had prescribed. In between bouts of weeping, she prayed.
One of her children occasionally came into her room and tapped her to see if she was still alive. She had been sent home to die. It was what she would later say to every priest she encountered, to the archbishop and to anyone else who would listen.
This article addresses just one of the many issues discussed in Nicole Foss’ new video presentation, Facing the Future, co-presented with Laurence Boomert and available from the Automatic Earth Store. Get your copy now, be much better prepared for 2014, and support The Automatic Earth in the process!