LyrArc Article Gist
NATO's new guiding document and security concept now includes China for the first time as a shared security challenge. In the past there were concerns about China yet Germany and France continued economic engagement with China as before. The clearly worded statement by Xi Jinping and Putin expressing strong disapproval of a world in which the US and the EU play a prominent leadership role, made just before Russia launched its attack on Ukraine, has changed the sentiment in Europe. It is now becoming clear to Germany that the world has changed.Under Merkel Germany expanded trade ties with Russia on energy and with China as a major trading partner. The first steps are now being taken to decouple the trading relationship with China and restructure Germany's trade away from China towards other parts of the world including India, Vietnam and other Asian countries. Mr Scholz pointed to this needed shift during the Trade Fair in Hannover. As part of this shift NATO now sees cooperation with Indo-Pacific partners Australia, Japan, and South Korea and India essential for meeting the challenge of Russia today and of China over the long term. The NATO document says about China that "its stated ambitions and coercive policies, challenge our interests, security and values." Here are some of the ways the world has changed today. There are new administrations and newly elected leaders in the US, Japan, South Korea, and Germany. The new administrations are led by leaders in Japan and South Korea that are keen on working hand in hand with the US to meet the challenge from China. In the US president Biden seems determined to build up America's strength to meet any challenges China can pose. In Germany the administration is run by the SPD socialists with the Greens and the Free Democrats coalition. The Greens led by Robert Habeck and Annalena Baerbock have taken a strong position to face up to Russia's invasion in Ukraine, and Mr. Scholz is following step by step and has distanced himself from old SPD and CDU policies of  Angela Merkel of close commercial ties with Russia and China.  Indian prime minster Modi was a close partner at the G7 conference in Munich, Germany. The leaders of Japan and South Korea attended the NATO summit in Madrid and met with president Biden as shown here.   ...

LyrArc Article Gist
Don't let the current holiday season retail sales fool you as they have held up reasonably well. The impact of the mortgage and housing crisis will be felt in a delayed manner. It won't be till 2008 that the impact will really be felt. And the impact is expected to be lasting and deep, could take the rest of 2008, 2009 and into 2010 for this protracted tightening of credit. About $300-400 billion contraction in credit is expected when banks tighten their credit lending because of losses they are taking in the mortgage crisis. This will happen in an environment of falling house prices and consumers will not have access to the $340 billion in cash from home and mortgage equity financing that they took out in 2006, estimate of the Bureau of Economic Analysis. Auto, retail, apparel, and luxury items would be hit the most. On the jobs side not all the jobs will be lost in the USA. The USA imports about $740 billion in consumer goods and autos each year, which is one third of consumer spending excluding food and energy. The lower consumption in auto and apparel would affect exporters in Japan and China and South Korea. But Chinese exports have reached a point that they are causing trade tensions and a call for strengthening the yuan. An increase in American exports and lower imports could help bring down America's trade deficit. This could give China an opportunity to build its domestic market and markets in Asia and Europe so that it is not so dependent on the US market. For the US where the savings rate is near zero this is an opportunity for consumers to build their savings and reduce debt. Europe and India and the Middle East are expected to continue growth and China may see slower but continued growth in 2008 and 2009. In the US industries like aircraft and infrastructure promoting companies that sell to countries like Russia, India Brazil, the Middle East, and China will continue to grow. And because rates are still low large nonfinancial companies still have access to funds for expansion and capital investment. In a global economy the US consumer may be one part of a much larger picture. ...

