Madam I am Adam: Sid Harth

[chhotemianinshallah]

History of Palindromes

Palindromes as a form of wordplay have been created for many
centuries. For example, the ancient Greeks are known to have often
inscribed the following onto their fountains:

Nipson anomemata me monan opsin.

It translates as wash the sin as well as the face. Sharp-eyed readers
will notice that the above it not actually a palindrome. This is
because we have written it using letters of the English alphabet; when
Greek characters are used it is a palindrome because ps is a single
letter in Greek (Y).

The Romans were also admirers of palindromes, and produced such
sentences as:

In girum imus nocte et consumimur igni.

It means we enter the circle after dark and are consumed by fire and
is said to describe the movement of moths.

List of Palindromes
Our Top 30 Best Palindrome List:

Don't nod
Dogma: I am God
Never odd or even
Too bad – I hid a boot
Rats live on no evil star
No trace; not one carton
Was it Eliot's toilet I saw?
Murder for a jar of red rum
May a moody baby doom a yam?
Go hang a salami; I'm a lasagna hog!
Satan, oscillate my metallic sonatas!
A Toyota! Race fast... safe car: a Toyota
Straw? No, too stupid a fad; I put soot on warts
Are we not drawn onward, we few, drawn onward to new era?
Doc Note: I dissent. A fast never prevents a fatness. I diet on cod
No, it never propagates if I set a gap or prevention
Anne, I vote more cars race Rome to Vienna
Sums are not set as a test on Erasmus
Kay, a red nude, peeped under a yak
Some men interpret nine memos
Campus Motto: Bottoms up, Mac
Go deliver a dare, vile dog!
Madam, in Eden I'm Adam
Oozy rat in a sanitary zoo
Ah, Satan sees Natasha
Lisa Bonet ate no basil
Do geese see God?
God saw I was dog
Dennis sinned

http://www.fun-with-words.com/palin_history.html

Reference »
Wikipedia Articles

This article is about the Scottish moral philosopher. For other
persons of the same name, see Adam Smith (disambiguation).

Adam Smith

Full name Adam Smith
Born 16 June 1723
(OS: 5 June 1723)
Kirkcaldy, Fife, Scotland
Died 17 July 1790 (aged 67)
Edinburgh, Scotland

Adam Smith (baptised 16 June 1723 – 17 July 1790 [OS: 5 June 1723 – 17
July 1790]) was a Scottish moral philosopher and a pioneer of
political economics. One of the key figures of the Scottish
Enlightenment, Smith is the author of The Theory of Moral Sentiments
and An Inquiry into the Nature and Causes of the Wealth of Nations.
The latter, usually abbreviated as The Wealth of Nations, is
considered his magnum opus and the first modern work of economics.
Smith is widely cited as the father of modern economics.

Smith studied moral philosophy at the University of Glasgow and Oxford
University. After graduating, he delivered a successful series of
public lectures at Edinburgh, leading him to collaborate with David
Hume during the Scottish Enlightenment. Smith obtained a professorship
at Glasgow teaching moral philosophy, and during this time he wrote
and published The Theory of Moral Sentiments. In his later life, he
took a tutoring position that allowed him to travel throughout Europe,
where he met other intellectual leaders of his day. Smith returned
home and spent the next ten years writing The Wealth of Nations,
publishing it in 1776. He died in 1790.

Biography

Early life

Smith was born to Margaret Douglas at Kirkcaldy, Fife, Scotland. His
father, also named Adam Smith, was a lawyer, civil servant, and
widower who married Margaret Douglas in 1720 and died six months
before Smith was born.[1] Although the exact date of Smith's birth is
unknown, his baptism was recorded on 16 June 1723 at Kirkcaldy.[2]
Though few events in Smith's early childhood are known, Scottish
journalist and Smith's biographer John Rae recorded that the man was
abducted by gypsies at the age of four and eventually released when
others went to rescue him.[N 1] Smith was close to his mother, who
likely encouraged him to pursue his scholarly ambitions.[4] He
attended the Burgh School of Kirkcaldy—characterised by Rae as "one of
the best secondary schools of Scotland at that period"—from 1729 to
1737.[3] While there, he studied Latin, mathematics, history, and
writing.[4]

A commemorative plaque for Smith is located at Smith's home town of
Kirkcaldy.
Formal education

Smith entered the University of Glasgow when he was fourteen and
studied moral philosophy under Francis Hutcheson.[4] Here he developed
his passion for liberty, reason, and free speech. In 1740, Smith was
awarded the Snell exhibition and left the University of Glasgow to
attend Balliol College, Oxford.[5]

Smith considered the teaching at Glasgow to be far superior to that at
Oxford, and found his experience at the latter to be intellectually
stifling.[6] In Book V, Chapter II of The Wealth of Nations, Smith
wrote: "In the University of Oxford, the greater part of the public
professors have, for these many years, given up altogether even the
pretence of teaching." Smith is also reported to have complained to
friends that Oxford officials once discovered him reading a copy of
David Hume's Treatise on Human Nature, and they subsequently
confiscated his book and punished him severely for reading it.[3][7]
[8] According to William Robert Scott, "The Oxford of [Smith's] time
gave little if any help towards what was to be his lifework."[9]
Nevertheless, Smith took the opportunity while at Oxford to teach
himself several subjects by reading many books from the shelves of the
large Oxford library.[10] When Smith was not studying on his own, his
time at Oxford was not a happy one, according to his letters.[11] Near
the end of his time at Oxford, Smith began suffering from shaking
fits, probably the symptoms of a nervous breakdown.[12] He left Oxford
University in 1746, before his scholarship ended.[12][13]

In Book V of The Wealth of Nations, Smith comments on the low quality
of instruction and the meager intellectual activity at English
universities, when compared to their Scottish counterparts. He
attributes this both to the rich endowments of the colleges at Oxford
and Cambridge, which made the income of professors independent of
their ability to attract students, and to the fact that distinguished
men of letters could make an even more comfortable living as ministers
of the Church of England. Smith had originally intended to study
theology and enter the clergy, but his subsequent learning, especially
from the skeptical writings of David Hume, persuaded him to take a
different route.[8]

Teaching career

Smith began delivering public lectures in 1748 at Edinburgh under the
patronage of Lord Kames.[14] His lecture topics included rhetoric and
belles-lettres, and later the subject of "the progress of opulence".
On this latter topic he first expounded his economic philosophy of
"the obvious and simple system of natural liberty". While Smith was
not adept at public speaking, his lectures met with success.[15]

David Hume was a friend and contemporary of Smith.In 1750, he met the
philosopher David Hume, who was his senior by more than a decade. The
alignments of opinion that can be found within their writings covering
history, politics, philosophy, economics, and religion indicate that
they shared a closer intellectual alliance and friendship than with
the others who were to play important roles during the emergence of
what has come to be known as the Scottish Enlightenment.[16]

In 1751, Smith earned a professorship at Glasgow University teaching
logic courses. When the Chair of Moral Philosophy died the next year,
Smith took over the position.[15] He would continue academic
production for the next thirteen years, which he characterized as "by
far the most useful and therefore by far the happiest and most
honourable period [of his life]".[17]

Smith published The Theory of Moral Sentiments in 1759, embodying some
of his Glasgow lectures. This work was concerned with how human
morality depends on sympathy between agent and spectator, or the
individual and other members of society. He bases his explanation not
on a special "moral sense", as the third Lord Shaftesbury and
Hutcheson had done, nor on utility as Hume did, but on sympathy.
Smith's popularity greatly increased due to the The Theory of Moral
Sentiments, and as a result, many wealthy students left their schools
in other countries to enroll at Glasgow to learn under Smith.[18]

After the publication of The Theory of Moral Sentiments, Smith began
to give more attention to jurisprudence and economics in his lectures
and less to his theories of morals. The development of his ideas on
political economy can be observed from the lecture notes taken down by
a student in 1763, and from what William Robert Scott described as an
early version of part of The Wealth of Nations.[19] For example, Smith
lectured that labor—rather than the nation's quantity of gold or silver
—is the cause of increase in national wealth.[18]

François Quesnay, one of the leaders of the Physiocratic school of
thoughtIn 1762, the academic senate of the University of Glasgow
conferred on Smith the title of Doctor of Laws (LL.D.). At the end of
1763, he obtained a lucrative offer from Charles Townshend (who had
been introduced to Smith by David Hume) to tutor his stepson, Henry
Scott, the young Duke of Buccleuch. Smith subsequently resigned from
his professorship to take the tutoring position. Because he resigned
in the middle of the term, Smith attempted to return the fees he had
collected from his students, but they refused.[20]

Tutoring and travels

Smith's tutoring job entailed touring Europe with Henry Scott while
teaching him subjects including proper Polish.[20] Smith was paid £300
per year plus expenses along with £300 per year pension, which was
roughly twice his former income as a teacher.[20] Smith first traveled
as a tutor to Toulouse, France, where he stayed for a year and a half.
[20] According to accounts, Smith found Toulouse to be very boring,
and he wrote to Hume that he "had begun to write a book in order to
pass away the time".[20] After touring the south of France, the group
moved to Geneva. While in Geneva, Smith met with the philosopher
Voltaire.[21]

After staying in Geneva, the party went to Paris, where Smith came to
know intellectual leaders such as Benjamin Franklin,[22] Turgot, Jean
D'Alembert, André Morellet, Helvétius and, in particular, Francois
Quesnay, the head of the Physiocratic school, whose academic products
he respected greatly.[23] The physiocrats believed that wealth came
from production and not from the attainment of precious metals, which
was adverse to mercantilist thought. They also believed that
agriculture tended to produce wealth and that merchants and
manufacturers did not.[22] While Smith did not embrace all of the
physiocrats' ideas, he did say that physiocracy was "with all its
imperfections [perhaps] the nearest approximation to the truth that
has yet been published upon the subject of political economy".[24]

Later years

In 1766, Henry Scott's younger brother died in Paris, and Smith's tour
as a tutor ended shortly thereafter.[24] Smith returned home that year
to Kirkcaldy, and he devoted much of the next ten years to his magnum
opus.[25] There he befriended Henry Moyes, a young blind man who
showed precocious aptitude. As well as teaching Moyes himself, Smith
secured the patronage of David Hume and Thomas Reid in the young man's
education.[26] In May 1773, Smith was elected fellow of the Royal
Society of London,[27] and was elected a member of the Literary Club
in 1775.[28] The Wealth of Nations was published in 1776 and was an
instant success, selling out the first edition in only six months.[29]

In 1778, Smith was appointed to a post as commissioner of customs in
Scotland and went to live with his mother in Panmure House in
Edinburgh's Canongate.[30] Five years later, he became one of the
founding members of the Royal Society of Edinburgh,[31] and from 1787
to 1789 he occupied the honorary position of Lord Rector of the
University of Glasgow.[32] He died in the northern wing of Panmure
House in Edinburgh on 17 July 1790 after a painful illness and was
buried in the Canongate Kirkyard.[33] On his death bed, Smith
expressed disappointment that he had not achieved more.[34]

Smith's literary executors were two friends from the Scottish academic
world: the physicist and chemist Joseph Black, and the pioneering
geologist James Hutton.[35] Smith left behind many notes and some
unpublished material, but gave instructions to destroy anything that
was not fit for publication.[36] He mentioned an early unpublished
History of Astronomy as probably suitable, and it duly appeared in
1795, along with other material such as Essays on Philosophical
Subjects.[35]

Personality and beliefs

Character

James Tassie's enamel paste medallion of Smith provided the model for
many engravings and portraits which remain today.[37]Not much is known
about Smith's personal views beyond what can be deduced from his
published articles. His personal papers were destroyed after his
death, at his own request.[36] He never married[38] and seems to have
maintained a close relationship with his mother, with whom he lived
after his return from France and who died six years before his own
death.[39]

Contemporary accounts describe Smith as an eccentric but benevolent
intellectual, comically absent minded, with peculiar habits of speech
and gait and a smile of "inexpressible benignity".[40] He was known to
talk to himself, and had occasional spells of imaginary illness.[34]
Smith is often described as a prototypical absent-minded professor.
[41] He is reported to have had books and papers stacked up in his
study, with a habit he developed during childhood of speaking to
himself and smiling in rapt conversation with invisible companions.
[41]

Various anecdotes have discussed his absentminded nature. In one
story, Smith took Charles Townshend on a tour of a tanning factory and
while discussing free trade, Smith walked into a huge tanning pit from
which he had to be removed.[42] Another episode records that he put
bread and butter into a teapot, drank the concoction, and declared it
to be the worst cup of tea he ever had. In another example, Smith went
out walking and daydreaming in his nightgown and ended up 15 miles (24
km) outside town before nearby church bells brought him back to
reality.[41][42]

Portrait of Smith by John Kay, 1790Smith is reported to have been an
odd-looking fellow. One author stated that Smith "had a large nose,
bulging eyes, a protruding lower lip, a nervous twitch, and a speech
impediment".[8] Smith is reported to have acknowledged his looks at
one point saying, "I am a beau in nothing but my books."[8] Smith
"never" sat for portraits [43], so depictions of him created during
his lifetime were drawn from memory, with rare exceptions. The most
famous examples were a profile by James Tassie and two etchings by
John Kay.[44] The line engravings produced for the covers of 19th
century reprints of The Wealth of Nations were based largely on
Tassie's medallion.[45]

Religious views

There has been considerable scholarly debate about the nature of
Smith's religious views. Smith's father had a strong interest in
Christianity and belonged to the moderate wing of the Church of
Scotland.[46] In addition to the fact that he received the Snell
Exhibition, Smith may have also moved to England with the intention of
pursuing a career in the Church of England. At Oxford, Smith rejected
Christianity and it is generally believed that he returned to Scotland
as a deist.[47]

Economist Ronald Coase has challenged the view that Smith was a deist,
[48] stating that while Smith may have referred to the "Great
Architect of the Universe", other scholars have "very much exaggerated
the extent to which Adam Smith was committed to a belief in a personal
God".[49] He based this on analysis of a remark in The Wealth of
Nations where Smith writes that the curiosity of mankind about the
"great phenomena of nature" such as "the generation, the life, growth
and dissolution of plants and animals" has led men to "enquire into
their causes". Coase notes Smith's observation that "[s]uperstition
first attempted to satisfy this curiosity, by referring all those
wonderful appearances to the immediate agency of the gods". Smith's
distant friend and colleague David Hume, with whom he agreed on most
matters, was described by contemporaries as an atheist, although there
is some debate about the exact nature of his views among modern
philosophers.[50]

In a letter to William Strahan, Smith's account of Hume's courage and
tranquility in the face of death aroused violent public controversy,
[51] since it contradicted the assumption, widespread among orthodox
believers, that an untroubled death was impossible without the
consolation of religious belief.[52]

Published works

The Theory of Moral Sentiments

Main article: The Theory of Moral Sentiments

In 1759, Smith published his first work, The Theory of Moral
Sentiments. He continued to revise the work throughout his life,
making extensive revisions to the final (6th) edition shortly before
his death in 1790.[N 2] Although The Wealth of Nations is widely
regarded as Smith's most influential work, it has been reported that
Smith himself "always considered his Theory of Moral Sentiments a much
superior work to his Wealth of Nations".[54] P. J. O'Rourke, author of
the commentary On The Wealth of Nations (2007), has agreed, calling
The Theory of Moral Sentiments "the better book".[55] It was in this
work that Smith first referred to the "invisible hand" to describe the
apparent benefits to society of people behaving in their own interests.
[56]

In The Theory of Moral Sentiments, Smith critically examined the moral
thinking of the time and suggested that conscience arises from social
relationships.[57] His aim in the work is to explain the source of
mankind's ability to form moral judgements, in spite of man's natural
inclinations toward self-interest. Smith proposes a theory of sympathy
in which the act of observing others makes people aware of themselves
and the morality of their own behavior. Haakonssen writes that in
Smith's theory, "Society is ... the mirror in which one catches sight
of oneself, morally speaking."[58]

Because The Theory of Moral Sentiments emphasizes sympathy for others
while The Wealth of Nations famously emphasizes the role of self
interest, some scholars have perceived a conflict between these works.
As one economic historian observed: "Many writers, including the
present author at an early stage of his study of Smith, have found
these two works in some measure basically inconsistent."[59] In recent
years, however, most scholars of Smith's work have argued that no
contradiction exists. In The Theory of Moral Sentiments, Smith
develops a theory of psychology in which individuals seek the approval
of the "impartial spectator" as a result of a natural desire to have
outside observers sympathize with them. Rather than viewing The Wealth
of Nations and The Theory of Moral Sentiments as presenting
incompatible views of human nature, most Smith scholars regard the
works as emphasizing different aspects of human nature that vary
depending on the situation. The Wealth of Nations draws on situations
where man's morality is likely to play a smaller role—such as the
laborer involved in pin-making—whereas The Theory of Moral Sentiments
focuses on situations where man's morality is likely to play a
dominant role among more personal exchanges.

The Wealth of Nations
Main article: The Wealth of Nations

The site where Smith wrote The Wealth of NationsAn Inquiry into the
Nature and Causes of the Wealth of Nations expounds that the free
market, while appearing chaotic and unrestrained, is actually guided
to produce the right amount and variety of goods by a so-called
"invisible hand".[56] Smith opposed any form of economic concentration
because it distorts the market's natural ability to establish a price
that provides a fair return on land, labor, and capital. He advanced
the idea that a market economy would produce a satisfactory outcome
for both buyers and sellers, and would optimally allocate society's
resources.[60] The image of the invisible hand was previously employed
by Smith in The Theory of Moral Sentiments, but it has its original
use in his essay, "The History of Astronomy". Smith believed that when
an individual pursues his self-interest, he indirectly promotes the
good of society: "by pursuing his own interest, [the individual]
frequently promotes that of the society more effectually than when he
intends to promote it."[61] Self-interested competition in the free
market, he argued, would tend to benefit society as a whole by keeping
prices low, while still building in an incentive for a wide variety of
goods and services. Nevertheless, he was wary of businessmen and
argued against the formation of monopolies.

The first page of The Wealth of Nations, 1776 London editionAn often-
quoted passage from The Wealth of Nations is: "It is not from the
benevolence of the butcher, the brewer, or the baker that we expect
our dinner, but from their regard to their own self-interest. We
address ourselves, not to their humanity but to their self-love, and
never talk to them of our own necessities but of their
advantages."[62] Value theory was important in classical theory. Smith
wrote that the "real price of every thing ... is the toil and trouble
of acquiring it" as influenced by its scarcity. Smith maintained that,
with rent and profit, other costs besides wages also enter the price
of a commodity.[63] Other classical economists presented variations on
Smith, termed the "labour theory of value". Classical economics
focused on the tendency of markets to move to long-run equilibrium.

Smith's advocacy of self-interest based economic exchange did not,
however, preclude for him issues of fairness and justice. In Asia,
Europeans "by different arts of oppression..have reduced the
population of several of the Moluccas,"[64] he wrote, while "the
savage injustice of the Europeans" arriving in America, "rendered an
event, which ought to have been beneficial to all, ruinous and
destructive to several of those unfortunate countries."[65] The Native
Americans, "far from having ever injured the people of Europe, had
received the first adventurers with every mark of kindness and
hospitality." However, "superiority of force" was "so great on the
side of the Europeans, that they were enabled to commit with impunity
every sort of injustice in those remote countries."[66]

Smith also believed that a division of labour would effect a great
increase in production. One example he used was the making of pins.
One worker could probably make only twenty pins per day. However, if
ten people divided up the eighteen steps required to make a pin, they
could make a combined amount of 48,000 pins in one day. However,
Smith's views on division of labour are not unambiguously positive,
and are typically mis-characterized.[67] On labor relations, Smith
noted "severity" of laws against worker actions, and contrasted the
masters' "clamour" against workers associations, with associations and
collusions of the masters which "are never heard by the people" though
such actions are "always" and "everywhere" taking place.[68]

Other works

Smith's burial place in Canongate KirkyardShortly before his death,
Smith had nearly all his manuscripts destroyed. In his last years, he
seemed to have been planning two major treatises, one on the theory
and history of law and one on the sciences and arts. The posthumously
published Essays on Philosophical Subjects, a history of astronomy
down to Smith's own era, plus some thoughts on ancient physics and
metaphysics, probably contain parts of what would have been the latter
treatise. Lectures on Jurisprudence were notes taken from Smith's
early lectures, plus an early draft of The Wealth of Nations,
published as part of the 1976 Glasgow Edition of the works and
correspondence of Smith. Other works, including some published
posthumously, include Lectures on Justice, Police, Revenue, and Arms
(1763) (first published in 1896); A Treatise on Public Opulence (1764)
(first published in 1937); and Essays on Philosophical Subjects
(1795).

Legacy

A statue of Smith on Edinburgh's Royal Mile built through private
donations and organised by the Adam Smith InstituteThe Wealth of
Nations, one of the earliest attempts to study the rise of industry
and commercial development in Europe, was a precursor to the modern
academic discipline of economics. In this and other works, Smith
expounded how rational self-interest and competition can lead to
economic prosperity and well-being. It also provided one of the best-
known intellectual rationales for free trade and capitalism, greatly
influencing the writings of later economists. Smith is often cited as
the father of modern economics.[69][70][71] Smith was controversial in
his own day and his general approach and writing style was often
satirized by Tory writers in the moralizing tradition of Hogarth and
Swift, as a discussion at the University of Winchester suggests.[72]

George Stigler attributes to Smith the central proposition of
mainstream economic theory, namely that an individual will invest a
resource, for example, land or labour, so as to earn the highest
possible return on it. Consequently, all uses of the resource should
yield a risk-adjusted equal rate of return; otherwise resource
reallocation would result.

On the other hand, Joseph Schumpeter dismissed Smith's contributions
as unoriginal, saying "His very limitation made for success. Had he
been more brilliant, he would not have been taken so seriously. Had he
dug more deeply, had he unearthed more recondite truth, had he used
more difficult and ingenious methods, he would not have been
understood. But he had no such ambitions; in fact he disliked whatever
went beyond plain common sense. He never moved above the heads of even
the dullest readers. He led them on gently, encouraging them by
trivialities and homely observations, making them feel comfortable all
along.” (Schumpeter History of Economic Analysis. New York: Oxford
University Press, p 185)

Classical economists presented variations on Smith, termed the "labour
theory of value", later Marxian economics descends from classical
economics also using Smith's labour theories in part. The first volume
of Karl Marx's major work, Capital, was published in German in 1867.
In it, Marx focused on the labour theory of value and what he
considered to be the exploitation of labour by capital.[73][74] The
labour theory of value held that the value of a thing was determined
by the labor that went into its production. This contrasts with the
modern understanding of mainstream economics, that the value of a
thing is determined by what one is willing to give up to obtain the
thing. Smith is often cited not only as the conceptual builder of free
markets in capitalism but also as a main contributor to communist
theory, via his influence on Marx.

The Adam Smith Theatre in KirkcaldyA body of theory later termed
"neoclassical economics" or "marginalism" formed from about 1870 to
1910. The term "economics" was popularized by such neoclassical
economists as Alfred Marshall as a concise synonym for "economic
science" and a substitute for the earlier, broader term "political
economy" used by Smith.[75][76] This corresponded to the influence on
the subject of mathematical methods used in the natural sciences.[77]
Neoclassical economics systematized supply and demand as joint
determinants of price and quantity in market equilibrium, affecting
both the allocation of output and the distribution of income. It
dispensed with the labour theory of value of which Smith was most
famously identified with in classical economics, in favour of a
marginal utility theory of value on the demand side and a more general
theory of costs on the supply side.[78]

The bicentennial anniversary of the publication of The Wealth of
Nations was celebrated in 1976, resulting in increased interest for
The Theory of Moral Sentiments and his other works throughout
academia. After 1976, Smith was more likely to be represented as the
author of both The Wealth of Nations and The Theory of Moral
Sentiments, and thereby as the founder of a moral philosophy and the
science of economics. His homo economicus or "economic man" was also
more often represented as a moral person. Additionally, his opposition
to slavery, colonialism, and empire was emphasised, as were his
statements about high wages for the poor, and his views that a common
street porter was not intellectually inferior to a philosopher.[79]

This £20 note was issued by the Bank of England and features Smith.
Portraits, monuments, and banknotes

Smith has been commemorated in the UK on banknotes printed by two
different banks; his portrait has appeared since 1981 on the £50 notes
issued by the Clydesdale Bank in Scotland,[80][81] and in March 2007
Smith's image also appeared on the new series of £20 notes issued by
the Bank of England, making him the first Scotsman to feature on an
English banknote.[82]

A large-scale memorial of Smith was unveiled on 4 July 2008 in
Edinburgh. It is a 10 feet (3.0 m)-tall bronze sculpture and it stands
above the Royal Mile outside St Giles' Cathedral in Parliament Square,
near the Mercat cross.[83] 20th century sculptor Jim Sanborn (best
known for creating the Kryptos sculpture at the United States Central
Intelligence Agency) has created multiple pieces which feature Smith's
work. At Central Connecticut State University is Circulating Capital,
a tall cylinder which features an extract from The Wealth of Nations
on the lower half, and on the upper half, some of the same text but
represented in binary code.[84] At the University of North Carolina at
Charlotte, outside the Belk College of Business Administration, is
Adam Smith's Spinning Top.[85][86] Another Smith sculpture is at
Cleveland State University.[87]

As a symbol of free market economics

Adam Smith's Spinning Top, sculpture by American artist Jim Sanborn at
Cleveland State UniversitySmith has been celebrated by advocates of
free market policies as the founder of free market economics, a view
reflected in the naming of bodies such as the Adam Smith Institute,
Adam Smith Society[88] and the Australian Adam Smith Club,[89] and in
terms such as the Adam Smith necktie.[90]

Alan Greenspan argues that, while Smith did not coin the term laissez-
faire, "it was left to Adam Smith to identify the more-general set of
principles that brought conceptual clarity to the seeming chaos of
market transactions". Greenspan continues that The Wealth of Nations
was "one of the great achievements in human intellectual history".[91]
P. J. O'Rourke describes Smith as the "founder of free market
economics".[92]

However, other writers have argued that Smith's support for laissez-
faire (which in French means leave alone) has been overstated. Herbert
Stein wrote that the people who "wear an Adam Smith necktie" do it to
"make a statement of their devotion to the idea of free markets and
limited government", and that this misrepresents Smith's ideas. Stein
writes that Smith "was not pure or doctrinaire about this idea. He
viewed government intervention in the market with great skepticism ...
yet he was prepared to accept or propose qualifications to that policy
in the specific cases where he judged that their net effect would be
beneficial and would not undermine the basically free character of the
system. He did not wear the Adam Smith necktie." In Stein's reading,
The Wealth of Nations could justify the Food and Drug Administration,
the Consumer Product Safety Commission, mandatory employer health
benefits, environmentalism, and "discriminatory taxation to deter
improper or luxurious behavior".[93]

Similarly, Vivienne Brown stated in The Economic Journal that in the
20th century United States, Reaganomics supporters, The Wall Street
Journal, and other similar sources have spread among the general
public a partial and misleading vision of Smith, portraying him as an
"extreme dogmatic defender of laissez-faire capitalism and supply-side
economics".[94] In fact, The Wealth of Nations includes the following
statement on the payment of taxes: "The subjects of every state ought
to contribute towards the support of the government, as nearly as
possible, in proportion to their respective abilities; that is, in
proportion to the revenue which they respectively enjoy under the
protection of the state."[95]

Smith even specifically named taxes that he thought should be required
by the state among them luxury goods taxes and tax on rent. He
believed that tax laws should be as transparent as possible and that
each individual should pay a "certain amount, and not arbitrary," in
addition to paying this tax at the time "most likely to be convenient
for the contributor to pay it".[96]

Additionally, Smith outlined the proper expenses of the government in
The Wealth of Nations, Book V, Ch. I. Included in his requirements of
a government is to enforce contracts and provide justice system, grant
patents and copy writes, provide public goods such as infrastructure,
provide national defense and regulate banking. It was the role of the
government to provide goods "of such a nature that the profit could
never repay the expense to any individual" such as roads, bridges,
canals, and harbours. He also encouraged invention and new ideas
through his patent enforcement and support of infant industry
monopolies. he supported public education and religious institutions
as providing general benefit to the society. Finally he outlined how
the government should support the dignity of the monarch or chief
magistrate, such that they are equal or above the public in fashion.
He even states that monarchs should be provided for in a greater
fashion than magistrates of a republic because "we naturally expect
more splendor in the court of a king than in the mansion-house of a
doge."[97] In addition, he was in favor of retaliatory tariffs and
believed that they would eventually bring down the price of goods. He
even stated in Wealth of Nations, "The recovery of a great foreign
market will generally more than compensate the transitory
inconvenience of paying dearer during a short time for some sorts of
goods."[98]

Noam Chomsky has argued[N 3] that several aspects of Smith's thought
have been misrepresented and falsified by contemporary ideology,
including Smith’s reasons for supporting markets and Smith’s views on
corporations. Chomsky argues that Smith supported markets in the
belief that they would lead to equality, and that Smith opposed wage
labor and corporations.[99] Economic historians such as Jacob Viner
regard Smith as a strong advocate of free markets and limited
government (what Smith called "natural liberty") but not as a dogmatic
supporter of laissez-faire.[100]

Economist Daniel Klein believes using the term "free market economics"
or "free market economist" to identify the ideas of Smith is too
general and slightly misleading. Klein offers six characteristics
central to the identity of Smith's economic thought and argues that a
new name is needed to give a more accurate depiction of the "Smithian"
identity.[101][102] Economist David Ricardo set straight some of the
misunderstandings about Smith’s thoughts on free market. Most people
still fall victim to the thinking that Smith was a free market
economist without exception, though he was not. Ricardo pointed out
that Smith was in support of helping infant industries. Smith believed
that the government should subsidise newly formed industry, but he did
fear that when the infant industry grew into adulthood it would be
unwilling to surrender the government help.[103] Smith also supported
tariffs on imported goods to counteract an internal tax on the same
good. Smith also fell to pressure in supporting some tariffs in
support for national defense.[103]

Footnotes

↑ In Life of Adam Smith, Rae writes, "In his fourth year, while on a
visit to his grandfather's house at Strathendry on the banks of the
Leven, [Smith] was stolen by a passing band of gypsies, and for a time
could not be found. But presently a gentleman arrived who had met a
gypsy woman a few miles down the road carrying a child that was crying
piteously. Scouts were immediately dispatched in the direction
indicated, and they came upon the woman in Leslie wood. As soon as she
saw them she threw her burden down and escaped, and the child was
brought back to his mother. [Smith] would have made, I fear, a poor
gypsy."[3]

↑ The 6 editions of The Theory of Moral Sentiments were published in
1759, 1761, 1767, 1774, 1781, and 1790 respectively.[53]

↑ See chapters 2, 5, 6, and 10 of his Understanding Power, New Press
(February 2002), along with his Year 501: The Conquest Continues,
primarily chapter 1, South End Press, 1993.

Notes

↑ Bussing-Burks 2003, pp. 38–39
↑ Buchan 2006, p. 12
↑ 3.0 3.1 3.2 Rae 1895, p. 5
↑ 4.0 4.1 4.2 Bussing-Burks 2003, p. 39
↑ Buchan 2006, p. 22
↑ Bussing-Burks 2003, p. 41
↑ Rae 1895, p. 24
↑ 8.0 8.1 8.2 8.3 Buchholz 1999, p. 12
↑ Introductory Economics. New Age Publishers. p. 4. ISBN 8122418309.
↑ Rae 1895, p. 22
↑ Rae 1895, pp. 24–25
↑ 12.0 12.1 Bussing-Burks 2003, p. 42
↑ Buchan 2006, p. 29
↑ Rae 1895, p. 30
↑ 15.0 15.1 Bussing-Burks 2003, p. 43

↑ Winch, Donald (September 2004). "Smith, Adam (bap. 1723, d. 1790)".
Dictionary of National Biography. Oxford University Press.

↑ Rae 1895, p. 42
↑ 18.0 18.1 Buchholz 1999, p. 15
↑ Buchan 2006, p. 67
↑ 20.0 20.1 20.2 20.3 20.4 Buchholz 1999, p. 16
↑ Buchholz 1999, pp. 16–17
↑ 22.0 22.1 Buchholz 1999, p. 17
↑ Buchan 2006, p. 80
↑ 24.0 24.1 Buchholz 1999, p. 18
↑ Buchan 2006, p. 90
↑ Dr James Currie to Thomas Creevey, 24 February 1793, Lpool RO,
Currie MS 920 CUR

↑ Buchan 2006, p. 89

↑ "First Visit to London". Library of Economics and Liberty.

http://econlib.org/library/YPDBooks/Rae/raeLS10.html. Retrieved
2008-05-22.

↑ Buchholz 1999, p. 19
↑ Buchan 2006, p. 128
↑ Buchan 2006, p. 133
↑ Buchan 2006, p. 137
↑ Buchan 2006, p. 145
↑ 34.0 34.1 Bussing-Burks 2003, p. 53
↑ 35.0 35.1 Buchan 2006, p. 25
↑ 36.0 36.1 Buchan 2006, p. 88
↑ Bonar 1895, pp. xx–xxiv
↑ Buchan 2006, p. 11
↑ Buchan 2006, p. 134
↑ Rae 1895, p. 262
↑ 41.0 41.1 41.2 Skousen 2001, p. 32

↑ 42.0 42.1 Buchholz 1999, p. 14

↑ Stewart, Dugald (1853). The Works of Adam Smith: With An Account of
His Life and Writings. London: Henry G. Bohn. lxix. OCLC 3226570.

http://books.google.com/books?id=FbYCAAAAYAAJ.

↑ Rae 1895, pp. 376–377
↑ Bonar 1895, p. xxi
↑ Ross 1995, p. 15

↑ [Expression error: Missing operand for > "Times obituary of Adam
Smith"]. The Times. 1790-07-24.

↑ Coase 1976, pp. 529–546

↑ Coase 1976, p. 538

↑ "Hume on Religion". Stanford Encyclopedia of Philosophy.

http://plato.stanford.edu/entries/hume-religion/. Retrieved
2008-05-26.

↑ "Letter From Adam Smith, LL.D. TO William Strahan, Esq. - Essays
Moral, Political, Literary (LF ed.)". Online Library of Liberty.

http://oll.libertyfund.org/?option=com_staticxt&staticfile=show.php%3Ftitle=704&chapter=137475&layout=html&Itemid=27.

Retrieved 2008-05-26.

↑ Rae 1895, p. 311

↑ "Adam Smith, Glasgow Edition of the Works and Correspondence Vol. 1
The Theory of Moral Sentiments [1759"]. The Online Library of
Liberty.

http://oll.libertyfund.org/index.php?option=com_staticxt&staticfile=show.php%3Ftitle=192&Itemid=27.

Retrieved 2010-01-31.
↑ Rae 1895

↑ O'Rourke, P. J. (2007-01-08). "P.J. O'Rourke Takes On 'The Wealth of
Nations'". NPR.

http://www.npr.org/templates/story/story.php?storyId=6743689.
Retrieved 2008-06-10.

↑ 56.0 56.1 Minowitz, Peter (December 2004). "Adam Smith's Invisible
Hands". Econ Journal Watch 1 (3): 381–412.
http://econjwatch.org/articles/adam-smith-s-invisible-hands.

↑ Falkner, Robert (1997). "Biography of Smith". Liberal Democrat
History Group.

http://www.liberalhistory.org.uk/item_single.php?item_id=37&item=biography.
Retrieved 2008-05-14.

↑ Smith 2002, p. xv

↑ Viner 1991, p. 250

↑ "The Betrayal of Adam Smith". The People-Centered Development
Forum.

http://www.pcdf.org/corprule/betrayal.htm. Retrieved 2010-01-31.

↑ Smith 1977, bk. IV, ch. 2
↑ Smith 1977, p. 18
↑ Smith 1977, bk. 1, ch. 5–6
↑ Smith 1977, bk. IV, ch. 7
↑ Smith 1977, bk. IV, ch. 1
↑ Smith 1977, bk. IV, ch. 7
↑ Smith 1977, bk. V, ch. 1
↑ Smith 1977, bk. I, ch. 8

↑ Pressman, Steven (1999). Fifty Major Economists. Routledge. p. 20.
ISBN 0415134811.

↑ Hoaas, David J.; Madigan, Lauren J. (1999). [Expression error:
Missing operand for > "A citation analysis of economists in principles
of economics textbooks"]. The Social Science Journal 36 (3): 525–532.
doi:10.1016/S0362-3319(99)00022-1.
↑ Rae 1895, p. 292

↑ "Adam Smith - Jonathan Swift". University of Winchester.

http://journalism.winchester.ac.uk/?page=343. Retrieved 2010-02-11.

↑ Roemer, J.E. (1987). "Marxian Value Analysis". The New Palgrave: A
Dictionary of Economics, v. 3, 383.

↑ Mandel, Ernest (1987). "Marx, Karl Heinrich", The New Palgrave: A
Dictionary of Economicsv. 3, pp. 372, 376.

↑ Marshall, Alfred; Marshall, Mary Paley (1879). The Economics of
Industry. p. 2.

http://books.google.com/books?hl=en&lr=&id=NLcJAAAAIAAJ&pg=PA1#PPA2,M1.

↑ Jevons, W. Stanley (1879). The Theory of Political Economy (2nd
ed.). p. xiv.

http://books.google.com/books?id=aYcBAAAAQAAJ&pg=PR3#PPR3,M1.

↑ Clark, B. (1998). Political-economy: A comparative approach, 2nd
ed., Westport, CT: Preagerp. p. 32..

↑ Campos, Antonietta (1987). "Marginalist Economics", The New
Palgrave: A Dictionary of Economics, v. 3, p. 320

↑ Smith 1977, §Book I, Chapter 2

↑ "Clydesdale 50 Pounds, 1981". Ron Wise's Banknoteworld.

http://aes.iupui.edu/rwise/banknotes/scotland/ScotlandP209-50Pounds-1981-donatedowl_f.jpg.
Retrieved 2008-10-15.

↑ "Current Banknotes : Clydesdale Bank". The Committee of Scottish
Clearing Bankers.

http://www.scotbanks.org.uk/banknotes_current_clydesdale_bank.php.
Retrieved 2008-10-15.
↑ "Smith replaces Elgar on £20 note". BBC. 2006-10-29.

http://news.bbc.co.uk/1/hi/business/6096938.stm. Retrieved
2008-05-14.

↑ Blackley, Michael (2007-09-26). "Adam Smith sculpture to tower over
Royal Mile". Edinburgh Evening News.

↑ Fillo, Maryellen (2001-03-13). "CCSU welcomes a new kid on the
block". The Hartford Courant.

↑ Kelley, Pam (1997-05-20). "Piece at UNCC is a puzzle for Charlotte,
artist says". Charlotte Observer.

↑ Shaw-Eagle, Joanna (1997-06-01). "Artist sheds new light on
sculpture". The Washington Times.

↑ "Adam Smith's Spinning Top". Ohio Outdoor Sculpture Inventory.
Archived from the original on 2005-02-05.

http://web.archive.org/web/20050205065104/http://www.sculpturecenter.org/oosi/sculpture.asp?SID=1055.
Retrieved 2008-05-24.

↑ "The Adam Smith Society". The Adam Smith Society. Archived from the
original on 2007-07-21.

http://web.archive.org/web/20070721032612/

http://www.adamsmith.it/presentazione.html. Retrieved 2008-05-24.

↑ "The Australian Adam Smith Club". Adam Smith Club. http://www.adamsmithclub.org/.
Retrieved 2008-10-12.

↑ Levy, David (June 1992). "Interview with Milton Friedman". Federal
Reserve Bank of Minneapolis.

http://www.minneapolisfed.org/publications_papers/pub_display.cfm?id=3748.
Retrieved 2008-09-01.

↑ "FRB: Speech, Greenspan—Adam Smith—6 February 2005".

http://www.federalreserve.gov/boarddocs/speeches/2005/20050206/default.htm.
Retrieved 2008-05-31.
↑ "Adam Smith: Web Junkie - Forbes.com".

http://www.forbes.com/free_forbes/2007/0507/086.html. Retrieved
2008-06-10.

↑ Stein, Herbert (1994-04-06). [Expression error: Missing operand for
> "Board of Contributors: Remembering Adam Smith"]. The Wall Street
Journal Asia: A14.

↑ Brown, Vivienne; Pack, Spencer J.; Werhane, Patricia H. (January
1993). [Expression error: Missing operand for > "Untitled review of
'Capitalism as a Moral System: Adam Smith's Critique of the Free
Market Economy' and 'Adam Smith and his Legacy for Modern
Capitalism'"]. The Economic Journal 103 (416): 230–232. doi:
10.2307/2234351.

↑ Smith 1977, bk. V, ch. 2
↑ Smith 1977, bk. V, ch. 2
↑ Smith 1977, bk. V
↑ Smith 1977, bk. IV, ch. 2
↑ Chomsky 2002, ch. 6

↑ Viner, Jacob; Pack, Spencer J.; Werhane, Patricia H. (April 1927).
[Expression error: Missing operand for > "Adam Smith and Laissez-
faire"]. The Journal of Political Economy 35 (2): 198–232. doi:
10.2307/2234351.

↑ Klein, Daniel B. (2008). "Toward a Public and Professional Identity
for Our Economics". Econ Journal Watch 5 (3): 358–372.
http://econjwatch.org/articles/toward-a-public-and-professional-identity-for-our-economics.

↑ Klein, Daniel B. (2009). "Desperately Seeking Smithians: Responses
to the Questionnaire about Building an Identity". Econ Journal Watch 6
(1): 113–180.

http://econjwatch.org/articles/desperately-seeking-smithians-responses-to-the-questionnaire-about-building-an-identity.

↑ 103.0 103.1 Buchholz, Todd (December 1990). pp. 38–39.

References

Bonar, James (1895). A Catalogue of the Library of Adam Smith. London:
Macmillan. OCLC 2320634. http://books.google.com/books?id=pUmfjlAfM3kC.

Buchan, James (2006). The Authentic Adam Smith: His Life and Ideas. W.
W. Norton & Company. ISBN 0393061213.

Buchholz, Todd (1999). New ideas from Dead Economists: An introduction
to modern economic thought. Penguin Books. ISBN 0140283137.

Bussing-Burks, Marie (2003). Influential Economists. Minneapolis: The
Oliver Press. ISBN 1-881508-72-2.

Campbell, R. H.; Skinner, Andrew S. (1985). Adam Smith. Routledge.
ISBN 0709934734.

Chomsky, Noam (2002). Understanding power: the indispensable Chomsky.
Scribe Publications. ISBN 9780908011728.

Coase, R.H. (October 1976). [Expression error: Missing operand for >
"Adam Smith's View of Man"]. The Journal of Law and Economics 19 (3):
529–546. doi:10.1086/466886.

Rae, John (1895). Life of Adam Smith. New York City: Macmillan
Publishers. ISBN 0722226586.
http://books.google.com/books?id=V80JAAAAIAAJ&printsec=frontcover&dq=Adam+Smith+-inauthor:%22Adam+Smith%22&ei=lCArSNj3K4uujgGNgtnCDQ#PPA4,M1.

Ross, Ian Simpson (December 14, 1995). The Life of Adam Smith. Oxford
University Press. ISBN 0198288212.

Skousen, Mark (2001). The Making of Modern Economics: The Lives and
Ideas of Great Thinkers. M.E. Sharpe. ISBN 0765604809.

http://books.google.com/books?id=nsnl3hHPuowC.

Smith, Adam (1977) [1776]. An Inquiry into the Nature and Causes of
the Wealth of Nations. University Of Chicago Press. ISBN 0226763749.

Smith, Adam (1982) [1759]. The Theory of Moral Sentiments, ed. D.D.
Raphael and A.L. Macfie, vol. I of the Glasgow Edition of the Works
and Correspondence of Adam Smith. Liberty Fund. ISBN 0865970122.

http://oll.libertyfund.org/index.php?option=com_staticxt&staticfile=show.php%3Ftitle=192&Itemid=27.

Smith, Adam (2002) [1759]. Knud Haakonssen. ed. The Theory of Moral
Sentiments. Cambridge University Press. ISBN 0521598478.

http://www.cambridge.org/catalogue/catalogue.asp?isbn=0521598478.

Smith, Vernon L. (July 1998). [Expression error: Missing operand for >
"The Two Faces of Adam Smith"]. Southern Economic Journal 65 (1): 2–
19.

Tribe, Keith; Mizuta, Hiroshi (2002) (Hardcover). A Critical
Bibliography of Adam Smith. Pickering & Chatto. ISBN 9781851967414.

Viner, Jacob (1991). Douglas A. Irvin. ed. Essays on the Intellectual
History of Economics. Princeton, New Jersey: Princeton University
Press. ISBN 0691042667.

This article incorporates public domain text from the entry Smith,
Adam in: Cousin, John William (1910). A Short Biographical Dictionary
of English Literature. London, J. M. Dent & Sons; New York, E. P.
Dutton.

Further reading

Butler, Eamonn (March 2007). Adam Smith - A Primer. Institute of
Economic Affairs. ISBN 0255366086. http://www.iea.org.uk/record.jsp?type=book&ID=414.

Copley, Stephen (March 1995). Adam Smith's Wealth of Nations: New
Interdisciplinary Essays. Manchester University Press. ISBN
0719039436.

http://www.amazon.com/Adam-Smiths-Wealth-Nations-Interdisciplinary/dp/0719039436.
Glahe, F. (June 1977). Adam Smith and the Wealth of Nations: 1776–
1976. University Press of Colorado. ISBN 0870810820.
http://www.amazon.com/Adam-Smith-Wealth-Nations-1776-1976/dp/0870810820.

Haakonssen, Knud (2006-03-06). The Cambridge Companion to Adam Smith.
Cambridge University Press. ISBN 0521779243.
http://www.amazon.com/Cambridge-Companion-Smith-Companions-Philosophy/dp/0521779243.

Hollander, Samuel (June 1973). Economics of Adam Smith. University of
Toronto Press. ISBN 0802063020. http://www.amazon.com/Economics-Adam-Smith-Samuel-Hollander/dp/0802063020.

Iain McLean (2006). Adam Smith, Radical and Egalitarian: An
Interpretation for the 21st Century. Edinburgh University Press. ISBN
0748623523.

http://www.amazon.co.uk/Adam-Smith-Radical-Egalitarian-Interpretation/dp/0748623523/.

Muller, Jerry Z. (1995-07-03). Adam Smith in His Time and Ours.
Princeton University Press. ISBN 0691001618.
http://www.amazon.com/Adam-Smith-His-Time-Ours/dp/0691001618.

O'Rourke, P. J. (2006-12-04). On The Wealth of Nations. Grove/Atlantic
Inc.. ISBN 0871139499. http://www.amazon.com/Wealth-Nations-Books-Changed-World/dp/0871139499.

External links

Works related to Adam Smith at Wikisource
Quotations related to Adam Smith at Wikiquote
Adam Smith at the Concise Encyclopedia of Economics
Adam Smith at the Adam Smith Institute

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Glasgow
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Succeeded by
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Portal v • [[|d]] • e

Ethics (also known as moral philosophy) is a branch of philosophy
which seeks to address questions about morality; that is, about
concepts such as good and bad, right and wrong, justice, and virtue.

Major branches of ethics include:

meta-ethics, about the theoretical meaning and reference of moral
propositions and how their truth-values (if any) may be determined;
normative ethics, about the practical means of determining a moral
course of action; applied ethics, about how moral outcomes can be
achieved in specific situations;
moral psychology, about how moral capacity or moral agency develops
and what its nature is; and descriptive ethics, about what moral
values people actually abide by.

Within each of these branches are many different schools of thought
and still further sub-fields of study.

Meta-ethics

Main article: Meta-ethics

Meta-ethics is concerned primarily with the meaning of ethical
judgments and/or prescriptions and with the notion of which
properties, if any, are responsible for the truth or validity thereof.
Meta-ethics as a discipline gained attention with G.E. Moore's famous
work Principia Ethica from 1903 in which Moore first addressed what he
referred to as the naturalistic fallacy. Moore's rebuttal of
naturalistic ethics, his Open Question Argument sparked an interest
within the analytic branch of western philosophy to concern oneself
with second order questions about ethics; specifically the semantics,
epistemology and ontology of ethics.

The semantics of ethics divides naturally into descriptivism and non-
descriptivism. Descriptivism holds that ethical language (including
ethical commands and duties) is a subdivision of descriptive language
and has meaning in virtue of the same kind of properties as
descriptive propositions. Non-descriptivism contends that ethical
propositions are irreducible in the sense that their meaning cannot be
explicated sufficiently in terms of descriptive truth-conditions.

Correspondingly, the epistemology of ethics divides into cognitivism
and non-cognitivism; a distinction that is often perceived as
equivalent to that between descriptivists and non-descriptivists. Non-
cognitivism may be understood as the claim that ethical claims reach
beyond the scope of human cognition or as the (weaker) claim that
ethics is concerned with action rather than with knowledge.
Cognitivism can then be seen as the claim that ethics is essentially
concerned with judgments of the same kind as knowledge judgments;
namely about matters of fact.

The ontology of ethics is concerned with the idea of value-bearing
properties, i.e. the kind of things or stuffs that would correspond to
or be referred to by ethical propositions. Non-descriptivists and non-
cognitivists will generally tend to argue that ethics do not require a
specific ontology, since ethical propositions do not refer to objects
in the same way that descriptive propositions do. Such a position may
sometimes be called anti-realist. Realists on the other hand are left
with having to explain what kind of entities, properties or states are
relevant for ethics, and why they have the normative status
characteristic of ethics.

Normative ethics

Main article: Normative ethics

Traditionally, normative ethics (also known as moral theory) was the
study of what makes actions right and wrong. These theories offered an
overarching moral principle to which one could appeal in resolving
difficult moral decisions.

At the turn of the 20th century, moral theories became more complex
and are no longer concerned solely with rightness and wrongness, but
are interested in many different kinds of moral status. During the
middle of the century, the study of normative ethics declined as meta-
ethics grew in prominence. This focus on meta-ethics was in part
caused by an intense linguistic focus in analytic philosophy and by
the popularity of logical positivism.

In 1971, John Rawls published A Theory of Justice, noteworthy in its
pursuit of moral arguments and eschewing of meta-ethics. This
publication set the trend for renewed interest in normative ethics.

Greek philosophy

Socrates

Socrates (469 BC – 399 BC) was one of the first Greek philosophers to
encourage both scholars and the common citizen to turn their attention
from the outside world to the condition of humankind. In this view,
Knowledge having a bearing on human life was placed highest, all other
knowledge being secondary. Self-knowledge was considered necessary for
success and inherently an essential good. A self-aware person will act
completely within their capabilities to their pinnacle, while an
ignorant person will flounder and encounter difficulty. To Socrates, a
person must become aware of every fact (and its context) relevant to
his existence, if he wishes to attain self-knowledge. He posited that
people will naturally do what is good, if they know what is right.
Evil or bad actions, are the result of ignorance. If a criminal were
truly aware of the mental and spiritual consequences of his actions,
he would neither commit nor even consider committing those actions.
Any person who knows what is truly right will automatically do it,
according to Socrates. While he correlated knowledge with virtue, he
similarly equated virtue with happiness. The truly wise man will know
what is right, do what is good, and therefore be happy.[1]

Aristotle

Aristotle (384 BC – 322 BC) posited an ethical system that may be
termed "self-realizationism." In Aristotle's view, when a person acts
in accordance with his nature and realizes his full potential, he will
do good and be content. At birth, a baby is not a person, but a
potential person. In order to become a "real" person, the child's
inherent potential must be realized. Unhappiness and frustration are
caused by the unrealized potential of a person, leading to failed
goals and a poor life. Aristotle said, "Nature does nothing in vain."
Therefore, it is imperative for persons to act in accordance with
their nature and develop their latent talents, in order to be content
and complete. Happiness was held to be the ultimate goal. All other
things, such as civic life or wealth, are merely means to the end.
Self-realization, the awareness of one's nature and the development of
one's talents, is the surest path to happiness.[2]

Aristotle asserted that man had three natures: vegetable (physical),
animal (emotional) and rational (mental). Physical nature can be
assuaged through exercise and care, emotional nature through
indulgence of instinct and urges, and mental through human reason and
developed potential. Rational development was considered the most
important, as essential to philosophical self-awareness and as
uniquely human. Moderation was encouraged, with the extremes seen as
degraded and immoral. For example, courage is the moderate virtue
between the extremes of cowardice and recklessness. Man should not
simply live, but live well with conduct governed by moderate virtue.
This is regarded as difficult, as virtue denotes doing the right
thing, to the right person, at the right time, to the proper extent,
in the correct fashion, for the right reason.[3]

Hedonism

Hedonism posits that the principle ethic is maximizing pleasure and
minimizing pain. There are several schools of Hedonist thought ranging
from those advocating the indulgence of even momentary desires to
those teaching a pursuit of spiritual bliss. In their consideration of
consequences, they range from those advocating self-gratification
regardless of the pain and expense to others, to those stating that
the most ethical pursuit maximizes pleasure and happiness for the most
people.[4]

Cyrenaic hedonism

Founded by Aristippus of Cyrene, Cyrenaics supported immediate
gratification. "Eat, drink and be merry, for tomorrow we die." Even
fleeting desires should be indulged, for fear the opportunity should
be forever lost. There was little to no concern with the future, the
present dominating in the pursuit for immediate pleasure. Cyrenaic
hedonism encouraged the pursuit of enjoyment and indulgence without
hesitation, believing pleasure to be the only good.[4]

Epicureanism

Epicurus rejected the extremism of the Cyrenaics, believing some
pleasures and indulgences to be detrimental to human beings.
Epicureans observed that indiscriminate indulgence sometimes resulted
in negative consequences. Some experiences were therefore rejected out
of hand, and some unpleasant experiences endured in the present to
ensure a better life in the future. The summum bonum, or greatest
good, to Epicurus was prudence, exercised through moderation and
caution. Excessive indulgence can be destructive to pleasure and can
even lead to pain. For example, eating one food too often will cause a
person to lose taste for it. Eating too much food at once will lead to
discomfort and ill-health. Pain and fear were to be avoided. Living
was essentially good, barring pain and illness. Death was not to be
feared. Fear was considered the source of most unhappiness. Conquering
the fear of death would naturally lead to a happier life. Epicurus
reasoned if there was an afterlife and immortality, the fear of death
was irrational. If there was no life after death, then the person
would not be alive to suffer, fear or worry; he would be non-existent
in death. It is irrational to fret over circumstances that do not
exist, such as one's state in death in the absence of an afterlife.[5]

Christian Hedonism

Christian Hedonism is a controversial Christian doctrine current in
some evangelical circles, particularly those of the Reformed
tradition. The term was coined by Reformed Baptist pastor John Piper
in his 1986 book Desiring God. Piper summarizes this philosophy of the
Christian life as "God is most glorified in us when we are most
satisfied in Him."[6]

Stoicism

The Stoic philosopher Epictetus posited that the greatest good was
contentment and serenity. Peace of mind, or Apatheia, was of the
highest value; self-mastery over one's desires and emotions leads to
spiritual peace. The "unconquerable will" is central to this
philosophy. The individual will should be independent and inviolate.
Allowing a person to disturb the mental equilibrium is in essence
offering yourself in slavery. If a person is free to anger you at
will, you have no control over your internal world, and therefore no
freedom. Freedom from material attachments is also necessary. If a
thing breaks, the person should not be upset, but realize it was a
thing that could break. Similarly, if someone should die, those close
to them should hold to their serenity because the loved one was made
of flesh and blood destined to death. Stoic philosophy says to accept
things that cannot be changed, resigning oneself to existence and
enduring in a rational fashion. Death is not feared. People do not
"lose" their life, but instead "return", for they are returning to God
(who initially gave what the person is as a person). Epictetus said
difficult problems in life should not be avoided, but rather embraced.
They are spiritual exercises needed for the health of the spirit, just
as physical exercise is required for the health of the body. He also
stated that sex and sexual desire are to be avoided as the greatest
threat to the integrity and equilibrium of a man's mind. Abstinence is
highly desirable. Epictetus said remaining abstinent in the face of
temptation was a victory for which a man could be proud.[7]

Modern ethics

In the modern era, ethical theories were generally divided between
consequentialist theories of philosophers such as Jeremy Bentham and
John Stuart Mill, and deontological ethics as epitomized by the work
of Immanuel Kant.

Consequentialism

Main article: Consequentialism

Consequentialism refers to those moral theories which hold that the
consequences of a particular action form the basis for any valid moral
judgment about that action (or create a structure for judgment, see
rule consequentialism). Thus, from a consequentialist standpoint, a
morally right action is one that produces a good outcome, or
consequence. This view is often expressed as the aphorism "The ends
justify the means".

The term "consequentialism" was coined by G.E.M. Anscombe in her essay
"Modern Moral Philosophy" in 1958, to describe what she saw as the
central error of certain moral theories, such as those propounded by
Mill and Sidgwick.[8] Since then, the term has become common in
English-language ethical theory.

The defining feature of consequentialist moral theories is the weight
given to the consequences in evaluating the rightness and wrongness of
actions.[9] In consequentialist theories, the consequences of an
action or rule generally outweigh other considerations. Apart from
this basic outline, there is little else that can be unequivocally
said about consequentialism as such. However, there are some questions
that many consequentialist theories address:

What sort of consequences count as good consequences?

Who is the primary beneficiary of moral action?

How are the consequences judged and who judges them?

One way to divide various consequentialisms is by the types of
consequences that are taken to matter most, that is, which
consequences count as good states of affairs. According to hedonistic
utilitarianism, a good action is one that results in an increase in
pleasure, and the best action is one that results in the most pleasure
for the greatest number. Closely related is eudaimonic
consequentialism, according to which a full, flourishing life, which
may or may not be the same as enjoying a great deal of pleasure, is
the ultimate aim. Similarly, one might adopt an aesthetic
consequentialism, in which the ultimate aim is to produce beauty.
However, one might fix on non-psychological goods as the relevant
effect. Thus, one might pursue an increase in material equality or
political liberty instead of something like the more ephemeral
"pleasure". Other theories adopt a package of several goods, all to be
promoted equally. Whether a particular consequentialist theory focuses
on a single good or many, conflicts and tensions between different
good states of affairs are to be expected and must be adjudicated.

Deontology

Main article: Deontological Ethics

Deontological ethics or deontology (from Greek δέον, deon,
"obligation, duty"; and -λογία, -logia) is an approach to ethics that
determines goodness or rightness from examining acts, rather than
third-party consequences of the act as in consequentialism, or the
intentions of the person doing the act as in virtue ethics.
Deontologists look at rules and duties.[10] For example, the act may
be considered the right thing to do even if it produces a bad
consequence[11], if it follows the rule that “one should do unto
others as they would have done unto them”[10], and even if the person
who does the act lacks virtue and had a bad intention in doing the
act[citation needed]. We have a duty to act in a way that does those
things that are inherently good as acts ("truth-telling" for example),
or follow an objectively obligatory rule (as in rule utilitarianism).
For deontologists, the ends or consequences of our actions are not
important in and of themselves, and our intentions are not important
in and of themselves.

Immanuel Kant's theory of ethics is considered deontological for
several different reasons.[12][13] First, Kant argues that to act in
the morally right way, people must act from duty (deon).[14] Second,
Kant argued that it was not the consequences of actions that make them
right or wrong but the motives of the person who carries out the
action.

Immanuel KantKant's argument that to act in the morally right way, one
must act from duty, begins with an argument that the highest good must
be both good in itself, and good without qualification.[15] Something
is 'good in itself' when it is intrinsically good, and 'good without
qualification' when the addition of that thing never makes a situation
ethically worse. Kant then argues that those things that are usually
thought to be good, such as intelligence, perseverance and pleasure,
fail to be either intrinsically good or good without qualification.
Pleasure, for example, appears to not be good without qualification,
because when people take pleasure in watching someone suffering, this
seems to make the situation ethically worse. He concludes that there
is only one thing that is truly good:

Nothing in the world—indeed nothing even beyond the world—can possibly
be conceived which could be called good without qualification except a
good will.[15]

Postmodern ethics

This article or section may contain previously unpublished synthesis
of published material that conveys ideas not attributable to the
original sources. See the talk page for details. (July 2009)

The 20th century saw a remarkable expansion of critical theory and its
evolution. The earlier Marxist Theory created a paradigm for
understanding the individual, society and their interaction. The
Renaissance Enlightened Man had persisted up until the Industrial
Revolution when the romantic vision of noble action began to fade.

Modernism, exemplified in the literary works of Virginia Woolf and
James Joyce, wrote out God, then antihumanists such as Louis Althusser
and Michel Foucault and structuralists such as Roland Barthes presided
over the death of the author and man himself[clarification needed]. As
critical theory developed in the later 20th century, post-
structuralism queried the existence of reality. Jacques Derrida argued
reality was in the linguistic realm, stating ‘There is nothing outside
the text’, while Jean Baudrillard theorised that signs and symbols or
simulacra had usurped reality, particularly in the consumer world.

Post-structuralism and postmodernism are both heavily theoretical and
follow a fragmented, anti-authoritarian course which is absorbed in
narcissistic and near nihilistic activities.[citation needed] 2010}}
Normative issues are generally ignored. This has led to some opponents
of these later movements echoing the critic Jürgen Habermas who fears
‘that the postmodern mood represents a turning away from both
political responsibilities and a concern for suffering’(cited in Lyon,
1999, p. 103).

David Couzens Hoy says that Emmanuel Levinas’ writings on the face of
the Other and Derrida’s mediations on the relevance of death to ethics
are signs of the ‘ethical turn’ in Continental philosophy that occurs
in the 1980’s and 1990’s. Hoy clarifies post-critique ethics as the
‘obligations that present themselves as necessarily to be fulfilled
but are neither forced on one or are enforceable’ (2004, p. 103).

This aligns with Australian philosopher Peter Singer’s thoughts on
what ethics is not. He firstly claims it is not a moral code
particular to a sectional group. For example it has nothing to do with
a set of prohibitions concerned with sex laid down by a religious
order. Neither is ethics a ‘system that is noble in theory but no good
in practice’ (2000, p. 7). For him, a theory is good only if it is
practical. He agrees that ethics is in some sense universal but in a
utilitarian way it affords the ‘best consequences’ and furthers the
interests of those affected (2000, p. 15).

Hoy in his post-critique model uses the term ethical resistance.
Examples of this would be an individual’s resistance to consumerism in
a retreat to a simpler but perhaps harder lifestyle, or an
individual’s resistance to a terminal illness. Hoy describes these
examples in his book Critical Resistance as an individual’s engagement
in social or political resistance. He provides Levinas’s account as
‘not the attempt to use power against itself, or to mobilize sectors
of the population to exert their political power; the ethical
resistance is instead the resistance of the powerless’(2004, p. 8).

Hoy concludes that

"The ethical resistance of the powerless others to our capacity to
exert power over them is therefore what imposes unenforceable
obligations on us. The obligations are unenforceable precisely because
of the other’s lack of power. That actions are at once obligatory and
at the same time unenforceable is what put them in the category of the
ethical. Obligations that were enforced would, by the virtue of the
force behind them, not be freely undertaken and would not be in the
realm of the ethical" (2004, p.184).

In present day terms the powerless may include the unborn, the
terminally sick, the aged, the insane, and animals. It is in these
areas that ethical action will be evident. Until legislation or state
apparatus enforces a moral order that addresses the causes of
resistance these issues will remain in the ethical realm. For example,
should animal experimentation become illegal in a society, it will no
longer be an ethical issue. Likewise one hundred and fifty years ago,
not having a black slave in America may have been an ethical choice.
This later issue has been absorbed into the fabric of a more
utilitarian social order and is no longer an ethical issue but does of
course constitute a moral concern. Ethics are exercised by those who
possess no power and those who support them, through personal
resistance.

Applied ethics

Main article: Applied ethics

Applied ethics is a discipline of philosophy that attempts to apply
ethical theory to real-life situations. The discipline has many
specialized fields, such as bioethics and business ethics.

Specific questions

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Please help improve this article by adding reliable references.
Unsourced material may be challenged and removed. (May 2009)

Applied ethics is used in some aspects of determining public policy.
The sort of questions addressed by applied ethics include: "Is getting
an abortion immoral?" "Is euthanasia immoral?" "Is affirmative action
right or wrong?" "What are human rights, and how do we determine
them?" and "Do animals have rights as well?"

A more specific question could be: "If someone else can make better
out of his/her life than I can, is it then moral to sacrifice myself
for them if needed?" Without these questions there is no clear fulcrum
on which to balance law, politics, and the practice of arbitration —
in fact, no common assumptions of all participants—so the ability to
formulate the questions are prior to rights balancing. But not all
questions studied in applied ethics concern public policy. For
example, making ethical judgments regarding questions such as, "Is
lying always wrong?" and, "If not, when is it permissible?" is prior
to any etiquette.

People in-general are more comfortable with dichotomies (two choices).
However, in ethics the issues are most often multifaceted and the best
proposed actions address many different areas concurrently. In ethical
decisions the answer is almost never a "yes or no", "right or wrong"
statement. Many buttons are pushed so that the overall condition is
improved and not to the benefit of any particular faction.

Particular fields of application

Relational ethics

Relational ethics are related to an ethics of care.[16] They are used
in qualitative research, especially ethnography and authoethnography.
Researchers who employ relational ethics value and respect the
connection between themselves and the people they study, and "between
researchers and the communities in which they live and work" (Ellis,
2007, p. 4).[17] Relational ethics also help researchers understand
difficult issues such as conducting research on intimate others that
have died and developing friendships with their participants.[18][19]

Military ethics

This section does not cite any references or sources.

Please help improve this article by adding citations to reliable
sources. Unsourced material may be challenged and removed. (March
2009)

See also: Nuremberg Principles and Geneva Conventions

Military ethics is a set of practices and philosophy to guide members
of the armed forces to act in a manner consistent with the values and
standards as established by military tradition, and to actively
clarify and enforce these conditions rigorously in its administrative
structure. Military ethics is evolutionary and the administrative
structure is modified as new ethical perspectives consistent with
national interests evolve.

Some ethical issues involving a country's military establishment, such
as:

justification for using force
race (loss of capability due to race bias or abuse)

gender equality (loss of capability due to gender bias or abuse)

age discrimination (authority based upon age instead of accomplishment
or productivity)

nepotism (unfair control by family members; also known as "empire
building")

political influence (military members having a political position or
political influence)

And others.

Moral psychology

Main article: Moral psychology

Moral psychology is a field of study in both philosophy and
psychology. Some use the term "moral psychology" relatively narrowly
to refer to the study of moral development.[20] However, others tend
to use the term more broadly to include any topics at the intersection
of ethics and psychology (and philosophy of mind).[21] Such topics are
ones that involve the mind and are relevant to moral issues. Some of
the main topics of the field are moral responsibility, moral
development, moral character (especially as related to virtue ethics),
altruism, psychological egoism, moral luck, and moral disagreement.
[22]

Evolutionary ethics

See also: Evolutionary ethics and Evolution of morality

Evolutionary ethics concerns approaches to ethics (morality) based on
the role of evolution in shaping human psychology and behavior. Such
approaches may be based in scientific fields such as evolutionary
psychology or sociobiology, with a focus on understanding and
explaining observed ethical preferences and choices.[23]

Descriptive ethics

Main article: Descriptive ethics

Descriptive ethics is a value-free approach to ethics which examines
ethics not from a top-down a priori perspective but rather
observations of actual choices made by moral agents in practice. Some
philosophers rely on descriptive ethics and choices made and
unchallenged by a society or culture to derive categories, which
typically vary by context. This can lead to situational ethics and
situated ethics. These philosophers often view aesthetics, etiquette,
and arbitration as more fundamental, percolating "bottom up" to imply
the existence of, rather than explicitly prescribe, theories of value
or of conduct. The study of descriptive ethics may include
examinations of the following:

Ethical codes applied by various groups. Some consider aesthetics
itself the basis of ethics– and a personal moral core developed
through art and storytelling as very influential in one's later
ethical choices.

Informal theories of etiquette which tend to be less rigorous and more
situational. Some consider etiquette a simple negative ethics, i.e.
where can one evade an uncomfortable truth without doing wrong? One
notable advocate of this view is Judith Martin ("Miss Manners").
According to this view, ethics is more a summary of common sense
social decisions.

Practices in arbitration and law, e.g. the claim that ethics itself is
a matter of balancing "right versus right," i.e. putting priorities on
two things that are both right, but which must be traded off carefully
in each situation.

Observed choices made by ordinary people, without expert aid or
advice, who vote, buy, and decide what is worth valuing. This is a
major concern of sociology, political science, and economics.

See also

The length of this "see also" section may adversely affect
readability. Please ensure that the "see also" links are not mentioned
elsewhere in the article, are not red links, are as few in number and
as relevant as possible.

Philosophy portal

Altruism (ethics)

Bioethics
Buddhist Ethics (discipline)
Business ethics
Deontological ethics
Engineering ethics
Ethical egoism
Ethical relativism
Ethical skepticism
Ethical subjectivism
Ethics in religion
Fallibilism
Foucault/Habermas debate
Journalism ethics
Legal ethics

List of ethics topics

Medical ethics
Moral absolutism
Moral nihilism
Moral syncretism
Morality
Normative ethics

Notes

↑ Sahakian, William S. & Sahakian, Mabel Lewis. Ideas of the Great
Philosophers. pp 32-33. Barnes & Noble Books (1993). ISBN
9781566192712.

↑ Sahakian, William S. & Sahakian, Mabel Lewis. Ideas of the Great
Philosophers. pp 33-35. Barnes & Noble Books (1993). ISBN
9781566192712.

↑ Sahakian, William S. & Sahakian, Mabel Lewis. Ideas of the Great
Philosophers. pp 35-37. Barnes & Noble Books (1993). ISBN
9781566192712.

↑ 4.0 4.1 Sahakian, William S. & Sahakian, Mabel Lewis. Ideas of the
Great Philosophers. pg 37. Barnes & Noble Books (1993). ISBN
9781566192712.

↑ Sahakian, William S. & Sahakian, Mabel Lewis. Ideas of the Great
Philosophers. pp 37-38. Barnes & Noble Books (1993). ISBN
9781566192712.
↑ http://www.desiringgod.org/ResourceLibrary/TopicIndex/85_Christian_Hedonism/1538_Christian_Hedonism/

↑ Sahakian, William S. & Sahakian, Mabel Lewis. Ideas of the Great
Philosophers. pp 38-41. Barnes & Noble Books (1993). ISBN
9781566192712.

↑ Anscombe, G. E. M. (1958). "Modern Moral Philosophy". Philosophy 33:
1–19. doi:10.1017/S0031819100037943.

http://www.philosophy.uncc.edu/mleldrid/cmt/mmp.html.

↑ Mackie, J. L. (1990). Ethics: Inventing Right and Wrong. London:
Penguin. ISBN 0-14-013558-8.

↑ 10.0 10.1 [1]

↑ Olson, Robert G. 1967. 'Deontological Ethics'. In Paul Edwards (ed.)
The Encyclopedia of Philosophy. London: Collier Macmillan: 343.

↑ Orend, Brian. 2000. War and International Justice: A Kantian
Perspective. West Waterloo, Ontario:Wilfrid Laurier University Press:
19.

↑ Kelly, Eugene. 2006. The Basics of Western Philosophy. Greenwood
Press: 160.

↑ Kant, Immanuel. 1780. 'Preface'. In The Metaphysical Elements of
Ethics. Translated by Thomas Kingsmill Abbott

↑ 15.0 15.1 Kant, Immanuel. 1785. 'First Section: Transition from the
Common Rational Knowledge of Morals to the Philosophical', Groundwork
of the Metaphysic of Morals.

↑ Gilligan, C. (1982). In a different Voice: Pscychological theory and
women's development. Cambridge, MA: Harvard University Press.

↑ Ellis, C. (2007). Telling secrets, revealing lives: Relational
ethics in research with intimate others. Qualitative Inquiry, 13,
3-29.

↑ Ellis, C. (1986). Fisher folk. Two communities on Chesapeake Bay.
Lexington: University Press of Kentucky.

↑ Ellis, C. (1995).Final negotiations: A story of love, loss, and
chronic illness. Philadelphia: Temple University Press.

↑ See, for example, Lapsley (2006) and "moral psychology" (2007).

↑ See, for example, Doris & Stich (2008) and Wallace (2007). Wallace
writes: "Moral psychology is the study of morality in its
psychological dimensions" (p. 86).
↑ See Doris & Stich (2008), §1.

↑ Doris Schroeder. "Evolutionary Ethics". http://www.iep.utm.edu/evol-eth/.
Retrieved 2010-01-05.

References

Hoy, D 2004, Critical resistance from poststructuralism to
postcritique, Massachusetts Institute of Technology, Massachusetts.

Lyon, D 1999, Postmodernity, 2nd ed, Open University Press,
Buckingham.
Singer, P 2000, Writings on an ethical life, Harper Collins
Publishers, London.

Further reading

The London Philosophy Study Guide offers many suggestions on what to
read, depending on the student's familiarity with the subject: Ethics
Perle, Stephen. "Morality and Ethics: An Introduction".

http://www.chiroweb.com/archives/22/06/16.html.

Retrieved 2007-02-13. , Butchvarov, Panayot. Skepticism in Ethics
(1989).

Encyclopedia of Ethics. Lawrence C. Becker and Charlotte B. Becker,
editors. Second edition in three volumes. New York: Routledge, 2002. A
scholarly encyclopedia with over 500 signed, peer-reviewed articles,
mostly on topics and figures of, or of special interest in, Western
philosophy.

De La Torre, Miguel A., "Doing Christian Ethics from the Margins,"
Orbis Books, 2004.

Derrida, J 1995, The Gift of Death, translated by David Wills,
University of Chicago Press, Chicago.

Levinas, E 1969, Totality and infinity, an essay on exteriority,
translated by Alphonso Lingis, Duquesne University Press, Pittsburgh.

External links

Look up ethics in Wiktionary, the free dictionary.

Wikiversity has learning materials about Ethics

Wikisource has the text of the 1911 Encyclopædia Britannica article
Ethics.

An Introduction to Ethics by Paul Newall, aimed at beginners.

"Ethics" article in the Stanford Encyclopedia of Philosophy
Ethics, 2d ed., 1973. by William Frankena

Ethics Bites Open University podcast series podcast exploring ethical
dilemmas in everyday life.

'The Right and the Good (1930) by W. D. Ross
University of San Diego - Ethics glossary Useful terms in ethics
discussions

The Hastings Center An independent, nonpartisan, and nonprofit
bioethics research institute founded in 1969 to address fundamental
ethical issues in the areas of health, medicine, and the environment

National Reference Center for Bioethics Literature World's largest
library for ethical issues in medicine and biomedical research

Ethics and Democracy

Ethics entry in Encyclopædia Britannica by Peter Singer

The Philosophy of Ethics on Philosophy Archive

http://www.bing.com/reference/semhtml/Ethics

[chhotemianinshallah]

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v • [[|d]] • e

Political economy originally was the term for studying production,
buying and selling, and their relations with law, custom, and
government. Political economy originated in moral philosophy. It
developed in the 18th century as the study of the economies of states—
polities, hence political economy.

In late nineteenth century, the term "political economy" was generally
replaced by the term economics, used by those seeking to place the
study of economy upon mathematical and axiomatic bases, rather than
the structural relationships of production and consumption (cf.
marginalism, William Stanley Jevons, Alfred Marshall).

History of the term

Originally, political economy meant the study of the conditions under
which production or consumption within limited parameters was
organized in the nation-states. The phrase économie politique
(translated in English as political economy) first appeared in France
in 1615 with the well known book by Antoine de Montchrétien: Traité de
l’economie politique. French physiocrats, Adam Smith, David Ricardo
and Karl Marx were some of the exponents of political economy. In
1805, Thomas Malthus became England's first professor of political
economy, at the East India Company College, Haileybury, Hertfordshire.
The world's first professorship in political economy was established
in 1763 at the University of Vienna, Austria; Joseph von Sonnenfels
was the first tenured professor.

In the United States, political economy first was taught at the
College of William and Mary; in 1784 Adam Smith's Wealth of Nations
was a required textbook.[1]

Glasgow University, where Smith was Professor of Logic and Moral
Philosophy, changed the name of its Department of Political Economy to
the Department of Economics (ostensibly to avoid confusing prospective
undergraduates) in academic year 1997–1998, making the class of 1998
the last to be graduated with a Scottish Master of Arts degree in
Political Economy.

Current approaches

In its contemporary meaning, political economy refers to different,
but related, approaches to studying economic and political behaviours,
ranging from the combining of economics with other fields, to the
using of different, fundamental assumptions that challenge orthodox
economic assumptions:

Political economy most commonly refers to interdisciplinary studies
drawing upon economics, law, and political science in explaining how
political institutions, the political environment, and the economic
system—capitalist, socialist, mixed—influence each other. When
narrowly construed, it refers to applied topics in economics
implicating public policy, such as monopoly, market protection,
government fiscal policy,[2] and rent seeking.[3]

Historians have employed political economy to explore the ways in the
past that persons and groups with common economic interests have used
politics to effect changes beneficial to their interests.[4]

"International political economy" (IPE) is an interdisciplinary field
comprising approaches to international trade and finance, and state
policies affecting international trade, i.e. monetary and fiscal
policies. In the U.S., these approaches are associated with the
journal International Organization, which, in the 1970s, became the
leading journal of international political economy under the
editorship of Robert Keohane, Peter J. Katzenstein, and Stephen
Krasner. They are also associated with the journal The Review of
International Political Economy. There also is a more critical school
of IPE, inspired by Karl Polanyi's work; two major figures are Susan
Strange and Robert W. Cox.[5]

Economists and political scientists often associate the term with
approaches using rational choice assumptions, especially game theory,
in explaining phenomena beyond economics' standard remit, in which
context the term "positive political economy" is common.[6]

Anthropologists, sociologists, and geographers, use political economy
in referring to the neo-Marxian approaches to development and
underdevelopment postulated by André Gunder Frank and Immanuel
Wallerstein.

New political economy students treat economic ideologies as the
phenomenon to explain, per the traditions of Marxian political
economy. Thus, Charles S. Maier suggests that a political economy
approach: interrogates economic doctrines to disclose their
sociological and political premises....in sum, [it] regards economic
ideas and behavior not as frameworks for analysis, but as beliefs and
actions that must themselves be explained.[7] This approach informs
Andrew Gamble's The Free Economy and the Strong State (Palgrave
Macmillan, 1988), and Colin Hay's The Political Economy of New Labour
(Manchester University Press, 1999). It also informs much work
published in New Political Economy an international journal founded by
Sheffield University scholars in 1996.[8]

Related disciplines

Because political economy is not a unified discipline, there are
studies using the term that overlap in subject matter, but have
radically different perspectives:

Sociology studies the effects of persons' involvement in society as
members of groups, and how that changes their ability to function.
Many sociologists start from a perspective of production-determining
relation from Karl Marx.

Political Science focuses on the interaction between institutions and
human behavior, the way in which the former shapes choices and how the
latter change institutional frameworks. Along with economics, it has
made the best works in the field by authors like Shepsle, Ostrom,
Ordeshook, among others.

Anthropology studies political economy by studying the relationship
between the world capitalist system and local cultures.

Psychology is the fulcrum on which political economy exerts its force
in studying decision-making (not only in prices), but as the field of
study whose assumptions model political economy.

History documents change, using it to argue political economy;
historical works have political economy as the narrative's frame.

Economics focuses on markets by leaving the political—governments,
states, legal frameworks—as givens. Economics dropped the adjective
political in the 19th century, but works backwards, by describing "The
Ideal Market", urging governments to formulate policy and law to
approach said ideal. Economists and political economists often
disagree on what is preeminent in developing production, market, and
political structure theories.

Law concerns the creation of policy and its mediation via political
actions that have specific results, it deals with political economy as
political capital and as social infrastructure—and the sociological
results of one society upon another.
Human Geography is concerned with politico-economic processes,
emphasizing space and environment.

Ecology deals with political economy, because human activity has the
greatest effect upon the environment, its central concern being the
environment's suitability for human activity. The ecological effects
of economic activity spur research upon changing market economy
incentives.

International Relations often uses political economy to study
political and economic development.

Cultural Studies studies social class, production, labor, race,
gender, and sex.
Communications examines the institutional aspects of media and
telecommuncation systems, with particular attention to the historical
relationships between owners, labor, consumers, advertisers, and the
state.

See also

Economic study of collective action
Public Choice
EAEPE
Economic system
Economist
Economic ideology
Institutional economics
Important publications in political economy
Socioeconomics
Social Capital

Notes

↑ Image of "Priorities of the College of William and Mary"

↑ Groenwegen (1987, p.906).

↑ Anne O. Krueger, "The Political Economy of the Rent-Seeking
Society," American Economic Review, 64(3), June 1974, pp.291–303

↑ McCoy, Drew R. "The Elusive Republic: Political Ecocomy in
Jeffersonian America", Chapel Hill, University of North Carolina,
1980.

↑ Cohen, Benjamin J. (2007), ‘The transatlantic divide: Why are
American and British IPE so different?’, Review of International
Political Economy, Vol. 14, No. 2, May 2007

↑ Alt, James E. and Kenneth Shepsle (eds.) (1990), Perspectives on
Positive Political Economy (Cambridge [UK]; New York: Cambridge
University Press).

↑ Charles S. Mayer "In search of Stability: Explorations in Historical
Political Economy", Cambridge University Press, Cambridge, 1987, pp.3–
6.

↑ cf: David Baker, "The political economy of fascism: Myth or reality,
or myth and reality?" New Political Economy, Volume 11, Issue 2 June
2006, pp.227–250.

References

Groenwegen, Peter (1987). "'political economy' and 'economics'", The
New Palgrave: A Dictionary of Economics, v. 3, pp. 904–07.

Pressman, Steven, Encyclopedia of Political Economy Routledge, 1999

Pressman, Steven, Interactions in Political Economy: Malvern After Ten
Years Routledge, 1996

Winch, Donald, Riches and poverty : an intellectual history of
political economy in Britain, 1750–1834 Cambridge [etc.]: Cambridge
U.P., 1996.

Winch, Donald, "The emergence of Economics as a Science 1750–1870".
In: The Fontana Economic History of Europe, Vol. 3. London: Collins/
Fontana, 1973.

External links

Wikibooks has a book on the topic of
Political Economy

National System of Political Economy—Major work on political economy
by Friedrich List.

Harmony of Interests—Work contrasting American System and British
System of political economy by Henry C. Carey

International Political Economy at Jacobs University Bremen
Centre for Global Political Economy at the University of Sussex, UK

Categories:
Political economy

http://www.bing.com/reference/semhtml/Political_economy?qpvt=Political%20economy

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Wikipedia Articles

Scottish Enlightenment

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v • d • e
The Scottish Enlightenment was the period in 18th century Scotland
characterised by an outpouring of intellectual and scientific
accomplishments. By 1750, Scots were among the most literate citizens
of Europe, with an estimated 75% level of literacy.[1]

Sharing the humanist and rationalist outlook of the European
Enlightenment of the same time period, the thinkers of the Scottish
Enlightenment asserted the fundamental importance of human reason
combined with a rejection of any authority which could not be
justified by reason. They held to an optimistic belief in the ability
of man to effect changes for the better in society and nature, guided
only by reason.

It was this latter feature which gave the Scottish Enlightenment its
special flavour, distinguishing it from its continental European
counterpart. In Scotland, the Enlightenment was characterised by a
thoroughgoing empiricism and practicality where the chief virtues were
held to be improvement, virtue, and practical benefit for both the
individual and society as a whole.

Among the advances of the period were achievements in philosophy,
political economy, engineering, architecture, medicine, geology,
archaeology, law, agriculture, chemistry, and sociology. Among the
outstanding Scottish thinkers and scientists of the period were
Francis Hutcheson, Alexander Campbell, David Hume, Adam Smith, Thomas
Reid, Robert Burns, Adam Ferguson, John Playfair, Joseph Black and
James Hutton.

The Scottish Enlightenment had effects far beyond Scotland itself, not
only because of the esteem in which Scottish achievements were held in
Europe and elsewhere, but also because its ideas and attitudes were
carried across the Atlantic as part of the Scottish diaspora which had
its beginnings in that same era. As a result, a significant proportion
of technological and social development in the United States and
Canada in the 18th and 19th centuries were accomplished through Scots-
Americans.

After the Act of Union 1707

In the period following the Act of Union 1707[citation needed],
Scotland's place in the world was altered radically. Following the
Reformation, many Scottish academics were teaching in great cities of
mainland Europe but with the birth and rapid expansion of the new
British Empire came a revival of philosophical thought in Scotland and
a prodigious diversity of thinkers.

Arguably the poorest[2] country in Western Europe in 1707, Scotland
was then able to turn its attentions to the wider world without the
opposition of England. Scotland reaped the economic benefits of free
trade within the British Empire together with the intellectual
benefits of having established Europe's first public education system
since classical times. Under these twin stimuli, Scottish thinkers
began questioning assumptions previously taken for granted; and with
Scotland's traditional connections to France, then in the throes of
the Enlightenment, the Scots began developing a uniquely practical
branch of humanism to the extent that Voltaire said "We look to
Scotland for all our ideas of civilisation"[3][4].

Empiricism and inductive reasoning

The first major philosopher of the Scottish Enlightenment was Francis
Hutcheson,[5] who held the Chair of Philosophy at the University of
Glasgow from 1729 to 1746. A moral philosopher with alternatives to
the ideas of Thomas Hobbes, one of his major contributions to world
thought was the utilitarian and consequentialist principle that virtue
is that which provides, in his words, "the greatest happiness for the
greatest numbers".

Much of what is incorporated in the scientific method (the nature of
knowledge, evidence, experience, and causation) and some modern
attitudes towards the relationship between science and religion were
developed by David Hume. "Like many of the learned Scots, he revered
the new science of Copernicus, Bacon, Galileo, Kepler, Boyle, and
Newton; he believed in the experimental method and loathed
superstition"[5]. Hume stands out from the mainstream enlightenment
due to his deep pessimism which is largely not shared by other
humanist thinkers[citation needed].

Adam Smith developed and published The Wealth of Nations, the first
work in modern economics. This famous study, which had an immediate
impact on British economic policy, still frames 21st century
discussions on globalisation and tariffs[6].

Scottish Enlightenment thinkers developed what Hume called a 'science
of man'[7] which was expressed historically in works by such as James
Burnett, Adam Ferguson, John Millar, and William Robertson, all of
whom merged a scientific study of how humans behave in ancient and
primitive cultures with a strong awareness of the determining forces
of modernity. Gathering places in Edinburgh such as The Select Society
and, later, The Poker Club, were among the crucibles from which many
of the ideas which distinguish the Scottish Enlightenment emerged.

The focus of the Scottish Enlightenment ranged from intellectual and
economic matters to the specifically scientific as in the work of
William Cullen, physician and chemist, James Anderson, a lawyer and
agronomist, Joseph Black, physicist and chemist, and James Hutton, the
first modern geologist[5][8].

While the Scottish Enlightenment is traditionally considered to have
concluded toward the end of the 18th century[7], it is worth noting
that disproportionately large Scottish contributions to British
science and letters continued for another fifty years or more, thanks
to such figures as James Hutton, James Watt, William Murdoch, James
Clerk Maxwell, Lord Kelvin and Sir Walter Scott.

An English visitor to Edinburgh during the heyday of the Scottish
Enlightenment remarked: "Here I stand at what is called the Cross of
Edinburgh, and can, in a few minutes, take 50 men of genius and
learning by the hand". It is a striking summation of the outburst of
pioneering intellectual activity that occurred in Scotland in the
second half of the 18th century.

They were a closely knit group: most knew one another; many were close
friends; some were related by marriage. All were politically
conservative but intellectually radical (Unionists and progressives to
a man), courteous, friendly and accessible. They were stimulated by
enormous curiosity, optimism about human progress and a
dissatisfaction with age-old theological disputes. Together they
created a cultural golden age.

– Magnus Magnusson, New Statesman[7]

Key figures in the Scottish Enlightenment

Robert Adam (1728-1792) architect

James Anderson (1739-1808) agronomist, lawyer, amateur scientist

Joseph Black (1728-1799) physicist and chemist, first to isolate
carbon dioxide
Hugh Blair (1718-1800) minister, author

James Boswell (1740-1795) lawyer, author of Life of Johnson

Thomas Brown (1778–1820), Scottish moral philosopher and philosopher
of mind; jointly held the Chair of Moral Philosophy at Edinburgh
University with Dugald Stewart

James Burnett, Lord Monboddo (1714-1799) philosopher, judge, founder
of modern comparative historical linguistics

Robert Burns[9] (1759-1796) poet

Alexander Campbell (1788-1866) founder of the Restoration Movement

George Campbell (1719-1796) philosopher of language, theology, and
rhetoric

Sir John Clerk of Eldin (1728-1812) prolific artist, author of An
Essay on Naval Tactics; great-uncle of James Clerk Maxwell

William Cullen (1710-1790) physician, chemist, early medical
researcher

Adam Ferguson (1723-1816) considered the founder of sociology

Robert Fergusson (1750-1774), poet.

Andrew Fletcher (1653-1716) a forerunner of the Scottish Enlightenment,
[10] writer, patriot, commissioner of Parliament of Scotland

James Hall, 4th Baronet (1761-1832) geologist, geophysicist

Henry Home, Lord Kames (1696-1782) philosopher, judge, historian

David Hume (1711-1776) philosopher, historian, essayist

Francis Hutcheson (1694-1746) philosopher of metaphysics, logic, and
ethics
James Hutton[8][9] (1726–1797) founder of modern geology

Sir John Leslie (1766-1832) mathematician, physicist, investigator of
heat (thermodynamics)

James Mill (1773-1836) late in the period - Father of John Stuart
Mill.

John Millar (1735-1801) philosopher, historian, historiographer

John Playfair (1748-1819) mathematician, author of Illustrations of
the Huttonian Theory of the Earth

Allan Ramsay[11] (1686 - 1758) poet

Henry Raeburn[7] (1756-1823) portrait painter

Thomas Reid (1710-1796) philosopher, founder of the Scottish School of
Common Sense

William Robertson (1721-1793) one of the founders of modern historical
research
Sir Walter Scott (1771-1832) lawyer, novelist, poet

John Sinclair (1754 - 1835) politician, writer, the first person to
use the word statistics in the English language

William Smellie (1740-1795) editor of the first edition of
Encyclopædia Britannica
Adam Smith (1723-1790) whose The Wealth of Nations was the first
modern treatise on economics

Dugald Stewart (1753-1828) moral philosopher

George Turnbull (1698-1748), theologian, philosopher and writer on
education
John Walker (naturalist) (1730-1803) professor of natural history

James Watt (1736-1819) student of Joseph Black; engineer, inventor
(see Watt steam engine)

Plus two who visited and corresponded with Edinburgh scholars[8]:

Erasmus Darwin (1731-1802) physician, botanist, philosopher,
grandfather of Charles Darwin

Benjamin Franklin (1706-1790) polymath, one of the Founding Fathers of
the United States

The learned Scots were remarkably unlike the French philosophes;
indeed, they were unlike any other group of philosophers that ever
existed. In a gigantic study, “The Sociology of Philosophies,”
published in 1998, Randall Collins assembled structural portraits of
the seminal moments in philosophy, both Western and Eastern.
Typically, the most important figures in a given cluster of thinkers
(perhaps three or four men) would jockey for centrality while
cultivating alliances with other thinkers or students on the margins.

In the Scottish group, however, there was little of the bristling,
charged, and exclusionary fervour of the Diderot-d’Alembert circle; or
of the ruthless atmosphere found in Germany in the group that included
Fichte, the Schelling brothers, and Hegel; or of the conscious glamour
of the existentialists in postwar Paris. The Scots vigorously
disagreed with one another, but they lacked the temperament for the
high moral drama of quarrels, renunciations, and reconciliation.
Hutcheson, Hume and Smith, along with Adam Ferguson and Thomas Reid,
were all widely known, but none of them were remotely cult figures in
the style of Hegel, Marx, Emerson, Wittgenstein, Sartre, or Foucault.

To an astonishing degree, the men supported one another’s projects and
publications, which they may have debated at a club that included
amateurs (say, poetry-writing doctors, or lawyers with an interest in
science) or in the fumy back room of some dark Edinburgh tavern. In
all, the group seems rather like an erudite version of Dickens’s
chattering and benevolent Pickwick Club.

– David Denby, The New Yorker[5]

See also

Midlands Enlightenment
American Enlightenment

References

↑ Herman, Arthur (2003). The Scottish Enlightenment: The Scots'
Invention of the Modern World. 4th Estate, Limited. ISBN 1841152765.

↑ Herman, Arthur (2001). How the Scots Invented the Modern World: The
True Story of How Western Europe's Poorest Nation Created Our World &
Everything in It (Hardcover: ISBN 978-0609606353, Paperback: ISBN
978-0609809990 ed.). Crown Publishing Group.

↑ José Manuel Barroso, 11th President of the European Commission (28
November 2006). "The Scottish enlightenment and the challenges for
Europe in the 21st century; climate change and energy" (html).
Enlightenment Lecture Series, Edinburgh University.
http://europa.eu/rapid/pressReleasesAction.do?

reference=SPEECH/06/756&format=HTML&aged=1&language=EN&guiLanguage=en.
"I will try to show why Voltaire was right when he said: 'Nous nous
tournons vers l’Écosse pour trouver toutes nos idées sur la
civilisation' [we look to Scotland for all our ideas on
civilisation]."

↑ "Visiting The Royal Society of Edinburgh…" (html). Royal Society of
Edinburgh. First published in The Scotsman Saturday 4 June 2005.

http://www.royalsoced.org.uk/international/potocnik.htm.

"Scotland has a proud heritage of science, research, invention and
innovation, and can lay claim to some of the greatest minds and
greatest discoveries since Voltaire wrote those words 250 years ago."

↑ 5.0 5.1 5.2 5.3 David Denby (11 October 2004). "Northern Lights: How
modern life emerged from eighteenth-century Edinburgh" (html). The New
Yorker. Review of James Buchan's Crowded With Genius: Edinburgh's
Moment of the Mind (Capital of the Mind: Edinburgh in the UK)
HarperCollins, 2003. Hardcover: ISBN 0-06-055888-1, ISBN
978-0060558888.

http://www.newyorker.com/archive/2004/10/11/041011crat_atlarge.

