Werner Wolff Sidewalk sign, New York City August 1963
Obama has apparently asked Chinese President Xi Jinping for help in “restraining” Putin, but China has filed a lawsuit against Ukraine in a London court for the return of a $3 billion loan linked to spot and forward purchases of grain for future delivery to China. Obama talked to Xi man to man at a nuclear safety summit in The Hague where everyone who’s someone in high power circles (well, the public ones) is being dined and feted as we speak. Except for Putin.
What good discussing nuclear safety is without the no. 2 nuclear power on the planet is a good question that nobody seems in a hurry to answer. That idea maybe seems to be to isolate Putin so much he’ll start to feel lonely and come begging to be allowed back into the party. Just for the fun of it, he declared sanctions against 22 Canadians. Who are probably all at that summit. Which costs the Netherlands $150 million or so for two days, disrupts traffic and daily life for millions of people, and won’t have any tangible results because the US saves those for 2016 in Washington. They’re going to have to invite Vladimir back by then, or look even more useless.
Xi Jinping has other issues than Ukraine on his mind. China manufacturing numbers fell, again, and it’s getting harder to come up with yet another piece of positive spin. If Xi can lock in a good deal with Putin over gas delivery, he’s going to take it. The trouble between east and west is sweet sweet music to his ears. Russia and China share a very long border, and neither have a border with the US. What’s not to understand? it’s not as if Obama can afford to declare sanctions against China.
But Xi’s biggest headache must be, as the WSJ reported, that China’s real estate market is in trouble. A first developer in Changzou has started cutting prices on some of its projects, and people are livid. Ironically, the developer, Wharf Ltd., stated to WSJ that “China’s housing market has already become very market-based, price adjustment according to market changes is a normal market behavior … “. And that is about as ‘be careful what you wish for’ as it comes. Because China’s housing market is nowhere near normal market behavior, but Wharf Ltd. is getting it there. In economic times that are nowhere near as hopeful and giddy and the sky is the limit anymore as they were when most Chinese “investors” bought all their empty properties.
Of course, Wharf Ltd. is very aware of the risks involved in lowering its prices, so the company must be desperate, have scores of properties that are not selling, and trying to catch a last lifeline. And if that is true for Wharf Ltd., there is no way it’s not equally true for who knows how many of its peers. And all the tens of millions of investors will now scrutinize market prices. And wait before they buy. Or not buy at all. This is how bubbles burst, and how Charles Ponzi met his maker. It’s a blueprint for how to make demand and prices fall. And in China, anger is real anger, not the pussyfootin’ way Americans and Europeans accept their fate and their losses.
Xi must be so scared of what could happen. And it’s funny that while the shadow banking system played -and still plays – a large role in building the China housing bubble, and Xi has a hard time reining it in just because it’s so huge, Europe is actually talking about re-establishing a shadow banking system in order to get its economy going again, complete with a return to the trade in asset backed securities. That’s like saying alcohol really screwed up my life, but boy, was it good while it lasted. So barman, fill ‘er up! Ah, Europe, the birthplace of civilization…
As long as all those dozens of leaders remain in charge that are now nuclear summitting in The Hague, having flown in on their private Jumbo jets with dozens or even hundreds of staff in tow, we will never solve any of out problems. Because these people are interested only keeping that life and those lifestyles going as long as they can. If it takes shadow banking, or calling in the local mob, or it takes victimizing their own people, or even sending them into war, the vast majority of leaders may hesitate, but it won’t be for long. It’s not going to work out great for all of them, but they’re going to give it their best shot and die trying. Power’s addictive even before you have it. Could it be that money is too?
Groups of angry homeowners put up banners and demanded their money back after Hong Kong-listed property developer Wharf Ltd. cut prices on new homes in an eastern Chinese city, in the latest sign of stress in the nation’s property market. Around 20 homeowners picketed outside a property showroom in Changzhou Saturday, demanding to meet executives of the developer. They said they wanted their money back after prices at the project, called Phoenix Lake Garden, were cut by as much as 16%, according to the protesters.