LyrArc Article Gist
Actually some of this is a healthy development as more nations and people have a stake in the world economy. Take the Brazil situation for example . Clearly the Brazilian people are more favorable to globalization and its benefits than they were a decade ago at the height of the Asian crisis and the contagion effect on Brazil. Actually the advantages of free trade and a global trading system that benefits Brazil as well as China and India and other countries that buy its commodities such as iron ore is more now than ever because these nationas are benefitting from this trade. Because of the high prices of commodities and the agricultural products of Brazil, it has a currrent account surplus and its currency is strengthening. Instead of having to go to the IMF for assistance Brazil has large foreign exchange reserves that support its currency and which help it push up its investments as a share of GDP from 19% to closer to 25%, which should enable it to sustain about 5% growth year after year., according to Sergio Vale of MB Associados. A strong real, lower interest rates, and consumer credit have boosted the purchasing power of the middle class and the antipoverty programs of the Lula government have helped the poorer classes have a stake in the development. According to a recent Observador/Ipsos survey 23 million Brazilians have left social classes D and E and joined class C whose distinctive markings are a rented apartment, a car and some new gadgets. Actually quite to the contrary of the impression created by this article Brazil according to a former central bank governor is now showing a new enthusiasm for this kind of development which encompasses free trade and markets, a feeling that the stockmarket is not a casino and being part of the world economy is a good thing. The big discoveries of oil at Tupi and Carioca-Sugar Loaf in Atlantic offshore waters by Petrobras even though they are in miles deep waters and require special expertise must only have reinforced this mood. The danger to Brazil's enthusiasm comes not from nationalism of different countries trying to find better ways of meeting the aspirations of their people but from the risks in a global slowdown that started with the US subprime and mortgage crisis, the resulting credit tightening, and fall in consumption thats expected after years of overspending by the American consumer. Its now upto these individual countries, like Brazil, China, India and Russia, Japan as well as Germany France and other countries that are not directly part of the housing bubble and subprime and mortgage securitization mess affecting the USA, and the UK and Ireland and Spain to a lesser extent, to find ways of maintaining more modest but still substantial growth to meet the growing aspirations of people in these countries. In this sense the policy errors and regulatory errors made during this last decade in the US will actually have hurt the world economy and markets in a serious manner, and it is this that has now to be managed in a better way by these countries with the close cooperation between them and the USA. The situation in Brazil is repeated in the experience of India, China and Russia where for the first time there is enthusiasm for being part of the world economy. In the light of this development there is more reason for hope and more need for careful navigation mechanisms for these and other countries to weather the difficulties from a global slowdown and still sustain development that itself could help the USA work its way out of the current crisis through its exports....

LyrArc Article Gist
Bilateral trade between China and Russia is down 31% for the first half of 2015, and Chinese investment in Russia down by 20%, according to Moscow Carnegie Center. This is a result of the fall in oil prices, declining demand for commodities in China, and the economic downturn in Russia. After the western sanctions on Russia Chinese investors are cautious about making investments. This means Russia's large expectations that this would act as an offset for economic relations with Germany and other western nations is not working out in reality. The contract for the second gas deal for gas from western Siberia, for which a memorandum was signed with China in Nov. 2014, was not signed during Putin's visit to Beijing in September 2015. Experts say the economic environment is not favorable for gas deals with the uncertain economic outlook in China.

LyrArc Article Gist
The sudden change in the prospects for Venezuelan bonds with the sharp drop in oil prices by Dec. 2014. Price of credit default swaps on Venezuela debt show a 61% chance of default in 2015, and a 90% chance of default in the next 5 years. In previous years Venezuela debt was considered safe by emerging market investors because of oil revenues. Venezuela and its state owned oil company, PDVSA, issued a significant amount of debt from 2007 to 2011. Analysts say the debt outstanding for PDVSA and Venezuela is $66 billion. In the short period of a year sharp declines in commodity prices have created a crisis for Venezuela's finances. Fitch Ratings has lowered the credit rating on the bonds to CCC from B. Venezuela's benchmark bonds traded at 46 cents to the dollar on Dec. 19, 2014, after dropping as low as 38 cents. Yields on short dated bonds are above 40%. Problems in Venezuela can create contagion effects for other emerging markets- Russia, Argentina, Turkey, Brazil, India, Indonesia, China- especially with Fed signals about raising rates which lead to capital outflows. ...

