DPC Masonic Temple, New Orleans 1910
All Asian countries MUST participate.
The Bank of Japan’s (BoJ) stimulus blitz raises the specter of currency wars as a rapidly weakening yen threatens the competitiveness of export-driven economies, say strategists. “Whenever you have these kinds of disruptive moves by central banks, there’s always going to be fall out effects,” said Boris Schlossberg, managing director of FX strategy at BK Asset Management. Markets were caught off guard by the BoJ’s announcement on Friday that it would expand purchases of exchange-traded funds (ETFs) and real estate investment trusts, extend the duration of its portfolio of Japanese government bonds (JGBs), and increase the pace of monetary base expansion. The yen plunged nearly 3% against the U.S. dollar on Friday and extended its selloff on Monday, falling to a fresh 7-year low in early Asian trade. It last traded at 112.71.
“The hottest currency war today is Japan vs Korea. That’s probably the one to keep an eye on. The yen-won cross rate is very sensitive as Japan and Korea compete in a lot of key areas,” said Sean Callow, senior currency strategist at Westpac. The Japanese currency has fallen around 20% against the won since the BoJ launched its unprecedented stimulus program in April 2013. Currency strategists say the BoJ’s actions could encourage the Bank of Korea (BoK) to become more defensive against local currency strength through intervention in the foreign exchange market or a rate cut. “We see increasing risks that it may cut rates by 25 basis points to 1.75% in coming months,” Young Sun Kwon, economist at Nomura wrote in a note late Friday, highlighting that Korea’s export momentum already looks weak.
“The move will be particularly problematic for China, as its slow-crawling managed rate to the U.S. dollar renders it is effectively defenseless when confronted by currency wars.”
Last Friday, the Bank of Japan effectively tossed a grenade into the region’s currency markets with its surprise announcement of a new round of quantitative easing sending the yen to fresh lows. The move will be particularly problematic for China, as its slow-crawling managed rate to the U.S. dollar renders it is effectively defenseless when confronted by currency wars, in which countries try to steal growth from their trading partners through competitive devaluations. It also comes at a time when Beijing is already battling foes on two fronts: hot-money outflows and an economy flirting with deflation. The consensus is that the world’s largest trading nation will resist the temptation to enter the fray with a competitive devaluation or move to a market-based exchange rate. Yet Japan’s latest actions will hurt, as they hold Beijing’s feet to the fire.
The decision last Friday by the Bank of Japan to boost its bond purchases by more than a third to roughly $725 billion a year, among other actions, sent the yen tumbling to a seven-year low as the dollar rallied to above ¥112. This means the currency of the world’s second-biggest economy has now risen by roughly a third against that of the world’s third-biggest since late 2012. That’s a significant revaluation to swallow by any measure, all the more so as Japan and China are increasingly competing with each other, say analysts. According to new report by HSBC, Japan and China are already rivals in 19 manufactured product lines, and this total is growing. Panasonic has already said it is considering “on-shoring” certain production back to Japan. The other reason Japan’s escalation of QE turns up the heat on China is that it risks exposing the vulnerabilities in Beijing’s piecemeal approach to opening up its capital account.
Major loss of face for Cameron.
Germany would rather see Britain leave the EU than allow David Cameron to tear up its rules on free movement of labour, Angela Merkel has said. The Chancellor warned the Prime Minister that he is reaching a ‘point of no return’ by pushing for reform of the bloc’s sacred free movement system. The threat has forced Mr Cameron to tone down his ambitions for any deal to curb EU immigration. The pair clashed at a summit in Brussels last month, German magazine Der Spiegel said. Citing senior officials, it said Mrs Merkel told Mr Cameron he was nearing a ‘point of no return’ with plans to introduce quotas for the number of EU workers who can come to Britain.
She threatened to abandon her efforts to keep Britain in the EU unless he backed down. One government insider was quoted on Radio Bavaria saying: ‘The time for talking is close to over. ‘Mrs Merkel feels she has done all she can to placate the UK, but will not accept immigration curbs from EU member states under any circumstances. It has come to a Mexican stand-off and it is now a question of who blinks first.’ Mrs Merkel was confident of winning the battle of wills, the insider added. It came amid reports that Mr Cameron is ditching his quota plan to appease Berlin. Ministers will focus on making the existing rules work better for Britain. A source said Mr Cameron’s plans – to be outlined before Christmas – would stretch EU rules ‘to their limits’.