"The fountainhead was Francis Hutcheson, a kind of pan-Enlightenment
figure who, from 1729 until his death in 1746, held the chair in moral
philosophy at the University of Glasgow, where he broke with tradition
by lecturing in English in addition to the common lecturing language
of the time, Latin. Hutcheson, a frequent visitor to Edinburgh, was
Adam Smith’s teacher and he encouraged Hume’s early efforts. He was
suspicious of metaphysics or any claims not based on observation or
experience. Empiricism and the inductive method was the clarion call
of the Scottish Enlightenment.

The intellectual break with the past was drastic and seemingly
irreversible. In recent years, scholars have traced the rudiments of
modern psychology, anthropology, the earth sciences, and theories of
civil society and liberal education to eighteenth-century Scotland."

↑ Fry, Michael (1992). Adam Smith's Legacy: His Place in the
Development of Modern Economics. Paul Samuelson, Lawrence Klein,
Franco Modigliani, James M. Buchanan, Maurice Allais, Theodore
Schultz, Richard Stone, James Tobin, Wassily Leontief, Jan Tinbergen.
Routledge. ISBN 978-0415061643. "Adam Smith's Legacy brings together
ten Nobel Laureates in Economics, the greatest number since the prize
was instituted in 1969. They explore themes as diverse as Smith's use
of data, his attitude towards human capital, and his views on economic
policy. Heirs to Smith and leaders of the discipline, the contributors
also reflect upon the current state of economics, assessing the extent
to which it measures up to the benchmark established by its founder."

↑ 7.0 7.1 7.2 7.3 Magnus Magnusson (10 November 2003). "Northern
lights" (html). New Statesman. Review of James Buchan's Capital of the
Mind: Edinburgh (Crowded With Genius: Edinburgh's Moment of the Mind
in the U.S.) London: John Murray ISBN 0719554462. http://www.newstatesman.com/200311100040.

↑ 8.0 8.1 8.2 Repcheck, Jack (2003). "Chapter 7: The Athens of the
North" (in English). The Man Who Found Time: James Hutton and the
Discovery of the Earth's Antiquity. Cambridge, Massachusetts: Basic
Books, The Perseus Books Group. pp. 117–143. ISBN 0-7382-0692-X. "Onto
the list should also be added two men who never lived in Edinburgh but
who visited and maintained an active correspondence with the scholars
there: Ben Franklin (1706-1790), the statesman and talented polymath
who discovered electricity; and Erasmus Darwin (1731-1802), Charles
Darwin's grandfather and the author of a precursor theory of
evolution."

↑ 9.0 9.1 Phillip Manning (28 December 2003). "A Toast To Times
Past" (html). Chapel Hill News.

http://www.scibooks.org/manwhofoundtime.html.

"Burns penned the song [Auld Lang Syne] in 1788 during the
intellectual flowering known as the Scottish Enlightenment. Burns was
part of a convivial group in Edinburgh whose writing and thinking
produced the Enlightenment. One of the most original thinkers in that
group, the man whose work would stimulate Charles Darwin’s ideas about
evolution, was a well-to-do gentleman farmer named James Hutton. He
discovered the immensity of our past, the days gone by that Burns
wrote about so eloquently."

↑ Cambridge University Press. "Andrew Fletcher: Political Works".

http://www.cambridge.org/us/catalogue/catalogue.asp?isbn=9780521439947.

↑ Dr David Allan. "A Hotbed of Genius: Culture and Society in the
Scottish Enlightenment" (html). University of St Andrews.
http://www.st-andrews.ac.uk/academic/history/scothist/hons/4111.shtml.

Further reading

Darwin in Scotland: Edinburgh, Evolution and Enlightenment. JF Derry.
· Whittles Publishing, 2009. Paperback: ISBN 1904445578.

A Hotbed of Genius: The Scottish Enlightenment 1731-1790. David
Daiches, Peter Jones, Jean Jones (eds).

· Edinburgh University Press, 1986. Hardcover: ISBN 0 85224 537 8.

· Saltire Society 1996. Paperback: ISBN 0-85411-069-0.

Crowded With Genius: Edinburgh's Moment of the Mind. James Buchan
· Harper Perennial 2004. Paperback: ISBN 006055889X, ISBN
978-0060558895.

The Scottish Nation: A History 1700-2000. Thomas Devine.

· Viking, 1999. Hardcover: ISBN 0670888117, ISBN 978-0670888
115.

· Penguin, 2001. Paperback: ISBN 0141002344, ISBN 978-0141002347.

The Scottish Enlightenment: The Historical Age of the Historical
Nation. Alexander Broadie.

· Birlinn 2002. Paperback: ISBN 1-84158-151-8, ISBN 978-1841581514.

America's Founding Secret: What the Scottish Enlightenment Taught Our
Founding Fathers. Robert W. Galvin.

· Rowman & Littlefield, 2002. Hardcover: ISBN 0-7425-2280-6, ISBN
978-0742522800.
The Cambridge Companion to the Scottish Enlightenment. (Cambridge
Companions to Philosophy) Alexander Broadie, ed.

· Cambridge University Press, 2003. Hardcover: ISBN 0521802733, ISBN
9780521802734. Paperback: ISBN 0521003237, ISBN 978-0521003230.

The Mark of the Scots: Their Astonishing Contributions to History,
Science, Democracy, Literature, and the Arts. Duncan A. Bruce.

· (Publisher?) 1996. Hardcover: ISBN 1559723564, ISBN 978-1559723565.

· Citadel, Kensington Books, 2000. Paperback: ISBN 0-8065-2060-4, ISBN
978-0806520605.

How the Scots Made America. Michael Fry.

· Thomas Dunne Books, St. Martin's Press, 2004. Hardcover: ISBN
0-312-33876-7, ISBN 978-0312338763.

Scotland: A New History. Michael Lynch.

· Pimlico, Random House, 1992 (new edition). Paperback: ISBN
0-7126-9893-0, ISBN 978-0712698931.

Virtue, Learning and the Scottish Enlightenment: Ideas of Scholarship
in Early Modern History. David Allan.

· Edinburgh University Press, 1993. ISBN 978-0748604388.

External links

Northern Lights: How modern life emerged from eighteenth-century
Edinburgh.
Scottish Enlightenment - an introduction.

living philosophy - Philosophical play readings of the legacy of David
Hume, Adam Smith and Robert Burns

http://www.bing.com/reference/semhtml/Scottish_Enlightenment?qpvt=Scottish%20Enlightenment

[chhotemianinshallah]

Reference »
Wikipedia Articles

The Theory of Moral SentimentsThe Theory of Moral Sentiments

Author Adam Smith
Publication date 1759

The Theory of Moral Sentiments was written by Adam Smith in 1759. It
provided the ethical, philosophical, psychological and methodological
underpinnings to Smith's later works, including The Wealth of Nations
(1776), A Treatise on Public Opulence (1764) (first published in
1937), Essays on Philosophical Subjects (1795), and Lectures on
Justice, Police, Revenue, and Arms (1763) (first published in 1896).

Overview

Broadly speaking, Smith followed the views of his mentor, Francis
Hutcheson of the University of Glasgow, who divided moral philosophy
into four parts: Ethics and Virtue; Private rights and Natural
liberty; Familial rights (called Economics); and State and Individual
rights (called Politics).

More specifically, Smith divided moral systems into:

Categories of the nature of morality. These included Propriety,
Prudence, and Benevolence.

Categories of the motive of morality. These included Self-love,
Reason, and Sentiment.

Hutcheson had abandoned the psychological view of moral philosophy,
claiming that motives were too fickle to be used as a basis for a
philosophical system. Instead, he hypothesised a dedicated "sixth
sense" to explain morality. This idea, to be taken up by David Hume
(see Hume's A Treatise of Human Nature), claimed that man is pleased
by utility.

Smith rejected his teacher's reliance on this special sense. Starting
in about 1741, Smith set on the task of using Hume's experimental
method (appealing to human experience) to replace the specific moral
sense with a pluralistic approach to morality based on a multitude of
psychological motives. The Theory of Moral Sentiments begins with the
following assertion:

How selfish soever man may be supposed, there are evidently some
principles in his nature, which interest him in the fortunes of
others, and render their happiness necessary to him, though he derives
nothing from it, except the pleasure of seeing it. Of this kind is
pity or compassion, the emotion we feel for the misery of others, when
we either see it, or are made to conceive it in a very lively manner.
That we often derive sorrow from the sorrows of others, is a matter of
fact too obvious to require any instances to prove it; for this
sentiment, like all the other original passions of human nature, is by
no means confined to the virtuous or the humane, though they perhaps
may feel it with the most exquisite sensibility. The greatest ruffian,
the most hardened violator of the laws of society, is not altogether
without it.

Smith departed from the "moral sense" tradition of Shaftesbury,
Hutcheson, and Hume, as the principle of sympathy takes the place of
that organ. "Sympathy" was the term Smith used for the feeling of
these moral sentiments. It was the feeling with the passions of
others. It operated through a logic of mirroring, in which a spectator
imaginatively reconstructed the experience of the person he watches:

As we have no immediate experience of what other men feel, we can form
no idea of the manner in which they are affected, but by conceiving
what we ourselves should feel in the like situation. Though our
brother is on the rack, as long as we ourselves are at our ease, our
senses will never inform us of what he suffers. They never did, and
never can, carry us beyond our own person, and it is by the
imagination only that we can form any conception of what are his
sensations. Neither can that faculty help us to this any other way,
than by representing to us what would be our own, if we were in his
case. It is the impressions of our own senses only, not those of his,
which our imaginations copy. By the imagination, we place ourselves in
his situation.

Sympathy arose from an innate desire to identify with the emotions of
others. It could lead people to strive to maintain good relations with
their fellow human beings and provide the basis both for specific
benevolent acts and for the general social order. Thus was formed
within the beast the psychological basis for the desire to obey
natural laws. The Theory of Moral Sentiments culminated in man as self-
interested and self-commanded. Individual freedom, according to Smith,
was rooted in self-reliance, the ability of an individual to pursue
his self-interest while commanding himself based on the principles of
natural law.

However, Smith rejected the idea that Man was capable of forming moral
judgements beyond a limited sphere of activity, again centered around
his own self-interest:

The administration of the great system of the universe ... the care of
the universal happiness of all rational and sensible beings, is the
business of God and not of man. To man is allotted a much humbler
department, but one much more suitable to the weakness of his powers,
and to the narrowness of his comprehension: the care of his own
happiness, of that of his family, his friends, his country.... But
though we are ... endowed with a very strong desire of those ends, it
has been entrusted to the slow and uncertain determinations of our
reason to find out the proper means of bringing them about. Nature has
directed us to the greater part of these by original and immediate
instincts. Hunger, thirst, the passion which unites the two sexes, and
the dread of pain, prompt us to apply those means for their own sakes,
and without any consideration of their tendency to those beneficent
ends which the great Director of nature intended to produce by them.

It was in the TMS that Smith first referred to the "invisible hand" to

describe the apparent benefits to society of people behaving in their

own interests. Smith writes (6th ed. p. 350):

... In spite of their natural selfishness and rapacity, though they
mean only their own conveniency, though the sole end which they
propose ... be the gratification of their own vain and insatiable
desires, they divide with the poor the produce of all their
improvements. They are led by an invisible hand to make nearly the
same distribution of the necessaries of life, which would have been
made, had the earth been divided into equal portions among all its
inhabitants, and thus without intending it, without knowing it,
advance the interest of the society.
In a published lecture, Vernon L. Smith further argued that Theory of
Moral Sentiments and Wealth of Nations together encompassed:

"one behavioral axiom, 'the propensity to truck, barter, and exchange
one thing for another,' where the objects of trade I will interpret to
include not only goods, but also gifts, assistance, and favors out of
sympathy ... whether it is goods or favors that are exchanged, they
bestow gains from trade that humans seek relentlessly in all social
transactions. Thus, Adam Smith's single axiom, broadly interpreted ...
is sufficient to characterize a major portion of the human social and
cultural enterprise. It explains why human nature appears to be
simultaneously self-regarding and other-regarding."[1]

The Theory of Moral Sentiments: The Fourth Edition
Consists of 6 parts:

Part I: Of the propriety of action

Part II: Of merit and demerit; or of the objects of reward and
punishment

Part III: Of the foundations of our judgments concerning our own
sentiments and conduct, and of the sense of duty.

Part IV: Of the effect of utility upon the sentiments of approbation.

Part V: Of the influence of custom and fashion upon the sentiments of
moral approbation and disapprobation.

Part VI: Of systems of moral philosophy

Part I: Of the propriety of action

Part one of the Theory of Moral Sentiments consists of three sections:

Section 1: Of the sense of propriety

Section 2: Of the degrees of which different passions are consistent
with propriety
Section 3: Of the effects of propriety and adversity upon the judgment
of mankind with regard to the propriety of action; and why it is more
easy to obtain their approbation in the one state than the other

Part I, Section I: Of the Sense of Propriety

Section 1 consists of 5 chapters:

Chapter 1: Of sympathy
Chapter 2: Of the pleasure of mutual sympathy
Chapter 3: Of the manner in which we judge of the propriety or
impropriety of the affections of other men by their concord or
dissonance with our own
Chapter 4: The same subject continued
Chapter 5: Of the amiable and respectable virtues

Part I, Section I, Chapter I: Of Sympathy

According to Smith humans have a natural tendency to care about the
well-being of others for no other reason than the pleasure one gets
from seeing them happy. He calls this sympathy, defining it "our
fellow-feeling with any passion whatsoever" (p. 5). He argues that
this occurs under either of two conditions:

We see firsthand the fortune or misfortune of another person
The fortune or misfortune is vividly depicted to us

Although this is apparently true, he follows to argue that this
tendency lies even in "the greatest ruffian, the most hardened
violator of the laws of society" (p.2).

Smith also proposes several variables that can moderate the extent of
sympathy, noting that the situation that is the cause of the passion
is the large determinant of our response:

The vividness of the account of the condition of another person

An important point put forth by Smith is that the degree to which we
sympathize, or "tremble and shudder at the thought of what he feels",
is proportional to the degree of vividness in our observation or the
description of the event.

Knowledge of the causes of the emotions

When observing the anger of another person, for example, we are
unlikely to sympathize with this person because we "are unacquainted
with his provocation" and as a result cannot imagine what it is like
to feel what he feels. Further, since we can see the "fear and
resentment" of those who are the targets of the person's anger we are
likely to sympathize and take side with them. Thus, sympathetic
responses are often conditional on or their magnitude is determined by
the causes of the emotion in the person being sympathized with.

Whether other people are involved in the emotion

Specifically, emotions such as joy and grief tell us about the "good
or bad fortune" of the person we are observing them in, whereas anger
tells us about the bad fortune with respect to another person. It is
the difference between intrapersonal emotions, such as joy and grief,
and interpersonal emotions, such as anger, that causes the difference
in sympathy, according to Smith. That is, intrapersonal emotions
trigger at least some sympathy without the need for context whereas
interpersonal emotions are dependent on context.

He also proposes a natural 'motor' response to seeing the actions of
others: If we see a knife hacking off a person's leg we wince away, if
we see someone dance we move in the same ways, we feel the injuries of
others as if we had them ourselves.

Smith makes clear that we sympathize not only with the misery of
others but also the joy; he states that observing an emotional state
through the "looks and gestures" in another person is enough to
initiate that emotional state in ourselves. Furthermore, we are
generally insensitive to the real situation of the other person, but
instead to how we would feel ourselves if we were in the situation of
the other person. For example, a mother with a suffering baby feels
"the most complete image of misery and distress" while the child
merely feels "the uneasiness of the present instant" (p. 8).

Part I, Section I, Chapter II: Of Pleasure and mutual sympathy

Smith continues by arguing that people feel pleasure from the presence
of others with the same emotions as one's self, and displeasure in the
presence of those with "contrary" emotions. Smith argues that this
pleasure is not the result of self-interest: that others are more
likely to assist oneself if they are in a similar emotional state.
Smith also makes the case that pleasure from mutual sympathy is not
derived merely from a heightening of the original felt emotion
amplified by the other person. Smith further notes that people get
more pleasure from the mutual sympathy of negative emotions than
positive emotions, but people feel "more anxious to communicate to our
friends" (p. 13) negative than positive emotions.

Smith proposes that mutual sympathy heightens the original emotion and
"disburdens" the person of sorrow. This is a 'relief' model of mutual
sympathy, where mutual sympathy heightens the sorrow but also produces
pleasure from relief "because the sweetness of his sympathy more than
compensates the bitterness of that sorrow" (p. 14). In contrast,
mocking or joking about their sorrow is the "cruelest insult" one can
inflict on another person:

To seem to not be affected by the joy of our companions is but want of
politeness; but to not wear a serious countentance when they tell us
their afflictions, is real and gross inhumanity (p. 14).

He makes clear that mutual sympathy of negative emotions is a
necessary condition for friendship, whereas mutual sympathy of
positive emotions is desirable but not required. This is due to the
"healing consolation of mutual sympathy" that a friend is 'required'
to provide in response to "grief and resentment", as if not doing so
would be akin to a failure to help the physically wounded.

Not only do we get pleasure from the sympathy of others, but we also
obtain pleasure from being able to successfully sympathize with
others, and discomfort from failing to do so. Sympathizing is
pleasurable, failing to sympathize is aversive. Smith also makes the
case that failing to sympathize with another person may not be
aversive to ourselves but we may find the emotion of the other person
unfounded and blame them, as when another person experiences great
happiness or sadness in response to an event that we think should not
warrant such a response.

Part I, Section I, Chapter III: Of the manner in which we judge of the
propriety or impropriety of the affections of other men by their
concord or dissonance with our own
Smith presents the argument that approval or disapproval of the
feelings of others is completely determined by whether we sympathize
or fail to sympathize with their emotions. Specifically, if we
sympathize with the feelings of another we judge that their feelings
are just, and if we do not sympathize we judge that their feelings are
unjust.

This holds in matters of opinion also, as Smith flatly states that we
judge the opinions of others as correct or incorrect merely by
determining whether they agree with our own opinions. Smith also cites
a few examples where our judgment is not in line with our emotions and
sympathy, as when we judge the sorrow of a stranger who has lost her
mother as being justified even though we know nothing about the
stranger and do not sympathize ourselves. However, according to Smith
these non-emotional judgments are not independent from sympathy in
that although we do not feel sympathy we do recognize that sympathy
would be appropriate and lead us to this judgment and thus deem the
judgment as correct.

Next, Smith puts forth that not only are the consequences of one's
actions judged and used to determine whether one is just or unjust in
committing them, but also whether one's sentiments justified the
action that brought about the consequences. Thus, sympathy plays a
role in determining judgments of the actions of others in that if we
sympathize with the affections that brought about the action we are
more likely to judge the action as just, and vice versa:

If upon bringing the case home to our own breast we find that the
sentiments which it gives occasion to, coincide and tally with our
own, we necessarily approve of them as proportioned and suitable to
their objects; if otherwise, we necessarily disapprove of them, as
extravagant and out of proportion (p. 20).

Part I, Section I, Chapter IV: The same subject continued

Smith delineates two conditions under which we judge the "propriety or
impropriety of the sentiments of another person":

1 When the objects of the sentiments are considered alone

2 When the objects of the sentiments are considered in relation to the
person or other persons

When one's sentiments coincide with another person's when the object
is considered alone, then we judge that their sentiment is justified.
Smith lists objects that are in one of two domains: science and taste.
Smith argues that sympathy does not play a role in judgments of these
objects; differences in judgment arise only due to difference in
attention or mental acuity between people. When the judgment of
another person agrees with us on these types of objects it is not
notable; however, when another person's judgment differs from us, we
assume that they have some special ability to discern characteristics
of the object we have not already noticed, and thus view their
judgment with special approbation called admiration.

Smith continues by noting that we assign value to judgments not based
on usefulness (utility) but on similarity to our own judgment, and we
attribute to those judgments which are in line with our own the
qualities of correctness or truth in science, and justness or
delicateness in taste. Thus, the utility of a judgment is "plainly an
afterthought" and "not what first recommends them to our
approbation" (p. 24).

Of objects that fall into the second category, such as the misfortune
of oneself or another person, Smith argues that there is no common
starting point for judgment but are vastly more important in
maintaining social relations. Judgments of the first kind are
irrelevant as long as one is able to share a sympathetic sentiment
with another person; people may converse in total disagreement about
objects of the first kind as long as each person appreciates the
sentiments of the other to a reasonable degree. However, people become
intolerable to each other when they have no or sympathy for the
misfortunes or resentment of each other: "You are confounded at my
violence and passion, and I am enraged at your cold insensibility and
want of feelings" (p. 26).

Another important point Smith makes is that our sympathy will never
reach the degree or "violence" of the person who experiences it, as
our own "safety" and comfort as well as separation from the offending
object constantly "intrude" on our efforts to induce a sympathetic
state in ourselves. Thus, sympathy is never enough, as the "sole
consolation" for the sufferer is " to see the emotions of their
hearts, in every respect, beat time to his own, in the violent and
disagreeable passions" (p. 28). Therefore, the original sufferer is
likely to dampen her feelings to be in "concord" with the degree of
sentiment expressible by the other person, who feels only due to the
ability of one's imagination. It is this which is "sufficient for the
harmony of society" (p. 28). Not only does the person dampen her
expression of suffering for the purpose of sympathizing, but she also
takes the perspective of the other person who is not suffering, thus
slowly changing her perspective and allowing the calmness of the other
person and reduction of violence of the sentiment to improve her
spirits.

As a friend is likely to engage in more sympathy than a stranger, a
friend actually slows the reduction in our sorrows because we do not
temper our feelings out of sympathizing with the perspective of the
friend to the degree that we reduce our sentiments in the presence of
acquaintances or a group of acquaintances. This gradual tempering of
our sorrows from repeated perspective taking of someone in a more calm
state make "society and conversation...the most powerful remedies for
restoring the mind to its tranquility" (p. 29).

Part I, Section I, Chapter V: Of the amiable and respectable virtues
Smith starts to use an important new distinction in this section and
late in the previous section:

The "person principally concerned": The person who has had emotions
aroused by an object

The spectator: The person observing and sympathizing with the
emotionally aroused "person principally concerned"

These two people have two different sets of virtues. The person
principally concerned, in "bring[ing] down emotions to what the
spectator can go along with" (p. 30), demonstrates "self-denial" and
"self-government" whereas the spectator displays "the candid
condescension and indulgent humanity" of "enter[ing]into the
sentiments of the person principally concerned."

Smith returns to anger and how we find "detestable...the insolence and
brutality" of the person principally concerned but "admire...the
indignation which they naturally call forth in that of the impartial
spectator" (p. 32). Smith concludes that the "perfection" of human
nature is this mutual sympathy, or "love our neighbor as we love
ourself" by "feeling much for others and little for ourself" and to
indulge in "benevolent affections" (p. 32). Smith makes clear that it
is this ability to "self-command" our "ungovernable passions" through
sympathizing with others that is virtuous.

Smith further distinguishes between virtue and propriety:

Part I, Section II: Of the degrees of which different passions are
consistent with propriety

Chapter 1: Of the passions which take their origins from the body

Chapter 2: Of the passions which take their origins from a particular
turn or habit of the imagination

Chapter 3: Of the unsocial passions

Chapter 4: Of the social passions

Chapter 5: Of the selfish passions

Smith starts off by noting that the spectator can sympathize only with
passions of medium "pitch". However, this medium level at which the
spectator can sympathize depends on what "passion" or emotion is being
expressed; with some emotions even the most justified expression of
cannot be tolerated at a high level of fervor, at others sympathy in
the spectator is not bounded by magnitude of expression even though
the emotion is not as well justified. Again, Smith emphasizes that
specific passions will be considered appropriate or inappropriate to
varying degrees depending on the degree to which the spectator is able
to sympathize, and that it is the purpose of this section to specify
which passions evoke sympathy and which do not and therefore which are
deemed appropriate and not appropriate.

Part I, Section II, Chapter I: Of the passions which take their
origins from the body

Since it is not possible to sympathize with bodily states or
"appetites which take their origin in the body" it is improper to
display them to others, according to Smith. One example is "eating
voraciously" when hungry, as the impartial spectator can sympathize a
little bit if there is a vivid description and good cause for this
hunger, but not to a great extent as hunger itself cannot be induced
from mere description. Smith also includes sex as a passion of the
body that is considered indecent in the expression of others, although
he does make note that to fail to treat a woman with more "gaiety,
pleasantry, and attention" would also be improper of a man (p. 39). To
express pain is also considered unbecoming.

Smith believes the cause of lack of sympathy for these bodily passions
is that "we cannot enter into them" ourselves (p. 40). Temperance, by
Smith's account, is to have control over bodily passions.

On the contrary, passions of the imagination, such as loss of love or
ambition, are easy to sympathize with because our imagination can
conform to the shape of the sufferer, whereas our body cannot do such
a thing to the body of the sufferer. Pain is fleeting and the harm
only lasts as long as the violence is inflicted, whereas an insult
lasts to harm for longer duration because our imagination keeps
mulling it over. Likewise, bodily pain that induces fear, such as a
cut, wound or fracture, evoke sympathy because of the danger that they
imply for ourselves; that is, sympathy is activated chiefly through
imagining what it would be like for us.

Part I, Section II, Chapter II: Of the passions which take their
origins from a particular turn or habit of the imagination Passions
which "take their origins from a particular turn or habit of the
imagination" are "little sympathized with". These include love, as we
are unlikely to enter into our own feeling of love in response to that
of another person and thus unlikely to sympathize. He further states
that love is "always laughed at, because we cannot enter into it"
ourselves.

Instead of inspiring love in ourselves, and thus sympathy, love makes
the impartial spectator sensitive to the situation and emotions that
may arise from the gain or loss of love. Again this is because it is
easy to imagine hoping for love or dreading loss of love but not the
actual experience of it, and that the "happy passion, upon this
account, interests us much less than the fearful and the melancholy"
of losing happiness (p. 49). Thus, love inspires sympathy for not for
love itself but for the anticipation of emotions from gaining or
losing it.

Smith, however, finds love "ridiculous" but "not naturally odious" (p.
50). Thus, we sympathize with the "humaneness, generosity, kindness,
friendship, and esteem" (p. 50) of love. However, as these secondary
emotions are excessive in love, one should not express them but in
moderate tones according to Smith, as:

All these are objects which we cannot expect should interest our
companions in the same degree in which they interest us.

Failing to do so makes bad company, and therefore those with specific
interests and "love" of hobbies should keep their passions to those
with kindred spirits ("A philosopher is company to a philosopher
only" (p. 51)) or to themselves.

Part I, Section II, Chapter III: Of the unsocial passions

Smith talks of hatred and resentment next, as "unsocial passions."
According to Smith these are passions of imagination, but sympathy is
only likely to be evoked in the impartial spectator when they are
expressed in moderate tones. Because these passions regard two people,
namely the offended (resentful or angry person) and the offender, our
sympathies are naturally drawn between these two. Specifically,
although we sympathize with the offended person, we fear that the
offended person may do harm to the offender, and thus also fear for
and sympathize with the danger that faces the offender.

The impartial spectator sympathizes with the offended person in a
manner, as emphasized previously, such that the greatest sympathy
occurs when the offended person expresses anger or resentment in a
temperate manner. Specifically, if the offended person seems just and
temperate in coping with the offense, then this magnifies the misdeed
done to the offended in the mind of the spectator, increasing
sympathy. Although excess anger does not beget sympathy, neither does
too little anger, as this may signal fear or uncaring on the part of
the offended. This lack of response is just as despicable to the
impartial spectator as is the excesses of anger.

However, in general, any expression of anger is improper in the
presence of others. This is because the "immediate effects [of anger]
are disagreeable" just as the knives of surgery are disagreeable for
art, as the immediate effect of surgery is unpleasant even though long-
term effect is justified. Likewise, even when anger is justly
provoked, it is disagreeable. According to Smith, this explains why we
reserve sympathy until we know the cause of the anger or resentment,
as if the emotion is not justified by the action of another person,
than the immediate disagreeableness and threat to the other person
(and by sympathy to ourselves) overwhelm any sympathy that the
spectator may have for the offended. In response to expressions of
anger, hatred, or resentment, it is likely that the impartial
spectator will not feel anger in sympathy with the offended but
instead anger toward the offended for expressing such an aversive.
Smith believes that there is some form of natural optimality to the
aversiveness of these emotions, as it reduces the propagation of ill
will among people, and thus increases the probability of functional
societies.

Smith also puts forth that anger, hatred, and resentment are
disagreeable to the offended mostly because of the idea of being
offended rather than the actual offense itself. He remarks that we are
likely able to do without what was taken from us, but it is the
imagination which angers us at the thought of having something taken.
Smith closes this section by remarking that the impartial spectator
will not sympathize with us unless we are willing to endure harms,
with the goal of maintaining positive social relations and humanity,
with equanimity, as long as it does not put us in a situation of being
"exposed to perpetual insults" (p. 59). It is only "with reluctance,
from necessity, and in consequence of great and repeated
provocations" (p. 60) that we should take revenge on others. Smith
makes clear that we should take very good care to not act on the
passions of anger, hatred, resentment, for purely social reasons, and
instead imagine what the impartial spectator would deem appropriate,
and base our action solely on a cold calculation.

Part I, Section II, Chapter IV: Of the social passions

The social emotions such as "generosity, humanity, kindness,
compassion, mutual friendship and esteem" are considered
overwhelmingly with approbation by the impartial spectator. The
agreeableness of the "benevolent" sentiments leads to full sympathy on
the part of the spectator with both the person concerned and the
object of these emotions and are not felt as aversive to the spectator
if they are in excess.

Part I, Section II, Chapter V: Of the selfish passions

The final set of passions, or "selfish passions", are grief and joy,
which Smith considers to be not so aversive as the unsocial passions
of anger and resentment, but not so benevolent as the social passions
such as generosity and humanity. Smith makes clear in this passage
that the impartial spectator is unsympathetic to the unsocial emotions
because they put the offended and the offender in opposition to each
other, sympathetic to the social emotions because they join the lover
and beloved in unison, and feels somewhere in between with the selfish
passions as they are either good or bad for only one person and are
not disagreeable but not so magnificent as the social emotions.

Of grief and joy, Smith notes that small joys and great grief are
assured to be returned with sympathy from the impartial spectator, but
not other degrees of these emotions. Great joy is likely to be met
with envy, so modesty is prudent for someone who has come upon great
fortune or else suffer the consequences of envy and disapprobation.
This is appropriate as the spectator appreciates the lucky
individual's "sympathy with our envy and aversion to his happiness"
especially because this shows concern for the inability of the
spectator to reciprocate the sympathy toward the happiness of the
lucky individual. According to Smith, this modesty wears on the
sympathy of both the lucky individual and the old friends of the lucky
individual and they soon part ways; likewise, the lucky individual may
acquire new friends of higher ranks who he must also be modest to,
apologizing for the "mortification" of now becoming their equal:

He generally grows weary too soon, and is provoked, by the sullen and
suspicious pride of the one, and by the saucy contempt of the other,
to treat the first with neglect, and the second with petulance, till
at last he grows habitually insolent, and forfeits the esteem of them
all...those sudden changes of fortune seldom contribute much to
happiness (p. 66).

The solution is to ascend social rank by gradual steps, with the path
cleared for one by approbation before one takes the next step, giving
people time to adjust, and thus avoiding any "jealousy in those he
overtakes, or any envy in those he leaves behind" (p. 66).

Small joys of every day life are met with sympathy and approbation
according to Smith. These "frivolous nothings which fill up the void
of human life" (p. 67) divert attention and help us forget problems,
reconciling us as with a lost friend.

The opposite is true for grief, with small grief triggering no
sympathy in the impartial spectator, but large grief with much
sympathy. Small griefs are likely, and appropriately, turned into joke
and mockery by the sufferer, as the sufferer knows how complaining
about small grievances to the impartial spectator will evoke ridicule
in the heart of the spectator, and thus the sufferer sympathizes with
this, mocking himself to some degree.

Part I, Section III

Of the effects of propriety and adversity upon the judgment of mankind
with regard to the propriety of action; and why it is more easy to
obtain their approbation in the one state than in the other

Part V, Section V, Chapter I: Of the influence of Custom and Fashion
upon the Sentiments of Approbation and Disapprobation Smith argues
that two principles, custom and fashion, pervasively influence
judgment. These are based on the modern psychological concept of
associativity: Stimuli presented closely in time or space become
mentally linked over time and repeated exposure. In Smith's own words:

When two objects have frequently been seen together, the imagination
requires a habit of passing easily from one to the other. If the first
is to appear, we lay our account that the second is to follow. Of
their own accord they put us in mind of one another, and the attention
glides easily along them. (p. 1)

Regarding custom, Smith argues that approbation occurs when stimuli
are presented according to how one is accustomed to viewing them and
disapprobation occurs when they are presented in a way that one is not
accustomed to. Thus, Smith argues for social relativity of judgment
meaning that beauty and correctness are determined more by what one
has previously been exposed to rather than an absolute principle.
Although Smith places greater weight on this social determination he
does not discount absolute principles completely, instead he argues
that that evaluations are rarely inconsistent with custom, therefore
giving greater weight to customs than absolutes:

I cannot, however, be induced to believe that our sense of external
beauty is founded altogether on custom...But though I cannot admit
that custom is the sole principle of beauty, yet I can so far allow
the truth of this ingenious system as to grant, that there is scarce
any one external form to please, if quite contrary to custom...(p.
14-15).

Smith continues by arguing that fashion is a particular "species" of
custom. Fashion is specifically the association of stimuli with people
of high rank, for example, a certain type of clothes with a notable
person such as a king or a renowned artist. This is because the
"graceful, easy, and commanding manners of the great" (p.3) person are
frequently associated with the other aspects of the person of high
rank (e.g., clothes, manners), thus bestowing upon the other aspects
the "graceful" quality of the person. In this way objects become
fashionable. Smith includes not only clothes and furniture in the
sphere of fashion, but also taste, music, poetry, architecture, and
physical beauty.

Smith also points out that people should be relatively reluctant to
change styles from what they are accustomed to even if a new style is
equal to or slightly better than current fashion: "A man would be
ridiculous who should appear in public with a suit of clothes quite
different from those which are commonly worn, though the new dress be
ever so graceful or convenient" (p. 7).

Physical beauty, according to Smith, is also determined by the
principle of custom. He argues that each "class" of things has a
"peculiar conformation which is approved of" and that the beauty of
each member of a class is determined by the extent to which it has the
most "usual" manifestation of that "conformation":

Thus, in the human form, the beauty of each feature lies in a certain
middle, equally removed from a variety of other forms that are ugly.
(p. 10-11).

Part V, Section V, Chapter II: Of the influence of Custom and Fashion
upon Moral Sentiments
Smith argues that the influence of custom is reduced in the sphere of
moral judgment. Specifically, he argues that there are bad things that
no custom can bring approbation to:

But the characters and conduct of a Nero, or a Claudius, are what no
custom will ever reconcile us to, what no fashion will ever render
agreeable; but the one will always be the object of dread and hatred;
the other of scorn and derision. (p. 15-16).

Smith further argues for a "natural" right and wrong, and that custom
amplifies the moral sentiments when one's customs are consistent with
nature, but dampens moral sentiments when one's customs are
inconsistent with nature.

Fashion also has an effect on moral sentiment. The vices of people of
high rank, such as the licentiousness of Charles VIII, are associated
with the "freedom and independency, with frankness, generosity,
humanity, and politeness" of the "superiors" and thus the vices are
endued with these characteristics.

See also

History of economic thought

Notes

↑ Smith (1998) p. 3.

References

Bonar, J. (1926) The Theory of Moral Sentiments by Adam Smith, Journal
of Philosophical Studies, vol. 1, 1926, pp. 333-353.

Doomen, J. (2005) Smith’s Analysis of Human Actions, Ethic@. An
International Journal for Moral Philosophy vol. 4, no. 2, pp 111-122.

Morrow, G. R. (1923) The Ethical and Economic Theories of Adam Smith:
A study in the social philosophy of the 18th century, Cornell Studies
in Philosophy, no. 13, 1923, pp 91-107.

Morrow, G. R. (1923) The Significance of the Doctrine of Sympathy in
Hume and Adam Smith, Philosophical Review, vol. XXXII, 1923, pp
60-78.

Schneider, H.W. editor (1948) Adam Smith's Moral and Political
Philosophy, Harper Torchbook edition 1970, New York.

Smith, Vernon L. (1998), [Expression error: Missing operand for > The
Two Faces of Adam Smith], Southern Economic Journal

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Liberty. Fully searchable, free online.

Works and Correspondence of Adam Smith. Glasgow edition, 7 volumes at
the Online Library of Liberty. Definitive, free online. Includes The
Theory of Moral Sentiments.

Biography of Adam Smith, at the "Concise Encyclopedia of Economics"

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The Wealth of NationsThe Wealth of Nations

In this article: Locations Images From the web: Images Videos The
Wealth of Nations
The Wealth of Nations

Author Adam Smith
Country United Kingdom
Genre(s) Economics
Publisher W. Strahan and T. Cadell, London
Publication date 1776

An Inquiry into the Nature and Causes of the Wealth of Nations

(generally referred to by the short title The Wealth of Nations) is
the magnum opus written by Scottish economist and moral philosopher
Adam Smith and was first published in 1776. It is an account of
economics at the dawn of the Industrial Revolution, as well as a
rhetorical piece written for the generally educated individual of the
18th century - advocating a free market economy as more productive and
more beneficial to society.

Themes
One of the book's main themes is the concept of an invisible hand that
naturally guides a society through self-interest.

In The Wealth of Nations, Smith writes:

"By preferring the support of domestic to that of foreign industry, he
intends only his own security; and by directing that industry in such
a manner as its produce may be of the greatest value, he intends only
his own gain, and he is in this, as in many other cases, led by an
invisible hand to promote an end which was no part of his intention."

This phrase, often quoted and alluded to, was written in the context
of the rise and dominance of eighteenth century chartered corporations
such as Muscovy Company and the English East India Company both
controlled by the powers of the state. These early multinational
government controlled corporations were chartered exclusively by
seventeenth and eighteenth century monarchs in a manner similar to
modern no-bid contracts. These monarchs would also enact laws
favorable to the enterprise of these early corporations but less
favorable to the local workforces that they employed. In the American
colonies for instance, colonists were permitted to grow cotton but not
to make clothing from it. It had to be shipped to England for
manufacture, then purchased back in its finished form. Smith felt that
if these laws were removed that it would be advantageous to both the
state and the individual, thus "promoting an end which was no part his
own."

Where free markets are concerned, Smith felt that if capital was able
to flow naturally on its own accord that it would, without the
assistance of government, flow to the most productive hands; as the
individual simply strives to better his own condition.

History

The Wealth of Nations was first published on March 9, 1776, during the
British Agricultural Revolution. It influenced not only authors and
economists, but governments and organizations. For example, Alexander
Hamilton was influenced in part by The Wealth of Nations to write his
Report on Manufactures, in which he argued against many of Smith's
policies. Interestingly, Hamilton based much of this report on the
ideas of Jean-Baptiste Colbert, and it was, in part, to Colbert's
ideas that Smith wished to respond with The Wealth of Nations.

Many other authors were influenced by the book and used it as a
starting point in their own work, including Jean-Baptiste Say, David
Ricardo, Thomas Malthus and, later, Karl Marx and Ludwig von Mises.
The Russian national poet Aleksandr Pushkin refers to The Wealth of
Nations in his 1833 verse-novel Eugene Onegin.

Irrespective of historical influence, however, The Wealth of Nations
represented a clear leap forward in the field of economics, similar to
Sir Isaac Newton's Principia Mathematica for physics or Antoine
Lavoisier's Traité Élémentaire de Chimie for chemistry.

Publishing history

Five editions of The Wealth of Nations were published during Smith's
lifetime: in 1776, 1778, 1784, 1786, and 1789. Numerous editions
appeared after Smith's death in 1790. To better understand the
evolution of the work under Smith's hand, a team led by Edwin Cannan
collated the first five editions. The differences were published along
with an edited fifth edition in 1904.[1] They found minor but numerous
differences (including the addition of many footnotes) between the
first and the second editions, both of which were published in two
volumes. The differences between the second and third editions,
however, are major: In 1784, Smith annexed these first two editions
with the publication of Additions and Corrections to the First and
Second Editions of Dr. Adam Smith’s Inquiry into the Nature and Causes
of the Wealth of Nations, and he also had published the now three
volume third edition of the Wealth of Nations, which incorporated
Additions and Corrections and, for the first time, an index. Among
other things, the Additions and Corrections included entirely new
sections. The fourth edition published in 1786 had only slight
differences with the third edition, and Smith himself says in the
Advertisement at the beginning of the book, "I have made no
alterations of any kind." Finally, Cannan notes only trivial
differences between the fourth and fifth editions — a set of misprints
being removed from the fourth, and a different set of misprints being
introduced.

Anachronisms and terminology

Some commentary on the work suffers from anachronism - imposition of
modern context and political contests on a two hundred and fifty year
old work.

The book is written in the English of the late 1700s, so there are
some points to consider:

The term economics was not yet in use.
The term capitalism was not yet in use.
Smith talks about a "system of perfect liberty" or "system of natural
liberty".

To a certain extent, some form of feudalism was still dominant in
parts of Europe.
The term corporation, as in feudal corporations, referred to a body
that regulated and, in Smith's portrayal, limited participation in a
skilled trade.

Synopsis

This article's plot summary may be too long or overly detailed.
Please help improve it by removing unnecessary details and making it
more concise. (October 2009)

Book I: Of the Causes of Improvement...

Of the Division of Labour: Smith states that "the greatest improvement
in the productive powers of labour, and the greater part of the skill,
dexterity, and judgment with which it is anywhere directed, or
applied, seem to have been the effects of the division of labour." To
illustrate this, he describes the extensive division of labour within
the "trifling" industry of pin manufacture, along with the astounding
resultant productivity, and labourers' dexterity; then levers this as
an introductory microcosm of the greater, yet less obvious division of
labour in the broader economy. The advantages of this division were
likely the driving force behind diversification of the trades and
industry, and this diversification was greatest for nations with more
industry and improvement. Agriculture is differentiated from industry
for its comparative lack of division of labour, and the attendant lack
of improved productivity; hence, while poor nations could not compete
with rich nations in manufactures, they could compete in agriculture.

Smith lists three causes, arising from division, of improved
productivity:

the labourer's dexterity - due to specializing, year-round, in a
specific task
time not wasted passing from one task to the next - as in agriculture
- as well as the more consistent and focused effort when working in
just one area
the machines and tools that have evolved in conjunction with
increasingly specialized labour.
Of the Principle which gives Occasion to the Division of Labour:
Chapter 2 illustrates the growth in division of labour. Smith
hypothesizes that early societies benefited from specialization in a
natural and spontaneous way - that one person may focus on hunting
while another concentrates on bow-making.

That the Division of Labour is Limited by the Extent of the Market:
Chapter 3 deals with limitations on division of labour. Smith
illustrates with real world examples of how the extent of market
determines the level of division of labour and the resulting
productivity improvements; it is the extent of the market that
determines the degree to which division of labour can survive - in a
limited market, the liability of specialization out weigh the benefits
of greater productivity.

Of the Origin and Use of Money: When money was first invented, it was
not well regulated, which made agriculture and trade in commodities
very difficult between individual owners.

Of the Real and Nominal Price of Commodities, or of their Price in
Labour, and their Price in Money: Smith begins by setting out the
source of a commodity's value. He states,

"Every man is rich or poor according to the degree in which he can
afford to enjoy the necessaries, conveniencies, and amusements of
human life. But after the division of labour has once thoroughly taken
place, it is but a very small part of these with which a man's own
labour can supply him. The far greater part of them he must derive
from the labour of other people, and he must be rich or poor according
to the quantity of that labour which he can command, or which he can
afford to purchase. The value of any commodity, therefore, to the
person who possesses it, and who means not to use or consume it
himself, but to exchange it for other commodities, is equal to the
quantity of labour which it enables him to purchase or command.
Labour, therefore, is the real measure of the exchangeable value of
all commodities. The real price of every thing, what every thing
really costs to the man who wants to acquire it, is the toil and
trouble of acquiring it."[2]
This is known as the labour theory of value, a defining feature of
classical political economy. Smith then distinguishes between the
nominal value of a commodity (in money denomination) and its real
value in the labour required to purchase it. According to Smith, while
the nominal value of a commodity is subject to fluctuation, this does
not change its real value, because the amount of labour required to
produce it and bring it to the market remains constant.

For example, the price of a commodity redeemable in silver may be 1:1,
as the amount of labour required to produce that commodity is the same
as the amount of labour required to retrieve one piece of silver.
However, with the discovery of new silver mines in North America, a
surge in the supply of silver in the economy may bring the nominal
price of the commodity in silver to 1:2. Yet this does not affect the
commodity's real value, because the abundance of silver in the newly
discovered mines does not suppose a lesser degree of labour required
to retrieve them, but simply a greater availability of silver in the
market. It is this greater availability that accounts for the
deflation of the price; while the commodity is worth just as much
labour now as it was before, it will not command as much power in the
economy as before. However, if the price were to rise to 1:2 as a
result of technological improvements in the manufacture or transport
of the commodity, this would constitute a decline in its real value,
because less labour is necessary to produce and market it.

Of the Component Parts of the Price of Commodities: Smith argues that
the price of any product reflects wages, rent of land and "profit of
stock," which compensates the capitalist for risking his resources.

Of the Natural and Market Price of Commodities:

"When the quantity of any commodity which is brought to market falls
short of the effectual demand, all those who are willing to pay...
cannot be supplied with the quantity which they want... Some of them
will be willing to give more. A competition will begin among them, and
the market price will rise... When the quantity brought to market
exceeds the effectual demand, it cannot be all sold to those who are
willing to pay the whole value of the rent, wages and profit, which
must be paid in order to bring it thither... The market price will
sink..."[3]
To paraphrase Smith, and the first part of this Chapter, when demand
exceeds supply, the price goes up. When the supply exceeds demand, the
price goes down.

He then goes on to comment on the different avenues that people can
take to generate a larger profit than normal. Some of those include:
finding a commodity that few others have that allows for a high
profit, and being able to keep that secret; Finding a way to produce a
unique commodity (The dyer who discovers a unique dye). He also states
that the former usually has a short lifespan of high profitability,
and the latter has a longer. He also notes that a monopoly is
essentially the same as the dyers trade secret, and can thus lead to
high profitability for a long time by keeping the supply below the
effectual demand.

"A monopoly granted either to an individual or to a trading company
has the same effect as a secret in trade or manufactures. The
monopolists, by keeping the market constantly understocked, by never
fully supplying the effectual demand, sell their commodities much
above the natural price, and raise their emoluments, whether they
consist in wages or profit, greatly above their natural rate. The
price of monopoly is upon every occasion the highest which can be got.
The natural price, or the price of free competition, on the contrary,
is the lowest which can be taken, not upon every occasion, indeed, but
for any considerable time together. The one is upon every occasion the
highest which can be squeezed out of the buyers, or which, it is
supposed, they will consent to give: the other is the lowest which the
sellers can commonly afford to take, and at the same time continue
their business."[4]

Of the Wages of Labour: In this section, Smith describes how the wages
of labour are dictated primarily by the competition among labourers
and masters. When labourers bid against one another for limited
opportunities for employment, the wages of labour collectively fall,
whereas when employers compete against one another for limited
supplies of labour, the wages of labour collectively rise. However,
this process of competition is often circumvented by combinations
among labourers and among masters. When labourers combine and no
longer bid against one another, their wages rise, whereas when masters
combine, wages fall. In Smith's day, it should be noted, organized
labour was dealt with very harshly by the law.

Smith himself wrote about the "severity" of such laws against worker
actions, and made a point to contrast the "clamour" of the "masters"
against workers associations, while associations and collusions of the
masters "are never heard by the people" though such actions are
"always" and "everywhere" taking place:

"We rarely hear, it has been said, of the combinations of masters,
though frequently of those of workmen. But whoever imagines, upon this
account, that masters rarely combine, is as ignorant of the world as
of the subject. Masters are always and everywhere in a sort of tacit,
but constant and uniform, combination, not to raise the wages of
labour above their actual rate...Masters, too, sometimes enter into
particular combinations to sink the wages of labour even below this
rate. These are always conducted with the utmost silence and secrecy
till the moment of execution; and when the workmen yield, as they
sometimes do without resistance, though severely felt by them, they
are never heard of by other people" In contrast, when workers combine,
"the masters..never cease to call aloud for the assistance of the
civil magistrate, and the rigorous execution of those laws which have
been enacted with so much severity against the combination of
servants, labourers, and journeymen."[5]

In societies where the amount of labour exceeds the amount of revenue
available for waged labour, competition among workers is greater than
the competition among employers, and wages fall. Inversely, where
revenue is abundant, labour wages rise. Smith argues that, therefore,
labour wages only rise as a result of greater revenue disposed to pay
for labour. Smith thought labour the same as any other commodity in
this respect:

"the demand for men, like that for any other commodity, necessarily
regulates the production of men; quickens it when it goes on too
slowly, and stops it when it advances too fast. It is this demand
which regulates and determines the state of propagation in all the
different countries of the world, in North America, in Europe, and in
China; which renders it rapidly progressive in the first, slow and
gradual in the second, and altogether stationary in the last."[6]

However, the amount of revenue must increase constantly in proportion
to the amount of labour for wages to remain high. Smith illustrates
this by juxtaposing England with the North American colonies. In
England, there is more revenue than in the colonies, but wages are
lower, because more workers flock to new employment opportunities
caused by the large amount of revenue— so workers eventually compete
against each other as much as they did before. By contrast, as capital
continues to flow to the colonial economies at least at the same rate
that population increases to "fill out" this excess capital, wages
there stay higher than in England.

Smith was highly concerned about the problems of poverty. He writes,

"poverty, though it does not prevent the generation, is extremely
unfavourable to the rearing of children... It is not uncommon... in
the Highlands of Scotland for a mother who has borne twenty children
not to have two alive... In some places one half the children born die
before they are four years of age; in many places before they are
seven; and in almost all places before they are nine or ten. This
great mortality, however, will every where be found chiefly among the
children of the common people, who cannot afford to tend them with the
same care as those of better station."[7]

The only way to determine whether a man is rich or poor is to examine
the amount of labour he can afford to purchase. "Labour is the real
exchange for commodities".

Smith also describes the relation of cheap years and the production of
manufactures versus the production in dear years. He argues that while
some examples such as the linen production in France shows a
correlation, another example in Scotland shows the opposite. He
concludes that there are too many variables to make any statement
about this.

Of the Profits of Stock: In this chapter, Smith uses interest rates as
an indicator of the profits of stock. This is because interest can
only be paid with the profits of stock, and so creditors will be able
to raise rates in proportion to the increase or decrease of the
profits of their debtors.

Smith argues that the profits of stock are inversely proportional to
the wages of labor, because as more money is spent compensating labor,
there is less remaining for personal profit. It follows that, in
societies where competition among laborers is greatest relative to
competition among employers, profits will be much higher. Smith
illustrates this by comparing interest rates in England and Scotland.
In England, government laws against usury had kept maximum interest
rates very low, but even the maximum rate was believed to be higher
than the rate at which money was usually loaned. In Scotland, however,
interest rates are much higher. This is the result of a greater
proportion of capitalists in England, which offsets some competition
among laborers and raises wages.

However, Smith notes that, curiously, interest rates in the colonies
are also remarkably high (recall that, in the previous chapter, Smith
described how wages in the colonies are higher than in England). Smith
attributes this to the fact that, when an empire takes control of a
colony, prices for a huge abundance of land and resources are
extremely cheap. This allows capitalists to increase his profit, but
simultaneously draws many capitalists to the colonies, increasing the
wages of labor. As this is done, however, the profits of stock in the
mother country rise (or at least cease to fall), as much of it has
already flocked offshore.

Of Wages and Profit in the Different Employments of Labour and Stock:
Smith repeatedly attacks groups of politically aligned individuals who
attempt to use their collective influence to manipulate the government
into doing their bidding. At the time, these were referred to as
"factions," but are now more commonly called "special interests," a
term that can comprise international bankers, corporate
conglomerations, outright oligopolies, trade unions and other groups.
Indeed, Smith had a particular distrust of the tradesman class. He
felt that the members of this class, especially acting together within
the guilds they want to form, could constitute a power block and
manipulate the state into regulating for special interests against the
general interest:

"People of the same trade seldom meet together, even for merriment and
diversion, but the conversation ends in a conspiracy against the
public, or in some contrivance to raise prices. It is impossible
indeed to prevent such meetings, by any law which either could be
executed, or would be consistent with liberty and justice. But though
the law cannot hinder people of the same trade from sometimes
assembling together, it ought to do nothing to facilitate such
assemblies; much less to render them necessary."[8]

Smith also argues against government subsidies of certain trades,
because this will draw many more people to the trade than what would
otherwise be normal, collectively lowering their wages.

Chapter 10, part ii, motivates an understanding of the idea of
feudalism.

Of the Rent of the Land: Rent, considered as the price paid for the
use of land, is naturally the highest the tenant can afford in the
actual circumstances of the land. In adjusting lease terms, the
landlord endeavours to leave him no greater share of the produce than
what is sufficient to keep up the stock from which he furnishes the
seed, pays the labour, and purchases and maintains the cattle and
other instruments of husbandry, together with the ordinary profits of
farming stock in the neighbourhood. This is evidently the smallest
share with which the tenant can content himself without being a loser,
and the landlord seldom means to leave him any more. Whatever part of
the produce, or, what is the same thing, whatever part of its price,
is over and above this share, he naturally endeavours to reserve to
himself as the rent of his land, which is evidently the highest the
tenant can afford to pay in the actual circumstances of the land.
Sometimes, indeed, the liberality, more frequently the ignorance, of
the landlord, makes him accept of somewhat less than this portion; and
sometimes too, though more rarely, the ignorance of the tenant makes
him undertake to pay somewhat more, or to content himself with
somewhat less, than the ordinary profits of farming stock in the
neighbourhood. This portion, however, may still be considered as the
natural rent of land, or the rent for which it is naturally meant that
land should for the most part be let.

Book II: Of the Nature, Accumulation, and Employment of Stock

Of the Division of Stock: When the stock which a man possesses is no
more than sufficient to maintain him for a few days or a few weeks, he
seldom thinks of deriving any revenue from it. He consumes it as
sparingly as he can, and endeavours by his labour to acquire something
which may supply its place before it be consumed altogether. His
revenue is, in this case, derived from his labour only. This is the
state of the greater part of the labouring poor in all countries.

II.1.1

But when he possesses stock sufficient to maintain him for months or
years, he naturally endeavours to derive a revenue from the greater
part of it; reserving only so much for his immediate consumption as
may maintain him till this revenue begins to come in. His whole stock,
therefore, is distinguished into two parts. That part which, he
expects, is to afford him this revenue, is called his capital.

Of Money Considered as a particular Branch of the General Stock of the
Society...: From references of the first book, that the price of the
greater part of commodities resolves itself into three parts, of which
one pays the wages of the labour, another the profits of the stock,
and a third the rent of the land which had been employed in producing
and bringing them to market: that there are, indeed, some commodities
of which the price is made up of two of those parts only, the wages of
labour, and the profits of stock: and a very few in which it consists
altogether in one, the wages of labour: but that the price of every
commodity necessarily resolves itself into some one, or other, or all
of these three parts; every part of it which goes neither to rent nor
to wages, being necessarily profit to somebody.

Of the Accumulation of Capital, or of Productive and Unproductive
Labour: One sort of labour adds to the value of the subject upon which
it is bestowed: there is another which has no such effect. The former,
as it produces a value, may be called productive; the latter,
unproductive labour. Thus the labour of a manufacturer adds,
generally, to the value of the materials which he works upon, that of
his own maintenance, and of his master's profit. The labour of a
menial servant, on the contrary, adds to the value of nothing.

Of Stock Lent at Interest: The stock which is lent at interest is
always considered as a capital by the lender. He expects that in due
time it is to be restored to him, and that in the meantime the
borrower is to pay him a certain annual rent for the use of it. The
borrower may use it either as a capital, or as a stock reserved for
immediate consumption. If he uses it as a capital, he employs it in
the maintenance of productive labourers, who reproduce the value with
a profit. He can, in this case, both restore the capital and pay the
interest without alienating or encroaching upon any other source of
revenue. If he uses it as a stock reserved for immediate consumption,
he acts the part of a prodigal, and dissipates in the maintenance of
the idle what was destined for the support of the industrious. He can,
in this case, neither restore the capital nor pay the interest without
either alienating or encroaching upon some other source of revenue,
such as the property or the rent of land.

The stock which is lent at interest is, no doubt, occasionally
employed in both these ways, but in the former much more frequently
than in the latter.

Book III: Of the different Progress of Opulence in different Nations

Of the Natural Progress of Opulence: The great commerce of every
civilized society is that carried on between the inhabitants of the
town and those of the country. It consists in the exchange of crude
for manufactured produce, either immediately, or by the intervention
of money, or of some sort of paper which represents money. The country
supplies the town with the means of subsistence and the materials of
manufacture. The town repays this supply by sending back a part of the
manufactured produce to the inhabitants of the country. The town, in
which there neither is nor can be any reproduction of substances, may
very properly be said to gain its whole wealth and subsistence from
the country. We must not, however, upon this account, imagine that the
gain of the town is the loss of the country. The gains of both are
mutual and reciprocal, and the division of labour is in this, as in
all other cases, advantageous to all the different persons employed in
the various occupations into which it is subdivided.

Of the Discouragement of Agriculture...: Chapter 2's long title is "Of
the Discouragement of Agriculture in the Ancient State of Europe after
the Fall of the Roman Empire". When the German and Scythian nations
overran the western provinces of the Roman empire, the confusions
which followed so great a revolution lasted for several centuries. The
rapine and violence which the barbarians exercised against the ancient
inhabitants interrupted the commerce between the towns and the
country. The towns were deserted, and the country was left
uncultivated, and the western provinces of Europe, which had enjoyed a
considerable degree of opulence under the Roman empire, sunk into the
lowest state of poverty and barbarism. During the continuance of those
confusions, the chiefs and principal leaders of those nations acquired
or usurped to themselves the greater part of the lands of those
countries. A great part of them was uncultivated; but no part of them,
whether cultivated or uncultivated, was left without a proprietor. All
of them were engrossed, and the greater part by a few great
proprietors.

This original engrossing of uncultivated lands, though a great, might
have been but a transitory evil. They might soon have been divided
again, and broke into small parcels either by succession or by
alienation. The law of primogeniture hindered them from being divided
by succession: the introduction of entails prevented their being broke
into small parcels by alienation.

Of the Rise and Progress of Cities and Towns, after the Fall of the
Roman Empire: The inhabitants of cities and towns were, after the fall
of the Roman empire, not more favoured than those of the country. They
consisted, indeed, of a very different order of people from the first
inhabitants of the ancient republics of Greece and Italy. These last
were composed chiefly of the proprietors of lands, among whom the
public territory was originally divided, and who found it convenient
to build their houses in the neighbourhood of one another, and to
surround them with a wall, for the sake of common defence. After the
fall of the Roman empire, on the contrary, the proprietors of land
seem generally to have lived in fortified castles on their own
estates, and in the midst of their own tenants and dependants. The
towns were chiefly inhabited by tradesmen and mechanics, who seem in
those days to have been of servile, or very nearly of servile
condition. The privileges which we find granted by ancient charters to
the inhabitants of some of the principal towns in Europe sufficiently
show what they were before those grants. The people to whom it is
granted as a privilege that they might give away their own daughters
in marriage without the consent of their lord, that upon their death
their own children, and not their lord, should succeed to their goods,
and that they might dispose of their own effects by will, must, before
those grants, have been either altogether or very nearly in the same
state of villanage with the occupiers of land in the country

How the Commerce of the Towns Contributed to the Improvement of the
Country: Smith often harshly criticised those who act purely out of
self-interest and greed, and warns that, "[a]ll for ourselves, and
nothing for other people, seems, in every age of the world, to have
been the vile maxim of the masters of mankind." (Book 3, Chapter 4)

Book IV: Of Systems of political Economy

Smith vigorously attacked the antiquated government restrictions which
he thought were hindering industrial expansion. In fact, he attacked
most forms of government interference in the economic process,
including tariffs, arguing that this creates inefficiency and high
prices in the long run. It is believed that this theory influenced
government legislation in later years, especially during the 19th
century. (However this was not an anarchistic opposition to
government. Smith advocated a Government that was active in sectors
other than the economy: he advocated public education of poor adults;
institutional systems that were not profitable for private industries;
a judiciary; and a standing army.)

Of the Principle of the Commercial or Mercantile System: The book has
sometimes been described as a critique of mercantilism and a synthesis
of the emerging economic thinking of Smith's time. Specifically, The
Wealth of Nations attacks, inter alia, two major tenets of
mercantilism:

The idea that protectionist tariffs serve the economic interests of a
nation (or indeed any purpose whatsoever) and
The idea that large reserves of gold bullion or other precious metals
are necessary for a country's economic success. This critique of
mercantilism was later used by David Ricardo when he laid out his
Theory of Comparative Advantage.

Of Restraints upon the Importation...: Chapter 2's full title is "Of
Restraints upon the Importation from Foreign Countries of such Goods
as can be Produced at Home". The "Invisible Hand" is a frequently
referenced theme from the book, although it is specifically mentioned
only once.

"As every individual, therefore, endeavors as much as he can both to
employ his capital in the support of domestic industry, and so to
direct that industry that its produce may be of the greatest value;
every individual necessarily labours to render the annual revenue of
the society as great as he can. He generally, indeed, neither intends
to promote the public interest, nor knows how much he is promoting it.
By preferring the support of domestic to that of foreign industry, he
intends only his own security; and by directing that industry in such
a manner as its produce may be of the greatest value, he intends only
his own gain, and he is in this, as in many other cases, led by an
invisible hand to promote an end which was no part of his intention.
Nor is it always the worse for the society that it was no part of it.
By pursuing his own interest he frequently promotes that of the
society more effectually than when he really intends to promote
it." (Book 4, Chapter 2)
Of the extraordinary Restraints...: Chapter 3's long title is "Of the
extraordinary Restraints upon the Importation of Goods of almost all
Kinds, from those Countries with which the Balance is supposed to be
Disadvantageous".

Of Drawbacks: Merchants and manufacturers are not contented with the
monopoly of the home market, but desire likewise the most extensive
foreign sale for their goods. Their country has no jurisdiction in
foreign nations, and therefore can seldom procure them any monopoly
there. They are generally obliged, therefore, to content themselves
with petitioning for certain encouragements to exportation.

Of these encouragements what are called Drawbacks seem to be the most
reasonable. To allow the merchant to draw back upon exportation,
either the whole or a part of whatever excise or inland duty is
imposed upon domestic industry, can never occasion the exportation of
a greater quantity of goods than what would have been exported had no
duty been imposed. Such encouragements do not tend to turn towards any
particular employment a greater share of the capital of the country
than what would go to that employment of its own accord, but only to
hinder the duty from driving away any part of that shares to other
employments.

Of Bounties: Bounties upon exportation are, in Great Britain,
frequently petitioned for, and sometimes granted to the produce of
particular branches of domestic industry. By means of them our
merchants and manufacturers, it is pretended, will be enabled to sell
their goods as cheap, or cheaper than their rivals in the foreign
market. A greater quantity, it is said, will thus be exported, and the
balance of trade consequently turned more in favour of our own
country. We cannot give our workmen a monopoly in the foreign as we
have done in the home market. We cannot force foreigners to buy their
goods as we have done our own countrymen. The next best expedient, it
has been thought, therefore, is to pay them for buying. It is in this
manner that the mercantile system proposes to enrich the whole
country, and to put money into all our pockets by means of the balance
of trade

Of Treaties of Commerce: When a nation binds itself by treaty either
to permit the entry of certain goods from one foreign country which it
prohibits from all others, or to exempt the goods of one country from
duties to which it subjects those of all others, the country, or at
least the merchants and manufacturers of the country, whose commerce
is so favoured, must necessarily derive great advantage from the
treaty. Those merchants and manufacturers enjoy a sort of monopoly in
the country which is so indulgent to them. That country becomes a
market both more extensive and more advantageous for their goods: more
extensive, because the goods of other nations being either excluded or
subjected to heavier duties, it takes off a greater quantity of
theirs: more advantageous, because the merchants of the favoured
country, enjoying a sort of monopoly there, will often sell their
goods for a better price than if exposed to the free competition of
all other nations.

Such treaties, however, though they may be advantageous to the
merchants and manufacturers of the favoured, are necessarily
disadvantageous to those of the favouring country. A monopoly is thus
granted against them to a foreign nation; and they must frequently buy
the foreign goods they have occasion for dearer than if the free
competition of other nations was admitted.

Of Colonies:

Of the Motives for establishing new Colonies: The interest which
occasioned the first settlement of the different European colonies in
America and the West Indies was not altogether so plain and distinct
as that which directed the establishment of those of ancient Greece
and Rome.

All the different states of ancient Greece possessed, each of them,
but a very small territory, and when the people in any one of them
multiplied beyond what that territory could easily maintain, a part of
them were sent in quest of a new habitation in some remote and distant
part of the world; warlike neighbours surrounded them on all sides,
rendering it difficult for any of them to enlarge their territory at
home. The colonies of the Dorians resorted chiefly to Italy and
Sicily, which, in the times preceding the foundation of Rome, were
inhabited by barbarous and uncivilised nations: those of the Ionians
and Eolians, the two other great tribes of the Greeks, to Asia Minor
and the islands of the Egean Sea, of which the inhabitants seem at
that time to have been pretty much in the same state as those of
Sicily and Italy. The mother city, though she considered the colony as
a child, at all times entitled to great favour and assistance, and
owing in return much gratitude and respect, yet considered it as an
emancipated child over whom she pretended to claim no direct authority
or jurisdiction. The colony settled its own form of government,
enacted its own laws, elected its own magistrates, and made peace or
war with its neighbours as an independent state, which had no occasion
to wait for the approbation or consent of the mother city. Nothing can
be more plain and distinct than the interest which directed every such
establishment.

Causes of Prosperity of new Colonies: The colony of a civilised nation
which takes possession either of a waste country, or of one so thinly
inhabited that the natives easily give place to the new settlers,
advances more rapidly to wealth and greatness than any other human
society.

The colonists carry out with them a knowledge of agriculture and of
other useful arts superior to what can grow up of its own accord in
the course of many centuries among savage and barbarous nations. They
carry out with them, too, the habit of subordination, some notion of
the regular government which takes place in their own country, of the
system of laws which supports it, and of a regular administration of
justice; and they naturally establish something of the same kind in
the new settlement.

Of the Advantages which Europe has derived from the Discovery of
America, and from that of a Passage to the East Indies by the Cape of
Good Hope: Such are the advantages which the colonies of America have
derived from the policy of Europe.

What are those which Europe has derived from the discovery and
colonization of America?

Those advantages may be divided, first, into the general advantages
which Europe, considered as one great country, has derived from those
great events; and, secondly, into the particular advantages which each
colonizing country has derived from the colonies which particularly
belong to it, in consequence of the authority or dominion which it
exercises over them.

The general advantages which Europe, considered as one great country,
has derived from the discovery and colonization of America, consist,
first, in the increase of its enjoyments; and, secondly, in the
augmentation of its industry.

The surplus produce of America, imported into Europe, furnishes the
inhabitants of this great continent with a variety of commodities
which they could not otherwise have possessed; some for conveniency
and use, some for pleasure, and some for ornament, and thereby
contributes to increase their enjoyments.

Conclusion of the Mercantile System: Smith's argument about the
international political economy opposed the idea of Mercantilism.
While the Mercantile System encouraged each country to horde gold,
while trying to grasp hegemony, Smith argued that free trade would
eventually make all actors better off. This argument is the modern
'Free Trade' argument.

Of the Agricultural Systems...: Chapter 9's long title is "Of the
Agricultural Systems, or of those Systems of Political Economy, which
Represent the Produce of Land, as either the Sole or the Principal,
Source of the Revenue and Wealth of Every Country".

That system which represents the produce of land as the sole source of
the revenue and wealth of every country has, so far as by that time,
never been adopted by any nation, and it at present exists only in the
speculations of a few men of great learning and ingenuity in France.
It would not, surely, be worth while to examine at great length the
errors of a system which never has done, and probably never will do,
any harm in any part of the world.

Book V: Of the Revenue of the Sovereign or Commonwealth

Smith postulated four "maxims" of taxation: proportionality,
transparency, convenience, and efficiency. Some economists interpret
Smith's opposition to taxes on transfers of money, such as the Stamp
Act, as opposition to capital gains taxes, which did not exist in the
eighteenth century.[9] Other economists credit Smith as one of the
first to advocate a progressive tax.[10][11] Smith wrote, "It is not
very unreasonable that the rich should contribute to the public
expense, not only in proportion to their revenue, but something more
in proportion."

Of the Expenses of the Sovereign or Commonwealth: Smith uses this
chapter to comment on the concept of taxation and expenditure by the
state. On taxation Smith wrote,

"The subjects of every state ought to contribute towards the support
of the government, as nearly as possible, in proportion to their
respective abilities; that is, in proportion to the revenue which they

respectively enjoy under the protection of the state. The expense of
government to the individuals of a great nation is like the expense of
management to the joint tenants of a great estate, who are all obliged
to contribute in proportion to their respective interests in the
estate. In the observation or neglect of this maxim consists what is
called the equality or inequality of taxation."

Smith advocates a tax naturally attached to the "abilities" and habits
of each echelon of society.

For the lower echelon, Smith recognized the intellectually erosive
effect that the otherwise beneficial division of labour can have on
workers, what Marx, though he mainly opposes Smith, later named
"alienation,"; therefore, Smith warns of the consequence of government
failing to fulfill its proper role, which is to preserve against the
innate tendency of human society to fall apart.

..."the understandings of the greater part of men are necessarily
formed by their ordinary employments. The man whose whole life is
spent in performing a few simple operations, of which the effects are
perhaps always the same, or very nearly the same, has no occasion to
exert his understanding or to exercise his invention in finding out
expedients for removing difficulties which never occur. He naturally
loses, therefore, the habit of such exertion, and generally becomes as
stupid and ignorant as it is possible for a human creature to become.
The torpor of his mind renders him not only incapable of relishing or
bearing a part in any rational conversation, but of conceiving any
generous, noble, or tender sentiment, and consequently of forming any
just judgment concerning many even of the ordinary duties of private
life... But in every improved and civilized society this is the state
into which the laboring poor, that is, the great body of the people,
must necessarily fall, unless government takes some pains to prevent
it."[12]
"Under Smith's model, government involvement in any area other than
those stated above would have a negative impact on economic growth.
This is because economic growth is determined by the needs of a free
market and the entrepreneurial nature of private persons. If there is
a shortage of a product its price will rise, and so stimulate
producers to produce more, while at the same time attracting new
persons into that line of production. If there is an excess supply of
a product (more of the product than people are willing to buy), prices
will fall and producers will focus their energy and money in other
areas where there is a shortage or where there is a need which no one
has yet satisfied (thereby creating a new market)."[13]

Of the Sources of the General or Public Revenue of the Society: In his
discussion of taxes in Book Five, Smith wrote:

"The necessaries of life occasion the great expense of the poor. They
find it difficult to get food, and the greater part of their little
revenue is spent in getting it. The luxuries and vanities of life
occasion the principal expense of the rich, and a magnificent house
embellishes and sets off to the best advantage all the other luxuries
and vanities which they possess. A tax upon house-rents, therefore,
would in general fall heaviest upon the rich; and in this sort of
inequality there would not, perhaps, be anything very unreasonable. It
is not very unreasonable that the rich should contribute to the public
expense, not only in proportion to their revenue, but something more
than in that proportion." [14]
Proponents of progressive taxation cite Smith[citation needed] to
justify the modern implementation of this idea, the disproportionate
taxation of income.

Smith is absolutely against any form of income or capital gains tax,
as it punishes productivity. It is clear that Smith's statement
demonstrates that the means of the rich can greatly benefit society,
especially when taxes on their luxuries are used to offset the
hardships of the poor; however, in context with other of his
statements and his treatise as a whole, citing this statement as
evidence that Smith supports a tax on income, the prevailing mode of
modern, progressive taxation, is unreasonable. Smith's statement
suggests not a tax on income, the incentive and reward for the further
production and generation of wealth, but rather a tax on expenditure.
Naturally, the rich, having by their superior revenue greater means to
possess magnificent houses, luxuries and vanities, would pay, in a tax
on this expenditure, disproportionally more than would the poor.

Of War and Public Debts:

"...when war comes [politicians] are both unwilling and unable to
increase their [tax] revenue in proportion to the increase of their
expense. They are unwilling for fear of offending the people, who, by
so great and so sudden an increase of taxes, would soon be disgusted
with the war... The facility of borrowing delivers them from the
embarrassment... By means of borrowing they are enabled, with a very
moderate increase of taxes, to raise, from year to year, money
sufficient for carrying on the war, and by the practice of perpetually
funding they are enabled, with the smallest possible increase of taxes
[to pay the interest on the debt], to raise annually the largest
possible sum of money [to fund the war].

...The return of peace, indeed, seldom relieves them from the greater
part of the taxes imposed during the war. These are mortgaged for the
interest of the debt contracted in order to carry it on.[15]"

Smith then goes on to say that even if money was set aside from future
revenues to pay for the debts of war, it seldom actually gets used to
pay down the debt. Politicians are inclined to spend the money on some
other scheme that will win the favor of their constituents. Hence,
interest payments rise and war debts continue to grow larger, well
beyond the end of the war.

Summing up, if governments can borrow without check, then they are
more likely to wage war without check, and the costs of the war
spending will burden future generations, since war debts are almost
never repaid by the generations that incurred them.

Reception and impact
This section requires expansion.

Further reading

An Inquiry into the Nature and Causes of the Wealth of Nations: A
Selected Edition Adam Smith (Author), Kathryn Sutherland (Editor),
2008, Oxford Paperbacks, Oxford, UK; ISBN 978-0-199535-92-7

Adam Smith's The Wealth of Nations: A modern-day interpretation of an
economic classic. Karen McCreadie, 2009, Infinite Ideas, Oxford, UK;
ISBN 978-1-906821-03-6

See also

Free Trade

American School of Economics
Austrian School of Economics Free Trade and Capitalism
Classical economics
Marginalism
Neoclassical economics
Political economy
Socialism
The Theory of Moral Sentiments (1759), Adam Smith's other classic
Wealth (economics)
The Invisible Hand

Notes

↑ An Inquiry into the Nature and Causes of the Wealth of Nations, by
Adam Smith. London: Methuen and Co., Ltd., ed. Edwin Cannan, 1904.
Fifth edition.

↑ Smith (1776) Book I, Chapter 5, para 1
↑ Smith (1776) Book I, Chapter 7, para 9
↑ Smith (1776) Book I, Chapter 7, para 26
↑ Wealth of Nations, Book I. Chap. viii
↑ Smith (1776) I, 8, para 39
↑ Smith (1776) I, 8, para 37
↑ Smith (1776) Book I, Chapter 10, para 82

↑ Bartlett, Bruce (2001-01-24). "Adam Smith On Taxes". National Center
for Policy Analysis.

http://www.ncpa.org/oped/bartlett/jan2401.html. Retrieved 2008-05-14.

↑ Reich, Robert B. (1987-04-26). "Do Americans Still Believe In
Sharing The Burden?". The Washington Post. p. d.01.

http://pqasb.pqarchiver.com/washingtonpost/access/73816461.html?dids=73816461:73816461&FMT=ABS&FMTS=ABS:FT&date=Apr+26%2C+1987&author=Robert+B.+Reich&pub=The+Washington+Post+(pre-1997+Fulltext)&edition=&startpage=d.01&desc=Do+Americans+Still+Believe+In+Sharing+The+Burden%3F.
Retrieved 2008-05-14.

↑ Stein, Herbert (1994-04-06). "Board of Contributors: Remembering
Adam Smith". Wall Street Journal (Eastern Edition).

↑ Smith (1776) V, 1, para 178

↑ R. Conteras, "How the Concept of Development Got Started" University
of Iowa Center for International Finance and Development E-Book[1]

↑ Adam Smith, An Inquiry into the Nature And Causes of the Wealth of
Nations (1776). Book V, Chapter 2, Article I: Taxes upon the Rent of
House.[2]

↑ Adam Smith, An Inquiry into the Nature And Causes of the Wealth of
Nations (1776). Book V, Chapter 3, Article III: Of Public Debts.[3]

External links

Wikisource has original text related to this article:

The Wealth of Nations

The Wealth of Nations at MetaLibri Digital Library

The Theory of Moral Sentiments at MetaLibri Digital Library

An Inquiry into the Nature and Causes of the Wealth of Nations at
Project Gutenberg

An Inquiry into the Nature and Causes of the Wealth of Nations, 1776
(accessible by table of contents chapter titles) AdamSmith.org ISBN
1404309985

Life of Adam Smith, by John Rae, at the Library of Economics and
Liberty

An Inquiry into the Nature and Causes of the Wealth of Nations
Google's scan of the book

Introduction by Ludwig von Mises to the 1952 edition of The Wealth of
Nations
Wealth of Nations Reading Notes

An Inquiry into the Nature and Causes of the Wealth of Nations

Facsimile of the original two volumes: Volume 1 (2nd edition/ 1778) &
Volume 2 (1st edition/ 1776)

http://www.bing.com/reference/semhtml/The_Wealth_of_Nations?qpvt=The%20Wealth%20of%20Nations

[chhotemianinshallah]

REference »
Wikipedia Articles
Invisible hand

In this article: Locations Images From the web: Images Videos

Invisible hand
For other uses, see Invisible hand (disambiguation).

It contains too many quotations for an encyclopedic entry. Tagged
since March 2008.

In economics, the invisible hand, also known as the invisible hand of
the market, the term economists use to describe the self-regulating
nature of the marketplace,[1] is a metaphor first coined by the
economist Adam Smith in The Theory of Moral Sentiments. For Smith, the
invisible hand was created by the conjunction of the forces of self-
interest, competition, and supply and demand, which he noted as being
capable of allocating resources in society.[2] This is the founding
justification for the laissez-faire economic philosophy.[3]

The Wealth of Nations

Adam Smith uses the metaphor in Book IV of The Wealth of Nations,
arguing that people in any society will employ their capital in
foreign trading only if the profits available by that method far
exceed those available locally. In such a case, Smith argues, it is
better for society as a whole if they so do.

“ By preferring the support of domestic to that of foreign industry,

he intends only his own security; and by directing that industry in
such a manner as its produce may be of the greatest value, he intends
only his own gain, and he is in this, as in many other cases, led by
an invisible hand to promote an end which was no part of his

intention. Nor is it always the worse for the society that it was not

part of it. By pursuing his own interest he frequently promotes that
of the society more effectually than when he really intends to promote

it. I have never known much good done by those who affected to trade
for the public good. It is an affectation, indeed, not very common
among merchants, and very few words need be employed in dissuading
them from it. ”

Economists' interpretation of the "invisible hand" quotation
The concept of the "invisible hand" is nearly always generalized
beyond Smith's original discussion of domestic versus foreign trade.
Smith himself participated in such generalization, as is already
evident in his allusion to "many other cases" quoted above.

Milton Friedman, a Nobel Prize winner in economics, called Smith's
Invisible Hand "the possibility of cooperation without coercion."[4]

Notice that the Invisible Hand is here considered a "natural
inclination", not yet a social mechanism as it was later classified by
Leon Walras and Vilfredo Pareto.

The theory of the Invisible Hand states that if each consumer is
allowed to choose freely what to buy and each producer is allowed to
choose freely what to sell and how to produce it, the market will
settle on a product distribution and prices that are beneficial to all
the individual members of a community, and hence to the community as a
whole. The reason for this is that self-interest drives actors to
beneficial behavior. Efficient methods of production are adopted to
maximize profits. Low prices are charged to maximize revenue through
gain in market share by undercutting competitors. Investors invest in
those industries most urgently needed to maximize returns, and
withdraw capital from those less efficient in creating value. Students
prepare for the most needed (and therefore most remunerative) careers.
All these effects take place dynamically and automatically.

It also works as a balancing mechanism. For example, the inhabitants
of a poor country will be willing to work very cheaply, so
entrepreneurs can make great profits by building factories in poor
countries. Because they increase the demand for labor, they will
increase its price; further, because the new producers also become
consumers, local businesses must hire more people to provide the
things they want to consume. As this process continues, the labor
prices eventually rise to the point where there is no advantage for
the foreign countries doing business in the formerly poor country.
Overall, this mechanism causes the local economy to function on its
own.

In The Wealth of Nations, Smith provides an example that illustrates
the principle:

“ It is not from the benevolence of the butcher, the brewer or the
baker, that we expect our dinner, but from their regard to their own
self interest. We address ourselves, not to their humanity but to

their self-love, and never talk to them of our own necessities but of

their advantages.[5] ”

Some economists question the integrity of how the term "invisible
hand" is currently used. Gavin Kennedy, Professor Emeritus at Heriot-
Watt University in Edinburgh, Scotland, argues that its current use in
modern economic thinking as a symbol of free market capitalism is not
reconcilable with the rather modest and indeterminate manner in which
it was employed by Smith.[6] In response to Kennedy, Professor Daniel
Klein argues that reconciliation is legitimate. Moreover, even if
Smith did not intend the term "invisible hand" to be used in the
current manner, it's serviceability as such should not be rendered
ineffective.[7] In conclusion of their exchange, Kennedy insists that
Smith's intentions are of utmost importance to the current debate,
which is one of Smith's association with the term "invisible hand". If
the term is to be used as a symbol of liberty and economic
coordination as it has been in the modern era, Kennedy argues that it
should exist as a construct completely separate from Adam Smith since
there is little evidence that Smith imputed any significance onto the
term, much less the meanings given it at present.[8]

Understood as a metaphor

Smith uses the metaphor in the context of an argument against
protectionism and government regulation of markets, but it is based on
very broad principles developed by Bernard Mandeville, Bishop Butler,
Lord Shaftesbury, and Francis Hutcheson. In general, the term
“invisible hand” can apply to any individual action that has
unplanned, unintended consequences, particularly those that arise from
actions not orchestrated by a central command, and that have an
observable, patterned effect on the community.

Bernard Mandeville argued that private vices are actually public
benefits. In The Fable of the Bees (1714), he laments that the “bees
of social virtue are buzzing in Man’s bonnet”: that civilized man has
stigmatized his private appetites and the result is the retardation of
the common good.

Bishop Butler argued that pursuing the public good was the best way of
advancing one’s own good since the two were necessarily identical.

Lord Shaftesbury turned the convergence of public and private good
around, claiming that acting in accordance with one’s self-interest
produces socially beneficial results. An underlying unifying force
that Shaftesbury called the “Will of Nature” maintains equilibrium,
congruency, and harmony. This force, to operate freely, requires the
individual pursuit of rational self-interest, and the preservation and
advancement of the self.

Francis Hutcheson also accepted this convergence between public and
private interest, but he attributed the mechanism, not to rational
self-interest, but to personal intuition, which he called a “moral
sense.” Smith developed his own version of this general principle in
which six psychological motives combine in each individual to produce
the common good. In The Theory of Moral Sentiments, vol. II, page 316,
he says, “By acting according to the dictates of our moral faculties,
we necessarily pursue the most effective means for promoting the
happiness of mankind.”

Contrary to common misconceptions, Smith did not assert that all self-
interested labour necessarily benefits society, or that all public
goods are produced through self-interested labour. His proposal is
merely that in a free market, people usually tend to produce goods
desired by their neighbours. The tragedy of the commons is an example
where self-interest tends to bring an unwanted result.

Moreover, a free market arguably provides numerous opportunities for
maximizing one’s own profit at the expense (rather than for the
benefit) of others. The tobacco industry is often cited as an example
of this: the sale of cigarettes and other tobacco products certainly
brings a very good revenue, but the industry’s critics deny that the
social benefits (the pleasures associated with smoking, the
camaraderie, the feeling of doing something “cool”) can possibly
outbalance the social costs.[citation needed]

Examples and arguments

Since Smith’s time, the principle of the invisible hand has been
further incorporated into economic theory. Leon Walras developed a
four-equation general equilibrium model that concludes that individual
self-interest operating in a competitive market place produces the
unique conditions under which a society’s total utility is maximized.
Vilfredo Pareto used an edgeworth box contact line to illustrate a
similar social optimality.

Ludwig von Mises, in Human Action (see note 3 at the bottom), claims
that Smith believed that the invisible hand was that of God. He did
not mean this as a criticism, since he held that secular reasoning
leads to similar conclusions.

The invisible hand is traditionally understood as a concept in
economics, but Robert Nozick argues in Anarchy, State and Utopia that
substantively the same concept exists in a number of other areas of
academic discourse under different names, notably Darwinian natural
selection. In turn, Daniel Dennett argues in Darwin’s Dangerous Idea
that this represents a “universal acid” that may be applied to a
number of seemingly disparate areas of philosophical inquiry
(consciousness and free will in particular). See also Social
Darwinism.

Tawney's interpretation

Christian socialist R. H. Tawney saw Smith as putting a name on an
older idea:

“ If preachers have not yet overtly identified themselves with the
view of the natural man, expressed by an eighteenth-century writer in
the words, trade is one thing and religion is another, they imply a
not very different conclusion by their silence as to the possibility
of collisions between them. The characteristic doctrine was one, in
fact, which left little room for religious teaching as to economic
morality, because it anticipated the theory, later epitomized by Adam
Smith in his famous reference to the invisible hand, which saw in
economic self-interest the operation of a providential plan... The
existing order, except insofar as the short-sighted enactments of
Governments interfered with it, was the natural order, and the order
established by nature was the order established by God. Most educated
men, in the middle of the [eighteenth] century, would have found their
philosophy expressed in the lines of Pope:

Thus God and Nature formed the general frame,

And bade self-love and social be the same.

Naturally, again, such an attitude precluded a critical examination of
institutions, and left as the sphere of Christian charity only those
parts of life that could be reserved for philanthropy, precisely
because they fell outside that larger area of normal human relations,
in which the promptings of self-interest provided an all-sufficient
motive and rule of conduct. (Religion and the Rise of Capitalism, page
195.) ”

Other uses of the phrase by Smith

Adam Smith used the phrase two other times in his writings, once
published and once unpublished. The unpublished reference simply says
that practitioners of Polytheistic religions did not attribute gravity
or fire to the invisible hand of Jupiter, and the idea clearly has no
relation to the invisible hand of the market. However, this particular
reference should be observed for a complete picture of what Smith
intends to portray by the term "Invisible Hand."[9]

In Theory of Moral Sentiments, Smith uses the invisible hand to
explain the distribution of wealth (1759, p. 350):

“ The rich ... consume little more than the poor, and in spite of
their natural selfishness ... They are led by an invisible hand to

make nearly the same distribution of the necessaries of life, which
would have been made, had the earth been divided into equal portions

among all its inhabitants, and ... advance the interest of the
society, and afford means to the multiplication of the species. ”

This was written before Smith visited France and the
"Économistes" (Physiocrats) who gave him and classical economics the
"circular flow" vision of the economy. See the emphasis of "annually"
in Smith's Introduction. In a "circular flow" output that does not
become input in the next circle is "unproductive labour" produced by a
"classe stérile" (Économistes).

References

↑ Sullivan, Arthur; Steven M. Sheffrin (2003). Economics: Principles
in action. Upper Saddle River, New Jersey 07458: Pearson Prentice
Hall. p. 32. ISBN 0-13-063085-3.

http://www.pearsonschool.com/index.cfm?locator=PSZ3R9&PMDbSiteId=2781&PMDbSolutionId=6724&PMDbCategoryId=&PMDbProgramId=12881&level=4.

↑ Olsen, James Stewart. Encyclopedia of the Industrial Revolution.
Greenwood Publishing Group, 2002. pp. 153-154

↑ Ibid

↑ Friedman's Introduction to I, Pencil

↑ Smith, Adam. "2". Wealth of Nations.

http://www.econlib.org/LIBRARY/Smith/smWN1.html#B.I%2C%20Ch.2%2C%20Of%20the%20Principle%20which%20gives%20Occasion%20to%20the%20Division%20of%20Labour%2C%20benevolence.
Retrieved 2007-12-08.

↑ Kennedy, Gavin. 2009. Adam Smith and the Invisible Hand: From
Metaphor to Myth. Econ Journal Watch 6(2): 239-263.[1]

↑ Klein, Daniel B. 2009. In Adam Smith’s Invisible Hands: Comment on
Gavin Kennedy. Econ Journal Watch 6(2): 264-279.[2]

↑ Kennedy, Gavin. "A Reply to Daniel Klein on Adam Smith and the
Invisible Hand". Econ Journal Watch 6(3): 374-388.[3]

↑ Minowitz, Peter. "Adam Smith's Invisible Hands" (December 2004).
[4]

External links

The Theory of Moral Sentiments (full text)

The Wealth of Nations (full text) or

The History of Astronomy, in Essays on Philosophical Subjects (full
text)
I, Pencil (full text)

The National Gain (full text)

http://www.bing.com/reference/semhtml/Invisible_hand

Reference »
Wikipedia Articles

Selfishness

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Selfishness

"Selfish" redirects here. For other uses, see Selfish
(disambiguation).
Look up selfishness in Wiktionary, the free dictionary.

This article needs additional citations for verification.

Please help improve this article by adding reliable references.

Unsourced material may be challenged and removed. (October 2009)

Selfishness denotes the precedence given in thought or deed to the
self, i.e., self interest or self concern. It is the act of placing
one's own needs or desires above the needs or desires of others.

Psychologist and primatologist Frans de Waal takes issue with those
who equate "selfishness" with "self-serving." He argues that
"Selfishness implies the intention to serve oneself, hence knowledge
of what one stands to gain from a particular behavior".[1] (2009, 13).

Selfishness is the opposite of altruism (selflessness).

The implications of selfishness have inspired divergent views within
religious, philosophical, psychological, economic and evolutionary
contexts.

References

↑ de Waal, Frans (2009). Primates and Philosophers: How Morality
Evolved. Princeton University Press. pp. 13. ISBN 978-0-691-14129-9.

http://press.princeton.edu/titles/8240.html.

See also

Egoism
Egotism
Enlightened self-interest
Ethic of reciprocity (the "Golden Rule")
Generosity
Indirect self-interest
Little Miss Selfish
Narcissism
Objectivism
Solipsism

A Theory of Justice (by John Rawls)

Further reading

Twilight of the Idols, Friedrich Nietzsche Penguin Classics; Reissue
edition (February 15, 1990), ISBN 0140445145

The Evolution of Cooperation, Robert Axelrod, Basic Books, ISBN
0-465-02121-2

The Selfish Gene, Richard Dawkins (1990), second edition—includes two
chapters about the evolution of cooperation, ISBN 0-19-286092-5

The Virtue of Selfishness, Ayn Rand, ISBN 0451163931

http://www.bing.com/reference/semhtml/Selfishness

Reference »
Wikipedia Articles

Competition (economics)Competition (economics)

In this article: Locations Images From the web: Images Videos

Competition (economics)

Competition in economics is a term that encompasses the notion of
individuals and firms striving for a greater share of a market to sell
or buy goods and services. Merriam-Webster defines competition in
business as "the effort of two or more parties acting independently to
secure the business of a third party by offering the most favorable
terms."[1] It was described by Adam Smith in The Wealth of Nations
(1776) and later economists as allocating productive resources to
their most highly-valued uses.[2] and encouraging efficiency. Later
microeconomic theory distinguished between perfect competition and
imperfect competition, concluding that with the no system of resource
allocation is more efficient than perfect competition. Competition,
according to the theory, causes commercial firms to develop new
products, services and technologies, which would give consumers
greater selection and better products. The greater selection typically
causes lower prices for the products, compared to what the price would
be if there was no competition (monopoly) or little competition
(oligopoly).

Competition in practice

Competition is seen as a state which produces gains for the whole
economy, through promoting consumer sovereignty. It may also lead to
wasted (duplicated) effort and to increased costs (and prices) in some
circumstances. In a small number of goods and services the cost
structure means that competition may be inefficient. These situations
are known as natural monopoly and are usually publicly provided or
tightly regulated. The most common example is water supplies.

Three levels of economic competition have been classified:

The most narrow form is direct competition (also called category
competition or brand competition), where products that perform the
same function compete against each other. For example, a brand of pick-
up trucks competes with several different brands of pick-up trucks.
Sometimes two companies are rivals and one adds new products to their
line so that each company distributes the same thing and they
compete.

The next form is substitute competition, where products that are close
substitutes for one another compete. For example, butter competes with
margarine, mayonnaise, and other various sauces and spreads.

The broadest form of competition is typically called budget
competition. Included in this category is anything that the consumer
might want to spend their available money (the so-called discretionary
income) on. For example, a family that has $20,000 available may
choose to spend it on many different items, which can all be seen as
competing with each other for the family's available money.
Competition does not necessarily have to be between companies. For
example, business writers sometimes refer to "internal competition".
This is competition within companies. The idea was first introduced by
Alfred Sloan at General Motors in the 1920s. Sloan deliberately
created areas of overlap between divisions of the company so that each
division would be competing with the other divisions. For example, the
Chevy division would compete with the Pontiac division for some market
segments. Also, in 1931, Procter & Gamble initiated a deliberate
system of internal brand versus brand rivalry. The company was
organized around different brands, with each brand allocated
resources, including a dedicated group of employees willing to
champion the brand. Each brand manager was given responsibility for
the success or failure of the brand and was compensated accordingly.
This form of competition thus pitted a brand against another brand.
Finally, most businesses also encourage competition between individual
employees. An example of this is a contest between sales
representatives. The sales representative with the highest sales (or
the best improvement in sales) over a period of time would gain
benefits from the employer.

