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BusinessWeek Original article ›
LyrArc Article Gist
Fears about a property price bubble in China bursting with the central bank not able to control the economy. Increasing fears that China may not be able to control the bubble. Other countries where bubble effects are taking place: Canada where housing prices are accelerating, Brazil with expected GDP growth of 5.8% and "hot money" pouring in, India where inflation has reached 15% and $92 billion of foreign investment in Indian stocks and bonds, Australia with its hot mining sector with trade connections to China, South Korea with growth approaching 5% and high rates of household debt. GDP and property prices increased by 11% in China in the 1st quarter of 2010. Many of these economies have connections with China, including Brazil and Australia with commodities sectors dependent on China.
DW.COM Original article ›
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German perceptions of Mikhail Gorbachev are shown here in DW.com. He is revered in Germany because of Gorbachev's efforts to end Soviet rule in East German state called the GDR, leading to the fall of the Berlin Wall. Gorbachev supported German reunification but did not do this is in a way that ensured that ordinary Russians and citizens of the GDR could make the transition to democratic processes in a smooth way. He also failed to grasp that economic transition could be difficult and would require extensive aid and grants from the west, and that safeguards and protections for retired pensioners and vulnerable sections of society needed to be in place. The following is a reflection of the background in political government and economy of the events in Europe leading to the war in Ukraine.  As a result Gorbachev's instincts were right by first 1956 as a student, and then 1979 as government official about the need for democratic processes to realize the real potential of Russia, just as has happened in many countries that lacked these processes for change in government- Japan, Germany, South Korea, India, Brazil and many countries in Asia and Latin America. But not realizing that these countries made the transition with considerable American and British assistance. Even where there was no direct assistance indirectly the British setup the first limited Swaraj or free rule in India, with elections and elected assemblies in Indian states in the 1930's, following the pattern in Dominion states Australia and Canada. Mohandas Gandhi negotiated within these processes for rights of South African Indians and Colored people, gaining experience, including study of British law.  A son of poor farmers in the agricultural region of North Caucasus, in Stavropol, it is relevant today that his maternal grand parents were from Chernihiv in Ukraine. He came to power in 1980 after entering the Politburo that year. These were the waning years of Leonid Brezhnev, president of the Soviet Union who followed Nikita Khrushchev (1953- 1964). Khrushchev was from eastern Ukrainian region near Donetsk. Leonid Brezhnev was a protege of Krushchev since 1931, from Kamianske, Ukraine.   Gorbachev was influenced by Khrushchev's speech that denounced Stalin in 1956 in favor of a freer and more open society. Khrushchev, became first secretary of the Communist party in 1953 after the death of Stalin and set the pace of post war Soviet society from 1950 to 1964. He removed the fear of the dictatorship of the proleteriat working class, increasingly dictatorial under Lenin, and blatantly arbitrary under his successor to make Soviet Union a freer society.  Yet his tendency to make decisions on his own without consulting others, and the failure of agriculture in the Soviet Union including food shortages led to his replacement by his protege Brezhnev. Brezhnev's whole career was built under Krushchev in Ukraine, in the army in Ukraine, and as a political leader in the Soviet 18th Army that entered Prague in 1945 defeating the Nazis. Why is this relevant? Gorbachev was educated at Moscow State University when the Soviet Union was in the Sputnik era, and felt at the time that it could reach the 1950's standard of living in the US- very different from the earlier leaders. Yet he may have been too much of an optimist and not hands on in understanding the working of a modern economy as large as Russia and the interests of different groups of society that had to be be balanced and protected. His understanding of the US and of how the US and British economies had evolved was limited or nonexistent. The isolation of the Soviet period may have compounded this. The Russian state in the Soviet Union could not simply unwind the power of the state and its intervention and everything would come out right of its own accord.   