LyrArc Article Gist
Public perceptions in the USA of China are changing. Today 42% have unfavorable views of China vs. 39% tha have favorable views of China from survey results released in August by the Pew Research Center. This is a change from 2007 when 42% polled had a positive view of China and 39% a negative view. Things that have changed since then are the Tibet riots and China's strong reaction, the issues of contaminated Chinese products entering the USA market and the nationalism in China on the eve of the Olympics. The last touches McCain and his senior advisor on China, Michael Green of Georgetown University, who finds the Chinese reaction on issues like trade to be cocky but cocky to the point of being arrogant. His comment "the combination of arrogance and insecurity can be dangerous." Green was on the National Security Council under President George W. Bush. McCain and Green want to bolster trade relations with other Asian countries like India to help the USA strengthen its bargaining power with China. McCain wants to strictly enforce trade agreements with China including blocking unsafe products from China. The shift in opinion in the USA at a time when there is a shift in opinion in China to a nationalistic tone sensitive to criticism of China even when it concerns issues like Tibet which do not affect any vital interests of China should be seen as significant. This is happening at the same time as a candidate like McCain who has less tolerance for Russia and a similar position for China is running strongly for President and has the experience and support of most Americans on foreign policy issues. Its useful also to see that the figures given here show 60% of Russians seeing China in a favorable light and only 30% in an unfavorable light. And when you look at France and Germany, 72% in France and 68% in Germany see China in an unfavorable light, only 28 and 26% respectively having a favorable opinion. Britain is an exception because 47% of the British public has a favorable opinion of China, only 36% having an unfavorable view. The figures are from Pew Research Center polls of 4,257 adults in he five countries conducted in March and April (international views)....

LyrArc Article Gist
A professor at Georgetown University on why it takes time to build democratic institutions, with one important omission- the military in Muslim countries such as Egypt have no intention of building these institutions and have undermined the development of these institutions for decades. A bigger omission lies in inability of the military in the most populous Muslim countries with horrendous gaps in development in basic welfare indices such as education, infrastructure and services, that have put these countries decades behind developing Asia and even Latin America which also had a past of military rule. In countries such as Pakistan and Egypt the military simply lacked the skillset and abilities to deliver in economic terms. Therein lies the biggest failure. In China and Russia the governments have popular support because of their capability to deliver economic growth that has transformed both countries and improved the lives of the people in the region. These crucial omissions explain why Republicans such as Senator John McCain and Lindsey see the need for the U.S. to be on the right side for change. Latin America shook off its history of military rule or one party rule and Brazil, Chile, Mexico are part of two free trade regions in Latin America, supporting the free trade system and economic growth in this hemisphere. The issue ultimately rests with the people of Pakistan, Egypt, and other Muslim countries, and a process of learning, compromise, healing and reconciliation that ocurred in Latin America is likely to follow in the Muslim world. It has already begun in Pakistan which like India has a independent judiciary and lively press, and some of the institutions for a functioning demcoracy. The worst omission is unmentionable because it is so obvious - that of firing live ammunition into protesters for democracy. Years after this happened in S. Korea, Mexico and other countries the day is remembered in a certain way. The important point is that when it comes to this there is no exception to the pattern. ...

LyrArc Article Gist
How U.S. -Chinese relations today parallel relations between the U.S. and Japan in the late eighties and early nineties. The dnagers of extrapolating from the enormous growth in China today and Japan then, into the future decades. The prospect say anlaysts that the model of development in Japan then, and China today, with an emphasis of state driven direction, works for several decades and then starts sputtering. At some point it becomes a model that cannot be sustained. Some analysts like Arthur Kroeber, of Dragonomics, an economic forecasting firm based in Beijing, see it as a model that is right for that stage of developmment in a country's progress from an agricultural to an industrial economy. But there are critical differences with Japan, for one China has not completed its transition to urbanization as it has large parts of the country that are rural. And industrialization has increased the level of inequality in China. See the articles citing Gini coeficcients for China which show significant deterioration. The other difference is that Japan still had a pioneering secotr of companies in the export sector from Toyota to Panasonic, whereas China's companies in most secotrs are state run or heavily financed by state run banks. Japan has one other striking difference in that it has a democratic form of government and a thriving and independent media, which makes Japan's transition to a post industrial economy with an increase in private initiative less difficult....

LyrArc Article Gist
With small margins of 5-10% many Chinese producers in Shenzen see the loss of the American market after the American tariffs of 20%. US president DJT put a10% tariff on all products imported from China on Feb 4, 2025 Executive Order. Another Order on March 4 amended this for an additional 10% to total 20% in March 2025. The local Chinese market where consumption is low cannot make up for the American market. The market in Russia is smaller with its population of 145 million and smaller consumption level. The markets in South East Asia are highly fragmented, and Brazil's economy is weak. India has a large trade imbalance already and is unlikely to let this get worse. Russia is imposing some restrictions on imports to not get flooded with cheap Chinese imports that drive local makers out of business.