It should also be noted that business and economic competition in most
countries is often limited or restricted. Competition often is subject
to legal restrictions. For example, competition may be legally
prohibited as in the case with a government monopoly or a government-
granted monopoly. Tariffs, subsidies or other protectionist measures
may also be instituted by government in order to prevent or reduce
competition. Depending on the respective economic policy, the pure
competition is to a greater or lesser extent regulated by competition
policy and competition law. Competition between countries is quite
subtle to detect, but is quite evident in the World economy, where
countries like the US, Japan, the European Union, China and the East
Asian Tigers each try to outdo the other in the quest for economic
supremacy in the global market, harkening to the concept of Kiasuism.
Such competition is evident by the policies undertaken by these
countries to educate the future workforce. For example, East Asian
economies like Singapore, Japan and South Korea tend to emphasize
education by allocating a large portion of the budget to this sector,
and by implementing programmes such as gifted education, which some
detractors criticise as indicative of academic elitism.

Anti-competitive practices

A practice is anti-competitive if it is deemed to unfairly distort
free and effective competition in the marketplace. Examples include
cartels, restrictive trading agreements, predatory pricing and abuse
of a dominant position.

Further information: Anti-competitive practices

See also

Competition law
Self-competition

Notes

↑ Merriam-Webster Online
↑ George J. Stigler ([1987] 2008). "competition," The New Palgrave
Dictionary of Economics. Abstract.

References

External links

Competition in Utility Markets from the Body of Knowledge on
Infrastructure Regulation

http://www.bing.com/reference/semhtml/Competition_(economics)

[chhotemianinshallah]

Reference »
Wikipedia Articles
Supply and demand

In this article: Locations Images From the web: Images Videos Supply
and demand
For other uses, see Supply and demand (disambiguation).

The price P of a product is determined by a balance between production
at each price (supply S) and the desires of those with purchasing
power at each price (demand D). The diagram shows a positive shift in
demand from D1 to D2, resulting in an increase in price (P) and
quantity sold (Q) of the product.Supply and demand is an economic
model of price determination in a market. It concludes that in a
competitive market, price will function to equalize the quantity
demanded by consumers, and the quantity supplied by producers,
resulting in an economic equilibrium of price and quantity.

The graphical representation of supply and demand

The supply-demand model is a partial equilibrium model representing
the determination of the price of a particular good and the quantity
of that good which is traded. Although it is normal to regard the
quantity demanded and the quantity supplied as functions of the price
of the good, the standard graphical representation, usually attributed
to Alfred Marshall, has price on the vertical axis and quantity on the
horizontal axis, the opposite of the standard convention for the
representation of a mathematical function.

Determinants of supply and demand other than the price of the good in
question, such as consumers' income, input prices and so on, are not
explicitly represented in the supply-demand diagram. Changes in the
values of these variables are represented by shifts in the supply and
demand curves. By contrast, responses to changes in the price of the
good are represented as movements along unchanged supply and demand
curves.

Supply schedule

The supply schedule, depicted graphically as the supply curve,
represents the amount of some good that producers are willing and able
to sell at various prices, assuming ceteris paribus, that is all
determinants of supply other than the price of the good in question,
such as technology and the prices of factors of production, remaining
the same.

Under the assumption of perfect competition, supply is determined by
marginal cost. Firms will produce additional output as long as the
cost of producing an extra unit of output is less than the price they
will receive.

Demand schedule

The demand schedule, depicted graphically as the demand curve,
represents the amount of some good that buyers are willing and able to
purchase at various prices, assuming all determinants of demand other
than the price of the good in question, such as income, personal
tastes, the price of substitute goods, and the price of complementary
goods, remain the same. Following the law of demand, the demand curve
is almost always represented as downward-sloping, meaning that as
price decreases, consumers will buy more of the good.[1]

Just as the supply curves reflect marginal cost curves, demand curves
are determined by marginal utility curves.[2] Consumers will be
willing to buy a given quantity of a good, at a given price, if the
marginal utility of additional consumption is equal to the opportunity
cost determined by the price, that is, the marginal utility of
alternative consumption choices. The demand schedule is defined as the
willingness and ability of a consumer to purchase a given product in a
given frame of time.

As described above, the demand curve is generally downward-sloping.
There may be rare examples of goods that have upward-sloping demand
curves. Two different hypothetical types of goods with upward-sloping
demand curves are Giffen goods (an inferior but staple good) and
Veblen goods (goods made more fashionable by a higher price).

Micro Economics

Equilibrium

Equilibrium is defined to the price-quantity pair where the quantity
demanded is equal to the quantity supplied, represented by the
intersection of the demand is rest.

Changes in market equilibrium

Practical uses of supply and demand analysis often center on the
different variables that change equilibrium price and quantity,
represented as shifts in the respective curves. Comparative statics of
such a shift traces the effects from the initial equilibrium to the
new equilibrium.

Demand curve shifts
Main article: Demand curve

An out-ward or right-ward shift in demand increases both equilibrium
price and quantityWhen consumers increase the quantity demanded at a
given price, it is referred to as an increase in demand. Increased
demand can be represented on the graph as the curve being shifted to
the right. At each price point, a greater quantity is demanded, as
from the initial curve D1 to the new curve D2. In the diagram, this
raises the equilibrium price from P1 to the higher P2. This raises the
equilibrium quantity from Q1 to the higher Q2. A movement along the
curve is described as a "change in the quantity demanded" to
distinguish it from a "change in demand," that is, a shift of the
curve. In the example above, there has been an increase in demand
which has caused an increase in (equilibrium) quantity. The increase
in demand could also come from changing tastes and fashions, incomes,
price changes in complementary and substitute goods, market
expectations, and number of buyers. This would cause the entire demand
curve to shift changing the equilibrium price and quantity.

If the demand decreases, then the opposite happens: a shift of the
curve to the left. If the demand starts at D2, and decreases to D1,
the price will decrease, and the quantity will decrease. This is an
effect of demand changing. The quantity supplied at each price is the
same as before the demand shift (at both Q1 and Q2). The equilibrium
quantity, price and demand are different. At each point, a greater
amount is demanded (when there is a shift from D1 to D2).

The demand curve "shifts" because a non-price determinant of demand
has changed. Graphically the shift is due to a change in the x-
intercept. A shift in the demand curve due to a change in a non-price
determinant of demand will result in the market's being in a non-
equilibrium state. If the demand curve shifts out the result will be a
shortage — at the new market price quantity demanded will exceed
quantity supplied. If the demand curve shifts in, there will be a
surplus — at the new market price quantity supplied will exceed
quantity demanded. The process by which a new equilibrium is
established is not the province of comparative statics — the answers
to issues concerning when, whether and how a new equilibrium will be
established are issues that are addressed by stochastic models —
economic dynamics.

Supply curve shifts

Main article: Supply (economics)

An out-ward or right-ward shift in supply reduces equilibrium price
but increases quantityWhen the suppliers' costs change for a given
output, the supply curve shifts in the same direction. For example,
assume that someone invents a better way of growing wheat so that the
cost of growing a given quantity of wheat decreases. Otherwise stated,
producers will be willing to supply more wheat at every price and this
shifts the supply curve S1 outward, to S2—an increase in supply. This
increase in supply causes the equilibrium price to decrease from P1 to
P2. The equilibrium quantity increases from Q1 to Q2 as the quantity
demanded extends at the new lower prices. In a supply curve shift, the
price and the quantity move in opposite directions.

If the quantity supplied decreases at a given price, the opposite
happens. If the supply curve starts at S2, and shifts inward to S1,
demand contracts, the equilibrium price will increase, and the
equilibrium quantity will decrease. This is an effect of supply
changing. The quantity demanded at each price is the same as before
the supply shift (at both Q1 and Q2). The equilibrium quantity, price
and supply changed.

When there is a change in supply or demand, there are four possible
movements. The demand curve can move inward or outward. The supply
curve can also move inward or outward.

Elasticity

Main article: Elasticity (economics)

Elasticity is a central concept in the theory of supply and demand. In
this context, elasticity refers to how supply and demand respond to
various factors, including price as well as other stochastic
principles. One way to define elasticity is the percentage change in
one variable divided by the percentage change in another variable
(known as arc elasticity, which calculates the elasticity over a range
of values, in contrast with point elasticity, which uses differential
calculus to determine the elasticity at a specific point). It is a
measure of relative changes.

Often, it is useful to know how the quantity demanded or supplied will
change when the price changes. This is known as the price elasticity
of demand and the price elasticity of supply. If a monopolist decides
to increase the price of their product, how will this affect their
sales revenue? Will the increased unit price offset the likely
decrease in sales volume? If a government imposes a tax on a good,
thereby increasing the effective price, how will this affect the
quantity demanded?

Elasticity corresponds to the slope of the line and is often expressed
as a percentage. In other words, the units of measure (such as gallons
vs. quarts, say for the response of quantity demanded of milk to a
change in price) do not matter, only the slope. Since supply and
demand can be curves as well as simple lines the slope, and hence the
elasticity, can be different at different points on the line.

Elasticity is calculated as the percentage change in quantity over the
associated percentage change in price. For example, if the price moves
from $1.00 to $1.05, and the quantity supplied goes from 100 pens to
102 pens, the slope is 2/0.05 or 40 pens per dollar. Since the
elasticity depends on the percentages, the quantity of pens increased
by 2%, and the price increased by 5%, so the price elasticity of
supply is 2/5 or 0.4.

Since the changes are in percentages, changing the unit of measurement
or the currency will not affect the elasticity. If the quantity
demanded or supplied changes a lot when the price changes a little, it
is said to be elastic. If the quantity changes little when the prices
changes a lot, it is said to be inelastic. An example of perfectly
inelastic supply, or zero elasticity, is represented as a vertical
supply curve. (See that section below)

Elasticity in relation to variables other than price can also be
considered. One of the most common to consider is income. How would
the demand for a good change if income increased or decreased? This is
known as the income elasticity of demand. For example, how much would
the demand for a luxury car increase if average income increased by
10%? If it is positive, this increase in demand would be represented
on a graph by a positive shift in the demand curve. At all price
levels, more luxury cars would be demanded.

Another elasticity sometimes considered is the cross elasticity of
demand, which measures the responsiveness of the quantity demanded of
a good to a change in the price of another good. This is often
considered when looking at the relative changes in demand when
studying complement and substitute goods. Complement goods are goods
that are typically utilized together, where if one is consumed,
usually the other is also. Substitute goods are those where one can be
substituted for the other, and if the price of one good rises, one may
purchase less of it and instead purchase its substitute.

Cross elasticity of demand is measured as the percentage change in
demand for the first good that occurs in response to a percentage
change in price of the second good. For an example with a complement
good, if, in response to a 10% increase in the price of fuel, the
quantity of new cars demanded decreased by 20%, the cross elasticity
of demand would be -2.0.

In a perfect economy, any market should be able to move to the
equilibrium position instantly without travelling along the curve. Any
change in market conditions would cause a jump from one equilibrium
position to another at once. So the perfect economy is actually
analogous to the quantum economy. Unfortunately in real economic
systems, markets don't behave in this way, and both producers and
consumers spend some time travelling along the curve before they reach
equilibrium position. This is due to asymmetric, or at least
imperfect, information, where no one economic agent could ever be
expected to know every relevant condition in every market. Ultimately
both producers and consumers must rely on trial and error as well as
prediction and calculation to find an the true equilibrium of a
market.

Vertical supply curve (perfectly inelastic supply)

When demand D1 is in effect, the price will be P1. When D2 is
occurring, the price will be P2. The quantity is always Q, any shifts
in demand will only affect price.If the quantity supplied is fixed no
matter what the price, the supply curve is a vertical line, and supply
is called perfectly inelastic. In practice, vertical supply curves
rarely exist.

As a hypothetical example, consider the supply curve of the land.
Suppose that no matter how much someone would be willing to pay for an
additional piece, more land cannot be created. Also, even if no one
wanted all the land, it still would exist. In such a case, land would
have a vertical supply curve, with zero elasticity.

Other markets

The model of supply and demand also applies to various specialty
markets.

The model is commonly applied to wages, in the market for labor. The
typical roles of supplier and consumer are reversed. The suppliers are
individuals, who try to sell their labor for the highest price. The
consumers of labors are businesses, which try to buy the type of labor
they need at the lowest price. The equilibrium price for a certain
type of labor is the wage.[3]

A number of economists (for example Pierangelo Garegnani[4], Robert L.
Vienneau[5], and Arrigo Opocher & Ian Steedman[6]), building on the
work of Piero Sraffa, argue that that this model of the labor market,
even given all its assumptions, is logically incoherent. Michael
Anyadike-Danes and Wyne Godley [7] argue, based on simulation results,
that little of the empirical work done with the textbook model
constitutes a potentially falsifying test, and, consequently,
empirical evidence hardly exists for that model. Graham White [8]
argues, partially on the basis of Sraffianism, that the policy of
increased labor market flexibility, including the reduction of minimum
wages, does not have an "intellectually coherent" argument in economic
theory.

This criticism of the application of the model of supply and demand
generalizes, particularly to all markets for factors of production. It
also has implications for monetary theory[9] not drawn out here.

In both classical and Keynesian economics, the money market is
analyzed as a supply-and-demand system with interest rates being the
price. The money supply may be a vertical supply curve, which the
central bank of a country can influence through monetary policy. Some
economists[10] argue that the money supply curve should be drawn as a
horizontal line. The demand for money intersects with the money supply
to determine the interest rate.[11]

Empirical estimation

Demand and supply relations in a market can be statistically estimated
from price, quantity, and other data with sufficient information in
the model. This can be done with simultaneous-equation methods of
estimation in econometrics. Such methods allow solving for the model-
relevant "structural coefficients," the estimated algebraic
counterparts of the theory. The Parameter identification problem is a
common issue in "structural estimation." Typically, data on exogenous
variables (that is, variables other than price and quantity, both of
which are endogenous variables) are needed to perform such an
estimation. An alternative to "structural estimation" is reduced-form
estimation, which regresses each of the endogenous variables on the
respective exogenous variables.

Macroeconomic uses of demand and supply

Demand and supply have also been generalized to explain macroeconomic
variables in a market economy, including the quantity of total output
and the general price level. The Aggregate Demand-Aggregate Supply
model may be the most direct application of supply and demand to
macroeconomics, but other macroeconomic models also use supply and
demand. Compared to microeconomic uses of demand and supply, different
(and more controversial) theoretical considerations apply to such
macroeconomic counterparts as aggregate demand and aggregate supply.
Demand and supply may also be used in macroeconomic theory to relate
money supply to demand and interest rates.

Demand shortfalls

A demand shortfall results from the actual demand for a given product
being lower than the projected, or estimated, demand for that product.
Demand shortfalls are caused by demand overestimation in the planning
of new products. Demand overestimation is caused by optimism bias and/
or strategic misrepresentation.

History

The power of supply and demand was understood to some extent by
several early Muslim economists, such as Ibn Taymiyyah who
illustrates:

"If desire for goods increases while its availability decreases, its
price rises. On the other hand, if availability of the good increases
and the desire for it decreases, the price comes down."[12]
The phrase "supply and demand" was first used by James Denham-Steuart
in his Inquiry into the Principles of Political Economy, published in
1767. Adam Smith used the phrase in his 1776 book The Wealth of
Nations, and David Ricardo titled one chapter of his 1817 work
Principles of Political Economy and Taxation "On the Influence of
Demand and Supply on Price".[13]

In The Wealth of Nations, Smith generally assumed that the supply
price was fixed but that its "merit" (value) would decrease as its
"scarcity" increased, in effect what was later called the law of
demand. Ricardo, in Principles of Political Economy and Taxation, more
rigorously laid down the idea of the assumptions that were used to
build his ideas of supply and demand. Antoine Augustin Cournot first
developed a mathematical model of supply and demand in his 1838
Researches on the Mathematical Principles of the Theory of Wealth.

During the late 19th century the marginalist school of thought
emerged. This field mainly was started by Stanley Jevons, Carl Menger,
and Léon Walras. The key idea was that the price was set by the most
expensive price, that is, the price at the margin. This was a
substantial change from Adam Smith's thoughts on determining the
supply price.

In his 1870 essay "On the Graphical Representation of Supply and
Demand", Fleeming Jenkin drew for the first time the popular graphic
of supply and demand which, through Marshall, eventually would turn
into the most famous graphic in economics.

The model was further developed and popularized by Alfred Marshall in
the 1890 textbook Principles of Economics.[13] Along with Léon Walras,
Marshall looked at the equilibrium point where the two curves crossed.
They also began looking at the effect of markets on each other.

Criticism

At least two assumptions are necessary for the validity of the
standard model: first, that supply and demand are independent; and
second, that supply is "constrained by a fixed resource"; If these
conditions do not hold, then the Marshallian model cannot be
sustained. Sraffa's critique focused on the inconsistency (except in
implausible circumstances) of partial equilibrium analysis and the
rationale for the upward-slope of the supply curve in a market for a
produced consumption good[14]. The notability of Sraffa's critique is
also demonstrated by Paul A. Samuelson's comments and engagements with
it over many years, for example:

"What a cleaned-up version of Sraffa (1926) establishes is how nearly
empty are all of Marshall's partial equilibrium boxes. To a logical
purist of Wittgenstein and Sraffa class, the Marshallian partial
equilibrium box of constant cost is even more empty than the box of
increasing cost."[15].

Aggregate excess demand in a market is the difference between the
quantity demanded and the quantity supplied as a function of price. In
the model with an upward-sloping supply curve and downward-sloping
demand curve, the aggregate excess demand function only intersects the
axis at one point, namely, at the point where the supply and demand
curves intersect. The Sonnenschein-Mantel-Debreu theorem shows that
the standard model cannot be rigorously derived in general from the
theory of general equilibrium[16].

The model of prices being determined by supply and demand assume
perfect competition. But:

"economists have no adequate model of how individuals and firms adjust
prices in a competitive model. If all participants are price-takers by
definition, then the actor who adjusts prices to eliminate excess
demand is not specified"[17].

See also

Look up supply or demand in Wiktionary, the free dictionary.

Aggregate demand
Aggregate supply
Alpha consumer
Artificial demand
Barriers to entry
Consumer theory
Deadweight loss
Demand Forecasting
Demand shortfall
Economic surplus
Effect of taxes and subsidies on price
Elasticity
Externality
Foundations of Economic Analysis by Paul A. Samuelson
History of economic thought
Induced demand
"invisible hand"
Inverse demand function
Labor shortage
Microeconomics
Neoclassical economics
Producer's surplus
Protectionism
Profit
Rationing
Real prices and ideal prices
Say's Law
Supply shock

An Inquiry into the Nature and Causes of the Wealth of Nations by Adam
Smith

References

↑ Note that unlike most graphs, supply & demand curves are plotted
with the independent variable (price) on the vertical axis and the
dependent variable (quantity supplied or demanded) on the horizontal
axis.

↑ "Marginal Utility and Demand".

http://www.amosweb.com/cgi-bin/awb_nav.pl?s=wpd&c=dsp&k=marginal+utility+and+demand.
Retrieved 2007-02-09.

↑ Kibbe, Matthew B.. "The Minimum Wage: Washington's Perennial Myth".
Cato Institute. http://www.cato.org/pubs/pas/pa106.html. Retrieved
2007-02-09.

↑ P. Garegnani, "Heterogeneous Capital, the Production Function and
the Theory of Distribution", Review of Economic Studies, V. 37, N. 3
(Jul. 1970): 407-436

↑ Robert L. Vienneau, "On Labour Demand and Equilibria of the Firm",
Manchester School, V. 73, N. 5 (Sep. 2005): 612-619

↑ Arrigo Opocher and Ian Steedman, "Input Price-Input Quantity
Relations and the Numeraire", Cambridge Journal of Economics, V. 3
(2009): 937-948

↑ Michael Anyadike-Danes and Wyne Godley, "Real Wages and Employment:
A Sceptical View of Some Recent Empirical Work", Machester School, V.
62, N. 2 (Jun. 1989): 172-187

↑ Graham White, "The Poverty of Conventional Economic Wisdom and the
Search for Alternative Economic and Social Policies", The Drawing
Board: An Australian Review of Public Affairs, V. 2, N. 2 (Nov. 2001):
67-87

↑ Colin Rogers, Money, Interest and Capital: A Study in the
Foundations of Monetary Theory, Cambridge University Press, 1989

↑ Basij J. Moore, Horizontalists and Verticalists: The Macroeconomics
of Credit Money, Cambridge University Press, 1988

↑ Ritter, Lawrence S.authorlink1 = Lawrence S. Ritter; Silber, William
L.; Udell, Gregory F. (2000). Principles of Money, Banking, and
Financial Markets (10th edition ed.). Addison-Wesley, Menlo Park C.
pp. 431-438,465-476. ISBN 0-321-37557-2.

↑ Hosseini, Hamid S. (2003). "Contributions of Medieval Muslim
Scholars to the History of Economics and their Impact: A Refutation of
the Schumpeterian Great Gap". in Biddle, Jeff E.; Davis, Jon B.;
Samuels, Warren J.. A Companion to the History of Economic Thought.
Malden, MA: Blackwell. pp. 28–45 [28 & 38]. doi:
10.1002/9780470999059.ch3. ISBN 0631225730.

↑ 13.0 13.1 Humphrey, Thomas M. (March/April 1992). "Marshallian Cross
Diagrams and Their Uses before Alfred Marshall: The Origins of Supply
and Demand Geometry" ([dead link] – Scholar search). Economic Review.

http://www.richmondfed.org/publications/economic_research/economic_review/pdfs/er780201.pdf,.

Federal Reserve Bank of Richmond.

↑ Avi J. Cohen, "'The Laws of Returns Under Competitive Conditions':
Progress in Microeconomics Since Sraffa (1926)?", Eastern Economic
Journal, V. 9, N. 3 (Jul.-Sep.): 1983)

↑ Paul A. Samuelson, "Reply" in Critical Essays on Piero Sraffa's
Legacy in Economics (edited by H. D. Kurz) Cambridge University Press,
2000

↑ Alan Kirman, "The Intrinsic Limits of Modern Economic Theory: The
Emperor has No Clothes", The Economic Journal, V. 99, N. 395,
Supplement: Conference Papers (1989): pp. 126-139

↑ Alan P. Kirman, "Whom or What Does the Representative Individual
Represent?" Journal of Economic Perspectives, V. 6, N. 2 (Spring
1992): pp. 117-136

External links

Nobel Prize Winner Prof. William Vickrey: 15 fatal fallacies of
financial fundamentalism - A Disquisition on Demand Side Economics

"Marshallian Cross Diagrams and Their Uses before Alfred Marshall: The
Origins of Supply and Demand Geometry" by Thomas Humphrey (via the
Richmond Fed)

Supply and Demand book by Hubert D. Henderson at Project Gutenberg.

Price Theory and Applications by Steven E. Landsburg ISBN
0-538-88206-9

An Inquiry into the Nature and Causes of the Wealth of Nations, Adam
Smith, 1776 [1]

By what is the price of a commodity determined?, a brief statement of
Karl Marx's rival account [2]

The Economic Motivation of Open Source Software: Stakeholder
Perspectives, Dirk Riehle, 2007 [3]

Supply and Demand by Fiona Maclachlan and Basic Supply and Demand by
Mark Gillis, Wolfram Demonstrations Project.

http://www.bing.com/reference/semhtml/Supply_and_demand

Reference »
Wikipedia Articles

Economic equilibrium

In this article: Locations Images From the web: Images Videos

Economic equilibrium

Price of market balance:

P - price
Q - quantity of good
S - supply
D - demand
P0 - price of market balance
A - surplus of demand - when P<P0
B - surplus of supply - when P>P0

In economics, economic equilibrium is simply a state of the world
where economic forces are balanced and in the absence of external
influences the (equilibrium) values of economic variables will not
change. It is the point at which quantity demanded and quantity
supplied are equal.[1] Market equilibrium, for example, refers to a
condition where a market price is established through competition such
that the amount of goods or services sought by buyers is equal to the
amount of goods or services produced by sellers. This price is often
called the equilibrium price or market clearing price and will tend
not to change unless demand or supply change.

Properties of equilibrium

When the price is above the equilibrium point there is a surplus of
supply; where the price is below the equilibrium point there is a
shortage in supply. Different supply curves and different demand
curves have different points of economic equilibrium. In most simple
microeconomic stories of supply and demand in a market a static
equilibrium is observed in a market; however, economic equilibrium can
exist in non-market relationships and can be dynamic. Equilibrium may
also be multi-market or general, as opposed to the partial equilibrium
of a single market.

In economics, the term equilibrium is used to suggest a state of
"balance" between supply forces and demand forces. For example, an
increase in supply will disrupt the equilibrium, leading to lower
prices. Eventually, a new equilibrium will be attained in most
markets. Then, there will be no change in price or the amount of
output bought and sold — until there is an exogenous shift in supply
or demand (such as changes in technology or tastes). That is, there
are no endogenous forces leading to the price or the quantity.

Not all economic equilibria are stable. For an equilibrium to be
stable, a small deviation from equilibrium leads to economic forces
that returns an economic sub-system toward the original equilibrium.
For example, if a movement out of supply/demand equilibrium leads to
an excess supply (glut) that induces price declines which return the
market to a situation where the quantity demanded equals the quantity
supplied. If supply and demand curves intersect more than once, then
both stable and unstable equilibria are found.

Most economists (e.g. Samuelson 1947, Chapter 3, p. 52) caution
against attaching a normative meaning (value judgement) to the
equilibrium price. For example, food markets may be in equilibrium at
the same time that people are starving (because they cannot afford to
pay the high equilibrium price).

Interpretations

In most interpretations, classical economists such as Adam Smith
maintained that the free market would tend towards economic
equilibrium through the price mechanism. That is, any excess supply
(market surplus or glut) would lead to price cuts, which decrease the
quantity supplied (by reducing the incentive to produce and sell the
product) and increase the quantity demanded (by offering consumers
bargains), automatically abolishing the glut. Similarly, in an
unfettered market, any excess demand (or shortage) would lead to price
increases, reducing the quantity demanded (as customers are priced out
of the market) and increasing in the quantity supplied (as the
incentive to produce and sell a product rises). As before, the
disequilibrium (here, the shortage) disappears. This automatic
abolition of non-market-clearing situations distinguishes markets from
central planning schemes, which often have a difficult time getting
prices right and suffer from persistent shortages of goods and
services[citation needed].

This view came under attack from at least two viewpoints. Modern
mainstream economics points to cases where equilibrium does not
correspond to market clearing (but instead to unemployment), as with
the efficiency wage hypothesis in labor economics. In some ways
parallel is the phenomenon of credit rationing, in which banks hold
interest rates low to create an excess demand for loans, so they can
pick and choose whom to lend to. Further, economic equilibrium can
correspond with monopoly, where the monopolistic firm maintains an
artificial shortage to prop up prices and to maximize profits.
Finally, Keynesian macroeconomics points to underemployment
equilibrium, where a surplus of labor (i.e., cyclical unemployment) co-
exists for a long time with a shortage of aggregate demand.

On the other hand, the Austrian School and Joseph Schumpeter
maintained that in the short term equilibrium is never attained as
everyone was always trying to take advantage of the pricing system and
so there was always some dynamism in the system. The free market's
strength was not creating a static or a general equilibrium but
instead in organising resources to meet individual desires and
discovering the best methods to carry the economy forward.

Solving for equilibrium price

To solve for the equilibrium price, one must either plot the supply
and demand curves, or solve for their equations being equal.

An example may be:

In the diagram, depicting simple set of supply and demand curves, the
quantity demanded and supplied at price P are equal.

At any price above P supply exceeds demand, while at a price below P
the quantity demanded exceeds that supplied. In other words, prices
where demand and supply are out of balance are termed points of
disequilibrium, creating shortages and oversupply. Changes in the
conditions of demand or supply will shift the demand or supply curves.
This will cause changes in the equilibrium price and quantity in the
market.

Consider the following demand and supply schedule:

Price ($) Demand Supply
8.00 6,000 18,000
7.00 8,000 16,000
6.00 10,000 14,000
5.00 12,000 12,000
4.00 14,000 10,000
3.00 16,000 8,000
2.00 18,000 6,000
1.00 20,000 4,000

The equilibrium price in the market is $5.00 where demand and supply
are equal at 12,000 units

If the current market price was $3.00 – there would be excess demand
for 8,000 units, creating a shortage.

If the current market price was $8.00 – there would be excess supply
of 12,000 units.

When there is a shortage in the market we see that, to correct this
disequilibrium, the price of the good will be increased back to a
price of $5.00, thus lessening the quantity demanded and increasing
the quantity supplied thus that the market is in balance.

When there is an oversupply of a good, such as when price is above
$6.00, then we see that producers will decrease the price to increase
the quantity demanded for the good, thus eliminating the excess and
taking the market back to equilibrium.

Influences changing price

A change in equilibrium price may occur through a change in either the
supply or demand schedules. For instance, an increase in demand
through an increase level of disposable income may produce a new
demand and supply schedule, such as the following:

Price ($) Demand Supply
8.00 10,000 18,000
7.00 12,000 16,000
6.00 14,000 14,000
5.00 16,000 12,000
4.00 18,000 10,000
3.00 20,000 8,000
2.00 22,000 6,000
1.00 24,000 4,000

Here we see that an increase in disposable income would increase the
quantity demanded of the good by 4,000 units at each price. This has
the effect of changing the price at which quantity supplied equals
quantity demanded. In this case we see that the two equal each other
at an increased price of $6.00. This increase in demand would have the
effect of shifting the demand curve rightward. Note that a decrease in
disposable income would have the exact opposite effect on the
equilibrium market.

We will also see similar behaviour in price when there is a change in
the supply schedule, occurring through technological changes, or
through changes in business costs. An increase in technology or
decrease in costs would have the effect of increasing the quantity
supplied at each price, thus reducing the equilibrium price. On the
other hand, a decrease in technology or increase in business costs
will decrease the quantity supplied at each price, thus increasing
equilibrium price.

See also

Competitive equilibrium
Dynamic equilibrium
Equilibrium (disambiguation page)
General equilibrium theory
Partial equilibrium
Nash equilibrium
Labor theory of value
Price
Exchange value
Supply and demand
Microeconomics
Real prices and ideal prices
Prices of production
Law of value

References

↑ Sullivan, arthur; Steven M. Sheffrin (2003). Economics: Principles

in action. Upper Saddle River, New Jersey 07458: Pearson Prentice

Hall. pp. 125. ISBN 0-13-063085-3.

http://www.pearsonschool.com/index.cfm?
locator=PSZ3R9&PMDbSiteId=2781&PMDbSolutionId=6724&PMDbCategoryId=&PMDbProgramId=12881&level=4.

Paul A. Samuelson (1947; Expanded ed. 1983), Foundations of Economic
Analysis. Harvard University Press. ISBN 0-674-31301-1

http://www.bing.com/reference/semhtml/Economic_equilibrium

[chhotemianinshallah]

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A free market is a market without economic intervention and regulation
by government except to regulate against force or fraud. This is the
contemporary use of the terminology used by economists and in popular
culture; the term has had other uses historically. A free market
requires protection of property rights, but no regulation, no
subsidization, no single monetary system, and no governmental
monopolies. It is the opposite of a controlled market, where the
government regulates prices or how property is used.

The theory holds that within the ideal free market, property rights
are voluntarily exchanged at a price arranged solely by the mutual
consent of sellers and buyers. By definition, buyers and sellers do
not coerce each other, in the sense that they obtain each other's
property rights without the use of physical force, threat of physical
force, or fraud, nor are they coerced by a third party (such as by
government via transfer payments) [1] and they engage in trade simply
because they both consent and believe that what they are getting is
worth more than or as much as what they give up. Price is the result
of buying and selling decisions en masse as described by the theory of
supply and demand.

Free markets contrast sharply with controlled markets or regulated
markets, in which governments directly or indirectly regulate prices
or supplies, which according to free market theory causes markets to
be less efficient.[2] Where government intervention exists, the market
is a mixed economy.

In the marketplace the price of a good or service helps communicate
consumer demand to producers and thus directs the allocation of
resources toward consumer, as well as investor, satisfaction. In a
free market, price is a result of a plethora of voluntary
transactions, rather than political decree as in a controlled market.
Through free competition between vendors for the provision of products
and services, prices tend to decrease, and quality tends to increase.
A free market is not to be confused with a perfect market where
individuals have perfect information and there is perfect competition.

Free market economics is closely associated with laissez-faire
economic philosophy, which advocates approximating this condition in
the real world by mostly confining government intervention in economic
matters to regulating against force and fraud among market
participants. Some free market advocates oppose taxation as well,
claiming that the market is more efficient at providing all valuable
services of which defense and law are no exception, that such services
can be provided without direct taxation and that consent would be the
basis of political legitimacy making it a morally consistent system.
Anarcho-capitalists, for example, would substitute arbitration
agencies and private defense agencies.

In social philosophy, a free market economy is a system for allocating
goods within a society: purchasing power mediated by supply and demand
within the market determines who gets what and what is produced,
rather than the state. Early proponents of a free-market economy in
18th century Europe contrasted it with the medieval, early modern, and
mercantilist economies which preceded it.

Supply and demand

Main article: Supply and demand

Supply and demand are always equal as they are the two sides of the
same set of transactions, and discussions of "imbalances" are a
muddled and indirect way of referring to price.[3] However, in an
unmeasurable qualitative sense, demand for an item (such as goods or
services) refers to the market pressure from people trying to buy it.
They will "bid" money for the item, while sellers offer the item for
money. When the bid matches the offer, a transaction can easily occur
(even automatically, as in a typical stock market). In reality, most
shops and markets do not resemble the stock market, and there are
significant costs and barriers to "shopping around" (comparison
shopping).

When demand exceeds supply, suppliers can raise the price, but when
supply exceeds demand, suppliers will have to decrease the price in
order to make sales. Consumers who can afford the higher prices may
still buy, but others may forgo the purchase altogether, demand a
better price, buy a similar item, or shop elsewhere. As the price
rises, suppliers may also choose to increase production. Or more
suppliers may enter the business.

Gourmet coffee and electronics as examples of market forces in
economics
For example, the gourmet coffee business, pioneered in the US by
Starbucks, revealed a demand for high quality fresh coffee. Further,
the Starbucks sales growth showed that consumers would pay
significantly more for this type of coffee. Other food service
retailers, such as McDonald's, Sonic, and Burger King, began offering
such coffee to help satisfy the demand.

Increased supply can indirectly result in lower prices, particularly
with computers and other electronic devices. Mass production
techniques have been steadily reducing prices 20 to 30% per year since
the 1960s.[citation needed] The functions of a multi-million dollar
mainframe computer in the 1960s could be performed by a $100 computer
in the 2000s.

Spontaneous order or "Invisible hand"

Main articles: Invisible hand and Spontaneous order

Friedrich Hayek argues for the classical liberal view that market
economies allow spontaneous order; that is, "a more efficient
allocation of societal resources than any design could achieve."[4]
According to this view, in market economies sophisticated business
networks are formed which produce and distribute goods and services
throughout the economy. This network was not designed, but emerged as
a result of decentralized individual economic decisions. Supporters of
the idea of spontaneous order trace their views to the concept of the
invisible hand proposed by Adam Smith in The Wealth of Nations who
said that the individual who:

"intends only his own gain is led by an invisible hand to promote an

end which was no part of his intention. Nor is it always the worse for

society that it was no part of it. By pursuing his own interest [an
individual] frequently promotes that of the society more effectually

than when he really intends to promote it. I have never known much

good done by those who affected to trade for the [common]
good." (Wealth of Nations)

Smith pointed out that one does not get one's dinner by appealing to
the brother-love of the butcher, the farmer or the baker. Rather one
appeals to their self interest, and pays them for their labour.

“ It is not from the benevolence of the butcher, the brewer or the
baker, that we expect our dinner, but from their regard to their own
self interest. We address ourselves, not to their humanity but to
their self-love, and never talk to them of our own necessities but of
their advantages."[5] ”

Supporters of this view claim that spontaneous order is superior to
any order that does not allow individuals to make their own choices of
what to produce, what to buy, what to sell, and at what prices, due to
the number and complexity of the factors involved. They further
believe that any attempt to implement central planning will result in
more disorder, or a less efficient production and distribution of
goods and services.

Economic equilibrium

Main article: Economic equilibrium

General equilibrium theory has demonstrated, with varying degrees of
mathematical rigor over time, that under certain conditions of
competition, the law of Supply and Demand predominates in this ideal
free and competitive market, influencing prices toward an equilibrium
that balances the demands for the products against the supplies.[6][7]
At these equilibrium prices, the market distributes the products to
the purchasers according to each purchaser's preference (or utility)
for each product and within the relative limits of each buyer's
purchasing power. This result is described as market efficiency, or
more specifically a Pareto optimum.

This equilibrating behavior of free markets requires certain
assumptions about their agents, collectively known as Perfect
Competition, which therefore cannot be results of the market that they
create. Among these assumptions are complete information,
interchangeable goods and services, and lack of market power, that
obviously cannot be fully achieved. The question then is what
approximations of these conditions guarantee approximations of market
efficiency, and which failures in competition generate overall market
failures. Several Nobel Prizes in Economics have been awarded for
analyses of market failures due to asymmetric information.

Some models in econophysics[8] have shown that when agents are allowed
to interact locally in a free market (ie. their decisions depend not
only on utility and purchasing power, but also on their peers'
decisions), prices can become unstable and diverge from the
equilibrium, often in an abrupt manner.The behavior of the free market
is thus said to be non-linear (a pair of agents bargaining for a
purchase will agree on a different price than 100 identical pairs of
agents doing the identical purchase). Speculation bubbles and the type
of herd behavior often observed in stock markets are quoted as real
life examples of non-equilibrium price trends. Laissez-faire free-
market advocates, especially Austrian school followers, often dismiss
this endogenous theory, and blame external influences, such as
weather, commodity prices, technological developments, and government
meddling for non-equilibrium prices.

Distribution of wealth

Main article: Distribution of wealth

The distribution of purchasing power in an economy depends to a large
extent on the nature of government intervention, social class, labor
and financial markets, but also on other, lesser factors such as
family relationships, inheritance, gifts and so on. Many theories
describing the operation of a free market focus primarily on the
markets for consumer products, and their description of the labor
market or financial markets tends to be more complicated and
controversial. The free market can be seen as facilitating a form of
decision-making through what is known as dollar voting, where a
purchase of a product is tantamount to casting a vote for a producer
to continue producing that product.

The effect of economic freedom on society's and individuals' wealth
remains a subject of controversy. Kenneth Arrow and Gerard Debreu have
shown that under certain idealized conditions, a system of free trade
leads to Pareto efficiency, but the traditional Arrow-Debreu paradigm
within economics is now being challenged by the new Greenwald-Stiglitz
paradigm (1986)[9]. Many advocates of free markets, most notably
Milton Friedman, have also argued that there is a direct relationship
between economic growth and economic freedom, though this assertion is
much harder to prove empirically, as the continuous debates among
scholars on methodological issues in empirical studies of the
connection between economic freedom and economic growth clearly
indicate:[10][11][12]. "there were a few attempts to study
relationship between growth and economic freedom prior to the very
recent availability of the Fraser data. These were useful but had to
use incomplete and subjective variables"[13]. Joshua Epstein and
Robert Axtell have attempted to predict the properties of free markets
empirically in the agent-based computer simulation "Sugarscape". They
came to the conclusion that, again under idealized conditions, free
markets lead to a Pareto distribution of wealth[8] .

On the other hand more recent research, especially the one led by
Joseph Stiglitz seems to contradict Friedman's conclusions. According
to Boettke:

Once incomplete and imperfect information are introduced, Chicago-
school defenders of the market system cannot sustain descriptive
claims of the Pareto efficiency of the real world. Thus, Stiglitz's
use of rational-expectations equilibrium assumptions to achieve a more
realistic understanding of capitalism than is usual among rational-
expectations theorists leads, paradoxically, to the conclusion that
capitalism deviates from the model in a way that justifies state
action--socialism--as a remedy.[14]

Laissez-faire economics

Main article: Laissez-faire economics

The necessary components for the functioning of an idealized free
market include the complete absence of artificial price pressures from
taxes, subsidies, tariffs, or government regulation (other than
protection from coercion and theft, and no government-granted
monopolies (usually classified as coercive monopoly by free market
advocates) like the United States Post Office, Amtrak, arguably
patents, etc.

Deregulation

Main article: Deregulation

In an absolutely free-market economy, all capital, goods, services,
and money flow transfers are unregulated by the government except to
stop collusion or fraud that may take place among market participants.
[citation needed] As this protection must be funded, such a government
taxes only to the extent necessary to perform this function, if at
all. This state of affairs is also known as laissez-faire.
Internationally, free markets are advocated by proponents of economic
liberalism; in Europe this is usually simply called liberalism. In the
United States, support for free market is associated most with
libertarianism. Since the 1970s, promotion of a global free-market
economy, deregulation and privatization, is often described as
neoliberalism. The term free market economy is sometimes used to
describe some economies that exist today (such as Hong Kong), but pro-
market groups would only accept that description if the government
practices laissez-faire policies, rather than state intervention in
the economy.[specify] An economy that contains significant economic
interventionism by government, while still retaining some
characteristics found in a free market is often called a mixed
economy.

Low barriers to entry

A free market does not require the existence of competition, however
it does require that there are no barriers to new market entrants.
Hence, in the lack of coercive barriers it is generally understood
that competition flourishes in a free market environment. It often
suggests the presence of the profit motive, although neither a profit
motive or profit itself are necessary for a free market. All modern
free markets are understood to include entrepreneurs, both individuals
and businesses. Typically, a modern free market economy would include
other features, such as a stock exchange and a financial services
sector, but they do not define it.

Legal tender and taxes

In a truly free market economy, money would not be monopolized by
legal tender laws or by a central bank, in order to receive taxes from
the transactions or to be able to issue loans.[citation needed]
Minarchists (advocates of minimal government) contend that the so
called "coercion" of taxes is essential for the market's survival, and
a market free from taxes may lead to no market at all. By definition,
there is no market without private property, and private property can
only exist while there is an entity that defines and defends it.
Traditionally, the State defends private property and defines it by
issuing ownership titles, and also nominates the central authority to
print or mint currency. "Free market anarchists" disagree with the
above assessment – they maintain that private property and free
markets can be protected by voluntarily-funded services under the
concept of individualist anarchism and anarcho-capitalism[15][16]. A
free market could be defined alternatively as a tax-free market,
independent of any central authority, which uses as medium of exchange
such as money, even in the absence of the State. It is disputed,
however, whether this hypothetical stateless market could function.

Ethical justification

The ethical justification of free markets takes two forms. One appeals
to the intrinsic moral superiority of autonomy and freedom (in the
market), see deontology. The other is a form of consequentialism—a
belief that decentralised planning by a multitude of individuals
making free economic decisions produces better results in regard to a
more organized, efficient, and productive economy, than does a
centrally-planned economy where a central agency decides what is
produced, and allocates goods by non-price mechanisms. An older
version of this argument is the metaphor of the Invisible Hand,
familiar from the work of Adam Smith.

Modern theories of self-organization say the internal organization of
a system can increase automatically without being guided or managed by
an outside source. When applied to the market, as an ethical
justification, these theories appeal to its intrinsic value as a self-
organising entity. Other philosophies such as some forms of
Individualist anarchism (especially that of that 19th century) and
Mutualism (economic theory) anarchism believe that in a free market
competition would cause prices of goods and services to align with the
labor embodied in those things. This goes against the contemporary
mainstream view, which is held by most contemporary individualist
anarchists, that prices would accord to the marginal utility of these
things irrespective of the labor embodied in them.

Index of economic freedom

The Heritage Foundation, a conservative think tank, tried to identify
the key factors which allow to measure the degree of freedom of
economy of a particular country. In 1986 they introduced Index of
Economic Freedom, which is based on some fifty variables. This and
other similar indices do not define a free market, but measure the
degree to which a modern economy is free, meaning in most cases free
of state intervention. The variables are divided into the following
major groups:

Trade policy,
Fiscal burden of government,
Government intervention in the economy,
Monetary policy,
Capital flows and foreign investment,
Banking and finance,
Wages and prices,
Property rights,
Regulation, and Informal market activity.

Each group is assigned a numerical value between 1 and 5; IEF is the
arithmetical mean of the values, rounded to the hundredth. Initially,
countries which were traditionally considered capitalistic received
high ratings, but the method improved over time. Some economists, like
Milton Friedman and other Laissez-faire economists have argued that
there is a direct relationship between economic growth and economic
freedom, but this assertion has not been proven yet, both
theoretically and empirically. Continuous debates among scholars on
methodological issues in empirical studies of the connection between
economic freedom and economic growth still try to find out what is the
relationship, if any.[10][11][12].[13].

"In recent years a significant amount of work has been devoted to the
investigation of a possible connection between the political system
and economic growth. For a variety of reasons there is no consensus
about that relationship, especially not about the direction of
causality, if any." (AYAL & KARRAS, 1998, p.2)[13]

History and ideology

The meaning of "free" market has varied over time and between
economists, the ambiguous term "free" facilitating reuse. To
illustrate the ambiguity: classical economists such as Adam Smith
believed that an economy should be free of monopoly rents, while
proponents of laissez faire believe that people should be free to form
monopolies. In this article "free market" is largely identified with
laissez faire, though alternative senses are discussed in this section
and in criticism.

Some theorists might argue that a free market is a natural form of
social organization, and that a free market will arise in any society
where it is not obstructed (ie Ludwig von Mises, Hayek). The consensus
among economic historians is that the free market economy is a
specific historic phenomenon, and that it emerged in late medieval and
early-modern Europe.[citation needed] Other economic historians see
elements of the free market in the economic systems of Classical
Antiquity,[citation needed] and in some non-western societies.
[citation needed] By the 19th century the market certainly had
organized political support, in the form of laissez-faire liberalism.
However, it is not clear if the support preceded the emergence of the
market or followed it. Some historians see it as the result of the
success of early liberal ideology, combined with the specific
interests of the entrepreneur.

Support for the free market as an ordering principle of society is
above all associated with liberalism, especially during the 19th
century. (In Europe, the term 'liberalism' retains its connotation as
the ideology of the free market, but in American and Canadian usage it
came to be associated with government intervention, and acquired a
pejorative meaning for supporters of the free market.) Later
ideological developments, such as minarchism, libertarianism and
Objectivism also support the free market, and insist on its pure form.
Although the Western world shares a generally similar form of economy,
usage in the United States and Canada is to refer to this as
capitalism, while in Europe 'free market' is the preferred neutral
term. Modern liberalism (American and Canadian usage), and in Europe
social democracy, seek only to mitigate the problems of an
unrestrained free market, and accept its existence as such.

Classical economics

In the classical economics of such figures as Adam Smith and David
Ricardo, "free markets" meant "free of unnecessary charges"[17] and a
"market free from monopoly power, business fraud, political insider
dealing and special privileges for vested interests".[18] A "free
market" particularly meant one free of foreign debt;[19] as discussed
in The Wealth of Nations.[20] Alternatively, stated, it was a market
freed from Feudalism and serfdom, or more formally, one free of
economic rent, in the formulation by David Ricardo of the Law of Rent.

Marxism

In Marxist theory, the idea of the free market simply expresses the
underlying long-term transition from feudalism to capitalism. Note
that the views on this issue - emergence or implementation - do not
necessarily correspond to pro-market and anti-market positions.
Libertarians would dispute that the market was enforced through
government policy, since they believe it is a spontaneous order and
Marxists agree with them because they as well believe it is
evolutionary, although with a different end.

Liberalism

Support for the free market as an ordering principle of society is
above all associated with liberalism, especially during the 19th
century. (In Europe, the term 'liberalism' retains its connotation as
the ideology of the free market, but in American and Canadian usage it
came to be associated with government intervention, and acquired a
pejorative meaning for supporters of the free market.) Later
ideological developments, such as minarchism, libertarianism and
Objectivism also support the free market, and insist on its pure form.
Although the Western world shares a generally similar form of economy,
usage in the United States and Canada is to refer to this as
capitalism, while in Europe 'free market' is the preferred neutral
term. Modern liberalism (American and Canadian usage), and in Europe
social democracy, seek only to mitigate what they see as the problems
of an unrestrained free market, and accept its existence as such.

To most libertarians, there is simply no free market yet, given the
degree of state intervention in even the most 'capitalist' of
countries. From their perspective, those who say they favor a "free
market" are speaking in a relative, rather than an absolute, sense—
meaning (in libertarian terms) they wish that coercion be kept to the
minimum that is necessary to maximize economic freedom (such necessary
coercion would be taxation, for example) and to maximize market
efficiency by lowering trade barriers, making the tax system neutral
in its influence on important decisions such as how to raise capital,
e.g., eliminating the double tax on dividends so that equity financing
is not at a disadvantage vis-a-vis debt financing. However, there are
some such as anarcho-capitalists who would not even allow for taxation
and governments, instead preferring protectors of economic freedom in
the form of private contractors.

Criticism

Critics dispute the claim that in practice free markets create perfect
competition, or even increase market competition over the long run.
Whether the marketplace should be or is free is disputed; many assert
that government intervention is necessary to remedy market failure
that is held to be an inevitable result of absolute adherence to free
market principles. These failures range from military services to
roads, and some would argue, to health care. This is the central
argument of those who argue for a mixed market, free at the base, but
with government oversight to control social problems.

Another criticism is definitional, in that far-ranging governmental
actions such as the creation of corporate personhood or more broadly,
the governmental actions behind the very creation of artificial legal
entities called corporations, are not considered "intervention" within
mainstream economic schools. This inherent definitional bias allows
many to advocate strong governmental actions that promote corporate
power, while advocating against government actions limiting it, while
putting these dual positions under the umbrella of "pro free markets"
or "anti-intervention."

Critics of laissez-faire since Adam Smith[21] variously see the
unregulated market as an impractical ideal or as a rhetorical device
that puts the concepts of freedom and anti-protectionism at the
service of vested wealthy interests, allowing them to attack labor
laws and other protections of the working classes.[22]

Because no national economy in existence fully manifests the ideal of
a free market as theorized by economists, some critics of the concept
consider it to be a fantasy - outside of the bounds of reality in a
complex system with opposing interests and different distributions of
wealth.

These critics range from those who reject markets entirely, in favour
of a planned economy or a communal economy, such as that advocated by
Marxism, to those who merely wish to see market failures regulated to
various degrees or supplemented by certain government interventions.
For example, Keynesians recognize a role for government in providing
corrective measures, such as use of fiscal policy for economy
stimulus, when decisions in the private sector lead to suboptimal
economic outcomes, such as depression or recession, which manifest in
widespread hardship.

Externalities

One practical objection is the claim that markets do not take into
account externalities (effects of transactions that affect third
parties), such as the negative effects of pollution or the positive
effects of education. What exactly constitutes an externality may be
up for debate, including the extent to which it changes based upon the
political climate.

Some proponents of market economies believe that governments should
not diminish market freedom because they disagree on what is a market
externality and what are government-created externalities, and
disagree over what the appropriate level of intervention is necessary
to solve market-created externalities. Others believe that government
should intervene to prevent market failure while preserving the
general character of a market economy. In the model of a social market
economy the state intervenes where the market does not meet political
demands. John Rawls was a prominent proponent of this idea.

Differing Ideas of the Free Market

Some advocates of free market ideologies have criticized mainstream
conceptions of the free market, arguing that a truly free market would
not resemble the modern-day capitalist economy. For example,
contemporary mutualist Kevin Carson argues in favor of "free market
anti-capitalism." Carson has stated that "From Smith to Ricardo and
Mill, classical liberalism was a revolutionary doctrine that attacked
the privileges of the great landlords and the mercantile interests.
Today, we see vulgar libertarians perverting "free market" rhetoric to
defend the contemporary institution that most closely resembles, in
terms of power and privilege, the landed oligarchies and mercantilists
of the Old Regime: the giant corporation." [23]

Carson believes that a true free market society would be "[a] world in
which... land and property [is] widely distributed, capital [is]
freely available to laborers through mutual banks, productive
technology [is] freely available in every country without patents, and
every people [is] free to develop locally without colonial
robbery..."[24]

Martin J. Whitman

Not all advocates of capitalism consider free markets to be practical.
For example, Martin J. Whitman has written, in a discussion of Keynes,
Friedman and Hayek, that these "…great economists…missed a lot of
details that are part and parcel of every value investor's daily
life." While calling Hayek "100% right" in his critique of the pure
command economy, he writes "However, in no way does it follow, as many
Hayek disciples seem to believe, that government is per se bad and
unproductive while the private sector is, per se good and productive.
In well-run industrial economies, there is a marriage between
government and the private sector, each benefiting from the other." As
illustrations of this, he points at "Japan after World War II,
Singapore and the other Asian Tigers, Sweden and China. The notable
exception is Hong Kong which found prosperity on an extremely austere
free market concept.

He argues, in particular, for the value of government-provided credit
and of carefully crafted tax laws.[25] Further, Whitman argues
(explicitly against Hayek) that "a free market situation is probably
also doomed to failure if there exist control persons who are not
subject to external disciplines imposed by various forces over and
above competition." The lack of these disciplines, says Whitman, lead
to "1. Very exorbitant levels of executive compensation… 2. Poorly
financed businesses with strong prospects for money defaults on credit
instruments… 3. Speculative bubbles… 4. Tendency for industry
competition to evolve into monopolies and oligopolies… 5. Corruption."
For all of these he provides recent examples from the U.S. economy,
which he considers to be in some respects under-regulated,[25]
although in other respects over-regulated (he is generally opposed to
Sarbanes-Oxley).[26]

He believes that an apparently "free" relationship—that between a
corporation and its investors and creditors—is actually a blend of
"voluntary exchanges" and "coercion". For example, there are
"voluntary activities, where each individual makes his or her own
decision whether to buy, sell, or hold" but there are also what he
defines as "[c]oercive activities, where each individual security
holder is forced to go along…provided that a requisite majority of
other security holders so vote…" His examples of the latter include
proxy voting, most merger and acquisition transactions, certain cash
tender offers, and reorganization or liquidation in bankruptcy.[27]
Whitman also states that "Corporate America would not work at all
unless many activities continued to be coercive."[28]

"I am one with Professor Friedman that, other things being equal, it
is far preferable to conduct economic activities through voluntary
exchange relying on free markets rather than through coercion. But
Corporate America would not work at all unless many activities
continued to be coercive."[29]

See also

Adam Smith

Anarcho-capitalism
An Austrian Perspective on the History of Economic Thought
Austrian School
Capitalism
Economic liberalism
Economics
Free-market anarchism
Free-market environmentalism
Free market healthcare
Free-market roads
Free Market Socialism
Free price system
Free trade
Friedrich Hayek
Game theory
History of theory of capitalism
Libertarianism
Ludwig von Mises
Market economy
Milton Friedman
Minarchism
Murray Rothbard
Night watchman state
Non-profit organization
Nash equilibrium
Open Source Initiative
Political Economy
School of Salamanca
Self-organization
Transparency (market)
Underground economy
Voluntaryism

Contrast

Communism
Freidrich Engels
Gift economy
Inclusive Democracy
Karl Marx
Leninism
Libertarian socialism
Limited liability
Maoism
Market abolitionism
Market socialism
Marxism
Mixed economy
Participatory economy
Planned economy
Quasi-market
Socialism
Statism
Subsistence economy
Trotskyism

Footnotes

↑ "Free Market." Rothbard, Murray. The Concise Encyclopedia of
Economics

↑ Dictionary of Finance and Investment Terms. Barrons, 1995

↑ http://www.donsheelen.org/page14.aspx

↑ Hayek cited. Petsoulas, Christian. Hayek's Liberalism and Its
Origins: His Idea of Spontaneous Order and the Scottish Enlightenment.
Routledge. 2001. p. 2

↑ Smith, Adam. "2". Wealth of Nations.

http://www.econlib.org/LIBRARY/Smith/smWN1.html#B.I%2C%20Ch.2%2C%20Of%20the%20Principle%20which%20gives%20Occasion%20to%20the%20Division%20of%20Labour%2C%20benevolence.
Retrieved 2007-12-08.

↑ , by Eugene Walras

↑ Theory of Value, by Gerard Debreu

↑ 8.0 8.1 Critical Mass - Ball, Philip, ISBN 0-09-945786-5

↑ GREENWALD, Bruce and STIGLITZ, Joseph E. 1986 Externalities in
Economies with Imperfect Information and Incomplete Markets, Quarterly
Journal of Economics, no. 90.

↑ 10.0 10.1 COLE, Julio H. and LAWSON, Robert A. Handling Economic
Freedom in Growth Regressions: Suggestions for Clarification. Econ
Journal Watch, Volume 4, Number 1, January 2007, pp 71–78.

↑ 11.0 11.1 DE HAAN, Jacob and STURM, Jan-Egbert. How to Handle
Economic Freedom: Reply to Lawson. Econ Journal Watch, Volume 3,
Number 3, September 2006, pp 407–411.

↑ 12.0 12.1 DE HAAN, Jacob and STURM, Jan-Egbert. Handling Economic
Freedom in Growth Regressions: A Reply to Cole and Lawson. Econ
Journal Watch, Volume 4, Number 1, January 2007, pp 79–82.

↑ 13.0 13.1 13.2 AYAL, Eliezer B. and KARRAS, Georgios. Components of
Economic Freedom and Growth. Journal of Developing Areas, Vol.32, No.
3, Spring 1998, 327-338. Publisher: Western Illinois University.

↑ BOETTKE, Peter J. What Went Wrong with Economics?, Critical Review
Vol. 11, No. 1, P. 35. p. 58

↑ Biography of Murray N. Rothbard (1926–1995)

↑ The Machinery of Freedom

↑ The Fictitious Economy, Part 1, An Interview With Dr. Michael
Hudson, by Bonnie Faulkner with Michael Hudson, 07/15/2008

↑ This interpretation is advanced in The Language of Looting, Michael
Hudson

↑ The Financial War Against Iceland, Michael Hudson

↑ The Wealth of Nations, Adam Smith, Book V, Chapter 3: of Public
Debts

↑ "People of the same trade seldom meet together, even for merriment
and diversion, but the conversation ends in a conspiracy against the
public, or in some contrivance to raise prices."--Wealth of Nations,
I.x.c.27 (Part II)

↑ "Masters are always and everywhere in a sort of tacit, but constant
and uniform combination, not to raise the wages of labour above their
actual rate… [When workers combine,] masters… never cease to call

aloud for the assistance of the civil magistrate, and the rigorous
execution of those laws which have been enacted with so much severity

against the combinations of servants, labourers, and journeymen."--
Adam Smith, Wealth of Nations, I.viii.13

↑ Kevin Carson, Naomi Klein: The Shock Doctrine November 7, 2007

↑ Kevin Carson, The Iron Fist Behind the Invisible Hand: Corporate
Capitalism as a State-Guaranteed System of Privilege

↑ 25.0 25.1 Kevin Carson, The Iron Fist Behind the Invisible Hand:
Corporate Capitalism as a State-Guaranteed System of Privilege, p. 4

↑ Martin J. Whitman, Third Avenue Value Fund Letters to our
Shareholders July 31, 2004 (PDF), page 2.

↑ Martin J. Whitman, Third Avenue Value Fund Letters to our
Shareholders July 31, 2004 (PDF), page 5.

↑ Martin J. Whitman, Third Avenue Value Fund letter to shareholders
October 31, 2005. p.6.

↑ Martin J. Whitman, Third Avenue Value Fund letter to shareholders
October 31, 2005. p.5-6.

References

AYAL, Eliezer B. and KARRAS, Georgios. Components of Economic Freedom
and Growth.

Journal of Developing Areas, Vol.32, No.3, Spring 1998, 327-338.
Publisher: Western Illinois University.

BOETTKE, Peter J. What Went Wrong with Economics?, Critical Review
Vol. 11, No. 1, P. 35. p. 58

Stiglitz, Joseph. 1994. Whither Socialism? Cambridge, Mass.: MIT
Press.

External links

Free Market by Murray N. Rothbard

Mises.org is the official website of the Ludwig von Mises Institute
for Austrian economics and classical liberalism

Foundation for Economic Education one of the oldest organizations
promoting classical liberalism and free markets

Free Enterprise: The Economics of Cooperation Looks at how
communication, coordination and cooperation interact to make free
markets work

Fair versus Free by Milton Friedman

Freedom to Work, to Earn, & to Buy by Harry Browne

The Tradition of Spontaneous Order,

http://www.bing.com/reference/semhtml/Free_market

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v • [[|d]] • e

In economics, laissez-faire (English pronunciation: /ˌlɛseɪˈfɛər/
( listen), French: [lɛsefɛʁ] ( listen)) means allowing industry to be
free of government restriction, especially restrictions in the form of
tariffs and government monopolies. The phrase is French and literally
means "let do", though it broadly implies "let it be" or "leave it
alone".

Economic and political theory

Main article: Free market

The exact origins of the term laissez-faire as a slogan for economic
liberalism are uncertain. The first recorded use of the "laissez-
faire" maxim was by French minister René de Voyer, Marquis d'Argenson,
a champion of free trade, in his famous outburst:[1]

“ Laissez faire, telle devrait être la devise de toute puissance
publique, depuis que le monde est civilisé . . . Détestable principe
que celui de ne vouloir grandir que par l'abaissement de nos voisins!
Il n'y a que la méchanceté et la malignité du coeur de satisfaites
dans ce principe, et l’intérêt y est opposé. Laissez faire, morbleu!
Laissez faire!!

(Let it be, such should be the motto of every public power, ever since
the world is civilized . . . A detestable principle that we cannot
grow but by the lowering of our neighbors! There is nothing but
mischief and malignity of heart that are satisfied with that
principle, and interest is opposed to it. Let it be, damn it! Let it
be!!) ”

According to historical folklore, the phrase stems from a meeting c.
1680 between the powerful French finance minister Jean-Baptiste
Colbert and a group of French businessmen led by a certain M. Le
Gendre. When the eager mercantilist minister asked how the French
state could be of service to the merchants, Le Gendre replied simply
"Laissez-nous faire" ('Leave us be', lit. 'Let us do').[2]

The laissez faire slogan was popularised by Vincent de Gournay, a
French intendant of commerce in the 1750s. Gournay was an ardent
proponent of the removal of restrictions on trade and the deregulation
of industry and economic prosperity in France. Gournay was delighted
by the LeGendre anecdote, and forged it into a larger maxim all his
own: "Laissez faire et laissez passer" ('Let do and let pass'). His
motto has also been identified as the longer "Laissez faire et laissez
passer, le monde va de lui même!" ('Let do and let pass, the world
goes on by itself!'). Although Gournay left no written tracts on his
economic policy ideas, he had immense personal influence on the
thinking of his contemporaries, notably the physiocrats, who credit
both the 'laissez-faire' slogan and doctrine to Gournay.[3]

Prior to Gournay, P.S. de Boisguilbert, had enunciated the phrase "on
laisse faire la nature" ('let nature run its course').[4] Laissez-
faire was one of a number of French "free trade" and "non-
interference" slogans coined in the seventeenth century. D'Argenson,
during this time, was better known for the similar but less-celebrated
motto "Pas trop gouverner" ("Govern not too much").[5]

The first known English-language use of "laissez faire" was in 1774,
by George Whatley, in the book Principles of Trade, which was co-
authored with Benjamin Franklin. Notably, classical economists, such
as Thomas Malthus, Adam Smith[6] and David Ricardo, did not use the
term. Jeremy Bentham used the term, but only with the advent of the
Anti-Corn Law League did the term receive much of its (English)
meaning.[7] Nonetheless, it was probably James Mill's reference to the
"laissez-faire" maxim (together with "pas trop gouverner") in an 1824
entry for Encyclopedia Britannica that really brought the term into
wider English usage.

Adam Smith first used the metaphor of an "invisible hand" in his book
The Theory of Moral Sentiments to describe the unintentional effects
of economic self organization from economic self interest.[8] Some
have characterized this metaphor as one for laissez-faire,[9] but
Smith himself never used the term laissez-faire, and likely intended
something somewhat different.[6]

History of laissez-faire debate

China

During the Han, Tang, Song, and Ming dynasties, Chinese scholar-
officials would often debate about the interference the government
should have in the economy, such as setting monopolies in lucrative
industries and instating price controls. Such debates were often
heated. During the Han and Tang, emperors sometimes instated
government monopolies in times of war, and abolished them later when
the fiscal crisis had passed. Eventually, in the later Song and Ming
dynasties, state monopolies were abolished in every industry and were
never reinstated during the length of that dynasty. During the dynasty
of Qing, founded by an ethnic group in northern China, state
monopolies were reinstated.[10]

Europe

In Britain, in 1843, the newspaper The Economist was founded, and
became an influential voice for laissez-faire capitalism.[11] In
response to the Irish famine of 1846-1849, in which a million and a
half people died of starvation, they argued that for the government to
supply free food for the Irish would violate natural law. Clarendon,
the Lord Lieutenant of Ireland, wrote, "I don't think there is another
legislature in Europe that would disregard such suffering."[12] The
group calling itself the Manchester Liberals, to which Richard Cobden
and Richard Wright belonged, were staunch defenders of free trade, and
their work was carried on, after the death of Richard Cobden in 1866,
by the The Cobden Club.[13] In 1867, a free trade treaty was signed
between Britain and France, after which several of these treaties were
signed among other European countries.

British laissez-faire was not absolute. The United Kingdom company law,
[14] the Limited Liability Act 1855, and the Joint Stock Companies Act
1856 were exceptions.

Austrian scholars consider that laissez-faire was never the main
doctrine of any nation, and at the end of the 19th century, European
countries would find themselves taking up economic protectionism and
interventionism again. France for example, started cancelling its free
trade agreements with other European countries in 1890. Germany's
protectionism started (again) with a December 1878 letter from
Bismarck, resulting in the iron and rye tariff of 1879.

United States

The Federal reserve, headquarters in Eccles Building is criticized by
laissez-faireists as the cause of business cycles.Although the period
before the New Deal was notable for the limited extent of the federal
government, the Austrian School suggest that there was a considerable
degree of government intervention in the economy—particularly after
the 1860s. Notable examples of government intervention in the period
prior to the Civil War include the establishment of the First Bank of
the United States and Second Bank of the United States as well as
various protectionist measures (e.g., the tariff of 1828). Several of
these proposals met with serious opposition, and required a great deal
of horse trading to be enacted into law. For instance, the First
National Bank would not have reached the desk of President George
Washington in the absence of an agreement that was reached between
Alexander Hamilton and several southern members of Congress to locate
the capital in the District of Columbia. In contrast to Hamilton and
the Federalists was the opposing political party the Democratic-
Republicans.

Most of the early opponents of laissez-faire capitalism in the United
States subscribed to the American School (economics). This school of
thought was inspired by the ideas of Alexander Hamilton, who proposed
the creation of a government sponsored bank and increased tariffs to
favor northern industrial interests. Following Hamilton's death, the
more abiding protectionist influence in the antebellum period came
from Henry Clay and his American System.

In the mid-19th century, the United States followed the Whig tradition
of economic liberalism, which included increased state control,
regulation and macroeconomic development of infrastructure.[15] Public
works such as the provision and regulation transportation such as
railroads took effect. The Pacific Railway Acts provided the
development of the First Transcontinental Railroad.[15] In order to
help pay for its war effort in the American Civil War, the United
States government imposed its first personal income tax, on August 5,
1861, as part of the Revenue Act of 1861 (3% of all incomes over US
$800; rescinded in 1872).

Following the Civil War, the movement towards a mixed economy
accelerated with even more protectionism and government regulation. In
the 1880s and 1890s, significant tariff increases were enacted (see
the McKinley Tariff and Dingley Tariff). Moreover, with the enactment
of the Interstate Commerce Act of 1887, the Sherman Anti-trust Act,
the federal government began to assume an increasing role in
regulating and directing the country's economy.

The Progressive Era saw the enactment of even more controls on the
economy, as evidenced by the Wilson Administration's New Freedom
program.

Following World War I and the Great Depression, Keynesian policies
turned the state into a mixed economy. The United States, in the
1980s, for example, sought to protect its automobile industry by
"voluntary" export restrictions from Japan.[16] Pietro S. Nivola wrote
in 1986:

“ By and large, the comparative strength of the dollar against major
foreign currencies has reflected high U.S. interest rates driven by
huge federal budget deficits. Hence, the source of much of the current
deterioration of trade is not the general state of the economy, but
rather the government's mix of fiscal and monetary policies– that is,
the problematic juxtaposition of bold tax reductions, relatively tight
monetary targets, generous military outlays, and only modest cuts in
major entitlement programs. Put simply, the roots of the trade problem
and of the resurgent protectionism it has fomented are fundamentally
political as well as economic.[17] ”

Ayn Rand, the author of Atlas Shrugged, which has been ranked by
Reader's Digest as the most influential book in America following the
Bible, was a self-identified radical for a "full, pure, uncontrolled,
unregulated laissez-faire capitalism—-with a separation of state and
economics, in the same way and for the same reasons as the separation
of state and church".

See also

Look up laissez faire in Wiktionary, the free dictionary.

Anarcho-capitalism
Capitalism
Capitalism: The Unknown Ideal by Ayn Rand
Classical liberalism
Criticisms of capitalism
Economic liberalism
Free market
Libertarianism
Market anarchism
Market fundamentalism
Minarchism
Objectivism
Ordoliberalism

References

↑ From d'Argenson's 1736 Memoires (publ.1858), as quoted in J.M.
Keynes, 1927, "The End of Laissez Faire". A. Oncken (Die Maxime
Laissez faire et laissez passer, ihr Ursprung, ihr Werden, 1866)
indicates d'Argenson used the 'laissez-faire' term firstly in his 1736
Memoires and then in an article in the 1751 Journal Oeconomique (the
term's first known appearance in print).

↑ The anecdote on Le Gendre is briefly referenced in J. Turgot's
"Eloge de Vincent de Gournay," Mercure, August, 1759).

↑ Gournay was credited with the phrase by Jacques Turgot, the Marquis
de Mirabeau, the Comte d'Albon and DuPont de Nemours among others. J.
Turgot, op cit. V.R. Marquis Mirabeau, in Philosophie rurale 1763 and
Ephémérides du Citoyen, 1767. C.C. Comte d'Albon,"Éloge Historique de
M. Quesnay", Nouvelles Ephémérides Économiques, May, 1775, p.136-7.
P.S.DuPont de Nemours, in Ouevres de Jacques Turgot, 1808-11, Vol. I,
p.257 and p.259 (Daire ed.)

↑ "Tant, encore une fois, qu'on laisse faire la nature, on ne doit
rien craindre de pareil", P.S. de Boisguilbert, 1707, Dissertation de
la nature des richesses, de l'argent et des tributs.

↑ DuPont de Nemours, op cit, p.258. Oncken (op.cit) and Keynes
(op.cit.) also credit the Marquis d'Argenson with the phrase "Pour
gouverner mieux, il faudrait gouverner moins" ('"To govern better, one
needs to govern less"), possibly the source of the famous "That
government is best which governs least" motto popular in American
circles, attributed variously to Thomas Paine, Thomas Jefferson and
Henry Thoreau.

↑ 6.0 6.1 Roy C. Smith, Adam Smith and the Origins of American
Enterprise: How the Founding Fathers Turned to a Great Economist's
Writings and Created the American Economy, Macmillan, 2004, ISBN
0312325762, p. 13-14.

↑ Abbott P. Usher et al. (1931). [Expression error: Missing operand
for > "Economic History—The Decline of Laissez Faire"]. American
Economic Review 22 (1, Supplement): 3–10.

↑ Andres Marroquin, Invisible Hand: The Wealth of Adam Smith, The
Minerva Group, Inc., 2002, ISBN 1410202887, page 123.

↑ The mathematical century: the 30 greatest problems of the last 100
years (2006) Piergiorgio Odifreddi, Arturo Sangalli, Freeman J Dyson,
p. 122

↑ Li Bo and Zheng Yin, 5000 years of Chinese history, Inner Mongolian
People's publishing corp , ISBN 7-204-04420-7, 2001

↑ Scott Gordon (1955). [Expression error: Missing operand for > "The
London Economist and the High Tide of Laissez Faire"]. Journal of
Political Economy 63 (6): 461–488. doi:10.1086/257722.

↑ James L. Richardson, Contending Liberalisms in World Politics, 2001,
Lynne Rienner Publishers, ISBN 1555879152

↑ Antonia Taddei (1999). "London Clubs in the Late Nineteenth
Century" (PDF).

http://www.nuff.ox.ac.uk/economics/history/paper28/28taddeiweb1.pdf.

Retrieved 2008-12-30.

↑ Walker, S.P. (1996). [Expression error: Missing operand for >
"Laissez-faire, Collectivism And Companies Legislation In Nineteenth-
century Britain"]. The British Accounting Review (Elsevier) 28 (4):
305–324. doi:10.1006/bare.1996.0021.

↑ 15.0 15.1 Guelzo, Allen C. (1999), Abraham Lincoln: Redeemer
President, Grand Rapids, Mich.: W.B. Eerdmans Pub. Co, ISBN
0-8028-3872-3, http://www.questia.com/PM.qst?a=o&d=99466893

↑ Robert W. Crandall (1987). [Expression error: Missing operand for >
"The Effects of U.S. Trade Protection for Autos and Steel"]. Brookings
Papers on Economic Activity 1987 (1): 271–288. doi:10.2307/2534518.

↑ Pietro S. Nivola (1986). [Expression error: Missing operand for >
"The New Protectionism: U.S. Trade Policy in Historical Perspective"].
Political Science Quarterly 101 (4): 577–600. doi:10.2307/2150795.

Bibliography

Brebner, John Bartlet (1948). [Expression error: Missing operand for >
"Laissez Faire and State Intervention in Nineteenth-Century Britain"].
Journal of Economic History 8: 59–73.

Fisher, Irving (January 1907). [Expression error: Missing operand for
> "Why has the Doctrine of Laissez Faire been Abandoned?"]. Science 25
(627): 18–27. doi:10.1126/science.25.627.18. PMID 17739703.

Taussig, Frank W. (1904). [Expression error: Missing operand for >
"The Present Position of the Doctrine of Free Trade"]. Publications of
the American Economic Association 6 (1): 29–65.

Further reading

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More spoken articles

Wu-Wei in Europe. A Study of Eurasian Economic ThoughtPDF (773 KB) by
Christian Gerlach, London School of Economics – March 2005

John Maynard Keynes, The end of laissez-faire (1926)

Working with Market Conditions to Increase Profits

Is this the End of Laissez-Faire Capitalism ? by Joseph Lazzaro, Daily
Finance, March 4 2009

le Laissez-Faire is Over A socio-economics blog: a provocative and
well documented view on a few externalities and a fairly shaky
invisible hand.

http://www.bing.com/reference/semhtml/Laissez-faire

[chhotemianinshallah]

Reference »
Wikipedia Articles
Industrial Revolution

In this article: Locations Images From the web: Images Videos

Industrial Revolution

A Watt steam engine, the steam engine fuelled primarily by coal that
propelled the Industrial Revolution in Great Britain and the world.
[1]The Industrial Revolution was a period from the 18th to the 19th
century where major changes in agriculture, manufacturing, mining, and
transport had a profound effect on the socioeconomic and cultural
conditions starting in the United Kingdom, then subsequently spreading
throughout Europe, North America, and eventually the world. The onset
of the Industrial Revolution marked a major turning point in human
history; almost every aspect of daily life was eventually influenced
in some way.

Starting in the later part of the 18th century there began a
transition in parts of Great Britain's previously manual labour and
draft-animal–based economy towards machine-based manufacturing. It
started with the mechanisation of the textile industries, the
development of iron-making techniques and the increased use of refined
coal.[2] Trade expansion was enabled by the introduction of canals,
improved roads and railways. The introduction of steam power fuelled
primarily by coal, wider utilisation of water wheels and powered
machinery (mainly in textile manufacturing) underpinned the dramatic
increases in production capacity.[3] The development of all-metal
machine tools in the first two decades of the 19th century facilitated
the manufacture of more production machines for manufacturing in other
industries. The effects spread throughout Western Europe and North
America during the 19th century, eventually affecting most of the
world, a process that continues as industrialisation. The impact of
this change on society was enormous.[4]

The first Industrial Revolution, which began in the 18th century,
merged into the Second Industrial Revolution around 1850, when
technological and economic progress gained momentum with the
development of steam-powered ships, railways, and later in the 19th
century with the internal combustion engine and electrical power
generation. The period of time covered by the Industrial Revolution
varies with different historians. Eric Hobsbawm held that it 'broke
out' in Britain in the 1780s and was not fully felt until the 1830s or
1840s,[5] while T. S. Ashton held that it occurred roughly between
1760 and 1830.[6] Some twentieth century historians such as John
Clapham and Nicholas Crafts have argued that the process of economic
and social change took place gradually and the term revolution is not
a true description of what took place. This is still a subject of
debate among historians.[7][8] GDP per capita was broadly stable
before the Industrial Revolution and the emergence of the modern
capitalist economy.[9] The Industrial Revolution began an era of per-
capita economic growth in capitalist economies.[10] Historians agree
that the Industrial Revolution was one of the most important events in
history.[11]

Name history

Credit for popularising the term may be given to Arnold Toynbee, whose
lectures given in 1881 gave a detailed account of it.

The earliest use of the term "Industrial Revolution" yet located,
according to historian David Landes, was a letter of 6 July 1799 by
French envoy Louis-Guillaume Otto [3]. The term Industrial Revolution
applied to technological change was becoming more common by the late
1830s, as in Louis-Auguste Blanqui description in 1837 of la
révolution industrielle. Friedrich Engels in The Condition of the
Working Class in England in 1844 spoke of "an industrial revolution, a
revolution which at the same time changed the whole of civil society."
In his book Keywords: A Vocabulary of Culture and Society, Raymond
Williams states in the entry for Industry: The idea of a new social
order based on major industrial change was clear in Southey and Owen,
between 1811 and 1818, and was implicit as early as Blake in the early
1790s and Wordsworth at the turn of the century.

Causes

Regional GDP per capita changed very little for most of human history
before the Industrial Revolution. (The empty areas mean no data, not
very low levels. There is data for the years 1, 1000, 1500, 1600,
1700, 1820, 1900, and 2003)The causes of the Industrial Revolution
were complicated and remain a topic for debate, with some historians
believing the Revolution was an outgrowth of social and institutional
changes brought by the end of feudalism in Britain after the English
Civil War in the 17th century. As national border controls became more
effective, the spread of disease was lessened, thereby preventing the
epidemics common in previous times.[12] The percentage of children who
lived past infancy rose significantly, leading to a larger workforce.
The Enclosure movement and the British Agricultural Revolution made
food production more efficient and less labour-intensive, forcing the
surplus population who could no longer find employment in agriculture
into cottage industry, for example weaving, and in the longer term
into the cities and the newly developed factories.[13] The colonial
expansion of the 17th century with the accompanying development of
international trade, creation of financial markets and accumulation of
capital are also cited as factors, as is the scientific revolution of
the 17th century.[14]

Until the 1980s, it was universally believed by academic historians
that technological innovation was the heart of the Industrial
Revolution and the key enabling technology was the invention and
improvement of the steam engine.[15] However, recent research into the
Marketing Era has challenged the traditional, supply-oriented
interpretation of the Industrial Revolution.[16]

Lewis Mumford has proposed that the Industrial Revolution had its
origins in the Early Middle Ages, much earlier than most estimates.
[17] He explains that the model for standardised mass production was
the printing press and that "the archetypal model for the industrial
era was the clock". He also cites the monastic emphasis on order and
time-keeping, as well as the fact that medieval cities had at their
centre a church with bell ringing at regular intervals as being
necessary precursors to a greater synchronisation necessary for later,
more physical, manifestations such as the steam engine.

The presence of a large domestic market should also be considered an
important driver of the Industrial Revolution, particularly explaining
why it occurred in Britain. In other nations, such as France, markets
were split up by local regions, which often imposed tolls and tariffs
on goods traded amongst them.[18]

Governments' grant of limited monopolies to inventors under a
developing patent system (the Statute of Monopolies 1623) is
considered an influential factor. The effects of patents, both good
and ill, on the development of industrialisation are clearly
illustrated in the history of the steam engine, the key enabling
technology. In return for publicly revealing the workings of an
invention the patent system rewarded inventors such as James Watt by
allowing them to monopolise the production of the first steam engines,
thereby rewarding inventors and increasing the pace of technological
development. However monopolies bring with them their own
inefficiencies which may counterbalance, or even overbalance, the
beneficial effects of publicising ingenuity and rewarding inventors.
[19] Watt's monopoly may have prevented other inventors, such as
Richard Trevithick, William Murdoch or Jonathan Hornblower, from
introducing improved steam engines, thereby retarding the industrial
revolution by about 16 years.[20]

Causes for occurrence in Europe

A 1623 Dutch East India Company bond.

European 17th century colonial expansion, international trade, and
creation of financial markets produced a new legal and financial
environment, one which supported and enabled 18th century industrial
growth.One question of active interest to historians is why the
industrial revolution occurred in Europe and not in other parts of the
world in the 18th century, particularly China, India, and the Middle
East, or at other times like in Classical Antiquity[21] or the Middle
Ages.[22] Numerous factors have been suggested, including education,
technological changes[23] (see Scientific Revolution in Europe),
"modern" government, "modern" work attitudes, ecology, and culture.
[24] The Age of Enlightenment not only meant a larger educated
population but also more modern views on work. However, most
historians contest the assertion that Europe and China were roughly
equal because modern estimates of per capita income on Western Europe
in the late 18th century are of roughly 1,500 dollars in purchasing
power parity (and Britain had a per capita income of nearly 2,000
dollars[25]) whereas China, by comparison, had only 450 dollars. Also,
the average interest rate was about 5% in Britain and over 30% in
China, which illustrates how capital was much more abundant in Britain.
[citation needed]

Some historians such as David Landes[26] and Max Weber credit the
different belief systems in China and Europe with dictating where the
revolution occurred. The religion and beliefs of Europe were largely
products of Judaeo-Christianity, and Greek thought. Conversely,
Chinese society was founded on men like Confucius, Mencius, Han Feizi
(Legalism), Lao Tzu (Taoism), and Buddha (Buddhism). Whereas the
Europeans believed that the universe was governed by rational and
eternal laws, the East believed that the universe was in constant flux
and, for Buddhists and Taoists, not capable of being rationally
understood.[citation needed] Other factors include the fact that the
coal deposits in China, although very large, were found a considerable
distance from the cities; but the yellow river that connects these
deposits to the sea were not navigable by cargo vessels.[27]

Regarding India, the Marxist historian Rajani Palme Dutt said: "The
capital to finance the Industrial Revolution in India instead went
into financing the Industrial Revolution in England."[28] In contrast
to China, India was split up into many competing kingdoms, with the
three major ones being the Marathas, Sikhs and the Mughals. In
addition, the economy was highly dependent on two sectors—agriculture
of subsistence and cotton, and there appears to have been little
technical innovation. It is believed that the vast amounts of wealth
were largely stored away in palace treasuries by totalitarian monarchs
prior to the British take over. Absolutist dynasties in China, India,
and the Middle East failed to encourage manufacturing and exports, and
expressed little interest in the well-being of their subjects.[29]

Causes for occurrence in Britain

As the Industrial Revolution developed British manufactured output
surged ahead of other economiesThe debate about the start of the
Industrial Revolution also concerns the massive lead that Great
Britain had over other countries. Some have stressed the importance of
natural or financial resources that Britain received from its many
overseas colonies or that profits from the British slave trade between
Africa and the Caribbean helped fuel industrial investment. It has
been pointed out, however, that slave trade and West Indian
plantations provided only 5% of the British national income during the
years of the Industrial Revolution.[30]

Alternatively, the greater liberalisation of trade from a large
merchant base may have allowed Britain to produce and use emerging
scientific and technological developments more effectively than
countries with stronger monarchies, particularly China and Russia.
Britain emerged from the Napoleonic Wars as the only European nation
not ravaged by financial plunder and economic collapse, and possessing
the only merchant fleet of any useful size (European merchant fleets
having been destroyed during the war by the Royal Navy[31]). Britain's
extensive exporting cottage industries also ensured markets were
already available for many early forms of manufactured goods. The
conflict resulted in most British warfare being conducted overseas,
reducing the devastating effects of territorial conquest that affected
much of Europe. This was further aided by Britain's geographical
position—an island separated from the rest of mainland Europe.

Another theory is that Britain was able to succeed in the Industrial
Revolution due to the availability of key resources it possessed. It
had a dense population for its small geographical size. Enclosure of
common land and the related agricultural revolution made a supply of
this labour readily available. There was also a local coincidence of
natural resources in the North of England, the English Midlands, South
Wales and the Scottish Lowlands. Local supplies of coal, iron, lead,
copper, tin, limestone and water power, resulted in excellent
conditions for the development and expansion of industry. Also, the
damp, mild weather conditions of the North West of England provided
ideal conditions for the spinning of cotton, providing a natural
starting point for the birth of the textiles industry.

The stable political situation in Britain from around 1688, and
British society's greater receptiveness to change (compared with other
European countries) can also be said to be factors favouring the
Industrial Revolution. In large part due to the Enclosure movement,
the peasantry was destroyed as a significant source of resistance to
industrialisation, and the landed upper classes developed commercial
interests that made them pioneers in removing obstacles to the growth
of capitalism.[32] (This point is also made in Hilaire Belloc's The
Servile State.)

Protestant work ethic
Main article: Protestant work ethic
Another theory is that the British advance was due to the presence of
an entrepreneurial class which believed in progress, technology and
hard work.[33] The existence of this class is often linked to the
Protestant work ethic (see Max Weber) and the particular status of the
Baptists and the dissenting Protestant sects, such as the Quakers and
Presbyterians that had flourished with the English Civil War.
Reinforcement of confidence in the rule of law, which followed
establishment of the prototype of constitutional monarchy in Britain
in the Glorious Revolution of 1688, and the emergence of a stable
financial market there based on the management of the national debt by
the Bank of England, contributed to the capacity for, and interest in,
private financial investment in industrial ventures.

Dissenters found themselves barred or discouraged from almost all
public offices, as well as education at England's only two
universities at the time (although dissenters were still free to study
at Scotland's four universities). When the restoration of the monarchy
took place and membership in the official Anglican Church became
mandatory due to the Test Act, they thereupon became active in
banking, manufacturing and education. The Unitarians, in particular,
were very involved in education, by running Dissenting Academies,
where, in contrast to the universities of Oxford and Cambridge and
schools such as Eton and Harrow, much attention was given to
mathematics and the sciences—areas of scholarship vital to the
development of manufacturing technologies.

Historians sometimes consider this social factor to be extremely
important, along with the nature of the national economies involved.
While members of these sects were excluded from certain circles of the
government, they were considered fellow Protestants, to a limited
extent, by many in the middle class, such as traditional financiers or
other businessmen. Given this relative tolerance and the supply of
capital, the natural outlet for the more enterprising members of these
sects would be to seek new opportunities in the technologies created
in the wake of the scientific revolution of the 17th century.

Innovations

The only surviving example of a Spinning Mule built by the inventor
Samuel CromptonThe commencement of the Industrial Revolution is
closely linked to a small number of innovations,[34] made in the
second half of the 18th century:

Textiles – Cotton spinning using Richard Arkwright's water frame,
James Hargreaves's Spinning Jenny, and Samuel Crompton's Spinning Mule
(a combination of the Spinning Jenny and the Water Frame). This was
patented in 1769 and so came out of patent in 1783. The end of the
patent was rapidly followed by the erection of many cotton mills.
Similar technology was subsequently applied to spinning worsted yarn
for various textiles and flax for linen.
Steam power – The improved steam engine invented by James Watt was
initially mainly used for pumping out mines, but from the 1780s was
applied to power machines. This enabled rapid development of efficient
semi-automated factories on a previously unimaginable scale in places
where waterpower was not available.

Iron founding – In the Iron industry, coke was finally applied to all
stages of iron smelting, replacing charcoal. This had been achieved
much earlier for lead and copper as well as for producing pig iron in
a blast furnace, but the second stage in the production of bar iron
depended on the use of potting and stamping (for which a patent
expired in 1786) or puddling (patented by Henry Cort in 1783 and
1784).
These represent three 'leading sectors', in which there were key
innovations, which allowed the economic take off by which the
Industrial Revolution is usually defined. This is not to belittle many
other inventions, particularly in the textile industry. Without some
earlier ones, such as the spinning jenny and flying shuttle in the
textile industry and the smelting of pig iron with coke, these
achievements might have been impossible. Later inventions such as the
power loom and Richard Trevithick's high pressure steam engine were
also important in the growing industrialisation of Britain. The
application of steam engines to powering cotton mills and ironworks
enabled these to be built in places that were most convenient because
other resources were available, rather than where there was water to
power a watermill.

In the textile sector, such mills became the model for the
organisation of human labour in factories, epitomised by Cottonopolis,
the name given to the vast collection of cotton mills, factories and
administration offices based in Manchester. The assembly line system
greatly improved efficiency, both in this and other industries. With a
series of men trained to do a single task on a product, then having it
moved along to the next worker, the number of finished goods also rose
significantly.

Also important was the 1756 rediscovery of concrete (based on
hydraulic lime mortar) by the British engineer John Smeaton, which had
been lost for 13 centuries.[35]

Transfer of knowledge

A Philosopher Lecturing on the Orrery (ca. 1766)
Informal philosophical societies spread scientific advancesKnowledge
of new innovation was spread by several means. Workers who were
trained in the technique might move to another employer or might be
poached. A common method was for someone to make a study tour,
gathering information where he could. During the whole of the
Industrial Revolution and for the century before, all European
countries and America engaged in study-touring; some nations, like
Sweden and France, even trained civil servants or technicians to
undertake it as a matter of state policy. In other countries, notably
Britain and America, this practice was carried out by individual
manufacturers anxious to improve their own methods. Study tours were
common then, as now, as was the keeping of travel diaries. Records
made by industrialists and technicians of the period are an
incomparable source of information about their methods.

Another means for the spread of innovation was by the network of
informal philosophical societies, like the Lunar Society of
Birmingham, in which members met to discuss 'natural philosophy' (i.e.
science) and often its application to manufacturing. The Lunar Society
flourished from 1765 to 1809, and it has been said of them, "They
were, if you like, the revolutionary committee of that most far
reaching of all the eighteenth century revolutions, the Industrial
Revolution".[36] Other such societies published volumes of proceedings
and transactions. For example, the London-based Royal Society of Arts
published an illustrated volume of new inventions, as well as papers
about them in its annual Transactions.

There were publications describing technology. Encyclopaedias such as
Harris's Lexicon Technicum (1704) and Dr Abraham Rees's Cyclopaedia
(1802–1819) contain much of value. Cyclopaedia contains an enormous
amount of information about the science and technology of the first
half of the Industrial Revolution, very well illustrated by fine
engravings. Foreign printed sources such as the Descriptions des Arts
et Métiers and Diderot's Encyclopédie explained foreign methods with
fine engraved plates.

Periodical publications about manufacturing and technology began to
appear in the last decade of the 18th century, and many regularly
included notice of the latest patents. Foreign periodicals, such as
the Annales des Mines, published accounts of travels made by French
engineers who observed British methods on study tours.

Technological developments in Britain

Textile manufacture

Main article: Textile manufacture during the Industrial Revolution

Model of the spinning jenny in a museum in Wuppertal, Germany. The
spinning jenny was one of the innovations that started the
revolutionIn the early 18th century, British textile manufacture was
based on wool which was processed by individual artisans, doing the
spinning and weaving on their own premises. This system is called a
cottage industry. Flax and cotton were also used for fine materials,
but the processing was difficult because of the pre-processing needed,
and thus goods in these materials made only a small proportion of the
output.

Use of the spinning wheel and hand loom restricted the production
capacity of the industry, but incremental advances increased
productivity to the extent that manufactured cotton goods became the
dominant British export by the early decades of the 19th century.
India was displaced as the premier supplier of cotton goods.

Lewis Paul patented the Roller Spinning machine and the flyer-and-
bobbin system for drawing wool to a more even thickness, developed
with the help of John Wyatt in Birmingham. Paul and Wyatt opened a
mill in Birmingham which used their new rolling machine powered by a
donkey. In 1743, a factory was opened in Northampton with fifty
spindles on each of five of Paul and Wyatt's machines. This operated
until about 1764. A similar mill was built by Daniel Bourn in
Leominster, but this burnt down. Both Lewis Paul and Daniel Bourn
patented carding machines in 1748. Using two sets of rollers that
travelled at different speeds, it was later used in the first cotton
spinning mill. Lewis's invention was later developed and improved by
Richard Arkwright in his water frame and Samuel Crompton in his
spinning mule.

Other inventors increased the efficiency of the individual steps of
spinning (carding, twisting and spinning, and rolling) so that the
supply of yarn increased greatly, which fed a weaving industry that
was advancing with improvements to shuttles and the loom or 'frame'.
The output of an individual labourer increased dramatically, with the
effect that the new machines were seen as a threat to employment, and
early innovators were attacked and their inventions destroyed.

To capitalise upon these advances, it took a class of entrepreneurs,
of which the most famous is Richard Arkwright. He is credited with a
list of inventions, but these were actually developed by people such
as Thomas Highs and John Kay; Arkwright nurtured the inventors,
patented the ideas, financed the initiatives, and protected the
machines. He created the cotton mill which brought the production
processes together in a factory, and he developed the use of power—
first horse power and then water power—which made cotton manufacture a
mechanised industry. Before long steam power was applied to drive
textile machinery.

Metallurgy

Coalbrookdale by Night, 1801, Philipp Jakob Loutherbourg the Younger
Blast furnaces light the iron making town of Coalbrookdale

The Reverberatory Furnace could produce wrought iron using mined coal.
The burning coal remained separate from the iron ore and so did not
contaminate the iron with impurities like sulphur. This opened the way
to increased iron production.The major change in the metal industries
during the era of the Industrial Revolution was the replacement of
organic fuels based on wood with fossil fuel based on coal. Much of
this happened somewhat before the Industrial Revolution, based on
innovations by Sir Clement Clerke and others from 1678, using coal
reverberatory furnaces known as cupolas. These were operated by the
flames, which contained carbon monoxide, playing on the ore and
reducing the oxide to metal. This has the advantage that impurities
(such as sulphur) in the coal do not migrate into the metal. This
technology was applied to lead from 1678 and to copper from 1687. It
was also applied to iron foundry work in the 1690s, but in this case
the reverberatory furnace was known as an air furnace. The foundry
cupola is a different (and later) innovation.