Leonid Brezhnev, the Ukrainian Russian who succeeded Krushchev from 1964 to 1979 let the system of Soviet rule remain as it was, in the Great Stagnation, leading to lethargy, lack of innovation, and a weak economy with military expansion. Gorbachev tried to regenerate the system by opening it up, but failed to see that there was a risk that it could come apart quickly as it did in just 4 years after he became president in 1985. Only the centralized power of the state had kept the Russian state together from the Tsarist period through the Communist period. The risks of this Gorbachev failed to grasp. What if it happened too quickly without a safety net for the people who could not make the transition. What lawlessness and failure of the rule of law could happen. The US and Britain had evolved their democracies over centuries. Wars were fought in the US and Britain over rights and responsibilities of kings and parliaments. In the US Lincoln fought the civil war not just for emancipation but to ensure safeguards for free white men on the farms so that Labor did not get disabilities placed on them by Capital (entrenched forces of Capital of which the southern plantation economy was only one aspect.)  Japan and Germany were set up as democratic states through American power and constitutional frameworks with Marshall Plans or agreement to take in unlimited imports from Japan. This bad scenario happened in Russia because Gorbachev failed to set the conditions first and work patiently to achieve them including introducing limited  elections and parliamentary processes first in Russia.  Leaders such as Yeltsin who succeeded Gorbachev in 1989, winning the elections that followed, failed to provide a safety net for the vulnerable in the 1980's. Unemployment increased rapidly, life expectancy dropped in Russia, and the economy failed in the early years after 1980. A Marshall Plan like that offered to Germany could have helped but Gorbachev's failure may have been his failure to provide this transition by arranging for West Germany and the US to support a planned transition, a kind of Marshall Plan of Aid, and maintaining a gradual move to democracy as the country was given time to learn institutions of American and British parliamentary democracy. No such Marshall Plan was negotiated for a smooth transition over inevitable obstacles, no safeguards were put in place for illegal efforts to control the state by rogue elements and to seize assets of state companies, no efforts to first introduce limited elections and parliamentary processes for learning democratic process in Russia, and the people of Russia were left with a memory of the this period as a bad lawless period from 1989 to 2005.  Leading to the situation today under Putin of aspiring to the Soviet period as a kind of period that had offered Russia the world recognition it had lost. And this had happened even though the Russian economy had recovered and the standard of living had risen under Putin. Putin's career spanned the period as a Russian official in Dresden, Germany Democratic Republic or Soviet period East Germany to working in the St Petersburg City Council under Yeltsin. He personally witnessed the fall of the Berlin Wall and the fall of the German Democratic Republic from Dresden and Gorbachev's refusal to build a transition period for the changes so that it would not be traumatic for the GDR. Even after reunification these traumas remain in some segments of the older population in East Germany that saw themselves as neglected and support extreme right wing parties in eastern German states by 2020- considering the Soviet period as one in which their lives were less neglected.  After three terms as president Putin with his own traumas from that period in Dresden, and with a mother lost in the period after the Nazi invasion of Russia, a father who survived the Battle of Stalingrad, saw the period of lawless behaviour in the collapse of the Soviet Union as the"greatest geopolitical disaster of the century."  Putin and people around him made missteps and miscalculations launching a war in Ukraine, leading to the situation today- jeopardizing hard won gains for the Russian economy. By 2022 Russian standards of living had risen and the economy was in the best shape it had been in the modern period since the Industrial Revolution. Yet largely exposed because of the dependence on oil and gas during a period of climate change and focus on building future economies free of fossil fuels.  Putin in his own peculiar logic may have seen this as the only opportunity in 2022 before deliinking from fossil fuel reduced the importance of the Russian fuel dependent economy to make some territorial readjusments in Ukraine with a quick war taking Kviv. That turned into a massive miscalculation with the emergence of nationalist fervor in western Ukraine spreading to the whole country of 40 million people. In the future to 2030 with phasing out of the fossil fuel economy, Russia without the connections to the US and European Union's technology and resources it had during Putin's three terms, and facing strict sanctions from US and EU, faces a difficult future. This has cautionary lessons for all countries- the US that read too much into the fall of the Berlin wall and indulged in a losing proposition with free markets that damaged its infrastructure and manufacturing with shifts to China, China understanding of how it to was dependent on the world economy for its future development, India that had to navigate a difficult period and what lessons to draw for building a bigger economy, the EU realizing the failure of its policies of depending on Russia for energy and China for manufacturing with fragile supply chains,  and Russia that there were twists and turns and the need for safeguards and experience building democratic processes before these processes would work for the economy, its people and for Russia as a nation. ...