Why Abenomics and Kuroda will fail: “If prices rise, people might not buy as much.” An entirely overlooked mechanism. Abe et all think that if prices rise, people will spend more, because they’re afraid they’ll rise more.
Bank of Japan Governor Haruhiko Kuroda does not need to convince Japanese people like Kazue Shibata that deflation brings problems, but getting them to believe that higher prices will make things better is proving to be a harder sell. Shibata, 65, who runs a small dress shop in central Tokyo, worries the BOJ’s mission to hit a 2% inflation target could end up driving business away unless people also have more money in their pockets. “If prices rise, people might not buy as much,” she said, echoing a concern of many private-sector economists. On Friday, Kuroda’s BOJ doubled down on a high-stakes bet that the central bank can shake Japan’s consumers from a defensive set of expectations hardened by a decade and a half of era of falling prices, lower incomes and stop-and-go growth. “It’s important for the BOJ to strongly commit to achieving its price target to get that price target firmly embedded in people’s mindset,” Kuroda said at a news conference on Friday, after the BOJ stunned markets with an unexpected expansion of its monetary stimulus program.
“It won’t do much good in trying to shake off the public’s deflation mindset if you just say inflation will reach 2% some day,” Kuroda said. At the core of Prime Minister Shinzo Abe’s “Abenomics” agenda is the assumption that the outlook for sustained inflation will prompt consumers to anticipate rising prices, and that consumption will rise as a result. That represents a sea change for a country used to deflation, where clinging to cash today meant greater buying power tomorrow, a set of expectations that has proven hard to shake a year-and-a-half into an unprecedented easing by the BOJ. Kaoru Sakai, 65, who runs a hair salon in Tokyo, did not raise prices even after the national sales tax was raised to 8% to 5% in April, worried the sticker shock could scare away business. “The fact is that people don’t feel confident about the future,” Sakai said. “Our society and economy has tilted people toward lower-end options. For example, it’s like people choosing to eat at fast-food places, or standing-only soba shops even when they could, realistically, eat at proper restaurants.”
Unless Japanese people see real progress in solving fundamental problems, such as lack of wage growth, a shrinking manufacturing base, and an unsustainable welfare system, many might prefer the problem they know to the one Kuroda hopes will replace it. Classical economics would argue that consumers should welcome deflation, because it increases their purchasing power, an argument some consumers echo. “Deflation reflects the underlying economy. Our population is decreasing, production is low and we’re not seeing innovation. We are losing power compared with other countries,” said Yohei Tanaka, 33, an accountant in Tokyo. “I don’t think this is the time to drive the economy to inflation. I don’t think inflation is the end solution. Deflation, in a certain way, is good.”
The yen will be reduced to something resembling a penny stock.
The worst is yet to come for the yen after Japan’s two-pronged attack on deflation sent the currency tumbling to its weakest level in almost seven years. Option prices show traders see a 6%chance the yen, which has already slumped 6.8% this year, will drop an additional 1.8% to 115 per dollar in the next three months, according to data compiled by Bloomberg. That’s up from 18% on Oct. 30, the day before authorities surprised investors by saying the government pension fund will invest more of its money overseas and Bank of Japan Governor Haruhiko Kuroda will expand currency depreciating stimulus.
“The BOJ has dropped another stimulus bombshell,” Daisaku Ueno, the chief currency strategist at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo, said by phone on Oct. 31. “It’s quite possible the yen will drop to 112 or 113 per dollar by the end of the year, or even 115.” That level – last reached in November 2007 – is already starting to become the consensus. Companies from Nomura Holdings Inc., Japan’s biggest brokerage, to JPMorgan Chase & Co. cut their year-end forecast to 115 per dollar on Friday, while Goldman Sachs said the day’s announcements made its estimate for the yen to reach that level in 12 months suddenly seem “conservative.”
“… the markets are pouncing on the yen because they are forward-looking: the BoJ is monetizing ever more government debt and this is expected to continue, because the public debtberg has become too large to be funded by any other means. In spite of the relatively low money supply growth this debt monetization has produced so far, it also creates the perverse situation that an ever greater portion of the government’s outstanding stock of debt consists actually of debt the government literally “owes to itself”.