This was followed by Abraham Darby, who made great strides using coke
to fuel his blast furnaces at Coalbrookdale in 1709. However, the coke
pig iron he made was used mostly for the production of cast iron goods
such as pots and kettles. He had the advantage over his rivals in that
his pots, cast by his patented process, were thinner and cheaper than
theirs. Coke pig iron was hardly used to produce bar iron in forges
until the mid 1750s, when his son Abraham Darby II built Horsehay and
Ketley furnaces (not far from Coalbrookdale). By then, coke pig iron
was cheaper than charcoal pig iron.

Bar iron for smiths to forge into consumer goods was still made in
finery forges, as it long had been. However, new processes were
adopted in the ensuing years. The first is referred to today as
potting and stamping, but this was superseded by Henry Cort's puddling
process. From 1785, perhaps because the improved version of potting
and stamping was about to come out of patent, a great expansion in the
output of the British iron industry began. The new processes did not
depend on the use of charcoal at all and were therefore not limited by
charcoal sources.

Up to that time, British iron manufacturers had used considerable
amounts of imported iron to supplement native supplies. This came
principally from Sweden from the mid 17th century and later also from
Russia from the end of the 1720s. However, from 1785, imports
decreased because of the new iron making technology, and Britain
became an exporter of bar iron as well as manufactured wrought iron
consumer goods.

Since iron was becoming cheaper and more plentiful, it also became a
major structural material following the building of the innovative The
Iron Bridge in 1778 by Abraham Darby III.

The Iron Bridge, Shropshire, EnglandAn improvement was made in the
production of steel, which was an expensive commodity and used only
where iron would not do, such as for the cutting edge of tools and for
springs. Benjamin Huntsman developed his crucible steel technique in
the 1740s. The raw material for this was blister steel, made by the
cementation process.

The supply of cheaper iron and steel aided the development of boilers
and steam engines, and eventually railways. Improvements in machine
tools allowed better working of iron and steel and further boosted the
industrial growth of Britain.

Mining

Men working their own coal mines. Early 1900s, USACoal mining in
Britain, particularly in South Wales started early. Before the steam
engine, pits were often shallow bell pits following a seam of coal
along the surface, which were abandoned as the coal was extracted. In
other cases, if the geology was favourable, the coal was mined by
means of an adit or drift mine driven into the side of a hill. Shaft
mining was done in some areas, but the limiting factor was the problem
of removing water. It could be done by hauling buckets of water up the
shaft or to a sough (a tunnel driven into a hill to drain a mine). In
either case, the water had to be discharged into a stream or ditch at
a level where it could flow away by gravity. The introduction of the
steam engine greatly facilitated the removal of water and enabled
shafts to be made deeper, enabling more coal to be extracted. These
were developments that had begun before the Industrial Revolution, but
the adoption of James Watt's more efficient steam engine from the
1770s reduced the fuel costs of engines, making mines more profitable.
Coal mining was very dangerous owing to the presence of firedamp in
many coal seams. Some degree of safety was provided by the safety lamp
which was invented in 1816 by Sir Humphry Davy and independently by
George Stephenson. However, the lamps proved a false dawn because they
became unsafe very quickly and provided a weak light. Firedamp
explosions continued, often setting off coal dust explosions, so
casualties grew during the entire nineteenth century. Conditions of
work were very poor, with a high casualty rate from rock falls.

Steam power

Main article: Steam power during the Industrial Revolution

The 1698 Savery Engine – the world's first engine built by Thomas
Savery as based on the designs of Denis Papin.The development of the
stationary steam engine was an essential early element of the
Industrial Revolution; however, for most of the period of the
Industrial Revolution, the majority of industries still relied on wind
and water power as well as horse and man-power for driving small
machines.

The first real attempt at industrial use of steam power was due to
Thomas Savery in 1698. He constructed and patented in London a low-
lift combined vacuum and pressure water pump, that generated about one
horsepower (hp) and was used as in numerous water works and tried in a
few mines (hence its "brand name", The miner's Friend), but it was not
a success since it was limited in pumping height and prone to boiler
explosions.

Newcomen's steam powered atmospheric engine was the first practical
engine. Subsequent steam engines were to power the Industrial
RevolutionThe first safe and successful steam power plant was
introduced by Thomas Newcomen before 1712. Newcomen apparently
conceived the Newcomen steam engine quite independently of Savery, but
as the latter had taken out a very wide-ranging patent, Newcomen and
his associates were obliged to come to an arrangement with him,
marketing the engine until 1733 under a joint patent.[37][38]
Newcomen's engine appears to have been based on Papin's experiments
carried out 30 years earlier, and employed a piston and cylinder, one
end of which was open to the atmosphere above the piston. Steam just
above atmospheric pressure (all that the boiler could stand) was
introduced into the lower half of the cylinder beneath the piston
during the gravity-induced upstroke; the steam was then condensed by a
jet of cold water injected into the steam space to produce a partial
vacuum; the pressure differential between the atmosphere and the
vacuum on either side of the piston displaced it downwards into the
cylinder, raising the opposite end of a rocking beam to which was
attached a gang of gravity-actuated reciprocating force pumps housed
in the mineshaft. The engine's downward power stroke raised the pump,
priming it and preparing the pumping stroke. At first the phases were
controlled by hand, but within ten years an escapement mechanism had
been devised worked by a vertical plug tree suspended from the rocking
beam which rendered the engine self-acting.

A number of Newcomen engines were successfully put to use in Britain
for draining hitherto unworkable deep mines, with the engine on the
surface; these were large machines, requiring a lot of capital to
build, and produced about 5 hp (3.7 kW). They were extremely
inefficient by modern standards, but when located where coal was cheap
at pit heads, opened up a great expansion in coal mining by allowing
mines to go deeper. Despite their disadvantages, Newcomen engines were
reliable and easy to maintain and continued to be used in the
coalfields until the early decades of the nineteenth century. By 1729,
when Newcomen died, his engines had spread (first) to Hungary in
1722 ,Germany, Austria, and Sweden. A total of 110 are known to have
been built by 1733 when the joint patent expired, of which 14 were
abroad. In the 1770s, the engineer John Smeaton built some very large
examples and introduced a number of improvements. A total of 1,454
engines had been built by 1800.[39]

James WattA fundamental change in working principles was brought about
by James Watt. In close collaboration with Matthew Boulton, he had
succeeded by 1778 in perfecting his steam engine, which incorporated a
series of radical improvements, notably the closing off of the upper
part of the cylinder thereby making the low pressure steam drive the
top of the piston instead of the atmosphere, use of a steam jacket and
the celebrated separate steam condenser chamber. All this meant that a
more constant temperature could be maintained in the cylinder and that
engine efficiency no longer varied according to atmospheric
conditions. These improvements increased engine efficiency by a factor
of about five, saving 75% on coal costs.

Nor could the atmospheric engine be easily adapted to drive a rotating
wheel, although Wasborough and Pickard did succeed in doing so towards
1780. However by 1783 the more economical Watt steam engine had been
fully developed into a double-acting rotative type, which meant that
it could be used to directly drive the rotary machinery of a factory
or mill. Both of Watt's basic engine types were commercially very
successful, and by 1800, the firm Boulton & Watt had constructed 496
engines, with 164 driving reciprocating pumps, 24 serving blast
furnaces, and 308 powering mill machinery; most of the engines
generated from 5 to 10 hp (7.5 kW).

The development of machine tools, such as the lathe, planing and
shaping machines powered by these engines, enabled all the metal parts
of the engines to be easily and accurately cut and in turn made it
possible to build larger and more powerful engines.

Until about 1800, the most common pattern of steam engine was the beam
engine, built as an integral part of a stone or brick engine-house,
but soon various patterns of self-contained portative engines (readily
removable, but not on wheels) were developed, such as the table
engine. Towards the turn of the 19th century, the Cornish engineer
Richard Trevithick, and the American, Oliver Evans began to construct
higher pressure non-condensing steam engines, exhausting against the
atmosphere. This allowed an engine and boiler to be combined into a
single unit compact enough to be used on mobile road and rail
locomotives and steam boats.

In the early 19th century after the expiration of Watt's patent, the
steam engine underwent many improvements by a host of inventors and
engineers.

Chemicals

The Thames Tunnel (opened 1843)

Cement was used in the world's first underwater tunnelThe large scale
production of chemicals was an important development during the
Industrial Revolution. The first of these was the production of
sulphuric acid by the lead chamber process invented by the Englishman
John Roebuck (James Watt's first partner) in 1746. He was able to
greatly increase the scale of the manufacture by replacing the
relatively expensive glass vessels formerly used with larger, less
expensive chambers made of riveted sheets of lead. Instead of making a
small amount each time, he was able to make around 100 pounds (50 kg)
in each of the chambers, at least a tenfold increase.

The production of an alkali on a large scale became an important goal
as well, and Nicolas Leblanc succeeded in 1791 in introducing a method
for the production of sodium carbonate. The Leblanc process was a
reaction of sulphuric acid with sodium chloride to give sodium
sulphate and hydrochloric acid. The sodium sulphate was heated with
limestone (calcium carbonate) and coal to give a mixture of sodium
carbonate and calcium sulphide. Adding water separated the soluble
sodium carbonate from the calcium sulphide. The process produced a
large amount of pollution (the hydrochloric acid was initially vented
to the air, and calcium sulphide was a useless waste product).
Nonetheless, this synthetic soda ash proved economical compared to
that from burning specific plants (barilla) or from kelp, which were
the previously dominant sources of soda ash,[40] and also to potash
(potassium carbonate) derived from hardwood ashes.

These two chemicals were very important because they enabled the
introduction of a host of other inventions, replacing many small-scale
operations with more cost-effective and controllable processes. Sodium
carbonate had many uses in the glass, textile, soap, and paper
industries. Early uses for sulphuric acid included pickling (removing
rust) iron and steel, and for bleaching cloth.

The development of bleaching powder (calcium hypochlorite) by Scottish
chemist Charles Tennant in about 1800, based on the discoveries of
French chemist Claude Louis Berthollet, revolutionised the bleaching
processes in the textile industry by dramatically reducing the time
required (from months to days) for the traditional process then in
use, which required repeated exposure to the sun in bleach fields
after soaking the textiles with alkali or sour milk. Tennant's factory
at St Rollox, North Glasgow, became the largest chemical plant in the
world.

In 1824 Joseph Aspdin, a British bricklayer turned builder, patented a
chemical process for making portland cement which was an important
advance in the building trades. This process involves sintering a
mixture of clay and limestone to about 1400 °C, then grinding it into
a fine powder which is then mixed with water, sand and gravel to
produce concrete. Portland cement was used by the famous English
engineer Marc Isambard Brunel several years later when constructing
the Thames Tunnel.[41] Cement was used on a large scale in the
construction of the London sewerage system a generation later.

Machine tools

Sir Joseph WhitworthThe Industrial Revolution could not have developed
without machine tools, for they enabled manufacturing machines to be
made. They have their origins in the tools developed in the 18th
century by makers of clocks and watches and scientific instrument
makers to enable them to batch-produce small mechanisms. The
mechanical parts of early textile machines were sometimes called
'clock work' because of the metal spindles and gears they
incorporated. The manufacture of textile machines drew craftsmen from
these trades and is the origin of the modern engineering industry.

Machines were built by various craftsmen—carpenters made wooden
framings, and smiths and turners made metal parts. A good example of
how machine tools changed manufacturing took place in Birmingham,
England, in 1830. The invention of a new machine by Joseph Gillott,
William Mitchell and James Stephen Perry allowed mass manufacture of
robust, cheap steel pen nibs; the process had been laborious and
expensive. Because of the difficulty of manipulating metal and the
lack of machine tools, the use of metal was kept to a minimum. Wood
framing had the disadvantage of changing dimensions with temperature
and humidity, and the various joints tended to rack (work loose) over
time. As the Industrial Revolution progressed, machines with metal
frames became more common, but they required machine tools to make
them economically. Before the advent of machine tools, metal was
worked manually using the basic hand tools of hammers, files,
scrapers, saws and chisels. Small metal parts were readily made by
this means, but for large machine parts, production was very laborious
and costly.

A lathe from 1911, a machine tool able to make other machinesApart
from workshop lathes used by craftsmen, the first large machine tool
was the cylinder boring machine used for boring the large-diameter
cylinders on early steam engines. The planing machine, the slotting
machine and the shaping machine were developed in the first decades of
the 19th century. Although the milling machine was invented at this
time, it was not developed as a serious workshop tool until during the
Second Industrial Revolution.

Military production had a hand in the development of machine tools.
Henry Maudslay, who trained a school of machine tool makers early in
the 19th century, was employed at the Royal Arsenal, Woolwich, as a
young man where he would have seen the large horse-driven wooden
machines for cannon boring made and worked by the Verbruggans. He
later worked for Joseph Bramah on the production of metal locks, and
soon after he began working on his own. He was engaged to build the
machinery for making ships' pulley blocks for the Royal Navy in the
Portsmouth Block Mills. These were all metal and were the first
machines for mass production and making components with a degree of
interchangeability. The lessons Maudslay learned about the need for
stability and precision he adapted to the development of machine
tools, and in his workshops he trained a generation of men to build on
his work, such as Richard Roberts, Joseph Clement and Joseph
Whitworth.

James Fox of Derby had a healthy export trade in machine tools for the
first third of the century, as did Matthew Murray of Leeds. Roberts
was a maker of high-quality machine tools and a pioneer of the use of
jigs and gauges for precision workshop measurement.

Gas lighting

Main article: Gas lighting

Another major industry of the later Industrial Revolution was gas
lighting. Though others made a similar innovation elsewhere, the large
scale introduction of this was the work of William Murdoch, an
employee of Boulton and Watt, the Birmingham steam engine pioneers.
The process consisted of the large scale gasification of coal in
furnaces, the purification of the gas (removal of sulphur, ammonia,
and heavy hydrocarbons), and its storage and distribution. The first
gas lighting utilities were established in London between 1812-20.
They soon became one of the major consumers of coal in the UK. Gas
lighting had an impact on social and industrial organisation because
it allowed factories and stores to remain open longer than with tallow
candles or oil. Its introduction allowed night life to flourish in
cities and towns as interiors and streets could be lighted on a larger
scale than before.

Glass making

The Crystal Palace held the Great Exhibition of 1851A new method of
producing glass, known as the cylinder process, was developed in
Europe during the early 19th century. In 1832, this process was used
by the Chance Brothers to create sheet glass. They became the leading
producers of window and plate glass. This advancement allowed for
larger panes of glass to be created without interruption, thus freeing
up the space planning in interiors as well as the fenestration of
buildings. The Crystal Palace is the supreme example of the use of
sheet glass in a new and innovative structure.

Effects on agriculture

The invention of machinery played a big part in driving forward the
British Agricultural Revolution. Agricultural improvement began in the
centuries before the Industrial revolution got going and it may have
played a part in freeing up labour from the land to work in the new
industrial mills of the eighteenth century. As the revolution in
industry progressed a succession of machines became available which
increased food production with ever fewer labourers.

Jethro Tull's seed drill invented in 1731 was a mechanical seeder
which distributed seeds efficiently across a plot of land. Joseph
Foljambe's Rotherham plough of 1730, was the first commercially
successful iron plough. Andrew Meikle's threshing machine of 1784 was
the final straw for many farm labourers, and led to the 1830
agricultural rebellion of the Swing Riots.

Transport in Britain

Main article: Transport during the Industrial Revolution

At the beginning of the Industrial Revolution, inland transport was by
navigable rivers and roads, with coastal vessels employed to move
heavy goods by sea. Railways or wagon ways were used for conveying
coal to rivers for further shipment, but canals had not yet been
constructed. Animals supplied all of the motive power on land, with
sails providing the motive power on the sea.
The Industrial Revolution improved Britain's transport infrastructure
with a turnpike road network, a canal and waterway network, and a
railway network. Raw materials and finished products could be moved
more quickly and cheaply than before. Improved transportation also
allowed new ideas to spread quickly.

Coastal sail

Sailing vessels had long been used for moving goods round the British
coast. The trade transporting coal to London from Newcastle had begun
in medieval times. The transport of goods coastwise by sea within
Britain was common during the Industrial Revolution, as for centuries
before. This became less important with the growth of the railways at
the end of the period.

Navigable rivers

See also: List of rivers of United Kingdom

All the major rivers of the United Kingdom were navigable during the
Industrial Revolution. Some were anciently navigable, notably the
Severn, Thames, and Trent. Some were improved, or had navigation
extended upstream, but usually in the period before the Industrial
Revolution, rather than during it.

The Severn, in particular, was used for the movement of goods to the
Midlands which had been imported into Bristol from abroad, and for the
export of goods from centres of production in Shropshire (such as iron
goods from Coalbrookdale) and the Black Country. Transport was by way
of trows—small sailing vessels which could pass the various shallows
and bridges in the river. The trows could navigate the Bristol Channel
to the South Wales ports and Somerset ports, such as Bridgwater and
even as far as France.

Canals

Main article: History of the British canal system

Pontcysyllte Aqueduct, Llangollen, WalesCanals began to be built in
the late eighteenth century to link the major manufacturing centres in
the Midlands and north with seaports and with London, at that time
itself the largest manufacturing centre in the country. Canals were
the first technology to allow bulk materials to be easily transported
across country. A single canal horse could pull a load dozens of times
larger than a cart at a faster pace. By the 1820s, a national network
was in existence. Canal construction served as a model for the
organisation and methods later used to construct the railways. They
were eventually largely superseded as profitable commercial
enterprises by the spread of the railways from the 1840s on.

Britain's canal network, together with its surviving mill buildings,
is one of the most enduring features of the early Industrial
Revolution to be seen in Britain.

Roads

Much of the original British road system was poorly maintained by
thousands of local parishes, but from the 1720s (and occasionally
earlier) turnpike trusts were set up to charge tolls and maintain some
roads. Increasing numbers of main roads were turnpiked from the 1750s
to the extent that almost every main road in England and Wales was the
responsibility of some turnpike trust. New engineered roads were built
by John Metcalf, Thomas Telford and John Macadam. The major turnpikes
radiated from London and were the means by which the Royal Mail was
able to reach the rest of the country. Heavy goods transport on these
roads was by means of slow, broad wheeled, carts hauled by teams of
horses. Lighter goods were conveyed by smaller carts or by teams of
pack horse. Stage coaches carried the rich, and the less wealthy could
pay to ride on carriers carts.

Railways

Main article: History of rail transport in Great Britain

A replica of the early locomotive Sans Pareil at a 1980 restaging of
the Rainhill Trials of 1829Wagonways for moving coal in the mining
areas had started in the 17th century and were often associated with
canal or river systems for the further movement of coal. These were
all horse drawn or relied on gravity, with a stationary steam engine
to haul the wagons back to the top of the incline. The first
applications of the steam locomotive were on wagon or plate ways (as
they were then often called from the cast iron plates used). Horse-
drawn public railways did not begin until the early years of the 19th
century. Steam-hauled public railways began with the Stockton and
Darlington Railway in 1825 and the Liverpool and Manchester Railway in
1830. Construction of major railways connecting the larger cities and
towns began in the 1830s but only gained momentum at the very end of
the first Industrial Revolution.

After many of the workers had completed the railways, they did not
return to their rural lifestyles but instead remained in the cities,
providing additional workers for the factories.

Railways helped Britain's trade enormously, providing a quick and easy
way of transport and an easy way to transport mail and news.

Social effects

In terms of social structure, the Industrial Revolution witnessed the
triumph of a middle class of industrialists and businessmen over a
landed class of nobility and gentry.

Ordinary working people found increased opportunities for employment
in the new mills and factories, but these were often under strict
working conditions with long hours of labour dominated by a pace set
by machines. However, harsh working conditions were prevalent long
before the Industrial Revolution took place. Pre-industrial society
was very static and often cruel—child labour, dirty living conditions,
and long working hours were just as prevalent before the Industrial
Revolution.[42]

Factories and urbanisation

Manchester, England ("Cottonopolis"), pictured in 1840, showing the
mass of factory chimneysIndustrialisation led to the creation of the
factory. Arguably the first was John Lombe's water-powered silk mill
at Derby, operational by 1721. However, the rise of the factory came
somewhat later when cotton spinning was mechanised.

The factory system was largely responsible for the rise of the modern
city, as large numbers of workers migrated into the cities in search
of employment in the factories. Nowhere was this better illustrated
than the mills and associated industries of Manchester, nicknamed
"Cottonopolis", and arguably the world's first industrial city. For
much of the 19th century, production was done in small mills, which
were typically water-powered and built to serve local needs. Later
each factory would have its own steam engine and a chimney to give an
efficient draft through its boiler.

The transition to industrialisation was not without difficulty. For
example, a group of English workers known as Luddites formed to
protest against industrialisation and sometimes sabotaged factories.

In other industries the transition to factory production was not so
divisive. Some industrialists themselves tried to improve factory and
living conditions for their workers. One of the earliest such
reformers was Robert Owen, known for his pioneering efforts in
improving conditions for workers at the New Lanark mills, and often
regarded as one of the key thinkers of the early socialist movement.

By 1746, an integrated brass mill was working at Warmley near Bristol.
Raw material went in at one end, was smelted into brass and was turned
into pans, pins, wire, and other goods. Housing was provided for
workers on site. Josiah Wedgwood and Matthew Boulton were other
prominent early industrialists, who employed the factory system.

Child labour

A young "drawer" pulling a coal tub along a mine galleryThe Industrial
Revolution led to a population increase, but the chance of surviving
childhood did not improve throughout the industrial revolution
(although infant mortality rates were reduced markedly).[43][44] There
was still limited opportunity for education, and children were
expected to work. Employers could pay a child less than an adult even
though their productivity was comparable; there was no need for
strength to operate an industrial machine, and since the industrial
system was completely new there were no experienced adult labourers.
This made child labour the labour of choice for manufacturing in the
early phases of the Industrial Revolution between the 18th and 19th
centuries. In England and Scotland in 1788, two-thirds of the workers
in 143 water-powered cotton mills were described as children.[45]

Child labour had existed before the Industrial Revolution, but with
the increase in population and education it became more visible. Many
children were forced to work in relatively bad conditions for much
lower pay than their elders.[46]

Reports were written detailing some of the abuses, particularly in the
coal mines[47] and textile factories[48] and these helped to
popularise the children's plight. The public outcry, especially among
the upper and middle classes, helped stir change in the young workers'
welfare.

Politicians and the government tried to limit child labour by law, but
factory owners resisted; some felt that they were aiding the poor by
giving their children money to buy food to avoid starvation, and
others simply welcomed the cheap labour. In 1833 and 1844, the first
general laws against child labour, the Factory Acts, were passed in
England: Children younger than nine were not allowed to work, children
were not permitted to work at night, and the work day of youth under
the age of 18 was limited to twelve hours. Factory inspectors
supervised the execution of the law. About ten years later, the
employment of children and women in mining was forbidden. These laws
decreased the number of child labourers; however, child labour
remained in Europe and the United States up to the 20th century.[49]
By 1900, there were 1.7 million child labourers reported in American
industry under the age of fifteen.[50]

Housing

Over London by Rail Gustave Doré c. 1870. Shows the densely populated
and polluted environments created in the new industrial citiesLiving
conditions during the Industrial Revolution varied from the splendour
of the homes of the owners to the squalor of the lives of the workers.
Poor people lived in very small houses in cramped streets. These homes
would share toilet facilities, have open sewers and would be at risk
of damp. Disease was spread through a contaminated water supply.
Conditions did improve during the 19th century as public health acts
were introduced covering things such as sewage, hygiene and making
some boundaries upon the construction of homes. Not everybody lived in
homes like these. The Industrial Revolution created a larger middle
class of professionals such as lawyers and doctors. The conditions for
the poor improved over the course of the 19th century because of
government and local plans which led to cities becoming cleaner
places, but life had not been easy for the poor before
industrialisation. However, as a result of the Revolution, huge
numbers of the working class died due to diseases spreading through
the cramped living conditions. Chest diseases from the mines, cholera
from polluted water and typhoid were also extremely common, as was
smallpox. Accidents in factories with child and female workers were
regular. Dickens' novels illustrate this; even some government
officials were horrified by what they saw[citation needed]. Strikes
and riots by workers were also relatively common.

Luddites

Main article: Luddite

The Leader of the luddites, engraving of 1812The rapid
industrialisation of the English economy cost many craft workers their
jobs. The movement started first with lace and hosiery workers near
Nottingham and spread to other areas of the textile industry owing to
early industrialisation. Many weavers also found themselves suddenly
unemployed since they could no longer compete with machines which only
required relatively limited (and unskilled) labour to produce more
cloth than a single weaver. Many such unemployed workers, weavers and
others, turned their animosity towards the machines that had taken
their jobs and began destroying factories and machinery. These
attackers became known as Luddites, supposedly followers of Ned Ludd,
a folklore figure. The first attacks of the Luddite movement began in
1811. The Luddites rapidly gained popularity, and the British
government took drastic measures using the militia or army to protect
industry. Those rioters who were caught were tried and hanged, or
transported for life.

Unrest continued in other sectors as they industrialised, such as
agricultural labourers in the 1830s, when large parts of southern
Britain were affected by the Captain Swing disturbances. Threshing
machines were a particular target, and rick burning was a popular
activity. However the riots led to the first formation of trade
unions, and further pressure for reform.

Organisation of labour

See also: Trade union#History

The Great Chartist Meeting on Kennington Common, 1848The Industrial
Revolution concentrated labour into mills, factories and mines, thus
facilitating the organisation of combinations or trade unions to help
advance the interests of working people. The power of a union could
demand better terms by withdrawing all labour and causing a consequent
cessation of production. Employers had to decide between giving in to
the union demands at a cost to themselves or suffer the cost of the
lost production. Skilled workers were hard to replace, and these were
the first groups to successfully advance their conditions through this
kind of bargaining.

The main method the unions used to effect change was strike action.
Many strikes were painful events for both sides, the unions and the
management. In England, the Combination Act forbade workers to form
any kind of trade union from 1799 until its repeal in 1824. Even after
this, unions were still severely restricted.

In 1832, the year of the Reform Act which extended the vote in England
but did not grant universal suffrage, six men from Tolpuddle in Dorset
founded the Friendly Society of Agricultural Labourers to protest
against the gradual lowering of wages in the 1830s. They refused to
work for less than 10 shillings a week, although by this time wages
had been reduced to seven shillings a week and were due to be further
reduced to six shillings. In 1834 James Frampton, a local landowner,
wrote to the Prime Minister, Lord Melbourne, to complain about the
union, invoking an obscure law from 1797 prohibiting people from
swearing oaths to each other, which the members of the Friendly
Society had done. James Brine, James Hammett, George Loveless,
George's brother James Loveless, George's brother in-law Thomas
Standfield, and Thomas's son John Standfield were arrested, found
guilty, and transported to Australia. They became known as the
Tolpuddle martyrs. In the 1830s and 1840s the Chartist movement was
the first large scale organised working class political movement which
campaigned for political equality and social justice. Its Charter of
reforms received over three million signatures but was rejected by
Parliament without consideration.

Working people also formed friendly societies and co-operative
societies as mutual support groups against times of economic hardship.
Enlightened industrialists, such as Robert Owen also supported these
organisations to improve the conditions of the working class.

Unions slowly overcame the legal restrictions on the right to strike.
In 1842, a General Strike involving cotton workers and colliers was
organised through the Chartist movement which stopped production
across Great Britain.[51]

Eventually effective political organisation for working people was
achieved through the trades unions who, after the extensions of the
franchise in 1867 and 1885, began to support socialist political
parties that later merged to became the British Labour Party.

Other effects

The application of steam power to the industrial processes of printing
supported a massive expansion of newspaper and popular book
publishing, which reinforced rising literacy and demands for mass
political participation.

During the Industrial Revolution, the life expectancy of children
increased dramatically. The percentage of the children born in London
who died before the age of five decreased from 74.5% in 1730–1749 to
31.8% in 1810–1829.[43] Also, there was a significant increase in
worker wages during the period 1813-1913.[52][53][54]

According to Robert Hughes in The Fatal Shore, the population of
England and Wales, which had remained steady at 6 million from 1700 to
1740, rose dramatically after 1740. The population of England had more
than doubled from 8.3 million in 1801 to 16.8 million in 1851 and, by
1901, had nearly doubled again to 30.5 million.[55] As living
conditions and health care improved during the 19th century, Britain's
population doubled every 50 years.[56][57] Europe’s population doubled
during the 18th century, from roughly 100 million to almost 200
million, and doubled again during the 19th century, to around 400
million.[58]

The growth of modern industry from the late 18th century onward led to
massive urbanisation and the rise of new great cities, first in Europe
and then in other regions, as new opportunities brought huge numbers
of migrants from rural communities into urban areas. In 1800, only 3%
of the world's population lived in cities,[59] a figure that has risen
to nearly 50% at the beginning of the 21st century.[60] In 1717
Manchester was merely a market town of 10,000 people, but by 1911 it
had a population of 2.3 million.[61]

The greatest killer in the cities was tuberculosis (TB).[62] By the
late 19th century, 70 to 90% of the urban populations of Europe and
North America were infected with M. tuberculosis, and about 40% of
working-class deaths in cities were from TB.[63]

Continental Europe

The Industrial Revolution on Continental Europe came a little later
than in Great Britain. In many industries, this involved the
application of technology developed in Britain in new places. Often
the technology was purchased from Britain or British engineers and
entrepreneurs moved abroad in search of new opportunities. By 1809
part of the Ruhr Valley in Westphalia was called 'Miniature England'
because of its similarities to the industrial areas of England. The
German, Russian and Belgian governments all provided state funding to
the new industries. In some cases (such as iron), the different
availability of resources locally meant that only some aspects of the
British technology were adopted.

Wallonia, Belgium

Lifts on Canal du Centre (1888 - 1917) near La Louvière, Wallonia

Workers' housing at Bois-du-Luc (1838-1853) in La LouvièreRenowned for
its coal and steel, Wallonia has experienced strong industrial growth
since the Middle Ages. For many years, heavy industry was the driving
force behind the region's economy. Indeed, Wallonia was the birthplace
of the industrial revolution on continental Europe:

Before railway construction on the Continent demanded huge quantities
of maleable iron mainly for rails, for which low quality iron
sufficed, Wallonia was the only Continental region to follow the
British model successfully. Since the middle of the 1820s, numerous
works comprising coke blast furnaces as well as puddling and rolling
mills were built in the coal mining areas around Liège and Charleroi.
Excelling all others, John Cockerill's factories at Seraing integrated
all stages of production, from engineering to the supply of raw
materials, as early as 1825.[64]

Wallonia came to be regarded as an example of the radical evolution of
industrial expansion. Thanks to coal (the French word "houille" was
coined in Wallonia),[65] the region geared up to become the 2nd
industrial power in the world after England. But it is also pointed
out by many researchers, with its Sillon industriel, 'Especially in
the Haine, Sambre and Meuse valleys, between the Borinage and Liège,
(...) there was a huge industrial development based on coal-mining and
iron-making...'[66]. Philippe Raxhon wrote about the period after
1830: "It was not propaganda but a reality the Walloon regions were
becoming the second industrial power all over the world after
England."[67] "The sole industrial centre outside the collieries and
blast furnaces of Walloon was the old cloth making town of Ghent."[68]
Michel De Coster, Professor at the Université de Liège wrote also:
"The historians and the economists say that Belgium was the second
industrial power of the world, in proportion to its population and its
territory (...) But this rank is the one of Wallonia where the coal-
mines, the blast furnaces, the iron and zinc factories, the wool
industry, the glass industry, the weapons industry... were
concentrated" [69]

Demographic effects

Wallonia's Sillon industriel, not the blue bloth in the N

Gallow frame of the Crachet in Frameries IN Wallonia's French Châssis
à molettes or Belfleur (French Chevalement

Official Poster of the Liège's World fair in 1905Wallonia was also the
birthplace of a strong Socialist party and strong trade-unions in a
particular sociological landscape. At the left, the Sillon industriel,
which runs from Mons in the west, to Verviers in the east (except part
of North Flanders, in another period of the industrial revolution,
after 1920). Even if Wallonia is the second industrial country after
England, the effect of the industrial revolution there was very
different. In 'Breaking stereotypes', Muriel Beven and Isabelle Devos
say:

The industrial revolution changed a mainly rural society into an urban
one, but with a strong contrast between northern and southern Belgium.
During the Middle Ages and the Early Modern Period, Flanders was
characterised by the presence of large urban centres (...) at the
beginning of the nineteenth century this region (Flanders), with an
urbanisation degree of more than 30 per cent, remained one of the most
urbanised in the world. By comparison, this proportion reached only 17
per cent in Wallonia, barely 10 per cent in most West European
countries, 16 per cent in France and 25 per cent in England.
Nineteenth century industrialisation did not affect the traditional
urban infrastructure, except in Ghent (...) Also, in Wallonia the
traditional urban network was largely unaffected by the
industrialisation process, even though the proportion of city-dwellers
rose from 17 to 45 per cent between 1831 and 1910. Especially in the
Haine, Sambre and Meuse valleys, between the Borinage and Liège, where
there was a huge industrial development based on coal-mining and iron-
making, urbanisation was rapid. During these eighty years the number
of municipalities with more than 5,000 inhabitants increased from only
21 to more than one hundred, concentrating nearly half of the Walloon
population in this region. Nevertheless, industrialisation remained
quite traditional in the sense that it did not lead to the growth of
modern and large urban centres, but to a conurbation of industrial
villages and towns developed around a coal-mine or a factory.
Communication routes between these small centres only became populated
later and created a much less dense urban morphology than, for
instance, the area around Liège where the old town was there to direct
migratory flows.[70]

Political and social effects

Wallonia became the country of the general strike. A general strike is
the "cessation of work by a majority of the workers in all industries
of a locality or nation. Such a stoppage is economic if it is for the
purpose of redressing some grievance or pressing upon the employer a
series of economic demands. It is political if called for the purpose
of wresting some concession from the government or if the goal is the
overthrow of the existing government. The political strike has been
advocated by the syndicalists and to a certain extent by anarchistic
movements".[71] General strikes in Wallonia took place in 1885 (this
strike began to celebrate the Commune de Paris), 1902, 1913 (in order
to win universal suffrage), 1932, 1936 (in order to win paid
holidays), 1950 (against Leopold III), in the winter 1960-1961 in
order to win the autonomy of Wallonia, when the Walloon economic
decline became clear and when it became (or seemed) clear for some
socialist Trade-Unions leaders, that the Belgian government would not
make anything for the economic recovery of Wallonia.

France

A barricade of the Commune de Paris—celebrated in march 1885 in
Wallonia by a General strike March 18th, 1871.The industrial
revolution in France was a particular process for it did not
correspond to the main model followed by other countries. Notably,
most French historians argue that France did not go through a clear
take-off [72]. Instead, France's economic growth and industrialisation
process was slow and steady along the eighteenth and nineteenth
centuries. However, some stages were identified by Maurice Lévy-
Leboyer :

French Revolution and Napoleonic wars (1789–1815),
industrialisation, along with Britain (1815–1860),
economic slowdown (1860–1905),
renewal of the growth after 1905.
This section requires expansion.

United States

Main article: Technological and industrial history of the United
States

Slater's MillThe United States originally used horse-powered machinery
to power its earliest factories, but eventually switched to water
power, with the consequence that industrialisation was essentially
limited to New England and the rest of the Northeastern United States,
where fast-moving rivers were located. Horse-drawn production proved
to be economically challenging and a more difficult alternative to the
newer water-powered production lines. However, the raw materials
(cotton) came from the Southern United States. It was not until after
the Civil War in the 1860s that steam-powered manufacturing overtook
water-powered manufacturing, allowing the industry to fully spread
across the nation.

Samuel Slater (1768–1835) is popularly known as the founder of the
American cotton industry. As a boy apprentice in Derbyshire, England,
he learned of the new techniques in the textile industry and defied
laws against the emigration of skilled workers by leaving for New York
in 1789, hoping to make money with his knowledge. Slater, among the
Cabot Brothers and investors, started the Beverly Cotton Manufactory
in Beverly, Massachusetts. This was the first cotton mill in America.
This cotton mill was designed to utilize horse-powered production. The
mill operators quickly learned that the economic stability of their
horse-drawn platform was unstable, and had fiscal issues for years
after it was built. Despite the losses, the Manufactory served as a
playground of innovation, both in turning a large amount of cotton,
but also developing the water-powered milling structure used in
Slater's second mill[73], Slater's Mill at Pawtucket, Rhode Island, in
1793. He went on to own thirteen textile mills.[74] Daniel Day
established a wool carding mill in the Blackstone Valley at Uxbridge,
Massachusetts in 1810, the third woollen mill established in the U.S.
(The first was in Hartford, Connecticut, and the second at Watertown,
Massachusetts.) The John H. Chafee Blackstone River Valley National
Heritage Corridor retraces the history of "America's Hardest-Working
River', the Blackstone. The Blackstone River and its tributaries,
which cover more than 45 miles (72 km) from Worcester to Providence,
was the birthplace of America's Industrial Revolution. At its peak
over 1100 mills operated in this valley, including Slater's mill, and
with it the earliest beginnings of America's Industrial and
Technological Development.

While on a trip to England in 1810, Newburyport merchant Francis Cabot
Lowell was allowed to tour the British textile factories, but not take
notes. Realising the War of 1812 had ruined his import business but
that a market for domestic finished cloth was emerging in America, he
memorised the design of textile machines, and on his return to the
United States, he set up the Boston Manufacturing Company. Lowell and
his partners built America's second cotton-to-cloth textile mill at
Waltham, Massachusetts, second to the Beverly Cotton Manufactory After
his death in 1817, his associates built America's first planned
factory town, which they named after him. This enterprise was
capitalised in a public stock offering, one of the first uses of it in
the United States. Lowell, Massachusetts, utilising 5.6 miles (9.0 km)
of canals and ten thousand horsepower delivered by the Merrimack
River, is considered by some to be a major contributor to the success
of the American Industrial Revolution. The short-lived utopia-like
Lowell System was formed, as a direct response to the poor working
conditions in Britain. However, by 1850, especially following the
Irish Potato Famine, the system had been replaced by poor immigrant
labour.

The industrialisation of the watch industry started 1854 also in
Waltham, Massachusetts, at the Waltham Watch Company, with the
development of machine tools, tools, gauges and assembling methods
adapted to the micro precision required for watches.

See also: History of Lowell, Massachusetts

Japan

Main articles: Meiji Restoration and Economic history of Japan

In 1871 a group of Japanese politicians known as the Iwakura Mission
toured Europe and the USA to learn western ways. The result was a
deliberate state led industrialisation policy to prevent Japan from
falling behind. The Bank of Japan, founded in 1877, used taxes to fund
model steel and textile factories. Education was expanded and Japanese
students were sent to study in the west.

Second Industrial Revolution and later evolution
Main article: Second Industrial Revolution

Bessemer converterThe insatiable demand of the railways for more
durable rail led to the development of the means to cheaply mass-
produce steel. Steel is often cited as the first of several new areas
for industrial mass-production, which are said to characterise a
"Second Industrial Revolution", beginning around 1850, although a
method for mass manufacture of steel was not invented until the 1860s,
when Sir Henry Bessemer invented a new furnace which could make
wrought iron and steel in large quantities. However, it only became
widely available in the 1870s. This second Industrial Revolution
gradually grew to include the chemical industries, petroleum refining
and distribution, electrical industries, and, in the twentieth
century, the automotive industries, and was marked by a transition of
technological leadership from Britain to the United States and
Germany.

The introduction of hydroelectric power generation in the Alps enabled
the rapid industrialisation of coal-deprived northern Italy, beginning
in the 1890s. The increasing availability of economical petroleum
products also reduced the importance of coal and further widened the
potential for industrialisation.

Marshall McLuhan analysed the social and cultural impact of the
electric age. While the previous age of mechanisation had spread the
idea of splitting every process into a sequence, this was ended by the
introduction of the instant speed of electricity that brought
simultaneity. This imposed the cultural shift from the approach of
focusing on "specialized segments of attention" (adopting one
particular perspective), to the idea of "instant sensory awareness of
the whole", an attention to the "total field", a "sense of the whole
pattern". It made evident and prevalent the sense of "form and
function as a unity", an "integral idea of structure and
configuration". This had major impact in the disciplines of painting
(with cubism), physics, poetry, communication and educational theory.
[75]

By the 1890s, industrialisation in these areas had created the first
giant industrial corporations with burgeoning global interests, as
companies like U.S. Steel, General Electric, and Bayer AG joined the
railroad companies on the world's stock markets.

Intellectual paradigms and criticism

Capitalism

Main article: Capitalism

The advent of the Age of Enlightenment provided an intellectual
framework which welcomed the practical application of the growing body
of scientific knowledge—a factor evidenced in the systematic
development of the steam engine, guided by scientific analysis, and
the development of the political and sociological analyses,
culminating in Adam Smith's The Wealth of Nations. One of the main
arguments for capitalism, presented for example in the book The
Improving State of the World, is that industrialisation increases
wealth for all, as evidenced by raised life expectancy, reduced
working hours, and no work for children and the elderly.

Marxism

Main article: Marxism

Marxism began essentially as a reaction to the Industrial Revolution.
[76] According to Karl Marx, industrialisation polarised society into
the bourgeoisie (those who own the means of production, the factories
and the land) and the much larger proletariat (the working class who
actually perform the labour necessary to extract something valuable
from the means of production). He saw the industrialisation process as
the logical dialectical progression of feudal economic modes,
necessary for the full development of capitalism, which he saw as in
itself a necessary precursor to the development of socialism and
eventually communism.

Romanticism

Main article: Romanticism

During the Industrial Revolution an intellectual and artistic
hostility towards the new industrialisation developed. This was known
as the Romantic movement. Its major exponents in English included the
artist and poet William Blake and poets William Wordsworth, Samuel
Taylor Coleridge, John Keats, Lord Byron and Percy Bysshe Shelley. The
movement stressed the importance of "nature" in art and language, in
contrast to "monstrous" machines and factories; the "Dark satanic
mills" of Blake's poem "And did those feet in ancient time". Mary
Shelley's novel Frankenstein reflected concerns that scientific
progress might be two-edged.

See also

Business and economics portal
General
Capitalism in the nineteenth century
Deindustrialisation
Dialectics of progress
Ecological impact of colonial Americans before 1877
Economic history of the United Kingdom
Electrification
Information revolution
Pre-industrial society
Protestant work ethic
Papermaking
Paper
Scientific Revolution

Other

Industrial growth in the Muslim World
Industrial Revolution in China
Science and invention in Birmingham
Technological and industrial history of the United States

References

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1000 pulley fittings. With a fleet as large as the Royal Navy, and
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↑ Barrington Moore, Jr., Social Origins of Dictatorship and Democracy:
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the age group 0-5 began three decades later" . Although the survival
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↑ The Columbia Encyclopedia, 2008

↑ Jean Marczewski, « Y a-t-il eu un "take-off" en France ? », 1961,
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Further reading

An Introduction to the Industrial History of England, 1920,

http://books.google.com/books?vid=OCLC00224415&id=WiQEAAAAMAAJ&pg=RA1,
retrieved 2009-07-26

Ashton, Thomas S. (1948), online edition The Industrial Revolution
(1760-1830), Oxford University Press, http://www.questia.com/PM.qst?a=o&d=77198082
online edition, retrieved 2009-07-26

Berlanstein, Lenard R., ed. (1992), online edition The Industrial
Revolution and work in nineteenth-century Europe, London and New York:
Routledge,

http://www.questia.com/PM.qst?a=o&d=107622068

online edition, retrieved 2009-07-26

Clapham, J. H. (1926), online edition An Economic History of Modern
Britain: The Early Railway Age, 1820-1850, Cambridge University Press,

http://www.questia.com/PM.qst?a=o&d=83597738

online edition, retrieved 2009-07-26

Clark, Gregory (2007), [Expression error: Missing operand for > A
Farewell to Alms: A Brief Economic History of the World], Princeton
University Press
Daunton, M. J. (1995), online edition Progress and Poverty: An
Economic and Social History of Britain, 1700-1850, Oxford University
Press,

http://www.questia.com/PM.qst?a=o&d=100599398

online edition, retrieved 2009-07-26

Dunham, Arthur Louis (1955), online edition The Industrial Revolution
in France, 1815-1848, New York: Exposition Press,

http://www.questia.com/PM.qst?a=o&d=14880719

online edition, retrieved 2009-07-26

Gatrell, PETER (2004). [Expression error: Missing operand for > "Farm
to factory: a reinterpretation of the Soviet industrial revolution"].
The Economic History Review 57: 794. doi:10.1111/j.
1468-0289.2004.00295_21.x.

Jacob, Margaret C. (1997), [Expression error: Missing operand for >
Scientific Culture and the Making of the Industrial West], Oxford, UK:
Oxford University Press
Kisch, Herbert (1989), online edition From Domestic Manufacture to
Industrial Revolution The Case of the Rhineland Textile Districts,
Oxford University Press, http://www.questia.com/PM.qst?a=o&d=78932320
online edition, retrieved 2009-07-26
Mantoux, Paul (First English translation 1928, revised 1961), online
edition The Industrial Revolution in the Eighteenth Century,
http://www.questia.com/PM.qst?a=o&d=22792856 online edition, retrieved
2009-07-26

McLaughlin Green, Constance (1939), online edition Holyoke,
Massachusetts: A Case History of the Industrial Revolution in America,
New Haven, CT: Yale University Press, http://www.questia.com/PM.qst?a=o&d=8893044
online edition, retrieved 2009-07-26

Mokyr, Joel (1999), online edition The British Industrial Revolution:
An Economic Perspective, http://www.questia.com/PM.qst?a=o&d=98674232
online edition, retrieved 2009-07-26

More, Charles (2000), online edition Understanding the Industrial
Revolution, London: Routledge,

http://www.questia.com/PM.qst?a=o&d=102816164

online edition, retrieved 2009-04-17

Pollard, Sidney (1981), online edition Peaceful Conquest: The
Industrialization of Europe, 1760-1970, Oxford University Press,

http://www.questia.com/PM.qst?a=o&d=23488627

online edition, retrieved 2009-07-26

Roe, Joseph Wickham (1916), English and American Tool Builders, New
Haven, Connecticut, USA: Yale University Press, LCCN 16-011753,

http://books.google.com/books?id=X-EJAAAAIAAJ&printsec=titlepage .

Reprinted by McGraw-Hill, New York and London, 1926 (LCCN 27-024075);
and by Lindsay Publications, Inc., Bradley, IL, USA (ISBN
978-0-917914-73-7).

Smelser, Neil J. (1959), online edition Social Change in the
Industrial Revolution: An Application of Theory to the British Cotton
Industry, University of Chicago Press,

http://www.questia.com/PM.qst?a=o&d=55370383

online edition, retrieved 2009-07-26

Stearns, Peter N. (1998), online version The Industrial Revolution in
World History, Westview Press,

http://www.questia.com/PM.qst?a=o&d=6967400

online version, retrieved 2009-07-26

Smil, Vaclav (1994), online edition Energy in World History, Westview
Press,

http://www.questia.com/PM.qst?a=o&d=94468450

online edition, retrieved 2009-07-26

Snooks, G.D. (2000), [Expression error: Missing operand for > Was the
Industrial Revolution Necessary?], London & New York: Routledge

Szostak, Rick (1991), online edition The Role of Transportation in the
Industrial Revolution: A Comparison of England and France, Montréal:
McGill-Queen's University Press,

http://www.questia.com/PM.qst?a=o&d=101607770 online edition,
retrieved 2009-07-26

Toynbee, Arnold (1884), Lectures on the Industrial Revolution of the
Eighteenth Century in England, Whitefish, Montana: Kessinger
Publishing,

http://socserv2.socsci.mcmaster.ca/~econ/ugcm/3ll3/toynbee/indrev,
retrieved 2009-07-26

Uglow, Jenny (2002), [Expression error: Missing operand for > The
Lunar Men: The Friends who made the Future 1730-1810], London: Faber
and Faber

Usher, Abbott Payson (1920), online edition An Introduction to the
Industrial History of England, University of Michigan, pp. 529,

http://books.google.com/books?vid=OCLC00224415&id=WiQEAAAAMAAJ&pg=RA1-

online edition, retrieved 2009-07-26

Chambliss, William J. (editor), Problems of Industrial Society,
Reading, Massachusetts : Addison-Wesley Publishing Co, December 1973.
ISBN 9780201009583

External links

Wikimedia Commons has media related to: Industrial revolution

Industrial Revolution at the Open Directory Project

Internet Modern History Sourcebook: Industrial Revolution

"The Day the World Took Off" Six part video series from the University
of Cambridge tracing the question "Why did the Industrial Revolution
begin when and where it did."

BBC History Home Page: Industrial Revolution

National Museum of Science and Industry website: machines and
personalities

Industrial Revolution and the Standard of Living by Clark Nardinelli –
the debate over whether standards of living rose or fell.

Factory Workers in the Industrial Revolution

Revolutionary Players website

http://www.bing.com/reference/semhtml/Industrial_Revolution

[chhotemianinshallah]

Reference »
Wikipedia Articles
East India Company

In this article: Locations Images From the web: Images Videos East
India Company
For other uses, see East India Company (disambiguation).
East India Company
Fate Dissolved and activities absorbed by the British Raj
Founded 1600
Defunct 1858 (formally dissolved in 1873)

Headquarters London

The East India Company (also the East India Trading Company, English
East India Company, ("Also 1st Major International Drug Cartel & Arms
Dealer Bartering Opium for Saltpeter (Gun Powder) & International
Slave Trading")[1][2] and then the British East India Company)[3] was
an early English joint-stock company[4] that was formed initially for
pursuing trade with the East Indies, but that ended up trading mainly
with the Indian subcontinent and China. The oldest among several
similarly formed European East India Companies, the Company was
granted an English Royal Charter, under the name Governor and Company
of Merchants of London Trading into the East Indies, by Elizabeth I on
31 December 1600.[5] After a rival English company challenged its
monopoly in the late 17th century, the two companies were merged in
1708 to form the United Company of Merchants of England Trading to the
East Indies, commonly styled the Honourable East India Company,[6] and
abbreviated, HEIC;[7] the Company was colloquially referred to as John
Company,[8] and in India as Company Bahadur (Hindustani bahādur,
"brave").[9]

The East India Company traded mainly in cotton, silk, indigo dye,
saltpetre, tea, and opium. However, it also came to rule large swathes
of India, exercising military power and assuming administrative
functions, to the exclusion, gradually, of its commercial pursuits.
Company rule in India, which effectively began in 1757 after the
Battle of Plassey, lasted until 1858, when, following the events of
the Indian Rebellion of 1857, and under the Government of India Act
1858, the British Crown assumed direct administration of India in the
new British Raj. The Company itself was finally dissolved on 1 January
1874, as a result of the East India Stock Dividend Redemption Act.

The Company long held a privileged position in relation to the
English, and later the British, government. As a result, it was
frequently granted special rights and privileges, including trade
monopolies and exemptions. These caused resentment among its
competitors, who saw unfair advantage in the Company's position.
Despite this resentment, the Company remained a powerful force for
over 200 years over India.

Colonial India

Portuguese India 1510–1961
Dutch India 1605–1825
Danish India 1696–1869
French India 1759–1954
British India 1612–1947

East India Company 1612–1757
Company rule in India 1757–1857
British Raj 1858–1947
British rule in Burma 1826–1947
Princely states 1765–1947
Partition of India 1947
This box: view • [[|talk]] • edit

History

The foundation years

Soon after the defeat of the Spanish Armada in 1588, a group of
merchants of London presented a petition to Queen Elizabeth I for
permission to sail to the Indian Ocean.[10] The permission was granted
and in 1591 three ships sailed from England, around the Cape of Good
Hope, to the Arabian Sea; one of them, the Edward Bonaventure then
sailed around Cape Comorin and on to the Malay Peninsula, and
subsequently returned to England in 1594.[10] In 1596, three more
ships sailed out east, however, these were all lost at sea.[10] Two
years later, on 24 September 1598, another group of merchants of
London, having raised £30,133 in capital, met to form a corporation.
Although their first attempt was unsuccessful, they nonetheless set
about seeking the Queen's unofficial approval, purchased ships for
their venture, increased their capital to £68,373, and convened again
a year later.[10] This time they succeeded, and on 31 December 1600,
the Queen granted a Royal Charter to "George, Earl of Cumberland, and
215 Knights, Aldermen, and Burgesses" under the name, Governor and
Company of Merchants of London trading with the East Indies.[11] The
charter awarded the newly formed company, for a period of fifteen
years, a monopoly of trade (known today as a patent) with all
countries to the east of the Cape of Good Hope and to the west of the
Straits of Magellan.[11] Sir James Lancaster commanded the first East
India Company voyage in 1601.[12]

Initially, the Company struggled in the spice trade due to the
competition from the already well established Dutch. However the
Company did open a factory (trading post) in Bantam on the first
voyage and imports of pepper from Java were an important part of the
Company's trade for twenty years. The factory in Bantam was finally
closed in 1683. During this time ships belonging to the company
arrived in India, docking at Surat, which was established as a trade
transit point in 1608. In the next two years, it managed to build its
first factory in the town of Machilipatnam on the Coromandel Coast of
the Bay of Bengal. The high profits reported by the Company after
landing in India (presumably owing to a reduction in overhead costs
affected by the transit points), initially prompted King James I to
grant subsidiary licenses to other trading companies in England. But,
in 1609, he renewed the charter given to the Company for an indefinite
period, including a clause which specified that the charter would
cease to be in force if the trade turned unprofitable for three
consecutive years.

The Company was led by one Governor and 24 directors who made up the
Court of Directors. They were appointed by, and reported to, the Court
of Proprietors. The Court of Directors had ten committees reporting to
it.

Foothold in India

English traders frequently engaged in hostilities with their Dutch and
Portuguese counterparts in the Indian Ocean. The Company achieved a
major victory over the Portuguese in the Battle of Swally in 1612.
Perhaps realizing the cost of waging trade wars in remote seas, the
Company decided to explore the feasibility of gaining a territorial
foothold in mainland India, with official sanction of both countries,
and requested the Crown to launch a diplomatic mission. In 1615, Sir
Thomas Roe was instructed by James I to visit the Mughal Emperor
Nuruddin Salim Jahangir (r. 1605 - 1627) to arrange for a commercial
treaty which would give the Company exclusive rights to reside and
build factories in Surat and other areas. In return, the Company
offered to provide the Emperor with goods and rarities from the
European market. This mission was highly successful as Jahangir sent a
letter to James through Sir Thomas Roe:[13]

Upon which assurance of your royal love I have given my general
command to all the kingdoms and ports of my dominions to receive all
the merchants of the English nation as the subjects of my friend; that
in what place soever they choose to live, they may have free liberty
without any restraint; and at what port soever they shall arrive, that
neither Portugal nor any other shall dare to molest their quiet; and
in what city soever they shall have residence, I have commanded all my
governors and captains to give them freedom answerable to their own
desires; to sell, buy, and to transport into their country at their
pleasure.
For confirmation of our love and friendship, I desire your Majesty to
command your merchants to bring in their ships of all sorts of
rarities and rich goods fit for my palace; and that you be pleased to
send me your royal letters by every opportunity, that I may rejoice in
your health and prosperous affairs; that our friendship may be
interchanged and eternal.

Expansion

This section requires expansion.

The Company, benefiting from the imperial patronage, soon expanded its
commercial trading operations, eclipsing the Portuguese Estado da
India, which had established bases in Goa, Chittagong and Bombay
(which was later ceded to England as part of the dowry of Catherine de
Braganza). The Company created trading posts in Surat (where a factory
was built in 1612), Madras (1639), Bombay (1668) and Calcutta (1690).
By 1647, the Company had 23 factories, each under the command of a
factor or master merchant and governor if so chosen, and 90 employees
in India. The major factories became the walled forts of Fort William
in Bengal, Fort St George in Madras and the Bombay Castle.

In 1634, the Mughal emperor extended his hospitality to the English
traders to the region of Bengal (and in 1717 completely waived customs
duties for the trade). The company's mainstay businesses were by now
in cotton, silk, indigo dye, saltpetre and tea. All the while in
1650-56, it was making inroads into the Dutch monopoly of the spice
trade in the Malaccan straits, which the Dutch had acquired by ousting
the Portuguese in 1640-41. In 1657, Oliver Cromwell renewed the
charter of 1609, and brought about minor changes in the holding of the
Company. The status of the Company was further enhanced by the
restoration of monarchy in England. By a series of five acts around
1670, King Charles II provisioned it with the rights to autonomous
territorial acquisitions, to mint money, to command fortresses and
troops and form alliances, to make war and peace, and to exercise both
civil and criminal jurisdiction over the acquired areas.[citation
needed] In 1711, the Company established a trading post in Canton
(Guangzhou), China, to trade tea for silver.

The road to a complete monopoly

Trade monopoly

This section needs additional citations for verification.

Please help improve this article by adding reliable references.

Unsourced material may be challenged and removed. (May 2008)

The prosperity that the officers of the company enjoyed allowed them
to return to their country and establish sprawling estates and
businesses, and to obtain political power. Consequently, the Company
developed for itself a lobby in the English parliament. However, under
pressure from ambitious tradesmen and former associates of the Company
(pejoratively termed Interlopers by the Company), who wanted to
establish private trading firms in India, a deregulating act was
passed in 1694. This allowed any English firm to trade with India,
unless specifically prohibited by act of parliament, thereby annulling
the charter that was in force for almost 100 years. By an act that was
passed in 1698, a new "parallel" East India Company (officially titled
the English Company Trading to the East Indies) was floated under a
state-backed indemnity of £2 million. However, the powerful
stockholders of the old company quickly subscribed a sum of £315,000
in the new concern, and dominated the new body. The two companies
wrestled with each other for some time, both in England and in India,
for a dominant share of the trade. However, it quickly became evident
that, in practice, the original Company faced scarcely any measurable
competition. Both companies finally merged in 1708, by a tripartite
indenture involving them both as well as the state. Under this
arrangement, the merged company lent to the Treasury a sum of
£3,200,000, in return for exclusive privileges for the next three
years, after which the situation was to be reviewed. The amalgamated
company became the United Company of Merchants of England Trading to
the East Indies.[citation needed]

In the following decades there was a constant see-saw battle between
the Company lobby and the Parliament. The Company sought a permanent
establishment, while the Parliament would not willingly allow it
greater autonomy, and so relinquish the opportunity to exploit the
Company's profits. In 1712, another act renewed the status of the
Company, though the debts were repaid. By 1720, 15% of British imports
were from India, almost all passing through the Company, which
reasserted the influence of the Company lobby. The license was
prolonged until 1766 by yet another act in 1730.

At this time, Britain and France became bitter rivals. Frequent
skirmishes between them took place for control of colonial
possessions. In 1742, fearing the monetary consequences of a war, the
British government agreed to extend the deadline for the licensed
exclusive trade by the Company in India until 1783, in return for a
further loan of £1 million. The skirmishes did escalate to the feared
war. Between 1756 and 1763, the Seven Years' War diverted the state's
attention towards consolidation and defence of its territorial
possessions in Europe and its colonies in North America. The war took
place on Indian soil, between the Company troops and the French
forces. This angered the Indian people. In 1757, the Law Officers of
the Crown delivered the Pratt-Yorke opinion distinguishing overseas
territories acquired by conquest from those acquired by private
treaty. The opinion asserted that, while the Crown of Great Britain
enjoyed sovereignty over both, only the property of the former was
vested in the Crown.[14]

With the advent of the Industrial Revolution, Britain surged ahead of
its European rivals. Demand for Indian commodities was boosted by the
need to sustain the troops and the economy during the war, and by the
increased availability of raw materials and efficient methods of
production. As home to the revolution, Britain experienced higher
standards of living. Its spiralling cycle of prosperity, demand and
production had a profound influence on overseas trade. The Company
became the single largest player in the British global market. It
reserved for itself an unassailable position in the decision-making
process of the Government.

William Pyne notes in his book The Microcosm of London (1808) that

"On the 1 March 1801, the debts of the East India Company to
£5,393,989 their effects to £15,404,736 and their sales increased
since February 1793, from £4,988,300 to £7,602,041."

Saltpetre trade

Sir John Banks, a businessman from Kent who negotiated an agreement
between the King and the Company, began his career in a syndicate
arranging contracts for victualling the navy, an interest he kept up
for most of his life. He knew Pepys and John Evelyn and founded a
substantial fortune from the Levant and Indian trades. He also became
a Director and later, as Governor of the East Indian Company in 1672,
he was able to arrange a contract which included a loan of £20,000 and
£30,000 worth of saltpetre for the King 'at the price it shall sell by
the candle'[citation needed] - that is by auction - where an inch of
candle burned and as long as it was alight bidding could continue. The
agreement also included with the price 'an allowance of interest which
is to be expressed in tallies.'[citation needed] This was something of
a breakthrough in royal prerogative because previous requests for the
King to buy at the Company's auctions had been turned down as 'not
honourable or decent.'[citation needed] Outstanding debts were also
agreed and the Company permitted to export 250 tons of saltpetre.
Again in 1673, Banks successfully negotiated another contract for 700
tons of saltpetre at £37,000 between the King and the Company. So
urgent was the need to supply the armed forces in the United Kingdom,
America and elsewhere that the authorities sometimes turned a blind
eye on the untaxed sales. One governor of the Company was even
reported as saying in 1864 that he would rather have the saltpetre
made than the tax on salt.[15]

The basis for the monopoly

Colonial monopoly

Robert Clive, 1st Baron Clive, became the first British Governor of
Bengal.Further information: Great Britain in the Seven Years War
The Seven Years' War (1756 – 1763) resulted in the defeat of the
French forces and limited French imperial ambitions, also stunting the
influence of the industrial revolution in French territories. Robert
Clive, the Governor General, led the Company to an astounding victory
against Joseph François Dupleix, the commander of the French forces in
India, and recaptured Fort St George from the French. The Company took
this respite to seize Manila[16] in 1762. By the Treaty of Paris
(1763), the French were allowed to maintain their trade posts only in
small enclaves in Pondicherry, Mahe, Karikal, Yanam, and Chandernagar
without any military presence. Although these small outposts remained
French possessions for the next two hundred years, French ambitions on
Indian territories were effectively laid to rest, thus eliminating a
major source of economic competition for the Company. In contrast, the
Company, fresh from a colossal victory, and with the backing of a
disciplined and experienced army, was able to assert its interests in
the Carnatic from its base at Madras and in Bengal from Calcutta,
without facing any further obstacles from other colonial powers.
[citation needed]

Military expansion

Main article: Company rule in India

The Company continued to experience resistance from local rulers
during its expansion. Robert Clive led company forces against Siraj Ud
Daulah, the last independent Nawab of Bengal, Bihar and Orissa(only
Midnapore district) to victory at the Battle of Plassey in 1757,
resulting in the conquest of Bengal. This victory estranged the
British and the Mughals, since Siraj Ud Daulah was a Mughal feudatory
ally. But the Mughal empire was already on the wane after the demise
of Aurangzeb, and was breaking up into pieces and enclaves. After the
Battle of Buxar, Shah Alam II, the ruling emperor, gave up the
administrative rights over Bengal, Bihar, and Orissa (only Midnapore
district, rest of Orissa was under the rule of Maratha and Nizam of
Hyderabad). Clive thus became the first British Governor of Bengal.

Haidar Ali and Tipu Sultan, the legendary rulers of Mysore (in
Carnatic, modern day Indian state of Karnataka - capital city
Bangalore), gave a tough time to the British forces. Having sided with
the French during the war, the rulers of Mysore continued their
struggle against the Company with the four Anglo-Mysore Wars. Mysore
finally fell to the Company forces in 1799, with the slaying of Tipu
Sultan.

With the gradual weakening of the Maratha empire in the aftermath of
the three Anglo-Maratha wars, the British also secured Bombay and the
surrounding areas. It was during these campaigns, both against Mysore
and the Marathas, that Arthur Wellesley, later Duke of Wellington,
first showed the abilities which would lead to victory in the
Peninsular War and at the Battle of Waterloo. A particularly notable
engagement involving forces under his command was the Battle of
Assaye. Thus, the British had secured the entire region of Southern
India (with the exception of small enclaves of French and local
rulers), Western India and Eastern India.

The last vestiges of local administration were restricted to the
northern regions of Delhi, Oudh, Rajputana, and Punjab, where the
Company's presence was ever increasing amidst the infighting and
dubious offers of protection against each other. Coercive action,
threats and diplomacy aided the Company in preventing the local rulers
from putting up a united struggle against it. The hundred years from
the Battle of Plassey in 1757 to the Sepoy Mutiny of 1857 were a
period of consolidation for the Company, which began to function more
as a nation and less as a trading concern.

The first cholera pandemic began in Bengal, then spread across India
by 1820. 10,000 British troops and countless Indians died during this
pandemic.[17] Between 1736 and 1834 only some 10% of East India
Company's officers survived to take the final voyage home.[18]

Opium trade

Main article: Opium Wars

In the eighteenth century, Britain had a huge trade deficit with Qing
Dynasty China and so in 1773, the Company created a British monopoly
on opium buying in Bengal. As opium trade was illegal in China,
Company ships could not carry opium to China. So the opium produced in
Bengal was sold in Calcutta on condition that it be sent to China.[19]

Despite the Chinese ban on opium imports, reaffirmed in 1799, it was
smuggled into China from Bengal by traffickers and agency houses (such
as Jardine, Matheson and Company, Ltd.) averaging 900 tons a year. The
proceeds from drug-runners at Lintin Island were paid into the
Company’s factory at Canton and by 1825, most of the money needed to
buy tea in China was raised by the illegal opium trade. In 1838, with
opium smuggling approaching 1400 tons a year, the Chinese imposed a
death penalty on opium smuggling and sent a new governor, Lin Zexu to
curb smuggling. This finally resulted in the First Opium War,
eventually leading to the British seizure of Hong Kong.

Regulation of the company's affairs

Monopolistic activity by the company triggered the Boston Tea Party.
Financial troubles
Though the Company was becoming increasingly bold and ambitious in
putting down resisting states, it was getting clearer day by day that
the Company was incapable of governing the vast expanse of the
captured territories. The Bengal famine, in which one-third of the
local population died, set the alarm bells ringing back home. Military
and administrative costs mounted beyond control in British
administered regions in Bengal due to the ensuing drop in labour
productivity. At the same time, there was commercial stagnation and
trade depression throughout Europe following the lull in the post-
Industrial Revolution period. The desperate directors of the company
attempted to avert bankruptcy by appealing to Parliament for financial
help. This led to the passing of the Tea Act in 1773, which gave the
Company greater autonomy in running its trade in America, and allowed
it an exemption from the tea tax—which its colonial competitors were
required to pay. When the American colonists, who included tea
merchants, were told of the act, they tried to boycott it, claiming
that, although the price had gone down on the tea when enforcing the
act, it was a tax all the same, and the king should not have the right
to just have a tax for no apparent reason. The arrival of tax-exempt
Company tea, undercutting the local merchants, triggered the Boston
Tea Party in the Province of Massachusetts Bay, one of the major
events leading up to the American Revolution.

Regulating Acts of Parliament

East India Company Act 1773

By this Act (13 Geo. III, c. 63), the Parliament of Great Britain
imposed a series of administrative and economic reforms and by doing
so clearly established its sovereignty and ultimate control over the
Company. The Act recognized the Company's political functions and
clearly established that the "acquisition of sovereignty by the
subjects of the Crown is on behalf of the Crown and not in its own
right."

Despite stiff resistance from the East India lobby in parliament, and
from the Company's shareholders, the Act was passed. It introduced
substantial governmental control, and allowed the land to be formally
under the control of the Crown, but leased to the Company at £40,000
for two years. Under this provision, the governor of Bengal Warren
Hastings was promoted to the rank of Governor General, having
administrative powers over all of British India. It provided that his
nomination, though made by a court of directors, should in future be
subject to the approval of a Council of Four appointed by the Crown -
namely Lt. General John Clavering, George Monson, Richard Barwell and
Philip Francis. He was entrusted with the power of peace and war.
British judicial personnel would also be sent to India to administer
the British legal system. The Governor General and the council would
have complete legislative powers. Thus, Warren Hastings became the
first Governor-General of India. The company was allowed to maintain
its virtual monopoly over trade, in exchange for the biennial sum and
an obligation to export a minimum quantity of goods yearly to Britain.
The costs of administration were also to be met by the company. These
provisions, initially welcomed by the Company, backfired. The Company
had an annual burden on its back, and its finances continued steadily
to decline.[20]

East India Company Act (Pitt's India Act) 1784

The India Act of 1784 (24 Geo. III, s. 2, c. 25) had two key aspects:

Relationship to the British government: the bill differentiated the
East India Company's political functions from its commercial
activities. In political matters the East India Company was
subordinated to the British government directly. To accomplish this,
the Act created a Board of Commissioners for the Affairs of India,
usually referred to as the Board of Control. The members of the Board
were the Chancellor of the Exchequer, a Secretary of State, and four
Privy Councillors, nominated by the King. The act specified that the
Secretary of State "shall preside at, and be President of the said
Board".

Internal Administration of British India: the bill laid the foundation
for the centralized and bureaucratic British administration of India
which would reach its peak at the beginning of the twentieth century
during the governor-generalship of George Nathaniel Curzon, 1st Baron
Curzon.

The expanded East India House, Leadenhall Street, London, as rebuilt
1799-1800, Richard Jupp, architect (as seen c. 1817; demolished in
1929)Pitt's Act was deemed a failure because it quickly became
apparent that the boundaries between government control and the
company's powers were nebulous and highly subjective. The government
also felt obliged to respond to humanitarian calls for better
treatment of local peoples in British-occupied territories. Edmund
Burke, a former East India Company shareholder and diplomat, was moved
to address the situation and introduced a new Regulating Bill in 1783.
The bill was defeated, however, due to intense lobbying by company
loyalists and accusations of nepotism in the bill's recommendations
for the appointment of councillors.

Act of 1786

This Act (26 Geo. III c. 16) enacted the demand of Lord Cornwallis,
that the powers of the Governor-General be enlarged to empower him, in
special cases, to override the majority of his Council and act on his
own special responsibility. The Act also enabled the offices of the
Governor-General and the Commander-in-Chief to be jointly held by the
same official.

This Act clearly demarcated borders between the Crown and the Company.
After this point, the Company functioned as a regularized subsidiary
of the Crown, with greater accountability for its actions and reached
a stable stage of expansion and consolidation. Having temporarily
achieved a state of truce with the Crown, the Company continued to
expand its influence to nearby territories through threats and
coercive actions. By the middle of the 19th century, the Company's
rule extended across most of India, Burma, Malaya, Singapore and Hong
Kong, and a fifth of the world's population was under its trading
influence.

Charter Act 1813

The aggressive policies of Lord Wellesley and the Marquis of Hastings
led to the Company gaining control of all India, except for the
Punjab, Sindh and Nepal. The Indian Princes had become vassals of the
Company. But the expense of wars leading to the total control of India
strained the Company’s finances to the breaking point. The Company was
forced to petition Parliament for assistance. This was the background
to the Charter Act of 1813 (53 Geo. III c. 155) which, among other
things:

asserted the sovereignty of the British Crown over the Indian
territories held by the Company;
renewed the Charter of Company for a further twenty years but,
deprived the Company of its Indian trade monopoly except for trade in
tea and the trade with China;
required the Company to maintain separate and distinct its commercial
and territorial accounts; and,
opened India to missionaries.

Charter Act 1833

The Industrial Revolution in Britain, and the consequent search for
markets, and the rise of laissez-faire economic ideology form the
background to this act. The Act:

removed the Company's remaining trade monopolies and divested it of
all its commercial functions;
renewed for another twenty years the Company’s political and
administrative authority;
invested the Board of Control with full power and authority over the
Company. As stated by Kapur Professor Sri Ram Sharma, thus, summed up
the point: "The President of the Board of Control now became Minister
for Indian Affairs";
carried further the ongoing process of administrative centralization
through investing the Governor-General in Council with, full power and
authority to superintend and, control the Presidency Governments in
all civil and military matters;
initiated a machinery for the codification of laws;
provided that no Indian subject of the Company would be debarred from
holding any office under the Company by reason of his religion, place
of birth, descent or colour. However, this remained a dead letter well
into the 20th century;
vested the Island of St Helena in the Crown.

Meanwhile, British influence continued to expand; in 1845, the Danish
colony of Tranquebar was sold to Great Britain. The Company had at
various stages extended its influence to China, the Philippines, and
Java. It had solved its critical lack of the cash needed to buy tea by
exporting Indian-grown opium to China. China's efforts to end the
trade led to the First Opium War with Britain.

Charter Act 1853

This Act provided that British India would remain under the
administration of the Company in trust for the Crown until Parliament
should decide otherwise.

Indian Rebellion of 1857-8

Main article: Indian Rebellion of 1857

The Indian Rebellion of 1857, known to the British as the "Great
Mutiny", but to Indians as the "First War of Independence", resulted
in widespread devastation in India and condemnation of the Company for
permitting the events to occur.[citation needed] One of the
consequences was that the British government nationalized the Company.
The Company lost all its administrative powers; its Indian
possessions, including its armed forces, were taken over by the Crown
pursuant to the provisions of the Government of India Act 1858.

The Company continued to manage the tea trade on behalf of the British
government (and the supply of Saint Helena) until the East India Stock
Dividend Redemption Act came into effect, on 1 January 1874, under the
terms of which the Company was dissolved.[21]

Legacy

The East India Company has had a long lasting impact on the Indian
Subcontinent. Although dissolved following the rebellion of 1857, it
stimulated the growth of the British Empire. Its armies after 1857
were to become the armies of British India and it played a key role in
replacing the official language of India from Persian to English. Even
today the English language has official status in Pakistan and India,
being used by the government and civil service. Some phrases
introduced by the company are considered to be archaic in British
English today, such as do the needful, but live on in the English of
South Asia and are used daily.[22]

East India Club

The East India Club in London was formed in 1849 for officers of the
East India Company. The Club still exists today as a private
Gentlemen's Club and its club house is situated at 16, St. James's
Square, London.

Flags

Downman (1685)

Lens (1700)

Rees (1820)

Laurie (1842)

National Geographic (1917)

Prior to the Acts of Union which created the Kingdom of Great Britain,
the flag contained the St George's Cross in the canton representing
the Kingdom of England.

The flag had a Union Flag in the canton after the creation of the
Kingdom of Great Britain in 1707.

After 1801 the flag contains the Union Flag of the United Kingdom of
Great Britain and Ireland in the canton.(1810)

The East India Company flag changed over time. From the period of 1600
to 1707 (Act of Union between England and Scotland) the flag consisted
of a St George's cross in the canton and a number of alternating Red
and White stripes. After 1707 the canton contained the original Union
Flag consisting of a combined St George's cross and a St Andrew's
cross. After the Act of Union 1800, that joined Ireland into the
United Kingdom, the canton of the East India Company's flag was
altered accordingly to include the new Union Flag with the additional
St Patrick's cross. There has been much debate and discussion
regarding the number of stripes on the flag and the order of the
stripes. Historical documents and paintings show many variations from
9 to 13 stripes, with some images showing the top stripe being red and
others showing the top stripe being white.

It has been suggested that the stripes were inspired by the flag of
the Majapahit Empire, whose flags may still have flown across the
Spice Islands in the Company's early days.

At the time of the American Revolution the East India Company flag
would have been identical to the Grand Union Flag. The flag probably
inspired the Stars and Stripes (as argued by Sir Charles Fawcett in
1937).[23] Comparisons between the Stars and Stripes and the Company's
flag from historical records present some convincing arguments. The
John Company flag dates back to the 1600s whereas the United States
adopted the Stars and Stripes in 1777.[24]

The stripes and gridlike appearance of the flag gave rise to several
pieces of imperial slang. Most notably is the phrase 'riding the
gridiron'; this referred to travelling on a ship flying the company
flag to / from India.

Ships

A ship of the East India Company can also be called an East Indiaman.
[25]

Red Dragon

Earl of Abergavenny
Royal Captain
Agamemnon (1855)
Kent

East India Company records

Unlike all other British Government records, the records from the East
India Company (and its successor the India Office) are not in The
National Archives at Kew, London, but are stored by the British
Library in London as part of the Asia, Pacific and Africa Collection.
The catalogue is searchable online in the Access to Archives
catalogues.[26] Many of the East India Company records are freely
available online under an agreement that FIBIS have with the British
Library.

Trading Again

On 14 September 2004, the name The British East India Company Limited
[1] was purchased from The British Government Agents by Captain
William George MacDonald.

The Company Registered Number is now on The British Companies House
Register and it is Number 3667052.

The Company Head Office is The John Laird Centre, Park Road North,
Birkenhead, Wirral, CH41 4EZ, United Kingdom.

On 21 July 2006, the name and the house flag of The British East India
Company Limited was trademarked on The British Trademark Registry and
two certificates were issued.

The first certificate was for the name (The British East India Company
Limited) - Trademark Number 2404311B (Dated 28 September 2005).

The second certificate was for The Original House Flag of The British
East India Company Limited - Trademark Number 2404311A (Dated 28
September 2005).

Both trademarks belong exclusively to Captain William George MacDonald
who is Chairman of The British East India Company Limited

See also

British Empire portal
Wikimedia Commons has media related to: British East India Company

History of India

British Empire
History of South Asia series
Company rule in India
British Raj (also Crown rule in India, also British Indian Empire)
New Imperialism series
Imperialism in Asia
Chartered companies
Governor-General of India
Commander-in-Chief, India
List of BEIC directors
East India Docks, London
Blackwall Yard, London

East India Companies

Assada Company, English, founded 1635 and ceased 1657
Dutch East India Company, founded 1602 and ceased 1798
Danish East India Company, founded in 1616 and ceased 1846
Portuguese East India Company, founded 1628 and ceased 1633
French East India Company, founded 1664 and ceased 1769
Swedish East India Company, founded 1731 and ceased 1813
West India Companies
Dutch West India Company, founded 1621 and ceased 1791
French West India Company, founded 1664 and ceased 1674
Danish West India Company, founded 1671 and ceased 1776

Other trading companies:

London Virginia Company, founded 1606 and ceased 1622
Hudson's Bay Company, founded 1670 and still operating as a Canadian
corporation
Muscovy Company, founded 1555 and ceased 1917
Royal African Company founded 1660 and ceased 1752
Virginia Company of Plymouth, founded 1606 and ceased 1609
East India Company College 1805-1858
Robert Brooke 1744-1811
East India Company Cemetery in Macau
Spice wars
Indian Mutiny
British Imperial Lifeline

Notes

↑ Common Sense/Historical Fact

↑ Encyclopaedia Britannica 2008, "East India Company"

↑ 1. Columbia Encyclopedia 2007, "East India Company, British". 2.
Marx, Karl (June 25, 1853), [Expression error: Missing operand for >
"The British rule in India"], New York Daily Tribune republished in
Carter, Mia; Harlow (editors), Barbara (2003), Archives of Empire,
Raleigh: Duke University Press. Pp. 802, ISBN 0822331640,

http://books.google.com/books?id=13pyxO8o4moC&printsec=frontcover&source=gbs_summary_r&cad=0#PPA117,M1
. Quote (p. 118): "I do not allude to European despotism, planted upon
Asiatic despotism, by the British East India Company, forming a more
monstrous combination than any of the divine monsters startling us in
the temple of Salsette."

↑ The Dutch East India Company was the first to issue public stock.

↑ The Register of Letters &c. of the Governor and Company of Merchants
of London trading into the East Indies, 1600–1619. On page 3, a letter
written by Elizabeth I on January 23, 1601 ("Witnes or selfe at
Westminster the xxiiijth of Ianuarie in the xliijth yeare of or
Reigne.") states, "Haue been pleased to giue lysence vnto or said
Subjects to proceed in the said voiadgs, & for the better inabling
them to establish a trade into & from the said East Indies Haue by or
tres Pattents vnder or great seale of England beareing date at
Westminster the last daie of december last past incorporated or said
Subjecte by the name of the Gournor & Companie of the merchaunts of
London trading into the East Indies, & in the same tres Pattents haue
geven them the sole trade of theast Indies for the terme of XVteen
yeares ..."

↑ A. Oxford English Dictionary (Draft Edition, September 2008,
requires subscription) entry for "honourable": "2b. Applied as an
official or courtesy title of honour or distinction." Usage: ... the
prefix ‘Honourable’ ... is also applied to the House of Commons
collectively; ... also formerly to the East India Company, etc.
Examples: 1698 FRYER Acc. E. India & P. 38 "In pay for the Honourable
East India Company." B. Encyclopaedia Britannica 1911, "HONOURABLE
(Fr. honorable, from Lat. honorabilis, worthy of honour), a style or
title of honour common to the United Kingdom, the British colonies and
the United States of America.... The epithet is also applied to the
House of Commons as a body and to individual members during debate
('the honourable member for X.'). Certain other corporate bodies have,
by tradition or grant, the right to bear the style; e.g. the
Honourable Irish Society, the Inns of Court (Honourable Society of the
Inner Temple, &c.) and the Honourable Artillery Company; the East
India Company also had the prefix 'honourable' . The style may not be
assumed by corporate bodies at will, as was proved in the case of the
Society of Baronets, whose original style of 'Honourable' Society was
dropped by command." C. Birdwood, George (1891), Report on The Old
Record of the India Office, London: W. H. Allen & Co., Limited, and at
Calcutta,

http://books.google.com/books?id=m-WBAAAAIAAJ&pg=PA14&dq=Charter+of+1709+%22Honourable+East+India+Company%22&lr=&num=100&as_brr=1

Quote (p. 14): "The English Company [Including The General Society
chartered by William III, 3rd September 1698] trading with the East ,
commonly called "the New Company," was incorporated by William III,
5th September 1698; its charter running to 1714. The above Company of
Merchants of London and the English Company, were finally incorporated
under the name of "The United Company of Merchants of England trading
to the East [commonly styled, "the Honourable East India Company"] in
1708-9."

↑ Hawes, Christopher J. (1996), Poor Relations: The Making of a
Eurasian Community in British India, 1773-1833, London: Routledge. Pp.
217., ISBN 0700704256,

http://books.google.com/books?id=d22WUEmG49IC&pg=PR13&vq=HEIC&lr=&source=gbs_search_r&cad=1_1

Quote (p. xiii): "Abbreviations: Honourable East India Company
(HEIC)."

↑ Ride, Lindsay; Ride, May; Mellor, Bernard (1995), An East India
Company Cemetery: Protestant Burials in Macao, Hong Kong: Hong Kong
University Press. Pp. 304, ISBN 9622093841,
http://books.google.com/books?id=flbXWNoVraEC&pg=PA7&dq=charter+1709+%22honourable+east+india+company%22&lr=lang_en&num=100&as_brr=3
Quote (p. 7): "In 1709, the Company amalgamated with a rival group,
which had been chartered in 1698 by William III. This union took the
title 'The Honourable East India Company,' which was shortened for
general use to 'the Honourable Company' and more often still to John
Company, until it ceased operations in 1834, after its monopoly of
British trade with China was discontinued."

↑ Gandhi, M. K. (1997), Hind Swaraj and other writings, (Edited by
Anthony J. Parel) Cambridge and London: Cambridge University Press.
Pp. 208., ISBN 0521574315,

http://books.google.com/books?id=oc47gUOPZfcC&pg=PA39&dq=%22Company+Bahadur%22#PPA39,M1
.

Quote (p.39): "... They came to our country originally for the purpose
of trade. Recall the Company Bahadur.† Who made it Bahadur? They had
not the slightest intention at the time of establishing a kingdom. Who
assisted the Company's officers? Who was tempted by their silver? Who
bought their goods? History testifies that we did all this. ... †:
'the Company Bahadur': an honorific title by which the East India
Company was known among Indians. 'Bahadur' means brave, powerful,
sovereign."

↑ 10.0 10.1 10.2 10.3 Imperial Gazetteer of India vol. IV 1908, p.
454

↑ 11.0 11.1 Imperial Gazetteer of India vol. II 1908, p. 6

↑ Gardner, Brian (1972). The East India Company: a History. McCall
Publishing Company. ISBN 0841501246.

↑ Indian History Sourcebook: England, India, and The East Indies, 1617
A.D

↑ Thomas, P. D. G. (2008) "Pratt, Charles, first Earl Camden (1714–
1794)", Oxford Dictionary of National Biography, Oxford University
Press, online edn, accessed 15 February 2008 subscription or UK public
library membership required

↑ SALTPETER the secret salt - Salt made the world go round

↑ Company incursion, Manila 1762-1763. See the Bib. for the citation
of Sirs Draper and Cornish; see also Cushner's citation.

↑ Cholera's seven pandemics. CBC News. December 2, 2008

↑ Sahib: The British Soldier in India, 1750-1914 by Richard Holmes

↑ EAST INDIA COMPANY FACTORY RECORDS Sources from the British Library,
LondonPart 1: China and Japan

↑ Anthony, Frank. Britain's Betrayal in India: The Story of the Anglo
Indian Community. Second Edition. London: The Simon Wallenberg Press,
2007 Pages 18- 19, 42, 45.

↑ The Times reported, "It accomplished a work such as in the whole
history of the human race no other company ever attempted and as such
is ever likely to attempt in the years to come."

↑ Deccan Herald

↑ The Striped Flag Of The East India Company, And Its Connexion With
The American "Stars And Stripes"

↑ http://www.kimber.org/flag/index.htm[dead link]

↑ Sutton, Jean (1981) Lords of the East: the East India Company and
its ships. London: Conway Maritime

↑ A2A - Access to Archives Home

References

Andrews, Kenneth R. (1985). Trade, Plunder, and Settlement: Maritime
Enterprise and the Genesis of the British Empire, 1480–1630.
Cambridge, U.K.: Cambridge University Press. ISBN 0521257603.

Bowen, H. V. (1991). Revenue and Reform: The Indian Problem in British
Politics, 1757–1773. Cambridge, U.K.: Cambridge University Press. ISBN
0521403162.

Bowen, H. V.; Margarette Lincoln, and Nigel Rigby, eds. (2003). The
Worlds of the East India Company. Rochester, NY: Brewer. ISBN
0851158773.

Brenner, Robert (1993). Merchants and Revolution: Commercial Change,
Political Conflict, and London’s Overseas Traders, 1550–1653.
Princeton, NJ: Princeton University Press. ISBN 0691055947.

Carruthers, Bruce G. (1996). City of Capital: Politics and Markets in
the English Financial Revolution. Princeton, NJ: Princeton University
Press. ISBN 978-0-691-04455-2.

Chaudhuri, K. N. (1965). The English East India Company: The Study of
an Early Joint-Stock Company, 1600–1640. London: Cass.

Chaudhuri, K. N. (1978). The Trading World of Asia and the English
East India Company, 1660–1760. Cambridge, U.K.: Cambridge University
Press. ISBN 0521217164.
Farrington, Anthony (2002). Trading Places: The East India Company and
Asia, 1600–1834. London: British Library. ISBN 0712347569.

Furber, Holden (1976). Rival Empires of Trade in the Orient, 1600–
1800. Minneapolis: University of Minnesota Press. ISBN 0816607877.

Imperial Gazetteer of India vol. II (1908), [Expression error: Missing
operand for > The Indian Empire, Historical], Published under the
authority of His Majesty's Secretary of State for India in Council,
Oxford at the Clarendon Press. Pp. xxxv, 1 map, 573.

Imperial Gazetteer of India vol. IV (1908), [Expression error: Missing
operand for > The Indian Empire, Administrative], Published under the
authority of His Majesty's Secretary of State for India in Council,
Oxford at the Clarendon Press. Pp. xxx, 1 map, 552.

Lawson, Philip (1993). The East India Company: A History. London:
Longman. ISBN 0582073863.

Sen, Sudipta (1998). Empire of Free Trade: The East India Company and
the Making of the Colonial Marketplace. Philadelphia: University of
Pennsylvania Press. ISBN 978-0812234268.

Steensgaard, Niels (1975). The Asian Trade Revolution of the
Seventeenth Century: The East India Companies and the Decline of the
Caravan Trade. Chicago: University of Chicago Press. ISBN 0226771385.

Dirks, Nicholas (2006). The Scandal of EMPIRE : India and the creation
of Imperial Britain. Cambridge, Massachusetts, London, England: The
Belknap Press of Harvard University Press. ISBN 0674021665.

External links

The Twilight of the East India Company: The Evolution of Anglo-Asian
Commerce and Politics, 1790-1860: Boydell & Brewer, Woodbridge, 2009
From Trade to Colonization: Historical Dynamics of the East India
Companies
Seals and Insignias of East India Company
The Secret Trade The basis of the monopoly.

Trading Places - a learning resource from the British Library

Trading Places: The East India Company and Asia, a free seminar from
the British Library on the history of the British East India Company.

Port Cities: History of the East India Company

Ships of the East India Company

Plant Cultures: East India Company in India

Library of Congress Federal Research Division Country Studies

History and Politics: East India Company

English Expansionism

Nick Robins, New Statesman, 13 December 2004, "The world's first
multinational"
Karl Marx, New York Tribune, 1853–1858, The Revolt in India

East India Company: Its History and Results article by Karl Marx, MECW
Volume 12, p. 148

East India Club Gentlemen's club originally for officers and former
officers of the Company, now open to others.

Text of East India Company Act 1773

Text of East India Company Act 1784

John Stuart Mill and The East India Company, Vinay Lal's review of
Lynn Zastoupil's 1994 book

The Richest East India Merchant: The Life and Business of John Palmer
of Calcutta, 1767-1836 (Worlds of the East India Company) by Anthony
Webster
"The East India Company – a corporate route to Europe" on BBC Radio
4’s In Our Time featuring Huw Bowen, Linda Colley and Maria Misra

A timeline of India in the 1800s

History

Mole Timeline: The British East India Company
showv • [[|d]] • eChartered companies

British Company of Merchant Adventurers of London · Company of
Merchant Adventurers · London and Bristol Company · African Company of
Merchants · Muscovy Company · Spanish Company · Eastland Company ·
Morocco Company · East India Company · Levant Company · Virginia
Company · French Company · Massachusetts Bay Company · Providence
Island Company · Royal West Indian Company · Hudson's Bay Company ·
Royal African Company · Greenland Company · South Sea Company · Sierra
Leone Company · North Borneo Company · Royal Niger Company · South
Africa Company

French Company of One Hundred Associates · Compagnie de l'Occident ·
Compagnie du Mississippi · Compagnie des Îles de l'Amérique ·
Compagnie des Indes Occidentales · Compagnie des Indes Orientales

German Brandenburg African Company · Emden Company · West African
Company · New Guinea Company · East Africa Company

Portuguese Companhia da Guiné · Companhia de Moçambique · Companhia do
Niassa

Low Countries Dutch East India Company · Nordic Company · New
Netherland Company · Dutch West India Company · Ostend Company

Scandinavian Danish East India Company · Danish West India Company ·
Royal Greenland · New Sweden Company · Swedish Africa Company ·
Swedish East India Company · Swedish West India Company · Swedish
Levant Company

http://www.bing.com/reference/semhtml/East_India_Company

[chhotemianinshallah]

Reference »
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Economics

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Economics
This article is about the social science. For other uses, see
Economics (disambiguation).

Economists study trade, production and consumption decisions, such as
those that occur in a traditional marketplace. Look up economics in
Wiktionary, the free dictionary.
For a topical guide to this subject, see Outline of economicss.
Economics is the social science that studies the production,
distribution, and consumption of goods and services. The term
economics comes from the Ancient Greek οἰκονομία (oikonomia,
"management of a household, administration") from οἶκος (oikos,
"house") + νόμος (nomos, "custom" or "law"), hence "rules of the
house(hold)". [1] Current economic models developed out of the broader
field of political economy in the late 19th century, owing to a desire
to use an empirical approach more akin to the physical sciences. [2]

A definition that captures much of modern economics is that of Lionel
Robbins in a 1932 essay:

"... the science which studies human behaviour as a relationship
between ends and scarce means which have alternative uses." [3]

Scarcity means that available resources are insufficient to satisfy
all wants and needs. Absent of scarcity and alternative uses of
available resources there is no economic problem. The subject thus
defined involves the study of choices as they are affected by
incentives and resources.

Economics aims to explain how economies work and how economic agents
interact. Economic analysis is applied throughout society, in
business, finance and government, but also in crime,[4] education,[5]
the family, health, law, politics, religion,[6] social institutions,
war,[7] and science.[8] The expanding domain of economics in the
social sciences has been described as economic imperialism.[9][10]

Common distinctions are drawn between various dimensions of economics:
between positive economics (describing "what is") and normative
economics (advocating "what ought to be") or between economic theory
and applied economics or between mainstream economics (more "orthodox"
dealing with the "rationality-individualism-equilibrium nexus") and
heterodox economics (more "radical" dealing with the "institutions-
history-social structure nexus"[11]). However the primary textbook
distinction is between microeconomics ("small" economics), which
examines the economic behavior of agents (including individuals and
firms) and macroeconomics ("big" economics), addressing issues of
unemployment, inflation, monetary and fiscal policy for an entire
economy.

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The economy: concept and history
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History of economic thought

The upper part of the stele of Hammurabi's code of lawsMain article:
History of economic thought
The city states of Sumer developed a trade and market economy based
originally on the commodity money of the Shekel which was a certain
weight measure of barley, while the Babylonians and their city state
neighbors later developed the earliest system of economics using a
metric of various commodities, that was fixed in a legal code.[12] The
early law codes from Sumer could be considered the first (written)
economic formula, and had many attributes still in use in the current
price system today... such as codified amounts of money for business
deals (interest rates), fines in money for 'wrong doing', inheritance
rules, laws concerning how private property is to be taxed or divided,
etc.[13][14] For a summary of the laws, see Babylonian law and Ancient
economic thought.