LyrArc Article Gist
A major shift in foreign investment may be taking place as the 2014 St. Petersburg International Economic Forum takes place in May 2014. Russian policy in Ukraine and tensions with the U.S. and Germany could lead to a shift in investment to other emerging market countries. China's tensions with Japan could lead to a similiar shift of Japanese foreign investment. At the same time India has elected a new government with an absolute majority and an overwhelming mandate from young people to accelerate development. The new government under the BJP party's Modi has a decade of experience attracting foreign investment in western India. Indonesia, Vietnam, Africa and other emerging market countries, could benefit from the shift in investment. Investment could also return to the home countries with lower labor costs in Southern Europe, lower labor/energy/transport costs in North America. For Russia the debate at the St Petersburg Economic Forum was about pursuing one of three policy paths with some riskier than others, or some combination also risky and uncertain- depending on state banks and oil windfall funds, increasing ties with Asian countries, continuing on the current path with lower foreign investment and continued capital outflows. The failure to use the time wisely to diversify the oil based economy which could have been better accomplished in an economy not overly dependent on crony capitalism and centralized economy, both current characteristics, will affect future progress. A key weakness for Russia compared to China is the centralization under one person Putin, more so in the third term. In China the two man team Keqiang and Jinping is part of a larger team chosen by consensus and negotiation and part of a rotational scheme. It has senior leaders who initiated the changes to a market driven economy in the nineties determined to see China on track....

LyrArc Article Gist
The constructive contribution made by the G-20 meetings of leaders towards building agreement on economic and other policies for peace and progress in the global economy. The meetings were especially useful for coordinating policy and addressing issues arising in the global economy after the 2008 financial crisis. Here Li Baodong, China's vice minister for international organizations and conferences, international economic affairs, describes the path ahead: IMF reforms implementation, better coordination of macroeconomic policies, pursuing the anti-protectionist and free trade policies with further support to the WTO and ministerial MC9 meeting in Bali in Dec. 2013, and infrastructure financing proposals for developing countries on the agenda at the St Petersburg, Russia, G-2- meeting in Sept. 2013. Baodong says the mechanism called the Framework for Strong, Sustainable and Balanced Growth as part of the G-20 meetings is a major achievement. Each G-20 economy submits it macroeconomic policy plan for a Mutual Assessment Process under this arrangement. The progress from the Bretton Woods financial architecture to the new arrangement- from the G-6 to the G-20 to include developing countries from India to Mexico and Brazil- is another major achievement, not fully recognized by the public, says Baodong. Interestingly Baodong makes particular mention to global rebalancing, rather than pushing what he calls the impossible task of increasing demand to get growth. This is a realization coming to China's economic policymakers under the new Jinping-Keqiang administration after the overly aggressive effort to stimulate demand in the 2009-2011 Stimulus, and the ensuing financial problems in the banking and credit system. It is indicative of the policy shift and its implementation underway in China in 2013-2015....

LyrArc Article Gist
Speaking at a banking conference, advisors including the head of Russia's largest retail bank Sberbank, German Gref, minister of the economy, Aleksei Ulyukayev, and head of the central bank , Elvira Nabiullina, express deep concern about the economic prospects in 2015. Foreign investment is down from about $90 billion in the 1st quarter of 2013 to a negligible amount in the 3rd quarter of 2014. Capital outflows following the Ukraine crisis are estimated at about $110 billion by former finance minister Alexsei Kudrin. The ruble dropped to its lowest level against the dollar since the 1990's. And the sharp decline in oil prices with Brent crude at about $90 is another risk factor as 50% of the budget comes from oil and gas revenues and 60% of exports are still oil and gas, with no serious or effective effort to diversify under the Putin adminstration. Putin told the banking conference that a deficit free budget and reserves of $460 billion are "fundamental factors supporting stability." Advisors and leading bankers remain unconvinced. The problem is that even at the beginning of 2014 before the Ukraine crisis foreign investment had slowed to a trickle, similiar to what India experienced in 2013. The central bank head says her effort to open up the bond markets in Russia to foreign investors is now in vain because there are few foreign investors. Instead of reversing the situation as is happening in India with the new Modi administration, policy under Putin and the Ukraine conflict may have scared investors away with the increasing western sanctions and stagflation (estimated 8% inflation and about 0.5% growth in 2014). The head of Sberbank Mr. Gref told the banking conference- "The Soviet Union broke apart because of the mind boggling incompetence of the Soviet leadership. They did not respect the laws of economic development." The problem with sovereign reserves is that it can protect a sovereign currency such the Russian ruble or the Brazilian cruzeiro to some extent, but today's vibrant economies need foreign investment and foreign technology for growth. Even a country such as China with a trillion dollars in reserves needs the reserves in its special case because of its billion plus aging population, and is no exception to these laws of economic development about the need for foreign technology and foreign investment. ...