In order to explain why the pursuit of Kuroda’s policy is edging ever closer to a catastrophic outcome, we have to delve a bit into the details of Japan’s monetary data. In spite of the BoJ’s “QE” reaching record highs, it mainly creates bank reserves and furthers carry trades. The economy sees no private credit growth so far. Commercial banks in Japan continue to shrink the stock of fiduciary media – this is to say, they are reducing outstanding credit, which makes more and more unbacked deposit money disappear. Hence, Japan’s money supply growth has recently decline to a mere 4.3% year-on-year, as the rate of contraction in outstanding fiduciary media (i.e., uncovered money substitutes) has accelerated to 9.4% annualized in spite of the BoJ’s pumping. The reason is a technical one: contrary to the Fed, the BoJ buys most of the securities it acquires in terms of its “QE” operations directly from banks – this creates new bank reserves at the BoJ, but no new deposit money.
By contrast, the Fed buys only from primary dealers, which are legally non-banks (even though most of them belong to banks). This creates both bank reserves and deposit money concurrently. The BoJ’s actions can only directly inflate the money supply to the extent it buys securities from non-banks, e.g. when it buys stocks in REITs to prop up the Nikkei. In short, the effectiveness of the BoJ’s pumping depends on the extent to which commercial banks are prepared to employ additional bank reserves to pyramid new credit atop them and thereby create additional fiduciary media. Japan’s banks are doing the exact opposite, mainly because there simply isn’t sufficient demand for credit. Why would anyone borrow more money, given Japan’s demographic situation?
However, one result of this is that an ever larger portion of Japan’s money supply actually consists of covered money substitutes – deposit money that is “backed” by standard money. Covered money substitutes have grown by more than 77% over the past year. Bank reserves can be transformed into currency when customers withdraw cash from their deposits, hence to the extent that deposit money is “backed” by bank reserves, it ceases to be a form of circulation credit. The narrow money supply in total now amounts to roughly 595 trillion yen; of this, roughly 139 trillion yen consist covered money substitutes and 83.4 trillion yen consist of currency (outstanding banknotes in circulation). Thus the stock of fiduciary media has shrunk to 372.6 trillion yen. It is well known that Japan has a very high public-debt-to GDP ratio. Even with the recent economic upswing, its budget deficit for the current year is projected to clock in at more than 7% of GDP – the latest in a string of huge annual deficits. What is less well known is the ratio of public debt to tax revenues, which is actually the more relevant datum.
We conclude from this that the markets are pouncing on the yen because they are forward-looking: the BoJ is monetizing ever more government debt and this is expected to continue, because the public debtberg has become too large to be funded by any other means. In spite of the relatively low money supply growth this debt monetization has produced so far, it also creates the perverse situation that an ever greater portion of the government’s outstanding stock of debt consists actually of debt the government literally “owes to itself”. On the surface, this monetarist wizardry suggests that one can indeed “get something for nothing” – but that just isn’t true. Deep down, market participants know that it isn’t true – so even though they are celebrating the promise of more liquidity by sending Japanese stocks soaring, they are also creating a fault line – and that fault line is the external value of the yen.
” … central banks, even the desperate ones like BoJ, are and remain one-trick-pony institutions”
The Bank of Japan has increased the targeted monetary base from JPY 60-70 trillion to JPY 80 trillion an increase of 25-35% and an almost desperate move to keep the Abenomics’ wheels going. The decision is quite controversial as the vote was a narrow 5/4. This is extremely unusual as big decisions like these are generally only done with full consensus, but it clearly shows Abenomics is running out of time and room as core-inflation, excluding tax, was at 1.1% vs. the 2.0% target. The International Monetary Fund has been critical of Abenomics recently telling Japan that is falling short of helping the economy. From a market perspective the move [Friday] was almost perfectly timed coming on the heels of a Federal Open Market Committee meeting which ended quantitative easing and expose the big difference on future monetary paths between the BoJ and the Fed.
There is, however, a dark side to this big move. Prime Minister Shinzo Abe needs and needs to decide soon on whether to increase sales tax, VAT, again or disappoint on his third arrow. Abenomics has not deserved its name as a new approach. it has been all about printing money and making the state take a bigger and bigger role. It is hardly a new policy but more a reflection on an inability to change a conservative society with poor demographics. Tactical and trading wise, the USDJPY has reached a new high and it’s hard to fade a central so desperate is very likely as US dollar strength the name of the game through Mid-November. The easier monetary policy will force USDJPY and NIKKEI higher as it’s a one-way street, but it will more importantly force Japanese banks to lend out and overseas. I see/hear desperate Japanese bankers trolling the world to find things to finance and it seems they are in desperate need of US dollar funding (I.e: they have not hedged proportionally).