Economic thought dates from earlier Mesopotamian, Greek, Roman,
Indian, Chinese, Persian and Arab civilizations. Notable writers
include Aristotle, Chanakya (also known as Kautilya), Qin Shi Huang,
Thomas Aquinas and Ibn Khaldun through to the 14th century. Joseph
Schumpeter initially considered the late scholastics of the 14th to
17th centuries as "coming nearer than any other group to being the
'founders' of scientific economics" as to monetary, interest, and
value theory within a natural-law perspective.[15] After discovering
Ibn Khaldun's Muqaddimah, however, Schumpeter later viewed Ibn Khaldun
as being the closest forerunner of modern economics,[16] as many of
his economic theories were not known in Europe until relatively modern
times.[17]

Nonetheless, recent research indicates that the Indian scholar-
philosopher Chanakya (c. 340-293 BCE) predates Ibn Khaldun by a
millennium and a half as the forerunner of modern economics,[18][19]
[20][21] and has written more expansively on this subject,
particularly on political economy. His magnum opus, the Arthashastra
(The Science of Wealth and Welfare),[22] is the genesis of economic
concepts that include the opportunity cost, the demand-supply
framework, diminishing returns, marginal analysis, public goods, the
distinction between the short run and the long run, asymmetric
information and the producer surplus.[23] In his capacity as an
advisor to the throne of the Maurya Empire of ancient India, he has
also advised on the sources and prerequisites of economic growth,
obstacles to it and on tax incentives to encourage economic growth.
[24]

1638 painting of a French seaport during the heyday of mercantilismTwo
other groups, later called 'mercantilists' and 'physiocrats', more
directly influenced the subsequent development of the subject. Both
groups were associated with the rise of economic nationalism and
modern capitalism in Europe. Mercantilism was an economic doctrine
that flourished from the 16th to 18th century in a prolific pamphlet
literature, whether of merchants or statesmen. It held that a nation's
wealth depended on its accumulation of gold and silver. Nations
without access to mines could obtain gold and silver from trade only
by selling goods abroad and restricting imports other than of gold and
silver. The doctrine called for importing cheap raw materials to be
used in manufacturing goods, which could be exported, and for state
regulation to impose protective tariffs on foreign manufactured goods
and prohibit manufacturing in the colonies.[25][26]

Physiocrats, a group of 18th century French thinkers and writers,
developed the idea of the economy as a circular flow of income and
output. Adam Smith described their system "with all its imperfections"
as "perhaps the purest approximation to the truth that has yet been
published" on the subject. Physiocrats believed that only agricultural
production generated a clear surplus over cost, so that agriculture
was the basis of all wealth.

Thus, they opposed the mercantilist policy of promoting manufacturing
and trade at the expense of agriculture, including import tariffs.
Physiocrats advocated replacing administratively costly tax
collections with a single tax on income of land owners. Variations on
such a land tax were taken up by subsequent economists (including
Henry George a century later) as a relatively non-distortionary source
of tax revenue. In reaction against copious mercantilist trade
regulations, the physiocrats advocated a policy of laissez-faire,
which called for minimal government intervention in the economy.[27]
[28]

Classical political economy

Main article: Classical economics

Publication of Adam Smith's The Wealth of Nations in 1776, has been
described as "the effective birth of economics as a separate
discipline."[29] The book identified land, labor, and capital as the
three factors of production and the major contributors to a nation's
wealth.

Adam Smith wrote The Wealth of NationsIn Smith's view, the ideal
economy is a self-regulating market system that automatically
satisfies the economic needs of the populace. He described the market
mechanism as an "invisible hand" that leads all individuals, in
pursuit of their own self-interests, to produce the greatest benefit
for society as a whole. Smith incorporated some of the Physiocrats'
ideas, including laissez-faire, into his own economic theories, but
rejected the idea that only agriculture was productive.

In his famous invisible-hand analogy, Smith argued for the seemingly
paradoxical notion that competitive markets tended to advance broader
social interests, although driven by narrower self-interest. The
general approach that Smith helped initiate was called political
economy and later classical economics. It included such notables as
Thomas Malthus, David Ricardo, and John Stuart Mill writing from about
1770 to 1870.[30]

While Adam Smith emphasized the production of income, David Ricardo
focused on the distribution of income among landowners, workers, and
capitalists. Ricardo saw an inherent conflict between landowners on
the one hand and labor and capital on the other. He posited that the
growth of population and capital, pressing against a fixed supply of
land, pushes up rents and holds down wages and profits.

Malthus cautioned law makers on the effects of poverty reduction
policiesThomas Robert Malthus used the idea of diminishing returns to
explain low living standards. Population, he argued, tended to
increase geometrically, outstripping the production of food, which
increased arithmetically. The force of a rapidly growing population
against a limited amount of land meant diminishing returns to labor.
The result, he claimed, was chronically low wages, which prevented the
standard of living for most of the population from rising above the
subsistence level.

Malthus also questioned the automatic tendency of a market economy to
produce full employment. He blamed unemployment upon the economy's
tendency to limit its spending by saving too much, a theme that lay
forgotten until John Maynard Keynes revived it in the 1930s.

Coming at the end of the Classical tradition, John Stuart Mill parted
company with the earlier classical economists on the inevitability of
the distribution of income produced by the market system. Mill pointed
to a distinct difference between the market's two roles: allocation of
resources and distribution of income. The market might be efficient in
allocating resources but not in distributing income, he wrote, making
it necessary for society to intervene.

Value theory was important in classical theory. Smith wrote that the

"real price of every thing ... is the toil and trouble of acquiring

it" as influenced by its scarcity. Smith maintained that, with rent
and profit, other costs besides wages also enter the price of a

commodity.[31] Other classical economists presented variations on

Smith, termed the 'labour theory of value'. Classical economics
focused on the tendency of markets to move to long-run equilibrium.

Marxism

Main article: Marxian economics

The Marxist school of economic thought comes from the work of German
economist Karl Marx.Marxist (later, Marxian) economics descends from
classical economics. It derives from the work of Karl Marx. The first
volume of Marx's major work, Das Kapital, was published in German in

1867. In it, Marx focused on the labour theory of value and what he

considered to be the exploitation of labour by capital.[32][33] The

labour theory of value held that the value of a thing was determined
by the labor that went into its production. This contrasts with the

modern understanding that the value of a thing is determined by what

one is willing to give up to obtain the thing.

Neoclassical economics

Main article: Neoclassical economics

A body of theory later termed 'neoclassical economics' or
'marginalism' formed from about 1870 to 1910. The term 'economics' was
popularized by such neoclassical economists as Alfred Marshall as a
concise synonym for 'economic science' and a substitute for the

earlier, broader term 'political economy'.[34][35] This corresponded

to the influence on the subject of mathematical methods used in the

natural sciences.[2]

Neoclassical economics systematized supply and demand as joint
determinants of price and quantity in market equilibrium, affecting
both the allocation of output and the distribution of income. It

dispensed with the labour theory of value inherited from classical
economics in favor of a marginal utility theory of value on the demand
side and a more general theory of costs on the supply side.[36]

In microeconomics, neoclassical economics represents incentives and
costs as playing a pervasive role in shaping decision making. An
immediate example of this is the consumer theory of individual demand,
which isolates how prices (as costs) and income affect quantity
demanded. In macroeconomics it is reflected in an early and lasting
neoclassical synthesis with Keynesian macroeconomics.[37][38]

Neoclassical economics is occasionally referred as orthodox economics
whether by its critics or sympathizers. Modern mainstream economics
builds on neoclassical economics but with many refinements that either
supplement or generalize earlier analysis, such as econometrics, game
theory, analysis of market failure and imperfect competition, and the
neoclassical model of economic growth for analyzing long-run variables
affecting national income.

Keynesian economics

Main articles: Keynesian economics and Post-Keynesian economics

John Maynard Keynes (above, right), widely considered a key theorist
in economics.Keynesian economics derives from John Maynard Keynes, in
particular his book The General Theory of Employment, Interest and
Money (1936), which ushered in contemporary macroeconomics as a
distinct field.[39][40] The book focused on determinants of national
income in the short run when prices are relatively inflexible. Keynes
attempted to explain in broad theoretical detail why high labour-
market unemployment might not be self-correcting due to low "effective
demand" and why even price flexibility and monetary policy might be
unavailing. Such terms as "revolutionary" have been applied to the
book in its impact on economic analysis.[41][42][43]

Keynesian economics has two successors. Post-Keynesian economics also
concentrates on macroeconomic rigidities and adjustment processes.
Research on micro foundations for their models is represented as based
on real-life practices rather than simple optimizing models. It is
generally associated with the University of Cambridge and the work of
Joan Robinson.[44]

New-Keynesian economics is also associated with developments in the
Keynesian fashion. Within this group researchers tend to share with
other economists the emphasis on models employing micro foundations
and optimizing behavior but with a narrower focus on standard
Keynesian themes such as price and wage rigidity. These are usually
made to be endogenous features of the models, rather than simply
assumed as in older Keynesian-style ones.

Chicago School of economics

Main article: Chicago school (economics)

The Chicago School of economics is best known for its free market
advocacy and monetarist ideas. According to Milton Friedman and
monetarists, market economies are inherently stable if left to
themselves and depressions result only from government intervention.
[45] Friedman, for example, argued that the Great Depression was
result of a contraction of the money supply, controlled by the Federal
Reserve, and not by the lack of investment as Keynes had argued. Ben
Bernanke, current Chairman of the Federal Reserve, is among the
economists today generally accepting Friedman's analysis of the causes
of the Great Depression.[46]

Milton Friedman effectively took many of the basic principles set
forth by Adam Smith and the classical economists and modernized them.
One example of this is his article in the September 1970 issue of The
New York Times Magazine, where he claims that the social
responsibility of business should be “to use its resources and engage
in activities designed to increase its profits...(through) open and
free competition without deception or fraud.” [47]

Other schools and approaches

Main article: Schools of economics

Other well-known schools or trends of thought referring to a
particular style of economics practiced at and disseminated from well-
defined groups of academicians that have become known worldwide,
include the Austrian School, the Freiburg School, the School of
Lausanne, post-Keynesian economics and the Stockholm school.
Contemporary mainstream economics is sometimes separated into the
Saltwater approach of those universities along the Eastern and Western
coasts of the US, and the Freshwater, or Chicago-school approach.

Within macroeconomics there is, in general order of their appearance
in the literature; classical economics, Keynesian economics, the
neoclassical synthesis, post-Keynesian economics, monetarism, new
classical economics, and supply-side economics. Alternative
developments include ecological economics, institutional economics,
evolutionary economics, dependency theory, structuralist economics,
world systems theory, econophysics, and biophysical economics.[48]

Microeconomics

Main article: Microeconomics

Microeconomics looks at interactions through individual markets, given
scarcity and government regulation. A given market might be for a
product, say fresh corn, or the services of a factor of production,
say bricklaying. The theory considers aggregates of quantity demanded
by buyers and quantity supplied by sellers at each possible price per
unit. It weaves these together to describe how the market may reach
equilibrium as to price and quantity or respond to market changes over
time.

This is broadly termed supply and demand analysis. Market structures,
such as perfect competition and monopoly, are examined as to
implications for behavior and economic efficiency. Analysis of change
in a single market often proceeds from the simplifying assumption that
behavioral relations in other markets remain unchanged, that is,
partial-equilibrium analysis. General-equilibrium theory allows for
changes in different markets and aggregates across all markets,
including their movements and interactions toward equilibrium.[49][50]

Markets

Main articles: Production-possibility frontier, Opportunity cost, and
Production theory basics

In microeconomics, production is the conversion of inputs into
outputs. It is an economic process that uses resources to create a
commodity that is suitable for exchange. This can include
manufacturing, warehousing, shipping, and packaging. Some economists
define production broadly as all economic activity other than
consumption. They see every commercial activity other than the final
purchase as some form of production. Production is a process, and as
such it occurs through time and space. Because it is a flow concept,
production is measured as a "rate of output per period of time".

There are three aspects to production processes, including the
quantity of the commodity produced, the form of the good created and
the temporal and spatial distribution of the commodity produced.
Opportunity cost expresses the idea that for every choice, the true
economic cost is the next best opportunity. Choices must be made
between desirable yet mutually exclusive actions. It has been
described as expressing "the basic relationship between scarcity and
choice.".[51] The notion of opportunity cost plays a crucial part in
ensuring that scarce resources are used efficiently.[52] Thus,
opportunity costs are not restricted to monetary or financial costs:
the real cost of output forgone, lost time, pleasure or any other
benefit that provides utility should also be considered.

The inputs or resources used in the production process are called
factors of production. Possible inputs are typically grouped into six
categories. These factors are raw materials, machinery, labour
services, capital goods, land, and enterprise. In the short-run, as
opposed to the long-run, at least one of these factors of production
is fixed. Examples include major pieces of equipment, suitable factory
space, and key personnel.

A variable factor of production is one whose usage rate can be changed
easily. Examples include electrical power consumption, transportation
services, and most raw material inputs. In the "long-run", all of
these factors of production can be adjusted by management. In the
short run, a firm's "scale of operations" determines the maximum
number of outputs that can be produced, but in the long run, there are
no scale limitations. Long-run and short-run changes play an important
part in economic models.

Economic efficiency describes how well a system generates the maximum
desired output a with a given set of inputs and available technology.
Efficiency is improved if more output is generated without changing
inputs, or in other words, the amount of "friction" or "waste" is
reduced. Economists look for Pareto efficiency, which is reached when
a change cannot make someone better off without making someone else
worse off.

Economic efficiency is used to refer to a number of related concepts.
A system can be called economically efficient if: No one can be made
better off without making someone else worse off, more output cannot
be obtained without increasing the amount of inputs, and production
ensures the lowest possible per unit cost. These definitions of
efficiency are not exactly equivalent. However, they are all
encompassed by the idea that nothing more can be achieved given the
resources available.

Specialization

Main articles: Division of labour, Comparative advantage, and Gains
from trade
Specialization is considered key to economic efficiency because
different individuals or countries have different comparative
advantages. While one country may have an absolute advantage in every
area over other countries, it could nonetheless specialize in the area
which it has a relative comparative advantage, and thereby gain from
trading with countries which have no absolute advantages. For example,
a country may specialize in the production of high-tech knowledge
products, as developed countries do, and trade with developing nations
for goods produced in factories, where labor is cheap and plentiful.

According to theory, in this way more total products and utility can
be achieved than if countries produced their own high-tech and low-
tech products. The theory of comparative advantage is largely the
basis for the typical economist's belief in the benefits of free
trade. This concept applies to individuals, farms, manufacturers,
service providers, and economies. Among each of these production
systems, there may be a corresponding division of labour with each
worker having a distinct occupation or doing a specialized task as
part of the production effort, or correspondingly different types of
capital equipment and differentiated land uses.[53][54][55]

Adam Smith's Wealth of Nations (1776) discusses the benefits of the
division of labour. Smith noted that an individual should invest a

resource, for example, land or labour, so as to earn the highest
possible return on it. Consequently, all uses of the resource should

yield an equal rate of return (adjusted for the relative riskiness of
each enterprise). Otherwise reallocation would result. This idea,
wrote George Stigler, is the central proposition of economic theory,
and is today called the marginal productivity theory of income
distribution. French economist Turgot had made the same point in 1766.
[56]

In more general terms, it is theorized that market incentives,
including prices of outputs and productive inputs, select the
allocation of factors of production by comparative advantage, that is,
so that (relatively) low-cost inputs are employed to keep down the
opportunity cost of a given type of output. In the process, aggregate
output increases as a by product or by design.[57] Such specialization
of production creates opportunities for gains from trade whereby
resource owners benefit from trade in the sale of one type of output
for other, more highly-valued goods. A measure of gains from trade is
the increased output (formally, the sum of increased consumer surplus
and producer profits) from specialization in production and resulting
trade.[58][59][60]

Supply and demand

Main article: Supply and demand

The supply and demand model describes how prices vary as a result of a
balance between product availability and demand. The graph depicts an
increase (that is, right-shift) in demand from D1 to D2 along with the
consequent increase in price and quantity required to reach a new
equilibrium point on the supply curve (S).The theory of demand and
supply is an organizing principle to explain prices and quantities of
goods sold and changes thereof in a market economy. In microeconomic
theory, it refers to price and output determination in a perfectly
competitive market. This has served as a building block for modeling
other market structures and for other theoretical approaches.

For a given market of a commodity, demand shows the quantity that all
prospective buyers would be prepared to purchase at each unit price of
the good. Demand is often represented using a table or a graph
relating price and quantity demanded (see boxed figure). Demand theory
describes individual consumers as rationally choosing the most
preferred quantity of each good, given income, prices, tastes, etc. A
term for this is 'constrained utility maximization' (with income as
the constraint on demand). Here, utility refers to the (hypothesized)
preference relation for individual consumers. Utility and income are
then used to model hypothesized properties about the effect of a price
change on the quantity demanded.

The law of demand states that, in general, price and quantity demanded
in a given market are inversely related. In other words, the higher
the price of a product, the less of it people would be able and
willing to buy of it (other things unchanged). As the price of a
commodity rises, overall purchasing power decreases (the income
effect) and consumers move toward relatively less expensive goods (the
substitution effect). Other factors can also affect demand; for
example an increase in income will shift the demand curve outward
relative to the origin, as in the figure.

Supply is the relation between the price of a good and the quantity
available for sale from suppliers (such as producers) at that price.
Supply is often represented using a table or graph relating price and
quantity supplied. Producers are hypothesized to be profit-maximizers,
meaning that they attempt to produce the amount of goods that will
bring them the highest profit. Supply is typically represented as a
directly proportional relation between price and quantity supplied
(other things unchanged).

In other words, the higher the price at which the good can be sold,
the more of it producers will supply. The higher price makes it
profitable to increase production. At a price below equilibrium, there
is a shortage of quantity supplied compared to quantity demanded. This
pulls the price up. At a price above equilibrium, there is a surplus
of quantity supplied compared to quantity demanded. This pushes the
price down. The model of supply and demand predicts that for given
supply and demand curves, price and quantity will stabilize at the
price that makes quantity supplied equal to quantity demanded. This is
at the intersection of the two curves in the graph above, market
equilibrium.

For a given quantity of a good, the price point on the demand curve
indicates the value, or marginal utility[61] to consumers for that
unit of output. It measures what the consumer would be prepared to pay
for the corresponding unit of the good. The price point on the supply
curve measures marginal cost, the increase in total cost to the
supplier for the corresponding unit of the good. The price in
equilibrium is determined by supply and demand. In a perfectly
competitive market, supply and demand equate cost and value at
equilibrium.[62]

Demand and supply can also be used to model the distribution of income
to the factors of production, including labour and capital, through
factor markets. In a labour market for example, the quantity of labour
employed and the price of labour (the wage rate) are modeled as set by
the demand for labour (from business firms etc. for production) and
supply of labour (from workers).

Demand and supply are used to explain the behavior of perfectly
competitive markets, but their usefulness as a standard of performance
extends to any type of market. Demand and supply can also be
generalized to explain variables applying to the whole economy, for
example, quantity of total output and the general price level, studied
in macroeconomics.

In supply-and-demand analysis, the price of a good coordinates
production and consumption quantities. Price and quantity have been
described as the most directly observable characteristics of a good
produced for the market.[63] Supply, demand, and market equilibrium
are theoretical constructs linking price and quantity. But tracing the
effects of factors predicted to change supply and demand—and through
them, price and quantity—is a standard exercise in applied
microeconomics and macroeconomics. Economic theory can specify under
what circumstances price serves as an efficient communication device
to regulate quantity.[64] A real-world application might attempt to
measure how much variables that increase supply or demand change price
and quantity.

Marginalism is the use of marginal concepts within economics. Marginal
concepts are associated with a specific change in the quantity used of
a good or of a service, as opposed to some notion of the over-all
significance of that class of good or service, or of some total
quantity thereof. The central concept of marginalism proper is that of
marginal utility, but marginalists following the lead of Alfred
Marshall were further heavily dependent upon the concept of marginal
physical productivity in their explanation of cost; and the
neoclassical tradition that emerged from British marginalism generally
abandoned the concept of utility and gave marginal rates of
substitution a more fundamental rôle in analysis.

Market failure

Main articles: Market failure, Government failure, Information
economics, Environmental economics, and Agricultural economics

Pollution can be a simple example of market failure. If costs of
production are not borne by producers but are by the environment,
accident victims or others, then prices are distorted.The term "market
failure" encompasses several problems which may undermine standard
economic assumptions. Although economists categorise market failures
differently,[65] the following categories emerge in the main texts.
[66]

Natural monopoly, or the overlapping concepts of "practical" and
"technical" monopoly, involves a failure of competition as a restraint
on producers. The problem is described as one where the more of a
product is made, the greater the returns are. This means it only makes
economic sense to have one producer.

Information asymmetries arise where one party has more or better
information than the other. The existence of information asymmetry
gives rise to problems such as moral hazard, and adverse selection,
studied in contract theory. The economics of information has relevance
in many fields, including finance, insurance, contract law, and
decision-making under risk and uncertainty.[67]

Incomplete markets is a term used for a situation where buyers and
sellers do not know enough about each other's positions to price goods
and services properly. Based on George Akerlof's Market for Lemons
article, the paradigm example is of a dodgy second hand car market.
Customers without the possibility to know for certain whether they are
buying a "lemon" will push the average price down below what a good
quality second hand car would be. In this way, prices may not reflect
true values.

Public goods are goods which are undersupplied in a typical market.
The defining features are that people can consume public goods without
having to pay for them and that more than one person can consume the
good at the same time.

Externalities occur where there are significant social costs or
benefits from production or consumption that are not reflected in
market prices. For example, air pollution may generate a negative
externality, and education may generate a positive externality (less
crime, etc.). Governments often tax and otherwise restrict the sale of
goods that have negative externalities and subsidize or otherwise
promote the purchase of goods that have positive externalities in an
effort to correct the price distortions caused by these externalities.
[68] Elementary demand-and-supply theory predicts equilibrium but not
the speed of adjustment for changes of equilibrium due to a shift in
demand or supply.[69]

In many areas, some form of price stickiness is postulated to account
for quantities, rather than prices, adjusting in the short run to
changes on the demand side or the supply side. This includes standard
analysis of the business cycle in macroeconomics. Analysis often
revolves around causes of such price stickiness and their implications
for reaching a hypothesized long-run equilibrium. Examples of such
price stickiness in particular markets include wage rates in labour
markets and posted prices in markets deviating from perfect
competition.

Macroeconomic instability, addressed below, is a prime source of
market failure, whereby a general loss of business confidence or
external shock can grind production and distribution to a halt,
undermining ordinary markets that are otherwise sound.

Environmental scientist sampling waterSome specialised fields of
economics deal in market failure more than others. The economics of
the public sector is one example, since where markets fail, some kind
of regulatory or government programme is the remedy. Much
environmental economics concerns externalities or "public bads".

Policy options include regulations that reflect cost-benefit analysis
or market solutions that change incentives, such as emission fees or
redefinition of property rights.[70][71]

Firms

Main articles: Theory of the firm, Industrial organization, Labour
economics, Financial economics, Business economics, and Managerial
economics

In Virtual Markets, buyer and seller are not present and trade via
intermediates and electronic information. Pictured: São Paulo Stock
Exchange.One of the assumptions of perfectly competitive markets is
that there are many producers, none of whom can influence prices or
act independently of market forces. In reality, however, people do not
simply trade on markets, they work and produce through firms. The most
obvious kinds of firms are corporations, partnerships and trusts.
According to Ronald Coase people begin to organise their production in
firms when the costs of doing business becomes lower than doing it on
the market.[72] Firms combine labour and capital, and can achieve far
greater economies of scale (when producing two or more things is
cheaper than one thing) than individual market trading.

Labour economics seeks to understand the functioning of the market and
dynamics for labour. Labour markets function through the interaction
of workers and employers. Labour economics looks at the suppliers of
labour services (workers), the demanders of labour services
(employers), and attempts to understand the resulting patterns of
wages and other labour income and of employment and unemployment,
Practical uses include assisting the formulation of full employment of
policies.[73]

Industrial organization studies the strategic behavior of firms, the
structure of markets and their interactions. The common market
structures studied include perfect competition, monopolistic
competition, various forms of oligopoly, and monopoly.[74]

Financial economics, often simply referred to as finance, is concerned
with the allocation of financial resources in an uncertain (or risky)
environment. Thus, its focus is on the operation of financial markets,
the pricing of financial instruments, and the financial structure of
companies.[75]

Managerial economics applies microeconomic analysis to specific
decisions in business firms or other management units. It draws
heavily from quantitative methods such as operations research and
programming and from statistical methods such as regression analysis
in the absence of certainty and perfect knowledge. A unifying theme is
the attempt to optimize business decisions, including unit-cost
minimization and profit maximization, given the firm's objectives and
constraints imposed by technology and market conditions.[76][77]

Public sector

Main articles: Economics of the public sector and Public finance

See also: Welfare economics

Public finance is the field of economics that deals with budgeting the
revenues and expenditures of a public sector entity, usually
government. The subject addresses such matters as tax incidence (who
really pays a particular tax), cost-benefit analysis of government
programs, effects on economic efficiency and income distribution of
different kinds of spending and taxes, and fiscal politics. The
latter, an aspect of public choice theory, models public-sector
behavior analogously to microeconomics, involving interactions of self-
interested voters, politicians, and bureaucrats.[78]

Much of economics is positive, seeking to describe and predict
economic phenomena. Normative economics seeks to identify what is
economically good and bad.

Welfare economics is a normative branch of economics that uses
microeconomic techniques to simultaneously determine the allocative
efficiency within an economy and the income distribution associated
with it. It attempts to measure social welfare by examining the
economic activities of the individuals that comprise society.[79]

Macroeconomics

A depiction of the circular flow of incomeMain article: Macroeconomics
Macroeconomics examines the economy as a whole to explain broad
aggregates and their interactions "top down," that is, using a
simplified form of general-equilibrium theory.[80] Such aggregates
include national income and output, the unemployment rate, and price
inflation and subaggregates like total consumption and investment
spending and their components. It also studies effects of monetary
policy and fiscal policy.

Since at least the 1960s, macroeconomics has been characterized by
further integration as to micro-based modeling of sectors, including
rationality of players, efficient use of market information, and
imperfect competition.[81] This has addressed a long-standing concern
about inconsistent developments of the same subject.[82]

Macroeconomic analysis also considers factors affecting the long-term
level and growth of national income. Such factors include capital
accumulation, technological change and labor force growth.[83][84]

Growth

World map showing GDP real growth rates for 2008Main articles:
Economic growth and General equilibrium

Growth economics studies factors that explain economic growth – the
increase in output per capita of a country over a long period of time.
The same factors are used to explain differences in the level of
output per capita between countries, in particular why some countries
grow faster than others, and whether countries converge at the same
rates of growth.

Much-studied factors include the rate of investment, population
growth, and technological change. These are represented in theoretical
and empirical forms (as in the neoclassical and endogenous growth
models) and in growth accounting.[85][86]

The Business Cycle

Main article: Business cycle

See also: Circular flow of income, Aggregate supply, Aggregate demand,
Unemployment, and Great Depression

The economics of a depression were the spur for the creation of
"macroeconomics" as a separate discipline field of study. During the
Great Depression of the 1930s, John Maynard Keynes authored a book
entitled The General Theory of Employment, Interest and Money
outlining the key theories of Keynesian economics. Keynes contended
that aggregate demand for goods might be insufficient during economic
downturns, leading to unnecessarily high unemployment and losses of
potential output.

He therefore advocated active policy responses by the public sector,
including monetary policy actions by the central bank and fiscal
policy actions by the government to stabilize output over the business
cycle[87] Thus, a central conclusion of Keynesian economics is that,
in some situations, no strong automatic mechanism moves output and
employment towards full employment levels. John Hicks' IS/LM model has
been the most influential interpretation of The General Theory.

Over the years, the understanding of the business cycle has branched
into various schools, related to or opposed to Keynesianism. The
neoclassical synthesis refers to the reconciliation of Keynesian
economics with neoclassical economics, stating that Keynesianism is
correct in the short run, with the economy following neoclassical
theory in the long run.

The New classical school critiques the Keynesian view of the business
cycle. It includes Friedman's permanent income hypothesis view on
consumption, the "rational expectations revolution"[88] spearheaded by
Robert Lucas, and real business cycle theory.

In contrast, the New Keynesian school retains the rational
expectations assumption, however it assumes a variety of market
failures. In particular, New Keynesians assume prices and wages are
"sticky", which means they do not adjust instantaneously to changes in
economic conditions.

Thus, the new classicals assume that prices and wages adjust
automatically to attain full employment, whereas the new Keynesians
see full employment as being automatically achieved only in the long
run, and hence government and central-bank policies are needed because
the "long run" may be very long.

Inflation and monetary policy

Main articles: Inflation and Monetary policy

See also: Money, Quantity theory of money, Monetary policy, History of
money, and Milton Friedman

A 640 BCE one-third stater electrum coin from Lydia, shown larger. One
of the first standardized coins.Money is a means of final payment for
goods in most price system economies and the unit of account in which
prices are typically stated. It includes currency held by the nonbank
public and checkable deposits. It has been described as a social
convention, like language, useful to one largely because it is useful
to others.

As a medium of exchange, money facilitates trade. Its economic
function can be contrasted with barter (non-monetary exchange). Given
a diverse array of produced goods and specialized producers, barter
may entail a hard-to-locate double coincidence of wants as to what is
exchanged, say apples and a book. Money can reduce the transaction
cost of exchange because of its ready acceptability. Then it is less
costly for the seller to accept money in exchange, rather than what
the buyer produces.[89]

At the level of an economy, theory and evidence are consistent with a
positive relationship running from the total money supply to the
nominal value of total output and to the general price level. For this
reason, management of the money supply is a key aspect of monetary
policy.[90][91]

Fiscal policy and regulation

The Bank of England is a central bankMain articles: Fiscal policy,
Government spending, Regulation, and National accounts

National accounting is a method for summarizing aggregate economic
activity of a nation. The national accounts are double-entry
accounting systems that provide detailed underlying measures of such
information. These include the national income and product accounts
(NIPA), which provide estimates for the money value of output and
income per year or quarter.

NIPA allows for tracking the performance of an economy and its
components through business cycles or over longer periods. Price data
may permit distinguishing nominal from real amounts, that is,
correcting money totals for price changes over time.[92][93] The
national accounts also include measurement of the capital stock,
wealth of a nation, and international capital flows.[94]

International economics

Main articles: International economics and Economic system

International trade studies determinants of goods-and-services flows
across international boundaries. It also concerns the size and
distribution of gains from trade. Policy applications include
estimating the effects of changing tariff rates and trade quotas.
International finance is a macroeconomic field which examines the flow
of capital across international borders, and the effects of these
movements on exchange rates. Increased trade in goods, services and
capital between countries is a major effect of contemporary
globalization.[95][96][97]

World map showing GDP (PPP) per capita.The distinct field of
development economics examines economic aspects of the development
process in relatively low-income countries focussing on structural
change, poverty, and economic growth. Approaches in development
economics frequently incorporate social and political factors.[98][99]

Economic systems is the branch of economics that studies the methods
and institutions by which societies determine the ownership,
direction, and allocaton of economic resources. An economic system of
a society is the unit of analysis.

Among contemporary systems at different ends of the organizational
spectrum are socialist systems and capitalist systems, in which most
production occurs in respectively state-run and private enterprises.
In between are mixed economies. A common element is the interaction of
economic and political influences, broadly described as political
economy. Comparative economic systems studies the relative performance
and behavior of different economies or systems.[100][101]

Economics in practice

Main articles: Mathematical economics, Economic methodology, and
Schools of economics

Contemporary mainstream economics, as a formal mathematical modeling
field, could also be called mathematical economics.[102] It draws on
the tools of calculus, linear algebra, statistics, game theory, and
computer science.[103] Professional economists are expected to be
familiar with these tools, although all economists specialize, and
some specialize in econometrics and mathematical methods while others
specialize in less quantitative areas.

Heterodox economists place less emphasis upon mathematics, and several
important historical economists, including Adam Smith and Joseph
Schumpeter, have not been mathematicians. Economic reasoning involves
intuition regarding economic concepts, and economists attempt to
analyze to the point of discovering unintended consequences.

Theory

Mainstream economic theory relies upon a priori quantitative economic
models, which employ a variety of concepts. Theory typically proceeds
with an assumption of ceteris paribus, which means holding constant
explanatory variables other than the one under consideration. When
creating theories, the objective is to find ones which are at least as
simple in information requirements, more precise in predictions, and
more fruitful in generating additional research than prior theories.
[104]

In microeconomics, principal concepts include supply and demand,
marginalism, rational choice theory, opportunity cost, budget
constraints, utility, and the theory of the firm.[105][106] Early
macroeconomic models focused on modeling the relationships between
aggregate variables, but as the relationships appeared to change over
time macroeconomists were pressured to base their models in
microfoundations.

The aforementioned microeconomic concepts play a major part in
macroeconomic models – for instance, in monetary theory, the quantity
theory of money predicts that increases in the money supply increase
inflation, and inflation is assumed to be influenced by rational
expectations. In development economics, slower growth in developed
nations has been sometimes predicted because of the declining marginal
returns of investment and capital, and this has been observed in the
Four Asian Tigers. Sometimes an economic hypothesis is only
qualitative, not quantitative.[107]

Expositions of economic reasoning often use two-dimensional graphs to
illustrate theoretical relationships. At a higher level of generality,
Paul Samuelson's treatise Foundations of Economic Analysis (1947) used
mathematical methods to represent the theory, particularly as to
maximizing behavioral relations of agents reaching equilibrium. The
book focused on examining the class of statements called operationally
meaningful theorems in economics, which are theorems that can
conceivably be refuted by empirical data.[108]

Empirical investigation

Main articles: Econometrics and Experimental economics

Economic theories are frequently tested empirically, largely through
the use of econometrics using economic data.[109] The controlled
experiments common to the physical sciences are difficult and uncommon
in economics[110] , and instead broad data is observationally studied;
this type of testing is typically regarded as less rigorous than
controlled experimentation, and the conclusions typically more
tentative. The number of laws discovered by the discipline of
economics is relatively very low compared to the physical sciences.
[citation needed]

Statistical methods such as regression analysis are common.
Practitioners use such methods to estimate the size, economic
significance, and statistical significance ("signal strength") of the
hypothesized relation(s) and to adjust for noise from other variables.
By such means, a hypothesis may gain acceptance, although in a
probabilistic, rather than certain, sense. Acceptance is dependent
upon the falsifiable hypothesis surviving tests. Use of commonly
accepted methods need not produce a final conclusion or even a
consensus on a particular question, given different tests, data sets,
and prior beliefs.

Criticism based on professional standards and non-replicability of
results serve as further checks against bias, errors, and over-
generalization,[106][111] although much economic research has been
accused of being non-replicable, and prestigious journals have been
accused of not facilitating replication through the provision of the
code and data.[112] Like theories, uses of test statistics are
themselves open to critical analysis,[113][114][115] although critical
commentary on papers in economics in prestigious journals such as the
American Economic Review has declined precipitously in the past 40
years.[116] This has been attributed to journals' incentives to
maximize citations in order to rank higher on the Social Science
Citation Index (SSCI).[117]

In applied economics, input-output models employing linear programming
methods are quite common. Large amounts of data are run through
computer programs to analyze the impact of certain policies; IMPLAN is
one well-known example.

Experimental economics has promoted the use of scientifically
controlled experiments. This has reduced long-noted distinction of
economics from natural sciences allowed direct tests of what were
previously taken as axioms.[118][119] In some cases these have found
that the axioms are not entirely correct; for example, the ultimatum
game has revealed that people reject unequal offers.

In behavioral economics, psychologists Daniel Kahneman and Amos
Tversky have won Nobel Prizes in economics for their empirical
discovery of several cognitive biases and heuristics. Similar
empirical testing occurs in neuroeconomics. Another example is the
assumption of narrowly selfish preferences versus a model that tests
for selfish, altruistic, and cooperative preferences.[120][121] These
techniques have led some to argue that economics is a "genuine
science.".[9]

Game theory

Main article: Game theory

Game theory is a branch of applied mathematics that studies strategic
interactions between agents. In strategic games, agents choose
strategies that will maximize their payoff, given the strategies the
other agents choose. It provides a formal modeling approach to social
situations in which decision makers interact with other agents.

Game theory generalizes maximization approaches developed to analyze
markets such as the supply and demand model. The field dates from the
1944 classic Theory of Games and Economic Behavior by John von Neumann
and Oskar Morgenstern. It has found significant applications in many
areas outside economics as usually construed, including formulation of
nuclear strategies, ethics, political science, and evolutionary theory.
[122]

Profession

Main article: Economist

The professionalization of economics, reflected in the growth of
graduate programs on the subject, has been described as "the main
change in economics since around 1900".[123] Most major universities
and many colleges have a major, school, or department in which
academic degrees are awarded in the subject, whether in the liberal
arts, business, or for professional study.

The Nobel Memorial Prize in Economic Sciences (commonly known as the
Nobel Prize in Economics) is a prize awarded to economists each year
for outstanding intellectual contributions in the field. In the
private sector, professional economists are employed as consultants
and in industry, including banking and finance. Economists also work
for various government departments and agencies, for example, the
national Treasury, Central Bank or Bureau of Statistics.

Economics and other subjects

Main articles: Philosophy of economics, Law and Economics, Political
economy, and Natural resource economics
Economics is one social science among several and has fields bordering
on other areas, including economic geography, economic history, public
choice, energy economics, cultural economics, and institutional
economics.

Law and economics, or economic analysis of law, is an approach to
legal theory that applies methods of economics to law. It includes the
use of economic concepts to explain the effects of legal rules, to
assess which legal rules are economically efficient, and to predict
what the legal rules will be.[124][125] A seminal article by Ronald
Coase published in 1961 suggested that well-defined property rights
could overcome the problems of externalities.[126]

Political economy is the interdisciplinary study that combines

economics, law, and political science in explaining how political
institutions, the political environment, and the economic system

(capitalist, socialist, mixed) influence each other. It studies
questions such as how monopoly, rent seeking behavior, and
externalities should impact government policy.[127][128] Historians

have employed political economy to explore the ways in the past that
persons and groups with common economic interests have used politics

to effect changes beneficial to their interests.[129]

Energy economics is a broad scientific subject area which includes
topics related to energy supply and energy demand. Georgescu-Roegen
reintroduced the concept of entropy in relation to economics and
energy from thermodynamics, as distinguished from what he viewed as
the mechanistic foundation of neoclassical economics drawn from
Newtonian physics. His work contributed significantly to
thermoeconomics and to ecological economics. He also did foundational
work which later developed into evolutionary economics.[130][131][132]
[133][134]

The sociological subfield of economic sociology arose, primarily
through the work of Émile Durkheim, Max Weber and Georg Simmel, as an
approach to analysing the effects of economic phenomena in relation to
the overarching social paradigm (i.e. modernity).[135] Classic works
include Max Weber's The Protestant Ethic and the Spirit of Capitalism
(1905) and Georg Simmel's The Philosophy of Money (1900). More
recently, the works of Mark Granovetter, Peter Hedstrom and Richard
Swedberg have been influential in this field.

Criticisms of economics

"The dismal science" is a derogatory alternative name for economics
devised by the Victorian historian Thomas Carlyle in the 19th century.
It is often stated that Carlyle gave economics the nickname "the
dismal science" as a response to the late 18th century writings of The
Reverend Thomas Robert Malthus, who grimly predicted that starvation
would result, as projected population growth exceeded the rate of
increase in the food supply. The teachings of Malthus eventually
became known under the umbrella phrase "Malthus' Dismal Theorem". His
predictions were forestalled by unanticipated dramatic improvements in
the efficiency of food production in the 20th century; yet the bleak
end he proposed remains as a disputed future possibility, assuming
human innovation fails to keep up with population growth.[136]

Some economists, like John Stuart Mill or Leon Walras, have maintained
that the production of wealth should not be tied to its distribution.
The former is in the field of "applied economics" while the latter
belongs to "social economics" and is largely a matter of power and
politics.[137]

In The Wealth of Nations, Adam Smith addressed many issues that are
currently also the subject of debate and dispute. Smith repeatedly

attacks groups of politically aligned individuals who attempt to use

their collective influence to manipulate a government into doing their
bidding. In Smith's day, these were referred to as factions, but are
now more commonly called special interests, a term which can comprise

international bankers, corporate conglomerations, outright

oligopolies, monopolies, trade unions and other groups.[138]

Economics per se, as a social science, is independent of the political
acts of any government or other decision-making organization, however,
many policymakers or individuals holding highly ranked positions that
can influence other people's lives are known for arbitrarily using a
plethora of economic concepts and rhetoric as vehicles to legitimize
agendas and value systems, and do not limit their remarks to matters
relevant to their responsibilities.[citation needed] The close
relation of economic theory and practice with politics[139] is a focus
of contention that may shade or distort the most unpretentious
original tenets of economics, and is often confused with specific
social agendas and value systems.[140] Notwithstanding, economics
legitimately has a role in informing government policy. It is, indeed,
in some ways an outgrowth of the older field of political economy.
Some academic economic journals are currently focusing increased
efforts on gauging the consensus of economists regarding certain
policy issues in hopes of effecting a more informed political
environment. Currently, there exists a low approval rate from
professional economists regarding many public policies. Policy issues
featured in a recent survey of AEA economists include trade
restrictions, social insurance for those put out of work by
international competition, genetically modified foods, curbside
recycling, health insurance (several questions), medical malpractice,
barriers to entering the medical profession, organ donations,
unhealthy foods, mortgage deductions, taxing internet sales, Wal-Mart,
casinos, ethanol subsidies, and inflation targeting.[141]

In Steady State Economics 1977, Herman Daly argues that there exist
logical inconsistencies between the emphasis placed on economic growth
and the limited availability of natural resources.[142]

Issues like central bank independence, central bank policies and
rhetoric in central bank governors discourse or the premises of
macroeconomic policies[143] (monetary and fiscal policy) of the
States, are focus of contention and criticism.[144][145][146][147]

Deirdre McCloskey has argued that many empirical economic studies are
poorly reported, and while her critique has been well-received, she
and Stephen Ziliak argue that practice has not improved.[148] This
latter contention is controversial.[149]

A 2002 International Monetary Fund study looked at “consensus
forecasts” (the forecasts of large groups of economists) that were
made in advance of 60 different national recessions in the ’90s: in
97% of the cases the economists did not predict the contraction a year
in advance. On those rare occasions when economists did successfully
predict recessions, they significantly underestimated their severity.
[150].

Criticism of assumptions
Economics has been subject to criticism that it relies on unrealistic,
unverifiable, or highly simplified assumptions, in some cases because
these assumptions lend themselves to elegant mathematics. Examples
include perfect information, profit maximization and rational choices.
[151] [152][153] Some contemporary economic theory has focused on
addressing these problems through the emerging subdisciplines of
information economics, behavioral economics, and complexity economics,
with Geoffrey Hodgson forecasting a major shift in the mainstream
approach to economics.[154] Nevertheless, prominent mainstream
economists such as Keynes[155] and Joskow, along with heterodox
economists, have observed that much of economics is conceptual rather
than quantitative, and difficult to model and formalize
quantitatively. In a discussion on oligopoly research, Paul Joskow
pointed out in 1975 that in practice, serious students of actual
economies tended to use "informal models" based upon qualitative
factors specific to particular industries. Joskow had a strong feeling
that the important work in oligopoly was done through informal
observations while formal models were "trotted out ex post". He argued
that formal models were largely not important in the empirical work,
either, and that the fundamental factor behind the theory of the firm,
behavior, was neglected.[156]

Despite these concerns, mainstream graduate programs have become
increasingly technical and mathematical.[157] Although much of the
most groundbreaking economic research in history involved concepts
rather than math, today it is nearly impossible to publish a non-
mathematical paper in top economic journals.[158] Disillusionment on
the part of some students with the abstract and technical focus of
economics led to the post-autistic economics movement, which began in
France in 2000.

David Colander, an advocate of complexity economics, has also
commented critically on the mathematical methods of economics, which
he associates with the MIT approach to economics, as opposed to the
Chicago approach (although he also states that the Chicago school can
no longer be called intuitive). He believes that the policy
recommendations following from Chicago's intuitive approach had
something to do with the decline of intuitive economics. He notes that
he has encountered colleagues who have outright refused to discuss
interesting economics without a formal model, and he believes that the
models can sometimes restrict intuition.[159] More recently, however,
he has written that heterodox economics, which generally takes a more
intuitive approach, needs to ally with mathematicians and become more
mathematical.[102] "Mainstream economics is a formal modeling field",
he writes, and what is needed is not less math but higher levels of
math. He notes that some of the topics highlighted by heterodox
economists, such as the importance of institutions or uncertainty, are
now being studied in the mainstream through mathematical models
without mention of the work done by the heterodox economists. New
institutional economics, for example, examines institutions
mathematically without much relation to the largely heterodox field of
institutional economics.

In his 1974 Nobel Prize lecture, Friedrich Hayek, known for his close
association to the heterodox school of Austrian economics, attributed
policy failures in economic advising to an uncritical and unscientific
propensity to imitate mathematical procedures used in the physical
sciences. He argued that even much-studied economic phenomena, such as
labor-market unemployment, are inherently more complex than their
counterparts in the physical sciences where such methods were earlier
formed. Similarly, theory and data are often very imprecise and lend
themselves only to the direction of a change needed, not its size.
[160] In part because of criticism, economics has undergone a thorough
cumulative formalization and elaboration of concepts and methods since
the 1940s, some of which have been toward application of the
hypothetico-deductive method to explain real-world phenomena.[161]

See also

Economics portal

Main article: Outline of economics

Book:Economics
Books are collections of articles which can be downloaded or ordered
in print.

Notes

↑ Harper, Douglas (November 2001). "Online Etymology Dictionary —
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http://www.etymonline.com/index.php?term=economy. Retrieved October
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↑ Robbins, Lionel (1945) (PDF). An Essay on the Nature and
Significance of Economic Science. London: Macmillan and Co., Limited.

http://www.mises.org/books/robbinsessay2.pdf. , p. 16

↑ Friedman, David D. (2002). "Crime," The Concise Encyclopedia of
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↑ The World Bank (2007). "Economics of Education." Accessed October
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↑ Iannaccone, Laurence R. (1998). "Introduction to the Economics of
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↑ Nordhaus, William D. (2002). "The Economic Consequences of a War
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↑ Arthur M. Diamond, Jr. (2008). "science, economics of," The New
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↑ Becker, Gary S. (1976). The Economic Approach to Human Behavior.
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↑ Davis, John B. (2006). "Heterodox Economics, the Fragmentation of
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↑ Kramer, History Begins at Sumer, pp. 52–55.

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↑ Blaug, Mark (2007). "The Social Sciences: Economics". The New
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↑ Blaug, Mark (1987). "Classical Economics", The New Palgrave: A
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↑ Smith, Adam (1776). The Wealth of Nations, Bk. 1, Ch. 5, 6.

↑ Roemer, J.E. (1987). "Marxian Value Analysis". The New Palgrave: A
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↑ Keynes, John Maynard (1936). The General Theory of Employment,
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↑ Blaug, Mark (2007). "The Social Sciences: Economics," The New
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↑ Samuelson, Paul A., and William D. Nordhaus (2004). Economics, p.
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↑ Blaug, Mark (2007). "The Social Sciences: Economics," The New
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↑ Harcourt, G.C.(1987). "Post-Keynesian Economics", The New Palgrave:
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↑ Felderer, Bernhard. Macroeconomics and New Macroeconomics.

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↑ James M. Buchanan (1987). "Opportunity Cost", The New Palgrave: A
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↑ The Economist's definition of Opportunity Cost

↑ Groenewegen, Peter (1987). "Division of Labour", The New Palgrave: A
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↑ Johnson, Paul M. (2005)."Specialization," A Glossary of Political
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↑ Adam Smith, Biography: The Concise Encyclopedia of Economics:

Library of Economics and Liberty

↑ Cameron, Rondo (1993, 2nd ed.). A Concise Economic History of the
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↑ Samuelson, Paul A., and William D. Nordhaus (2004). Economics,ch. 2,
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↑ Findlay, Ronald (1987). "Comparative Advantage", The New Palgrave: A
Dictionary of Economics, v. 1, pp. 514–17.

↑ Kemp, Murray C. (1987). "Gains from Trade", The New Palgrave: A
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↑ Baumol, William J. (2007). "Economic Theory" (Measurement and
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↑ Hicks, John Richard (1939). Value and Capital. London: Oxford
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↑ Brody, A. (1987). "Prices and Quantities", The New Palgrave: A
Dictionary of Economics, v. 3, p. 957.

↑ Jordan, J.S. (1982). "The Competitive Allocation Process Is
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↑ Cf. Barr (2004) pp. 72–79, whose list of market failures is melded
with failures of economic assumptions, which are (1) producers as
price takers (i.e. presence of oligopoly or monopoly; but why is this
not a product of the following?) (2) equal power of consumers (what
labour lawyers call an imbalance of bargaining power) (3) complete
markets (4) public goods (5) external effects (i.e. externalities?)
(6) increasing returns to scale (i.e. practical monopoly) (7) perfect
information.

↑ Stiglitz (2000) Ch.4, states the sources of market failure can be
enumerated as natural monopolies, information asymmetries, incomplete
markets, externalities, public good situations and macroeconomic
disturbances.

↑ Lippman, S. S., and J. J. McCall (2001). "Information, Economics
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pp. 7480–7486. Abstract.

↑ Laffont, J.J. (1987). "Externalities", The New Palgrave: A
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↑ Blaug, Mark (2007). "The Social Sciences: Economics". The New
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↑ Samuelson, Paul A., and William D. Nordhaus (2004). Economics, ch.
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↑ Coase, The Nature of the Firm (1937)

↑ Freeman, R.B. (1987). "Labour Economics", The New Palgrave: A
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↑ Schmalensee, Richard (1987). "Industrial Organization", The New
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↑ Musgrave, R.A. (1987). "Public Finance", The New Palgrave: A
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↑ Feldman, Allan M. (1987). "Welfare Economics", The New Palgrave: A
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↑ Blanchard, Olivier Jean (1987). "Neoclassical Synthesis", The New
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Suggestions for an "Inside the Mainstream" Heterodoxy

↑ Debreu, Gerard (1987). "Mathematical Economics", The New Palgrave: A
Dictionary of Economics, v. 3, pp. 401–03.

↑ Friedman Milton (1953). "The Methodology of Positive Economics,"
Essays in Positive Economics, University of Chicago Press, p. 10.

↑ Boland, Lawrence A. (1987). "Methodology", The New Palgrave: A
Dictionary of Economics, v. 3, pp. 455–58.

↑ 106.0 106.1 Frey, Bruno S., Werner W. Pommerehne, Friedrich
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↑ Quirk, James (1987). "Qualitative Economics", The New Palgrave: A
Dictionary of Economics, v. 4, pp. 1–3.

↑ Samuelson, Paul A. (1947, 1983). Foundations of Economic Analysis,
Enlarged Edition. Boston: Harvard University Press. pp. 4. ISBN 978–
0674313019.

↑ Hashem, M. Pesaren (1987). "Econometrics", The New Palgrave: A
Dictionary of Economics, v. 2, p. 8.

↑ Probability, econometrics and truth: the methodology of econometrics
By Hugo A. Keuzenkamp Published by Cambridge University Press, 2000
ISBN 0521553598, 9780521553599 312 pages, page 13: "...in economics,
controlled experiments are rare and reproducible controlled
experiments even more so..."

↑ Blaug, Mark (2007). "The Social Sciences: Economics" ( Methods of
inference and Testing theories), The New Encyclopædia Britannica, v.
27, p. 347.

↑ McCullough, B.D. (2007). "Got Replicability" (PDF). The Journal of
Money, Banking and Credit Archive. Econ Journal Watch 4 (3): 326–337.

http://www.econjournalwatch.org/pdf/McCulloughAbstractSeptember2007.pdf.
Retrieved 2008-06-07.

↑ Kennedy, Peter (2003). A Guide to Econometrics, 5th ed., "21.2 The
Ten Commandments of Applied Econometrics," pp. 390–96 (excerpts).

↑ McCloskey, Deirdre N. and Stephen T. Ziliak (1996). "The Standard
Error of Regressions," Journal of Economic Literature, 34(1), pp. 97–
114.

↑ Hoover, Kevin D., and Mark V. Siegler (2008). "Sound and Fury:
McCloskey and Significance Testing in Economics," Journal of Economic
Methodology, 15(1), pp. 1–37 (2005 prepubication version). Reply of
McCloskey and Ziliak and rejoinder, pp. 39–68.

↑ Coelho, P.R.P.; De Worken-eley Iii, F.; McClure, J.E. (2005).
"Decline in Critical Commentary, 1963–2004" (PDF). Econ Journal Watch
2 (2): 355–361. http://www.econjournalwatch.org/pdf/CoelhoetalAbstractAugust2005.pdf.
Retrieved 2008-06-10.

↑ Whaples, R. (2006). "The Costs of Critical Commentary in Economics
Journals". Econ Journal Watch 3 (2): 275–282.
http://ideas.repec.org/a/ejw/volone/2006275-282.html. Retrieved
2008-06-10.

↑ [Bastable, C.F.] (1925). "Experimental Methods in Economics,"
Palgrave's Dictionary of Economics, reprinted in The New Palgrave: A
Dictionary of Economics (1987, v. 2, p. 241.

↑ Smith, Vernon L. (1987), "Experimental Methods in Economics", ii.
The New Palgrave: A Dictionary of Economics, v. 2, pp. 241–42.

↑ Fehr, Ernst, and Urs Fischbacher (2003). "The Nature of Human
Altruism," Nature 425, October 23, pp. 785–791.

↑ Sigmund, Karl, Ernst Fehr, and Martin A. Nowak (2002),"The Economics
of Fair Play," Scientific American, 286(1) January, pp. 82–87.

↑ Aumann, R.J. (1987). "Game Theory", The New Palgrave: A Dictionary
of Economics, v. 2, pp. 460–82.

↑ O. Ashenfelter (2001), "Economics: Overview," The Profession of
Economics, International Encyclopedia of the Social & Behavioral
Sciences, v. 6, p. 4159.

↑ Friedman, David (1987). "Law and Economics," The New Palgrave: A
Dictionary of Economics, v. 3, p. 144.

↑ Posner, Richard A. (1972). Economic Analysis of Law. Aspen, 7th ed.,
2007) ISBN 978-0-735-56354-4.

↑ Coase, Ronald, "The Problem of Social Cost", The Journal of Law and
Economics Vol.3, No.1 (1960). This issue was actually published in
1961.

↑ Groenwegen (1987, p.906)

↑ Anne O. Krueger, "The Political Economy of the Rent-Seeking
Society," American Economic Review, 64(3), June 1974, pp.291–303

↑ McCoy, Drew R. "The Elusive Republic: Political Ecocomy in
Jeffersonian America", Chapel Hill, University of North Carolina,
1980.

↑ Cleveland, C. and Ruth, M. 1997. When, where, and by how much do
biophysical limits constrain the economic process? A survey of
Georgescu-Roegen's contribution to ecological economics. Ecological
Economics 22: 203-223.

↑ Daly, H. 1995. On Nicholas Georgescu-Roegen’s contributions to
economics: An obituary essay. Ecological Economics 13: 149-54.

↑ Mayumi, K. 1995. Nicholas Georgescu-Roegen (1906-1994): an admirable
epistemologist. Structural Change and Economic Dynamics 6: 115-120.

↑ Mayumi,K. and Gowdy, J. M. (eds.) 1999. Bioeconomics and
Sustainability: Essays in Honor of Nicholas Georgescu-Roegen.
Cheltenham: Edward Elgar.

↑ Mayumi, K. 2001. The Origins of Ecological Economics: The
Bioeconomics of Georgescu-Roegen. London: Routledge.

↑ "Principles of Economic Sociology by Richard Swedberg - An
extract".

http://press.princeton.edu/chapters/s7525.html. Retrieved 2009-12-02.

↑ Malthus, Thomas Robert (1798). "Chapter II". An Essay on the
Principle of Population, As It Affects the Future Improvement of
Society, with Remarks on the Speculations of Mr. Godwin, M. Condorcet,
and Other Writers (1st ed.). London: J Johnson.
http://www.econlib.org/library/Malthus/malPop.html. Retrieved
2008-06-28.

↑ The Origin of Economic Ideas, Guy Routh (1989)

↑ See Noam Chomsky (Understanding Power), [2] on Smith's emphasis on
class conflict in the Wealth of Nations

↑ Research Paper No. 2006/148 Ethics, Rhetoric and Politics of Post-
conflict Reconstruction How Can the Concept of Social ContractHelp Us
in Understanding How to Make Peace Work? Sirkku K. Hellsten, pg. 13

↑ Political Communication: Rhetoric, Government, and Citizens, second
edition, Dan F. Hahn

↑ Whaples, Robert. "The Policy Views of American Economic Association
Members: The Results of a New Survey". Econ Journal Watch 6(3):
337-348. [3]

↑ http://dieoff.org/page88.htm Steady-State Economics, by Herman Daly

↑ Johan Scholvinck, Director of the UN Division for Social Policy and
Development in New York, Making the Case for the Integration of Social
and Economic Policy, The Social Development Review

↑ Bernd Hayo (Georgetown University & University of Bonn), Do We
Really Need Central Bank Independence? A Critical Re- examination,
IDEAS at the Department of Economics, College of Liberal Arts and
Sciences, University of Connecticut

↑ Gabriel Mangano (Centre Walras-Pareto, University of Lausanne BFSH
1, 1015 Lausanne, Switzerland, and London School of Economics),
Measuring Central Bank Independence: A Tale of Subjectivity and of Its
Consequences, Oxford Economic Papers. 1998; 50: 468–492

↑ Friedrich Heinemann, Does it Pay to Watch Central Bankers' Lips? The
Information Content of ECB Wording, IDEAS at the Department of
Economics, College of Liberal Arts and Sciences, University of
Connecticut

↑ Stephen G. Cecchetti, Central Bank Policy Rules: Conceptual Issues
and Practical Considerations, IDEAS at the Department of Economics,
College of Liberal Arts and Sciences, University of Connecticut

↑ Ziliak, S.T.; McCloskey, D.N. (2004). "Size Matters: The Standard
Error of Regressions in the American Economic Review" (PDF). Econ
Journal Watch 1 (2): 331–358. http://www.econjournalwatch.org/pdf/ZiliakMcCloskeyAugust2004.pdf.
Retrieved 2008-06-10.

↑ Sound and Fury: McCloskey and Significance Testing in Economics.

http://ideas.repec.org/p/wpa/wuwpem/0511018.html. Retrieved
2008-06-10.

↑ "How Accurate Are Private Sector Forecasts? Cross-Country Evidence
from Consensus Forecasts of Output Growth", by Prakash Loungani,
International Monetary Fund (IMF), December 2002

↑ Rappaport, Steven (1996). "Abstraction and Unrealistic Assumptions
in Economics," Journal of Economic Methodology, 3(2}, pp. 215–236.
Abstract, (1998). Models and Reality in Economics. Edward Elgar, p. 6,
ch. 6–8.

↑ Friedman, Milton (1953), "The Methodology of Positive Economics,"
Essays in Positive Economics, University of Chicago Press, pp. 14–15,
22, 31.

↑ Boland, Lawrence A. (2008). "Assumptions Controversy", The New
Palgrave Dictionary of Economics, 2nd Edition Online abstract.
Accessed May 30, 2008.

↑ Hodgson, G.M (200). "Evolutionary and Institutional Economics as the
New Mainstream" ([dead link]). Evolutionary and Institutional
Economics Review 4 (1): 7–25. http://joi.jlc.jst.go.jp/JST.JSTAGE/eier/4.7?from=Google.
Retrieved 2008-06-0.

↑ Keynes, J. M. (September 1924). "Alfred Marshall 1842–1924". The
Economic Journal 34 (135): 333,356. doi:10.2307/2222645.
http://www.jstor.org/stable/2222645. Retrieved 2008-04-19.

↑ Joskow, Paul (May 1975). "Firm Decision-making Policy and Oligopoly
Theory". The American Economic Review 65 (2, Papers and Proceedings of
the Eighty-seventh Annual Meeting of the American Economic
Association): 270–279, Particularly 271. http://www.jstor.org/stable/1818864.
Retrieved 2008-04-19.

↑ Johansson D. (2004). "Economics without Entrepreneurship or
Institutions: A Vocabulary Analysis of Graduate Textbooks" (PDF). Econ
Journal Watch 1 (3): 515–538. http://www.econjournalwatch.org/pdf/JohanssonPractice1December2004.pdf.
Retrieved 2008-06-07.

↑ Sutter D, Pjesky R. (2007). "Where Would Adam Smith Publish Today?
The Near Absence of Math-free Research in Top Journals". Scholarly
Comments on Academic Economics 4 (2): 230–240.
http://www.econjournalwatch.org/main/intermedia.php?filename=EJWCompleteIssueMay2007.pdf#page=64.
Retrieved 2008-06-07.

↑ Colander, D. (1998). Confessions of an Economic Gadfly. In Passion
and Craft. pp. 39 – 55.

↑ Hayek, Friedrich A. (1974). "The Pretence of Knowledge". Lecture to
the Memory of Alfred Nobel. Nobleprize.org.

http://nobelprize.org/nobel_prizes/economics/laureates/1974/hayek-lecture.html#not1.
Retrieved 2007-09-26. , paragraphs 2, 4, 5, and 7–10.

↑ Blaug, Mark (2007). "The Social Sciences: Economics" (Postwar
developments, Methodological considerations in contemporary
economics), The New Encyclopædia Britannica, v. 27, pp. 346–47.

References

Barr, Nicholas (2004) Economics of the Welfare State, 4th ed., Oxford
University Press

Stiglitz, Joseph (2000) Economics of the Public Sector, 3rd ed.,
Norton Press

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Capitalism

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Capitalism

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Capitalism is an economic and social system in which capital and land,
the non-labor factors of production (also known as the means of
production), are privately owned;[citation needed] labor, goods and
resources are traded in markets; and profit, after taxes, is
distributed to the owners or invested in technologies and industries.

There is no consensus on the definition of capitalism, nor how it
should be used as an analytical category.[1] There are a variety of
historical cases over which it is applied, varying in time, geography,
politics and culture.[2] Economists, political economists and
historians have taken different perspectives on the analysis of
capitalism. Scholars in the social sciences, including historians,
economic sociologists, economists, anthropologists and philosophers
have debated over how to define capitalism, however there is little
controversy that private ownership of the means of production,
creation of goods or services for profit in a market, and prices and
wages are elements of capitalism.[3]

Economists usually put emphasis on the market medievalism, degree of
government does not have control over markets (laissez faire), and
property rights[4][5], while most political economists emphasize
private property, power relations, wage labor, and class.[6] There is
a general agreement that capitalism encourages economic growth.[7] The
extent to which different markets are "free", as well as the rules
determining what may and may not be private property, is a matter of
politics and policy and many states have what are termed "mixed
economies."[6]

Capitalism as a system developed incrementally from the 16th century
in Europe,[8] although capitalist-like organizations existed in the
ancient world, and early aspects of merchant capitalism flourished
during the Late Middle Ages.[9][10][11] Capitalism became dominant in
the Western world following the demise of feudalism.[11] Capitalism
gradually spread throughout Europe, and in the 19th and 20th
centuries, it provided the main means of industrialization throughout
much of the world.[2]

Variants on capitalism may include, depending on the theorist, such
concepts as anarcho-capitalism, corporate capitalism, crony
capitalism, finance capitalism, laissez-faire capitalism,
technocapitalism, Neo-Capitalism, late capitalism, post-capitalism,
state capitalism and state monopoly capitalism. There are also anti-
capitalist movements and ideologies including Anti-capitalism and
negative associations with the system such as tragedy of the commons,
corporatism and wage slavery.

Etymology and early usage

Other terms sometimes used for capitalism:

capitalist mode of production

economic liberalism[12]
free-enterprise economy[11][13]
free market[13][14]
laissez-faire capitalism[15]
market economy[16]
market liberalism[17][18]

self-regulating market[13]

Look up capitalism in Wiktionary, the free dictionary.

Capital evolved from Capitale, a late Latin word based on proto-Indo-
European kaput, meaning "head"—also the origin of chattel and cattle
in the sense of movable property (only much later to refer only to
livestock). Capitale emerged in the 12th to 13th centuries in the
sense of funds, stock of merchandise, sum of money, or money carrying
interest.[9][19][20] By 1283 it was used in the sense of the capital
assets of a trading firm. It was frequently interchanged with a number
of other words—wealth, money, funds, goods, principal, assets,
property, patrimony.[9]

The term capitalist refers to an owner of capital rather than an
economic system, but shows earlier recorded use than the term
capitalism, dating back to the mid-seventeenth century. The
Hollandische Mercurius uses it in 1633 and 1654 to refer to owners of
capital.[9] Arthur Young used the term capitalist in his work Travels
in France (1792).[20][21] David Ricardo, in his Principles of
Political Economy and Taxation (1817), referred to "the capitalist"
many times.[22]

Samuel Taylor Coleridge, an English poet, used capitalist in his work
Table Talk (1823).[23] Pierre-Joseph Proudhon used the term capitalist
in his first work, What is Property? (1840) to refer to the owners of
capital. Benjamin Disraeli used the term capitalist in his 1845 work
Sybil.[20] Karl Marx and Friedrich Engels used the term capitalist
(Kapitalist) in The Communist Manifesto (1848) to refer to a private
owner of capital.

The term capitalism appeared in 1753 in the Encyclopédia, with the
narrow meaning of "The state of one who is rich".[9] However,
according to the Oxford English Dictionary (OED), the term capitalism
was first used by novelist William Makepeace Thackeray in 1854, by
which he meant having ownership of capital.[20] Also according to the
OED, Carl Adolph Douai, a German-American socialist and abolitionist,
used the term private capitalism in 1863.

The initial usage of the term capitalism in its modern sense has been
attributed to Louis Blanc in 1850 and Pierre-Joseph Proudhon in 1861.
[24] Marx and Engels referred to the capitalistic system
(kapitalistisches System)[25][26] and to the capitalist mode of
production (kapitalistische Produktionsform) in Das Kapital (1867).
[27] The use of the word "capitalism" in reference to an economic
system appears twice in Volume I of Das Kapital, p. 124 (German
edition), and in Theories of Surplus Value, tome II, p. 493 (German
edition). Marx did not extensively use the form capitalism, but
instead those of capitalist and capitalist mode of production, which
appear more than 2600 times in the trilogy Das Kapital.

Marx's notion of the capitalist mode of production is characterised as
a system of primarily private ownership of the means of production in
a mainly market economy, with a legal framework on commerce and a
physical infrastructure provided by the state.[28][page needed] Engels
made more frequent use of the term capitalism; volumes II and III of
Das Kapital, both edited by Engels after Marx's death, contain the
word "capitalism" four and three times, respectively. The three
combined volumes of Das Kapital (1867, 1885, 1894) contain the word
capitalist more than 2,600 times.

An 1877 work entitled Better Times by Hugh Gabutt and an 1884 article
in the Pall Mall Gazette also used the term capitalism.[20] A later
use of the term capitalism to describe the production system was by
the German economist Werner Sombart, in his 1902 book The Jews and
Modern Capitalism (Die Juden und das Wirtschaftsleben). Sombart's
close friend and colleague, Max Weber, also used capitalism in his
1904 book The Protestant Ethic and the Spirit of Capitalism (Die
protestantische Ethik und der Geist des Kapitalismus).

Economic elements

The economics of capitalism developed out of the interactions of the
following five items:

Commodity|Commodities

There are two types of commodities: capital goods and consumer goods.
Capital goods are products not produced for immediate consumption
(i.e. land, raw materials, tools, machines and factories), but as the
inputs of consumer goods (i.e. televisions, cars, computers, houses)
to be sold to others.

Money

Money was primarily a standardized means of exchange which serves to
reduce all goods and commodities to a standard value. It eliminates
the cumbersome system of barter by separating the transactions
involved in the exchange of products, thus greatly facilitating
specialization and trade through encouraging the exchange of
commodities.

However, besides serving as a medium of exchange for labour, goods and
services, money is also a store of value, similar to precious metals.

Labour power

Labour includes all mental and physical human resources, including
entrepreneurial capacity and management skills, which are needed to
transform one type of commodity into another.

Means of production

Another term for capital goods – all manufactured aids to production
such as tools, machinery, and buildings.

Production, costs, and pricing|Production

The act of making goods or services through the combination of labour
power and means of production.[29][30]

HistoryMain article: History of capitalism

Greco-Roman capitalism

The origins of modern markets can be traced back to the Roman Empire,
[31] which re-emerged later in its Muslim form when early Syrian
Muslims, known as Umayyad, triumphed.[32]

Islamic capitalism

This section duplicates, in whole or part, the scope of other
article(s) or section(s).

Please discuss this issue on the talk page and conform with
Wikipedia's Manual of Style by replacing the section with a link and a
summary of the repeated material, or by spinning off the repeated text
into an article in its own right.

Main article: Islamic capitalism

The origins of capitalism and free markets can be traced back to the
Islamic Golden Age and Muslim Agricultural Revolution,[33][Need
quotation on talk to verify] where the first market economy and
earliest forms of merchant capitalism took root between the eighth–
twelfth centuries, which some refer to as "Islamic capitalism".[34] A
vigorous monetary economy was created by Muslims on the basis of the
expanding levels of circulation of a stable high-value currency (the
dinar) and the integration of monetary areas that were previously
independent. Innovative new business techniques and forms of business
organisation were introduced by economists, merchants and traders
during this time. Such innovations included the earliest trading
companies, big businesses, contracts, bills of exchange, long-distance
international trade, the first forms of partnership (mufawada) such as
limited partnerships (mudaraba), and the earliest forms of credit,
debt, profit, loss, capital (al-mal), capital accumulation (nama al-
mal),[10] circulating capital, capital expenditure, revenue, cheques,
promissory notes,[35] trusts (see Waqf), startup companies,[36]
savings accounts, transactional accounts, pawning, loaning, exchange
rates, bankers, money changers, ledgers, deposits, assignments, the
double-entry bookkeeping system,[37] and lawsuits.[38] Organizational
enterprises similar to corporations independent from the state also
existed in the medieval Islamic world, while the agency institution
was also introduced.[39][40] Many of these early capitalist concepts
were adopted and further advanced in medieval Europe from the 13th
century onwards.[10]

The systems of contract relied upon by merchants was very effective.
Merchants would buy and sell on commission, with money loaned to them
by wealthy investors, or a joint investment of several merchants, who
were often Muslim, Christian and Jewish. Recently, a collection of
documents was found in an Egyptian synagogue shedding a very detailed
and human light on the life of medieval Middle Eastern merchants.
Business partnerships would be made for many commercial ventures, and
bonds of kinship enabled trade networks to form over huge distances.
Networks developed during this time enabled a world in which money
could be promised by a bank in Baghdad and cashed in Spain, creating
the cheque system of today.[citation needed] Three forms of
partnership developed from the use and more reliable application of
contracts. First, the fraterna was a method of pooling capital from
within the family.[41] Often two brothers would divide the labor into
at home supervisor and traveling with exports from market to market.
[41] Second, the commenda is a partnership where the first partner
supplies two-thirds of the capital, and the second partner supplies
the other third plus his labor.[41] Third, the stans or sleeping
partner is where there is an inactive financial backer and an active
partner who received a quarter of the profit.[42] Each time items
passed through the cities along this extraordinary network, the city
imposed a tax, resulting in high prices once reaching the final
destination. These innovations made by Muslims and Jews laid the
foundations for the modern economic system.

Mercantilism

Main article: Mercantilism

A painting of a French seaport from 1638 at the height of
mercantilism.The period between the sixteenth and eighteenth centuries
is commonly described as mercantilism.[43] This period was associated
with geographic exploration of the Age of Discovery being exploited by
merchant overseas traders, especially from England and the Low
Countries; the European colonization of the Americas; and the rapid
growth in overseas trade. Mercantilism was a system of trade for
profit, although commodities were still largely produced by non-
capitalist production methods.[2]

While some scholars see mercantilism as the earliest stage of modern
capitalism, others argue that modern capitalism did not emerge until
later. For example, Karl Polanyi, noted that "mercantilism, with all
its tendency toward commercialization, never attacked the safeguards
which protected [the] two basic elements of production—labor and land—
from becoming the elements of commerce"; thus mercantilist attitudes
towards economic regulation were closer to feudalist attitudes, "they
disagreed only on the methods of regulation."

Moreover Polanyi argued that the hallmark of capitalism is the
establishment of generalized markets for what he referred to as the
"fictitious commodities": land, labor, and money. Accordingly, "not
until 1834 was a competitive labor market established in England,
hence industrial capitalism as a social system cannot be said to have
existed before that date."[44]

The earliest forms of mercantilism date back to the Roman Empire. When
the Roman Empire expanded, the mercantilist economy expanded
throughout Europe. After the collapse of the Roman Empire, most of the
European economy became controlled by local feudal powers, and
mercantilism collapsed there. However, mercantilism persisted in
Arabia. Due to its proximity to neighboring countries, the Arabs
established trade routes to Egypt, Persia, and Byzantium. As Islam
spread in the seventh century, mercantilism spread rapidly to Spain,
Portugal, Northern Africa, and Asia. Mercantilism finally revived in
Europe in the fourteenth century, as mercantilism spread from Spain
and Portugal.[45]

Among the major tenets of mercantilist theory was bullionism, a
doctrine stressing the importance of accumulating precious metals.
Mercantilists argued that a state should export more goods than it
imported so that foreigners would have to pay the difference in
precious metals. Mercantilists asserted that only raw materials that
could not be extracted at home should be imported; and promoted
government subsides, such as the granting of monopolies and protective
tariffs, were necessary to encourage home production of manufactured
goods.

European merchants, backed by state controls, subsidies, and
monopolies, made most of their profits from the buying and selling of
goods. In the words of Francis Bacon, the purpose of mercantilism was
"the opening and well-balancing of trade; the cherishing of
manufacturers; the banishing of idleness; the repressing of waste and
excess by sumptuary laws; the improvement and husbanding of the soil;
the regulation of prices…"[46]

Similar practices of economic regimentation had begun earlier in the
medieval towns. However, under mercantilism, given the contemporaneous
rise of absolutism, the state superseded the local guilds as the
regulator of the economy. During that time the guilds essentially
functioned like cartels that monopolized the quantity of craftsmen to
earn above-market wages.[47]

At the period from the eighteenth century, the commercial stage of
capitalism originated from the start of the British East India Company
and the Dutch East India Company.[10][48] These companies were
characterized by their colonial and expansionary powers given to them
by nation-states.[10] During this era, merchants, who had traded under
the previous stage of mercantilism, invested capital in the East India
Companies and other colonies, seeking a return on investment. In his
"History of Economic Analysis," Austrian economist Joseph Schumpeter
reduced mercantilist propositions to three main concerns: exchange
controls, export monopolism and balance of trade.[49]

Industrialism

See also: Industrial Revolution

The Bank of England is one of the oldest central banks. It was founded
in 1694 and nationalised in 1946.A new group of economic theorists,
led by David Hume[50] and Adam Smith, in the mid 18th century,
challenged fundamental mercantilist doctrines as the belief that the
amount of the world’s wealth remained constant and that a state could
only increase its wealth at the expense of another state.

During the Industrial Revolution, the industrialist replaced the
merchant as a dominant actor in the capitalist system and effected the
decline of the traditional handicraft skills of artisans, guilds, and
journeymen. Also during this period, the surplus generated by the rise
of commercial agriculture encouraged increased mechanization of
agriculture. Industrial capitalism marked the development of the
factory system of manufacturing, characterized by a complex division
of labor between and within work process and the routinization of work
tasks; and finally established the global domination of the capitalist
mode of production.[43]

Britain also abandoned its protectionist policy, as embraced by
mercantilism. In the 19th century, Richard Cobden and John Bright, who
based their beliefs on the Manchester School, initiated a movement to
lower tariffs.[51] In the 1840s, Britain adopted a less protectionist
policy, with the repeal of the Corn Laws and the Navigation Acts.[43]
Britain reduced tariffs and quotas, in line with Adam Smith and David
Ricardo's advocacy for free trade.

Karl Polanyi argued that capitalism did not emerge until the
progressive commodification of land, money, and labor culminating in
the establishment of a generalized labor market in Britain in the
1830s. For Polanyi, "the extension of the market to the elements of
industry - land, labor and money - was the inevitable consequence of
the introduction of the factory system in a commercial society." [52]
Other sources argued that mercantilism fell after the repeal of the
Navigation Acts in 1849.[51][53][54].

Monopolism

See also: Gilded Age and Progressive Era

In the late 19th century, the control and direction of large areas of
industry came into the hands of trusts, financiers and holding
companies. This period was dominated by an increasing number of
oligopolistic firms earning supernormal profits.[55] Major
characteristics of capitalism in this period included the
establishment of large industrial cartels or monopolies; the ownership
and management of industry by financiers divorced from the production
process; and the development of a complex system of banking, an equity
market, and corporate holdings of capital through stock ownership.[2]
The petroleum, telecommunication, railroad, shipping, banking and
financial industries are characterized by its monopolistic domination.
Inside these corporations, a division of labor separates shareholders,
owners, managers, and actual laborers.[56]

By the last quarter of the 19th century, the emergence of large
industrial trusts had provoked legislation in the US to reduce the
monopolistic tendencies of the period. Gradually, during this
Progressive Era, the US government played a larger and larger role in
passing antitrust laws and regulation of industrial standards for key
industries of special public concern. By the end of the 19th century,
economic depressions and boom and bust business cycles had become a
recurring problem.

In particular, the Long Depression of the 1870s and 1880s and the
Great Depression of the 1930s affected almost the entire capitalist
world, and generated discussion about capitalism’s long-term survival
prospects. During the 1930s, Marxist commentators often posited the
possibility of capitalism's decline or demise, often in contrast to
the ability of the Soviet Union to avoid suffering the effects of the
global depression.[57]

Keynesianism and neoliberalism

Main articles: Keynesianism and Neoliberalism

In the period following the global depression of the 1930s, the state
played an increasingly prominent role in the capitalistic system
throughout much of the world.

The New York stock exchange traders' floor (1963)After World War II, a
broad array of new analytical tools in the social sciences were
developed to explain the social and economic trends of the period,
including the concepts of post-industrial society and the welfare
state.[43] This era was greatly influenced by Keynesian economic
stabilization policies. The postwar boom ended in the late 1960s and
early 1970s, and the situation was worsened by the rise of stagflation.
[58]

Exceptionally high inflation combined with slow output growth, rising
unemployment, and eventually recession to cause a loss of credibility
in the Keynesian welfare-statist mode of regulation. Under the
influence of Friedrich Hayek and Milton Friedman, Western states
embraced policy prescriptions inspired by laissez-faire capitalism and
classical liberalism.

In particular, monetarism, a theoretical alternative to Keynesianism
that is more compatible with laissez-faire, gained increasing
prominence in the capitalist world, especially under the leadership of
Ronald Reagan in the US and Margaret Thatcher in the UK in the 1980s.
Finally, the general public's interest was shifted from the
collectivist concerns of Keynes's managed capitalism to a focus on
individual freedom and choice, called "remarketized capitalism." [59]
In the eyes of many economic and political commentators, the collapse
of the Soviet Union brought further evidence of the superiority of
market capitalism over communism.

Globalization

Main article: Globalization

Although international trade has been associated with the development
of capitalism for over five hundred years, some thinkers argue that a
number of trends associated with globalization have acted to increase
the mobility of people and capital since the last quarter of the 20th
century, combining to circumscribe the room to maneuver of states in
choosing non-capitalist models of development. Today, these trends
have bolstered the argument that capitalism should now be viewed as a
truly world system.[43] However, other thinkers argue that
globalization, even in its quantitative degree, is no greater now than
during earlier periods of capitalist trade.[60]

How capitalism works

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Neoclassical economics explain capitalism as comprised of individuals,
enterprises, markets and government. The following section is an
explanation only through the point of view of neoclassical economists
and does not conform to the views of heterodox economists such as John
Maynard Keynes, Thorstein Veblen, Joseph Schumpeter or Karl Marx as
seen below.

Individuals

Individuals engage in a capitalist economy as consumers, labourers,
and investors. For example, as consumers, individuals influence
production patterns through their purchase decisions, as producers
will change production to produce what is most profitable (most often
what consumers want to buy).

As labourers, individuals may decide which jobs to prepare for and in
which markets to look for work. As investors they decide how much of
their income to save and how to invest their savings. These savings,
which become investments, provide much of the money that businesses
need to grow.

Businesses

Business firms decide what to produce and where this production should
occur. They also purchase inputs (materials, labour, and capital).
Businesses try to influence consumer purchase decisions through
marketing and advertisement as well as the creation of new and
improved products. Driving the capitalist economy is the search for
profits (revenues minus expenses). This is known as the profit motive,
and it helps ensure that companies produce the goods and services that
consumers desire and are able to buy.

To be successful, firms must sell a quantity of their product at a
certain price to yield a profit. A business may consequently lose
money if sales fall too low or costs are incurred that are too high.
The profit motive also encourages firms to operate efficiently by
using their resources in the most productive manner. By using less
materials, labour or capital, a firm can cut its production costs
which can lead to increased profits.

Commerce plays an important role in determining the growth rate of the
capitalist economy. An economy grows when the total value of goods and
services produced rises. This growth requires investment in
infrastructure, capital and other resources necessary in production.
In a capitalist nation, businesses decide when and how much they want
to invest for these purposes.

The market

The price P of a product is determined by a balance between production
at each price (supply S) and the desires of those with purchasing

power at each price (demand D). This results in a market equilibrium,
with a given quantity (Q) sold of the product. A rise in demand from
D1 to D2 would result in an increase in price from P1 to P2 and an
increase in output from Q1 to Q2.The market is a term used by
economists to describe a central exchange through which people are
able to buy and sell goods and services. In a capitalist economy, the
prices of goods and services are controlled mainly through supply and
demand and competition.

Supply is the amount of a good or service produced by a firm and
available for sale. Demand is the amount that people are willing to
buy at a specific price. Prices tend to rise when demand exceeds
supply and fall when supply exceeds demand, so that the market is able
to coordinate itself through pricing until a new equilibrium price and
quantity is reached.

Competition arises when many producers are trying to sell the same or
similar kinds of products to the same buyers. Competition is important
in capitalist economies because it leads to innovation and more
reasonable prices as firms that charge lower prices or improve the
quality of their production can take buyers away from its competitors.

Furthermore, without competition, a monopoly or cartel may develop. A
monopoly occurs when a firm supplies the total output in the market
and means that the firm can limit output and raise prices because it
has no fear of competition. A cartel is a group of firms that act
together in a monopolistic manner to control output and raise prices.
Many countries have competition laws that prohibit monopolies and
cartels from forming.

However, even though antimonopoly laws exist, large corporations can
form near monopolies in some industries. Such firms can temporarily
drop prices and accept losses to prevent competition from entering the
market and then raise them again once the threat of entry is reduced.
In many capitalist nations, public utilities (communications, gas,
electricity, etc), are able to operate as a monopoly under government
regulation due to high economies of scale.

Income

Income in a capitalist economy depends primarily on what skills are in
demand and what skills are currently being supplied. People who have
skills that are in scarce supply are worth a lot more in the market
and can attract higher incomes. Competition among employers for
workers and among workers for jobs, help determine wage rates.

Firms need to pay high enough wages to attract the appropriate
workers; however, when jobs are scarce workers may accept lower wages
than when jobs are plentiful. Labour unions and the government also
influence wages in capitalist nations. Unions act to represent
labourers in negotiations with employers over such things as wage
rates and acceptable working conditions. Most countries have an
established minimum wage and other government agencies work to
establish safety standards.

The government

Further information: Competition regulator, Consumer protection, and
Competition law
In capitalist nations, the government does not prohibit private
property, or prevent individuals from working where they please. The
government also does not prevent firms from determining what wages
they will pay and what prices they will charge for their products.

Under some versions of 'capitalism' the government also carries out a
number of economic functions. For instance, it issues money,
supervises public utilities and enforces private contracts. Laws, such
as policy competition, protect against competition and prohibit unfair
business practices. Government agencies regulate the standards of
service in many industries, such as airlines and broadcasting, as well
as financing a wide range of programs. In addition, the government
regulates the flow of capital and uses things such as the interest
rate to control factors such as inflation and unemployment.[61]

While in other versions, the governing body/bodies have no monopoly
characteristics or legal exceptions.

Perspectives

Classical political economy

Main articles: Classical economics and Classical liberalism

Adam SmithThe classical school economic thought emerged in Britain in
the late 18th century. The classical political economists Adam Smith,
David Ricardo, Jean-Baptiste Say, and John Stuart Mill published
analyses of the production, distribution and exchange of goods in a
market that have since formed the basis of study for most contemporary
economists.

In France, 'Physiocrats' like François Quesnay promoted free trade
based on a conception that wealth originated from land. Quesnay's
Tableau Économique (1759), described the economy analytically and laid
the foundation of the Physiocrats' economic theory, followed by Anne
Robert Jacques Turgot who opposed tariffs and customs duties and
advocated free trade. Richard Cantillon defined long-run equilibrium
as the balance of flows of income, and argued that the supply and
demand mechanism around land influenced short-term prices.

Adam Smith's attack on mercantilism and his reasoning for "the system
of natural liberty" in The Wealth of Nations (1776) are usually taken
as the beginning of classical political economy. Smith devised a set
of concepts that remain strongly associated with capitalism today,
particularly his theory of the "invisible hand" of the market, through
which the pursuit of individual self-interest unintentionally produces
a collective good for society. It was necessary for Smith to be so
forceful in his argument in favor of free markets because he had to
overcome the popular mercantilist sentiment of the time period.[62]

He criticized monopolies, tariffs, duties, and other state enforced
restrictions of his time and believed that the market is the most fair
and efficient arbitrator of resources. This view was shared by David
Ricardo, second most important of the classical political economists
and one of the most influential economists of modern times.[63]

In The Principles of Political Economy and Taxation (1817), he
developed the law of comparative advantage, which explains why it is
profitable for two parties to trade, even if one of the trading
partners is more efficient in every type of economic production. This
principle supports the economic case for free trade. Ricardo was a
supporter of Say's Law and held the view that full employment is the
normal equilibrium for a competitive economy.[64] He also argued that
inflation is closely related to changes in quantity of money and
credit and was a proponent of the law of diminishing returns, which
states that each additional unit of input yields less and less
additional output.[65]

The values of classical political economy are strongly associated with
the classical liberal doctrine of minimal government intervention in
the economy, though it does not necessarily oppose the state's
provision of a few basic public goods.[66] Classical liberal thought
has generally assumed a clear division between the economy and other
realms of social activity, such as the state.[67]

While economic liberalism favors markets unfettered by the government,
it maintains that the state has a legitimate role in providing public
goods.[68] For instance, Adam Smith argued that the state has a role
in providing roads, canals, schools and bridges that cannot be
efficiently implemented by private entities. However, he preferred
that these goods should be paid proportionally to their consumption
(e.g. putting a toll). In addition, he advocated retaliatory tariffs
to bring about free trade, and copyrights and patents to encourage
innovation.[68]

Marxist political economy

Main article: Marxian economics

Karl Marx considered capitalism to be a historically specific mode of
production (the way in which the productive property is owned and
controlled, combined with the corresponding social relations between
individuals based on their connection with the process of production)
in which capitalism has become the dominant mode of production.[43]

The capitalist stage of development or "bourgeois society," for Marx,
represented the most advanced form of social organization to date, but
he also thought that the working classes would come to power in a
worldwide socialist or communist transformation of human society as
the end of the series of first aristocratic, then capitalist, and
finally working class rule was reached.[69][70]

Karl MarxFollowing Adam Smith, Marx distinguished the use value of
commodities from their exchange value in the market. Capital,
according to Marx, is created with the purchase of commodities for the
purpose of creating new commodities with an exchange value higher than
the sum of the original purchases. For Marx, the use of labor power
had itself become a commodity under capitalism; the exchange value of
labor power, as reflected in the wage, is less than the value it
produces for the capitalist.

This difference in values, he argues, constitutes surplus value, which
the capitalists extract and accumulate. In his book Capital, Marx
argues that the capitalist mode of production is distinguished by how
the owners of capital extract this surplus from workers—all prior
class societies had extracted surplus labor, but capitalism was new in
doing so via the sale-value of produced commodities.[71] He argues
that a core requirement of a capitalist society is that a large
portion of the population must not possess sources of self-sustenance
that would allow them to be independent, and must instead be
compelled, to survive, to sell their labor for a living wage.[72][73]
[74]

In conjunction with his criticism of capitalism was Marx's belief that
exploited labor would be the driving force behind a revolution to a
socialist-style economy.[75] For Marx, this cycle of the extraction of
the surplus value by the owners of capital or the bourgeoisie becomes
the basis of class struggle. This argument is intertwined with Marx's
version of the labor theory of value asserting that labor is the
source of all value, and thus of profit.

Vladimir Lenin, in Imperialism, the Highest Stage of Capitalism
(1916), modified classic Marxist theory and argued that capitalism
necessarily induced monopoly capitalism—which he also called
"imperialism"—to find new markets and resources, representing the last
and highest stage of capitalism.[76] Some 20th century Marxian
economists consider capitalism to be a social formation where
capitalist class processes dominate, but are not exclusive.[77]

Capitalist class processes, to these thinkers, are simply those in
which surplus labor takes the form of surplus value, usable as
capital; other tendencies for utilization of labor nonetheless exist
simultaneously in existing societies where capitalist processes are
predominant. However, other late Marxian thinkers argue that a social
formation as a whole may be classed as capitalist if capitalism is the
mode by which a surplus is extracted, even if this surplus is not
produced by capitalist activity, as when an absolute majority of the
population is engaged in non-capitalist economic activity.[78]

David Harvey extends Marxian thinking through which he theorizes the
differential production of place, space and political activism under
capitalism. He uses Marx’s theory of crisis to aid his argument that
capitalism must have its “fixes” but that we cannot predetermine what
fixes will be implemented, nor in what form they will be.

This idea of fix is suggestive and could mean fix as in stabilize,
heal or solve, or as in a junky needing a fix – the idea of preventing
feeling worse in order to feel better. In Limits to Capital (1982),
Harvey outlines an overdetermined, spatially restless capitalism
coupled with the spatiality of crisis formation and its resolution.
Furthermore, his work has been central for understanding the
contractions of capital accumulation and international movements of
capitalist modes of production and money flows.[79]

In his essay, Notes towards a theory of uneven geographical
development, Harvey examines the causes of the extreme volatility in
contemporary political economic fortunes across and between spaces of
the world economy. He bases this uneven development on four
conditionalities, being: The material embedding of capital
accumulation processes in the web of socio-ecological life;
accumulation by dispossession; the law-like character of capital
accumulation in space and time; and, political, social and “class”
struggles at a variety of geographical scales.[80]

Weberian political sociology

Max Weber in 1917In some social sciences, the understanding of the
defining characteristics of capitalism has been strongly influenced by
19th century German social theorist Max Weber. Weber considered market
exchange, rather than production, as the defining feature of
capitalism; capitalist enterprises, in contrast to their counterparts
in prior modes of economic activity, was their rationalization of
production, directed toward maximizing efficiency and productivity; a
tendency leading to a sociological process of enveloping
'rationalization'. According to Weber, workers in pre-capitalist
economic institutions understood work in terms of a personal
relationship between master and journeyman in a guild, or between lord
and peasant in a manor.[81]

In his book The Protestant Ethic and the Spirit of Capitalism
(1904-1905), Weber sought to trace how a particular form of religious
spirit, infused into traditional modes of economic activity, was a
condition of possibility of modern western capitalism. For Weber, the
'spirit of capitalism' was, in general, that of ascetic Protestantism;
this ideology was able to motivate extreme rationalization of daily
life, a propensity to accumulate capital by a religious ethic to
advance economically, and thus also the propensity to reinvest
capital: this was sufficient, then, to create "self-mediating capital"
as conceived by Marx.

This is pictured in Proverbs 22:29, “Seest thou a man diligent in his
calling? He shall stand before kings” and in Colossians 3:23,
"Whatever you do, do your work heartily, as for the Lord rather than
for men." In the Protestant Ethic, Weber further stated that
“moneymaking – provided it is done legally – is, within the modern
economic order, the result and the expression of diligence in one’s
calling…”

And, "If God show you a way in which you may lawfully get more than in
another way (without wrong to your soul or to any other), if you
refuse this, and choose the less gainful way, you cross one of the
ends of your calling, and you refuse to be God's steward, and to
accept His gifts and use them for him when He requierth it: you may
labour to be rich for God, though not for the flesh and sin" (p. 108).

Western Capitalism, was, most generally for Weber, the "rational
organization of formally free labor." The idea of the "formally free"
laborer, meant, in the double sense of Marx, that the laborer was both
free to own property, and free of the ability to reproduce his labor
power, i.e., was the victim of expropriation of his means of
production. It is only on these conditions, still abundantly obvious
in the modern world of Weber, that western capitalism is able to
exist.

For Weber, modern western capitalism represented the order "now bound
to the technical and economic conditions of machine production which
to-day determine the lives of all the individuals who are born into
this mechanism, not only those directly concerned with economic
acquisition, with irresistible force. Perhaps it will so determine
them until the last ton of fossilized coal is burnt" (p. 123).[82]
This is further seen in his criticism of "specialists without spirit,
hedonists without a heart" that were developing, in his opinion, with
the fading of the original Puritan "spirit" associated with
capitalism.

Institutional economics

Main article: Institutional economics

Thorstein VeblenInstitutional economics, once the main school of
economic thought in the United States, holds that capitalism cannot be
separated from the political and social system within which it is
embedded. It emphasizes the legal foundations of capitalism (see John
R. Commons) and the evolutionary, habituated, and volitional processes
by which institutions are erected and then changed (see John Dewey,
Thorstein Veblen, and Daniel Bromley.)

One key figure in institutional economics was Thorstein Veblen who in
his book The Theory of the Leisure Class (1899) analyzed the
motivations of wealthy people in capitalism who conspicuously consumed
their riches as a way of demonstrating success. The concept of
conspicuous consumption was in direct contradiction to the
neoclassical view that capitalism was efficient.