Wall Street Journal Original article ›
Wall Street Journal Original article ›
LyrArc Article Gist
Research firm Dragonomics says real estate prices fell 4.9% in April from the prior year for nine cities in China. In 2010 prices in these nine cities went up by 21.5%, the increase in 2009 was 10%. Standard Chartered estimates China's second tier cities, such as Dalian and Tianjin, could have 20 months of housing inventory by the end of 2011. Standard Chartered says price declines of 10-20% can be expected. Government data understates the extent of the bubble and the drop in prices say analysts. Beijing real estate consultant, Soufun, confirms the slowdown in price increases, saying its data show average property prices went up by 5.1% in May over the prior year, compared to the jump in prices in 2009 and 2010. Prices of copper and steel are coming down after rapid increases. The price increases in the Chinese real estate market have put housing out of the reach of ordinary couples. In 2006 an average price of a new apartment in Beijing cost $100,000, by 2011 this had gone up to $250,000. It woud take 57 years of saving for an average person to buy the apartment at todays cost. The government's response has been to boost down payments on mortgages for second homes to 60% from 40%, prohibiting state owned enterprises outside the real estate sector from investing in real estate, and raising the reserve requirements of banks....
Wall Street Journal Original article ›
Wall Street Journal Original article ›
LyrArc Article Gist
Rising food prices in China have pushed China's consumer price index to a two year high of 5.1% in November, 2010. Rising prices of cooking oil have hit Chinese who live on small incomes the hardest. Food represents about one third of the CPI, but it accounts for 75% of the index's rise. Chinese housing prices have gone up significantly making it hard for new homeowners, now that food and fuel prices are following. The National Developmment and Reform Commission announced a 3.77% rise in retail gasoline prices, to about $3.50 a gallon, an increase of 11% in about one year. Wholesale soyabean oil rose 23% in 2010 to about $1451 a metric ton, with most of the rise since July. China's government response was to impose price controls, asking the largest producers to cap retail prices through March 2011. It also quintupled the fine to 5 million yuan, or $750,000. And the government auctioned off millions of metric tons from its strategic national reserves in Xinjiang and Shandong. But price controls are discouraging production. One mid-size producer in Shanghai, says he has deactivated half his plant, instead off maximixing output ahead of the Lunar year in February. His warehouse is filled with 20,000 boxes of unsold oil, with the production date Nov 23, around the time price controls went into effect and a large grocery distributor halved his order. Edible oil is the third biggest packaged food outlay for ordinary Chinese, after yogurt and milk, and it has a big impact on the lives of the average family....

The Chinese Disconnect

New York Times Original article ›
LyrArc Article Gist
Krugman points out that some depreciation in the value of the dollar is welcome because it would make US exports more competitive and reduce our trade deficit. He says China's policy of keeping the yuan pegged to the dollar actually devalues the Chinese currency and makes it possible for China to siphon off growth from other countries. So what should America do. By putting pressure on China to revalue the yuan upward would America be risking China responding by selling some f its $2.1 trillion in dollar assets. This would not be such abad thing if the Chinese sold some of their dollar assets says Krugman, as lowering the value of the dollar at this time is not such abad thing. Malpass and Alan Meltzer of Carnegie Mellon, point out the importance of maintaining the value of the dollar in a separate piece. There the idea is not to have sharp fall in the value of the dollar that could economic disruption because of loss of confidence in the currency as opposed to a gradual decline.
The Guardian Original article ›
LyrArc Article Gist
Property sales are estimated to fall by 28-33% in China, twice as earlier forecast by S&P Global Ratings. This is a steep decline that will affect the Chinese economy so dependent on construction. This week there were reports of property buyers in 100 cities getting together to withhold payments on unfinished apartments. Property developers depend on these payments as they have severe liquidity problems and need cash for operations.