This could make USDJPY test 125/135 over coming months but the “risk” remains China, which even prior to this action was upset at the ‘beggar thy neighbour’ policy of Japan. Overall, tactically, it confirms the world is again moving towards lower yields in G10. A new low remains my only and main call and furthermore as big a move as this is, it also tells a story of how central banks, even the desperate ones like BoJ, are and remain one-trick-pony institutions. Personally I see this as the final round – Japan was ALWAYS going to give it one more shot – now it happened.
They have no money left to spend. And you want to tell me your economy is doing well?
The U.S. is adding jobs at the fastest rate since the end of the Great Recession and another strong month of hiring is expected in October, but Americans still aren’t spending like good times are here to stay. The lackluster pace of consumer spending — outlays fell in September for the first time in eight months — largely explains why the U.S. is only growing at a post-recession annual average of 2.2%. Yet most economists think that could change in the near future. The reason: wages finally appear to be moving higher as the unemployment rate falls and companies find it harder to attracted talented workers. Employment costs jump for second straight quarter.
Even more jobs and higher pay for the average worker, however, might not be enough to get consumers to sharply boost spending, other economists say. Despite rising consumer confidence, they point out, many Americans still aren’t sharing in the spoils of a healing economy. And many bear psychological scars from the Great Recession that impel them to save more than they used to in order to protect themselves against another downturn. The U.S. savings rate, for example, rose to 5.6% in September to match a two-year peak, putting it twice as high as it was in the last year before the recession. “The economy is doing well for some people but very poorly for many others,” said Joshua Shapiro, chief economist at MFR Inc. in New York. “People understand that things are improving slowly, but until they see it in their paychecks it’s hard to truly believe that.”
Three-quarters of young people make less than a living wage. And you want to tell me your economy is doing well?
More than a fifth of UK workers earn less than the living wage, with bar staff and shop assistants among the most likely to live “hand to mouth” because of low pay, a report warns on Monday. Published to mark living wage week, the research also finds that younger workers, women and part-timers are more likely to be paid less than the living wage, a voluntary threshold calculated to provide a basic but decent standard of living. New living wage rates will be announced on Monday, with the current rate at £8.80 per hour in London and £7.65 elsewhere. The report by consultancy firm KPMG adds to evidence of low pay remaining prevalent in Britain, despite the economic recovery. The proportion of employees on less than the living wage is now 22%, up from 21% last year, the study found. In real terms, that was a rise of 147,000 people to 5.28 million.
The Trades Union Congress (TUC) urged more employers to adopt the pay benchmark, following news that more than 1,000 companies representing around 60,000 employees are now committed to the wage and will adopt the new rate on Monday. Frances O’Grady, the TUC general secretary, said: “Low pay is blighting the lives of millions of families. And it’s adding to the deficit because it means more spent on tax credits and less collected in tax. We have the wrong kind of recovery with the wrong kind of jobs – we need to create far more living wage jobs, with decent hours and permanent contracts.” Alan Milburn, the government’s social mobility tsar, said both employers and government must do more to make Britain a living wage country. “This research is further proof that more workers are getting stuck in low paid work with little opportunity for progression,” said the former Labour cabinet minister, now chair of the government’s Commission on Social Mobility.
“It is welcome that the number of accredited living wage firms has increased. But far more needs to be done to help millions of people move from low pay to living pay.” The research, conducted by Markit for KPMG, shows 43% of part-time workers earn less than the living wage, compared with 13% of full-time employees. It found 72% of 18-21 year olds were earning less than the living wage, compared with just 15% of those aged 30-39. One in four women earn less than the benchmark, compared to 16% of men. “Far too many UK employees are stuck in the spiral of low pay,” said Mike Kelly, head of living wage at KPMG. “With the cost of living still high, the squeeze on household finances remains acute, meaning that the reality for many is that they are forced to live hand to mouth,” added Kelly, also chair of the Living Wage Foundation.
All the wrong people do a job the ECB should never have been assigned. They can only make things worse.
The European Central Bank is about to achieve its biggest expansion of powers since the start of the euro. No celebrations are planned. As the Single Supervisory Mechanism takes charge of the euro area’s 120 biggest institutions tomorrow, officials aren’t in the mood for fanfare. Instead, staff at the ECB’s new overseer are preparing to monitor capital issuance by banks, and processing the results of a year-long asset review that revealed a stash of soured loans in the bloc now amounts to almost €900 billion ($1.1 trillion). Led by France’s Daniele Nouy, the SSM in Frankfurt will immediately set about trying to blend 18 sets of national supervisory habits into pan-European consistency, and prod banks to take more precautions against crises. While the ECB will have the status of a new heavyweight among global regulators, that role carries with it the burden of restoring confidence in a battered banking system vulnerable to renewed economic shocks. “They have an awful lot on their plate from day one,” said Guntram Wolff, Director of the Bruegel institute in Brussels.