Meanwhile, there was also a small disturbance at a second project called Ambassador House in the same city after the same developer cut prices there. According to property agency Soufun Holdings, Wharf cut prices of 20 apartments in the project to 8,200 yuan ($1,317) per square meter, down from the average 11,000 yuan per square meter it recorded in recent months.
“Wharf, give us justice. Return us our hard earned money,” read one of the banners, held up on bamboo poles outside the Phoenix Lake Garden showroom of a project for mid- to high-end apartments and villas. “We aren’t speculators. We just want an explanation from the developer,” said one 35-year-old home buyer, who said he had bought an apartment and gave his surname as Wu. “This is very unfair.”
Others said that as many as 100 people who had bought homes at the project had vented their frustrations outside the showroom over the past week. Asked about the incidents, Wharf officials in Beijing didn’t comment directly on the disturbances. “China’s housing market has already become very market-based, price adjustment according to market changes is a normal market behavior,” Wharf said in a statement to The Wall Street Journal. The price adjustment at Phoenix Lake Garden is focused on selling off inventory, Wharf added.
After a four-year campaign by the government to cool spiraling property prices, rises in home prices are starting to slow and in some smaller cities they are weakening. Growth in average housing prices in 70 Chinese cities moderated in February for the second-straight month though they were still nearly 9% higher compared with a year ago. But weaker economic growth, slower home sales and rising volumes of unsold houses have convinced developers in a number of cities to cut prices to raise cash quickly.
The drop in newer home prices hasn’t gone down well. Furniture at the showroom of Wharf’s Ambassador House was knocked over and the wooden stands for advertisements for the homes were flung on top of a model of the project. Outside the Phoenix Lake Garden showroom, Mr. Wu said he bought a 120-square-meter apartment in December, for 730,000 yuan. Prices are now 610,000 yuan for a similar apartment in the same tower, he said. “If prices are now cut, does it mean the property developer would cut corners?” he added.
Mr. Wu said he found out about the price cuts from text messages on March 14 from the sales team announcing them and asking if he wanted to buy another apartment. “I’ve been here every day since March 15, and no representative from the developer has spoken to us yet,” he said.
Wharf isn’t the first developer in recent weeks to cut prices in Changzhou, a third-tier city located halfway between Shanghai and Nanjing. Guangzhou- based Agile Property cut prices of its luxury apartments in Agile-Star River project earlier this month. Agile said at that time it was a temporary sales promotion. Property developers say privately there isn’t enough transparency in land sales and land use, which sometimes give rise to overbuilding in many smaller cities.
U.S. President Barack Obama sought support from European allies and China on Monday to isolate Russia over its seizure of Crimea, and Ukraine told its remaining troops to leave the region after Russian forces overran one of Kiev’s last bases there. Obama, who has imposed tougher sanctions on Moscow than European leaders over its takeover of the Black Sea peninsula, will seek backing for his firm line at a meeting with other leaders of the G7 – a group of industrialized nations that excludes Russia, which joined in 1998 to form the G8.
Since the emergency one-hour G7 meeting on the sidelines of a nuclear security summit in The Hague was announced last week, President Vladimir Putin has signed laws completing Russia’s annexation of the region. White House officials accompanying Obama expressed concern on Monday at what they said was a Russian troop buildup near Ukraine and warned that any further military intervention would trigger wider sanctions than the measures taken so far.
In what has become the biggest East-West confrontation since the Cold War, the United States and the European Union have imposed visa bans and asset freezes on some of Putin’s closest political and business allies. But they have held back so far from measures designed to hit Russia’s wider economy. “Europe and America are united in our support of the Ukrainian government and the Ukrainian people,” Obama said after a meeting with Dutch Prime Minister Mark Rutte. “We’re united in imposing a cost on Russia for its actions so far. Prime Minister Rutte rightly pointed out yesterday the growing sanctions would bring significant consequences to the Russian economy.”