LyrArc Article Gist
After the huge crisis the debate about capitalism. What went wrong, and importantly what did not go wrong. Not in the sense of more punditry to place the blame but to ask questions to have a better grasp of the fact and better understanding of the twists and turns of the last decade, the complexities, the frailties, the errors of judgement, and the failings, and the outright falsehoods and ethical breaks. So that the good things are not lost for instance the individual initiative and the bad things are corrected and measures put in place to prevent recurrence and minimize damage. Has the model of anglo-saxon capitalism failed? Actually some specific things failed, deregulation at a time when banks and markets were behaving irresponsibly and without any restraint internal or external, credit ratings agencies failed, financial institutions failed in performing their first line of business which is to finance investment in the economy not in housing and mortgages, and American consumerism failed in that value of saving disappeared and abundance of debt brought American savings to zero, leaving little for investment in the economy and infrastructure except by borrowing from other countries. And living on illusions and not on sound basics the leadership failed thinking that free enterprise and technology and productivity improvements somehow allowed a country or group of countries to live way beyond their means, and a tendency to excess in the popular mood of the country, excesssive consumption, excessive and profligate use of energy which sent trillions of dollars overseas over decades, and excessive expectations of the lower classes for housing and goods beyond their means, all played a part. What did not fail is the freedom to trade, the fall of "barriers to intercourse" between nations, that produced gains on a big scale so that computer and cell phone technology developed in one part of the world quickly spread around the world and the innovations and technology developed in one country spread producing benefits all over the world. It created amood of optimism in developing countries whose incomes rose especially where countries encouraged growth as in China, India, Russia, Brazil, Eastern Europe and pulled hundreds of millons out of poverty. With China, America and Germany in effect shipped technology goods in return for lower value added goods like textiles and shoes, to help China industrialize, and American consumption played a useful part until things reached an extreme and the system was abused by forgetting the basics and allowing excesses and failing to respect ethical responsibilities. Regarding regulation excessive regulation and red tape has proved to be bad as in the license Raj in India which stifled private initiative and new enterprise till it was abandoned in 1990, and no one in India is calling for more regulation. What is bad is to abandon good common sense and to rely on the illusion that no regulation is needed to run a complex financial system like we have today, a laissez fairre libertarian philosophy that was rampant in the Bush administration and in the country's leadership in the Bush years. As a result an underfunded SEC failed to deliver on its basic mission and responsibility, and the lack of a centralized regulatory authority with powers and funding to meet the challenges of modern finance as for instance ineffective derivative regulation under the CFTC, simply aggravated things further. ...