“There’s a very big pile of bad loans, profitability in this environment is going to be difficult, and the banking system itself probably needs to be restructured. The question is how the new supervisor can address that.” [..] While the ECB found an overall shortfall of €9.47 billion euros, that becomes €6.35 billion when discounting five failing lenders that have agreed restructuring plans or are in resolution. The outstanding sum “doesn’t seem insurmountable,” Mathias Dewatripont, a Belgian member of the new SSM board, said last week in Berlin. “I would still be happier if we had more capital in the system.” Soon to be in charge of that system is a new corps of almost 1,000 bank supervisors drawn from all over Europe, including existing authorities and the private sector. Notables among senior management include Stefan Walter, a former official of the Federal Reserve Bank of New York who will lead oversight of the biggest lenders including Deutsche Bank, and Finland’s Jukka Vesala, who oversaw the Comprehensive Assessment.
They inherit a banking industry loaded with unpaid debt. While the ECB says credit standards eased for a second quarter in the three months through September, an extra €136 billion in bad loans identified by the Comprehensive Assessment could hamper a return to growth. The path towards managing that legacy will be trodden by both the ECB’s new cadres and 5,000 national supervisors who remain in charge of the thousands of smaller banks in the euro region. The Frankfurt hub will make its presence felt by having its say on everything from bank licensing to merger approval, imposing fines and influencing international regulation.
is it really that crazy to tax what cost us all those trillions? Bloomberg’s ed. staff is not its brightest segment.
Wrangling among the 11 euro-region nations planning to tax financial transactions is further evidence, if any were needed, that the levy is a bad idea that should be abandoned. The European Commission acknowledges that the latest version of its planned financial transactions tax (or Tobin tax, or Robin Hood tax, if you prefer) isn’t the best option. That, it says, would be a globally coordinated toll on trading – which is laughably unlikely. The narrower the tax’s coverage, the less sense it makes. That’s why Europe’s proposed transactions tax isn’t even second-best: An earlier effort to apply it across all 27 European Union members failed. In its current diluted form, the tax would charge 0.1% for nonderivative securities such as government bonds or company shares, and 0.01% on the notional value of derivatives trades. Austria, Belgium, Estonia, France, Germany, Greece, Italy, Portugal, Slovakia, Slovenia, Spain are the willing 11 countries; but they can’t agree on how to divvy up the proceeds.
They’re struggling to meet a self-imposed deadline for an agreement by the end of the year, with the duty scheduled to be imposed by the end of 2015. The most fundamental question about the tax still hasn’t been answered – what’s it for? If the aim is to reduce volatility and speculation in the securities markets, it’s far from clear that the tax would work, according to a study by the consulting firm PricewaterhouseCoopers. If the idea is to strengthen the economy, the tax is a failure at the planning stage. Depending on how the proceeds were spent, the commission itself estimates the transactions tax would raise the cost of capital and could cut as much as 0.28% from gross domestic product — a little more than it would raise in extra revenue. With the bloc threatening to slide back into recession, you’d think any policy that risked hurting growth would be rejected out of hand. The chief motivation for the tax is populist politics: It’s mostly about vengeance for the financial crisis. Bashing bankers, regardless of the collateral damage, remains popular with European politicians.
Get out of the EU!
Italian borrowers are becoming trapped in a vicious circle. As bank loans turn sour at the rate of about €2 billion ($2.5 billion) a month, corporate lending is dwindling to the least in more than a decade. Lenders are sitting on a total €174 billion of non-performing loans, an increase of 62% from three years ago, according to the latest data from Bank of Italy. New corporate lending dropped in August to €21 billion, the lowest since at least 2003, the data show. With public debt of more than €2 trillion, Italy is battling the longest economic slump since World War II that has thrown millions of people out of work. The scarcity of lending is spurring the European Central Bank’s asset purchase program with President Mario Draghi seeking to boost economic growth by freeing up bank balance sheets.