He also discussed the crisis at a private meeting with Chinese President Xi Jinping, whose government has voiced support for Ukraine’s territorial integrity but refrained from criticizing Russia. The West wants Beijing’s diplomatic support in an effort to restrain Putin.
China’s manufacturing industry weakened for a fifth straight month, according to a preliminary measure for March released today, deepening concern the nation will miss its 7.5% growth target this year. The Purchasing Managers’ Index from HSBC Holdings Plc and Markit Economics dropped to 48.1, compared with the 48.7 median estimate of 22 analysts surveyed by Bloomberg News and February’s final 48.5 figure. Numbers above 50 signal expansion.
Chinese stocks rebounded from initial losses on speculation that weakening growth will prompt policy makers to reconsider their aversion to broad stimulus measures. Leaders face a balancing act of reining in credit expansion that’s fueled the risk of loans going bad, while averting an economic slump that raises the odds of higher unemployment.
“The old growth engine is losing steam,” said Chen Xingdong, chief China economist at BNP Paribas SA in Beijing, whose estimate of 48.0 was one of the three closest to the result. While a new engine is powering up, including opening up some industries dominated by state-owned enterprises, if its speed “can’t compensate for the loss of the old one, a third power is needed — the power of policy,” said Chen, who previously worked for the World Bank.
China’s benchmark Shanghai Composite Index fell as much as 0.2% after the report before rebounding to rise 0.7% at 1:42 p.m. local time. The Australian dollar was up 0.1% at 90.87 U.S. cents after falling earlier today on the data, while the yuan climbed for a second day as the central bank strengthened the reference rate. The manufacturing report, known as the Flash PMI, is typically based on 85% to 90% of responses to surveys sent to purchasing managers at manufacturers. The final reading will be released April 1.
On the same day, the National Bureau of Statistics and China Federation of Logistics and Purchasing will publish their own survey of purchasing managers at about 3,000 manufacturing companies. The official gauge’s February reading was 50.2, an eight-month low and down from January’s 50.5.
The PMIs have increasingly become a barometer of China’s economy for global investors. One advantage is that they’re among the first gauges for each month, as government reports on trade, industrial output and retail sales typically are released several weeks later. China won’t use large-scale fiscal stimulus to spur investment and will focus on the quality of growth, Finance Minister Lou Jiwei said yesterday at a forum in Beijing, according to a transcript posted on Sina.com. The nation will pay more attention to the environment and reduce overcapacity, Lou was cited as saying.
It is widely known that Russia is owed billions by Ukraine for already-delivered gas (as we noted earlier, leaving Gazprom among the most powerful players in this game). It is less widely know that Russia also hold $3b of UK law bonds which, as we explained in detail here, are callable upon certain covenants that any IMF (or US) loan bailout will trigger. Russia has ‘quasi’ promised not to call those loans. It is, until now, hardly known at all (it would seem) that China is also owed $3bn, it claims, for loans made for future grain delivery to China. It would seem clear from this action on which side of the ‘sanctions’ fence China is sitting.
Via RBC Ukraine (Google Translate),
In 2012, The State Food and Grain Corporation and the Export-Import Bank of China agreed to provide Ukrainian corporation loan of $3 billion, which was planned to be on the spot and forward purchases of grain for future delivery to China.
Minister of Agrarian Policy and Food of Ukraine Igor Schweich confirmed that China has filed a lawsuit against Ukraine in a London court for the return of a loan of $3 billion.
The Ukraine minister disagrees with China’s case:
… “filed false information that there are no claims to us from China. According to the contract have different interpretations, different interpretations, which led to the treatment of the Chinese side in court Gaft who works in London. Registered dispute between the parties exists,” – said Minister told reporters. According to him, the parties agreed to take the following week a representative of the Chinese corporation for the possibility of peaceful settlement of the dispute.
“We, for our part, will do their steps to ensure that the other party or retract its announcement, or we found another way to a peaceful settlement,” – he said. According to Schweich, a meeting will be held on March 26.