In The Theory of Business Enterprise (1904) Veblen distinguished the
motivations of industrial production for people to use things from
business motivations that used, or misused, industrial infrastructure
for profit, arguing that the former is often hindered because
businesses pursue the latter. Output and technological advance are
restricted by business practices and the creation of monopolies.
Businesses protect their existing capital investments and employ
excessive credit, leading to depressions and increasing military
expenditure and war through business control of political power.

German Historical School and Austrian School

Main articles: Historical school of economics and Austrian School

From the perspective of the German Historical School, capitalism is
primarily identified in terms of the organization of production for
markets. Although this perspective shares similar theoretical roots
with that of Weber, its emphasis on markets and money lends it
different focus.[43] For followers of the German Historical School,
the key shift from traditional modes of economic activity to
capitalism involved the shift from medieval restrictions on credit and
money to the modern monetary economy combined with an emphasis on the
profit motive.

Ludwig von MisesIn the late 19th century, the German Historical School
of economics diverged, with the emerging Austrian School of economics,
led at the time by Carl Menger. Later generations of followers of the
Austrian School continued to be influential in Western economic
thought through much of the 20th century. The Austrian economist
Joseph Schumpeter, a forerunner of the Austrian School of economics,
emphasized the "creative destruction" of capitalism—the fact that
market economies undergo constant change.

At any moment of time, posits Schumpeter, there are rising industries
and declining industries. Schumpeter, and many contemporary economists
influenced by his work, argue that resources should flow from the
declining to the expanding industries for an economy to grow, but they
recognized that sometimes resources are slow to withdraw from the
declining industries because of various forms of institutional
resistance to change.

The Austrian economists Ludwig von Mises and Friedrich Hayek were
among the leading defenders of market capitalism against 20th century
proponents of socialist planned economies. Mises and Hayek argued that
only market capitalism could manage a complex, modern economy.

Since a modern economy produces such a large array of distinct goods
and services, and consists of such a large array of consumers and
enterprises, asserted Mises and Hayek, the information problems facing
any other form of economic organization other than market capitalism
would exceed its capacity to handle information. Thinkers within
Supply-side economics built on the work of the Austrian School, and
particularly emphasize Say's Law: "supply creates its own demand."
Capitalism, to this school, is defined by lack of state restraint on
the decisions of producers.

Austrian economists claim that Marx failed to make the distinction
between capitalism and mercantilism.[83][84] They argue that Marx
conflated the imperialistic, colonialistic, protectionist and
interventionist doctrines of mercantilism with capitalism.

Austrian economics has been a major influence on some forms of
libertarianism, in which laissez-faire capitalism is considered to be
the ideal economic system.[85] It influenced economists and political
philosophers and theorists including Henry Hazlitt, Hans-Hermann
Hoppe, Israel Kirzner, Murray Rothbard, Walter Block and Richard M.
Ebeling.[86][87]

Keynesian economics

Main article: Keynesian economics

John Maynard KeynesIn his 1937 The General Theory of Employment,
Interest, and Money, the British economist John Maynard Keynes argued
that capitalism suffered a basic problem in its ability to recover
from periods of slowdowns in investment. Keynes argued that a
capitalist economy could remain in an indefinite equilibrium despite
high unemployment.

Essentially rejecting Say's law, he argued that some people may have a
liquidity preference that would see them rather hold money than buy
new goods or services, which therefore raised the prospect that the
Great Depression would not end without what he termed in the General
Theory "a somewhat comprehensive socialization of investment."

Keynesian economics challenged the notion that laissez-faire
capitalist economics could operate well on their own, without state
intervention used to promote aggregate demand, fighting high
unemployment and deflation of the sort seen during the 1930s. He and
his followers recommended "pump-priming" the economy to avoid
recession: cutting taxes, increasing government borrowing, and
spending during an economic down-turn. This was to be accompanied by
trying to control wages nationally partly through the use of inflation
to cut real wages and to deter people from holding money.[88]

John Maynard Keynes tried to provide solutions to many of Marx’s
problems without completely abandoning the classical understanding of
capitalism. His work attempted to show that regulation can be
effective, and that economic stabilizers can reign in the aggressive
expansions and recessions that Marx disliked. These changes sought to
create more stability in the business cycle, and reduce the abuses of
laborers. Keynesian economists argue that Keynesian policies were one
of the primary reasons capitalism was able to recover following the
Great Depression.[89] The premises of Keynes’s work have, however,
since been challenged by neoclassical and supply-side economics and
the Austrian School.

Another challenge to Keynesian thinking came from his colleague Piero
Sraffa, and subsequently from the Neo-Ricardian school that followed
Sraffa. In Sraffa's highly technical analysis, capitalism is defined
by an entire system of social relations among both producers and
consumers, but with a primary emphasis on the demands of production.
According to Sraffa, the tendency of capital to seek its highest rate
of profit causes a dynamic instability in social and economic
relations.

Neoclassical economics and the Chicago School

Main article: Neoclassical economics

Today, the majority academic research on capitalism in the English-
speaking world draws on neoclassical economic thought. It favors
extensive market coordination and relatively neutral patterns of
governmental market regulation aimed at maintaining property rights;
deregulated labor markets; corporate governance dominated by financial
owners of firms; and financial systems depending chiefly on capital
market-based financing rather than state financing.

Milton FriedmanMilton Friedman took many of the basic principles set
forth by Adam Smith and the classical economists and gave them a new
twist. One example of this is his article in the September 1970 issue

of The New York Times Magazine, where he claims that the social

responsibility of business is “to use its resources and engage in
activities designed to increase its profits…(through) open and free
competition without deception or fraud.” This is similar to Smith’s
argument that self-interest in turn benefits the whole of society.[90]
Work like this helped lay the foundations for the coming marketization
(or privatization) of state enterprises and the supply-side economics
of Ronald Reagan and Margaret Thatcher.

The Chicago School of economics is best known for its free market

advocacy and monetarist ideas. According to Friedman and other

monetarists, market economies are inherently stable if left to
themselves and depressions result only from government intervention.

[91]

Friedman, for example, argued that the Great Depression was result of
a contraction of the money supply, controlled by the Federal Reserve,

and not by the lack of investment as John Maynard Keynes had argued.

Ben Bernanke, current Chairman of the Federal Reserve, is among the
economists today generally accepting Friedman's analysis of the causes

of the Great Depression.[92]

Neoclassical economists, today the majority of economists,[93]
consider value to be subjective, varying from person to person and for
the same person at different times, and thus reject the labor theory
of value. Marginalism is the theory that economic value results from
marginal utility and marginal cost (the marginal concepts). These
economists see capitalists as earning profits by forgoing current
consumption, by taking risks, and by organizing production.

Political advocacy

Support

Economic growth

World's GDP per capita shows exponential acceleration since the
beginning of the Industrial Revolution.[94]Many theorists and
policymakers in predominantly capitalist nations have emphasized
capitalism's ability to promote economic growth, as measured by Gross
Domestic Product (GDP), capacity utilization or standard of living.
This argument was central, for example, to Adam Smith's advocacy of
letting a free market control production and price, and allocate
resources. Many theorists have noted that this increase in global GDP
over time coincides with the emergence of the modern world capitalist
system.[95][96]

Proponents argue that increasing GDP (per capita) is empirically shown
to bring about improved standards of living, such as better
availability of food, housing, clothing, and health care.[97] The
decrease in the number of hours worked per week and the decreased
participation of children and the elderly in the workforce have been
attributed to capitalism.[98][99][100][101]

Proponents also believe that a capitalist economy offers far more
opportunities for individuals to raise their income through new
professions or business ventures than do other economic forms. To
their thinking, this potential is much greater than in either
traditional feudal or tribal societies or in socialist societies.

Political freedom

Milton Friedman argued that the economic freedom of competitive
capitalism is a requisite of political freedom. Friedman argued that
centralized control of economic activity is always accompanied by
political repression. In his view, transactions in a market economy
are voluntary, and the wide diversity that voluntary activity permits
is a fundamental threat to repressive political leaders and greatly
diminish power to coerce. Friedman's view was also shared by Friedrich
Hayek and John Maynard Keynes, both of whom believed that capitalism
is vital for freedom to survive and thrive.[102][103]

Self-organization

Austrian School economists have argued that capitalism can organize
itself into a complex system without an external guidance or planning
mechanism. Friedrich Hayek coined the term "catallaxy" to describe
what he considered the phenomenon of self-organization underpinning
capitalism. From this perspective, in process of self-organization,
the profit motive has an important role. From transactions between
buyers and sellers price systems emerge, and prices serve as a signal
as to the urgent and unfilled wants of people. The promise of profits
gives entrepreneurs incentive to use their knowledge and resources to
satisfy those wants. Thus the activities of millions of people, each
seeking his own interest, are coordinated.[104]

This decentralized system of coordination is viewed by some supporters
of capitalism as one of its greatest strengths. They argue that it
permits many solutions to be tried, and that real-world competition
generally finds a good solution to emerging challenges. In contrast,
they argue, central planning often selects inappropriate solutions as
a result of faulty forecasting. However, in all existing modern
economies, the state conducts some degree of centralized economic
planning (using such tools as allowing the country's central bank to
set base interest rates), ostensibly as an attempt to improve
efficiency, attenuate cyclical volatility, and further particular
social goals. Proponents who follow the Austrian School argue that
even this limited control creates inefficiencies because we cannot
predict the long-term activity of the economy. Milton Friedman, for
example, has argued that the Great Depression was caused by the
erroneous policy of the Federal Reserve.[92]

Moral imperative

See also: Capitalism: The Unknown Ideal

Ayn Rand was a prominent supporter of laissez-faire capitalism, and
her best-selling novel Atlas Shrugged has been an influential
publication on business.[105] Rand was the first person to endow
capitalism with a new code of morality (rational selfishness),[106],
arguing that capitalism is the only morally valid socio-political
system because it allows people to be free to act in their rational
self-interest.[107][108]

Criticism

Main articles: Criticism of capitalism and Anti-capitalism

Notable critics of capitalism have included: socialists, anarchists,
communists, technocrats, some types of conservatives, Luddites,
Narodniks, Shakers and some types of nationalists. Marxists advocated
a revolutionary overthrow of capitalism that would lead to socialism,
before eventually transforming into communism. Marxism influenced
social democratic and labour parties, as well as some moderate
democratic socialists. Many aspects of capitalism have come under
attack from the anti-globalization movement, which is primarily
opposed to corporate capitalism.

Many religions have criticized or opposed specific elements of
capitalism; traditional Judaism, Christianity, and Islam forbid
lending money at interest, although methods of Islamic banking have
been developed. Christianity has been a source of both praise and
criticism for capitalism, particularly its materialist aspects.[109]
Indian philosopher P.R. Sarkar, founder of the Ananda Marga movement,
developed the Law of Social Cycle to identify the problems of
capitalism.[110][111]

Critics argue that capitalism is associated with the unfair
distribution of wealth and power; a tendency toward market monopoly or
oligopoly (and government by oligarchy); imperialism, counter-
revolutionary wars and various forms of economic and cultural
exploitation; repression of workers and trade unionists, and phenomena
such as social alienation, economic inequality, unemployment, and
economic instability. Capitalism is regarded by many socialists to be
irrational in that production and the direction of the economy are
unplanned, creating many inconsistencies and internal contradictions.
[112]

Environmentalists have argued that capitalism requires continual
economic growth, and will inevitably deplete the finite natural
resources of the earth, and other broadly utilized resources. Labor
historians and scholars, such as Immanuel Wallerstein have argued that
unfree labor—by slaves, indentured servants, prisoners, and other
coerced persons—is compatible with capitalist relations.[113]

Democracy, the state, and legal frameworks
Main article: History of capitalist theory

Private property

The relationship between the state, its formal mechanisms, and
capitalist societies has been debated in many fields of social and
political theory, with active discussion since the 19th century.
Hernando de Soto is a contemporary economist who has argued that an
important characteristic of capitalism is the functioning state
protection of property rights in a formal property system where
ownership and transactions are clearly recorded.[114]

According to de Soto, this is the process by which physical assets are
transformed into capital, which in turn may be used in many more ways
and much more efficiently in the market economy. A number of Marxian
economists have argued that the Enclosure Acts in England, and similar
legislation elsewhere, were an integral part of capitalist primitive
accumulation and that specific legal frameworks of private land
ownership have been integral to the development of capitalism.[115]
[116]

Institutions

New institutional economics, a field pioneered by Douglass North,
stresses the need of a legal framework in order for capitalism to
function optimally, and focuses on the relationship between the
historical development of capitalism and the creation and maintenance
of political and economic institutions.[117] In new institutional
economics and other fields focusing on public policy, economists seek
to judge when and whether governmental intervention (such as taxes,
welfare, and government regulation) can result in potential gains in
efficiency. According to Gregory Mankiw, a New Keynesian economist,
governmental intervention can improve on market outcomes under
conditions of "market failure," or situations in which the market on
its own does not allocate resources efficiently.[118]

Market failure occurs when an externality is present and a market will
either underproduce a product with a positive externality or
overproduce a product that generates a negative externality. Air
pollution, for instance, is a negative externality that cannot be
incorporated into markets as the world’s air is not owned and then
sold for use to polluters. So, too much pollution could be emitted and
people not involved in the production pay the cost of the pollution
instead of the firm that initially emitted the air pollution. Critics
of market failure theory, like Ronald Coase, Harold Demsetz, and James
M. Buchanan argue that government programs and policies also fall
short of absolute perfection. Market failures are often small, and
government failures are sometimes large. It is therefore the case that
imperfect markets are often better than imperfect governmental
alternatives. While all nations currently have some kind of market
regulations, the desirable degree of regulation is disputed.

Democracy

The relationship between democracy and capitalism is a contentious
area in theory and popular political movements. The extension of
universal adult male suffrage in 19th century Britain occurred along
with the development of industrial capitalism, and democracy became
widespread at the same time as capitalism, leading many theorists to
posit a causal relationship between them, or that each affects the
other. However, in the 20th century, according to some authors,
capitalism also accompanied a variety of political formations quite
distinct from liberal democracies, including fascist regimes,
monarchies, and single-party states,[43] while some democratic
societies such as the Bolivarian Republic of Venezuela and Anarchist
Catalonia have been expressly anti-capitalist.[119]

While some thinkers argue that capitalist development more-or-less
inevitably eventually leads to the emergence of democracy, others
dispute this claim. Research on the democratic peace theory indicates
that capitalist democracies rarely make war with one another and have
little internal violence.[120][121] However critics of the democratic
peace theory note that democratic capitalist states may fight
infrequently and or never with other democratic capitalist states
because of political similarity or stability rather than because they
are democratic or capitalist.

Some commentators argue that though economic growth under capitalism
has led to democratization in the past, it may not do so in the
future, as authoritarian regimes have been able to manage economic
growth without making concessions to greater political freedom.[122]
[123] States that have highly capitalistic economic systems have
thrived under authoritarian or oppressive political systems.
Singapore, which maintains a highly open market economy and attracts
lots of foreign investment, does not protect civil liberties such as
freedom of speech and expression. The private (capitalist) sector in
the People's Republic of China has grown exponentially and thrived
since its inception, despite having an authoritarian government.
Private investment in Fascist states, such as Nazi Germany, greatly
increased[citation needed], and Augusto Pinochet's rule in Chile led
to economic growth by using authoritarian means to create a safe
environment for investment and capitalism.

In response to criticism of the system, some proponents of capitalism
have argued that its advantages are supported by empirical research.
For example, advocates of different Indices of Economic Freedom point
to a statistical correlation between nations with more economic
freedom (as defined by the indices) and higher scores on variables
such as income and life expectancy, including the poor, in these
nations.

See also

Capitalism portal

Economic liberalism
Capitalist mode of production
Objectivism (Ayn Rand)

Capitalism: The Unknown Ideal by Ayn Rand

Das Kapital by Karl Heinrich Marx
The Theory of Business Enterprise by Thorstein Veblen
Positive non-interventionism

Notes

↑ Grassby, Richard. The Idea of Capitalism before the Industrial
Revolution. Critical Issues in History. Lanham, Md: Rowman and
Littlefield, 1999, p.1

↑ 2.0 2.1 2.2 2.3 Scott, John (2005). Industrialism: A Dictionary of
Sociology. Oxford University Press.
↑ Tormey, Simon. Anti-Capitalism. OneWorld Publications, 2004. p. 10

↑ Tucker, Irvin B. (1997). Macroeconomics for Today. pp. 553.

↑ Case, Karl E. (2004). Principles of Macroeconomics. Prentice Hall.

↑ 6.0 6.1 Stilwell, Frank. “Political Economy: the Contest of Economic
Ideas.” First Edition. Oxford University Press. Melbourne, Australia.
2002.

↑ Economic systems. (2009). Encyclopædia Britannica. Encyclopædia
Britannica 2007 Ultimate Reference Suite. Chicago: Encyclopædia
Britannica.

↑ "Capitalism". Encyclopædia Britannica.

↑ 9.0 9.1 9.2 9.3 9.4 Braudel, Fernand (1982). "Production, or
Capitalism away from home". The Wheels of Commerce, Vol. 2,
Civilization & Capitalism 15th-18th Century. Los Angeles: University
of California Press. pp. 231–373.

http://books.google.ca/books?id=WPDbSXQsvGIC&lpg=PP1&dq=capitalism%20and%20civilization%20wheels%20of%20commerce&pg=PP1#v=onepage&q=&f=false.

↑ 10.0 10.1 10.2 10.3 10.4 Banaji, Jairus (2007). [Expression error:
Missing operand for > "Islam, the Mediterranean and the rise of
capitalism"]. Journal Historical Materialism (Brill Publishers) 15: 47–
74. doi:10.1163/156920607X171591.

↑ 11.0 11.1 11.2 Capitalism. Encyclopedia Britannica. 2006.

↑ Werhane, P.H. (1994). [Expression error: Missing operand for > "Adam
Smith and His Legacy for Modern Capitalism"]. The Review of
Metaphysics (Philosophy Education Society, Inc.) 47 (3).

↑ 13.0 13.1 13.2 "free enterprise." Roget's 21st Century Thesaurus,
Third Edition. Philip Lief Group 2008.

↑ Mutualist.org. "...based on voluntary cooperation, free exchange, or
mutual aid."

↑ Friedman, Milton. 1962. Capitalism and Freedom. University of
Chicago Press. p 38.

↑ "market economy", Merriam-Webster Unabridged Dictionary

↑ "About Cato". Cato.org. http://www.cato.org/about.php. Retrieved
2008-11-06.

↑ "The Achievements of Nineteenth-Century Classical Liberalism".

http://www.cato.org/university/module10.html.

Although the term "liberalism" retains its original meaning in most of
the world, it has unfortunately come to have a very different meaning
in late twentieth-century America. Hence terms such as "market
liberalism," "classical liberalism," or "libertarianism" are often
used in its place in America.

↑ Etymology of "Cattle"

↑ 20.0 20.1 20.2 20.3 20.4 James Augustus Henry Murray. "Capital". A
New English Dictionary on Historical Principles. Oxford English Press.
Vol 2. page 93.

↑ Arthur Young. Travels in France

↑ Ricardo, David. Principles of Political Economy and Taxation>. 1821.
John Murray Publisher, 3rd edition.

↑ Samuel Taylor Coleridge. Tabel The Complete Works of Samuel Taylor
Coleridge. page 267.

↑ Braudel, Fernand. The Wheels of Commerce: Civilization and
Capitalism 15-18 Century, Harper and Row, 1979, p.237

↑ Karl Marx. Chapter 16: Absolute and Relative Surplus-Value. Das
Kapital.
Die Verlängrung des Arbeitstags über den Punkt hinaus, wo der Arbeiter
nur ein Äquivalent für den Wert seiner Arbeitskraft produziert hätte,
und die Aneignung dieser Mehrarbeit durch das Kapital - das ist die
Produktion des absoluten Mehrwerts. Sie bildet die allgemeine
Grundlage des kapitalistischen Systems und den Ausgangspunkt der
Produktion des relativen Mehrwerts.

The prolongation of the working-day beyond the point at which the
labourer would have produced just an equivalent for the value of his
labour-power, and the appropriation of that surplus-labour by capital,
this is production of absolute surplus-value. It forms the general
groundwork of the capitalist system, and the starting-point for the
production of relative surplus-value.

↑ Karl Marx. Chapter Twenty-Five: The General Law of Capitalist
Accumulation. Das Kapital.

Die Erhöhung des Arbeitspreises bleibt also eingebannt in Grenzen, die
die Grundlagen des kapitalistischen Systems nicht nur unangetastet
lassen, sondern auch seine Reproduktion auf wachsender Stufenleiter
sichern.

Die allgemeinen Grundlagen des kapitalistischen Systems einmal
gegeben, tritt im Verlauf der Akkumulation jedesmal ein Punkt ein, wo
die Entwicklung der Produktivität der gesellschaftlichen Arbeit der
mächtigste Hebel der Akkumulation wird.

Wir sahen im vierten Abschnitt bei Analyse der Produktion des
relativen Mehrwerts: innerhalb des kapitalistischen Systems vollziehn
sich alle Methoden zur Steigerung der gesellschaftlichen
Produktivkraft der Arbeit auf Kosten des individuellen Arbeiters;

↑ Saunders, Peter (1995). Capitalism. University of Minnesota Press.
p. 1

↑ Karl Marx. Das Kapital.

↑ Ragan, Christopher T.S., and Richard G. Lipsey. Microeconomics.
Twelfth Canadian Edition ed. Toronto: Pearson Education Canada, 2008.
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↑ Robbins, Richard H. Global problems and the culture of capitalism.
Boston: Allyn & Bacon, 2007. Print.

↑ Erdkamp, Paul (2005), "The Grain Market in the Roman
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↑ Hasan, M (1987) "History of Islam." Vol 1. Lahore, Pakistan: Islamic
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↑ The Cambridge economic history of Europe, p. 437. Cambridge
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↑ Subhi Y. Labib (1969), "Capitalism in Medieval Islam", The Journal
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↑ Robert Sabatino Lopez, Irving Woodworth Raymond, Olivia Remie
Constable (2001), Medieval Trade in the Mediterranean World:
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↑ Timur Kuran (2005), "The Absence of the Corporation in Islamic Law:
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↑ Subhi Y. Labib (1969), "Capitalism in Medieval Islam", The Journal
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↑ Ray Spier (2002), "The history of the peer-review process", Trends
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↑ Said Amir Arjomand (1999), "The Law, Agency, and Policy in Medieval
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↑ Samir Amin (1978), "The Arab Nation: Some Conclusions and Problems",
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↑ 41.0 41.1 41.2 Abu-Lughod, Janet L. Before European Hegemony The
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↑ 43.0 43.1 43.2 43.3 43.4 43.5 43.6 43.7 Burnham, Peter (2003).
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↑ Polanyi, Karl. The Great Transformation. Beacon Press, Boston.
1944.p87
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↑ Quoted in Sir George Clark, The Seventeenth Century (New York:
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↑ Mancur Olson, The rise and decline of nations: economic growth,
staglaction, and social rigidities (New Haven & London 1982).

↑ Economic system :: Market systems. Encyclopedia Britannica. 2006.

http://www.britannica.com/EBchecked/topic/178493/economic-system/61117/Market-systems#toc242146.

↑ Schumpeter, J.A. (1954) History of Economic Analysis

↑ Hume, David (1752). Political Discourses. Edinburgh: A. Kincaid & A.
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↑ 51.0 51.1 "laissez-faire".

http://www.bartleby.com/65/la/laissezf.html.
↑ Polanyi, Karl. The Great Transformation, Beacon Press. Boston. 1944.
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↑ "Navigation Acts".

http://www.bartleby.com/65/na/NavigatA.html.

↑ LaHaye, Laura (1993). "Mercantilism". Concise Encyclepedia of
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http://www.econlib.org/library/Enc/Mercantilism.html.
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↑ Scott, John (2005). A Dictionary of Sociology. Oxford University
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↑ Engerman, Stanley L. (2001). The Oxford Companion to United States
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↑ Barnes, Trevor J. (2004). Reading economic geography. Blackwell
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↑ Fulcher, James. Capitalism. 1st ed. New York: Oxford University
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↑ Henwood, Doug (2003-10-01). After the New Economy. New Press. ISBN
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↑ "Capitalism." World Book Encyclopedia. 1988. 194. Print.

↑ Degen, Robert. The Triumph of Capitalism. 1st ed. New Brunswick, NJ:
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↑ Hunt, E.K. (2002). History of Economic Thought: A Critical
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↑ Blackwell Encyclopedia of Political Thought. Blackwell Publishing.
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↑ Skousen, Mark (2001). The Making of Modern Economics: The Lives and
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↑ Eric Aaron, What's Right? (Dural, Australia: Rosenberg Publishing,
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↑ Calhoun, Craig (2002). Capitalism: Dictionary of the Social
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↑ 68.0 68.1 "Adam Smith". econlib.org.

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↑ The Communist Manifesto

↑ "To Marx, the problem of reconstituting society did not arise from
some prescription, motivated by his personal predilections; it
followed, as an iron-clad historical necessity – on the one hand, from
the productive forces grown to powerful maturity; on the other, from
the impossibility further to organize these forces according to the
will of the law of value." - Leon Trotsky, "Marxism in our Time", 1939
(Inevitability of Socialism) [1]

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↑ Dobb, Maurice 1947 Studies in the Development of Capitalism. New
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↑ David Harvey 1989 The Condition of Postmodernity

↑ Wheen, Francis Books That Shook the World: Marx's Das Kapital1st ed.
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↑ See, for example, the works of Stephen Resnick and Richard Wolff.

↑ Ste. Croix, G. E. M. de (1982). The Class Struggle in the Ancient
Greek World. pp. 52–3.

↑ Lawson, Victoria. Making Development Geography (Human Geography in
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↑ Harvey, David. Notes towards a theory of uneven geographical
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↑ Kilcullen, John (1996). "MAX WEBER: ON CAPITALISM". Macquarie
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↑ Rothbard, Murray N. (1973). "A Future of Peace and Capitalism".
Modern Political Economy (Boston: Allyn and Bacon): 419–430.
http://www.mises.org/story/1559. "In fact the mercantilist system is
essentially what we’ve got right now. There is very little difference
between state monopoly capitalism, or corporate state capitalism,
whatever you want to call it, in the United States and Western Europe
today, and the mercantilist system of the pre-Industrial Revolution
era. There are only two differences; one is that their major activity
was commerce and ours is industry. But the essential modus operandi of
the two systems is exactly the same: monopoly privilege, a complete
meshing in what is now called the "partnership of government and
industry," a pervasive system of militarism and war contracts, a drive
toward war and imperialism; the whole shebang characterized the
seventeenth and eighteenth centuries.".

↑ Osterfeld, David (1991). [Expression error: Missing operand for >
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↑ Capitalism: The Unknown Ideal

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↑ That unfree labor is acceptable to capital was argued during the
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> "Enclosure and labor supply revisited"]. Explorations in economic
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say yes

↑ North, Douglass C. (1990). Institutions, Institutional Change and
Economic Performance. Cambridge University Press.

↑ Principles of Economics. Harvard University. 1997. pp. 10.

↑ On the democratic nature of the Venezuelan state, see [2]. On the
current government's rejection of capitalism in favor of socialism,
see[3] and[4]

↑ James Lee Ray. "Does democracy cause peace".

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↑ Hegre, Håvard. "Towards a democratic civil peace? : opportunity,
grievance, and civil war 1816-1992".
http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTENERGY/0,,contentMDK:20708340~pagePK:210058~piPK:210062~theSitePK:336806,00.html.
Retrieved 2008-02-26.

↑ Mesquita, Bruce Bueno de (2005-09). "Development and Democracy".
Foreign Affairs.
http://www.foreignaffairs.org/20050901faessay84507/bruce-bueno-de-mesquita-george-w-downs/development-and-democracy.html.
Retrieved 2008-02-26.

↑ Single, Joseph T. (2004-09). "Why Democracies Excel". New York
Times.

http://www10.nytimes.com/cfr/international/20040901facomment_v83n4_siegle-weinstein-halperin.html?_r=5&oref=slogin&oref=slogin&oref=slogin&oref=slogin.
Retrieved 2008-02-26.

References

Bacher, Christian (2007) Capitalism, Ethics and the Paradoxon of Self-
exploitation Grin Verlag. p. 2
De George, Richard T. (1986) Business ethics p. 104
Lash, Scott and Urry, John (2000). Capitalism. In Nicholas
Abercrombie, S. Hill & BS Turner (Eds.), The Penguin dictionary of
sociology (4th ed.) (pp. 36–40).
Obrinsky, Mark (1983). Profit Theory and Capitalism. University of
Pennsylvania Press. pp. 1. http://www.questia.com/PM.qst?a=o&d=4995059.
Wolf, Eric (1982) Europe and the People Without History
Wood, Ellen Meiksins (2002) The Origins of Capitalism: A Longer View
London: Verso

Further reading

Abu-Lughod, Janet L. Before European Hegemony The World System A.D.
1250-1350. New York: Oxford UP, USA, 1991.
Ackerman, Frank; Lisa Heinzerling (August 24, 2005). Priceless: On
Knowing the Price of Everything and the Value of Nothing. New Press.
pp. 277. ISBN 1565849817.
Buchanan, James M.. Politics Without Romance.
Braudel, Fernand. Civilization and Capitalism: 15th - 18 Century.
Bottomore, Tom (1985). Theories of Modern Capitalism.
H. Doucouliagos and M. Ulubasoglu (2006). [Expression error: Missing
operand for > "Democracy and Economic Growth: A meta-analysis"].
School of Accounting, Economics and Finance Deakin University
Australia.
Coase, Ronald (1974). The Lighthouse in Economics.
Demsetz, Harold (1969). Information and Efficiency.
Fulcher, James (2004). Capitalism.
Friedman, Milton (1952). Capitalism and Freedom.
Galbraith, J.K. (1952). American Capitalism.
Böhm-Bawerk, Eugen von (1890). Capital and Interest: A Critical
History of Economical Theory. London: Macmillan and Co..
Harvey, David (1990). The Political-Economic Transformation of Late
Twentieth Century Capitalism.. Cambridge, MA: Blackwell Publishers.
ISBN 0-631-16294-1.
Hayek, Friedrich A. (1975). The Pure Theory of Capital. Chicago:
University of Chicago Press. ISBN 0-226-32081-2.
Hayek, Friedrich A. (1963). Capitalism and the Historians. Chicago:
University of Chicago Press.
Heilbroner, Robert L. (1966). The Limits of American Capitalism.
Heilbroner, Robert L. (1985). The Nature and Logic of Capitalism.
Heilbroner, Robert L. (1987). Economics Explained.
Cryan, Dan (2009). Capitalism: A Graphic Guide.
Josephson, Matthew, The Money Lords; the great finance capitalists,
1925-1950, New York, Weybright and Talley, 1972.
Luxemburg, Rosa (1913). The Accumulation of Capital.
Marx, Karl (1886). Capital: A Critical Analysis of Capitalist
Production.
Mises, Ludwig von (1998). Human Action: A Treatise on Economics.
Scholars Edition.
Rand, Ayn (1986). Capitalism: The Unknown Ideal. Signet.
Reisman, George (1996). Capitalism: A Treatise on Economics. Ottawa,
Illinois: Jameson Books. ISBN 0-915463-73-3.
Resnick, Stephen (1987). Knowledge & Class: a Marxian critique of
political economy. Chicago: University of Chicago Press.
Rostow, W. W. (1960). The Stages of Economic Growth: A Non-Communist
Manifesto. Cambridge: Cambridge University Press.
Schumpeter, J. A. (1983). Capitalism, Socialism, and Democracy.
Scott, Bruce (2009). The Concept of Capitalism. Springer. pp. 76. ISBN
3642031099.
Scott, John (1997). Corporate Business and Capitalist Classes.
Seldon, Arthur (2007). Capitalism: A Condensed Version. London:
Institute of Economic Affairs.
Sennett, Richard (2006). The Culture of the New Capitalism.
Smith, Adam (1776). An Inquiry into the Nature and Causes of the
Wealth of Nations.
De Soto, Hernando (2000). The Mystery of Capital: Why Capitalism
Triumphs in the West and Fails Everywhere Else. New York: Basic Books.
ISBN 0-465-01614-6.
Strange, Susan (1986). Casino Capitalism.
Wallerstein, Immanuel. The Modern World System.
Weber, Max (1926). The Protestant Ethic and the Spirit of Capitalism.

External links

Center on Capitalism and Society directed by Edmund Phelps

Wikiquote has a collection of quotations related to: Capitalism

mwl:Capitalismo

http://www.bing.com/reference/semhtml/Capitalism

[Sid Harth]

Reference »
Wikipedia Articles
Monopoly

In this article: Locations Images From the web: Images Videos

Monopoly
This article is about the economic term. For the board game, see
Monopoly (game). For other uses, see Monopoly (disambiguation).

This article needs additional citations for verification.

Please help improve this article by adding reliable references.

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Competition law
Basic concepts
History of competition law
Monopoly
Coercive monopoly
Natural monopoly
Barriers to entry
Market power
SSNIP test
Relevant market
Merger control

Anti-competitive practices
Monopolization
Collusion
Formation of cartels
Price fixing
Bid rigging
Product bundling and tying
Refusal to deal
Group boycott
Exclusive dealing
Dividing territories
Conscious parallelism
Predatory pricing
Misuse of patents and copyrights

Laws and doctrines
United States

Sherman Antitrust Act
Clayton Antitrust Act
Robinson-Patman Act
FTC Act
Hart-Scott-Rodino Act
Merger guidelines
Essential facilities doctrine
Noerr-Pennington doctrine
Parker immunity doctrine
Rule of reason
European Union

UK competition law
Irish competition law
Australia

Trade Practices Act 1974

Enforcement authorities and organizations
International Competition Network
List of competition regulators

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In economics, a monopoly (from Greek monos / μονος (alone or single) +
polein / πωλειν (to sell)) exists when a specific individual or an
enterprise has sufficient control over a particular product or service
to determine significantly the terms on which other individuals shall
have access to it.[1][clarification needed] Monopolies are thus
characterized by a lack of economic competition for the good or
service that they provide and a lack of viable substitute goods.[2]
The verb "monopolize" refers to the process by which a firm gains
persistently greater market share than what is expected under perfect
competition.

A monopoly must be distinguished from monopsony, in which there is
only one buyer of a product or service ; a monopoly may also have
monopsony control of a sector of a market. Likewise, a monopoly should
be distinguished from a cartel (a form of oligopoly), in which several
providers act together to coordinate services, prices or sale of
goods. Monopolies can form naturally or through vertical or horizontal
mergers. A monopoly is said to be coercive when the monopoly firm
actively prohibits competitors from entering the field.

In many jurisdictions, competition laws place specific restrictions on
monopolies. Holding a dominant position or a monopoly in the market is
not illegal in itself, however certain categories of behavior can,
when a business is dominant, be considered abusive and therefore be
met with legal sanctions. A government-granted monopoly or legal
monopoly, by contrast, is sanctioned by the state, often to provide an
incentive to invest in a risky venture or enrich a domestic
constituency. The government may also reserve the venture for itself,
thus forming a government monopoly.

Market structures

In economics, monopoly is a pivotal area to the study of market
structures, which directly concerns normative aspects of economic
competition, and sets the foundations for fields such as industrial
organization and economics of regulation. There are four basic types
of market structures under traditional economic analysis: perfect
competition, monopolistic competition, oligopoly and monopoly. A
monopoly is a market structure in which a single supplier produces and
sells the product. If there is a single seller in a certain industry
and there are no close substitutes for the goods being produced, then
the market structure is that of a "pure monopoly". Sometimes, there
are many sellers in an industry and/or there exist many close
substitutes for the goods being produced, but nevertheless firms
retain some market power. This is called monopolistic competition,
whereas in oligopoly the main theoretical framework revolves around
firm's strategic interactions.

In general, the main results from this theory refer to compare price-
fixing methods across market structures, analyze the impact of a
certain structure on welfare, and play with different variations of
technological/demand assumptions in order to assess its consequences
on the abstract model of society. Most economic textbooks follow the
practice of carefully explaining the perfect competition model, only
because of its usefulness to understand "departures" from it (the so
called imperfect competition models).

The boundaries of what constitutes a market and what doesn't, is a
relevant distinction to make in economic analysis. In a general
equilibrium context, a good is a specific concept entangling
geographical and time-related characteristics (grapes sold in October
of 2009 in Moscow is a different good from grapes sold in October of
2009 in New York). Most studies of market structure relax a little
their definition of a good, allowing for more flexibility at the
identification of substitute-goods. Therefore, one can find an
economic analysis of the market of grapes in Russia, for example,
which is not a market in the strict sense of general equilibrium
theory.

Characteristics

Single Seller: In a monopoly there is one seller of the monopolized
good who produces all the output.[3] Therefore, the whole market is
being served by a single firm, and for practical purposes, the firm is
the same as the industry. In a competitive market (that is, a market
with perfect competition) there are an infinite number of sellers each
producing an infinitesimally small quantity of output.
Market Power: Market Power is the ability to affect the terms and
conditions of exchange so that the price of the product is set by the
firm (price is not imposed by the market as in perfect competition).[4]
[5] Although a monopoly's market power is high it is still limited by
the demand side of the market. A monopoly faces a negatively sloped
demand curve not a perfectly inelastic curve. Consequently, any price
increase will result in the loss of some customers.

Sources of monopoly power

Monopolies derive their market power from barriers to entry -
circumstances that prevent or greatly impede a potential competitor's
entry into the market or ability to compete in the market. There are
three major types of barriers to entry; economic, legal and deliberate.
[6]

Economic Barriers:Economic barriers include economies of scale,
capital requirements, cost advantages and technological superiority.
[7]

Economies of scale: Monopolies are characterized by declining costs
over a relatively large range of production.[8] Declining costs
coupled with large start up costs give monopolies an advantage over
would be competitors. Monopolies are often in a position to cut prices
below a new entrant's operating costs and drive them out of the
industry.[8] Further the size of the industry relative to the minimum
efficient scale may limit the number of firms that can effectively
compete within the industry. If for example the industry is large
enough to support one firm of minimum efficient scale then other firms
entering the industry will operate at a size that is less than MES
meaning that these firms cannot produce at an average cost that is
competitive with the dominant industry.

Capital requirements: Production processes that require large
investments of capital, or large research and development costs or
substantial sunk costs limit the number of firms in an industry.[9]
Large fixed costs also make it difficult for a small firm to enter an
industry and expand.[10]

Technological Superiority: A monopoly may be better able to acquire,
integrate and use the best possible technology in producing its goods
while entrants do not have the size or fiscal muscle to use the best
available technology.[8] In plain English one large firm can sometimes
produce goods cheaper than several small firms.[11]
No Substitute Goods:A monopoly sells a good for which there is no
close substitutes. The absence of substitutes makes the demand for the
good relatively inelastic enabling monopolies to extract positive
profits.

Control of Natural Resources: A prime source of monopoly power is the
control of resources that are critical to the production of a final
good.

Legal Barriers: Legal rights can provide opportunity to monopolize the
market in a good. Intellectual property rights, including patents and
copyrights, give a monopolist exclusive control over the production
and selling of certain goods. Property rights may give a firm the
exclusive control over the materials necessary to produce a good.

Deliberate Actions: A firm wanting to monopolize a market may engage
in various types of deliberate action to exclude competitors or
eliminate competition. Such actions include collusion, lobbying
governmental authorities, and force.
In addition to barriers to entry and competition, barriers to exit may
be a source of market power. Barriers to exit are market conditions
that make it difficult or expensive for a firm to leave the market.
High liquidation costs are a primary barrier to exit.[12] Market exit
and shutdown are separate events. The decision whether to shut down or
operate is not affected by exit barriers. A firm will shut down if
price falls below minimum average variable costs.

Monopoly versus competitive markets

While monopoly and perfect competition mark the extremes of market
structures[13] there are many point of similarity. The cost functions
are the same.[14] Both monopolies and perfectly competitive firms
minimize cost and maximize profit. The shutdown decisions are the
same. Both are assumed to face perfectly competitive factors markets.
There are distinctions, some of the more important of which are as
follows:

Market Power - market power is the ability to control the terms and
condition of exchange. Specifically market power is the ability to
raise prices without losing all one's customers to competitors.
Perfectly competitive (PC) firms have zero market power when it comes
to setting prices. All firms in a PC market are price takers. The
price is set by the interaction of demand and supply at the market or
aggregate level. Individual firms simply take the price determined by
the market and produce that quantity of output that maximize the
firm's profits. If a PC firm attempted to raise prices above the
market level all its "customers" would abandon the firm and purchase
at the market price from other firms. A monopoly has considerable
although not unlimited market power. A monopoly has the power to set
prices or quantities although not both.[15] A monopoly is a price
maker.[16] The monopoly is the market[17] and prices are set by the
monopolist based on his circumstances and not the interaction of
demand and supply. The two primary factors determining monopoly market
power are the firm's demand curve and its cost structure.[18]

Product differentiation: There is zero product differentiation in a
perfectly competitive market. Every product is perfectly homogeneous
and a perfect substitute. With a monopoly there is high to absolute
product differentiation in the sense that there is no available
substitute for a monopolized good. The monopolist is the sole supplier
of the good in question.[19] A customer either buys from the
monopolist on her terms or does without.

Number of competitors: PC markets are populated by an infinite number
of buyers and sellers. Monopoly involves a single seller.[19]

Barriers to Entry - Barriers to entry are factors and circumstances
that prevent entry into market by would be competitors and impediments
to competition that limit new firm’s from operating and expanding
within the market. PC markets have free entry and exit. There are no
barriers to entry, exit or competition. Monopolies have relatively
high barriers to entry. The barriers must be strong enough to prevent
or discourage any potential competitor from entering the market.

PED; the price elasticity of demand is the percentage change in demand
caused by a one percent change in relative price. A successful
monopoly would face a relatively inelastic demand curve. A low
coefficient of elasticity is indicative of effective barriers to
entry. A PC firm faces what it perceives to be perfectly elastic
demand curve. The coefficient of elasticity for a perfectly
competitive demand curve is infinite.

Excess Profits- Excess or positive profits are profit above the normal
expected return on investment. A PC firm can make excess profits in
the short run but excess profits attract competitors who can freely
enter the market and drive down prices eventually reducing excess
profits to zero.[20] A monopoly can preserve excess profits because
barriers to entry prevent competitors from entering the market.

Profit Maximization - A PC firm maximizes profits by producing where
price equals marginal costs. A monopoly maximizes profits by producing
where marginal revenue equals marginal costs.[21] The rules are
equivalent. The demand curve for a PC firm is perfectly elastic -
flat. The demand curve is identical to the average revenue curve and
the price line. Since the average revenue curve is constant the
marginal revenue curve is also constant and equals the demand curve,
Average revenue is the same as price (AR = TR/Q = P x Q/Q = P). Thus
the price line is also identical to the demand curve. In sum, D = AR =
MR = P.

P-Max quantity, price and profit: if a monopolist took over a
perfectly competitive industry he would raise prices cut production
and realize positive economic profits.[22]

The most significant distinction between a PC firm and a monopoly is
that the monopoly faces a downward sloping demand curve rather than
the "perceived" perfectly elastic curve of the PC firm.[23]
Practically all the variations above mentioned relate to this fact. If
there is a downward sloping demand curve then by necessity there is a
distinct marginal revenue curve. The implications of this fact are
best made manifest with a linear demand curve, Assume that the inverse
demand curve is of the form x = a - by. Then the total revenue curve
is TR = ay - by2 and the marginal revenue curve is thus MR = a - 2by.
From this several things are evident. First the marginal revenue curve
has the same y intercept as the inverse demand curve. Second the slope
of the marginal revenue curve is twice that of the inverse demand
curve. Third the x intercept of the marginal revenue curve is half
that of the inverse demand curve. What is not quite so evident is that
the marginal revenue curve lies below the inverse demand curve at all
points.[23] Since all firms maximize profits by equating MR and MC it
must be the case that at the profit maximizing quantity MR and MC are
less than price which further implies that a monopoly produces less
quantity at a higher price than if the market were perfectly
competitive.

A company with a monopoly does not undergo price pressure from
competitors, although it may face pricing pressure from potential
competition. If a company raises prices too high, then others may
enter the market if they are able to provide the same good, or a
substitute, at a lower price.[24] The idea that monopolies in markets
with easy entry need not be regulated against is known as the
"revolution in monopoly theory".[25]

A monopolist can extract only one premium,[clarification needed] and
getting into complementary markets does not pay. That is, the total
profits a monopolist could earn if it sought to leverage its monopoly
in one market by monopolizing a complementary market are equal to the
extra profits it could earn anyway by charging more for the monopoly
product itself. However, the one monopoly profit theorem does not hold
true if customers in the monopoly good are stranded or poorly
informed, or if the tied good has high fixed costs.

A pure monopoly follows the same economic rationality of firms under
perfect competition, i.e. to optimize a profit function given some
constraints. Under the assumptions of increasing marginal costs,
exogenous inputs' prices, and control concentrated on a single agent
or entrepreneur, the optimal decision is to equate the marginal cost
and marginal revenue of production. Nonetheless, a pure monopoly can -
unlike a competitive firm- alter the market price for her own
convenience: a decrease in the level of production results in a higher
price. In the economics' jargon, it is said that pure monopolies "face
a downward-sloping demand". An important consequence of such behavior
is worth noticing: typically a monopoly selects a higher price and
lower quantity of output than a price-taking firm; again, less is
available at a higher price.[26]

There are important points for one to remember when considering the
monopoly model diagram (and its associated conclusions) displayed
here. The result that monopoly prices are higher, and production
output lower, than a competitive firm follow from a requirement that
the monopoly not charge different prices for different customers. That
is, the monopoly is restricted from engaging in price discrimination
(this is called first degree price discrimination, where all customers
are charged the same amount). If the monopoly were permitted to charge
individualized prices (this is called third degree price
discrimination), the quantity produced, and the price charged to the
marginal customer, would be identical to a competitive firm, thus
eliminating the deadweight loss; however, all gains from trade (social
welfare) would accrue to the monopolist and none to the consumer. In
essence, every consumer would be just indifferent between (1) going
completely without the product or service and (2) being able to
purchase it from the monopolist.

As long as the price elasticity of demand for most customers is less
than one in absolute value, it is advantageous for a firm to increase
its prices: it then receives more money for fewer goods. With a price
increase, price elasticity tends to rise, and in the optimum case
above it will be greater than one for most customers.

Monopoly and efficiency

This section does not cite any references or sources.

Please help improve this article by adding citations to reliable
sources. Unsourced material may be challenged and removed. (October
2009)

Surpluses and deadweight loss created by monopoly price
settingAccording to the standard model,[citation needed] in which a
monopolist sets a single price for all consumers, the monopolist will
sell a lower quantity of goods at a higher price than would firms
under perfect competition. Because the monopolist ultimately forgoes
transactions with consumers who value the product or service more than
its cost, monopoly pricing creates a deadweight loss referring to
potential gains that went neither to the monopolist or to consumers.
Given the presence of this deadweight loss, the combined surplus (or
wealth) for the monopolist and consumers is necessarily less than the
total surplus obtained by consumers under perfect competition. Where
efficiency is defined by the total gains from trade, the monopoly
setting is less efficient than perfect competition.

It is often argued that monopolies tend to become less efficient and
innovative over time, becoming "complacent giants", because they do
not have to be efficient or innovative to compete in the marketplace.
Sometimes this very loss of psychological efficiency can raise a
potential competitor's value enough to overcome market entry barriers,
or provide incentive for research and investment into new
alternatives. The theory of contestable markets argues that in some
circumstances (private) monopolies are forced to behave as if there
were competition because of the risk of losing their monopoly to new
entrants. This is likely to happen where a market's barriers to entry
are low. It might also be because of the availability in the longer
term of substitutes in other markets. For example, a canal monopoly,
while worth a great deal in the late eighteenth century United
Kingdom, was worth much less in the late nineteenth century because of
the introduction of railways as a substitute.

Natural monopoly

A natural monopoly is a firm which experiences increasing returns to
scale over the relevant range of output.[27] A natural monopoly occurs
where the average cost of production “declines throughout the relevant
range of product demand.” The relevant range of product demand is
where the average cost curve is below the demand curve.[28] When this
situation occurs it is always cheaper for one large firm to supply the
market than multiple smaller firms, in fact, absent government
intervention in such markets will naturally evolve into a monopoly. An
early market entrant who takes advantage of the cost structure and can
expand rapidly can exclude smaller firms from entering and can drive
or buy out other firms. A natural monopoly suffers from the same
inefficiencies as any other monopoly. Left to its own devices a profit
seeking natural monopoly will produce where marginal revenue equals
marginal costs. Regulation of natural monopolies is problematic.
Breaking up such monopolies is counter productive[citation needed].
The most frequently used methods dealing with natural monopolies is
government regulations and public ownership. Government regulation
generally consists of regulatory commissions charged with the
principal duty of setting prices.[29] To reduce prices and increase
output regulators often use average cost pricing. Under average cost
pricing the price and quantity are determined by the intersection of
the average cost curve and the demand curve.[30] This pricing scheme
eliminates any positive economic profits since price equals average
cost. Average cost pricing is not perfect. Regulators must estimate
average costs. Firms have a reduced incentive to lower costs. And
regulation of this type has not been limited to natural monopolies.
[30]

Government-granted monopoly

A government-granted monopoly (also called a "de jure monopoly") is a
form of coercive monopoly by which a government grants exclusive
privilege to a private individual or firm to be the sole provider of a
good or service; potential competitors are excluded from the market by
law, regulation, or other mechanisms of government enforcement.
Copyright, patents and trademarks are examples of government-granted
monopolies.

Breaking up monopolies

When monopolies are not broken through the open market, sometimes a
government will step in, either to regulate the monopoly, turn it into
a publicly owned monopoly environment, or forcibly break it up (see
Antitrust law and trust busting). Public utilities, often being
naturally efficient with only one operator and therefore less
susceptible to efficient breakup, are often strongly regulated or
publicly owned. AT&T and Standard Oil are debatable examples of the
breakup of a private monopoly: When AT&T was broken up into the "Baby
Bell" components, MCI, Sprint, and other companies were able to
compete effectively in the long distance phone market.

Law

Main article: Competition law

The existence of a very high market share does not always mean
consumers are paying excessive prices since the threat of new entrants
to the market can restrain a high-market-share firm's price increases.
Competition law does not make merely having a monopoly illegal, but
rather abusing the power a monopoly may confer, for instance through
exclusionary practices.

First it is necessary to determine whether a firm is dominant, or
whether it behaves "to an appreciable extent independently of its
competitors, customers and ultimately of its consumer."[31] As with
collusive conduct, market shares are determined with reference to the
particular market in which the firm and product in question is sold.

Under EU law, very large market shares raises a presumption that a
firm is dominant,[32] which may be rebuttable.[33] If a firm has a
dominant position, then there is "a special responsibility not to
allow its conduct to impair competition on the common market".[34] The
lowest yet market share of a firm considered "dominant" in the EU was
39.7%.[35]

Certain categories of abusive conduct are usually prohibited under the
country's legislation, though the lists are seldom closed.[36] The
main recognized categories are:

Limiting supply
Predatory pricing
Price discrimination
Refusal to deal and exclusive dealing
Tying (commerce) and product bundling

Despite wide agreement that the above constitute abusive practices,
there is some debate about whether there needs to be a causal
connection between the dominant position of a company and its actual
abusive conduct. Furthermore, there has been some consideration of
what happens when a firm merely attempts to abuse its dominant
position.

Historical monopolies

This section requires expansion.

The term "monopoly" first appears in Aristotle's Politics, wherein
Aristotle describes Thales of Miletus' cornering of the market in
olive presses as a monopoly (μονοπωλίαν).[37][38]

Common salt (sodium chloride) historically gave rise to natural
monopolies. Until recently, a combination of strong sunshine and low
humidity or an extension of peat marshes was necessary for winning
salt from the sea, the most plentiful source. Changing sea levels
periodically caused salt "famines" and communities were forced to
depend upon those who controlled the scarce inland mines and salt
springs, which were often in hostile areas (the Sahara desert)
requiring well-organized security for transport, storage, and
distribution. The "Gabelle", a notoriously high tax levied upon salt,
played a role in the start of the French Revolution, when strict legal
controls were in place over who was allowed to sell and distribute
salt.

Robin Gollan argues in The Coalminers of New South Wales that anti-
competitive practices developed in the Newcastle coal industry as a
result of the business cycle. The monopoly was generated by formal
meetings of the local management of coal companies agreeing to fix a
minimum price for sale at dock. This collusion was known as "The
Vend." The Vend collapsed and was reformed repeatedly throughout the
late nineteenth century, cracking under recession in the business
cycle. "The Vend" was able to maintain its monopoly due to trade union
support, and material advantages (primarily coal geography). In the
early twentieth century as a result of comparable monopolistic
practices in the Australian coastal shipping business, the vend took
on a new form as an informal and illegal collusion between the
steamship owners and the coal industry, eventually going to the High
Court as Adelaide Steamship Co. Ltd v. R. & AG.[39]

Examples of legal (and or) illegal monopolies

The salt commission, a legal monopoly in China formed in 758.

British East India Company; created as a legal trading monopoly in
1600.

Dutch East India Company; created as a legal trading monopoly in
1602.

Western Union was criticized as a price gouging monopoly in the late
19th century.[40]

Standard Oil; broken up in 1911, two of its surviving "baby companies"
are ExxonMobil and the Chevron Corporation.

U.S. Steel; anti-trust prosecution failed in 1911.

Major League Baseball; survived U.S. anti-trust litigation in 1922,
though its special status is still in dispute as of 2009.

United Aircraft and Transport Corporation; aircraft manufacturer
holding company forced to divest itself of airlines in 1934.

National Football League; survived anti-trust lawsuit in the 1960s,
convicted of being an illegal monopoly in the 1980s.

American Telephone & Telegraph; telecommunications giant broken up in
1982.

De Beers; settled charges of price fixing in the diamond trade in the
2000s.

Microsoft; settled anti-trust litigation in the U.S. in 2001; fined by
the European Commission in 2004 for 497 million Euros,[41] which was
upheld for the most part by the Court of First Instance of the
European Communities in 2007. The fine was 1.35 Billion USD in 2008
for noncompliance with the 2004 rule.[42][43]

Joint Commission; has a monopoly over whether or not US hospitals are
able to participate in the Medicare and Medicaid programs.

Telecom New Zealand; local loop unbundling enforced by central
government.
Deutsche Telekom; former state monopoly, still partially state owned,
currently monopolizes high-speed VDSL broadband network.[44]

Monsanto has been sued by competitors for anti-trust and monopolistic
practices. They hold between 70% and 100% of the commercial seed
market.

AAFES has a monopoly on retail sales at overseas military
installations.

GameStop has a near exclusive control over the sale of used games, and
frequently buys out competing companies.
SAQ is a monopoly.

How to counter monopolies?
This section requires expansion.

According to professor Milton Friedman, laws against monopolies cause
more harm than good, but unnecessary monopolies should be countered by
removing tariffs and other regulation that upholds monopolies.

A monopoly can seldom be established within a country without overt
and covert government assistance in the form of a tariff or some other
device. It is close to impossible to do so on a world scale. The De
Beers diamond monopoly is the only one we know of that appears to have
succeeded. - - In a world of free trade, international cartels would
disappear even more quickly.[45]

On the other hand, professor Steve H. Hanke believes that although
private monopolies are more efficient than public ones, often by
factor two, sometimes private natural monopolies, such as local water
distribution, should be regulated (not prohibited) through, e.g.,
price auctions[46].

See also

Look up monopoly in Wiktionary, the free dictionary.

Bilateral monopoly
Complementary monopoly
Demonopolization
Duopoly
Flag carrier
History of monopoly
Monopolistic competition
Monopsony
Oligopoly
Ramsey problem, a policy rule concerning what price a monopolist
should set
Simulations and games in economics education that model monopolistic
markets

Notes and references

↑ Milton Friedman (2002). "VIII: Monopoly and the Social
Responsibility of Business and Labor" (paperback). Capitalism and
Freedom (40th anniversary edition ed.). The University of Chicago
Press. pp. 208. ISBN 0-226-26421-1.

↑ Blinder, Alan S; William J Baumol and Colton L Gale (June 2001).
"11: Monopoly" (paperback). Microeconomics: Principles and Policy.
Thomson South-Western. pp. 212. ISBN 0-324-22115-0. "A pure monopoly
is an industry in which there is only one supplier of a product for
which there are no close substitutes and in which is very difficult or
impossible for another firm to coexist"

↑ Binger, B & Hoffman, E.: Microeconomics with Calculus, 2nd ed. p 391
Addison-Wesley 1998.

↑ Png, Managerial Economics (Blackwell 1999)

↑ Krugman & Wells: Microeconomics 2d ed. Worth 2009

↑ Goodwin, Nelson, Ackerman, & Weissskopf, Microeconomics in Context
2d ed. (Sharpe 2009) at 307&08.

↑ Samuelson & Marks, Managerial Economics 4th ed. (Wiley 2003) at
365-66.

↑ 8.0 8.1 8.2 Nicholson & Snyder, Intermediate Microeconomics (Thomson
2007) at 379.

↑ Samuelson & Marks, Managerial Economics 4th ed. (Wiley 2003) at
365.

↑ Goodwin, Nelson, Ackerman, & Weissskopf, Microeconomics in Context
2d ed. (Sharpe 2009) at 307.

↑ Ayers & Collinge, Microeconomics (Pearson 2003) at 238.

↑ Png, I: Managerial Economics p. 271 Blackwell 1999 ISBN
1-55786-927-8
↑ Png, I: Managerial Economics p. 268 Blackwell 1999 ISBN
1-55786-927-8
↑ Negbennebor, A: Microeconomics, The Freedom to Choose CAT 2001
↑ Hirschey, M, Managerial Economics. p. 412 Dreyden 2000.
↑ Melvin & Boyes, Microeconomics 5th ed. (Houghton Mifflin 2002) 239
↑ Pindyck, R & Rubinfeld, D: Microeconomics 5th ed. p.328 Prentice-
Hall 2001
↑ Varian, H.: Microeconomic Analysis 3rd ed. p. 233. Norton 1992.
↑ 19.0 19.1 Hirschey, M, Managerial Economics. p. 426 Dreyden 2000.
↑ Pindyck, R & Rubinfeld, D: Microeconomics 5th ed. p. 333 Prentice-
Hall 2001.
↑ Varian, H: Microeconomic Analysis 3rd ed. p. 235 Norton 1992.
↑ Pindyck, R & Rubinfeld, D: Microeconomics 5th ed. p. 370 Prentice-
Hall 2001.

↑ 23.0 23.1 Binger, B & Hoffman, E.: Microeconomics with Calculus, 2nd
ed. Addison-Wesley 1998.

↑ Depken, Craig (November 23, 2005). "10". Microeconomics Demystified.
McGraw Hill. pp. 170. ISBN 0071459111.

↑ The revolution in monopoly theory, by Glyn Davies and John Davies.
Lloyds Bank Review, July 1984, no. 153, p. 38-52.

↑ Levine, David; Michele Boldrin (2008-09-07). Against intellectual
monopoly. Cambridge University Press. pp. 312. ISBN 978-0521879286.

http://www.dklevine.com/general/intellectual/againstfinal.htm.

↑ Binger, B & Hoffman, E.: Microeconomics with Calculus, 2nd ed. 406
Addison-Wesley 1998.

↑ Samuelson, P. & Nordhaus, W.: Microeconomics, 17th ed. McGraw-Hill
2001

↑ Samuelson, W & Marks, S: p. 376. Managerial Economics 4th ed. Wiley
2005

↑ 30.0 30.1 Samuelson, W & Marks, S: 100. Managerial Economics 4th ed.
Wiley 2003

↑ C-27/76 United Brands Continental BV v. Commission [1978] ECR 207

↑ C-85/76 Hoffmann-La Roche & Co AG v. Commission [1979] ECR 461

↑ AKZO [1991]
↑ Michelin [1983]
↑ BA/Virgin [2000] OJ L30/1
↑ Continental Can [1973]
↑ Aristotle: Politics: Book 1
↑ Aristotle, Politics

↑ Robin Gollan, The Coalminers of New South Wales: a history of the
union, 1860-1960, Melbourne: Melbourne University Press, 1963,
45-134.

↑ Ars technica The Victorian Internet
↑ EU competition policy and the consumer

↑ Leo Cendrowicz. "Microsoft Gets Mother Of All EU Fines". Forbes.

http://www.forbes.com/home/markets/2008/02/27/microsoft-eu-fines-markets-equity-cx_po_0227markets08.html.
Retrieved 2008-03-10.
↑ "EU fines Microsoft record $1.3 billion". Time Warner.

http://money.cnn.com/2008/02/27/technology/eu_microsoft.ap/. Retrieved
2008-03-10.

↑ Kevin J. O'Brien, IHT.com, Regulators in Europe fight for
independence, International Herald Tribune, November 9, 2008, Accessed
November 14, 2008.

↑ Milton Friedman, Free to Choose, p. 53-54

↑ In Praise of Private Infrastructure, Globe Asia, April 2008

Further reading

Guy Ankerl, Beyond Monopoly Capitalism and Monopoly Socialism.
Cambridge, Mass.: Schenkman Pbl., 1978. ISBN0870739387

Impact of Antitrust Laws on American Professional Team Sports

External links

Monopoly: A Brief Introduction by The Linux Information Project
Monopoly by Elmer G. Wiens: Online Interactive Models of Monopoly
(Public or Private) and Oligopoly
Monopoly Profit and Loss by Fiona Maclachlan and Monopoly and Natural
Monopoly by Seth J. Chandler, Wolfram Demonstrations Project.

Criticism

Natural Monopoly and Its Regulation

The Myth of the Natural Monopoly

Natural Monopoly and Its Regulation

From rulers' monopolies to users' choices A critical survey of
monopolistic practices

Body of Knowledge on Infrastructure Regulation Monopoly and Market
Power

http://www.bing.com/reference/semhtml/Monopoly

[Sid Harth]

Reference »
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Mercantilism

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Mercantilism is an economic theory that holds the prosperity of a
nation is dependent upon its supply of capital, and that the global
volume of international trade is "unchangeable." Economic assets or
capital, are represented by bullion (gold, silver, and trade value)
held by the state, which is best increased through a positive balance
of trade with other nations (exports minus imports) and assumes wealth
and monetary assets are identical. Mercantilism suggests that the
ruling government should advance these goals by playing a
protectionist role in the economy; by encouraging exports and
discouraging imports, notably through the use of tariffs and subsidies.
[1]

Influence

This section needs additional citations for verification.

Please help improve this article by adding reliable references.

Unsourced material may be challenged and removed. (January 2010)

Mercantilism was the dominant school of thought in Europe throughout
the late Renaissance and early modern period (from the 15th to the
18th century). Mercantilism encouraged the many inter-European wars of
the period and fueled European expansion and imperialism both in
Europe and throughout the rest of the world until the 19th century or
early 20th century. Arguments have been made for the historical
promotion of mercantilism in Europe since recorded history with
authors noting the trade policies of Athens and its Delian League
specifically mention control of value of trade in bullion as necessary
for the promotion of the Greek polis. Additionally, the noted
competition of Medieval Monarchs for control of the market town trade
and the Spice trade, as well as the copious documentation of Venice,
Genoa, and Pisa regarding control of the Mediterranean Sea trade of
bullion clearly points to an early understanding of mercantalistic
principles. However, as a codified school, Mercantilism's real birth
is marked by the Empiricism of the Renaissance, which first began to
qualify large scale trade accurately.

England began the first large scale and integrative approach to
mercantilism during the Elizabethan Era. The period featured various
but often disjointed efforts by the court of Queen Elizabeth to
develop a naval and merchant fleet capable of challenging the Spanish
stranglehold on trade and expanding the growth of bullion at home.
Queen Elizabeth promoted the expansion of the Trade and Navigation
Acts in Parliament and gave orders-in-council to her Admiralty for the
protection and promotion of English shipping. These efforts organized
national resources sufficiently in the defense of England from the far
larger and more powerful Spanish Empire, and in turn paved the
foundation for establishing the most successful global empire in
history. The authors noted most for establishing the English
mercantilist system include Gerard de Malynes and Thomas Mun, who
first articulated the Elizabethan System, which in turn was then
developed further by Josiah Child. The English era provided the bulk
of surveys and evidence of mercantilism, and its success spurred the
French into developing their own system. Numerous French authors
helped cement French policy around mercantilism in the 17th century.
This French mercantilism is best articulated by Jean-Baptiste Colbert.
In later years, the United States took mercantilism to its most
advanced and fully developed level as an economic policy when
Alexander Hamilton enunciated the Hamiltonian economic program, and
Abraham Lincoln finally solidified a trade and industrial policy which
was to guide American economic policy into 1972. Paradoxically, during
the 19th and early 20th centuries, at a time when America's pursuit of
mercantilism made it the greatest economic power in the world, Europe,
by contrast, with the noteworthy exception of Germany, began
abandoning mercantilism.

In Europe, academic belief in mercantilism began to fade in the late
18th century, especially in England, as the arguments of Adam Smith
and classical economists rose in conjunction with the expansion and
international banking infrastructure of financial capitalism and the
practical power and influence it had on policy. The confluence of
these movements peaked with the defeat of national patriotism in
Europe following World War Two and the end of European colonialism
during the Cold War. Each of the main European powers that had
struggled to maintain mercantalistic policies as means of promoting
their national supremacy had been defeated or occupied in turn,
including France, Netherlands, Italy, Germany, whilst the United
Kingdom was indebted to the United States. Comparatively, the two most
powerful victors, the Soviet Union and the United States pursued
differing variants of internationalism, communism and capitalism. In
turn, the supremacy of the United States gave it the opportunity to
force its allies into accepting a new multi-national economic system
of free-trade under America's corporate and financial dominance,
thereby displacing the royal and nationalist centers of power in
Europe. However, throughout the rest of the world, mercantilism or neo-
mercantilism has been pursued, most successfully in Asia.

Neo-mercantalism and its related school of economic nationalism, which
emphasizes the nation and government intervention but deemphasizes
bullion in favor of productive capacity, has been and continues to be
a dominant model of development economics, throughout the non-Western
world. Many of these nations seek to practice either neo-mercantalism
or economic nationalism in relation to the policies of Western
economic powerhouses. Asian nations in particular study 19th century
United States policy known as the National System, including the
American System which was promoted by Henry Clay and Friedrich List
whose ideas also began the foundations of Germany's rise to greatness
in the Zollverein system. Countries most successful with these
policies include Japan as it has practiced since the reforms of the
19th century, and as practiced in the late 20th and early 21st century
by other Asian nations such as the Four Asian Tigers of Hong Kong,
South Korea, Taiwan, and Singapore, and most significantly, China and
India. The export-led economies of present-day China, Japan, and
Germany are cited as the most successful latter-day variants of
mercantilism.

Theory

Most of the European economists who wrote between 1500 and 1750 are
today generally considered mercantilists; this term was initially used
solely by critics, such as Mirabeau and Smith, but was quickly adopted
by historians. Originally the standard English term was "mercantile
system". The word "mercantilism" was introduced into English from
German in the early 19th century.

The bulk of what is commonly called "mercantilist literature" appeared
in the 1620s in Great Britain.[2] Smith saw English merchant Thomas
Mun (1571–1641) as a major creator of the mercantile system,
especially in his posthumously published Treasure by Foreign Trade
(1664), which Smith considered the archetype of manifesto of the
movement.[3] Perhaps the last major mercantilist work was James
Steuart’s Principles of Political Economy published in 1767.[2]

Beyond England, Italy, France, and Spain produced noted writers who
pursued mercantilist themes in their work, indeed the earliest
examples of mercantilism are from outside of England: in Italy,
Giovanni Botero (1544–1617) and Antonio Serra (1580–?), in France,
Jean Bodin, Colbert and some other precursors to the physiocrats, in
Spain, the School of Salamanca writers Francisco de Vitoria (1480 or
1483–1546), Domingo de Soto (1494–1560), Martin de Azpilcueta (1491–
1586), and Luis de Molina (1535–1600). Themes also existed in writers
from the German historical school from List, as well as followers of
the "American system" and British "free-trade imperialism," thus
stretching the system into the nineteenth century. However, many
British writers, including Mun and Misselden, were merchants, while
many of the writers from other countries were public officials. Beyond
mercantilism as a way of understanding the wealth and power of
nations, Mun and Misselden are noted for their viewpoints on a wide
range of economic matters.[4]

Merchants in VeniceThe Austrian lawyer and scholar Philipp Wilhelm von
Hornick, in his Austria Over All, If She Only Will of 1684, detailed a
nine-point program of what he deemed effective national economy, which
sums up the tenets of mercantilism comprehensively:[5]

That every inch of a country's soil be utilized for agriculture,
mining or manufacturing.

That all raw materials found in a country be used in domestic
manufacture, since finished goods have a higher value than raw
materials.

That a large, working population be encouraged.
That all export of gold and silver be prohibited a
nd all domestic money be kept in circulation.

That all imports of foreign goods be discouraged as much as possible.

That where certain imports are indispensable they be obtained at first
hand, in exchange for other domestic goods instead of gold and
silver.

That as much as possible, imports be confined to raw materials that
can be finished [in the home country].

That opportunities be constantly sought for selling a country's
surplus manufactures to foreigners, so far as necessary, for gold and
silver.

That no importation be allowed if such goods are sufficiently and
suitably supplied at home.

Other than Von Hornick, there were no mercantilist writers presenting
an overarching scheme for the ideal economy, as Adam Smith would later
do for classical economics. Rather, each mercantilist writer tended to
focus on a single area of the economy.[6] Only later did non-
mercantilist scholars integrate these "diverse" ideas into what they
called mercantilism. Some scholars thus reject the idea of
mercantilism completely, arguing that it gives "a false unity to
disparate events". Smith saw the mercantile system as an enormous
conspiracy by manufacturers and merchants against consumers, a view
that has led some authors, especially Robert E. Ekelund and Robert D.
Tollison to call mercantilism "a rent-seeking society". To a certain
extent, mercantilist doctrine itself made a general theory of
economics impossible. Mercantilists viewed the economic system as a
zero-sum game, in which any gain by one party required a loss by
another.[7] Thus, any system of policies that benefited one group
would by definition harm the other, and there was no possibility of
economics being used to maximize the "commonwealth", or common good.
[8] Mercantilists' writings were also generally created to rationalize
particular practices rather than as investigations into the best
policies.[9]

Mercantilist domestic policy was more fragmented than its trade
policy. While Adam Smith portrayed mercantilism as supportive of
strict controls over the economy, many mercantilists disagreed. The
early modern era was one of letters patent and government-imposed
monopolies; some mercantilists supported these, but others
acknowledged the corruption and inefficiency of such systems. Many
mercantilists also realized that the inevitable results of quotas and
price ceilings were black markets. One notion mercantilists widely
agreed upon was the need for economic oppression of the working
population; laborers and farmers were to live at the "margins of
subsistence". The goal was to maximize production, with no concern for
consumption. Extra money, free time, or education for the "lower
classes" was seen to inevitably lead to vice and laziness, and would
result in harm to the economy.[10]

Causes

Scholars are divided on why mercantilism was the dominant economic
ideology for two and a half centuries.[11] One group, represented by
Jacob Viner, argues that mercantilism was simply a straightforward,
common-sense system whose logical fallacies could not be discovered by
the people of the time, as they simply lacked the required analytical
tools.

The second school, supported by scholars such as Robert B. Ekelund,
contends that mercantilism was not a mistake, but rather the best
possible system for those who developed it. This school argues that
mercantilist policies were developed and enforced by rent-seeking
merchants and governments. Merchants benefited greatly from the
enforced monopolies, bans on foreign competition, and poverty of the
workers. Governments benefited from the high tariffs and payments from
the merchants. Whereas later economic ideas were often developed by
academics and philosophers, almost all mercantilist writers were
merchants or government officials.[12]

A third explanation for mercantilism is monetary. European trade
exported bullion to pay for goods from Asia, thus reducing the money
supply and putting downward pressure on prices and economic activity.
The evidence for this hypothesis is the lack of inflation in the
English economy until the Revolutionary and Napoleonic wars when paper
money was extensively used.

A fourth explanation lies in the increasing professionalisation and
technification of the wars of the era, which turned the maintenance of
adequate reserve funds in the prospect of war into a more and more
expensive and eventually competitive business.

Mercantilism developed at a time when the European economy was in
transition. Isolated feudal estates were being replaced by centralized
nation-states as the focus of power. Technological changes in shipping
and the growth of urban centers led to a rapid increase in
international trade.[13] Mercantilism focused on how this trade could
best aid the states. Another important change was the introduction of
double-entry bookkeeping and modern accounting. This accounting made
extremely clear the inflow and outflow of trade, contributing to the
close scrutiny given to the balance of trade.[14] Of course, the
impact of the discovery of America cannot be ignored. New markets and
new mines propelled foreign trade to previously inconceivable heights.
The latter led to “the great upward movement in prices” and an
increase in “the volume of merchant activity itself.”[15]

Prior to mercantilism, the most important economic work done in Europe
was by the medieval scholastic theorists. The goal of these thinkers
was to find an economic system that was compatible with Christian
doctrines of piety and justice. They focused mainly on microeconomics
and local exchanges between individuals. Mercantilism was closely
aligned with the other theories and ideas that were replacing the
medieval worldview. This period saw the adoption of the very
Machiavellian realpolitik and the primacy of the raison d'état in
international relations. The mercantilist idea that all trade was a
zero sum game, in which each side was trying to best the other in a
ruthless competition, was integrated into the works of Thomas Hobbes.
The dark view of human nature also fit well with the Puritan view of
the world, and some of the most stridently mercantilist legislation,
such as the Navigation Acts, were enacted by the government of Oliver
Cromwell.[16]

Policies

French finance minister and mercantilist Jean-Baptiste Colbert served
for over 20 years.Mercantilist ideas were the dominant economic
ideology of all of Europe in the early modern period, and most states
embraced it to a certain degree. Mercantilism was centered in England
and France, and it was in these states that mercantilist polices were
most often enacted. Mercantilism arose in France in the early 16th
century, soon after the monarchy had become the dominant force in
French politics. In 1539, an important decree banned the importation
of woolen goods from Spain and some parts of Flanders. The next year,
a number of restrictions were imposed on the export of bullion.[17]
Over the rest of the sixteenth century further protectionist measures
were introduced. The height of French mercantilism is closely
associated with Jean-Baptiste Colbert, finance minister for 22 years
in the 17th century, to the extent that French mercantilism is
sometimes called "Colbertism". Under Colbert, the French government
became deeply involved in the economy in order to increase exports.
Protectionist policies were enacted that limited imports and favored
exports. Industries were organized into guilds and monopolies, and
production was regulated by the state through a series of over a
thousands directives outlining how different products should be
produced. To encourage industry, foreign artisans and craftsmen were
imported. Colbert also worked to decrease internal barriers to trade,
reducing internal tariffs and building an extensive network of roads
and canals. Colbert's policies were quite successful, and France's
industrial output and economy grew considerably during this period, as
France became the dominant European power. He was less successful in
turning France into a major trading power, and Britain and the
Netherlands remained supreme in this field.[18]

In England, mercantilism reached its peak during the Long Parliament
government (1640–1660). Mercantilist policies were also embraced
throughout much of the Tudor and Stuart periods, with Robert Walpole
being another major proponent. In Britain, government control over the
domestic economy was far less extensive than on the Continent, limited
by common law and the steadily increasing power of Parliament.[19]
Government-controlled monopolies were common, especially before the
English Civil War, but were often controversial.[20] British
mercantilist writers were themselves divided on whether domestic
controls were necessary. British mercantilism thus mainly took the
form of efforts to control trade. A wide array of regulations was put
in place to encourage exports and discourage imports. Tariffs were
placed on imports and bounties given for exports, and the export of
some raw materials was banned completely. The Navigation Acts expelled
foreign merchants from England's domestic trade. The nation
aggressively sought colonies and once under British control,
regulations were imposed that allowed the colony to only produce raw
materials and to only trade with Britain. This led to friction with
the inhabitants of these colonies, and mercantilist policies were one
of the major causes of the American Revolution. Over all, however,
mercantilist policies had an important effect on Britain helping turn
it into the world's dominant trader, and an international superpower.
One domestic policy that had a lasting impact was the conversion of
"waste lands" to agricultural use. Mercantilists felt that to maximize
a nation's power all land and resources had to be used to their
utmost, and this era thus saw projects like the draining of The Fens.
[21]

Mercantilism helped create trade patterns such as the triangular trade
in the North Atlantic, in which raw materials were imported to the
metropolis and then processed and redistributed to other colonies.The
other nations of Europe also embraced mercantilism to varying degrees.
The Netherlands, which had become the financial center of Europe by
being its most efficient trader, had little interest in seeing trade
restricted and adopted few mercantilist policies. Mercantilism became
prominent in Central Europe and Scandinavia after the Thirty Years'
War (1618–1648), with Christina of Sweden and Christian IV of Denmark
being notable proponents. The Habsburg Holy Roman Emperors had long
been interested in mercantilist policies, but the vast and
decentralized nature of their empire made implementing such notions
difficult. Some constituent states of the empire did embrace
Mercantilism, most notably Prussia, which under Frederick the Great
had perhaps the most rigidly controlled economy in Europe. During the
economic collapse of the seventeenth century Spain had little coherent
economic policy, but French mercantilist policies were imported by
Philip V with some success. Russia under Peter I (Peter the Great)
attempted to pursue mercantilism, but had little success because of
Russia's lack of a large merchant class or an industrial base.

Mercantilism also fueled the intense violence of the 17th and 18th
centuries in Europe. Since the level of world trade was viewed as
fixed, it followed that the only way to increase a nation's trade was
to take it from another. A number of wars, most notably the Anglo-
Dutch Wars and the Franco-Dutch Wars, can be linked directly to
mercantilist theories. The unending warfare of this period also
reinforced mercantilism as it was seen as an essential component to
military success. It also fueled the imperialism of this era, as each
nation that was able attempted to seize colonies that would be sources
of raw materials and exclusive markets. During the mercantilist
period, European power spread around the globe. As with the domestic
economy this expansion was often conducted under the aegis of
companies with government-guaranteed monopolies in a certain part of
the world, such as the Dutch East India Company or the Hudson's Bay
Company (operating in present-day Canada).

Criticisms

Much of Adam Smith's The Wealth of Nations is an attack on
mercantilismAdam Smith and David Hume are considered to be the
founding fathers of anti-mercantilist thought. A number of scholars
found important flaws with mercantilism long before Adam Smith
developed an ideology that could fully replace it. Critics like Hume,
Dudley North, and John Locke undermined much of mercantilism, and it
steadily lost favor during the 18th century. In 1690, John Locke made
perfectly clear that prices vary in proportion to the quantity of
money, but in general, the mercantilists did not put this
together[citation needed]. Locke's Second Treatise also points towards
the heart of the anti-mercantilist critique: that the wealth of the
world is not fixed, but created by human labor (represented
embryonically by Locke's labor theory of value). Mercantilists failed
to understand the notions of absolute advantage and comparative
advantage (although this idea was only fully fleshed out in 1817 by
David Ricardo) and the benefits of trade[citation needed]. For
instance, suppose Portugal was a more efficient producer of both wine
and cloth than England, yet in England it was relatively cheaper to
produce cloth compared to wine. Thus if Portugal specialized in wine
and England in cloth, both states would end up better off if they
traded. This is an example of the reciprocal benefits of trade due to
a comparative advantage. In modern economic theory, trade is not a
zero-sum game of cutthroat competition because both sides can benefit.

Hume famously noted the impossibility of the mercantilists' goal of a
constant positive balance of trade[citation needed]. As bullion flowed
into one country, the supply would increase and the value of bullion
in that state would steadily decline relative to other goods.
Conversely, in the state exporting bullion, its value would slowly
rise. Eventually it would no longer be cost-effective to export goods
from the high-price country to the low-price country, and the balance
of trade would reverse itself. Mercantilists fundamentally
misunderstood this, long arguing that an increase in the money supply
simply meant that everyone gets richer.[22]

The importance placed on bullion was also a central target, even if
many mercantilists had themselves begun to de-emphasize the importance
of gold and silver. Adam Smith noted at the core of the mercantile
system was the "popular folly of confusing wealth with money," bullion
was just the same as any other commodity, and there was no reason to
give it special treatment.[23] More recently, scholars have discounted
the accuracy of this critique. They believe Mun and Misselden were not
making this mistake in the 1620s, and point to their followers Child
and Davenant, who, in 1699, wrote: "Gold and Silver are indeed the
Measure of Trade, but that the Spring and Original of it, in all
nations is the Natural or Artificial Product of the Country; that is
to say, what this Land or what this Labour and Industry Produces."[24]
The critique that mercantilism was a form of rent-seeking has also
seen criticism, as scholars such Jacob Viner in the 1930s point out
that merchant mercantilists such as Mun understood that they would not
gain by higher prices for English wares abroad.[25]

The first school to completely reject mercantilism was the
physiocrats, who developed their theories in France. Their theories
also had several important problems, and the replacement of
mercantilism did not come until Adam Smith published The Wealth of
Nations in 1776. This book outlines the basics of what is today known
as classical economics. Smith spends a considerable portion of the
book rebutting the arguments of the mercantilists, though often these
are simplified or exaggerated versions of mercantilist thought.[12]

Scholars are also divided over the cause of mercantilism's end. Those
who believe the theory was simply an error hold that its replacement
was inevitable as soon as Smith's more accurate ideas were unveiled.
Those who feel that mercantilism was rent seeking hold that it ended
only when major power shifts occurred. In Britain, mercantilism faded
as the Parliament gained the monarch's power to grant monopolies.
While the wealthy capitalists who controlled the House of Commons
benefited from these monopolies, Parliament found it difficult to
implement them because of the high cost of group decision making.[26]

Mercantilist regulations were steadily removed over the course of the
Eighteenth Century in Britain, and during the 19th century the British
government fully embraced free trade and Smith's laissez-faire
economics. On the continent, the process was somewhat different. In
France economic control remained in the hands of the royal family and
mercantilism continued until the French Revolution. In Germany
mercantilism remained an important ideology in the 19th and early 20th
centuries, when the historical school of economics was paramount.[27]

Legacy

In spite of Adam Smith's repudiation of mercantilism, it was favored
in the United States by such prominent figures as Alexander
Hamilton[28], Henry Clay, Henry Charles Carey, and Abraham Lincoln and
in Britain by such figures as Thomas Malthus. When Britain passed its
Corn Laws in 1815, Malthus thought such restrictions were a good idea,
but Ricardo disagreed. Eventually Smith's view was accepted in the
English-speaking world, and in 1849 the corn laws were repealed
largely on "Free Market" arguments given by Sir Robert Peel.[citation
needed]

Adam Smith rejected the mercantilist focus on production, arguing that
consumption was the only way to grow an economy. Keynes argued that
encouraging production was just as important as consumption. Keynes
also noted that in the early modern period the focus on the bullion
supplies was reasonable. In an era before paper money, an increase for
bullion was one of the few ways to increase the money supply. Keynes
and other economists of the period also realized the balance of
payments is an important concern. Since the 1930s, all nations have
closely monitored the inflow and outflow of capital, and most
economists agree that a favorable balance of trade is desirable.
[citation needed] Keynes also supported government intervention in the
economy as necessity, as did mercantilism.[29] Today the word remains
a pejorative term, often used to attack various forms of protectionism.
[30] The similarities between Keynesianism, and its successor ideas,
with mercantilism have sometimes led critics to call them neo-
mercantilism. Indeed, Paul Samuelson, writing within a Keynesian
framework, defended mercantilism, writing: "With employment less than
full and Net National Product suboptimal, all the debunked
mercantilist arguments turn out to be valid."[31]

Some other systems that do copy several mercantilist policies, such as
Japan's economic system, are also sometimes called neo-mercantilist.
[32] In an essay appearing in the 14 May 2007 issue of Newsweek,
business columnist Robert J. Samuelson argued that China was pursuing
an essentially mercantilist trade policy that threatened to undermine
the post-World War II international economic structure.[33]

The Austrian School of economics, always an opponent of mercantilism,
describes it this way:

“ Mercantilism, which reached its height in the Europe of the
seventeenth and eighteenth centuries, was a system of statism which
employed economic fallacy to build up a structure of imperial state
power, as well as special subsidy and monopolistic privilege to
individuals or groups favored by the state. Thus, mercantilism held
exports should be encouraged by the government and imports discouraged.
[34] ”

One area Smith was reversed on well before Keynes was in the use of
data. Mercantilists, who were generally merchants or government
officials, gathered vast amounts of trade data and used it
considerably in their research and writing. William Petty, a strong
mercantilist, is generally credited with being the first to use
empirical analysis to study the economy. Smith rejected this, arguing
that deductive reasoning from base principles was the proper method to
discover economic truths. Today, many schools of economics accept that
both methods are important.

In specific instances, protectionist mercantilist policies also had an
important and positive impact on the state that enacted them. Adam
Smith himself, for instance, praised the Navigation Acts as they
greatly expanded the British merchant fleet, and played a central role
in turning Britain into the naval and economic superpower that it was
for several centuries.[35] Some economists thus feel that protecting
infant industries, while causing short term harm, can be beneficial in
the long term.

Nonetheless, The Wealth of Nations had a profound impact on the end of
the mercantilist era and the later adoption of free market policy. By
1860, England removed the last vestiges of the mercantile era.
Industrial regulations, monopolies and tariffs were withdrawn.
[citation needed]

References

↑ LaHaye, Laura. "Mercantilism". Library Fund, Inc..

http://www.econlib.org/library/Enc/Mercantilism.html. Retrieved
2008-10-27.
↑ 2.0 2.1 Magnusson (2003), p. 46.

↑ Magnusson (2003), p. 47.

↑ Magnusson (2003), p. 50.

↑ Ekelund, Robert B., Jr. and Hébert, Robert F. (1997). A History of
Economic Theory and Method (4th ed.). Waveland Press [Long Grove,
Illinois]. pp. 40–41. ISBN 1-57766-381-0.

↑ Landreth & Colander (2002), p. 44.

↑ Ekelund & Tollison (1981), p. 9.

↑ Landreth & Colander (2002), p. 48.

↑ Landes, David S. (1997). The Unbound Prometheus: Technological
Change and Industrial Development in Western Europe from 1750 to the
Present. Cambridge: Cambridge University Press. pp. 31. ISBN
0521094186.

↑ Ekelund & Hébert (1975), p. 46.

↑ Ekelund & Hébert (1975), p. 61.

↑ 12.0 12.1 Niehans (1990), p. 19.

↑ Landreth & Colander (1981), p. 43.

↑ Wilson (1963), p. 10.

↑ Galbraith, John Kenneth (1987). Economics in Perspective: A Critical
History.
Boston: Houghton Mifflin. pp. 33–34. ISBN 0395355729.

↑ Landreth & Colander (2002), p. 53.

↑ Hermann Kellenbenz. The Rise of the European Economy. pg. 29

↑ E.N. Williams. The Ancien Regime in Europe. pg. 177-83

↑ E. Damsgaard Hansen. European Economic History. pg. 65

↑ Christopher Hill. The Century of Revolution. pg. 32

↑ Wilson pg. 15

↑ Ekelund & Hébert (1975), p. 43.

↑ Magnussen (2003), p.46.

↑ Referenced to Davenant, 1771 [1699], p. 171 in Magnussen (2003), p.
53.

↑ Magnussen (2003), p. 54.

↑ Ekelund & Tollison (1981).

↑ Wilson (1963), p. 6.

↑ DiLorenzo, Thomas (2008). Hamilton's Curse: How Jefferson's Arch
Enemy Betrayed the American Revolution--and What It Means for
Americans Today. New York, NY: Crown Forum. pp. 256. ISBN
978-0307382849.

↑ See Donald Markwell (2006), John Maynard Keynes and International
Relations: Economic Paths to War and Peace, Oxford & New York: Oxford
University Press.

↑ Wilson (1963), p. 3.

↑ Paul Samuelson, Theoretical notes on trade problems, 1964

↑ Walters, Robert S.; Blake, David H. (1976). The Politics of Global
Economic Relations. Englewood Cliffs, NJ: Prentice-Hall. ISBN
0136847129.

↑ Samuelson, Robert J. (17 May 2007). "China's Wrong Turn on Trade".
Newsweek. http://www.newsweek.com/id/34952. Retrieved 2007-12-06.

↑ Murray Rothbard, “Mercantilism: A Lesson for Our Times?” , The Logic
of Action II (Cheltenham, England: Edward Elgar, 1997), p. 43.

↑ Hansen, p. 64.

Bibliography

Ekelund, Robert B.; Tollison, Robert D. (1981). Mercantilism as a Rent-
Seeking Society: Economic Regulation in Historical Perspective.
College Station, TX: Texas A&M University Press. ISBN 0890961204.

Ekelund, Robert B.; Hébert, Robert F. (1975). A History of Economic
Theory and Method. New York: McGraw–Hill. ISBN 0070191433.

Heckscher, Eli F. (1935). Mercantilism. London: Allen & Unwin.

Keynes, John Maynard (1936). "Notes on Mercantilism, the Usury Laws,
Stamped Money and the Theories of Under-Consumption". The General
Theory of Employment, Interest, and Money. London: Palgrave
Macmillan.

http://etext.library.adelaide.edu.au/k/keynes/john_maynard/k44g/chapter23.html.
Landreth, Harry; Colander, David C. (2002). History of Economic
Thought (4th edition ed.). Boston: Houghton Mifflin. ISBN 0618133941.

Letwin, William (2003) [1963]. The Origins of Scientific Economics:
English Economic Thought 1660–1776. London: Routledge. ISBN
0415313295.

Magnusson, Lars G. (2003). "Mercantilism". in Biddle, Jeff E.; Davis,

Jon B.; Samuels, Warren J.. A Companion to the History of Economic

Thought. Malden, MA: Blackwell Publishing. ISBN 0631225730.

Niehans, Jürg (1990). A History of Economic Theory: Classic
Contributions, 1720–1980. Baltimore, MD: Johns Hopkins University
Press. ISBN 0801838347.

Vaggi, Gianni; Groenewegen, Peter (2003). A Concise History of
Economic Thought:

From Mercantilism to Monetarism. New York: Palgrave Macmillan. ISBN
0333999363.

Wilson, Charles (1963) [1958]. Mercantilism. London: Routledge and
Kegan Paul.

External links

Thomas Mun's Englands Treasure by Forraign Trade
Book IV of The Wealth of Nations, Adam Smith's attack on the
Mercantile System
Mercantilism List of references

http://www.bing.com/reference/semhtml/Mercantilism

[Sid Harth]

Reference »
Wikipedia Articles
Balance of trade

In this article: Locations Images From the web: Images Videos Balance
of trade

The balance of trade encompasses the activity of exports and imports,
like the work of this cargo ship going through the Panama Canal.The
balance of trade (or net exports, sometimes symbolized as NX) is the
difference between the monetary value of exports and imports of output
in an economy over a certain period. It is the relationship between a
nation's imports and exports.[1] A favourable balance of trade is
known as a trade surplus and consists of exporting more than is
imported; an unfavourable balance of trade is known as a trade deficit
or, informally, a trade gap. The balance of trade is sometimes divided
into a goods and a services balance.

Early understanding of the functioning of balance of trade informed
the economic policies of Early Modern Europe that are grouped under
the heading mercantilism. An early statement appeared in Discourse of
the Common Weal of this Realm of England, 1549: "We must always take
heed that we buy no more from strangers than we sell them, for so
should we impoverish ourselves and enrich them."[2]

Definition

The balance of trade form part of the current account, which include
other transactions such as income from the international investment
position as well as international aid. If the current account is in
surplus, the country's net international asset position increases
correspondingly. Equally, a deficit decrease the net international
asset position.

The trade balance is identical to the difference between a country's
output and its domestic demand (the difference between what goods a
country produces and how many goods it buys from abroad; this does not
include money re-spent on foreign stock, nor does it factor the
concept of importing goods to produce for the domestic market).

Measuring the balance of trade can be problematic because of problems
with recording and collecting data. As an illustration of this
problem, when official data for all the world's countries are added
up, exports exceed imports by a few percent; it appears the world is
running a positive balance of trade with itself. This cannot be true,
because all transactions involve an equal credit or debit in the
account of each nation. The discrepancy is widely believed to be
explained by transactions intended to launder money or evade taxes,
smuggling and other visibility problems. However, especially for
developed countries, accuracy is likely.

Factors that can affect the balance of trade include:

The cost of production (land, labor, capital, taxes, incentives, etc.)
in the exporting economy vis-à-vis those in the importing economy;
The cost and availability of raw materials, intermediate goods and
other inputs;
Exchange rate movements;
Multilateral, bilateral and unilateral taxes or restrictions on
trade;
Non-tariff barriers such as environmental, health or safety
standards;
The availability of adequate foreign exchange with which to pay for
imports; and
Prices of goods manufactured at home (influenced by the responsiveness
of supply)
In addition, the trade balance is likely to differ across the business
cycle. In export led growth (such as oil and early industrial goods),
the balance of trade will improve during an economic expansion.
However, with domestic demand led growth (as in the United States and
Australia) the trade balance will worsen at the same stage in the
business cycle.

Since the mid 1980s, United States has had a growing deficit in
tradeable goods, especially with Asian nations (China and Japan) which
now hold large sums of U.S debt that has funded the consumption.[3][4]
The U.S. has a trade surplus with nations such as Australia and
Canada. The issue of trade deficits can be complex. Trade deficits
generated in tradeable goods such as manufactured goods or software
may impact domestic employment to different degrees than trade
deficits in raw materials.

Economies such as Canada, Japan, and Germany which have savings
surpluses, typically run trade surpluses. China, a high growth
economy, has tended to run trade surpluses. A higher savings rate
generally corresponds to a trade surplus. Correspondingly, the United
States with its lower savings rate has tended to run high trade
deficits, especially with Asian nations.

Views on economic impact

Economists are sometimes divided on the economic impact of the trade
deficit.