“Banks’ failure to deal with the soured loans is partly to blame for Italy’s worsening recession,” said Riccardo Serrini, chief executive officer at Prelios Credit Servicing, a Milan-based adviser for debt sales. “Without the debt burden, they could be helping to boost the economy.” Unlike lenders from Spain to the U.K., Italian banks are proving unable, or unwilling, to offload bad debts and free up their balance sheets. About €11 billion of loans where borrowers have fallen behind on payments were sold by Italian institutions since 2011, compared with €189 billion for all European lenders, according to PricewaterhouseCoopers.
Our world today: China prints $25 trillion and buys up Europe’s oldest civilizations with it.
As bargain-hunters waited in a packed room at a property auction in Lisbon last month, one language dominated their chat: Mandarin. About 90% of the bidders for the government-owned apartments and stores on offer were Chinese, according to Jorge Oliveira, the official overseeing the asset sale. They ended up acquiring more than two-thirds of the 45 properties, he said. “A Portuguese investor bought a store to start a bakery and coffee shop, but most of the properties went to the Chinese,” Oliveira said in an interview after the sale.
Portugal is the latest target for Chinese investors who have been acquiring buildings around the world as China allows freer movement of funds in and out of the country. The Chinese accounted for almost one in five foreign property purchases in Portugal during the first nine months, according to the Lisbon-based Portuguese Real Estate Professionals and Brokers Association. Bing Wong, a 52-year-old store-owner from Shanghai who attended the Oct. 24 auction, has been buying properties in Lisbon to create a network of outlets to serve the biggest concentration of Chinese residents in Portugal. “Lisbon is cheap if you compare it with other cities,” he said. “The economy is improving and there are some good deals to be done here.”
Expect major swings. Like everywhere else.
Speculators cut their bullish gold bets before prices tumbled to the lowest since 2010 as demand for a hedge against inflation diminished. The net-long position in New York futures and options declined for the first time in three weeks, U.S. government data show. Gains for the American economy have eroded the appeal of bullion as a haven and helped boost the dollar to a four-year high. The Federal Reserve said last week it saw enough improvement to end its bond-buying stimulus program. More than $1.3 billion was pulled from U.S. exchange-traded products tracking precious metals in October, the biggest monthly decline this year, data compiled by Bloomberg show.
Societe Generale’s Michael Haigh, the analyst who correctly predicted gold’s slump into a bear market last year, said the crash in oil prices underscores why inflation is unlikely to accelerate and adds “ammunition” to the pressure on bullion. “We are betting on lower gold prices and telling our clients that they should have zero allocation in gold,” Atul Lele, who helps oversee $5.1 billion as the chief investment officer at Deltec International Group, said Oct. 31. “The dollar will continue to strengthen as other nations are printing money at a time when the U.S. has taken stimulus off the table. U.S. growth is another reason why people will stay away from gold.” [..] Gold climbed 70% from December 2008 to June 2011 as the U.S. central bank bought debt and held borrowing costs near 0% in a bid to shore up growth. Prices slumped 28% last year, the most in three decades. The Fed’s $4 trillion of bond purchases since 2008 have yet to generate the runaway inflation that some gold buyers expected.
That’s the very essence of globalization.
A few things are also appearing on my radar screen – future visions if you like – that I want to share with you. These are not conclusive, but rather a stream of unfiltered thoughts, which will develop over time. I virtually never use geopolitics to assess asset markets. I have learned the hard way over time that it is the way to the poor house. Economies run financial markets, not wars. But I do note that at the margin, the world’s geopolitics is changing. Gone are the fluffy days of Putin shaking hands with George Bush agreeing to keep the world supplied with oil, gone are the days of China helping US firms make profits using their cheap labour, gone are open-for-business days of Europe, gone is the Japanese military neutrality, gone are the Saudis as an unshakeable ally, gone is Israel also a steadfast ally, etc. What is happening is something deeply concerning. Globalisation is turning in on itself and it is each man for himself. This was always going to be the outcome of an imbalanced, debt-drowning world.
Everyone wants a cheap currency and since that doesn’t work then everyone wants to find some way to get the upper hand on their own terms. I have had recent conversations with a long-term strategy group within the Pentagon about economic threats to the US and the risk of global collapse, and the potential for it to turn into a military outcome. It seems that the Department of Defence’s deep thinkers are mulling over the kinds of issues we all are – is the inevitable outcome a military one? They don’t know either but they give it a probability and thus need to understand it and plan for it. My issue has been for a long time that the true threat to the world is not the Muslim nations we so like to beat as a scapegoat (gotta have an enemy, right?) but China. The Pentagon’s think-tank also agrees. If China has an economic collapse, which again is a high probability event, then what are the odds of massive civil unrest?