Ukraine appears to claim that these loans were made by the previous administration
The Minister added that the main problem lies in the fact that some leaders of PJSC “State Food and Grain Corporation of Ukraine” incorrect information. “These people are now removed during the protest,” – said Schweich, noting that China “is relevant to understand.”
In February 2014. the current Prime Minister of Ukraine Yatsenyuk said that “location $ 3 billion is not found.”
While China has been relatively quiet in the background – though abstaining from the UN vote was a clear signal of relative support for Russia – this is a meaningful step in the direction of pressure against the West, as yet again, any bailout funds would flow straight to either Russia (gas bills or callable bonds) or China (agriculture loans).
The American government conducted a major intelligence offensive against China, with targets including the Chinese government and networking company Huawei, according to documents from former NSA worker Edward Snowden that have been viewed by SPIEGEL and the New York Times. Among the American intelligence service’s targets were former Chinese President Hu Jintao, the Chinese Trade Ministry, banks, as well as telecommunications companies.
But the NSA made a special effort to target Huawei. With 150,000 employees and €28 billion ($38.6 billion) in annual revenues, the company is the world’s second largest network equipment supplier. At the beginning of 2009, the NSA began an extensive operation, referred to internally as “Shotgiant,” against the company, which is considered a major competitor to US-based Cisco. The company produces smartphones and tablets, but also mobile phone infrastructure, WLAN routers and fiber optic cable — the kind of technology that is decisive in the NSA’s battle for data supremacy.
A special unit with the US intelligence agency succeeded in infiltrating Huwaei’s network and copied a list of 1,400 customers as well as internal documents providing training to engineers on the use of Huwaei products, among other things.
According to a top secret NSA presentation, NSA workers not only succeeded in accessing the email archive, but also the secret source code of individual Huwaei products. Software source code is the holy grail of computer companies. Because Huawei directed all mail traffic from its employees through a central office in Shenzhen, where the NSA had infiltrated the network, the Americans were able to read a large share of the email sent by company workers beginning in January 2009, including messages from company CEO Ren Zhengfei and Chairwoman Sun Yafang.
Sophie Shevardnadze: David Speedie from the Carnegie Council for Ethics and International Affairs, welcome to our show.
SS: When Americans are saying that they are concerned about Ukraine – and they seem generally concerned, President Obama, John Kerry – they all come up with the statements saying that they are very worried about what’s going on in Ukraine, about its future…Do you think they really hold the Ukrainian happiness close to heart, or does it really all come down to confronting Russia at the end?
DS: That’s a good, important question – but perhaps there is an unfortunate answer. I think if one wants to be charitable, it would be a bit of both, there is genuinely a sense of concern for Ukraine; of course there’s also a not-insubstantial Ukrainian-American population in the voting public who must be taken into account. I think there is at least a recognition that Ukraine is a very important country. An American scholar described it as “keystone in the arch,” part of the essential foundation of Europe. We all hope that, again, Ukraine enjoys a good future relationship with Russia and with Europe.
So I think there is a genuine concern for Ukraine, but it’s not based on pragmatic consideration of Ukraine’s history with Russia – culturally, historically, demographically and all the other ways. And then of course, again, I have to say this, the history of the post Cold-War period is a history of poking, if one may say, at the Russian bear, until he strikes back, and that’s what happened over Ukraine. This is not the first incident – from the bombing of Serbia, from expansion of NATO, from the rebuff on the missile defense – this is not the first time that the Russian interests have certainly not been taken into account, to put it charitably, and perhaps one could go as far as to say there is at least a faction in the US that has a certain interest in beating Russia.
SS: The whole Euromaidan movement started when President Yanukovich declined to sign an EU association treaty on economic grounds. Now, after all the chaos, almost 100 lives lost, the economic part of the treaty is being dropped. What was it all about? Was it all for nothing?