WSJ Original article ›
LyrArc Article Gist
There may be psychological hurdles in China's growth with the effects on mental health from lockdowns in major cities, the revolt in the property sector with home buyers losing confidence in developers, the loss of confidence of foreign investors from US and EU. The dependence on the property sector to carry so large a burden of growth for the last 2 decades in China may now look like an error. The dependence on foreign investment may also be an error as the loss of confidence could mean some withdrawal and a lack of sustained investment.  It could even be said that restraints on both sectors property and foreign investors could have created alternative paths to growth, and reduced the shift of factories from the US and Europe to China that have now caused trade friction and and a reverse shift of investment back to home countries of US and EU. Trade friction has it appears backfired in a way that extends to the overall relationship which could have been prevented by preventing the hyper growth that happened. Greg Ip of the WSJ has argued that compared to Japan's growth in the sixties and seventies from a country of 100 million the hyper growth for a country of 1 billion for 2 decades created a massive impact on communities in US and EU that were dependent on factories that were lost to China. This has alienated large sectors of the public in the US and EU which could have been prevented by restraints on hyper growth in China. Ip says the growth was too large and too fast for the US to cope. It may have permanently damaged the relations between the two countries showing that trade and globalization had unintended effects when left to business and governments staying away from keeping an eye on how it was happening. ...
WSJ Original article ›
LyrArc Article Gist
This report in WSJ says China's government faces severely strained government finances. Local government entities sale of land financed 40% of local government revenues in China, and most of these have dried up with the very real loss of confidence in property sector. Government now faces $900 billion in shortfall in revenues says this report. There may be psychological hurdles in China's growth with the effects on mental health from lockdowns in major cities, the revolt in the property sector with home buyers losing confidence in developers, the loss of confidence of foreign investors from US and EU. The dependence on the property sector to carry so large a burden of growth for the last 2 decades in China may now look like an error. The dependence on foreign investment may also be an error as the loss of confidence could mean some withdrawal and a lack of sustained investment.  It could even be said that restraints on both sectors property and foreign investors could have created alternative paths to growth, and reduced the shift of factories from the US and Europe to China that have now caused trade friction and and a reverse shift of investment back to home countries of US and EU. Trade friction has it appears backfired in a way that extends to the overall relationship which could have been prevented by preventing the hyper growth that happened. Greg Ip of the WSJ has argued that compared to Japan's growth in the sixties and seventies from a country of 100 million the hyper growth for a country of 1 billion for 2 decades created a massive impact on communities in US and EU that were dependent on factories that were lost to China. This has alienated large sectors of the public in the US and EU which could have been prevented by restraints on hyper growth in China. Ip says the growth was too large and too fast for the US to cope. It may have permanently damaged the relations between the two countries showing that trade and globalization had unintended effects when left to business which has no comprehension of how the macro developments can affect the relations between the peoples if the other effects in the relationship such as community impacts are ignored which business says is not its role,  and governments staying away from keeping an eye on how it was happening and adjusting for ill effects with restraint and redirection of business policies. ...
The Guardian Original article ›
LyrArc Article Gist
Women do twice as much of the caregiving for elderly parents and small children as men. About 41% of mothers say this makes it harder for them as working parents. About 20% of the female workforce in U.S. is giving elderly care. This adds up to more stress, decreased working hours, decreased income, needing leave of absence, and missing promotions or training. Only 14% of working people in the U.S. have even one day of paid leave to care for a new baby or seriously sick family member- a startling statistic for America, showing lack of family friendly policies at most companies.

Economist Original article ›
Wall Street Journal Original article ›
WSJ Original article ›
WSJ Original article ›
LyrArc Article Gist
Underreporting of coronavirus cases in China poses risks for other nations in not giving them a sense of the magnitude and severity of coronavirus. This leads to a false sense of security- in Japan, Sweden and other countries, much delayed action and a sense of exceptionalism that we can ride this thing through like an ordinary virus, In the U.S. and Italy, Spain, UK and Germany, loss of crucial weeks before taking action. Looking to the future this poses new risks as it still leaves people without a sense of how long to continue lockdowns.  The pandemic poses huge risks for Asia and Latin America because of poverty, crowded conditions and sanitation levels. The early action by prime minister Modi was a huge step in the right direction before coronavirus spread could damage the economy and people- as Mr. Modi said if not done right such as with a 21 day lockdown this could set India back by 21 years. It had value in that it alerted other countries such as Philippines, Indonesia, Malaysia, Bangladesh, Pakistan to take strong action early. As the WSJ says here in this essay by what is important for China and all other countries reporting on coronavirus is that this reporting is vital only because it can save many other countries from making costly mistakes. Which is why the direct doctor to doctor contact between Chinese doctors and American doctors is an encouraging right step, says WSJ.  ...