And would a military conflict put the people back on the side of the government (i.e. how the Nazis came to power)? I agree. I think this is the risk somewhere down the road. I also, along with this defence strategy group, think that there is a risk that the Western powers meddling in the time of bad economic crisis will form strong alliances between let’s say Russia and China. In direct opposition to the government, many people inside the Pentagon are saying, “Please don’t fuck with Russia, they are not threatening us militarily but securing their own borders, we cannot control the outcomes, and most of them are bad, probably not militarily but economically, and economic instability causes outcomes we can’t forecast – even seizing the assets of powerful Russians has unintended consequences”. Here, here. The law of unintended circumstances is a bitch.
That’s great news!
China’s national civil aviation authority says the country will need to train about half a million civilian pilots by 2035, up from just a few thousand now, as wannabe flyers chase dreams of landing lucrative jobs at new air service operators. The aviation boom comes as China allows private planes to fly below 1,000 meters from next year without military approval, seeking to boost its transport infrastructure. Commercial airlines aren’t affected, but more than 200 new firms have applied for general aviation operating licences, while China’s high-rollers are also eager for permits to fly their own planes.
The civil aviation authority’s own training unit can only handle up to 100 students a year. With the rest of China’s 12 or so existing pilot schools bursting at the seams, foreign players are joining local firms in laying the groundwork for new courses that can run to hundreds of thousands of dollars per trainee. “The first batch of students we enrolled in 2010 were mostly business owners interested in getting a private license,” said Sun Fengwei, deputy chief of the Civil Aviation Administration of China’s (CAAC) pilot school. “But now more and more young people also want to learn flying so that they can get a job at general aviation companies.”
Reasonable historic view.
It was 25 years ago this month that communism ceased to be a threat to the west and to the free market. When sledgehammers started to dismantle the Berlin Wall in November 1989, an experiment with the command economy begun in St Petersburg more than 70 years before was in effect over, even before the Soviet Union fell apart. The immediate cause for the collapse of communism was that Moscow could not keep pace with Washington in the arms race of the 1980s. Higher defence spending put pressure on an ossifying Soviet economy. Consumer goods were scarce. Living standards suffered. But the problems went deeper. The Soviet Union came to grief because of a lack of trust. The economy delivered only for a small, privileged elite who had access to imported western goods. What started with the best of intentions in 1917 ended tarnished by corruption. The Soviet Union was eaten away from within. As it turned out, the end of the cold war was not unbridled good news for the citizens of the west.
For a large part of the postwar era, the Soviet Union was seen as a real threat and even in the 1980s there was little inkling that it would disappear so quickly. A powerful country with a rival ideology and a strong military acted as a restraint on the west. The fear that workers could “go red” meant they had to be kept happy. The proceeds of growth were shared. Welfare benefits were generous. Investment in public infrastructure was high. There was no need to be so generous once the Soviet Union was no more. What was known as neoliberal economics was born in the 1970s, but it was not until the 1990s that market forces reigned supreme. The free market spread to poorer parts of the world where it had previously been off limits, expanding the global workforce. That meant cheaper goods but it also put downward pressure on wages. What’s more, there was no longer any need to be inhibited. Those running companies could take a bigger slice of profits because there was nowhere else for workers to go. If citizens did not like “reform” of welfare states, they just had to lump it.
And, despite some grumbles, that’s pretty much what they did until the global financial crisis of 2008. This was a blow to the prevailing free-market orthodoxy for three reasons. First, it was the crash that should never have happened. Economists had constructed models that showed markets were always rational and self-correcting. It was quite a shock to find that they weren’t. Second, the financial crash made countries poorer. Deep recessions have been followed by historically weak recoveries characterised by falling real wages and cuts in benefits. Finally, the crisis and its aftermath have revealed the dark side of the post-cold war model. Instead of trickle down, there has been trickle up. Instead of the triumph of democracy, there has been the triumph of the elites.
A local supermarket had them on the menu just last week.
Feeding the world’s growing population is a major issue for global policy makers, and Euromonitor thinks it has the answer: insects. The thought of eating insects may turn the stomachs in the western world, but an estimated 2 billion people worldwide eat insects, Euromonitor said in a report. Eating insects for their taste and nutritional value is popular in many developing regions of central and South America, Africa and Asia. Insects contain high levels of protein, minerals and vitamins, and are considered a healthier alternative to meat. Insects could therefore provide a viable solution to food shortages and the increasing demand for meat, the Euromonitor report said. Consumer expenditure on meat will rise by 87.9% in emerging and developing countries in 2014-2030, more than three times higher than the equivalent 25.3% growth in developed economies, according to Euromonitor’s forecasts.