DS: I’ve always wondered that the economics of this whole conversation – as we know, the first offer from the EU was sort of derisorily received by Yanukovich, I think it was one billion, and that was regarded as, of course, totally inadequate, and that’s when he went to Moscow, and then, I think, the stakes were raised. President Putin came back with a 15 billion package, the Europeans have since matched that. In terms of great game of poker, they saw the hand of the Russians and threw 15 billion in. And Ukrainians, I think, have said, that that doesn’t really cover it, Ukraine needs at least 35 to 40 billion …
I mean, various levels here: first of all, Ukraine as part of the EU that…as we know, there’s so many forgotten sidebar stories to this: the EU is having its own sort of soul searching at this point in time, there is significant opposition, typically in the form of the right-wing movements throughout Europe, to the whole European idea. The eurozone is in crisis, countries like Greece and Portugal, Spain, to some extent, Italy, are kind of the sick men of Europe at this point in terms of inclusion in the eurozone. Quite why Europeans would want to add Ukraine to that mix at this point would seem to be more of a political than an economic decision, and then the question is begged as to whether it is a good political decision for Ukraine. I have to say that most people, my guess would be, if they could turn the clock back a month to the events before Maidan, I think that most sides could agree that an unfortunate chain of events were set in motion, that, again, may have consequences that may be difficult to control.
The head of the International Monetary Fund says she expects Ukraine and the IMF to finish a short-term financing plan within “days,” The Wall Street Journal reported Sunday. Speaking in Beijing, IMF Managing Director Christine Lagarde said such a plan is needed to stabilize Ukraine’s economy, but didn’t give details about either the package’s size or what conditions the IMF may demand. Lagarde made the comments in response to questions from students at Tsinghua University in Beijing.
Meanwhile, U.S. aid to Ukraine is high on the congressional agenda when lawmakers return to Washington Monday. Separate Senate and House bills both back $1 billion in loan guarantees for Ukraine, but lawmakers are divided over including IMF reforms in the aid package. The White House has been urging Congress to approve a shift of $63 billion from an IMF crisis fund to the institution’s general accounts, which would make good on a commitment from 2010. Senate Democrats support that move, but some Republicans say the IMF changes cost too much. House Speaker John Boehner has said the money for the IMF isn’t necessary to help Ukraine. The Senate plans to hold a procedural vote on Monday on the Ukraine aid legislation, including the IMF funding.
As the European Union steps up its response to Russian president Vladimir Putin’s annexation of Crimea, German companies are urging caution lest sanctions harm their business ties — and Europe’s shaky economic recovery.
The EU’s biggest economy has a lot riding on Russia. Volkswagen AG, Siemens AG, and HeidelbergCement AG are among the largest foreign investors there, the economic linchpin of a relationship nurtured by successive Berlin governments. Retailer Metro AG sells groceries to Russians, Adidas AG clothes the national soccer team, and Deutsche Lufthansa AG flies to more Russian cities than any other western European carrier.
U.S. President Barack Obama visits Europe this week, where he will confer with allies on further measures to deter Russia. Western officials have expressed concern about Russian troop movements near the Ukrainian border, which could worsen the crisis, U.K. Foreign Secretary William Hague wrote in The Sunday Telegraph yesterday. The EU on March 21 expanded the list of people subject to visa bans and asset freezes in response to Russia’s annexation of the Crimea to 51 individuals.
There will likely be opposition to tightening the screws too much. Gernot Erler, German Chancellor Angela Merkel’s coordinator for relations with Russia, told Bloomberg News last week that harsh sanctions would be counterproductive and unlikely to convince Putin to change course. “We hope that politicians really think about the impact sanctions will have,” said Ulrich Ackermann, chief international economist at the VDMA, an association of 3,100 German machine makers, including Siemens and VW. “It’s important that they weigh what the effect will be not only on the country you want to hit, but also on the country that’s imposing the sanctions.”
Among the large countries that use the euro, Germany sends the highest proportion of its exports to Russia, about 3.3%, Morgan Stanley (MS) analysts said in a March 20 research note. Bilateral trade between the two countries hit €77 billion ($106 billion) last year, and German investment in Russia totals €20 billion, according to the German Association of Chambers of Industry and Commerce.