Conditions where trade deficits may be considered harmful

Those who ignore the effects of long run trade deficits may be
confusing David Ricardo's principle of comparative advantage with Adam
Smith's principle of absolute advantage, specifically ignoring the
latter. The economist Paul Craig Roberts notes that the comparative
advantage principles developed by David Ricardo do not hold where the
factors of production are internationally mobile.[5][6] Global labor
arbitrage, a phenomenon described by economist Stephen S. Roach, where
one country exploits the cheap labor of another, would be a case of
absolute advantage that is not mutually beneficial.[7][8][9]

Deteriorating U.S. net international investment position (NIIP) has
caused concern among economists over the effects of outsourcing and
high U.S. trade deficits over the long-run.[3]Since the stagflation of
the 1970s, the U.S. economy has been characterized by slower GDP
growth. In 1985, the U.S. began its growing trade deficit with China.
Over the long run, nations with trade surpluses tend also to have a
savings surplus. The U.S. has been plagued by persistently lower
savings rates than its trading partners which tend to have trade
surpluses. Germany, France, Japan, and Canada have maintained higher
savings rates than the U.S. over the long run.[10] Some economists
believe that GDP and employment can be dragged down by an over-large
deficit over the long run.[11][12] The opportunity cost of a forgone
tax base may outweigh perceived gains, especially where artificial
currency pegs and manipulations are present to distort trade.[13]
Wealth-producing primary sector jobs in the U.S. such as those in
manufacturing and computer software have often been replaced by much
lower paying wealth-consuming jobs such those in retail and government
in the service sector when the economy recovered from recessions.[6]
[14][15] Some economists contend that the U.S. is borrowing to fund
consumption of imports while accumulating unsustainable amounts of
debt.[3][16]

In 2006, the primary economic concerns centered around: high national
debt ($9 trillion), high non-bank corporate debt ($9 trillion), high
mortgage debt ($9 trillion), high financial institution debt ($12
trillion), high unfunded Medicare liability ($30 trillion), high
unfunded Social Security liability ($12 trillion), high external debt
(amount owed to foreign lenders) and a serious deterioration in the
United States net international investment position (NIIP) (-24% of
GDP),[3] high trade deficits, and a rise in illegal immigration.[16]
[17]

These issues have raised concerns among economists and unfunded
liabilities were mentioned as a serious problem facing the United
States in the President's 2006 State of the Union address.[17][18] On
June 26 2009, Jeff Immelt, the CEO of General Electric, called for the
United States to increase its manufacturing base employment to 20% of
the workforce, commenting that the U.S. has outsourced too much in
some areas and can no longer rely on the financial sector and consumer
spending to drive demand.[19]

See also: Friedrich List

Conditions where trade imbalances may not be harmful

Small trade deficit are generally not considered to be harmful to
either the importing or exporting economy. However, when a national
trade imbalance expands beyond prudence (generally thought to be
several percent of GDP, for several years), adjustments tend to occur.
While unsustainable imbalances may persist for long periods (cf,
Singapore and New Zealand’s surpluses and deficits, respectively), the
distortions likely to be caused by large flows of wealth out of one
economy and into another tend to become intolerable.

In simple terms, trade deficits are paid for out of foreign exchange
reserves, and may continue until such reserves are depleted. At such a
point, the importer can no longer continue to purchase more than is
sold abroad. This is likely to have exchange rate implications: a
sharp loss of value in the deficit economy’s exchange rate with the
surplus economy’s currency will change the relative price of tradable
goods, and facilitate a return to balance or (more likely) an over-
shooting into surplus the other direction.

More complexly, an economy may be unable to export enough goods to pay
for its imports, but is able to find funds elsewhere. Service exports,
for example, are more than sufficient to pay for Hong Kong’s domestic
goods export shortfall. In poorer countries, foreign aid may fill the
gap while in rapidly developing economies a capital account surplus
often off-sets a current-account deficit. Finally, there are some
economies where transfers from nationals working abroad contribute
significantly to paying for imports. The Philippines, Bangladesh and
Mexico are examples of transfer-rich economies.

Milton Friedman on trade deficits

In the 1980s, Milton Friedman, the Nobel Prize-winning economist and
father of Monetarism, contended that some of the concerns of trade
deficits are unfair criticisms in an attempt to push macroeconomic
policies favorable to exporting industries.

Prof. Friedman argued that trade deficits are not necessarily
important as high exports raise the value of the currency, reducing
aforementioned exports, and vise versa for imports, thus naturally
removing trade deficits not due to investment. Milton Friedman's son,
David D. Friedman, shares this view and cites the comparative
advantage concepts of David Ricardo.[20]

In the late 1970s and early 1980s, the U.S. had experienced high
inflation and Friedman's policy positions tended to defend the
stronger dollar at that time. He stated his belief that these trade
deficits were not necessarily harmful to the economy at the time since
the currency comes back to the country (country A sells to country B,
country B sells to country C who buys from country A, but the trade
deficit only includes A and B). However, it may be in one form or
another including the possible tradeoff of foreign control of assets.
In his view, the "worst case scenario" of the currency never returning
to the country of origin was actually the best possible outcome: the
country actually purchased its goods by exchanging them for pieces of
cheaply-made paper. As Friedman put it, this would be the same result
as if the exporting country burned the dollars it earned, never
returning it to market circulation.[21] This position is a more
refined version of the theorem first discovered by David Hume.[22]
Hume argued that England could not permanently gain from exports,
because hoarding gold (i.e., currency) would make gold more plentiful
in England; therefore, the prices of English goods would rise, making
them less attractive exports and making foreign goods more attractive
imports. In this way, countries' trade balances would balance out.[23]

Friedman believed that deficits would be corrected by free markets as
floating currency rates rise or fall with time to encourage or
discourage imports in favor of the exports, reversing again in favor
of imports as the currency gains strength. In the real world, a
potential difficulty is that currency markets are far from a free
market, with government and central banks being major players, and
this is unlikely to change within the foreseeable future.
Nevertheless, recent developments have shown that the global economy
is undergoing a fundamental shift. For many years the U.S. has
borrowed and bought while in general, the rest of the world has lent
and sold. However, as Friedman predicted, this paradigm appears to be
changing.

As of October 2007, the U.S. dollar weakened against the euro, British
pound, and many other currencies. For instance, the euro hit $1.42 in
October 2007[24], the strongest it has been since its birth in 1999.
Against this backdrop, American exporters are finding quite favorable
overseas markets for their products and U.S. consumers are responding
to their general housing slowdown by slowing their spending.
Furthermore, China, the Middle East, central Europe and Africa are
absorbing more of the world's imports which in the end may result in a
world economy that is more evenly balanced. All of this could well add
up to a major readjustment of the U.S. trade deficit, which as a
percentage of GDP, began in 1991.[25]

Friedman and other economists have pointed out that a large trade
deficit (importation of goods) signals that the country's currency is
strong and desirable. To Friedman, a trade deficit simply meant that
consumers had opportunity to purchase and enjoy more goods at lower
prices; conversely, a trade surplus implied that a country was
exporting goods its own citizens did not get to consume or enjoy,
while paying high prices for the goods they actually received.

Friedman contended that the structure of the balance of payments was
misleading. In an interview with Charlie Rose, he stated that "on the
books" the US is a net borrower of funds, using those funds to pay for
goods and services. He essentially claimed that the foreign assets
were not carried on the books at their higher, truer value.

Friedman presented his analysis of the balance of trade in Free to
Choose, widely considered his most significant popular work.

Warren Buffett on trade deficits

The successful American businessman and investor Warren Buffett was
quoted in the Associated Press (January 20, 2006) as saying "The U.S
trade deficit is a bigger threat to the domestic economy than either
the federal budget deficit or consumer debt and could lead to
political turmoil... Right now, the rest of the world owns $3 trillion
more of us than we own of them."

John Maynard Keynes on the balance of trade

In the last few years of his life, John Maynard Keynes was much
preoccupied with the question of balance in international trade. He
was the leader of the British delegation to the United Nations
Monetary and Financial Conference in 1944 that established the Bretton
Woods system of international currency management.

He was the principal author of a proposal—the so-called Keynes Plan—
for an International Clearing Union. The two governing principles of
the plan were that the problem of settling outstanding balances should
be solved by 'creating' additional 'international money', and that
debtor and creditor should be treated almost alike as disturbers of
equilibrium. In the event, though, the plans were rejected, in part
because "American opinion was naturally reluctant to accept the
principal of equality of treatment so novel in debtor-creditor
relationships". [26]

His view, supported by many economists and commentators at the time,
was that creditor nations may be just as responsible as debtor nations
for disequilibrium in exchanges and that both should be under an
obligation to bring trade back into a state of balance. Failure for
them to do so could have serious consequences. In the words of
Geoffrey Crowther, then editor of The Economist, "If the economic
relationships between nations are not, by one means or another,
brought fairly close to balance, then there is no set of financial
arrangements that can rescue the world from the impoverishing results
of chaos." [27]

These ideas were informed by events prior to the Great Depression when—
in the opinion of Keynes and others—international lending, primarily
by the United States, exceeded the capacity of sound investment and so
got diverted into non-productive and speculative uses, which in turn
invited default and a sudden stop to the process of lending. [28]

Influenced by Keynes, economics texts in the immediate post-war period
put a significant emphasis on balance in trade. For example, the
second edition of the popular introductory textbook, An Outline of
Money, [29] devoted the last three of its ten chapters to questions of
foreign exchange management and in particular the 'problem of
balance'. However, in more recent years, since the end of the Bretton
Woods system in 1971, with the increasing influence of Monetarist
schools of thought in the 1980s, and particularly in the face of large
sustained trade imbalances, these concerns—and particularly concerns
about the destabilising affects of large trade surpluses—have largely
disappeared from mainstream economics discourse [30] and Keynes'
insights have slipped from view [31], they are receiving some
attention again in the wake of the Financial crisis of 2007–2010. [32]

Physical balance of trade

Monetary balance of trade is different from physical balance of trade
(which is expressed in amount of raw materials). Developed countries
usually import a lot of primary raw materials from developing
countries at low prices. Often, these materials are then converted
into finished products, and a significant amount of value is added.
Although for instance the EU (as well as many other developed
countries) has a balanced monetary balance of trade, its physical
trade balance (especially with developing countries) is negative,
meaning that a lot less material is exported than imported.

United States trade deficit

United States trade deficit (1991-2005).The United States of America
has held a trade deficit starting late in the 1960s. It was this very
deficit that forced the United States in 1971 off the gold standard.
Its trade deficit has been increasing at a large rate since 1997 [33]
(See chart) and increased by 49.8 billion dollars between 2005 and
2006, setting a record high of 817.3 billion dollars, up from 767.5
billion dollars the previous year.[34]

It is worth noting on the graph that the deficit slackened during
recessions and grew during periods of expansion. Also of note, many
economists calculate trade deficits and/or current account deficits as
a percentage of GDP. The US last had a trade surplus in 1975.[35]
Every year there has been a major reduction in economic growth, it is
followed by a reduction in the US trade deficit.[25] The investor
Warren Buffett has proposed a tool called Import Certificates as a
solution to the United States' problem.[36]

See also

List of the largest trading partners of the United States
Current account
Balance of payments
FRED (Federal Reserve Economic Data)
List of countries by current account balance
Marshall–Lerner Condition

Notes

↑ Sullivan, Arthur; Steven M. Sheffrin (2003). Economics: Principles

in action. Upper Saddle River, New Jersey 07458: Pearson Prentice

Hall. pp. 462. ISBN 0-13-063085-3.

http://www.pearsonschool.com/index.cfm?locator=PSZ3R9&PMDbSiteId=2781&PMDbSolutionId=6724&PMDbCategoryId=&PMDbProgramId=12881&level=4.

↑ Now attributed to Sir Thomas Smith; quoted in Fernand Braudel, The
Wheels of Commerce, vol. II of Civilization and Capitalism 15th-18th
Century, 1979:204.

↑ 3.0 3.1 3.2 3.3 Bivens, L. Josh (December 14, 2004). Debt and the
dollar Economic Policy Institute. Retrieved on July 8, 2007.

↑ MAJOR FOREIGN HOLDERS OF TREASURY SECURITIES. U.S. Treasury.gov

↑ Roberts, Paul Craig (August 7, 2003). Jobless in the USA Newsmax.
Retrieved on May 6, 2007.

↑ 6.0 6.1 Hira, Ron and Anil Hira with forward by Lou Dobbs, (May
2005).

Outsourcing America: What's Behind Our National Crisis and How We Can
Reclaim American Jobs. (AMACOM) American Management Association.
Citing Paul Craig Roberts, Paul Samuelson, and Lou Dobbs, pp. 36-38.
↑ See Roberts, Loc. cit.

↑ Paul Craig Roberts (07/28/04)."Global Labor Arbitrage".VDARE.
Retrieved on July 7, 2009.

↑ Whitney, Mike (June 2006).Labor arbitrage. Entrepreneur. Retrieved
on July 7, 2009.

↑ The shift away form thrift.The Economist, April 7 2005.

↑ Free Trade Bulletin no. 27: Are Trade Deficits a Drag on U.S.
Economic Growth? | Cato's Center for Trade Policy Studies

↑ Causes and Consequences of the Trade Deficit: An Overview

↑ Bivens, Josh (September 25, 2006 ).China Manipulates Its Currency—A
Response is Needed. Economic Policy Institute. Retrieved on February
2, 2010.

↑ David Friedman, New America Foundation (2002-06-15).No Light at the
End of the Tunnel Los Angeles Times.

↑ Sir Keith Joseph, Centre for Policy Studies (1976-04-05).Stockton
Lecture, Monetarism Is Not Enough, with forward by Margaret Thatcher.
(Barry Rose Pub.) Margaret Thatcher Foundation (2006).

↑ 16.0 16.1 Phillips, Kevin (2007). Bad Money: Reckless Finance,
Failed Politics, and the Global Crisis of American Capitalism.
Penguin. ISBN 9780143143284.

↑ 17.0 17.1 Cauchon, Dennis and John Waggoner (October 3, 2004).The
Looming National Benefit Crisis USA Today

↑ George W. Bush (2006) State of the Union. Retrieved on April 17,
2009.

↑ Bailey, David and Soyoung Kim (June 26, 2009).GE's Immelt says U.S.
economy needs industrial renewal.UK Guardian.. Retrieved on June 28,
2009.

↑ Price Theory, Chapter 6: Simple Trade

↑ Free to Choose video series from PBS

↑ Hume, David (1987). "Essays, Moral, Political, and Literary".
Liberty Fund, Inc.

http://www.econlib.org/library/LFBooks/Hume/hmMPL28.html.

↑ ""David Hume: The Concise Encyclopedia of Economics"". 2008.

http://www.econlib.org/library/Enc/bios/Hume.html. Retrieved
2009-03-20.

↑ Dollar Hits a New Low, Oil Hits a New High - New York Times
↑ 25.0 25.1 Michael M. Phillips, World Economy in Flux As America
Downshifts
↑ Crowther, Geoffrey (1948). An Outline of Money. Thomas Nelson and
Sons. p. 326–9.
↑ Crowther, Geoffrey (1948). An Outline of Money. Thomas Nelson and
Sons. p. 336.
↑ Crowther, Geoffrey (1948). An Outline of Money. Thomas Nelson and
Sons. p. 368–72.

↑ Crowther, Geoffrey (1948). An Outline of Money. Thomas Nelson and
Sons.

↑ See for example, Krugman, P and Wells, R (2006). "Economics", Worth
Publishers

↑ although see Duncan, R (2005). "The Dollar Crisis: Causes,
Consequences, Cures", Wiley

↑ See for example, ""Clearing Up This Mess"". 2008-11-18.

http://www.monbiot.com/archives/2008/11/18/clearing-up-this-mess/.
Retrieved 2009-01-09.

↑ http://www.census.gov/foreign-trade/statistics/historical/gands.txt

↑ FTD - Statistics - Country Data - U.S. Trade Balance with World
(Seasonally Adjusted)

↑ http://usinfo.org/enus/economy/trade/docs/06s1288.xls

↑ http://www.berkshirehathaway.com/letters/growing.pdf

External links

Wikisource has the text of the 1911 Encyclopædia Britannica article

Balance of Trade.

Are Trade Deficits a Drag on U.S. Economic Growth?

Graph of Historical U.S. Net Export of Goods and Services

Where Do U.S. Dollars Go When the United States Runs a Trade Deficit?
from Dollars & Sense magazine

The Economic Impact of a U.S. Slowdown on the Americas from the Center

for Economic and Policy Research

OECD Trade balance statistics

U.S. Government Export Assistance

http://www.bing.com/reference/semhtml/Balance_of_trade

[Sid Harth]

February 24, 2010

As Greece Goes, So Goes the U.S.?
by Paul Kasriel

Greece hasn't gotten so much press since 146 B.C. when the Romans took
over. Of late, Greece sneezes and investors think the U.S. is going to
catch the swine flu. Of course, it is not just Greece. Greece is part
of the EU and the EMU. So, it is thought that as goes Greece, so goes
Europe. And then, the next step is that as goes Europe, so goes the
U.S. But is Europe really where the action is with regard to U.S.
economic growth?

Let us see what has been happening to U.S. exports of late and how
Europe relates to that. Chart 6 shows that in the third and fourth
quarters of last year, real U.S. exports of goods increased at annual
rates of 24.6% and 28.1%, respectively.

Chart 1

Europe's role in our recent acceleration in export growth has
diminished. As U.S. exports increased sharply in the second half of
2009, U.S. exports to Europe as a percent of total U.S. exports fell
(see Chart 7). For example, in Q1:2009, Europe's contribution to total
U.S. exports was 26.5%; in Q4:2009, it was 23.1%. In contrast, South
America and the Pacific Rim excluding Japan have played a more
important role in the recent growth in U.S. exports. In Q1:2009, South
America and the Pacific Rim ex Japan accounted for 27.8% of total U.S.
exports. In Q4:2009, these regions accounted for 31.7% of total U.S.
exports (see Chart 8).

Chart 2

Chart 3

The economies in South America and the Pacific Rim excluding Japan
are, with the exception of Australia and New Zealand, developing
economies. Even before the recession hit, these developing economies
accounted for a larger share of total U.S. exports than did European
economies. Now that the global economic recovery is underway, these
developing economies have increased their share of total U.S. exports.
Both because of their absolute size and their growth, the developing
economies will play a more important role in the fate of the U.S.
economy than will Greece, in particular, and Europe, in general.

Paul L. Kasriel, Director of Economic Research
The Northern Trust Company
Economic Research Department
Positive Economic Commentary
"The economics of what is, rather than what you might like it to be."
50 South LaSalle Street, Chicago, Illinois 60675

The information herein is based on sources which The Northern Trust
Company believes to be reliable, but we cannot warrant its accuracy or
completeness. Such information is subject to change and is not
intended to influence your investment decisions.

Copyright © 2005-2010 The Northern Trust Company

Image rendition and html coding Copyright © 2000-2010 SafeHaven.com

http://www.safehaven.com/article-15909.htm

Economic Recovery to Continue at Moderate Pace
By Don Lee

RISMEDIA, February 25, 2010—(MCT)—Federal Reserve Chairman Ben
Bernanke told Congress recently that he expected the U.S. economic
recovery to continue at a moderate pace, but he expressed concerns
about weakness in residential and commercial construction as well as
the “quite weak” labor situation that has lifted chronic unemployment
to very high levels.

“Of particular concern, because of its long-term implications for
workers’ skills and wages, is the increasing incidence of long-term
unemployment,” Bernanke said in prepared remarks as he delivered the
Fed chairman’s semiannual report to the House Financial Services
Committee. He noted that more than 40% of the unemployed workers have
been jobless for six months or more, nearly double the share of a year
ago.

Bernanke, in addressing Congress for the first time since his
reappointment to a second four-year term as chairman last month, said
the U.S. economy had expanded at an annual rate of about 4% in the
second half of last year, with big help from temporary factors related
to business inventory levels and stimulative fiscal and monetary
policies. “A sustained recovery will depend on continued growth in
private-sector final demand for goods and services,” he said.

With the early economic recovery and inflation remaining subdued,
Bernanke reiterated that central bank policymakers expected to keep
short-term interest rates at near zero for an “extended period,” which
most analysts view as at least several months.

Bernanke also said again that the Fed had the tools to gradually
siphon out of the economy the billions of dollars in emergency aid
that the central bank pumped out to keep the economy from plunging
into a depression. The so-called exit strategy is crucial, in both
economic and political terms. If the Fed pulls back too fast, it could
stifle recovery. If it moves too slowly, an outbreak of inflation
could wreak havoc at home and damage confidence abroad.

Lawmakers questioning Bernanke were focused on jobs and the record
federal deficits that are becoming a major political challenge for
Bernanke and for the Obama administration. In statements before
Bernanke’s testimony, Democratic members blamed the previous,
Republican administration for the unemployment troubles and the bank
bailouts that have fanned public ire at Bernanke and the political
establishment.

Pressed by lawmakers, Bernanke said that the current pace of federal
deficits was unsustainable and that the Obama administration’s
economic stimulus plan—which Republican opponents have criticized as
ineffective—had created jobs, though he didn’t cite any figures.

(c)2010, Tribune Co.

Distributed by McClatchy-Tribune Information Services.

http://rismedia.com/2010-02-24/economic-recovery-to-continue-at-moderate-pace/

U.S. New-Home Sales Registers an 11.2% Fall
Submitted by Medha Sood on Wed, 02/24/2010 - 23:10 EconomyReal
EstateFeaturedTNM

U. S. sales of new homes registered an 11.2% slip in January to a
seasonally adjusted annual rate of 309,000, establishing a record low
and wiping off all gains in the market for new homes over the past
year, as the economy copes from recession.

However, economists surveyed by Dow Jones Newswires had predicted
sales would rise 3.8%, to 355,000.

Its sales in December are reported to fall by 3.9%, revised from an
originally reported 7.6% decline. The new-home sales report is
volatile because it is based on a particularly small sample. The
Government said it was 90% confident that the true change in new-home
sales in January was between minus 25.2% and plus 2.8%.

"It's awful. This is with the home buyer tax credit. I don't
understand people who say the housing market is turning", said Joe
Saluzzi, co-manager of trading at Themis Trading in Chatham, New
Jersey.

The $8,000 tax credit and purchases of mortgage-related securities by
the Federal Reserve is reported to have suppressed the housing market
recovery from a three-year slump, which slipped the U. S. economy into
the troubling waters of worst economic downturn since the 1930s.

http://topnews.us/content/211804-us-new-home-sales-registers-112-fall

Bloomberg

Crude Oil Futures Extend Declines After U.S. Economic Reports
February 25, 2010, 9:00 AM EST

By Rachel Graham

Feb. 25 (Bloomberg) -- Crude oil declined, extending earlier losses
after U.S. economic reports increased concerns that the economic
recovery in the world’s biggest energy- consuming nation may stall.

Crude oil for April delivery fell as much as $1.55, or 1.9 percent, to
$78.45 a barrel in electronic trading on the New York Mercantile
Exchange. It was at $78.81 a barrel at 1:44 p.m. London time.

Unemployment claims in the U.S. increased more than forecast last
week, Labor Department figures showed today in Washington. January
orders for durable goods excluding transportation equipment, as
reported today by the U.S. Commerce Department, fell short of
estimates.

“There is a lack of conviction as to where the global economy is
going,” said Paul Harris, head of natural resources risk management at
the Bank of Ireland in Dublin.

Oil closed up 1.5 percent yesterday at $80 a barrel after Federal
Reserve Chairman Ben S. Bernanke said the U.S. economy is in a
“nascent” recovery that requires low interest rates to encourage
demand from consumers and businesses. The Dow Jones Industrial Average
closed up 91.75 points, or 0.9 percent, yesterday after Bernanke’s
address.

Brent crude for April fell as much as $1.49, or 1.9 percent, to $76.60
a barrel on the ICE Futures Europe exchange in London. It was at
$76.93 a barrel at 1:44 p.m. local time.

--Editors: John Buckley, Amanda Jordan

To contact the reporter on this story: Rachel Graham in London
+44-20-7073-3184 or rgra...@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at
+44-20-7073-3520 or s...@bloomberg.net

http://www.businessweek.com/news/2010-02-25/oil-falls-below-80-as-dollar-gains-erodes-commodity-appeal.html

Bloomberg

Stocks, Copper, Oil Fall on Greek Debt Risk, U.S. Economic Data
February 25, 2010, 1:33 PM EST

By Nick Baker

Feb. 25 (Bloomberg) -- Stocks and commodities fell and the euro
weakened as Moody’s Investors Service said it may cut Greece’s rating
and U.S. employment and durable-goods orders missed forecasts. German
two-year yields fell to a record low.

The Standard & Poor’s 500 Index dropped 1.3 percent at 1:25 p.m. in
New York for the biggest loss in three weeks. The MSCI World Index of
shares in 23 developed nations slumped 1.4 percent. Copper and oil
retreated in New York. The euro weakened against the yen, which
strengthened against the 16 most-traded currencies. The yield premium
on Greek 10-year bonds versus German debt widened to the most since
Feb. 8.

The warning from Moody’s, a day after S&P’s statement that it may
downgrade Greek debt, rattled investors who drove the euro down more
than 8 percent against the yen in 2010 on concern Greece’s fiscal woes
may spread through Europe. Federal Reserve Chairman Ben S. Bernanke
testifies to Congress today after saying yesterday that the U.S.
economy is in a “nascent” recovery and requires low interest rates to
stoke demand.

“Signs of discomfort with sovereign debt are surfacing, with investors
putting upward pressure on interest rates in developed nations in
Europe,” Tony Crescenzi, a strategist and fund manager at Pacific
Investment Management Co. in Newport Beach, California, wrote in a
research note.

Default Risk

The cost of insuring against default on Greek government debt rose for
a fourth day on concern ratings downgrades will cut the nation’s
access to European Central Bank funding. Credit-default swaps on
Greece jumped 10 basis points to 394, the highest in more than two
weeks, according to CMA DataVision prices at 2:45 p.m. in London.

The premium that investors demand to hold Greek 10-year bonds over
German debt widened 16 basis points to 355 basis points, quadruple the
average over the past five years.

Greece has to repay more than 20 billion euros ($27 billion) of
maturing bonds and bills by the end of May, according to data compiled
by Bloomberg. A Moody’s downgrade may make it harder for the nation’s
banks to fund themselves by making Greek government debt ineligible as
collateral for European Central Bank loans.

The U.S. Labor Department said initial jobless applications rose by
22,000 to 496,000 in the week ended Feb. 20, the highest level in
three months. Economists forecast a decline to 460,000, according to
the median estimate in a Bloomberg survey. In a separate report, the
Commerce Department said orders for U.S. durable goods excluding
transportation equipment fell 0.6 percent in January, the most since
August and compared with the median economist projection for a 1
percent increase.

Caterpillar, UPS

General Electric Co., Caterpillar Inc. and United Parcel Service Inc.
led declines in U.S. industrial companies, while Alcoa Inc. and Exxon
Mobil Corp. retreated with commodity prices. Coca-Cola Co., the
world’s largest soda maker, lost 4.4 percent after agreeing to buy
Coca-Cola Enterprises Inc.’s North American bottling unit. GameStop
Corp. lost 8.2 percent after its chief financial officer quit to join
Wal-Mart Stores Inc.

Europe’s Dow Jones Stoxx 600 Index fell 1.6 percent. Tenaris SA led
declines in basic-resource shares, losing 12 percent in Italy. British
American Tobacco Plc, Europe’s second- largest cigarette maker,
dropped 2.3 percent after reporting net income that missed forecasts.

Copper futures slipped 1.5 percent in New York, while crude oil
slumped 2.9 percent.

One-Year High

The yen climbed to a one-year high against the euro as concern
Greece’s credit ratings may be downgraded spurred investors to unwind
positions in riskier assets. The yen appreciated 1.5 percent to 120.24
per euro from 122.03 yen yesterday. It touched 119.66, the first time
the currency has fallen below the 120 yen level since Feb. 24, 2009.

Turkish stocks fell, heading for the biggest weekly loss since
November 2008, after talks between the army and government today
failed to ease political tensions over an alleged coup plot. The ISE
National 100 index lost 1.9 percent after gaining 2 percent earlier.

Investors are betting political turmoil will weaken Turkey’s lira more
than any other currency as the arrest about 50 army officers over an
alleged coup plot raises tension between the government and the
military. One-month put options that grant the right to sell the lira
against the dollar have surged to a 3.4 percentage-point premium over
equivalent call options to buy the currency. The gap, known as the
risk-reversal rate, widened from 2.25 percentage points a week ago and
is the highest of 48 currencies on Bloomberg.

--With assistance from Abigail Moses and Laura Cochrane in London and
Seda Sezer in Istanbul. Editor: Chris Nagi

To contact the reporter on this story: Nick Baker at +1-212-617-5919
or nba...@bloomberg.net.

To contact the editor responsible for this story: Chris Nagi at
+1-212-617-2179 or chri...@bloomberg.net.

http://www.businessweek.com/news/2010-02-25/euro-falls-asian-stocks-decline-on-possible-greece-downgrade.html

[Sid Harth]

U.S. Economy Isn’t Out of the Deflation Woods Yet: Analysis

Feb. 23 (Bloomberg Multimedia) -- Deflation remains a possibility in
the U.S. because the drivers of last year’s price declines are still
in effect, an analysis shows.

Click here for a Bloomberg Multimedia interactive visual analysis of
the pressures on inflation.

#<582242.1010.2.1.35.32688.25># -0- Feb/23/2010 10:45 GMT

Last Updated: February 23, 2010 05:45 EST

http://www.bloomberg.com/insight/out-of-deflation-woods.html

http://www.bloomberg.com/apps/news?pid=20601109&sid=aqsqtvU8Zjmg&pos=10

Bernanke: U.S. On Long Road To Economic Recovery
2/25/2010 10:09 AM ET

(RTTNews) - Fed Chairman Ben Bernanke said Thursday that while the
U.S. economy appears to be recovering from its collapse during the
2008 financial crisis, it still has a long way to go, and that the
recovery will move slowly through the coming months.

Speaking before the United States Senate Committee on Banking, Housing
and Urban Affairs, the Fed chief repeated remarks he made Wednesday
before the House Committee on Financial Services, saying that low
inflation expectations will keep the target for the federal funds rate
at near zero levels.

Bernanke also touched on problems in the labor market, saying that
although the market's deterioration seems to be slowing, weaknesses in
the job market still remain in light of decreases in job losses and a
modest January rise in full-time manufacturing jobs.

"Notwithstanding...positive signs, the job market remains quite weak,
with the unemployment rate near 10 percent and job openings scarce,"
he said in prepared remarks.

"Of particular concern, because of its long-term implications for
workers' skills and wages, is the increasing incidence of long-term

unemployment; indeed, more than 40 percent of the unemployed have been
out of work six months or more, nearly double the share of a year
ago."

Concerns about the health of the labor market were fueled this morning
by government data showing jobless claims rose last week to 496,000,
marking an increase for a second straight week.

He pointed out later in the testimony that the Fed expects the
unemployment rate to fall to 6.5-7.5 percent by the end of 2012, well
above the "long-term sustainable rate" of five percent.

Speaking on inflation, Bernanke said that slack in the labor markets
and a flattening of oil prices will keep inflation subdued for some
time.

Bernanke also added that holding mortgage backed securities off the
market will hold mortgage rates down, though the Fed does not know the
direct effect of stopping the Fed's mortgage backed securities
purchases, which are set to run down in March.

The central bank chief also defended the Independence of the Fed
saying that stripping it of its regulatory authority would be a
mistake.

The central bank chief also spoke on concerns about the country's
budget deficits, saying that long-term budget deficits could not, and
should not be sustained, saying that ignoring the deficit problem
would have wide spread negative effects on the economy.

Elsewhere in his testimony, Bernanke touched on the Fed's announcement
last week to raise the discount rate to 0.75 percent, and the decision
to shorten the maximum term of discount window loans to overnight for
most banks, saying that improved financial conditions are limiting the
need for Fed assistance.

(RTTNews) - "These changes, like the closure of most of the special
lending facilities earlier this month, are in response to the improved
functioning of financial markets, which has reduced the need for
extraordinary assistance from the Federal Reserve," he said.

The Fed chief also talked about new tools to unwind its accommodative
monetary policy, including expansion of reverse repurchase agreements
and a term deposit facility "that could convert a portion of
depository institutions' holdings of reserve balances into deposits
that are less liquid and could not be used to meet reserve
requirements."

by RTT Staff Writer

For comments and feedback: contact edit...@rttnews.com

US Economic News

Fed's Bullard: Financial Reforms Might Not Prevent Future Crises
http://www.rttnews.com/Content/USEconomicNews.aspx?Id=1223167

Durable Goods Orders Increase Amid Spike In Orders For Aircraft
http://www.rttnews.com/Content/USEconomicNews.aspx?Id=1222823

Weekly Jobless Claims Unexpectedly Jump To 3-Month High
http://www.rttnews.com/Content/USEconomicNews.aspx?Id=1222740

Weekly Jobless Claims Rise To 496,000
http://www.rttnews.com/Content/USEconomicNews.aspx?Id=1222640

http://www.rttnews.com/ArticleView.aspx?Id=1222836&SMap=1

By PETER A. MCKAY And KRISTINA PETERSON

A late wave buying couldn't quite bring the stock market back from a
morning swoon, leaving major averages modestly lower at the bell, hurt
by investors' worries about the U.S. jobs picture and sovereign debt
in Europe.

Unwinding of bearish bets in the euro boosted that currency's value
versus the dollar as the afternoon progressed, encouraging some
traders to take on risk in stocks and commodities. But the trading
session's overall tone was clearly bearish, with weak jobless-claims
data renewing worries about the pace of the U.S. economic recovery,
while comments by Moody's Investors Service kept long-term concerns
about Greece's creditworthiness alive.

The Dow Jones Industrial Average, which was off more than 188 points
at its late-morning low, ended down 53.13 points, or 0.5%, at
10321.03. Its biggest loser in percentage terms was Coca-Cola, off
3.7% after the soft-drink maker agreed to buy most of its largest
bottler, Coca-Cola Enterprises, in a deal estimated to be worth
between $12 billion and $13 billion. Shares of the bottler surged
32.9%.

With one trading session to go in February, the Dow is now up 2.5% for
the month, which has seen a marked increase in volatility. Traders say
the U.S. has regained some of its safe-haven status lately, but few
are willing to bet that a full-blown bull market is back.

"A lot of portfolio managers are just sitting on their hands, building
cash in their portfolios because they feel like they're getting
conflicting signals about the economy," said John Bollinger, president
of Bollinger Capital Management, in Manhattan Beach, Calif.
"Unfortunately, it will probably take some improvement in the jobs
picture to get people the kind of certainty they're looking for."

Investors received evidence of just the opposite as the Labor
Department said that weekly jobless claims unexpectedly surged last
week by 22,000 to 496,000, their highest level in over three months.
Economists had expected initial claims to decrease by 13,000.

The four-week average of claims, viewed as a more dependable barometer
of the job market than volatile week-to-week readings, shook
investors. The four-week average rose by 6,000 to a total of 473,750,
up from the previous week's revised average 467,750.

The U.S. Dollar Index, which posted gains early in the session,
reversed course to post a 0.2% decline. One euro cost $1.3557, up from
$1.3534 late Wednesday, helped by the unwinding of bearish bets made
earlier in the month when questions began to swirl about Greece's
heavy debt load.

"It looks like we're just experiencing some exhaustion in the euro,
since so many speculators had gotten to one side of the market," said
James L. Dailey, chief investment officer at the portfolio-management
firm TEAM Financial.

The dollar's reversal helped commodities, which are traded globally in
terms of the U.S. currency. The Dow Jones-UBS Commodity Index ended
down 1.3%, improving from a decline of nearly 3% at its late-morning
low. Oil futures fell, but gold contracts snapped a three-day losing
streak, rising $11.30 to end at $1,107.80 per ounce in New York.

The Nasdaq Composite slipped 0.1%, while the Standard & Poor's 500-
share index fell 0.2%, hurt by selling in every sector.

Composite volume in New York Stock Exchange-listed companies hit
billion shares, below this year's daily average.

Among stocks in focus, Palm tumbled 19.3% after the company
acknowledged its new smart phones aren't selling as well as hoped.

J.P. Morgan Chase slipped 0.5% after its investment banking chief said
the bank expects a return on equity of 17% this year, down from 21%
last year.

Dr Pepper Snapple Group jumped 11.1% after reporting slightly better-
than-expected fourth-quarter earnings and predicted 2010 sales would
rise 3% to 5%.

Dynegy tumbled 9 after reporting that its fourth-quarter loss widened
on asset sales and mark-to-market losses, as the electricity generator
reported a steeper-than-expected decline in revenue.

Treasury prices climbed, with the 10-year note up 14/32 to yield
3.640%.

— David Benoit contributed to this article.
Write to Kristina Peterson at kristina...@dowjones.com

http://online.wsj.com/article/SB10001424052748704479404575087013515185430.html?mod=WSJ_Markets_section_Stocks

Oil prices tumble on economy worries

By MARK WILLIAMS, AP Energy Writer Mark Williams, Ap Energy Writer – 2
hrs 24 mins ago
Oil prices tumbled Thursday on new signs that the economy remains weak
and that demand for crude is still tepid at best.

Benchmark crude for April delivery fell $1.83 to settle at $78.17 a
barrel on the New York Mercantile Exchange.

Oil has been bouncing back and forth for months between $70 and $80 as
investors watch economic data for clues about where the economy is
heading following the Great Recession.

The signs Thursday were mostly negative as the government said new
claims for unemployment benefits last week jumped unexpectedly while a
separate report on big-ticket manufactured goods was mixed.

Crude prices rose Wednesday after Federal Reserve Chairman Ben
Bernanke told Congress that he expects interest rates to stay low for
a while to help boost the economy.

The economy has grown for six months but is not yet spurring hiring
and unemployment remains stubbornly high. Couple that with more than
ample supplies and signs that the economy still needs to be propped up
by federal stimulus "means that the demand were expecting to see may
not develop," said Phil Flynn of PFGBest.

Oil prices were also pushed down Thursday by a stronger dollar and a
drop in the stock market.

Because crude is traded in dollars, it gets cheaper when the dollar
climbs and forces investors holding other currencies such as the euro
to pay more for oil. The dollar was near a nine-month high against the
euro over worries about economic growth and debt problems in Europe.

Major stock averages were down about one percent around mid-afternoon.

A weekly report on natural gas supplies from the Energy Information
Administration showed gas in storage shrank by 172 billion cubic feet
last week, to 1.85 trillion cubic feet. That was in line with
analysts' estimates, according to a survey by Platts, the energy
information arm of McGraw-Hill Cos., and less than the 190 billion
cubic feet draw the week before.

Retail gasoline prices headed higher for the eighth straight day,
rising 1.5 cents a gallon to a national average of $2.693, according
to AAA, Wright Express and Oil Price Information Service.

Pump prices have climbed 7.9 cents over the past week and are nearly
back to the levels of a month ago when they were at $2.70 per gallon.
Prices remain 80.2 cents above year-ago levels.

In other Nymex trading in March contracts, heating oil fell 5.59 cents
to $1.9862 a gallon, and gasoline lost 6.19 cents at $2.0370 a gallon.
April natural gas prices were down 9.2 cents to $4.767 per 1,000 cubic
feet.

In London, Brent crude gave up $1.80 at $76.29 on the ICE futures
exchange.

Associated Press writers Pablo Gorondi in Budapest and Alex Kennedy in
Singapore contributed to this report.

http://news.yahoo.com/s/ap/20100225/ap_on_bi_ge/oil_prices

Imagine the US Economy Is a Baseball Game

by Bill Sardi

Recently by Bill Sardi: The Man Who Shouldn’t Be Alive

Imagine the US economy is a baseball game. The score is 142 to 1
against your team. Your team is about to lose a game by the worst
score of all time. But your team stalls for time. The game isn't
over. There is still the hope your team can make the playoffs, they
say.

It's the eighth inning with a runner on second base with two out and
the manager, Benny Bernanke, walks up whispers in the ear of the
batter to keep swinging at pitches and fouling them off. A pitcher
named Slim Geithner keeps serving up the lop balls, and the batter has
now fouled off 4,283 pitches in a row. The game is now into its third
day.

The batter has had his contract changed so he gets paid on the number
of foul balls he hits in a row. It's still the 8th inning. Ball boys
begin running hot dogs and Cokes to the runner on second base.
Finally, substitute runners rotate from the bench. Someday your team
is gonna lose, but for now, the game is stalled.

Imagine, in this surreal allegory, that team owners offer season
ticket packages at introductory teaser prices, no down payment, low
interest rates if you buy a 30-year season ticket package, with free
parking passes, and you get this season ticket pass on a layaway time
payment plan. Team owners then begin bundling these long-term season
ticket packages and selling them to investors. The owners are making a
killing off of this. The fans have no idea.

But after a few games the fine print in the season ticket contract
says the interest rate on the ticket package will rise and a strong
number of fans can’t continue to pay. They claim they have been
unfairly forced out of their reserved seats and that somebody ought to
bail them out. The problem is, some of these season ticket package
holders never even made one payment. Some took out a secondary loan,
offered by the team owners, on the value of the ticket package, and
began to use it as a piggy bank – to buy team jackets and memorabilia,
even cars with the team logo on the side.

Also imagine that baseball team owners have taken the season ticket
holders money and invested it into risky investments that have
produced unprecedented losses so that continuation of the baseball
schedule is now threatened. There is no money left to pay umpires,
light bills, hot dog vendors.

The out-of-cash owners then begin to sell more season tickets than
there are seats in their stadiums, banking on the fact many ticket
holders are no-shows. Investors who are buying the packaged long-term
season ticket contracts have no idea they are buying something the
owners can't deliver.

Also imagine that other season ticket holders, fearing a financial
collapse of the league, have begun a rush on ticket windows, demanding
their unused tickets be redeemed back for cash. Something must be
done, so a lady named Sheila Bair is designated to head up a season
ticket holder insurance plan, which the team owners kick money into.
Now the season ticket holders need not fear loss of their money, even
though more insolvent teams are being forced out of business by the
Sheila lady every day and she has had to request bailout money from
the government.

In reality, the American economy is about to crash into oblivion.
Bankers are still practicing phony accounting and keeping losses off
the books, and not appraising real estate assets to their true value,
and their reserves are entirely contrived, loaned from printed money
from the Federal Reserve.

If the banks begin to loan the money and distribute funds into the
economy, massive inflation will result. If the banks don't loan out
the money, there will continue to be economic paralysis – homebuilding
and construction will be frozen and unemployment will remain high.
For now it’s best to keep hitting foul balls.

Back to our imaginary scenario, the government has deemed American
baseball as such an important icon of modern American history that it
cannot be allowed to fail. So it subsidizes the teams in the form of
a bailout program. The worst managed teams get the most bailout money.
Inexplicably, team leadership remains intact.

Debt-laden teams cut back on player salaries, reduce the size of minor
league teams, and create a temporary increase in their profit margins,
prompting team owners to take obscene bonuses for, as they claim,
"exercising their unusual skill in rescuing the team."

But weren’t these the same guys who got the team into this fix in the
first place? It was all accomplished with money borrowed from the fans
(i.e. tax payers), right? If baseball had been nationalized, none of
these baseball executives would receive more than maximum civil
servant wages. Instead, in some instances, baseball executive bonuses
exceed the entire profits of the team, all while the team still owes
the government for loaning money to keep it in operation.

Back to the real world, debt-laden companies, seeing that consumers
are electing to pay down their credit card bills and home mortgages
rather than spend on consumer goods, are cutting inventories, laying
off more employees, and increasing their margin of profit, temporarily
driving up the price of their stock, even though they cannot possibly
continue to service their debt. Things look rosy, for now.

At our imagined game, everybody is stalling for time – hitting foul
balls, hoping the fans will stay for the end of the game. The longer
it lasts the more hot dogs they sell.

The fans don’t get it. They are wrapped up in what they see as a
thriller game, the longest on record. Typical of Americans, they wanna
wear T-shirts that say "I was there when the longest baseball game was
played."

In the real world, the banks are being paid to park their borrowed
money with the Federal Reserve, like the batter in this imaginary
baseball game is being paid to hit foul balls. The economy is forever
stalled.

To fix the problem, government has even offered to pay fans to attend
games (stimulus plans to buy homes, cars, etc.). Imagine – this phony
consumer activity will be counted as part of attendance figures (Gross
Domestic Product).

Furthermore, because of the alleged threat of terrorists at baseball
games, the government now requires full-body scans of all fans upon
entry to the ballpark (there is said to be a full body scan photo of
some busty babe who attended a recent Dodgers game circulating the
internet), and cars in the parking lot are screened with bomb
detectors, and security teams have begun to form a list of potential
terrorist fans (you know, the ones in Philly who yell obscenities and
topple their beer cups on opposing players as they attempt to make a
catch at the outfield wall).

Cameras now scan and record all events in the stands. Terrorist
drills, where costumed terrorists attempt to light a cigarette in the
bleachers, become reality as the fact this was a staged drill never
gets reported. And again, the business of thwarting potential
terrorists is now counted as part of the nation’s Gross Domestic
Product.

Does this metaphorical story sound silly or distorted? Does it conger
up thoughts of massive public deceit? It should. America has become
surreal, manipulated, bizarre.

Game reformers want more security in the stands, biodegradable beer
mugs, and higher taxes so more underprivileged kids can get a seat at
the ball park. Ushers, grounds crewmen and parking lot attendants say
they will burn the ball park down if their pay checks are cut.

But this IS America, so let’s grab a beer and get back to that
ballgame. All the fans are emailing friends now to say they haven’t
gone home and intend to stay for the entire game, no matter how long
this guy at the plate keeps fouling off pitches. It’s better than
reality TV.

But when the game is over, there will be no car in the parking lot.
There will be no house to go home to. There will be no team either.
When the game is over, it will be too late.

If you’re at the game now, eat a couple of extra hot dogs, because
fans are going to be hungry after this game is over. And make sure you
get an autographed ball before the last out is recorded. It could be
worth more than the paper money in your pocket.

February 15, 2010

Bill Sardi [send him mail] is a frequent writer on health and
political topics. His health writings can be found at www.naturalhealthlibrarian.com.
He is the author of You Don’t Have To Be Afraid Of Cancer Anymore.

Copyright © 2010 Bill Sardi Word of Knowledge Agency, San Dimas,
California. This article has been written exclusively for www.LewRockwell.com
and other parties who wish to refer to it should link rather than post
at other URLs.

The Best of Bill Sardi

http://www.lewrockwell.com/sardi/sardi152.html

[Sid Harth]

U.S. Steel Unions Score Yet Another Huge Victory As China Slammed With
New Steel Tariffs

Vincent Fernando | Feb. 25, 2010, 3:15 AM | 719 | 3
One has to envy the amount of pull U.S. steel workers have. The
majority of U.S.-China trade agitation is caused by this one
relatively tiny part of the U.S. economy.

China Daily:

The United States on Wednesday imposed preliminary duties ranging from
11 to 13 percent on steel pipe from China to offset government
subsidies, the Commerce Department said.

The decision puts further strain on US-China trade relations, already
tested by disputes over other US trade actions and China's currency
policy.

It is a victory for US Steel Corp and the United Steelworkers union,
which filed a petition in October asking for protection against the
Chinese imports.

China's steel industry is undoubtedly supported in various manners,
and as a result the country is threatened by massive steel
overcapacity. But at the same time, maybe some Americans would be
happy to have stupidly cheap steel in the future. Nevertheless, expect
calls for steel tariffs to intensify as the China steel glut unravels
which we feel is likely even in a China soft-landing scenario. U.S.
steel will likely be slammed even with government support, so this
tariff game is probably causing more harm than help.

Here's a little reminder about the state of things:

Image: posco

http://www.businessinsider.com/us-steel-unions-score-yet-another-huge-victory-as-china-slammed-with-new-steel-tariffs-2010-2

Research & Analysis | Biofuels
Joshua Kagan 02 24 10

The State of U.S. Biodiesel: Up the Creek Without a Paddle?

It seems like yesterday biodiesel was the rage of the biofuels
movement. How have times changed.
.
Biodiesel is a renewable fuel that serves as an alternative to
petroleum diesel. Although it can be used as a source of heating oil,
its primary use is as a blend with diesel in trucks and automobiles.
There are a variety of feedstocks that can produce biodiesel. First-
generation feedstocks include animal fats, recycled cooking oils, and
vegetable oils like rapeseed, soy, and palm oil. Biodiesel is produced
through a simple refinery process called transesterification that uses
catalysts to convert either vegetable oil or fats into methyl esters
(86%) and a byproduct called glycerin (9%), which is used by the
pharmaceutical, cosmetics, and soap industries.

On an environmental basis, biodiesel has a number of compelling
attributes, as it produces approximately 78% less CO2 than traditional
diesel, with reductions of 58% for particulate matter and 60-90% for
other GHGs. NOx emissions actually increase 10% compared to diesel,
yet there are simple methods that can be used to ameliorate the NOx.
In general, biodiesel is better suited to overcome many of the
upstream and downstream infrastructure issues that plague ethanol. For
example, biodiesel can use all the same storage containers and
pipelines that are currently used with traditional diesel. Low blends
of biodiesel can be used in any diesel engine without modifications,
though high blends require some engine adaption. However, most
biodiesel fuels have a higher cloud point than diesel, meaning that
special care must be taken in cold-weather climates when storing,
transporting, or blending biodiesel. Biodiesel performs similarly
relative to diesel on a BTU basis (8% lower than diesel), with higher
cetane and fuel density levels.

Although biodiesel has many positive attributes, it is not immune from
the criticisms leveled at first-generation ethanol, specifically the
"food vs. fuel" debate. Biodiesel production uses at least 10% of the
U.S. soybean crop and 60% of European rapeseed oil for what amounts to
a relatively limited impact on the overall diesel market. That is,
global biodiesel was 4.1 billion gallons in 2008 -- about 1.5% of the
265 billion gallons of diesel consumed in that year.

The last 18 months have been a very difficult stretch for U.S.
biodiesel producers.

Subsidized U.S. biodiesel flooded the EU market in recent years,
resulting in estimated U.S. exports of 550 million gallons in 2008 --
accounting for approximately 19% of total E.U. biodiesel consumption
in 2008. In 2009, the EU responded with an anti-subsidy tariff (€237/
MT, which translates to $0.78 per gallon) and an anti- dumping duty
(€208.20 per MT -- $0.68 per gallon) that essentially locked out U.S.
producers from Europe.

Call this strike one.

Then, on January 1st, 2010, the U.S. Congress let the $1 per gallon
tax credit for biodiesel producers expire.

Why are subsidies so important to biodiesel producers?

Let's assume that 7.2 pounds of feedstock is required to produce a
gallon of biodiesel. The current spot price of soybean oil is
$0.38lb, which translates to $2.74/gal. If you add $0.81 per gallon
in capital, energy, and operational costs (net of any sales of
glycerin), we find that the levelized cost to produce a gallon of
unsubsidized soy-based biodiesel is $3.55/gal. As of February 15,
2010, the U.S. national retail price for diesel is $2.76/gal --
illustrating why U.S. biodiesel is estimated to be running at 15% of
capacity.

Strike two.

In recent weeks, Senators Max Baucas (D-Mo) and Charles Grassley (R-
IA) have attempted retroactively to reinstate the $1/gal tax credit
via the Jobs Bill that passed the Senate. The original $85B bill
contained the tax credit. However, in recent weeks, Congress has
miraculously discovered fiscal restraint and as such, has nixed the
biodiesel credits.

Proponents of the industry, like the National Biodiesel Board, point
out that 25,000 jobs were lost in 2009 in the biodiesel industry and
at least that many could be lost in 2010 if the biodiesel credit is
not restored.

Critics counter that implementing the biodiesel credit is a very
expensive way to save/create jobs. For example, a 30MGY facility
would receive approximately $30M in subsidies to save about 30 jobs
(at $1M per job). This compares to a $100M construction project for
roads and bridges that support 1750-2000 jobs ($57K per job).

Strike two and a half (foul tip).

One saving grace for the industry could be the recently updated
Renewable Fuel Standards (see EPA Issues Renewable Fuel Standards:
What it Means for 1st and 2nd Generation Biofuels). U.S. refiners are
required to purchase at least 650 million gallons of biomass-based
diesel in 2010.

Yet, it is not entirely clear whether these RFS mandates will be
sufficient to avert the collapse of the industry. In an industry with
production capacity close to 3 billion gallons, limitations on its
ability to export to the largest global market, and without the
subsidies to compete against diesel in the domestic market, it is
likely that we will see a wave of companies in permanent bankruptcy.

..7 Comments

Curt Felix 02/24/10 4:02 PM
Well written except for two basic factual errors: 1) a pound of soy
produces 6/7 of a pound of food for every 1/7 of a pound of fuel. If
soy is grown for fuel, we consume more fuel than food and the food
portion of soy would flood the market lowering food prices
dramatically. 2) Although old EPA data showed NOx increases, when
newer engines are used especially the common rail and TDI types now
proliferating, NOx is the same or better and the engines can be
further optimized to reduce NOx. 3) Jobs, Jobs, Jobs The calculation
of $1M per job is a ridiculous comparison since it compares a captial
intensive industry biodiesel to a labor intensive business road
building. If you were to calculate all the new jobs created from a
smart grid, or drill baby drill (electricity and oil being capital
intensive businesses) the numbers would be substantially worse.
Moreover, soley focussing on jobs, without looking at the impact of
reducing exports and the multiplier effect of trading imported
petroleum for domestic, the energy security costs associated with
imported oil and the global insecurity costs of having continous
sources of new funding for Al Qada, not to mention the human health
care costs in cancer and emphysema from continued combustion of
petroleum, misses some of the even more significant high points for
biodiesel.

Jon Smith 02/24/10 4:19 PM
Well written Curt, and here’s more on the subject: .http://
www.biodiesel.org/resources/sustainability/pdfs/Economic
Contirbution.pdf

randydutton 02/24/10 4:29 PM
Biodiesel from food is “Not Too Big To Fail”. It was a foolish
concept from the start to promote a food based 1st gen fuel with major
technical problems. Subisidizing production only saps the overall
cost to taxpayers and the US economy. Sure, it helped some political
special interest groups but overall it cost America.

America doesn’t have a shortage of domestic petroleum, it has a
leadership shortage. http://www.naruc.org/News/default.cfm?pr=183.

Trying to justify biofuel as a savior of the climate was false
science. CO2 never was the problem.

Doug DiLillo 02/24/10 4:45 PM
Concerning strike two, if you look at the fact that biodiesel is
blended in low quantities, there isn’t a huge impact on the price of
fuel, even without the subsidy. Taks as example, $2.00/gallon
wholesale cost for petrodiesel and $4.00/gallon wholesale cost for
biodiesel. At a 5% blend, the cost for the blended gallon is only
$2.10. Hardly enough of a difference to make an argument to kill
biodiesel, especially when all the benefits are factored in. Let’s
also not forget, $4.00 a gallon wholesale petrodiesel is likely
(again) in the not too distant future ....

glenn2ns 02/24/10 10:07 PM
Josh, I didn’t see any mention of jatropha curcus (pictured in story
photo) as a 2nd generation feed stock, which has a slightly toxic
nature (casin), and therefore is free of the food displacement
issues. In sub tropical climates it grows remarkably quick. Last I
knew an a mechnical harvestor was seen as an alternative to hugely
intense labor requirements to herald in this WEED as the 800 lb.
gorilla for biodiesel feedstocks. Derives from latin/central america,
and was exported to far east as a wind block for other crops (15’ tall
untrimmed).

An alternative to transesterification is gasification with Fischer
Tropsch as a downstream process to produce your fuel of choice.
What’s nice about gasification is that so much more of the fodder
(seed casings, leaves, trimmings, etc) which have BTU content convert
to fuel and remove much of the costly processing steps - chop the
biomass once or twice and throw it in the hopper. This is vastly less
complex than standard enzyme processing.

Randy, even if CO2 doesn’t hold center stage in your perspective,
their is little support for a continued energy policy buying 1 Billion
barrels of oil a day from Saudi Arabia alone. Energy independence is
a manta that resonates in every quarter. National Security, trade
deficits, and domestic employment are prime motivators and are going
to take a big bite out of petro fortunes.

Nice job GTM/Kagan

Mackinnon 02/25/10 2:58 AM
Josh,

Great article and run-down of the current state of the biodiesel
market.

Below is a good piece covering ethanol subsidies from Robert Rapier,
which has relevance to the biodiesel subsidy issue:

blogs.forbes.com/energysource/2010/02/16/washingtons-foolish-fuel-
policy/

It will be interesting to see if the RFS2 can sufficiently resuscitate
the market in the absence of the $1 subsidy. Mandates with penalties,
coupled with biodiesel potentially qualifying as advanced biofuels,
may make the subsidy issue moot. As you noted, time will tell.

[url=http://www.biomassintel.com]http://www.biomassintel.com[/url]

sukamadek 02/25/10 1:22 PM
The fact that Biodiesel would cost today $3.55/gallon (which is a “Pre-
tax value”) the real price comparison would be $4.35/gal once road-use
taxes are applied. If biodiesel can exist without tax credits and
mandates it is a solution. if not it is welfare. Another thing $.38/lb
soy oil would go a lot higher if this tax-credit is reinstated.

http://www.greentechmedia.com/articles/read/the-state-of-u.s.-biodiesel-up-the-creek-without-a-paddle/

[Sid Harth]

Poll shows concern about American influence waning as China's grows

By John Pomfret and Jon Cohen
Washington Post Staff Writer
Thursday, February 25, 2010

Facing high unemployment and a difficult economy, most Americans think
the United States will have a smaller role in the world economy in the
coming years, and many believe that while the 20th century may have
been the "American Century," the 21st century will belong to China.

These results come from a new Washington Post-ABC News poll conducted
during a time of significant tension between Washington and Beijing.

"China's on the rise," said Wayne Nunnery, 56, a retired U.S. Air
Force employee from Bexar, Tex., who was one of 1,004 randomly
selected adults polled. "I don't worry about a Chinese century, but I
do wonder how it's going to be for my three sons."

Asked whether this century would be more of an "American Century" or
more of a "Chinese Century," Americans divide evenly in terms of the
economy (41 percent say Chinese, 40 percent American) and tilt toward
the Chinese in terms of world affairs (43 percent say Chinese, 38
percent American). A slim majority say the United States will play a
diminished role in the world's economy this century, and nearly half
see the country's position shrinking in world affairs more generally.

The results are consistent with recent polls by Gallup, the Pew
Research Center and others that have tracked a significant public
concern about China's growing prominence on the world stage, as its
economy has expanded into what is arguably the second-biggest in the
world. In 2000, for example, when the U.S. economy was booming, 65
percent of Americans polled by Gallup said the United States had the
world's strongest economy. By last year, the United States and China
ran neck-and-neck on the question.

Analysts say the bubbling anti-China sentiment in the United States
could constitute a problem for U.S. policy toward that country if the
polls also coincide, as they seem to, with growing support for trade
protectionism.

Annetta Jordan, another poll participant, said in a follow-up
interview that she has witnessed the shifting economic strength
firsthand. Jordan, a mother of two from Sandoval, N.M., was working at
a cellular telephone plant in the early 1990s as production and hiring
were ramped up. By 1992, the plant had 3,200 workers. "Then this whole
China thing started and we were very quickly training Chinese to take
our jobs," she said. Now the plant has 100 people left.

"We're transferring our wealth to China," she said. "I see that as a
very negative thing. When I was younger, a lot of corporations had a
lot of pride and patriotism toward America. But corporations have
changed. If we in the U.S. go down, that's okay; they'll just move
their offices to Beijing."

Carla Hills, the former U.S. trade representative who negotiated
China's entry into the World Trade Organization in the late 1990s,
said any shift in American public opinion away from China is a
concern.

"I really worry about public opinion in both countries getting ahead
of where we want to be," she said. "I worry about the public discourse
here that 'it's all China's fault,' and the reverse in China that says
we're trying to push China around."

In a poll last year in urban areas of China done by the Lowy
Institute, Australia's premier think tank, Chinese respondents picked
the United States as the No. 1 threat to China's rise by a factor of
two over Japan and India, which were tied for second place.

Despite the mutual wariness, most Americans in the Post-ABC News poll
say a diminished U.S. role in the world's economy or affairs would be
positive or "neither good nor bad."

For Andrew Kohut, the president of the Pew Research Center, increasing
public concerns with China remind him of America's reaction to another
rising Asian nation three decades ago: Japan.

"This is déjà vu all over again, to quote Yogi," he said. "When a
Japanese company bought Rockefeller Center, Americans went nuts. We
asked questions about whether Japan was going to become No. 1 and
people said yes. These two sentiments are very similar."

Kohut said he doesn't necessarily agree with the answers.

"Anyone who would say that China has eclipsed the United States hasn't
been in a Chinese house," he said. But, he added, an "inflated view of
what China is today" could have ramifications.

"When Americans are unhappy with themselves, they are unhappy with
others, which can translate into protectionist pressure and security
anxieties, both of which make it hard to manage U.S.-China relations,"
said David M. Lampton, a professor of China studies at the Johns
Hopkins School of Advanced International Studies. "People tend to be
anxious about big, rapidly changing, nontransparent things -- China is
all three."

In recent weeks, U.S. relations with Beijing have taken a nose dive as
President Obama met the Tibetan spiritual leader, the Dalai Lama, who
is considered a separatist by China, and the administration moved to
sell $6.4 billion in weapons to Taiwan. Although both Washington and
Beijing have signaled that they don't want the relationship to be
damaged, other issues -- most notably trade and a U.S. belief that
China's currency needs to rise against the dollar -- could conspire to
keep tension high.

Other analysts say the polling may foreshadow something bigger and
more complicated than just a potential rise in protectionist
sentiment.

"If we face perceptions around the world that China's rise is
inexorable and the U.S. is on the decline," said Bonnie S. Glaser, a
senior fellow at the Center for Strategic and International Studies,
"this will hamper U.S. diplomacy and negatively affect U.S.
interests."

This explains why, for example, Asian countries near China routinely
raise concerns with U.S. officials about America's commitment to
Asia.

"All of us want to hedge against China," said a senior official in the
region, "but we need to know that the U.S. government will be here for
the long haul.

"But even if you do stick around," he said, "there is no doubt that
all of us now factor in how China will react to what America wants."

The Post-ABC News poll was conducted Feb. 4-8 by conventional and
cellular telephone. The questions reported here were asked of half-
samples of respondents; the results have a margin of sampling error of
plus or minus five percentage points.

Polling analyst Jennifer Agiesta contributed to this report.

http://www.washingtonpost.com/wp-dyn/content/article/2010/02/24/AR2010022405168.html

February 24, 2010

Gallup: Economic Confidence Steady in Recent WeeksConference Board
report lags Gallup finding that attitudes dipped in mid-Januaryby
Lydia SaadPRINCETON, NJ -- Gallup's Economic Confidence Index stands
at -27 for the week ending Feb. 21, on par with the previous week's
-28. The trend, based on roughly 3,500 interviews each week, clearly
shows that consumer attitudes have been steady thus far in February,
as well as for the past six weeks. The most recent decline in
confidence was recorded in mid-January, and followed a modest post-
Christmas bounce that Gallup first detected in late December.

The Gallup Economic Confidence Index is based on Americans' answers to
two questions -- one asking about current economic conditions in the
country and the other about the direction of the economy. Both
components of the index have been highly stable in recent weeks.
However, in late December and early January there was an uptick in
consumer optimism about the economy's direction, resulting in the
slight improvement to the overall index at those points.

Gallup's weekly findings are based on aggregated results of Gallup
Daily tracking interviews with a nationally representative sample of
approximately 3,500 U.S. adults per week, and thus provide highly
reliable estimates of consumer views.

Conference Board Release Behind the Curve

"As the Gallup trend suggests, the souring of consumer attitudes that
The Conference Board detected with its early February reading most
likely set in around mid-January."Gallup's Economic Confidence Index
weekly trend highlights a significant timing issue inherent in The
Conference Board's recent release, which stated, "Consumer Confidence,
which had been improving over the past few months, declined sharply in
February." That report -- showing a drop in consumer confidence from
56.5 in January to 46.0 in February -- is widely credited with
rattling the nation's equity markets on Tuesday, helping to drive the
Dow Jones Industrial Average down more than 100 points by the close of
markets.

The Conference Board data are based on mail surveys received in the
first half of each month, meaning most of those surveys are likely
filled out by respondents in the first 10 days of the month. As a
result, The Conference Board's Consumer Confidence Index is largely a
gauge of consumer attitudes at the beginning of each month. Thus, The
Conference Board's finding of a drop in consumer confidence in
February in reality describes a decline that happened between early
January and early February. Conference Board preliminary numbers are
not reported until late in a given month.

As the Gallup trend suggests, the souring of consumer attitudes that
The Conference Board detected with its early February reading most
likely set in around mid-January. The February finding looks
particularly dramatic in comparison with the slightly elevated level
of consumer confidence that The Conference Board found in early
January. Gallup data, however, show that current confidence levels are
generally no more negative than they have been for much of the last
six months. (This insight has been widely available on Gallup.com in
near-"real time," both on a weekly basis and in Gallup's daily
reporting of continuous three-day rolling averages.

The fact that Gallup's data show little change in economic confidence
in recent weeks is not to say that consumer attitudes at present are
positive or that they haven't shown some decline since the beginning
of the year. Gallup's Economic Confidence Index has been in negative
territory since March 2007, and has fallen well below 0, the neutral
Index point, for the past two years. However, the -27 figure for Feb.
15-21 is not much different from the values Gallup recorded in the
last quarter of 2009.

When one focuses just on Gallup's Economic Confidence Index for the
first full week of each month (the week most comparable to The
Conference Board's field schedule), the results tend to track The
Conference Board's monthly Consumer Confidence Index closely. Gallup's
ability to monitor attitudes on a continuous basis throughout the
month, however, provides a much more complete understanding of how
American consumers are feeling about the national economy and its
direction -- an understanding not available from surveys conducted in
only certain parts of each month.

While The Conference Board's 46.0 reading this month is technically
the lowest seen since April 2009 (when it was 40.8), given the likely
sample size and associated margins of error around a mail panel survey
of its kind, the current reading is essentially the same as the
October (48.7) and July 2009 (47.4) readings.

Bottom Line

On the whole, American consumers are more negative than positive about
the U.S. economy -- both in their assessments of current conditions
and their outlook for whether things are improving or getting worse.
While Americans are now slightly more negative than they were at the
start of the year, this shift occurred roughly five weeks ago, in mid-
January. Since then, Gallup's Daily tracking shows that consumer
attitudes have been highly stable.

More broadly, the good news is that consumer attitudes are no worse
than they have been for much of the past six months, and are in fact
substantially less negative than they were a year ago at this time,
and for most of 2008.

Learn more about Gallup's economic measures.

Survey Methods

For Gallup Daily tracking, Gallup interviews approximately 1,000
national adults, aged 18 and older, each day. The Gallup Economic
Index is based on random half-samples of approximately 500 national
adults, aged 18 and older, each day. Weekly results are based on
telephone interviews with approximately 3,500 adults. For these
results, one can say with 95% confidence that the maximum margin of
sampling error is ±2 percentage points.

Interviews are conducted with respondents on land-line telephones and
cellular phones.

In addition to sampling error, question wording and practical
difficulties in conducting surveys can introduce error or bias into
the findings of public opinion polls.

http://www.gallup.com/poll/126185/Gallup-Economic-Confidence-Steady-Recent-Weeks.aspx

February 24, 2010 4:55 PM EST

U.S. rate hike likely to be delayed by slow economic recovery

Fed Chairman Ben Bernanke was the center focus for global markets on
Wednesday as he testified before the House Financial Services
Committee about the state of the U.S. economy and the Fed's monetary
policy.

Investors are eyeing the U.S. as the next country to aggressively
reign in their excess liquidity. The expected rate hike, however, may
be delayed as persistently high unemployment and poor business credit
conditions dampen private demand.

Private Demand

A recovering economy would set the stage for potential interest rates
hikes; however Bernanke noted that demand from businesses and
consumers remained weak.

Although the second half of 2009 did show a 4 percent annualized rate
of growth, the chairman readily admits that "a significant portion of
that growth" was due to the "progress firms made in working down
unwanted inventories of unsold goods." As the government winds down
"fiscal support," the economic recovery will lean more on private
demand, he said.

But the outlook for private demand continues to be hampered by high
unemployment levels and deteriorating credit conditions for businesses
and consumers.

Bernanke acknowledges that "bank lending continues to contract,
reflecting both tightened lending standards and weak demand for credit
amid uncertain economic prospects."

Unemployment, and fears stemming from the prospect of it, are also
playing a role. He notes that "job openings are scarce" and that 40
percent of unemployed Americans have been out of work for over 6
months.

Slow Growth Europe and U.S.

The sentiment was echoed by Bank of England Governor Mervyn King in a
statement on Tuesday.

Domestically, U.K. bank lending to businesses continues to fall. In
the euro zone -- U.K.'s main export destination -- economic recovery
"appears to have stalled."

King is particularly concerned about the global economic imbalance
between debtor and creditor nations.

He stated that some countries who rely on foreign lending, namely
Western nations, have reduced their reliance on such capital.
However, "without a compensating pick up in external demand for their
goods and services," these countries will "continue to experience weak
recoveries."

King also added that the countries who showed strong growth in recent
quarters are "those whose banking systems were relatively unscathed by
the crisis."

Although King's comments referred to the euro zone, the same
conditions apply to the U.S.

The U.S. is the world's largest debtor nation and the near collapse of
its financial system was the catalyst of the global financial
crisis.

Rate Hikes around the World

Australia was the first to raise its interest rate. The country was
supported by its mining boom, its trade with China, and its banks were
relatively unscathed by the financial crisis.

Although officials unexpectedly left the rate unchanged at its latest
meeting, some market participants anticipate another rate hike in
March.

Chinese banks also proved to be fairly resilient and some economists
forecast that its Gross Domestic Product will grow 10 percent in
2010.

Although China did not raise its interest rate yet, it began to
restrict big bank lending and already raised the bank reserve
requirement twice. Some analysts expect China may raise its interest
rate as early as March.

Investors are also eyeing Canada and India to soon raise their
interest rates.

Countries likely to raise rates at a slower pace than the U.S. include
Japan and European nations.

Japan's economy is extremely fragile, plagued by deflationary
pressures, unemployment, and a woeful banking system.

The euro zone economy is recovering slower than the U.S. and sovereign
debt worries of peripheral members nations will slow and complicate
the ECB's liquidity withdraw.

http://www.ibtimes.com/articles/8726/20100224/urate-hike-likely-be-delayed-slow-economic-recovery.htm

CAPITALFEBRUARY 24, 2010.
Asia's Latest Export: Recovery
By DAVID WESSEL

David Wessel says countries in Asia are the new "haves," while
countries in Europe are the new "have-nots."
.This week's headlines well illustrate the striking contrasts:
Thailand said its economy expanded at a 15.3% annual rate in the
fourth quarter, and Taiwan said its grew at an 18% pace. But Germany
said its economy didn't grow at all in the quarter, and the only
reason it didn't contract was that German industry managed to boost
exports to healthier economies.

"The slump was very synchronized. The recovery? Increasingly less so,"
says Olivier Blanchard, chief International Monetary Fund economist.

Take a quick tour of the world economic recovery room. First stop is
the rich, mature economies—the U.S., Europe and Japan. None are
healthy yet, but the U.S. is doing better than the others.

The U.S. economy is growing, helped by a mix of insulin (the fiscal
and monetary stimulus) and sugar (the eagerness of businesses to
rebuild depleted inventories). By the standards of past recoveries,
though, it isn't growing very fast.

American consumers, turning thrifty, are reluctant to spend. Banks are
reluctant to lend. Employers are reluctant to hire. Government is
reluctant to administer more stimulus. Yet forecasters at J.P. Morgan
Chase, more optimistic than some others, predict that U.S. output of
goods and services, its gross domestic product, will be back at
prerecession levels by mid-2010. Europe and Japan won't reach that
point until well into 2012.

View Interactive

See details on consumer spending in the U.S. and emerging markets.
.
.Europe still looks ill. The recession was deeper there, and fiscal
and monetary stimulus less aggressive than in the U.S. and China. Its
businesses are more dependent on banks than U.S. firms, and European
banks haven't been—or haven't been forced to be—as open about their
losses or as quick to bolster capital cushions.

And now the sinners of Europe, economies that were living and
borrowing well above their means, are being forced to repent: Greece,
Spain, Ireland, Portugal. Because they share a currency, the euro, and
have surrendered interest-rate setting to the European Central Bank,
they can't cut interest rates or let currencies fall to goose exports,
and now their ability to keep borrowing cheaply to cushion weak
economies is in doubt.

The only options are painful: austere government budgets and cuts in
wages to make prices of exports more attractive. The U.K. has the
luxury of allowing the pound to slide, but, as central banker Mervyn
King noted this week, exporting its way out of its woes depends on the
willingness of Europe to buy.

Japan is harder to read. Like other export-dependent economies, it
took a hit when the U.S. stopped buying. U.S. imports from Japan fell
31% in 2009 from 2008. But it's now benefiting from its proximity to
China. Japan's exports to China, which surpassed the U.S. as its
biggest market last year, were 80% higher in January than in the same
month last year, the Ministry of Finance said Wednesday. That was
three times the increase in exports to the U.S. in the same period.
Japan's fourth-quarter performance was encouraging, but the persistent
threats of deflation and political paralysis cloud its outlook.

The big question hanging over all these economies, despite all these
differences: As fiscal stimulus wanes and central banks inch toward
the exit from extraordinarily low interest rates, will consumer and
business demand revive and sustain the recovery?

.Wander now to the new wing of the recovery room, the emerging
markets of Asia. They're not only out of bed, they're back at work and
doing push-ups.

China led the way, demonstrating that one advantage of an
authoritarian government is that it can inject massive doses of
stimulus quickly and order banks to lend. The policy has been so
successful that the Chinese central bank now is restraining bank
lending to avoid over-stimulating the economy and provoking bubbles in
asset markets.

The other countries in the neighborhood are benefiting, offsetting
some of the weakness in exports to the U.S. by exporting more to China
or drawing more tourists from China. Among Asian economies, those more
tightly linked to China—such as Taiwan, Malaysia, Singapore—have been
growing fastest.

But Asian consumers are doing their part, too. Auto sales in Malaysia
in January were up 33% from a year earlier, for instance; India's were
up 50%. In contrast, U.S. vehicle sales were up only 6% in January.

Indeed, one milestone passed without much notice during the crisis.
Emerging-market consumers, more numerous and better off than they were
a couple of decades ago, outspent American consumers for the first
time in modern history.

Emerging-market consumers will account for 34% of global consumption
and U.S. consumers 27% this year, J.P. Morgan calculates. Twenty years
ago, the shares were 23% and 29%, respectively.

"It's not too much of an exaggeration to say emerging-market consumers
did for the world in 2009 what U.S. consumers did in 1998 [during the
Asian financial crisis]," says J.P. Morgan economist Bruce Kasman.

Asia cannot propel world growth by itself, though. Its economies
remain dependent on exports, and that means they, too, are watching,
waiting and hoping for a revival of consumer spending and business
investment in the mature-economies recovery room.

Write to David Wessel at cap...@wsj.com

http://online.wsj.com/article/SB10001424052748703510204575085280515242598.html?mod=googlenews_wsj#articleTabs%3Dcomments

http://online.wsj.com/article/SB10001424052748703510204575085280515242598.html?mod=googlenews_wsj

Kimberly's US Economy Blog
By Kimberly Amadeo, About.com Guide to US Economy

My BioMy BlogMy ForumAdd to: iGoogleMy Yahoo!RSS.Can the Fed Really
Head Off Inflation?
Tuesday February 23, 2010
A reader asks:

How does the Federal Reserve's plan to reduce banks' reserve balances
affect the global demand for and price of oil, copper, grains,
sugar...all of which are limited, in-demand commodities. Global
population increases and expansion of the economies of China, India
and Indonesia (all with populations of a billion plus) will drive
demand and cause inflation. If the Fed raised interest rates high
enough to soak up global excess dollars, won't that choke American
consumers, too?

Oil and gas prices have little to do with monetary policy or supply
and demand. They have a lot to do with what investors/speculators
think other investors/speculators will do. Commodities prices will
careen wildly up and down as long as there is economic uncertainty,
which will be the case for quite a while, maybe years.

The Fed is pulling back all its programs to avoid raising the Fed
Funds rate, which will hurt the housing market, which is still weak.
The Fed funds rate itself is just a vehicle to make banks hold more or
less money in reserves. However, it has become kind of a celebrity
indicator, the one everyone watches. By affecting reserves directly,
the Fed hopes to avoid inflation by forcing banks to take money out of
circulation. By keeping the Fed funds rate at zero, the Fed is sending
a message that it will keep liquidity in the housing market.

It is all about sending the right messages to build confidence - upon
which the entire economy is based.

http://useconomy.about.com/b/2010/02/23/can-the-fed-really-head-off-inflation.htm

TEA Party folds when economy revives So says the Republican governor
of California, Arnold Schwarzenegger
Posted February 24, 2010 12:00 PM
by Mark Silva

The "TEA Party,'' that anti-tax, anti big-government movement of
people intent on turning out incumbents this year, will "disappear''
as the economy improves.

So says Gov. Arnold Schwarzenegger, the Republican governor of
California whom some in his own party view as a RINO. Whatever his own
situation may be, "Ahnold'' suggests that a movement without a leader,
such as the leaderless TEA Party, which offers no apparent agenda,
will dissolve as underlying economic unrest yields to recovery. With
midterm elections looming, that still could be a question of timing,
however.

"The TEA Party is an expression of anger and of disappointment,''
Schwarzenegger said in an interview last night with Greta Van Susteren
on FOX News Channel's On the Record. "I'm just saying they're not
going anywhere with it because nobody is coming up and saying, 'Here's
our candidate, here's our solution, here's what we're going to do,'
and have a whole policy debate over the various different issues....

"So this is why I think, in the end, when the economy comes back, I
think that the TEA Party will disappear again,'' he said -- which begs
the question of how quickly the economy will offer any signs of real
recovery sufficient to quell that tea revolt.

With a new Congressional Budget Office report that the president's
economic stimulus bill has offered new jobs for as many as 2 million
people and added as much as 3.5 percentage points to the turnaround in
the nation's Gross Domestic Product, the Californian suffering perhaps
the worst state budgetary criris of any governor said this about the
stimulus: "I think that not only I like it, but I think there's a lot
of Republican governors that like it... I think that it has done great
things for the state of California.

""I'm happy about it, and I told this to the president and I tell this
to the world that during a time of crisis like this, anything is
helpful,'' he said. ""I think that having a job is just such a
fundamental and important thing because you feel productive. You make
money. You don't feel like a loser that you've lost your job, and all
those kind of things. I think it has been terrific. And you know,
like, it has been very helpful for us."

Chicago Tribune

Comments

Benedict Arnold the man elected to "save" California from the out of
control tax, tax, tax and spend liberals, once made these statements:

"From the time they get up in the morning and flush the toilet,
they're taxed. When they go get a coffee, they're taxed. When they get
in their car, they're taxed. When they go to the gas station, they're
taxed. When they go to lunch, they're taxed. This goes on all day
long. Tax. Tax. Tax. Tax. Tax." Candidate Arnold Schwarzenegger, 2003

"I am firmly opposed to raising taxes. Californians are already
overtaxed. California has one of the highest tax burdens in the
nation, and just about everything a Californian does today is subject
to one tax or another." Candidate Arnold Schwarzenegger, 2003

It’s unfair to accept the notion that hitting taxpayers up for more
money is the answer to our state’s budget and economic problems.
Politicians in Sacramento should find a better way to turn things
around-not simply shift the burden of their mistakes onto the backs of
taxpayers. - Campaign website, JoinArnold.com Aug 29, 2003

"I campaigned that I will not raise taxes and I say this again: I will
not raise taxes," Candidate Arnold Schwarzenegger, 2003

"I said it before that I will not raise taxes, and I will not raise
taxes" Candidate Arnold Schwarzenegger, 2003

"A lot of people say, 'Arnold, why don't you just raise taxes and be
done with it?' Well, as I said earlier, we don't have a revenue
problem. We have a spending problem. We could raise taxes by billions
but that would only further drive up spending by billions of dollars.
California would never come out ahead. Our economy would suffer, jobs
would be lost and the people would be punished. Unless we go to the
root of the problem and reform the system, the budget will continue to
be one big fight, year after year after year." - Governor Arnold
Schwarzenegger, 2005 State of the State address.

"I will not raise taxes on the people of California, period." Governor
Arnold Schwarzenegger, 2006

"Let’s not make the same mistakes of the past, to spend and spend and
spend when we really don’t have the money." Governor Arnold
Schwarzenegger, Speech & Q&A - Friday, January 6, 2006

Keep in mind when reading these that, on February 20, 2009, Governor
Schwarzenegger signed the largest state tax increase in U.S. history.

The TEA party has no "apparent agenda"? Arnold, the agenda is to rid
the nation of liars like you! Taxed Enough Already! Who do you think
elected YOU, you fool. You ran on lowering taxes and you were elected
in a RECALL election to replace the idiot liberal Gray Davis. You
betrayed the people that elected you Benedict Arnold. Enough of your
RHINO ways, get out.

Posted by: Free to Watch Liberals Meltdown | February 24, 2010 12:12
PM

With all due respect, the Governator hasn’t had his ear to the ground
long enough to make these pronouncements. “Smaller government, less
spending and less taxation” is the Tea Party mantra. That’s not
exactly having no ideas or solutions. It’s the same chant with which
the Governator has been taunting the California State Legislature for
its unsustainable budgets. Methinks the Governator is just happy the
feds coughed up the dough to pull the state out of a hole, and he is
kissing up to the White House with the anti Tea-Party rhetoric as a
little political payback.

Posted by: John W. | February 24, 2010 12:32 PM

Arnold is a fool. People have awakened to the fact that dangerous
progressives will always try to get a foothold in this country and we
must be ever vigilant to preserve our freedoms. The tea party shall
never die!

Posted by: NH | February 24, 2010 12:35 PM

Arnold Schwarzenegger is correct that the Tea Party movement will
probably disappear when the economy goes into a full recovery. The
Teabaggers have many Populist traits and are angry and disappointed at
whats been happening in the country. Although the Republicans are
benefiting more than the Democrats from this movement it really is
more anti-incumbent rather than anti-Democrat. And like other such
movements in the past some of the Teabaggers better ideas will be
picked up by both the Republican and Democrat Political Parties.

Although the Stimulus probably saved some current jobs and provided
work for new or pork barrel projects the question remains when the
U.S. economy will be able to recover on its own without government
intervention? We have had two major stimulus bills passed in the fall
of 2008 during the Bush Administration and the one pushed by Obama
earlier this year to prop up the economy. Although those bills
probably saved the economy from getting much worse they have not been
able to bring about a strong recovery. But the question remains often
can the Federal Government afford to do this before harming the
general economy of the country?

Posted by: Depot- Jim | February 24, 2010 12:51 PM

It is more than just the economy. It's also about ridiculous spending,
a problem that will last far beyond whatever economic recovery there
might be. California and Ahhnold are great examples of spending
running amok.
It's about corruption and politicians spending lavishly on themselves.
People like Blago and even Hastert are prime examples.
It is about too much government, which doesn't seem to be going away
anytime soon.
It is about politicians not listening to the people.
It is about taxes and people being taxed too much.
It is about a wrong-headed health care plan that does nothing to solve
the problems.
It is about politicians putting other country's interests ahead of our
own.
A lot depends on what happens in the next few years as to whether the
Tea Party movement continues or not.

Posted by: John D | February 24, 2010 1:32 PM

IF the economy recovers. With the democrats in power - that will just
be 3 years of making the problems worse.
Funny how the liberals made fun of Schwarzennegger but quote him like
he's some kind of authority when it suits their cause.
I know I'm not buying a thing except necessities until obama is out of
office. Let's hope all republicans do the same. Money talks and
democrats walk!
Democrats are parasites.
Why no articles about the Prime Minister of Canada going to Miami for
his medical care?

Posted by: worsethanbefore | February 24, 2010 1:38 PM

Imagine if Democrats held a conference (CPAC) where the sponsors,
speakers and attendees were a mix of people who thought Bush was born
in Africa, 9/11 was a government plot, people should be given
"literacy tests" before being allowed to vote, and that the government
was being controlled by foreign plots, would the corporate media call
it anything else than what it is? - a bunch of fanatical idiots that
do good to dress and feed themselves every day.

Posted by: Ybbob Eibbom | February 24, 2010 1:38 PM

The Republican party will eventually collapse under the weight of the
Tea Klux Klan wing of their party.

The few victories that they will win will backfire on them big time
once their hatred and racism is put on full display in congress for
everyone to see and be repulsed by. I don't care how much halfwit
right wing rubes like Sister Sarahcudda cheerlead for them, it will
eventually turn into a Epic Republican Fail.

Posted by: Steven Hall | February 24, 2010 1:41 PM

Unfortunately I thik that Gov Arnold is correct. There was no uprising
while the national debt doubled under W.

He inherited a surplus, albeit based on the economy of the tech boom
which largely vanished when W took office. W also reduced revenues by
cutting taxes, but didn't cut spending, especially when he instituted
the Medicare Part D Rx spending.

That doesn't excuse the large spending of the Obama administration,
but I think it too will drift away when the economy gets roaring
again.

Posted by: Todd M | February 24, 2010 1:42 PM

We are seeing the re-emergence of the Republican Party's true self
(racisim, bigotry, homophobia). They are more than mere
obstructionists - although Sen Richard Shelby brings obstructionism to
a new high.
.
http://www.politico.com/news/stories/0210/32584.html

They are intent on realizing Grover Norquist's dream of reducing the
size of government so they can "drag it into the bathroom and drown it
in the bathtub."
.
http://en.wikipedia.org/wiki/Grover_Norquist#Views_on_government

Tancredo blames the election on the dumb electorate that doesn't see
the world through his prism, and wants to force out those who don't
follow his ideology. Ryan sees the wreckage that is Wall Street as the
salvation of Social Security, and the status quo health insurance
industry as superior to Medicare.

Democrats often talk about how Republicans don't care about promoting
the general welfare of the people. These recent examples bring hard
evidence to our words.

Lincoln spoke eloquently of a government by, of, and for the people.
But the Party of Lincoln has lost this view. Norquist's dream of
drowning the government is, in essence, a desire to drown the American
people. This desire manifests itself with the words of Tancredo and
the proposals of Ryan.

The Tea Party movement reveals itself to be not much more than
political varnish slapped on growing resentment at the erosion of
white privilege.

Paul Ryan reveals that deficit hawkishness is nothing more than
handing over government to corporate America.
.
http://voices.washingtonpost.com/ezra-klein/2010/02/rep_paul_ryans_daring_budget_p.html

How THIS qualifies as a populist movement is beyond me. It sounds more
like a suicide pact.

Posted by: Laura Lexner | February 24, 2010 1:43 PM

HOW'S THAT HOPEY/CHANGEY/PORKULUS WORKIN FOR YA? UNDEREMPLOYMENT AT
19.9%. LET ME GUESS: "IT'S ALL BUSH'S FAULT!!!"
*
WASHINGTON, D.C. -- Gallup's daily measure of U.S. employment reveals
that 19.9% of the U.S. workforce was underemployed during the month of
January, translating to close to 30 million Americans who are working
less than their desired capacity. Those who were underemployed
reported spending 36% less than those who were employed, $48 per day
versus $75 per day.
*
http://www.gallup.com/poll/125960/Underemployed-Report-Spending-Less-Employed.aspx
*
NEW HOME SALES LOWEST ON RECORD. THANKS NOBAMA, OR WAIT "IT'S BUSH'S
FAULT!"
New home sales hit record low in January
New home sales plummet 11.2 percent in January to annual rate of
309,000, lowest on record
*
http://finance.yahoo.com/news/New-home-sales-hit-record-low-apf-2245141272.html?x=0&.v=1

Posted by: Bobby Mobbie | February 24, 2010 1:44 PM

REPUBLICANS TOM TANCREDO, SARAH PALIN AND THE TEA KLUX KLANER'S WANT
TO OUT LAW MINORITIES FROM VOTING

It's hard to say which was more disturbing: Tancredo's apparent call
for reinstituting laws that were a fundamental component of Jim Crow
in the post-Reconstruction South, or the massive round of applause he
received from the Teabaggers for saying it.

*
http://crooksandliars.com/david-neiwert/tom-tancredo-tea-partiers-lack-civic
*

Posted by: Michael Kyler | February 24, 2010 1:47 PM

The Teabaggers (ordinary Republican voters) are nothing more than
corporate sponsored puppet sticks. "They" wouldn't exist if it were
not for Freedom Works Corp and Fox.

If Republicans ever get back into power, what's left of the Teabaggers
will get thrown under the bus so fast that they won't know what hit
them.

Posted by: RyanR | February 24, 2010 1:52 PM

HOW'S THAT HOPEY/CHANGEY/PORKULUS WORKIN FOR YA? THE STIMULUS SAVED
THE ECONOMY FROM THE BUSH RECESSION. LET ME GUESS: "IT'S ALL OBAMA'S
FAULT!!!"

Back at Home, Congressional Republicans Praise Projects in Stimulus
Bill They Opposed

"Back in their home districts for the President's Day weekend recess,
congressional Republicans who voted against the stimulus bill are
singing the praises of projects in it."

http://blogs.abcnews.com/politicalpunch/2009/02/back-at-home-co.html

Posted by: RickyBobbie Mobbie | February 24, 2010 2:13 PM

"By the end of the night, much of the room knelt in prayer – one of
the pastors, Rick Scarborough, went after homosexuals several times to
choruses of amens -- before watching a Tea Party video."
-
Read more:

http://swampland.blogs.time.com/2010/02/05/tea-and-crumpets/#ixzz0fAQuDdOC

Posted by: Crazy Teabaggers = Ordinary Republican Voters | February
24, 2010 2:17 PM

Arnold is right. The German rallies for Hitler were so
enthusiastically received in their day, and the footage of them is
such an utter humiliation to the civilized world of today. NOT
attempting to draw other analogies between Naziism and the Teabagger
movement; that would be dangerous business, indeed. Merely pointing
out that sometimes, all it takes is time for a political movement to
reveal itself for what it is, and to be widely put to shame.

Posted by: Ted Lindeen | February 24, 2010 2:30 PM

Want to bet California will be folding (bankrupcty) before the TEA
Party does.

Posted by: vla | February 24, 2010 2:36 PM

Let Obama and the loony liberals pass their shady healthcare bill and
you will see the Tea Party membership explode upward. How fast you
loony liberals forget that a few years ago you were calling what the
Democrats say they're going to do the nuclear option. Obama said at
the time "it's a abomination" and then Hillary said it was
"unconstitutional". I say do it because the bill will never make it
out of the courts before the midterm elections and at that time most
Democrats running for office will loose. And then once Obama only term
is over we can repeal this idiotic bribe filled bill. A any loony
liberal that thank this cannot happen just remember the Nebraska
Kansas Act of 1851. And anybody that is as stupid enough to forget
history is bound to repeat it. The passage of the Nebraska Kansas Act
of 1851 was the downfall for one political party and the birth of
another.

Posted by: Crooks_In_DC | February 24, 2010 2:38 PM

""I'm happy about it, and I told this to the president and I tell this
to the world that during a time of crisis like this, anything is
helpful,'' , said the REPUBLICAN Capitalist who has experience in
running a business. Suck it you retarded TeaBaggers. You're toast.

Posted by: sensible | February 24, 2010 2:43 PM

You liberals don't have a clue. It's amazing. All you can do is think
of more and more ways to drain the life out of the economy with higher
taxes, and insane spending.

By the way the REAL underemployment rate in the Former Great State of
California is 23%. That's depression level. It is projected that the
housing prices won't come back to the higher levels of 2005 until
2030. HOW'S THAT STIMULUS WORKING FOR US ARNOLD? Green jobs? That's a
laugh. The state adds a whopping total of 3,000 green jobs a year;
meaning in about 150 years those green jobs will replace all the jobs
lost by the job killing liberals that make California the MOST
UNFRIENDLY state in the nation for business. STIMULUS = millions of
lies created.

Posted by: Free to Watch Liberals Meltdown | February 24, 2010 2:49
PM

I've always wondered - how could "civilized" people do such horrible
things (Teabaggers)?

The short answer is fear.

The long answer is fear, roused by propaganda that plays on ignorance,
followed by a call to oppose (by arms or intransigence) the "other".

Only 20% of the country is in the Teabagger category. Far less than
that percentage are hardcore right wing nut jobs. Most of the
Teabaggers are just ignorant, alienated people afraid for their
(white) country.

Why they weren't afraid when the last administration ran up so much
debt and was really radical in its completely altered conception of
American Constitutional law is probably due to the fact that the
Teabagger crowd is so ignorant.

Wingnuts at their core are basically authority worshippers, so "might
makes right," and "the man with the gold, makes the rule," and
whatever. It's fine with them, they're too stupid to understand that
they are doing nothing but making their own situation worse.

Posted by: James Almberg | February 24, 2010 2:52 PM

Michael Kyler

Funny how a loony liberal blog would come up with that and even
funnier is your ignorance in buying it. America is a great country you
have to admit and a good example of that is that even someone as
idiotic as yourself can vote. Next time try to get a real news outlet.

RickyBobbie Mobbie

I have to agree that is a sleazy move by the Republicans about as
sleazy a move as the one the Democrats are trying to do saying that
the success in Iraq was because of Obama and the loony liberals in
Congress. When the majority of the people know that the timetable for
the pullout was already agreed to before the 2008 elections. And for
Obama to even say he played any role in it is a disgrace because the
record shows he voted against the Surge and that was the main reason
we are pulling out now.

Posted by: Crooks_In_DC | February 24, 2010 3:09 PM

BC

Right why doesn't Arnold tell how many jobs they have lost since he
has been governor. How many jobs have moved to border states around
California. So please loony liberal propaganda is no longer working
for the majority of the voting population. I know my wife's company
moved over 500 of its positions to Texas a few years back. And these
were not your minimum wage nor even middle-class wages these were high-
paying technical medical device jobs. And I know of seven other
companies with similar positions that left California in a one-year
period within a few miles of my wife's old company location.