LyrArc Article Gist
The Europeans led by France and Germany demand stricter regulation and a financial regulatory system that oversees the entire financial system, and oversees all the larger countries. The US in contrast wants to see a lighter regulatory system, and lighter regulation of parts of the financial system like hedge funds. For the USA where the crisis originated, the emphasis is on larger stimulus spending. For the Europeans which have a larger safety net that they would like to see considered as part of their stimulus- and their social arrangement such as reduced hours in Germany to avoid layoffs, and the presence of a large public sector in France that is about 52% of GDP- the situation as they see it does not require breaking the EU's committment to control large deficits. The cultural and historical roots are also different. Germany was hit by hyperinflation in the period between the two wars, and there is thought there that this helped the rise of demagogic leaders and the collapse of democracy there. At that time the issue was war reparations that Germany found difficult to absorb in an economy devastated by the first war, which strained German finances. France and Germany also have no foreclosure crisis, and car sales and consumer spending are not in the deep decline that is seen in the USA. In fact car sales have increased in the two countries with the refunds for scrapping old vehicles, with no such plan in place in the USA. Making there is a credible position on the European side. Germany does see itself hit by the collapse in international trade. Germany and France face the prospect of helping their banking systems deal with the large bad loan situation facing them in Eastern Europe. At the same time Germany and France want to save some firepower for coming to the aid of key parts of the European community like Spain, Greece, and Ireland, which are facing a worsening crisis. In short both sides have credible positions, and some form of accomodation as events unfold may be a better desired outcome than some unified outcome. And little has been said of the position of the other countries in the G20, the emerging countries like Brazil, India, China, Russia, Indonesia, Argentina and others, and the position of the World Bank speaking for the poorest countries. These countries may favor stronger stimulus, and would favor the stricter regulation and supervision of global financial systems favored by the Europeans. This is because they may rightly feel that the messups in the global financial system have stolen their chance, at just the point where they were turning the corner in their efforts at bringing better standards of living to their peoples....

LyrArc Article Gist
Von Mark Schieritz of Germany's Zeit Online describes the changes underway following the election campaigns in the U.S., and France, and the Brexit vote in Britain, all signalling the discontent of people left behind by the tech, capitalism, trade and globalization changes of the last two decades. The appeal of one time fringe politicians using racist slogans and divisive rhetoric to appeal to those left behind, appealing to people lacking intergenerational mobility, and without much hope for a better future, is a serious concern. People who are gullible enough, lack college education, or racially isolated so that they are not likely to look carefully at what is being offered in terms of programs and change of competing parties, and likely to overlook the hard and difficult road for corrective course of action, because of anger and pentup fears. Schieritz cites as part of this change the unanimously approved conclusion in its final declaration at the G-20 meeting in Chengdu, China- "The benefits of growth need to be shared more broadly within and among countries to promote inclusiveness." Yet this can be a sort of "too little, too late."  Bankers who are cited in an email going around Wall Street lack credibility with groups on Main Street, to people adversely affected by tech, trade and globalization changes that have been persistently ignored for over a decade, close to two decades. More convincing is the tone of Theresa May, the British prime minister's first statement outside 10 Downing Street- who spoke of the "burning injustices" and her determination to make this a top priority of her government. Still more convincing are the programs to invest $275 billion over 10 years in infrastructure put forward by the leading candidate in the U.S. presidential election of 2016, to provide easier access to public universities and colleges to those left behind, as a sure way to create new jobs and address intergenerational mobility. In fact every leading candidate had made the loss of upward mobility their central plank already in 2015, long before Trump and Sanders started their campaign. The real hope lies in western leaders Merkel, May, and Clinton, all keenly aware students of changes, all women by the way who have sensed the injustice and have the ability to come up with something new and promising for the future, after learning the lessons of the past. ...

LyrArc Article Gist
Former U.S. president Bush says the U.S. has an important role as a beacon of freedom, human rights and democracy in the world. The U.S. should not shrink from the challenges in the name of a false and temporary stability, and flexibility should not mean ambiguity, difficulties should not mean shrugging away from America's role. Patience, creativity and active American leadership are needed. The Bush administration supported the struggles of people in central Europe and in other countries. This is from a speech Bush gave at the Bush Institute, Southern Methodist University in Dallas, a year into the Arab Spring. A speech that was giving voice to the aspirations of people in the Arab world.

LyrArc Article Gist
Pessimism about the pace of democratization in China with the continued dominance of the Communist party in the business and economc structures of the country. The interrelationships of the party with state owned companies and the role of its 80 million members in running all aspects of life in China. Experts in China say the 18th party Conress showed no signs of change in the party's control and no sign of experimentation to allow for change comng from within the system so that China could establish a constitutional democracy with the rule of law. Experts in China say the new leaders Jinping and Keqiang may not be able to make changes even if they wanted to, because of the party's control and the earlier presidents and prime ministers from the last two decades who still retain a strong influence on the direction of the country.