Those close ties distinguish Germany from its European partners and, especially, the U.S., according to Bernd Scheifele, Chief Executive Officer of concrete producer HeidelbergCement AG.
“The greatest risk is if the Americans play power games — since they have very limited trade with Russia they could very well do so,” Scheifele told reporters on March 19. “If the Russian state has no money, then all infrastructure and construction projects come to a standstill.”
European Commission proposals due to be published on Thursday on how to fund long-term investments to boost Europe’s economies brings the start of a rehabilitation for the image of “shadow banking”, the largely unregulated market-based provision of credit which lay at the heart of the financial crisis. The EC plans envisage engineering a fundamental shift in how the continent raises money for investment in infrastructure like roads and technology while at the same time moving away from an over-reliance on banks for fuelling growth in the economy.
A core element involves reviving securitization or the bundling of loans into interest-bearing bonds, a market which was fatally wounded by its central role in the financial crisis seven years ago when bonds which packaged up subprime U.S. home loans became untradeable. Now the market for asset backed securities, currently has 650-700 billion euros worth of bonds in circulation, half its pre-crisis size. This shrinkage, coupled with banks being wary of lending as they rebuild their capital buffers, makes it harder than ever to seed economic growth in Europe.
In the immediate aftermath of the financial crisis regulators called for a tough crackdown on the $71 trillion global shadow banking sector that also includes debt market repurchase agreements, securities lending, money market investment funds and some hedge funds. But with the worst of the crisis now over, government attention has turned to growth and with it the regulatory mood music has also changed.
Policymakers are thinking twice about imposing new rules on one of the few sources of funding that can plug a gap left by retreating banks and the EU plans are a major milestone in this change of tack. “It’s a sign that regulators believe one aspect of shadow banking – securitization – is something to be encouraged and not discouraged, but they need to foster private sector involvement,” said David Covey, head of strategy for European asset-backed securities at Nomura bank.
Last week a top regulator said efforts by global supervisors to revive securitization will be intensified with proposals due soon, a step welcomed by bankers who say clarity on rules is key to encouraging investors to return to the market. “If there is regulatory uncertainty, it’s very damaging,” Covey said.
The EC estimates that a trillion euros is needed in long term finance for transport, energy and telecoms up to 2020 to boost competitiveness and jobs and hopes that by encouraging market-based financing it can reduce the continent’s reliance on banks for raising up to 70% of funds for the economy. Some European policymakers look to the United States, where markets instead fund about 70% of the economy, as a model to emulate. “There is no single action or ‘magic bullet’ which will revolutionize the financing landscape in one go; rather a range of different responses is required in parallel,” the EC said in a draft of the proposals seen by Reuters last month.
Most of the protesters in Spain are peaceful, but there is an increase in radicalization, especially among young people, which is understandable due to the high level of youth unemployment, trader and portfolio manager Felix Moreno told RT.
On March 22, tens of thousands of Spaniards rallied in Madrid for a so-called ‘Dignity March’ against EU-imposed austerity measures. The protest was peaceful in general, though later on some protesters switched to violence, starting to throw stones and bottles at the large numbers of riot police and attacked cashpoints and hoardings. The main demands of the protesters are an end to the so-called Troika-style cuts in Spain, more jobs and affordable housing.
RT: We’ve seen protests in Spain and other crisis-hit countries going on for years, yet nothing seems to change. So what’s the point of anyone complaining?
Felix Moreno: To perfectly honest, it’s necessary for people to speak out because the government has had it very easy so far. The previous government made such a mess of it. Most people had a lot of patience and hope that this command was going to change this direction. Unfortunately, they haven’t [anymore] and I think we are starting to see the beginnings of the sea change in public opinion against this government.
RT: We’ve also seen a change in tactics as well. Last night in Madrid it was the police who received most of the injuries. Maybe there are some better ways for the people to get their voices heard than attacking the security forces?