China's Growth Risks

Wall Street Journal Original article ›
LyrArc Article Gist
Concern about slowing growth in China with rising inflation. The problem of opaqueness of the financial system and of banks that are both listed companies and run by the government, and how this could accelerate a slowdown at some point with accumulated problems in the financial system. A sense that China's growth model has reached a limit, and whether there will be a soft landing.

Where China Hides Its Debt

BusinessWeek Original article ›
LyrArc Article Gist
Local investment companies were allowed to borrow beyond their limits after the financial crisis of 2008. There are about 8000 local investment companies (LIC's) and they were used during 2008-2010 to get funds quickly to projects. The LIC's borrowed for local governments, and borrowed extensively to build roads, railroads, power plants, and other infrastructure and buildings. Northwestern University Professor Shih has followed this carefully, and estimates LIC debt owed to banks at $1.68 trillion, or 34% of China's GDP. Some of the banks have collateral in land, but many banks are relying on the ability of the local governments to pay back the loans. And some of this is in money losing projects.
BusinessWeek Original article ›
Wall Street Journal Original article ›
LyrArc Article Gist
The need for private investment to fund infrastructure growth in India.
Wall Street Journal Original article ›
LyrArc Article Gist
This WSJ editorial says prime minister Abe deserves to continue his efforts to revive the economy after Abe calls a snap election for Dec. 2014. It says the Finance Ministry's ideas for increasing spending and taxes have not worked to win over deflation. It points to the need for prime minister Abe to take supply side actions and get the Third Arrow of structural reform to work.
New York Times Original article ›
LyrArc Article Gist
Experts say Kuroda of the Bank of Japan still has some Finance Ministry DNA, as he is from Japan's Finance Ministry which has pushed for the consumption tax to be increased to 10% in 2015. Even though Kuroda favors aggressive monetary stimulus compared to others in the Finance Ministry, he shares the views of Ministry colleagues on the tax changes. LDP leaders in the Abe cabinet and Abe see the recession with 2 consecutive quarters of declining GDP for the 2nd and 3rd quarters of 2014, as good reason for delaying the next tax increase from the 8% already implemented in 2014 to 10% in 2015. Under Abe's revised plan the tax increase would be postponed till 2017. Abe referred to the different views on the tax increase in his announcement for a snap election in Dec. 2014 for a new mandate to pursue his Abenomics economic policies of Three Arrows. Kuroda for his part downplayed their differences saying fiscal policy was the mandate of the elected government.
Economist Original article ›
LyrArc Article Gist
The dollar is not expected to suffer asharp drop even though problems of increasing debt, and China's pegging of the yuan to the dollar remain for the future.
Economist Original article ›
LyrArc Article Gist
Huge losses sustained by sovereign wealth funds. Estimated $350 billion for Gulf foreign reserve funds and SWF's, according to RGE Monitor's Rachel Ziemba, or 27% of assets. Sovereign Wealth funds are either using their funds for supporting their local banks as in the Gulf areas, or buying back stakes of cash strapped western banks like RBS in the case of China. Russia, China and other countries are using their SWF's for stimulus spending. And Russia, Gulf economies that are dependent on oil prices, are looking at possible sale of foreign assets at oil prices between $50 and a deterioration to $25. Only China has a surplus that is sustained through the last quarter of 2008, but this is changing quickly as imports pick up after the stimulus kicks in, and exports drop precipitiously in 2010. South Korea and Russia have also learned of the need to have liquid safe investments preferably in dollars in the current crisis, as they have learned how large capital outflows can get in a short time. And the US is not looking at these large capital inflows from overseas as a benevolent thing, because it overvalues American assets, and leads to all sorts of distortions in liquidity and pricing of risk that contributed to the current crisis. In short the whole situation with SWF's has a suprising ending, as with everything in the current crisis, nothing worked out as expected or planned....