At the same time, global food supply issues have become a more prominent concern. Extreme weather cycles have played havoc with harvests and crops leading to extreme spikes in food prices, protectionist policies and crop hoarding. In the past three years, Australia, Canada, China, Russia and the U.S. have all suffered huge harvest losses from floods and droughts, Reuters reported. Earlier this year, the United Nations Food and Agriculture Organization warned that global food production needed to increase by 60% by mid-century or risk food shortages that could bring social unrest and civil wars. “The most obvious challenge to insects becoming a viable food source for the future is that negative attitudes in Western cultures towards insects as food need to change,” said Media Eghbal, head of countries’ analysis at Euromonitor. Eghbal pointed out that as a result of the western world’s more squeamish palate, a more realistic solution could be using more insects in animal feed, demand for which is bound to increase as global demand for meat rises.
The report also highlighted other benefits of using insects as a source of food. Farming insects is better for the environment than traditional livestock farming as the process requires less land and water, it said, and produces less greenhouse gas emissions. It’s also cheaper. Consumers would pay less for these food products, which could help reduce poverty and boost economic growth. Insects are a popular source of food in countries including Thailand, Vietnam, Cambodia, China, Africa, Mexico, Columbia and New Guinea. The most popular delicacies include crickets, grasshoppers, ants, scorpions, tarantulas and various species of caterpillar, according to www.insectsarefood.com.
In human history, that’s a very long time.
The world’s top scientists have given their clearest warning yet of the severe and irreversible impacts of climate change. The United Nations Intergovernmental Panel on Climate Change (IPCC) has released its synthesis report, a summary of its last three reports. It warns greenhouse gas levels are at their highest they have been in 800,000 years, with recent increases mostly due to the burning of fossil fuels. “Continued emission of greenhouse gases will cause further warming and long-lasting changes in all components of the climate system, increasing the likelihood of severe, pervasive and irreversible impacts for people and ecosystems,” the report said. “Limiting climate change would require substantial and sustained reductions in greenhouse gas emissions which, together with adaptation, can limit climate change risks.”
IPCC chairman Rajendra Pachauri said the comprehensive report brings together “all the pieces of the puzzle” in climate research and predictions. “It’s not discrete, and [highlights] distinct elements of climate change that people have to deal with, but [also] how you might be able to deal with this problem on a comprehensive basis by understanding how these pieces of the puzzle actually come together,” Dr Pachauri said. The report reiterates that the planet is unequivocally warming, that burning fossil fuels is significantly increasing greenhouse gas emissions and the effects of climate change – like sea level rises – are already being felt.It also said most of the world’s electricity should be produced from low carbon sources by 2050 and that fossil fuel burning for power should be virtually stopped by the end of the century.
” … it doesn’t mean we have to sacrifice economic growth”. What if it did? Why does an Institute for Climate Impact Research have a chief economist in the first place?
Humans are causing irreversible damage to the planet from burning fossil fuels, the biggest ever study of the available science concluded in a report designed to spur the fight against climate change. There’s a high risk of widespread harm from rising global temperatures, including floods, drought, extinction of species and ocean acidification, if the trend for increasing carbon emissions continues, a panel convened by a United Nations body said today in Copenhagen. Humans can avoid the worst if they significantly cut emissions and do so swiftly, it said. “We must act quickly and decisively if we want to avoid increasingly disruptive outcomes,” UN Secretary-General Ban Ki-moon told reporters in Copenhagen. “If we continue business-as-usual, our opportunity to keep temperature rises below” the internationally agreed target of 2 degrees Celsius, “will slip away within the next decades,” he said.
The report is designed to guide policy makers around the world in writing laws and regulations that will curb greenhouse gases and protect nations most at risk from climate change. It will also feed into talks among 195 nations working on an international agreement to rein in emissions that envoys aim to reach in Paris in December 2015. “We need to get to zero emissions by the end of this century” to keep global warming below dangerous levels, Ottmar Edenhofer, chief economist at the Potsdam Institute for Climate Impact Research, outside Berlin, and a co-author of the report, said in a telephone interview. “This requires a huge transformation, but it doesn’t mean we have to sacrifice economic growth.”