FM: [Almost] all of the protesters are peaceful, but there is an increase in radicalization, especially among the young people, and this is understandable. But hopefully the silent and peaceful majority will prevail. Even though the anger keeps some building up because as you said there is over 50 percent youth unemployment in Spain and those people are getting very angry.
RT: The protesters are blaming the so-called Troika of the IMF, the European Central Bank and the EU for many of the country’s problems. But isn’t it really their own government that’s landed them in this mess? Who is to be blamed?
FM: Well, definitely the Troika, the IMF and the EU have had an influence on the government policy, but the ultimate decision has lied with government in Madrid because they did have choice of how to balance the budget. They could have radically cut spending in sectors which are not directly beneficial or directly affect the welfare of the people and they’ve made a choice to keep the public sector just as big but cut in the most basic necessities: they’ve cut education spending, they’ve cut health spending and above all, they’ve increased taxes. It’s not said very much, but there has been more than 50 tax increases within the past two years since the government came to power and that’s a direct opposition to what they promised in their electoral program
RT: Have these massive tax increases been advertised on the Spanish media?
FM: The Spanish media has talked about it quite a bit but they have made much more noise about the cuts. In fact, that’s been three times as much revenue impact through tax increases than through cuts.
RT: Of course, austerity takes its toll on ordinary people but what’s the alternative to get out of the crisis?
FM: Of course, the government’s own economic experts came out with a report two years ago with real alternatives to it and then they did exactly the opposite of what they’ve actually published in their own books. What they said was “Two thirds of the cuts should be through reduction in government spending and privatization of the public companies and one third in tax increases.” They’ve done the exact opposite. They have increased VAT, which is a tax that most impacts the poorest, and they’ve cut spending in the most sensitive sectors. They have not reduced headcount in public, in government workers, they have not reduced spending of government companies and obviously they bailed out the banks.
If they could have the money used to bail out the banks and used it to save the weakest in the population, the public unrest would have been much, much less, the situation would have been much easier. Obviously, they had to let banks fail to do that and they were ready to do that.
Since the start of 2014, investors have fretted over emerging markets. And they should. Early in this economic recovery, investors repelled by low returns in the developed world leaped for the stocks and bonds of emerging markets, whose markets promised faster growth. In 2009 and 2010, emerging economies grew much faster than the U.S. did; stock prices rose 46% annually, more than twice the gains of U.S. equities. Hot money flowed in, but so did foreign direct investment, which is harder to extract. Last year, foreign direct investment in the developing world grew 6%, to a record $759 billion, or 52% of the global total.
In their indiscriminate rush into emerging markets, though, investors forgot two important points: First, without exception, these economies depend primarily on exports for growth, which means the developed economies, especially the U.S., must be capable of buying their goods. And second, not all emerging markets are alike. On the first point, the developing world’s export growth model, which worked well in the 1980s and ’90s, won’t be viable for four more years or so while the U.S. continues to deleverage. Europe, meanwhile, has emerged from recession, but its economic growth will probably remain subdued at best.
The decline in the U.S. household saving rate from 12% in the early 1980s to 2% in the mid-2000s drove growth in the U.S. and the global economy. During the savings drought, consumer spending grew one-half percentage point a year faster than disposable (after-tax) income and added about half a percentage point to growth in real gross domestic product. Now all that is moving in reverse: Households are pushed to save by uncertainty over stock portfolios, exhausted home equity and the lack of retirement assets held by postwar babies.
The overseas effects of this reversal are powerful. For every one percentage point rise in U.S. consumer spending, American imports — the rest of the world’s exports — have risen 2.9 percentage points a year, on average. So when Americans stop spending, the rest of the world suffers.
The Chancellor opened his Budget speech in the House of Commons last Wednesday as follows: “I can report today that the economy is continuing to recover – and recovering faster than forecast. We set out our plan. And together with the British people, we held our nerve. We’re putting Britain right.”