Wall Street Journal Original article ›
LyrArc Article Gist
Zhou Xiaochuan, is head of the People's Bank of China since 2002. For a long time Zhou has tried to convince party leaders in China to make financial sector changes. The new leadership of Jinping-Li Keqiang has now adopted most of the road map and priorities drawn up by Xiaochuan. The first is bank deposit insurance, which would especially protect small depositors and provide a basis for new private banks to compete with large state owned banks, creating competition in the financial sector. By supporting creation of privately owned banks impetus could be given to loans to the private sector to rebalance the economy away from state owned banks and state owned enterprises. This is a key goal in the road map drawn up by the think tank Development Research Center (DRC) which has the backing of premier Li Keqiang. Competition from new private banks would let banks compete to offer higher rates to depositors, another goal. In a September article for the Communist Party Seeking Truth magazine, Zhou pointed out the pressing need for " supporting private capital to set up private banks and guide them to position themselves in serving small and micro companies." These new companies especially in tech and information technology fields can be the new drivers for growth in the future as the burst of infrastructure building generated growth slows down. The one area Zhou faces resistance is his idea of opening up China to foreign capital inflows and outflows. Here critics,including younger economists, say this protected China in the Asian financial markets crisis of 1997, and would protect China in the event it faces outflows of the type that are happening in India in 2013 after the U.S. Fed's plan to withdraw from its quantitative easing. Xiaochuan sees the flow of foreign capital as another way for capital to flow to new private companies and balance away from the state owned enterprises, and for China's savers to be able to obtain more attractive returns. Zhou says his plan would include the option for China to reintroduce capial controls in a crisis. As China's debt to GDP ratio is set on a trajectory to approach the levels reached in Japan before its banking crisis there is greater awareness from party leaders about the need for prudence. Xiaochuan has worked with party leader Jinping's key economic advisor Liu He for years, and has the support of He and Jinping for introducing deposit insurance as a top priority. President Jinping and Premier Li Keqiang see the need for Xiaochuan's experience and foresight "as a talent who can be counted on," as the sense of importance of changing the economic structure has deepened in 2013. Mandatory retirement for Xiaochuan at 65 was set aside to give him a third five year term, and his road map long ignored by former premier Wen Biao, is now at the top of China's agenda. ...
New York Times Original article ›
LyrArc Article Gist
The Treasury and Fed's handling of the financial markets crisis on Tuesday, Wednesday, Thursday and Friday as it unfolded Sept 17, 18, 19 and 20, the worst since the 1930's. With the credit markets battered, the collapse of Lehman Brothers investment bank and the rescue of AIG right on the heels of the rescue of Fannie and Freddie the previous week, and all these moves barely improving the general loss of confidence and increasing fragility of the financial markets worldwide. Steps like the ban on short selling by the SEC to stem two 400 point declines in the last few days, and the Fed setting aside $50 billion to shore up money market funds by making them whole where needed, and providing about $200 billion through the European Central Bank and the central banks of Japan, Britain, Canada and Switzerland, were tactical moves so Paulson and Bernanke had to address the real problem of removing the highly illiquid assets of risky mortgages from the financial markets. This would require working with Congress to put together the necessary legislation which is what Congress, Treasury, the Fed, and others will work on this weekend of September 21, 22, so that the legislation could be drawn up the following week and passes into law creaing some Federal agency that will buy up the illliquid mortgage assets owned by banks, investment banks, and other financial institutions before there is another series of collapses in the financial markets necessitating rescues by the Fed. Meantime Treasury has raised another $200 billion last week through sale of Treasurys and provided this money to the Fed to use as needed. The result of the most recent chaos in the financial markets has resulted finally in agreement among all parties about the need for committing taxpayer money in hundreds of billions of dollars to be used to buy up the risky illiquid mortgage assets at steep discounts to be resold later to bargain seeking companies so that the banking sector can repair their balance sheets and recover, as being much safer and less costly route than the cost of rescuing financial firms with systemic risk on an individual basis after a run on these firms or their imminent collapse. Which is why people like Laurence Meyer of Macroeconomic Advisors himself a former senior Fed official believe that this is the first serious effort to tackle the crisis by getting to the root cause of the problem and removing the illiquid mortgage assets and the Government an taxpayers spending the hundreds of billions of dollars but at the same time finally seriously tackling the crisis in a manner that will restore confidence to the markets and to the industrial economy of the USA. His comment, "the markets voted and they liked the proposal", as the Dow Jones went up 610 points at one point and ended up the day Thursday September 19 at 410 points gain for the day....

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