The question for us to consider here is whether that is true. Let’s not forget that Mr Osborne lost the much-hallowed, but still not restored AAA credit rating that he told everyone in 2010 was a central plank of his plan. So to cut through all the hyperbole and taunting, I want to put this all in context.
I present a little evidence on GDP per capita in the first chart. This is up from £5,971 in Q2 2010, when the Coalition took office, to £5,997 per quarter in Q3 2013, which is the latest data we have. So GDP per person living in the UK rose by 0.4% in total over these 14 quarters, or by an average of 0.028% a quarter. This compares with an average growth of 0.71% a quarter over the 41 quarters from Q1 1998-Q1 2008 under Labour. So growth under Labour was 25 times higher than under Mr Osborne. Real GDP per capita remains 6.4% below its level in Q1 2008, which inevitably will not be restored before the May 2015 election.
So much for all the claims of victory; the war has been lost.
Pollution in Beijing rose to nearly 10 times levels considered safe by the World Health Organization, triggering warnings to avoid outdoor activity. The concentration of PM2.5 — the small particles that pose the greatest risk to human health — hit 242 in the Chinese capital as of 3 p.m., a U.S. Embassy monitor said. The WHO recommends 24-hour exposure to PM2.5 levels of less than 25.
High pollution levels prompted Premier Li Keqiang to say earlier this month the government would “declare war” on smog by closing some coal-fired furnaces and removing high-emission vehicles from the road. In a speech today, International Monetary Fund Managing Director Christine Lagarde said bad air quality, water shortages and desertification pose a “serious risk to the next stage of China’s development.” “As with many countries around the world, China’s economic success came at a price — increasing inequality and increasing environmental damage,” Lagarde told the China Development Forum.
Last week, the city’s meteorological bureau said Beijing plans to allocate 20 million yuan ($3.2 million) on “weather modification efforts” — chiefly creating rain — to ease smog. Earlier today, a preliminary measure showed China’s manufacturing industry weakened for a fifth straight month in March. Speaking at a briefing on March 8, Vice Environmental Protection Minister Wu Xiaoqing said China has paid a heavy environmental price for its growth in gross domestic product.
Creationist groups have made yet another complaint about Neil deGrasse Tyson’s “Cosmos: A Spacetime Odyssey.” Since the show debuted on FOX this month, creationists have not kept quiet about the science documentary series. What’s the problem now? While some have shunned the reboot of Carl Sagan’s 1980 PBS series altogether, other creationists now have made a request: equal airtime.
Appearing on “The Janet Mefferd Show” on Thursday, Danny Faulkner of Answers In Genesis voiced his complaints about “Cosmos” and how the 13-episode series has described scientific theories, such as evolution, but has failed to shed light on dissenting creationist viewpoints. He said: “I was struck in the first episode where [Tyson] talked about science and how, you know, all ideas are discussed, you know, everything is up for discussion –- it’s all on the table — and I thought to myself, ‘No, consideration of special creation is definitely not open for discussion, it would seem.'”
Tyson recently addressed providing balance when it comes to discussing science. In an interview with CNN, the astronomer criticized the media for giving “equal time” to those who oppose widely accepted scientific theories. “I think the media has to sort of come out of this ethos that I think was in principle a good one, but doesn’t really apply in science. The ethos was, whatever story you give, you have to give the opposing view, and then you can be viewed as balanced,” Tyson said, adding, “you don’t talk about the spherical earth with NASA and then say let’s give equal time to the flat-earthers.”
“Cosmos,” broadcast by FOX and National Geographic, covers a broad range of content from Earth’s place in the universe to the origin of life. However, the documentary series’ focus on Darwin’s theory of evolution has stirred the most controversy. An Oklahoma TV station faced backlash shortly after the first episode aired when a YouTube user posted a video of the FOX affiliate’s abrupt transition from “Cosmos” to a news promo, cutting out a part of the show when Tyson mentions evolution. While some speculated that the placement of the promo was intentional, TV station KOKH explained in a tweet that the interruption was accidental.