Posted by: Crooks_In_DC | February 24, 2010 3:24 PM

You liberals don't have a clue. It's amazing. All you can do is think
of more and more ways to drain the life out of the economy with higher
taxes, and insane spending.

Posted by: Free to Watch Liberals Meltdown | February 24, 2010 2:49

I find it amazing how middle class and poor right wing rubes like you
are always so willing to be rear-ended by multi-billionaires, big oil
and corporate America because you've been so thoroughly duped into
believing the Trickledown fantasy that your leadership sells you. It
would be hilarious if it wasn't so tragic.

When Republican President Bush Jr slipped into office and once again
applied the Neo-Con manta of the old trickle down tax model and
immediately created a need to raise the debt level to pay for an
unjustified tax cut in 2001. Predictably (and before 9/11) the nation
lost jobs and there were fewer new millionaires. Not learning from his
past mistakes, Bush pushed through yet more tax cuts in 2003, 2005 and
2006 -- all while expanding the military, the largest single component
of the budget. He and his lap dog Republican Congress never learned
from their mistakes. As a result, the national debt increased an
average of $1.5 billion per day since the beginning of 2002.

Posted by: Free to watch Repugs bow down to their Masters | February
24, 2010 3:51 PM

Michael KylerFunny how a loony liberal blog would come up with that
and even funnier is your ignorance in buying it.
Posted by: Crooks_In_DC | February 24, 2010 3:09 PM

Clown,
Funny how you can't refute that so-called "liberal blog" but yet
you're still shooting your mouth off, don't ya think?

Posted by: HHH | February 24, 2010 3:55 PM

THE TEABAGGERS ARE PALLING AROUND WITH DOMESTIC TERRORISTS!

Bet "no one" ever saw this one coming....not.

"The Massachusetts man charged two weeks ago with stockpiling weapons
after saying he feared an imminent "Armageddon" appears to have been
active in the Tea Party movement, and saw Sarah Palin, who he said is
on a "righteous 'Mission from God,'" as the only figure capable of
averting the destruction of society."

"... found with a stash of military grade weapons, explosive devices
including tear gas and pepper ball canisters, camouflage clothing,
knives, handcuffs, bulletproof vests and helmets, and night vision
goggles, say police."

"But it appears that Girard had lately found a community with which to
share some of his growing fears. A "Greg Girard," listing his location
as Manchester, Mass., has a personal page on the "Patriots of America"
online network, a popular site affiliated with the Tea Party
movement."
.
http://tpmmuckraker.talkingpointsmemo.com/2010/02/man_charged_for_stockpiling_weapons_was_tea_partie.php

So, what prompted Girard to stock up (and advise his wife to shoot
"traitors" in the head)? .....He was afraid President Obama was coming
for his guns.

Of course "no one" could have anticipated that anyone would try to act
on the unfounded fears that the Right Wing Noise Machine media whips
up about President Obama, right?
.
http://www.thepittsburghchannel.com/news/19094064/detail.html

Posted by: Lester Poindexter | February 24, 2010 4:00 PM

“Smaller government, less spending and less taxation” is the Tea Party
mantra. That’s not exactly having no ideas or solutions.
Posted by: John W. | February 24, 2010 12:32 PM

and I'm for feeding the starving and world peace........I guess I have
as good a chance as the tea baggers.

Posted by: bill r. | February 24, 2010 4:22 PM

Yep, Jobs, business and taxpayers are fleeing The Former Great State
of California as fast as they can. Great job liberals of ruining the
former 5th largest economy on the planet. The nation is next...and
then the world. Stop voting for these fools.

Posted by: Free to Watch Liberals Meltdown | February 24, 2010 4:25
PM

The economy will come back when the government slashes spending and
cuts taxes.

Then the tea party will have accomplished its mission.

Posted by: Chris | February 24, 2010 4:39 PM

Yep, Jobs, business and taxpayers are fleeing The Former Great State
of California as fast as they can. Great job liberals of ruining the
former 5th largest economy on the planet. The nation is next...and
then the world. Stop voting for these fools.

Posted by: Free to Watch Liberals Meltdown | February 24, 2010 4:25

Yeah Biff,
And that's exactly why Cali needs to get rid of their 2/3's law, the
one that has been allowing the MINORITY REPUGS to obstruct any and
every way that the state has been going about in an effort to fix
things, because the ultimate Repug goal is to "drown gov't in a bath
tub".
.
http://www.youtube.com/watch?v=7QDv4sYwjO0
.

Posted by: Free to Watch Repugs bow down to their Masters | February
24, 2010 4:50 PM

and I'm for feeding the starving and world peace........I guess I have
as good a chance as the tea baggers.

Posted by: bill r. | February 24, 2010 4:22 PM

Are you a former Miss America contestant? If you look up some stats
you might learn that Americans (that would include those who are
"rich") freely give more to charity than anyone else in the world.
And, nobody WANTS war.

I am for butterflies and daisys and quiche for everyone. Geez.

Posted by: Free to Watch Liberals Meltdown | February 24, 2010 4:54
PM

* * * * *
Posted by: bill r. | February 24, 2010 4:22 PM
.
That’s very funny, bill. Very funny. But, in the context of the
California budget crisis, the Tea Party mantra is actually a concrete
solution. California never had a problem with revenue; at least, not
before the recession. Revenue had increased steadily over the years.
The problem is the Democrat dominated California Legislature. Its
members have always found new and interesting ways to spend everything
in sight and then dig us deeply into debt. The common-sense notion
that one shouldn’t spend more than one has in the bank has apparently
never crossed their minds. If the Legislature just abided by a
moratorium on new spending for a while, rolled back some of the less
essential funding, and, perhaps, renegotiated some of the state
employee contracts, we might actually have a chance to close the
budget gap. None of that is going to happen in the near future until
some of that Tea Party mantra is applied.

Posted by: John W. | February 24, 2010 5:05 PM

“that a movement without a leader”
http://www.iamtheteapartyleader.com/ The leader(s)

which offers no apparent agenda
http://www.teapartynation.com Read what it’s about, there's the agenda

“The TEA Party is an expression of anger and of disappointment”
How can Schwarzenegger even express this when he doesn’t even
understand it?

“I'm just saying they're not going anywhere with it because nobody is
coming up and saying”
'Here's our candidate’
-It’s not a political party, it’s a MOVEMENT
‘here's our solution’
-Less government intervention, lower taxes, less spending,
constitutional integrity…. Need I say MORE? Pretty simple.

‘here's what we're going to do’
-Campaign & vote for anyone who holds the ‘solution’ as their goal
foundation of holding office

Get a clue Schwarzenegger.

Posted by: MAJMark | February 24, 2010 5:12 PM

Are you a former Miss America contestant? If you look up some stats
you might learn that Americans (that would include those who are
"rich") freely give more to charity than anyone else in the world.
And, nobody WANTS war. I am for butterflies and daisys and quiche for
everyone.

Posted by: Free to Watch Liberals Meltdown | February 24, 2010 4:54

Really Biff?

Nobody wants war? I think your Bushco Republican heroes and their pals
in the Military Industrial Complex would beg to differ with you.
America wouldn't have that problem if right wing morons like you would
quit freely passing out butterflies, daisys and quiche in the form of
multibillion dollar tax payer funded contracts to them all the time.
.
http://projects.publicintegrity.org/WarCard/?gclid=CLTh4oODjKACFRLxDAod0DEbfA
.

Posted by: Free to Watch Repugs bow down to their Masters | February
24, 2010 5:30 PM

================================
The TEA Party is an expression of anger and of disappointment”
Posted by: MAJMark | February 24, 2010 5:12 PM
-----------------------------------

Private Mark,
The Tea Klux Klaner's are a bunch racist tools who were created out of
thin air by corporate lobbying groups like Freddom Works and the
Republican propaganda channel, Fox.

If any of these low IQ simpletons were really angry about 'big
guvmint" and "spending" they would have been holding their little Klan
pep rallies when Bush was busy doubling our national debt in only
eight years and warmongering on the side. But no, they waited until
the black guy Democrat became president to be fake outraged, and that
is why these Teabagger cretins have no credibility.

Posted by: GENRipper | February 24, 2010 5:43 PM

Yes, keep reading those leftist conspiracy blogs. They are so true.
The government introduced AIDS, and crack cocaine and Bush himself
blew up the dikes around New Orleans, and of course Cheney hired the
9/11 hijackers.

And those mean old wasty Wepublicans just won't allow the loony tune
liberals in Caweeforwa to waise taxes.

The state just had the biggest increase in history! And it's still
broke and its losing its tax base because business and the "rich" are
voting with their feet.

Posted by: Free to Watch Liberals Post Nonsense | February 24, 2010
6:03 PM

* * * * *
And that's exactly why Cali needs to get rid of their 2/3's law, the
one that has been allowing the MINORITY REPUGS to obstruct any and
every way that the state has been going about in an effort to fix
things, because the ultimate Repug goal is to "drown gov't in a bath
tub".
* * * * *
Posted by: Free to Watch Repugs bow down to their Masters | February
24, 2010 4:50 PM
.
That is absolutely the DUMBEST thing I have ever seen posted here in
the Swamp, bar none.
.
In the first place, the “MINORITY REPUGS” in the California
Legislature aren’t the ones voting to raise taxes and spend more every
year.
.
In the second place, the two-thirds rule doesn’t prevent the
California Legislature from fixing anything. It simply prevents the
Legislature from voting for more taxes and higher spending without a
two-thirds vote. The only thing that has done has been to keep the
Spendocrat dominated State Legislature from spending us into oblivion
and driving all industry and business out of State. The Spendocrats
have done a darn good job of the latter even with the two-thirds rule
in place.
.
In the third place, good luck getting rid of the two-thirds rule. It’s
not just a law; its part of the California Constitution. It cannot be
repealed by the State Legislature. It would take either a new ballot
initiative or a state constitutional convention to get rid of that
rule. Fat chance of that happening anytime soon. Californians are
rather hostile to the idea of allowing the State Legislature out of
its cage. They have resisted ballot measure after ballot measure
designed to allow the Legislature more leeway in raising taxes to
balance the budget. Don’t hold your breath on this one.

Posted by: John W. | February 24, 2010 6:17 PM

Listen to the piglicans squeal like, well, like stuck piglicans when
Arnold actually tells the truth.

Maybe he's do an Arlen Specter and change parties.

Run for Senate as a Dem.

Is it too late for that?

Posted by: ornery | February 24, 2010 6:26 PM

Yes, keep reading those leftist conspiracy blogs. They are so true.
The government introduced AIDS, and crack cocaine and Bush himself
blew
Posted by: Free to Watch Liberals Post Nonsense | February 24, 2010

Is that the best you've got, Biff?

HAHAHAHA!!!

Posted by: Free to Watch Wingnutters Post Nonsense | February 24, 2010
7:12 PM

That is absolutely the DUMBEST thing I have ever seen posted here in
the Swamp, bar none. In the first place, the “MINORITY REPUGS” in the
California Legislature aren’t the ones voting to raise taxes and spend
Posted by: John W. | February 24, 2010 6:17 PM

Exactly what excess spending is going on in Cali right now, Bircher
Boy?

NONE! Because MINORITY REPUBLICANS have managed to get a law passed in
Cali that makes it require 3/4 of their Legislature to vote on
ANYTHING relating to public funding (like TAXES!). They WANT gov't to
fail. Go ask your hero Grover Norquist about it, he'll tell you what
you already know and SUPPORT, you hypocrite.

That person who died and told you you were the smartest person on
earth, lied.
.
http://www.indybay.org/newsitems/2009/11/18/18629048.php
.
http://www.thedailyshow.com/watch/mon-february-22-2010/rage-within-the-machine---progressivism
.

Posted by: huh? | February 24, 2010 7:25 PM

GEMLICKER- you just keep smoke'n that BS the left keeps stuffing in
your pipe and drinking the tainted Kool-Aid.
You don't even have a clue what is coming......

Posted by: MAJMark | February 24, 2010 7:50 PM

Fitting that you liberals like Benedict Arnold. He SHOULD crossover
and become a Dem. He fits right in: He's a liar, he says one thing and
does the opposite. He has no integrity; he betrays the trust of the
voters. He's a gutless egomaniac who can't stand it when someone asks
a tough question. Barry and Arnie should make a movie: Twins II.

And the number ONE reason Arnie should be a Democrat candidate (he
already is) is his approval rating.

It's UP from 13% to 19%.

http://www.surveyusa.com/client/PollReport.aspx?g=a212599f-4d07-42e5-a9ff-a094c267baf5

Posted by: Free to Watch Liberals Meltdown | February 24, 2010 11:06
PM

Triple H.

I did refute it by simply pointing out what it was a liberal blog. You
do have a short memory span don't you. I say the same thing to
somebody trying to use a conservative blog. Get a real news source.
You do make a fool of yourself in most of your posts but, once you
grow up it will happen less often.

Posted by: Crooks_In_DC | February 25, 2010 12:06 AM

* * * * *
Posted by: huh? | February 24, 2010 7:25 PM
.
You are desperately ignorant, mentally challenged, or simply lying to
gainsay my point. I think it’s a combination of all the above.
.
1. The 2/3rds rule was passed in 1978 by popular vote in a statewide
ballot initiative (as opposed to some law, as you suppose), along with
a number of other rules to amend the state constitution, thus limiting
the State Legislature’s ability to raise taxes and go on spending
sprees. It wasn’t enacted recently as part of some Tea-bagger
conspiracy to “drown government in a bathtub.”
.
huh? 0 Common sense and intelligence 1
.
2. On February 20, 2009, the Governator signed into law an increase in
state sales and income tax to cover yet another budget deficit.
(Which, BTW, is already about $20 billion this year so far.) The bill
was supported by the Democrats and largely opposed by the Republicans.
It was stalled in the State Senate until the minimum number of
Republicans crossed party lines and cast the deciding votes in favor
of the bill. This kind of undercuts your assumption that the 2/3rds
rule prevents increases in taxation and spending. It doesn’t. It
didn’t.
.
huh? 0 Common sense and intelligence 2
.
3. Over the past 10 years state spending from state sources has more
than doubled in nominal terms (not adjusted for inflation), and in a
manner that cannot be explained on the basis of an increased
population. Just during the Governator’s tenure, state spending from
state sources has risen almost 40 percent. (Spending: Fiscal year
1907-98: $68.5 billion; Fiscal Year 2003-2004: $104.2 billion; Fiscal
Year 2007-2008: $141.8 billion.) And why did California have such
incredible spending increases? You guessed it. The DEMOCRATS that
controlled the California Legislature and Governor’s office from the
late ‘90s until the early 21st Century were on a spending binge. They
handed out massive pay increases to state employees and guaranteed
them lavish retirement pensions of the kind the private sector could
only dream of. As the Governator stated during his 2005 State of the
State address (quoted above):

“A lot of people say, ‘Arnold, why don't you just raise taxes and be
done with it?’ Well, as I said earlier, we don't have a revenue
problem. We have a spending problem. We could raise taxes by billions
but that would only further drive up spending by billions of dollars.
California would never come out ahead. Our economy would suffer, jobs
would be lost and the people would be punished. Unless we go to the
root of the problem and reform the system, the budget will continue to
be one big fight, year after year after year.”
.
These FACTS (which you can look up) entirely destroy your claim that
the 2/3rds law, enacted by the People of California in 1978, could
come close to prevent the Democrats from spending us into oblivion
well into the 21st Century.
.
huh? 0 Common sense and intelligence 3
.
4. The problem facing the State of California now is largely due to
all those long term commitments that the Democrats in the State
Legislature obligated the state to pay. Republican’s may sometimes
(but not always) keep the Democrats from spending a lot more. However,
as the minority party, the Republicans have no ability to undo all the
damage caused by the Democrats’ for having to pay all those long term
commitments. It would take the Democrats to undo their own damage, and
they aren’t willing to do that.
.
huh? 0 Common sense and intelligence 4
.
Read ‘em and weep, you boob.

Posted by: John W. | February 25, 2010 3:57 AM

Read ‘em and weep, you boob.

Posted by: John W. | February 25, 2010 3:57 AM

Without a doubt, one of the most brilliant dissections of the sheer
lunacy and incredible ignorance that is the Loony Left.
Facts and common sense are two distinct traits that are not part of
the Left's DNA.

Posted by: John D | February 25, 2010 9:18 AM

John D

It was called Proposition 13. And it deals with mostly with property
taxes that is the reason why the California school system has taken a
nose dive since it became law. History is a funny thing.

Posted by: Crooks_In_DC | February 25, 2010 1:21 PM

Crooks, gotta disagree with you here. Prop 13 only froze property
taxes. The California school system is not hurting because of money.
The teachers union and other public employee unions run the state
government. The rot of the school system is the fault of liberal
education agendas, more and more administration, and the unions taking
money out of the system in Guaranteed contracts, including Guaranteed
retirement benefits in a down market. The teachers have been crying
for the last 60 years about overcrowded class rooms. We had larger
class rooms (I'm talking 32 per class) when I went to school and they
actually managed to teach students to read and write. Now they can't
even graduate students with enough skills to attend college. And
speaking of college, there are classes with 100-200 students and they
manage to learn, AND they pay a hefty tuition to attend.

Taxes and funds have been poured into the black hole of the Ca school
system with one result: Total failure.

Posted by: Free to Watch Liberals Meltdown | February 25, 2010 3:59
PM

Free to Watch Liberals Meltdown

I get your point but, Proposition 13 is also playing a role in
education in California. You cannot raise the percentage of taxes on
your property tax bill that go for individual items without a two
thirds majority. For while this was a problem for school funding but,
it seems every time there is a raise in property tax for the schools
it ends up going to the teachers and not solving any real problems.
When teachers make more than police officers or firefighters something
is not right. Remember property taxes are what pay for school systems
in most areas and I know it did at one time in California. I believe
if you link the money to the student while giving them the choice to
choose which school they go to education would improve. It's Economics
101 competition breeds excellence in most areas of the economy. But
the teachers unions with the lunatic fringe do not want this to happen
because it would highlight their inadequacies.

Posted by: Crooks_In_DC | February 25, 2010 4:19 PM

http://www.swamppolitics.com/news/politics/blog/2010/02/tea_party_folds_when_economy_r.html

[chhotemianinshallah]

Bloomberg

Corn Rises as Dollar Slide May Boost Demand for U.S. Supplies
February 26, 2010, 7:18 AM EST

(Bloomberg) -- Corn rose in Chicago on speculation that a weaker
dollar will boost demand for crops from the U.S., the biggest exporter
of the grain, and on concern that spring floods will delay planting in
the country.

The U.S. Dollar Index, a six-currency gauge of the greenback’s
strength, fell for a third day as a struggling labor market clouded
the outlook for the economic recovery. The U.S. economy requires low
interest rates to encourage demand, Federal Reserve Chairman Ben S.
Bernanke said.

“The commodities market is closely responding to the dollar because
little fundamental news has changed elsewhere,” Chen Baomin, analyst
at Jilin Grain Group Co., said by phone from Dalian. As the dollar
weakens, demand for grains and other commodities climbs, he said.

Corn futures for May delivery gained 1.2 percent to $3.8775 a bushel
in electronic trading on the Chicago Board Trade at 1 p.m. Paris time.

Snow persists in Iowa, the top corn-growing state, and soils are
frozen though a deep layer, agricultural meteorologist Gail Martell
said in a report on her Web site yesterday. Once the snow melts,
“weeks of warmth and sunshine” will be needed for fields to warm up,
she said.

Soybean Acreage

“The inevitable spring rains and the snow melt may work against corn
acreage and work toward soybean acreage, for soybeans can be planted
several weeks later than corn,” said economist Dennis Gartman, editor
of the daily Gartman Letter.

Soybean futures for May delivery rose 0.2 percent to $9.52 a bushel.
The oilseed has dropped this year as countries including China, the
biggest buyer, switched to buying a record harvest in Brazil and
Argentina, the largest exporters behind the U.S.

Wheat for May delivery advanced 0.5 percent to $5.0625 a bushel.
Milling wheat for delivery in May traded on NYSE Liffe in Paris fell
0.4 percent to 124.75 euros ($169.55) a metric ton.

European Union soft-wheat export licenses dropped 44 percent in the
seven days through Feb. 23 to 319,000 tons, down from 568,000 tons in
the previous week and below the average weekly sales for the year that
started July 1.

--With assistance from Rudy Ruitenberg in Paris and Jae Hur in Tokyo.
Editor: Ravil Shirodkar

To contact the editors responsible for this story: James Poole at
jpo...@bloomberg.net

Dispatch from Copenhagen: Secretary Locke Worries That U.S. Companies
Could Fall Behind
Posted by: John Carey on December 11, 2009

If the climate talks now going on in Copenhagen lead to binding limits
on greenhouse gas emissions, the resulting transformation to a greener
energy system will be good for business, argues Gary Locke, Secretary
of the U.S. Commerce Department. “If we take serious action, we will
be laying the foundation for future prosperity,” he says. “It could
spur one of the greatest economic opportunities of the 21st century.”
GE, for instance, is looking to sell everything from wind turbines and
energy efficient locomotives to technology for making the electricity
grid smarter and more efficient.

Locke is leading a delegation of U.S. companies, including GE, in
Copenhagen, hoping to ensure that American business snares a big share
of those opportunities. But he worries that the U.S. in danger of
falling behind. American researchers invented solar panels, but now
the leading manufacturer of solar panels is China. “Three years from
now, we will wake up and ask how Brazil or Singapore, or others became
the Silicon Valley of green energy,” Locke frets.

The problem? U.S. companies are hampered by the lack of a clear energy
and climate policy at home, Locke says. Countries like Germany and
Spain have nurtured strong home-grown renewable industries through
such policies as feed-in tariffs, in which utilities must pay a
premium for electricity from renewable sources. Meanwhile, China has
invested heavily in technologies like solar and wind. In the U.S.,
companies are still waiting for similar incentives, such as a national
policy requiring a certain percentage of renewable power, or limits on
carbon that raise the price of using fossil fuels and make renewables
and energy efficiency steps more cost competitive. “I’ve heard from so
many companies and investors that they are sitting on the sidelines
until the rules are clear,” says Locke. “The longer we wait the
further other countries will move ahead. That’s why it’s so important
for Congress to pass energy legislation as quickly as possible.”

About

BusinessWeek correspondents John Carey and Mark Scott, cover the green
scene, keeping on top of the business aspects of energy, the
environment and climate change, as well as the technologies, policies,
markets and people that are shaping how the earth's resources will be
used in the century ahead.

http://www.businessweek.com/investing/green_business/archives/2009/12/dispatch_from_c.html

Future of Tech February 25, 2010, 5:00PM EST text size: TT

And Google Begat...

The search giant's former employees are seeding tech startups—and
shaping another wave of innovation

Infographic by Ronald Plyman

By Spencer E. Ante and Kimberly Weisul

This Issue
March 8, 2010

Hold For Mr. Buffett Please

During the holidays last year, Aydin Senkut and Elad Gil gathered 50
of their friends at a health-food restaurant in Palo Alto. Over turkey
burgers and tofu wraps, they talked about tech trends and how to get
rich. Or, more precisely, how to get richer.

Senkut, Gil, and their dining circle are alumni of Google (GOOG), one
of the greatest engines of wealth creation the U.S. has ever known.
Since going public six years ago, Google has generated more than $170
billion for its employees and investors. Many of the millionaires the
company has produced are young, wired into the latest developments in
tech, and at ease with risk. Which explains why so many Google alums—
including many of those at Senkut and Gil's gatherings—are active
angel investors, attempting to add another zero to their bank accounts
and another innovative company to their list of accomplishments. "I
feel like we have such a strong network, it's almost like we've
recreated Google outside of the Google walls," says Andrea Zurek, a 39-
year-old backer of 26 startups.

More than 40 ex-Googlers have invested in about 200 fledgling
companies since 2005, according to the research firm YouNoodle and
reporting by Bloomberg BusinessWeek. At least a half dozen current
Google executives, including CEO Eric Schmidt and co-founders Larry
Page and Sergey Brin, are also financing young companies. Numerous
angel-watchers say the Google group has more in common than just
pedigree. Unlike many venture capitalists, the Googlers like to swap
investment ideas and back startups together. They're also willing to
take big chances. "[They're getting into] very risky deals that can be
extremely rewarding," says Jeff Clavier, a veteran venture capitalist
who founded Palo Alto-based SoftTech VC in 2004. "They have been very
active as a group over the past two to three years."

MORE THAN MONEY

The results have been impressive. Companies backed by Googlers include
Twitter, Tesla Motors, and gamemaker Tapulous. "As Google matures, its
alums are continuing to have a huge impact on Silicon Valley and the
tech industry," says Ron Conway, one of the Valley's most active angel
investors, who has backed 190 companies, including Google, Facebook,
and Twitter.

One reason for their success is that Google's angels have more to
offer struggling entrepreneurs than just money. Bart Decrem, a
Stanford University law grad, turned to the Google network when he was
starting Tapulous in 2008. The company's Tap Tap Revenge game requires
players to tap on-screen balls to the beat of a song—not exactly a
sure thing of an idea. But Decrem thought the game might become a
substantial business by selling it on Apple's (AAPL) iPhone. He raised
$500,000 from a dozen angels, including Senkut and Zurek, who advised
on strategy, connected the company with new partners in Asia, and
helped it explore platforms for mobile phones that use Google's
Android software. Today, Tap Tap games have been downloaded more than
25 million times and Tapulous is solidly profitable, with $1 million
in revenues a month.

Google's Angels dabble in a wide variety of businesses. Zurek has
money in a premium vodka maker and a South Korean frozen yogurt
emporium. Yet the angels tend to concentrate their cash in what they
know—search technology, mobile computing, and the consumer Internet.
Already, Twitter, backed by former Google executive Chris Sacca, is
the hottest startup in Silicon Valley, pioneering a new field of real-
time communications. The online personal finance service Mint.com,
with money from Senkut, proved so popular that market leader Intuit
(INTU) bought it for $170 million last year and made founder Aaron
Patzer one of its top execs. Search provider Powerset, backed by
Senkut, was acquired by Microsoft (MSFT) in 2008, and its technology
became a key part of the Bing search engine.

Future of Tech February 25, 2010, 5:00PM EST

And Google Begat...

This Issue
March 8, 2010

Hold For Mr. Buffett Please

SERIOUS SCHMOOZING
The most active Google angel thus far is Senkut, a 40-year-old native
of Turkey who has invested between $25,000 and $150,000 in more than
60 startups. Senkut joined Google in 1999 as its 63rd employee. He
left in 2005 and promptly took his mother to Paris for her 60th
birthday, purchased two multimillion-dollar homes in the Bay Area, and
treated himself to a Lamborghini.

With that out of his system, he set about becoming a full-time angel.
Senkut is often the first investor behind an idea, and to date 11 of
the startups he helped fund have been bought by companies including
Google, AT&T (T), and Microsoft. Senkut also fosters the investment of
others by organizing two regular events for alums, one for angels and
entrepreneurs, and another for all ex-employees, at spots such as the
Calafia Café in Palo Alto, owned by Google's first in-house chef.
Senkut is raising money for his firm, Felicis Ventures, according to
two angel investors, and could not comment on his investments for this
story. (Securities laws prevent the public solicitation of funds.) In
an interview last October, though, before four of his companies were
sold, Senkut said his investments had produced double-digit annualized
returns and that, at the time, he was being pitched new business ideas
several times a day.

If Senkut is the established star among the Google angels, Chris Sacca
is the up-and-comer. The 34-year-old Georgetown University law grad
joined Google in 2003 and left in 2007. Of the 31 startups he's
backed, his biggest hit is Twitter, in which he invested $50,000 just
as it was getting started in 2007.

Working out of a 3,000-square-foot home in Truckee, Calif., a small
ski town near Lake Tahoe, Sacca hikes and snowshoes most mornings
before breakfast and commutes to San Francisco for three days every
two weeks. It's an unconventional way to supervise investments, but
Sacca has an unconventional approach to investing, period.

One Friday night in December 2008, he posted a message on Twitter
asking if any startups were working late. "We tweeted back, 'we're
FanBridge and we work hard every Friday night,'" says Spencer
Richardson, its 25-year-old co-founder. FanBridge makes software that
helps musicians manage marketing and relationships with their fans. A
few weeks later, Sacca flew to New York and met with the company's
founders. "They had day jobs and built this site that had 20 million
users, adding 100,000 users a day," says Sacca. "It was a no-
brainer."

Over the next few months, Sacca invested $50,000 and pulled in several
hundred thousand dollars from other angels. Last year, FanBridge's
founders considered offering their products to authors, comedians, and
other artists; Sacca advised them to stay focused on the music
industry. Today, FanBridge is profitable and used by 55 million music
fans. "The feedback from him was, 'start by being the best at
something, then branch out,'" says Richardson.

The Google Angels may have several more breakout companies developing
in their portfolios. Sacca has invested in Lookout, a promising
developer of security software for mobile phones. Several ex-Googlers
and current Vice-President Marissa Mayer are behind Square, which aims
to displace credit-card swiping machines with a cheaper payment system
that works through smartphones. And current Google exec Joshua
Schachter helped finance Foursquare, a mobile phone service that lets
friends share tips on local hotspots and is being used more than a
million times a week. "What drives us is the innovation, the
excitement of working with people we like," says Zurek.

Paul Graham, who co-founded the startup incubator Y Combinator,
believes the tech industry has just begun to appreciate that Google's
wealthy ex-employees may have not just a single innovative second act,
but potentially hundreds of them. "When people write the history of
Silicon Valley 20 years from now," says Graham, "the true impact of
Google could come more from all the things that Google people go on to
do after they leave Google."

Who are the top angel investors? To find out, go to www.businessweek.com/go/10/angels

Ante is an associate editor for BusinessWeek. Kimberly Weisul is
editor of BusinessWeek SmallBiz .

Cover Story February 25, 2010, 5:00PM EST

When CEOs Have Warren Buffett in Their Boardroom

What's it like to have America's greatest investor as your
shareholder? Buffett's biographer talks to CEOs who know By Alice
Schroeder

March 8, 2010

Hold For Mr. Buffett Please

Who wouldn't love to pick up the phone and ask Warren Buffett for
advice? People have spent more than $1 million just to have lunch with
the man. He was voted the most admired corporate director in America
by Directorship magazine in 2008. Chief executives of companies he has
a stake in laud his patience, foresight, and ability to capture the
essence of a complex financial situation in just a few words. They
also like the fact that he usually leaves them alone as long as
they're getting the job done.

Sometimes Buffett emerges from behind his desk and shows a side of
himself that's far less familiar. When he sees something he doesn't
like in a company whose shares he owns, the famously passive investor
can swing into action to protect his investment—jawboning behind the
scenes, scolding, cutting opportunistic deals, even hiring and firing
CEOs. For some of those on the receiving end of his activism, it can
feel a bit like being attacked by Santa Claus.

Buffett's virtues and philosophy are well known, and at 79, his
ability to spread them throughout the business world has never been
greater. In mid-February, his holding company, Berkshire Hathaway,
(BRK.A) was listed for the first time on the Standard & Poor's 500-
stock index, and the stock price and volume jumped as investors rushed
in. His annual letter to shareholders, to be released on Feb. 27, is
always one of the most parsed memos of the year. Berkshire's purchase
of Burlington Northern (BNI) in November 2009—a self-described all-in
bet on America—and its $5 billion stake in Goldman Sachs (GS) make
Buffett a major stakeholder in the global economic recovery, with
tentacles that span from coal to collateralized debt obligations. And
his now infamous dressing down of Kraft (KFT) CEO Irene Rosenfeld over
Kraft's purchase of Cadbury (CBY) proved that behind that Cherry Coke
smile, there's still plenty of bite.

In speaking with CEOS for this story, and in writing the 2008
biography The Snowball with Buffett's cooperation, I learned a great
deal about the way he manages the people he counts on to make money
for him and his shareholders. He is, in many cases, just as genial and
supportive as his persona would lead you to believe. "First my mother
and then I have been able to call and ask his advice on matters
affecting the company, large and small," says Donald E. Graham, CEO of
Washington Post Co (WPO). "His advice has been worth billions to our
not-so-large company."

During the credit crunch of March 2008, American Express (AXP) CEO
Kenneth I. Chenault had to ask for help from Buffett at a moment when
Berkshire's stake in American Express had lost $8 billion because of
credit losses and concerns the company could not borrow to fund its
operations. One might think Chenault had reason to fear the call.
Instead, he knew Buffett, whose company owns 13% of American Express,
would be his "confidence booster." Even in the highly charged
atmosphere of a financial meltdown, his style is unwavering
—"objective, direct, and he knows what he believes," Chenault says.
The CEO felt fortunate that Buffett was indifferent to the market
pressure on American Express.

At the time, Chenault faced intense pressure to cut the company's
payout to investors, as his peers had done. Buffett "understood the
reputational reasons why American Express should not cut the
dividend," he says, and backed the decision to maintain it. Since the
crisis, Berkshire's investment has recovered $4 billion of its value.

When other CEO friends got into trouble during the downturn, Buffett
offered them more than advice. William C. Foote, head of wallboard and
gypsum product maker USG (USG), first met the investor before
Berkshire backstopped a USG stock offering in 2006, buying a 17% stake
in the company. Foote tried to impress his new shareholder by reciting
housing statistics from the 1960s to the 1980s—and was shocked when
Buffett immediately responded with data from the 1940s and 1950s.

Although USG was struggling through bankruptcy, Buffett treated Foote
with the benevolent neglect he generally displays toward managers
whose companies are cruising. Foote would call occasionally and
traveled to Omaha two or three times a year, spending a couple of
hours chatting in Buffett's office before eating a steak at one of his
favorite restaurants. He "doesn't offer suggestions as much as answer
questions and provide perspective," Foote said.

The USG chief found the advice valuable and enjoyed the feeling that
Buffett had enough confidence in him not to meddle. Then the housing
market imploded and demand for wallboard collapsed. Buffett leaped
into the fray in a way that benefited both Berkshire and USG.
Berkshire took $300 million of a $400 million issuance of 10% notes
convertible until 2018 at Berkshire's discretion into stock at $11.40
per share. (USG was trading at around $5.66 before the deal and is now
at about $13.40, meaning the conversion feature is in the money). The
equity sweetener effectively raised the cost of the notes, while
limiting the impact on USG's income statement to its $30 million
annual cash interest tithe to Berkshire, helpful at a time when USG is
losing hundreds of millions of dollars a year.

When Buffett is unhappy with a CEO, you can tell mostly from what he
doesn't say. "He criticizes by omission and faint praise," says former
Wells Fargo (WFC) Chairman Richard M. "Dick" Kovacevich, a longtime
friend and world-class manager whom Buffett has compared to Wal-Mart
(WMT) founder Sam Walton. "If you are a close observer of him, it's
not hard to figure out."

To be publicly criticized by Buffett, even subtly, might send a shiver
through any executive who does business with him. It happened to Irene
Rosenfeld on Jan. 21, after Kraft agreed to buy the iconic British
candy company Cadbury for $13.17 a share. Berkshire is Kraft's biggest
shareholder, with a 9.4% stake. Buffett had opposed an earlier version
of the deal but said if Kraft put up more cash in a revised deal that
didn't "destroy value," he would approve.

Kraft's share price rose because the remarks seemed to indicate that a
modestly higher bid could meet his terms as long as it contained less
stock. When Rosenfeld carried out a version of the plan, agreeing to
pay $7.74 in cash and offer 0.1874 new Kraft shares for each share of
Cadbury, investors assumed the two had worked out a deal. On the day
it was announced, William Ackman of hedge fund Pershing Square Capital
Management appeared on CNBC and predicted the investor would support
it.

Instead, minutes later, Buffett turned up on CNBC and called
Rosenfeld's agreement with Cadbury a "bad deal" for Kraft shareholders
and a "big mistake." His televised griping stunned observers because
it was so uncharacteristic. "You would think he would have been happy—
she did what he wanted," says a major shareholder who asked not to be
named because he values his relationship with both CEOs. "He reversed
himself."

Buffett made it clear he thought the revised bid "destroys value." He
seemed especially irate that Kraft had sold its profitable frozen
pizza business to Nestlé (NSRGY) to raise cash for the Cadbury
acquisition (and take its rival out of the bidding for the
confectioner). He described the sale price of the pizza business as a
cheap nine times earnings (a good deal for a unit that reported
significant margin and sales growth during the recession). To avoid a
$1 billion tax bill, he argued that Rosenfeld should have spun the
unit off tax-free instead. Buffett also seemed to covet the business
himself, saying, "I wish I would have bought the pizza business at
nine times pretax earnings."

Kraft Senior Vice-President Perry Yeatman says the company respects
Buffett and expects him to see the wisdom of the deal someday. Other
defenders of Rosenfeld say Buffett's TV appearance was mainly to
distance himself from the deal because he didn't get his way. Asked
twice by CNBC whether he would sell his Kraft stock, he ducked the
question.

Buffett, who did not respond to questions for this article, denied
there is a personal rift between him and Rosenfeld; he told CNBC that
he likes Rosenfeld, considers her straightforward, and would even have
her as a trustee of his will. James M. Kilts, who ran Kraft when it
was part of Philip Morris and was CEO of Nabisco before serving as
chief of Gillette from 2001 to 2005, is a longtime friend of both.
Kilts had no comment on the supposed rift but noted that with Buffett,
"It's always business. It's never personal." Buffett's own summation,
too, was financial, and he expressed his disappointment in the
simplest terms. "I feel poorer," he said.

A FRIEND IN NEED

Buffett's vocal treatment of Kraft is poles apart from his handling of
most companies in which Berkshire invests. Usually he is warm,
helpful, and waits to be asked for his opinion. Despite receiving $600
million from the Troubled Asset Relief Program, M&T Bank (MTB),
another Berkshire investment, remained relatively stable during the
credit crisis. Instead of leaning heavily on Buffett, CEO Robert G.
Wilmers spent much of his time the past two years sitting in Buffalo
and scooping up other distressed banks. Buffett has always had kind
things to say about M&T, partly because Wilmers makes sound
acquisitions. He mostly talks with Buffett on the phone. "Eighty or
90% of the time it's on my nickel," he says. He thinks of the investor
as a "priceless" sounding board who gives superb advice. In one
memorable instance, Wilmers turned to him while being pressured by
regulators and investment bankers to participate in the first Chrysler
bailout in 1979. Buffett's pithy advice: "Those who won't fill your
pocket will fill your ears."

This is how Buffett has typically viewed investment bankers: as
useless, self-serving windbags, which is why he doesn't waste time
befriending them. His one early effort to profit from investing in
Wall Street came to tears when he put $700 million of Berkshire's
money into Salomon Brothers in 1987. Buffett was a passive board
member until he had to personally rescue Salomon after one of its
traders defrauded the government in treasury bond auctions and the
firm nearly failed. Then he waged a bitter fight over severance with
ousted Salomon boss John Gutfreund. Managing an investment bank that
was teetering on the brink of bankruptcy for nine months was a
miserable experience. Buffett later said an important lesson from
Salomon was that he had mistakenly trusted the bank's management.

Given that history, investors were shocked when Buffett poured $5
billion of Berkshire's money into Goldman during the depths of the
financial crisis. Goldman is the one firm that Buffett has traded with
throughout his career, ever since Goldman banker Byron Trott, who has
since left the firm, won his trust around 2002 by finding companies
for Berkshire to buy.

As a 10-year-old in 1940, Buffett once told me, he met Goldman senior
partner Sidney J. Weinberg during a tour of the New York Stock
Exchange (NYX). ("What stock do you like, Warren?" Weinberg asked
him.) Until the financial crisis, though, Buffett had never shaken
hands with Goldman CEO Lloyd C. Blankfein. Days after the collapse of
Lehman Brothers, when it appeared that all major U.S. banks could
fail, it was Trott who approached the investor on Goldman's behalf
with a deal richer than that offered by any other company. Berkshire
paid $5 billion for 10% perpetual preferred shares of Goldman with
attached warrants at $115 at a time when the stock was trading at $125
per share, meaning the warrants were already "in the money." If
Berkshire had exercised them immediately, it would have netted $10 per
share. Buffett's reputation helped Goldman raise another $5 billion of
capital, twice as much as it originally sought.

A few days after, Buffett and Blankfein met for the first time and
shared a jovial moment at a conference. Buffett later took steps to
protect his investment, first by using his personal capital as
America's most trusted investor to publicly defend the federal bailout
of Wall Street, then—after Goldman fueled public anger by setting
aside billions for employee bonuses—by teaming with its management to
put up $500 million to assist small businesses.

Buffett, an outspoken critic of CEO greed, pays himself $100,000 a
year. He has nearly all the managers of Berkshire's wholly owned
businesses set their own pay, and in light of his tiny compensation,
they usually err on the low side, too. When it comes to the companies
in which Berkshire invests, though, he takes a broader view. Wells
Fargo's Kovacevich reaped tens of million from stock options but
opposed reporting them as company expenses. Buffett was a vocal
advocate of expensing them, but that didn't hurt their relationship in
the least.

On the same day that Buffett pummeled Rosenfeld on CNBC, he praised
Blankfein to Bloomberg News. "I don't think anybody could have done a
better job at Goldman Sachs than Lloyd Blankfein," he said. "I give
him enormous credit for how he's run Goldman. You've got to expect
vilification of banks." Rosenfeld made Buffett feel poorer. Blankfein
is making him noticeably richer.

THE ULTIMATE COMPLIMENT

Buffett is fascinated with executives who display unusual mastery at
operating a profitable business. He appreciates the nuances of the
craft the way an art patron enjoys watching a sculptor at work. Wells
Fargo's Kovacevich is one of his favorite CEO artisans, yet Kovacevich
calls Buffett "more hands-off than any investor." He says the two have
had, at most, 20 conversations in 10 years, even though the bank is
one of Berkshire's most important investments. Kovacevich was CEO of
Norwest bank when it acquired Wells Fargo in 1998, and at the time
Buffett insisted that Kovacevich not tell him anything that would make
him an insider, because that would preclude Berkshire from buying or
selling the stock.

When Buffett met Jim Kilts in 2001, he told Fortune that Kilts—who had
turned around Nabisco—"made as much sense in terms of talking about
business in general as anybody I've ever talked to." Kilts came out of
retirement that year to rescue Gillette, doing so partly because he
wanted to work with Buffett, since Berkshire owned 9% of the company.
The Omaha investor's fondness for him grew rapidly as Gillette's
performance rebounded.

At the time, Gillette was suffering from the multibillion-dollar
blunder of overpaying for battery maker Duracell. It had also promised
investors unrealistic 15% to 20% annual earnings growth, and was
channel-stuffing product to its distributors to meet projections. To
Buffett's applause, Kilts dropped the practice of issuing earnings
guidance entirely. He cut thousands of jobs, closed plants, paid off
debt, and shifted resources into new products and advertising.

Even so, Kilts says he tried not to bother Buffett. "It would be so
easy to misuse the fact that he was available," Kilts says, "because
he would be obligated to talk to me if I picked up the phone."
Buffett, he says, was a quiescent board member, but when he did speak
"he had such power and weight and clarity that it was memorable." At
one board meeting, Kilts proposed increasing directors' pay. Two other
directors spoke passionately against the move. Buffett quickly shut
down the discussion while saving face for the dissenters by saying,
"Well, I'll just take your increase, then."

After the Gillette turnaround, Buffett paid what Kilts considered the
ultimate compliment by withdrawing entirely; he resigned from the
board. "If you've got the right person running the business," he said
at the time, "you don't need me."

WHEN WARREN STANDS BACK

Few companies need Buffett more than Moody's (MCO), the troubled
credit-rating agency. Moody's and its peers have been blamed as
enablers of the financial crisis because they inflated the credit
ratings of dubious mortgage-backed securities. In March 2009,
Berkshire owned more than 20% of Moody's. Why, several former ratings
analysts ask, didn't the investor light a fire under the board to
tighten the company's standards, or speak out? Surely he was as
obliged to denounce flawed ratings that endangered the global
financial system as he was to offer an opinion of how much Kraft paid
for Cadbury.

A former Moody's employee with intimate knowledge of the executive
suite there describes Buffett as "not a very engaged investor." (Like
most Moody's sources, he asked not to be identified in light of
ongoing investigations into the company.) Another insider confirms
that senior management of Moody's, including CEO Raymond W. McDaniel
Jr., "doesn't have regular conversations with" Buffett nor does it
"seek advice from him on corporate governance or business strategy."
Moody's declined to comment.

Moody's and Buffett had reason to keep their distance; it's a conflict
of interest for the agency to rate a major investor such as Berkshire.
Analysts who review a company are supposed to be free of thoughts of
what a downgrade might mean to their personal net worth. Moody's
discloses the Berkshire conflict in a Securities & Exchange Commission
filing.

Even so, one former Moody's analyst describes e-mailing Buffett in
2007 to warn that rating securitized products was a ticking time bomb,
and to ask whether he wanted more information. His e-mailed response,
says this analyst, said he was a passive investor with a hands-off
approach to Moody's. Buffett didn't respond to requests for comment
about the e-mail.

It is impossible to quantify the cost of Buffett's disengagement from
the rating agency under these unusual circumstances. Moody's stock has
since declined more than 50% and investors in asset-backed securities
have lost billions. The agency downgraded Berkshire's top AAA rating
by one notch in April 2009; Buffett began to sell in July 2009 and has
since disposed of about one-third of Berkshire's holdings.

FORCING AN OUSTER

If Moody's is an illustration of what it means to have Buffett's money
but not his engagement, Coca-Cola (KO) is a portrait of the investor
exploring virtually every kind of relationship with management. For
years, Buffett admired Coca-Cola's revered CEO, Roberto Goizueta, and
never meddled; Goizueta did not want advice. When the beverage giant
began to falter after Goizueta's unexpected death from cancer in 1997,
Buffett helped force the early departure in 1998 of Goizueta's
successor, M. Douglas Ivester. That year, Coca-Cola stock was at a
peak and Berkshire's stake was worth $17 billion. For the next few
years, the company meandered further off course, and as it did,
Buffett became increasingly involved in trying to set things right. In
2000, Ivester's successor, Douglas N. Daft, proposed buying Quaker
Oats for its Gatorade brand. Buffett quashed the idea at a special
board meeting, using a trademark one-liner: "We would have given up 2
billion cases a year of Coca-Cola to get something like 400 million
cases a year of Gatorade." PepsiCo (PEP) subsequently bought Quaker
Oats in a deal that is widely regarded as successful, and the wisdom
of Coca-Cola in passing up the opportunity has been debated far and
wide. What is not debated is Buffett's influence.

Buffett became deeply disturbed by Coca-Cola's chaotic culture and
poor earnings, but few people knew how upset he was because he said
little in public. Daft retired in February 2003, citing health
reasons. Buffett became directly involved in the CEO search. He tried
to charm Kilts into taking the job. When Kilts said no, he tried to
recruit former General Electric (GE) CEO Jack Welch. Eventually,
Buffett signed off on bringing former Coca-Cola executive E. Neville
Isdell out of retirement to stabilize the company. When Isdell
retired, he was succeeded by Muhtar Kent, who has offset declines in
domestic sales with growth in emerging markets. As Coke's fortunes
improved, Buffett's relationship with its CEOs grew more cordial. He
withdrew from his activist role, resigning from the board in 2006.
Berkshire still owns 200 million shares and 8.6% of Coca-Cola, a stake
now worth $11 billion.

BETTING ON A "CHOO-CHOO"

In April 2008, Buffett took a hamburger- and jellybean-fueled trip on
a vintage railcar from Kansas City, Mo., to Chicago with Matthew K.
Rose, CEO of Burlington Northern Santa Fe (BNI). They used the 430-
mile journey to talk over Rose's plans to move the railroad's recent
turnaround into high gear. Rose showed his guest Burlington's Chicago
intermodal freight yard, which handles containers that move among
ships, trains, and trucks without being unloaded. Buffett eventually
increased Berkshire's ownership of Burlington to 22%.

In 2009, Rose agreed to sell the rest of the railroad to Berkshire for
$26 billion, giving Buffett what he calls his "choo-choo." Buffett
described this as an "all-in wager on the economic future of the U.S."
He's betting that rail traffic will grow, and imports from Asia will
continue to dominate as the economy mends. Burlington is the nation's
biggest coal hauler—coal transport represents more than a fifth of its
revenues—so he's assuming the world will keep using coal even if the
U.S. switches to cleaner energy sources. Lastly, Burlington could be a
big winner if railroad rights-of-way become power corridors to conduct
energy from wind farms.

Buffett always likes a sweetener, and Burlington gives him one in the
form of information. He learns about wallboard demand from USG and
consumer-credit trends from American Express, but Rose has called the
railroad a kaleidoscope of the economy. Rail traffic patterns are a
window on commodity, wholesale, consumer, and international trade
flows. Buffett is adding this kaleidoscope to what his other CEOs tell
him about the "reset of the consumer" to a lower level of spending.
They feed him data from Berkshire's portfolio of companies—sales of
building materials, jewelry, furniture, real estate, credit,
fractional jets, vacuum cleaners, fabricated steel, newspaper ad
lineage, and other products and services. He may now command as much
information about the state of the U.S. economy as anyone, including
the Federal Reserve—and probably gets his faster.

This should go a long way toward maintaining Rose's relationship with
his new boss. What else can he expect now that he works for Buffett?
He can call whenever he wants and get the best advice in corporate
America, and Buffett will put on events to boost his employees'
morale. In return, Rose, who declined comment, needs to make money for
Buffett. If he does, he will be celebrated at Berkshire's annual
meeting in Omaha—where Buffett sells all of his products to the 35,000
investors who come for the show—and cheered in Berkshire's shareholder
letter, Buffett's annual report card on his managers, in which he
praises loudly or faintly, or punishes with silence.

There is only one way for a company that's wholly owned by Berkshire
to make money for Buffett—by earning it. Berkshire can't offer high-
priced deals like USG's and Goldman's to its own businesses when
something goes wrong because the proceeds would come straight out of
its vault. So Rose's No. 1 job is to keep Burlington out of trouble.

Buffett is betting that Rose can do it. He bought Burlington partly
out of confidence in the executive. If all goes right, their dealings
will be long, friendly, and mutually profitable. As former Gillette
CEO Kilts says, "We had a warm, close, personal relationship, but at
the end of the day, I knew it was business."

For more about the unique way Warren Buffett interacts with CEOs of
companies he invests in, check out our Behind The Cover Story podcast
with Buffett biographer Alice Schroeder at http://www.businessweek.com/go/10/buffett

Schroeder is a reporter for Bloomberg News.

Comment

1 comments
Varun Arora

Feb 26, 2010 6:30 AM GMT
Excellent story, and yet another example of why professional media
cannot be swept aside by UGC / blogs. On a separate note, what would
be truly awesome is if Mr Buffett would decide to spend some time each
month with a collection of startups such as ourselves, helping shape
the "engines of tomorrow". What say, Mr Buffett? :-) - Varun Arora
Founder, HomeCamera www.homecamera.com

http://www.businessweek.com/magazine/content/10_10/b4169030631058.htm?chan=magazine+channel_top+stories

Cover Story February 25, 2010, 5:00PM EST

What I Learned from My Dad

When his youngest son decided to become a musician, Buffett offered
moral but not financial support By Peter Buffett

March 8, 2010

Hold For Mr. Buffett Please

One of my father's often-quoted tenets is that a parent, if he has the
means to do so, should give his children "enough to do anything, but
not enough to do nothing." A head start is fine; a free pass is often
a crippling disservice. When I turned 19, I received my inheritance—
proceeds from the sale of a farm, which my father converted into
Berkshire Hathaway (BRK.A) stock. At the time I received them, the
shares were worth roughly $90,000. It was understood that I should
expect nothing more.

So—what to do with the money? I was a student at Stanford University;
there were no strings attached. Fortunately, I'd had the advantage of
seeing my older siblings burn through most of their cash; I didn't
want to follow down that path. At the other extreme, I might have done
absolutely nothing with that stock—just left it in an account and
forgotten about it. If I'd picked that option, my shares would now be
worth around $72 million. But I didn't make that choice, and I don't
regret it for a second. People think I'm either lying or crazy when I
say this, but it happens to be true, because I used my nest egg to buy
something more valuable than money: I used it to buy time.

My inheritance came to me around the time I was finally committing to
the pursuit of a career in music. As a pragmatic Midwesterner with a
very limited nest egg, I knew that I would have to find a way to turn
my creative impulses into a livelihood. But how did one do that? How
would I find an audience, or clients, or a way to sell what I'd
written and produced? I didn't have a clue, but it was becoming clear
to me that I wasn't going to figure it out by staying in a
university.

I decided to leave Stanford and use my inheritance to buy the time it
would take to figure out if I could make a go of it in music.

With help from my father, I worked out a budget that would allow me to
conserve my capital as long as possible. I moved to San Francisco,
where I lived very frugally—small apartment, funky car. My sole
extravagance was in expanding my recording equipment. I played the
piano, wrote tunes, experimented with electronic sounds. Then I put a
classified ad in the San Francisco Chronicle, offering to record all
comers in my studio.

And I waited until a very important bit of good luck tracked me down
one day in 1981, as I stood at a San Francisco curbside washing my
crummy old car. A neighbor with whom I'd had nothing more than a
nodding acquaintance happened by and asked what I did for a living.
When I told him I was a struggling composer, he suggested I get in
touch with his son-in-law, an animator who was always in need of
music. I followed up, and the son-in-law did have work for me. He'd
been commissioned to create 10-second "intersticials"—quick ads meant
to flash a logo and establish a brand ID for a newly conceived cable
channel.

I took the work. And the cable channel more than launched; it rocketed
to the moon. It was called MTV. Soon many TV outlets wanted to look
and sound like MTV. I no longer had to take on unpaid work.

My inheritance was relatively modest, but it was more than most young
people receive to get a start in life. Having that money was a
privilege, a gift I had not earned. If I'd faced the necessity of
making a living from day one, I would not have been able to follow the
path I chose.

Would my father have helped me get started if I'd chosen a career on
Wall Street? I'm sure he would have. Would he have given me a job at
Berkshire Hathaway if I'd asked for one? I suppose so. But in either
of those cases, the onus would have been on me to demonstrate that I
felt a true vocation for those fields, rather than simply taking the
course of least resistance. My father would not have served as an
enabler of my taking the easy way out. That would not have been an
exercise of privilege, but of diminishment.

Adapted from Life Is What You Make It by Peter Buffett, © 2010 Peter
Buffett. Reprinted by permission of Harmony Books, an imprint of the
Crown Publishing Group.

http://www.businessweek.com/magazine/content/10_10/b4169030631058_page_4.htm

[chhotemianinshallah]

Simon Johnson
MIT Professor and co-author of 13 Bankers

Posted: February 25, 2010 09:47 AM BIO Become a Fan Get Email Alerts
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Should We Fear China?

This post is taken from testimony submitted to U.S.-China Economic &
Security Review Commission hearing on "US Debt to China: Implications
and Repercussions" -- Panel I: China's Lending Activities and the US
Debt, Thursday, February 25, 2010. (Caution: this is a long post,
around 1500 words; a summary of some key points will appear on the
NYT's Economix this morning.)

China is the largest holder of official foreign currency reserves in
the world, currently estimated to be worth around $2.4 trillion -- an
increase of nearly $500 billion in the course of 2009 (on the back of
a current account surplus of just under $300 billion, i.e., 5.8
percent of China's GDP, and a capital account surplus of around $100
billion). These reserves are accumulated through arguably the largest
ever sustained intervention in a foreign exchange market -- i.e.,
through The People's Bank of China buying dollars and selling
renminbi, and thus keeping the renminbi-dollar exchange rate more
depreciated than it would be otherwise.

China is also currently the second largest holder of US Treasury
Securities -- at the end of December 2009, it held $755.4 billion --
just behind Japan (which had $768.8 billion).

The US Treasury data almost certainly understate Chinese holdings of
our government debt because they do not reveal the ultimate country of
ownership when instruments are held through an intermediary in another
jurisdiction.

For example, UK holdings of US debt rose during 2009 from $130.9
billion to over $300 billion, despite the fact that the UK ran a
substantial current account deficit last year. A great deal of this
increase may be due to China placing off-shore dollars in London-based
banks (Chinese, UK, or even US), which then buy US securities. China
may also purchase US securities through other routes.

China is presumed by most observers to hold the majority of its
incremental reserve accumulation in US Treasuries -- this makes sense
given that the other potential reserve currencies (euro, yen, and
pound) all have serious issues - but according to the official US
data, Chinese holdings peaked at $801.5 billion in May 2009 and fell
by about $50 billion during the remainder of the year. A modest fall
in true Chinese Treasury holdings -- given slower reserve accumulation
in December and the likely desire to diversify -- is not completely
implausible. But there are no indications that China is moving out of
Treasuries in any large scale manner.

While the exact amount is not knowable based on publicly available
information, a reasonable working assumption would be that China owns
close to $1 trillion of US Treasury securities, i.e., perhaps half of
the stock of treasuries in the hands of "foreign official" owners,
which was $2.374 trillion (at the end of 2009, with the important
caveat that other governments may also hold Treasuries through
circuitous routes) and just under 1/7 of all US government securities
outstanding ($7.27 trillion, of which $3.614 trillion was held by all
foreign owners, official and private, at the end of 2009).

There is a perception that China's large dollar holdings confer upon
that country some economic or political power vis-à-vis the United
States and, in particular, that Chinese reserves prevent us from
putting pressure on that country's authorities to revalue (i.e.,
appreciate) the renminbi. This view is incorrect and completely
misunderstands the situation.

It is in the interests of both the United States and global economic
prosperity that China discontinues its massive intervention in the
market for renminbi. This intervention is a breach of China's
international commitments (as a member of the International Monetary
Fund) and constitutes a form of unfair trade practice.

If China were to end its intervention, the renminbi would appreciate
substantially - likely in the region of 20-40 percent. China would
also stop accumulating dollars (and other foreign assets).

The primary effect would therefore be an effective depreciation of the
US dollar against the Chinese renminbi -- and against all other
countries' currencies that are implicitly pegged to the renminbi (more
precisely, to the dollar rate with an eye on China's competitiveness).
On a trade-weighted basis -- and in real effective terms (despite the
fact that the currencies of our other major trading partners float
freely) -- the dollar would also likely fall in value.

Such a movement in the dollar would help expand our exports and
improve our ability to compete against imports; this would aid in the
process of recovery, job creation, and broader adjustment in the US
economy. Even a substantial movement in the dollar -- e.g., a 20
percent depreciation in real effective terms, which is most unlikely
-- would have no noticeable effect on inflation and therefore would
not force the Federal Reserve to increase interest rates. The "hard
landing" scenario for the dollar -- feared by analysts since the
traumatic experiences of the 1970s -- is unlikely for the US today,
given the low level of inflation expectations and the high "output
gap" (reflected in measured unemployment near 10 percent and true
unemployment of at least 15 percent).

The effect on short-term US interest rates would therefore likely be
minimal or nonexistent, particularly as the Federal Reserve currently
aims to keep rates close to zero. The effect on longer-term US
interest rates would also be small -- and could be offset by the
Federal Reserve, as it currently seeks to limit all benchmark interest
rates (most recently affirmed by Chairman Bernanke this week).

In fact, the current stance of monetary policy -- and the low, stable
level of inflation expectations in the United States -- makes this an
ideal moment at which to press China to revalue its currency.

In another potential scenario, there is concern that China would
threaten to reduce its purchases of US government securities without
allowing its currency to appreciate. But if China continues to
intervene to maintain its currency peg, it will accumulate foreign
reserves -- so they need to hold increasing amounts of foreign assets
of some kind. What else would the Chinese authorities buy?

If they buy other dollar denominated assets issued by US entities,
this would push down spreads on those assets relative to Treasuries.
This would directly help private US borrowers - thus stimulating
growth in the US.
If they directly buy dollar denominated assets issued by non-US
entities, this will still reduce spreads more broadly and help US
borrowers -- as there is a global market for dollar assets and there
is not much high grade non-US dollar debt available for sale.
If they buy dollar equities -- which is most unlikely -- this would
help the stock market, household balance sheets, and firms' access to
funding (as well as helping to shift our economy from debt to more
equity financing, which would a desirable move in any case.)
If they buy non-dollar assets, given that the Fed will keep interest
rates near to zero, this will push down the value of the US dollar and
help boost US growth. Such a move would produce protests from the
eurozone and Japan, but this change in currency value would be solely
China's responsibility.
If China stops buy foreign assets altogether, this would of course be
equivalent to ending foreign exchange intervention. This is exactly
the policy change that we should be seeking.

In addition, there are significant potential losses -- in terms of net
foreign assets -- for China if their authorities sell Treasuries or
otherwise undermine the value of the dollar (or intentionally roil
markets) with negative comments. A depreciation of the dollar directly
reduces the value of their foreign holdings and does not, under
current circumstances, pose any kind of threat to the US.

There is still an open question of how best to push China to revalue
the renminbi.

Bilateral negotiations, as championed for example by former Treasury
Secretary Paulson, have achieved essentially nothing since 2002. This
is not a promising way forward.
The International Monetary Fund (IMF) has proved itself incapable of
calling China to account. The IMF's much vaunted "Surveillance
Decision" is a failure and the general Fund mandate of "multilateral
surveillance" has (again) proved to be a paper tiger. Working with the
IMF on this issue is not worth any additional effort by the US
government.
China is obviously a currency manipulator and should be so labeled by
the US Treasury in its next report to Congress. China's threat to
react by selling Treasuries is - as explained above - at worst a bluff
and at best a way to help the US with a depreciation of the dollar.
This bluff should be called.
This, of course, raises the issue of what the US should do beyond
applying labels. Bilateral trade sanctions are never a good idea and
can easily get out of hand. Given the failure of the existing
multilateral mechanisms around the IMF, the US should take up this
issue at the level of the G20 - there are two summits of leaders this
year and plenty of support around the world for addressing China's
exchange rate.

The most plausible proposal is to expand the mandate of the World
Trade Organization - which should operate in this respect without the
involvement of the IMF - in assessing exchange manipulation on the
same basis as it deals with unfair trade practices (as proposed by
Mattoo and Subramanian). While full implementation for such a
rearrangement of responsibilities would take some years, concrete
moves in this direction would concentrate the minds of the Chinese
authorities in a potentially constructive manner.

-----

The remainder of this testimony deals with our broader economic
baseline. Exchanges with Joe Gagnon were most helpful in preparing all
this material.

Cross-posted from The Baseline Scenario.

http://baselinescenario.com/

http://www.huffingtonpost.com/simon-johnson/should-we-fear-china_b_476339.html

PRECIOUS-Gold ticks higher after 1 pct rise; eyes U.S. data
Fri Feb 26, 2010 2:02am EST

Stocks SPDR Gold Trust: SPDR Gold Shares
GLD$108.31+0.95+0.88%12:00am EST

* Gold ticks up as euro holds gains, awaits U.S. data * Oil bounces
higher, ETF holdings unchanged

(Adds quotes) By Lewa Pardomuan SINGAPORE, Feb 26 (Reuters) - Gold
ticked higher on Friday

as the euro extended gains against the dollar and oil prices
rebounded, but investors were cautious ahead of potentially
market-moving U.S. economic data. Gold regained the psychological
$1,100 level on Thursday on
bargain hunting and an unverified report that China would buy
IMF gold. But the author of the report later told Reuters she
did not have official sources for her story. [ID:nTOE61P03N] Gold XAU=
hit an intraday high of $1,109.75 an ounce and
was at $1,108.95 by 0631 GMT, up $4.25 from New York's notional
close on Thursday -- still below a 1-month high of around
$1,130 hit on Monday but about 6 percent above a 3-month low
struck in early February. "Gold has moved higher but only what you'd
expect with
movements in euro-dollar. I don't believe it makes sense for
China to make such a big public purchase of the remaining
gold," said David Barclay, commodity strategist at Standard
Chartered in Hong Kong. "You can see the impact when India bought,
prices went on
to rally substantially after that. China has added sensitivity
over the fact that it's got such large dollar holdings." Rough &
Polished, a Moscow-based industry website, reported
China had "confirmed its decision to acquire 191.3 tonnes of
gold auctioned by the International Monetary Fund". Contacted by
Reuters, the author of the article, Nadezhda
Shagrova, who works as a tour guide and journalist in Shanghai,
said she did not have any official information to back up her
story. "The source for the story? Well, that's been written about
in lots of places. I mean, Xinhua news agency wrote about that
and other official Chinese sources, lots of them. Why are you
asking?" The IMF has said it would soon begin sales of 191.3 tonnes
of gold to raise cash for lending programmes -- nearly four
months after India purchased 200 tonnes of gold. Traders have
speculated Asian central banks would be likely buyers.
[ID:nSGE61H00R] China, with about $1.6 trillion in reserves, is a
producer
of gold and unlikely to buy the IMF supplies, the official
China Daily reported on Wednesday. [ID:nTOE61N01L] The euro EUR= edged
up to $1.3594, although dealers said
sentiment on the single currency is negative because of debt
problems in the euro zone. [USD/] Investors turn their attention to
U.S. economic reports on
fourth-quarter gross domestic product, consumer sentiment for
February and existing home sales for January, which could set
the tone for the dollar. U.S. data of late has been on the softer
side. On Thursday,
it showed core durable goods unexpectedly fell in January,
while applications for jobless benefits rose again last week,
putting pressure on the dollar. [ID:nN2597849] Spot trading was muted
in Asia, with dealers discounting
talk about China's purchase of the IMF gold. "When you talk about the
Chinese, they will buy spot gold
at the lower end, although I don't really see any fixed
pattern," said a trader in Singapore, who deals with trading
houses and banks in China. "The euro has rebounded a bit, so that
could be the reason
why gold is up now. But even if price goes up, it's still not
out of the range yet," said the dealer, referring to $1,100 to
$1,130 an ounce. U.S. gold futures for April delivery GCJO barely
changed
at $1,108.9 an ounce, having settled 1 percent higher on
Thursday. The world's largest gold-backed exchange-traded fund, SPDR
Gold Trust (GLD), said its holdings stood at 1,106.987 tonnes
as of Feb. 25, unchanged from the previous business day.
[GOL/SPDR] Oil prices rebounded above $78 a barrel on Friday after
sliding more than 2 percent the day before, lifted by a weaker
dollar, but worries over the U.S. economy weighed on the
market. [O/R]
Precious metals prices at 0631 GMT
Metal Last Change Pct chg YTD pct chg
Turnover
Spot Gold 1108.95 4.25 +0.38 1.21
Spot Silver 16.18 0.14 +0.87 -3.86
Spot Platinum 1531.75 2.75 +0.18 4.41
Spot Palladium 424.25 4.25 +1.01 4.62
TOCOM Gold 3198.00 48.00 +1.52 -1.87
52705
TOCOM Platinum 4405.00 81.00 +1.87 0.55
15095
TOCOM Silver 47.20 1.10 +2.39 -8.70
765
TOCOM Palladium 1216.00 18.00 +1.50 4.38
124
Euro/Dollar 1.3586
Dollar/Yen 89.34
(Additional reporting by Tom Miles and Zhou Xin; Editing by
Himani Sarkar)

http://www.reuters.com/article/idUSSGE61P06920100226?type=goldMktRpt

Sino-American Economic Power: A Mexican Standoff
Posted by Jacob Stokes

Former IMF chief economist Simon Johnson over at Baseline Scenario has
an important post that squashes the notion, which has become
conventional wisdom, that China’s reserves of US debt take away
American leverage in US-China relations.

“There is a perception that China’s large dollar holdings confer upon
that country some economic or political power vis-à-vis the United
States and, in particular, that Chinese reserves prevent us from
putting pressure on that country’s authorities to revalue (i.e.,
appreciate) the renminbi. This view is incorrect and completely
misunderstands the situation.”
Johnson goes on to explain how the US-China debt relationship—much
pointed at as an example of waning US power—is a two-way street. In
other words, while America needs anxious buyers like China to purchase
its debt in order to do things like fund the war in Afghanistan, China
needs debt to buy. That’s because China must stock up on assets in
foreign currencies to keep its currency value low so that its export-
driven economy can thrive. This purposeful manipulation is of course
bad for the American economy, particularly the ailing US manufacturing
sector.

But what options or leverage do we have? America needs to the money.

Well yes, but China also has an export-driven economy that requires a
cheap currency to thrive. In other words, in order to maintain its low
currency value China needs us to issue debt as much as we need them to
buy it. Even if China decides to change its mind and invest somewhere
else, any option other than buying US debt, from purchasing US stock
to buying foreign currencies, would help stimulate the US economy in
other ways. Which would be a good thing. (Johnson explains this in
more detail.)

And if China decides to start plowing money into its domestic economy,
it will force China to push up the value of its currency or have its
economy overheat. This will make American exports relatively cheaper
and more competitive. Johnson says in fact that this is the policy we
should be aiming for.

The bottom line on this rather wonky subject is that the Sino-American
relationship is not one where China is holding a debt gun to America’s
head, forcing an emasculated America to do China’s bidding. It’s more
like a Mexican standoff: only by slowing lowering our guns—or, in this
case, rebalancing our trade and monetary postures—can we both resolve
the situation in a way that benefits both parties.

In order to do this, America should do all it can to put pressure on
China to slowly but steadily let its currency appreciate so that
American exports can be more competitive. It should also reduce it
foreign currency reserves and push its citizens to consume more. The
renewed vigor in the US economy created by this rebalancing would help
erase the need to sell our debt in the first place—making a measured,
incremental rebalancing good for everyone.

February 25, 2010 at 05:59 PM | Permalink

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Will China Dump U.S. Debt?
Posted by Michael Schuman Friday, February 26, 2010 at 12:34 am

One of the big worries Americans have about China's rising economic
power concerns its immense holdings of U.S. government debt. The fear
is that Chinese actions regarding these holdings could end up
destabilizing the U.S. economy, or that they could be used as a
political tool to influence American policy. If China, let's say, got
angry at Washington over its support for Taiwan or the Dalai Lama,
Beijing could retaliate by dumping U.S. Treasury bills. Or perhaps
China would sell Treasuries as part of a no-confidence vote on the
future of the U.S. economy. By selling American debt, China would
weaken the value of the dollar, damage investor sentiment towards the
U.S. economy and make it harder for Washington to finance its giant
budget deficits.

Very scary stuff indeed. But how realistic is such a scenario? Will
China ever really dump U.S. debt? That's the ultimate question. It's
especially relevant to ask right now since Chinese purchases of U.S.
government debt have been tapering off. In December, China was
actually a net seller of U.S. Treasuries, reducing its holdings by $34
billion to a total of $755 billion. That decline dropped China to
second place on the list of the largest foreign owners of U.S.
sovereign debt. (Japan reclaimed the No.1 spot.)

What does that sell-off mean? No one really knows. The problem with
analyzing Chinese attitudes towards its dollar holdings is that the
necessary data isn't available. The government doesn't break down the
country's reserves by type of currency. That leaves us guessing about
what Beijing might be up to. China could simply be making a
financially sound decision to shift out of low-yielding U.S.
Treasuries into some other dollar-denominated investments with a
better return. If that's the case, the impact on the U.S dollar would
be nil. Or China could be diversifying into other currencies, perhaps
in a very minor way. Jing Ulrich, chairman of China equities &
commodities at JPMorgan in Hong Kong, speculated in a recent report
that:

China could be more actively diversifying its currency reserves away
from U.S. Treasuries, and we expect the country might be marginally
shifting some exposure to other currencies.

The conventional wisdom is that China would never just dump U.S.
Treasury bills since it would end up boomeranging right back on
Beijing. By selling off U.S. debt, China would depress the value of
its own national wealth and undermine its most important trading
partner. But Eswar Prasad, a very smart economist at Cornell
University and a senior fellow at the Brookings Institution, submitted
some very interesting testimony to the U.S.-China Economic and
Security Review Commission on Feb. 25 regarding the implications of
China's U.S. debt holdings. You can read his entire statement here,
but here are a few crucial takeaways. Prasad believes a Chinese threat
to dump Treasuries carries some weight, since the costs of doing so
aren't as large as many analysts believe. Here's what he says:

Many analysts argue that any threat by China to shift a large portion
of its reserves out of U.S. government paper is just bluster as such a
move would impose huge costs on China itself. But these costs tend to
get overstated in popular discussions of the matter…Any Chinese threat
to move aggressively out of Treasuries is a reasonably credible threat
as the short-term costs to the Chinese of such an action are not
likely to be large.

Prasad also addresses the key question: How important is China to U.S.
deficit financing anyway? China's share of total outstanding U.S.
government debt (held by the public) is now at 10%, he notes. Even if
you estimate, as some analysts do, that China's holdings might be
higher than the reported U.S. data suggests, Prasad says China has “a
significant but not overwhelming share.”

Still, that doesn't mean China's decisions regarding its U.S. debt
purchases wouldn't have a meaningful impact. Prasad says:

But can China make a big difference to U.S. interest rates given that
its share of the financing of the U.S. budget deficit has fallen over
time? The answer lies not in the absolute amounts of financing that
China brings to the table, but in how its actions could serve as a
trigger around which nervous market sentiments could coalesce. Given
that there are no clear prospects of reining in exploding deficits and
debt in the U.S., especially if one factors in rising health care and
entitlement costs, changes in availability of deficit financing at the
margin can have potentially large consequences.

But Prasad also adds a word of caution, noting that there are real
financial constraints on China that limit its flexibility on U.S. debt
purchases:

The reality is that, so long as China continues to accumulate reserves
at a pace of around $400 billion a year, there are few relatively safe
investments other than U.S. government bond markets that are deep and
liquid enough to absorb a significant portion of such massive inflows.

My own view is that China would lose more than it would gain by any
dramatic shift out of U.S. Treasuries. At least at this moment. But as
China continues to strive for ways to diversify its currency reserves
and investment holdings, combined with its (slow-moving) efforts to
internationalize its own currency (the yuan), the risk that would come
with a decision to dump Treasuries looks likely to decrease over time.

http://curiouscapitalist.blogs.time.com/2010/02/26/will-china-dump-u-s-debt/

The Curious Capitalist Favorite Links

Adam Lashinsky http://features.blogs.fortune.cnn.com/category/go-west/
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Brad DeLong http://delong.typepad.com/
Calculated Risk http://www.calculatedriskblog.com/
Econbrowser http://www.econbrowser.com/
Econlog http://econlog.econlib.org/
Epicurean Dealmaker http://epicureandealmaker.blogspot.com/
Ezra Klein http://voices.washingtonpost.com/ezra-klein/
Felix Salmon http://blogs.reuters.com/felix-salmon/
Floyd Norris http://norris.blogs.nytimes.com/
Greg Mankiw http://gregmankiw.blogspot.com/
Growthology http://www.growthology.org/
James Pethokoukis http://blogs.reuters.com/great-debate/author/jamespethokoukis/
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Matt McAlister http://www.mattmcalister.com/blog/
Megan McArdle http://www.theatlantic.com/megan-mcardle
Michael Mandel http://www.businessweek.com/the_thread/economicsunbound/
Mike Moffatt http://economics.about.com/
Nicholas Carr http://www.roughtype.com/
Paul Kedrosky http://paul.kedrosky.com/
Paul Krugman http://krugman.blogs.nytimes.com/
Philip Coggan http://www.economist.com/blogs/buttonwood/
Planet Money http://www.npr.org/blogs/money/
Roger Parloff http://features.blogs.fortune.cnn.com/category/legal-pad/
Ryan Avent http://www.ryanavent.com/blog/
The Stash http://www.tnr.com/blogs/jonathan-chait

Read more: http://curiouscapitalist.blogs.time.com/2010/02/26/will-china-dump-u-s-debt/#ixzz0geOedJMu

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Thursday, February 25, 2010

"Nascent" Recovery or "Nascent" Economic Collapse?

Fed Chairman Ben Bernanke is one of the best contrarian indicators one
could possibly find. Yesterday, Bernanke told the House Financial
Services Committee that the U.S. economy is in a “nascent” recovery.

Given his historical track record of complete failure on matters like
housing, the recession, and jobs, his yapping about the “nascent”
recovery suggests the very best we can expect is for the recovery to
stall, and more likely enter a double dip recession if not completely
collapse.

Unexpectedly Bad News

Let's recap some recent "unexpected" bad news.

Durable Goods "Unexpectedly" Drops

Please consider Equipment Demand Slows to Start 2010

Orders for durable goods excluding transportation unexpectedly fell
0.6 percent, the most since August, while a measure of bookings for
business equipment showed its biggest decrease in nine months, the
Commerce Department in Washington said. The Labor Department said new
claims for unemployment insurance rose to a three-month high.

Factories may be taking a pause to gauge demand after boosting
production in the second half of 2009 to replenish inventories.
Reports earlier this week showed weaker consumer sentiment and home
sales, underscoring Federal Reserve Chairman Ben S. Bernanke’s view
that the recovery is “nascent” and still requires interest rates near
zero.

“There’s no reason to think this is the start of a double-dip -- some
back and fill is standard operating procedure in recoveries,” Chris
Low, chief economist at FTN Financial in New York, said in an e-mail
to clients. “Rising jobless claims, weaker orders and falling consumer
confidence suggest the economy is retrenching in the first half of the
first quarter.”
Happy Talk On Durable Goods

Just take a look at that happy talk. There is every reason to think
this may be the start of a double-dip recession. All we have seen is
inventory replenishment, government spending, and various stimulus
measures like cash-for-clunkers and housing tax credits that have
withered on the vine.

Durable Goods Details

Orders for non-defense capital goods excluding aircraft, a proxy for
future business spending, fell 2.9 percent last month, the biggest
drop since April 2009.
Orders for machinery slumped 9.7 percent in January, the most in a
year.
Orders for motor vehicles and parts dropped 2.2 percent in January
after a 5.5 percent gain.

The big bright spot was Boeing received orders for 59 aircraft two
months ago, an increase that wasn’t captured in the December data.

Less Than It Seems

Michael Panzer writing on the Big Picture Blog says Durable Goods:
Less Than It Seems During the last 17 years or so, the median value of
the ratio of defense-related orders to the overall orders number has
been 4.4 percent. However, since the recession began (in December
2007), the average has been 6.6 percent. Last month, it hit 8 percent.
As with other areas of the economy where the government appears to be
playing an important role, it’s worth bearing in mind that the
“recovery” may not be all that it seems.

Blaming It All On The Weather

When all else fails, economists blame it all on the weather. Today,
Weekly Unemployment Claims Spike To 496,000. I asked Will Reality Soon
Set In?

I should have known better. Oh, silly me. It's just the weather.

Inquiring minds are reading Jobless claims rise due to weather-related
factors.
New claims for unemployment benefits jumped unexpectedly in the U.S.
last week, mostly because state agencies processed a backlog of claims
caused by snowstorms the previous week.

The severe weather also increased temporary layoffs in the weather-
sensitive construction and transportation industries.

Many analysts expect this month's snowstorms cost up to 100,000 jobs
and will artificially inflate the unemployment rate. A clear reading
of the job picture may not be available until March or April.

Also Thursday, Federal Reserve Chairman Ben Bernanke told a
congressional committee that the snowstorms are likely to have a short-
term -- but not permanent -- effect on unemployment and layoffs. He
said policymakers will "have to be careful about not overinterpreting"
the upcoming data.
Weather Related Questions

I have a few simple questions for all the dim-bulb economists now
blaming the weather:

"Did you not know there was a snowstorm on the East coast?"
"If you did, then why didn't you factor it in to your estimates?"
"How can you be surprised by something you knew?"

I was pondering the mid-afternoon market spike and here we go again.
Bernanke himself is blaming the weather.

Consumer Confidence Unexpectedly Plunges

Bear in mind that economists were shocked about the sudden drop in
consumer confidence numbers. Please see Consumer Confidence Plunges To
46, Lowest Since April; Current Conditions Lowest Since 1983 for
details on the consumer confidence numbers.

New Home Sales Unexpectedly Plunge

Please remember that on Wednesday New Home Sales Unexpectedly Plunged
to Record Low.

Bloomberg:

Sales of new homes in the U.S. unexpectedly fell in January to the
lowest level on record, a sign that an extension of a government tax
credit may not be enough to rekindle demand.

Purchases declined 11 percent to an annual pace of 309,000, below the
lowest forecast in a Bloomberg News survey of economists, from a
348,000 pace, figures from the Commerce Department showed today in
Washington. The median sales price dropped 2.4 percent from January
2009 and the supply of unsold homes increased.

It's All Weather Related Now

It's kind of hard to blame new home sales on the weather but, hey, I
suppose "It's All Weather Related Now".

And with that, the bad news buyers are out in force, secure in the
knowledge that on account of a snowstorm on the East coast, "A clear
reading of the job picture may not be available until March or April."

After all, no one really wants a clear reading anyway.

The only real concern is how to make fairy tale economic projections.
With that in mind, please note the upcoming temporary effects of the
hiring of a million part-time census workers will more than smooth
away the afore-mentioned ill effects of a snowstorm months earlier.

No doubt, economists will be chirping away that the boom in part-time
hiring will soon mean full-time hiring. It won't.

A "nascent" economic collapse is at hand, but how can economists
possibly see it with all these weather related issues? When the
collapse does come, economists will be saying once again "No one could
possibly have seen this coming."

Indeed. Economists have proven "It's tough to predict the weather,
even in arrears with 20-20 hindsight straight out of any newspaper in
the country."

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

http://globaleconomicanalysis.blogspot.com/2010/02/nacent-recovery-or-nacent-economic.html

The President Health Proposal: Taxing Investment Income
Posted February 25th, 2010 at 5:00pm in Health Care with 1 comments
Print This Post

In preparation for today’s bipartisan Health Care Summit, President
Obama released his own version of health care reform earlier this
week. The President’s proposal includes several high-ticket
provisions for expanding coverage. Since he has promised time and
again not to raise taxes on the middle-class in order to pay for
health care reform, the President’s bill imposes a Medicare tax on the
investment income of high-individuals to off-set some of the cost of
expanding Medicaid and financing other provisions of his health
agenda.

But, as Heritage analysts Karen Campbell and Guinevere Nell explain in
a recent paper, these new taxes would have widespread adverse effects
for all Americans, not just the wealthy that they target. This is
partially due to the very nature of a tax:
“A well-established economic regularity is that if you tax something,
you get less of it. For example, policymakers in the Senate recently
proposed a tax on “Cadillac” health insurance plans. The justification
was that it would not only generate revenue to help pay for subsidized
insurance but also reduce demand for high-priced premiums, putting
downward pressure on all health insurance premiums.”

The Cadillac health insurance plan tax is intended to reduce the usage
of high-cost insurance plans. Similarly, the President’s proposal’s
tax on tanning beds discourages their use; the same is the case with
cigarette taxes. In several instances, taxes are imposed as punitive
measures. So why on earth would the President impose a tax that would
discourage investment, delaying recovery from the current economic
downturn?

Moreover, Campbell and Nell lay out several ways in which this tax
would hit average American households hard. First, the tax would
reduce overall household wealth of American families by $274 billion
per year. “The value of the investment portfolios of many households–
not just the high-income households that directly pay the tax–are
reduced by the tax on investment income.”

Second, reducing investment would decrease capital in the U.S.
economy, which would reduce potential for economical growth. This
affects not only the rate of job creation and wage increase: it would
have a dramatic effect on the ability of the federal government to
borrow money. According to Campbell and Nell, “A lower U.S. economic
potential also harms the ability of the government to borrow, because
investors lend to the U.S. based on the expected potential of the U.S.
economy. Thus a lower potential economy puts upward pressure on
government interest rates in order to attract financing for the
nation’s deficit.” Raising government interest rates will add further
to the financial burden on taxpayers.

“Because investment is what drives productivity and economic growth,
less investment–even if only slightly less–leads to lower
productivity, slower economic growth, weaker wages and salaries, and
lower household wealth. How much less depends on the underlying supply
and demand for investment.”

President Obama’s health care proposal would expand health coverage—
but is the detriment to the U.S. economy and the burden on the
taxpayer worth the cost?

Kathryn Nix

Kathryn Nix is a Research Assistant for the Heritage Foundation’s
Center for Health Policy Studies and the Roe Institute for Economic
Policy Studies. She studies health care reform, entitlements, and
doctors’ and patients’ issues.Follow Kathryn on Twitter @katenix927

Related Posts

The Senate Health Bill: Higher Taxes from Harry Reid
http://blog.heritage.org/2009/11/19/the-senate-health-bill-higher-taxes-from-harry-reid/
Obama’s Health Plan – Taxes, Taxes Everywhere
http://blog.heritage.org/2010/02/24/obama%e2%80%99s-health-plan-taxes-taxes-everywhere/
Obama’s Health Plan Has Dangerous New Taxes
http://blog.heritage.org/2010/02/23/obama%e2%80%99s-health-plan-has-dangerous-new-taxes/
An Entitlement Certain to Grow While You Sleep: 1:00 AM Monday Vote
Set on Obamacare
http://blog.heritage.org/2010/01/07/an-entitlement-certain-to-grow/

One Response to “The President Health Proposal: Taxing Investment
Income”

Kevin Habib, Glen Burnie, MD on February 25th, 2010 at 5:00pm said:

The highest earners in the U.S. have enjoyed the biggest tax cuts over
the last decade and look what happened to our economy. What happened
to the productivity and demand over the last decade? They went up,
then took a huge dive down – driving down everythign in the economy –
driving a surplus to a deficit – driving down average wages and GDP.

The top 400 households paid 16.6 percent of their income in federal
individual income taxes in 2007, down from 30 percent in 1995. This
decline works out to a tax cut of $46 million per filer in 2007, or a
total of $18 billion in tax cuts for these households per year. So,
the top 400 filers now pay much lower effective tax rates on vastly
larger incomes.

Based on your logic and Brian’s logic – why is the economy not booming
with all these top earners pulling in such a greater amount of post-
tax income.

Please explain how in Decemner of 2007, the U.S. entered into the
worst recession in 50 years when tax rates have been so low? Seems
that history and fact debunk your entire argument, no?

http://blog.heritage.org/2010/02/25/the-president-health-proposal-taxing-investment-income/

Education Secretary Duncan: We Must Educate Our Way To A Better
Economy
Posted by University of New Mexico/Talk Radio News Service on February
25, 2010 | ShareThis

By Sofia Sanchez University of New Mexico/ Talk Radio News Service

U.S. Secretary of Education Arne Duncan stated Thursday that an
improvement in education will help mend the U.S. economy.

“We have to educate our way to a better economy. It is the only way we
can get there. We have a dropout rate of 27% in this country. We have
1.3 million young people leaving our schools and going to the streets.
That is morally unacceptable and economically unsustainable,” Duncan
said during an appearance before the House Committee on the Budget.

Duncan’s remarks came during a hearing on the Department’s budget
proposal for fiscal year 2011. $49.7 billion has been requested, a
raise from 2010’s $46.2 billion request.

Duncan said the department has done program eliminations that resulted
in $123 million in savings, and also eliminated earmarks, which
resulted in $217 million in savings.

A full copy of the proposed FY2011 budget for the Department of
Education can be found on the Department of Education’s website.

February 25, 2010

http://talkradionews.com/author/unm/

http://www2.ed.gov/about/overview/budget/budget11/index.html

http://talkradionews.com/2010/02/education-secretary-duncan-we-must-educate-our-way-out-of-debt/

[chhotemianinshallah]

Continued from previous page...

Recap Of Healthcare Reform Summit Live Blog
Posted by Geoff Holtzman on February 25, 2010

follow @politicalbrief for more updates

PRESIDENT OBAMA spoke first.

- my hope is we’ll discuss how to lower costs, how to make insurance
market work, how do we deal with deficits
- i will start by discussing areas in which we agree, then we’ll
discuss stuff we disagree about, who knows, we may not resolve any of
those disagreements by the end of the day
- “i hope that this isn’t political theater”
- people still want to see change, if we go about this with an open
mind we might be able to make some progress

SEN. LAMAR ALEXANDER (R-TN)
- “we believe we have a better idea”
- our idea is to start over, and make lowering h/c costs the primary
target
- “we want you [Obama] to succeed, because if you succeed then our
country succeeds. but we want you to take hcr in a different
direction.”
- told a story about a friend who asked him to kill hcr bill, but also
said that something does need to happen to reform the system
- Obama’s plan is a lot like the Senate bill, with more taxes,
Medicare cuts, and new spending on new entitlement programs, will
cause premiums to go up, mandates will cause premiums to go up, too
- dumps low-income Americans into Medicaid, which is bad
- Obama plan spends $2.5 trillion a year, and still contains
“sweetheart” deals
- GOP’s view is this a recalled car that can’t be fixed
- don’t hold your breath for GOP to roll in a 1200 page bill in a
wheelbarrow. “we don’t do comprehensive [bills] well”
- GOP is used to solving problems step by step, not all at once
- GOP supports allowing ppl to buy insurance across state lines,
support medical malpractice reforms, getting states to lower costs,
expand health-savings accounts
- Alexander requests that Obama renounces the idea of “jamming” hcr
bill through reconciliation
- reconciliation has been used before, but it wouldn’t be right to use
it to pass hcr, cited Byrd, who said doing so would be an “outrage”
- cites author who wrote tyranny of the majority is the biggest threat
to American democracy
- says if we can start over, we can pass a hcr bill

SPEAKER PELOSI
- “i’ve seen grown men cry” because they or someone they know didn’t
have health insurance
- this hcr bill will create hundreds of thousands of jobs
- this bill is about wellness, but most Americans haven’t heard about
that
- this bill is about affordability, accessibility and accountability
for the insurance co’s
- we must cut waste in Medicare, “we owe it to our Seniors, we owe it
to our country”
- quotes Ted Kennedy by saying “healthcare is a right, not a privilege

HARRY REID
- told a story of a Hispanic man from Nevada whose wife gave birth to
a baby with a birth defect, got a huge insurance bill four months
later…..”this shouldn’t happen,” said Reid
- Reid to Alexander: “you’re entitled to your opinion, but not to your
own facts…let’s talk about the facts.”
- cited a Kaiser poll that showed that 58% of Americans would be angry
if nothing got done on healthcare
- said “donut hole” is really hurting Seniors
- “no one is talking about reconciliation”
- “of course [reconciliation] is not the only way” to pass hcr…said
Republicans have used reconciliation a lot, accused Alexander of
distorting truth about reconciliation
- said there are a ton of Republican amendments in senate bill, “has
significant input from the Republicans.”
- cited Harvard study which shows 45,000 Americans die each year from
a lack of health insurance, said thousands of bankruptcies are caused
by people lacking health insurance
- “health reform shouldn’t be about political parties fighting with
each other…this debate shouldn’t be about where ideas came from”
- “if you have a better plan for making health insurance more
affordable, let’s hear it!”
- said CBO scored the Senate bill very favorably
- “[Democrats] are ready to listen”

POTUS
- “everyone went over their time limit, which is not surprising”
- POTUS taking a much more friendly tone. reid much more abrasive
- i dont know if we can bridge these differences, i hope we can
- let’s talk about how to help Americans deal with costs, “we might
surprise ourselves” [in terms of what the two sides agree on.
- “we have to deal with costs, i haven’t heard anyone disagree with
that”
- discusses how 20% of businesses have reported premium increases in
the past year
- hcr is needed to protect businesses from paying huge insurance costs
- discusses his idea of setting up national health insurance exchanges
- “if you join one of these exchanges, you’ll have choice and
competition…you’re gonna be able to get lower costs
- disputes Alexander’s claim that costs will go up under the current
hcr bills, Alexander interrupts, then POTUS interrupts him.
- thinks GOP idea of letting ppl buy insurance across state lines is
“interesting,” said he included that idea in his proposal

SEN. TOM COBURN (R-OK)
- said there is too much waste in healthcare industry right now,
brought on somewhat by unnecessary government regulation
- cost is what keeps folks from getting healthcare
- said there needs to be more focus on prevention — “we don’t do the
good job of prevention”
- cited studies that show anywhere between 15%-20% of healthcare
spending is fraud
- “we outta go for where the money is”
- said doctors ordering too many tests that aren’t for patients, said
hcr bill needs tort reform to prevent defensive medicine
- cited Thomson-Reuters study that shows billions of dollars of
wasteful healthcare spending
- “we can come together” on those two issues
- access would increase if everyone’s costs go down
- said the bill needs to provide incentives for wellness and
prevention
- let’s improve student lunch and food stamp programs
- we need medical malpractice reform
- said private sector fraud rate is much lower than that of Medicare
system
- we need to “look at where the money is,” not by creating new
government programs, but by incentivizing people

HOUSE MAJORITY LEADER STENY HOYER (D-MD)
- told a story of a woman who left him a message saying she needs to
pay for an operation, but it’s too expensive
- started out talking about cost-containment
- said Democrats have tried to incorporate free-market solutions into
their hcr bills
- “we certainly agree” with Sen. Coburn about waste and fraud…”you
speak eloquently and correctly” about eliminating waste
- we’ve addressed wellness in the House bill
- we need to incentivize coordination of care
- briefly mentioned the public option

POTUS
- HHS Sec. Sebelius working on defensive medicine issue
- said he wants to hear from GOP about what they think about small
businesses being able to buy into a large insurance pool…”i know some
of you have agreed with this in the past”

REP. JOHN KLINE (R-MN)
- we should allow small businesses to band together and purchase
insurance, the same way large companies do…it will lower premiums for
them
- “small businesses have been asking for this for years,” GOP likes
this idea better than the national health exchanges

SEN. MAX BAUCUS (D-MT)
- both parties are actually a lot closer than we think on hcr
- discussed “Shop Act” within the senate hcr bill, which allows small
businesses to participate in their own exchanges, which is akin to
pooling
- senate bill also would provide tax incentives for small businesses
to purchase insurance in the health exchange
- said senate wants small businesses to shop around and buy plans at
affordable, competitive prices
- senate also wants to reform physician reimbursement system…says Sen.
Coburn agrees with Democrats on that
- compared health exchanges to Orbitz online travel agencies
- “we basically agree, there’s not much difference here”

REP. DAVE CAMP (R-MI)
- cutting Medicare to fund new entitlement is a “step in the wrong
direction”
- said CBO believes lawsuit reform would reduce costs, added that
PriceWaterhouseCoopers issued similar report on potential savings
- camera panned to POTUS, who had a half-smile on his face
- said Democrats’ bills give too much authority to unelected
buraeucrats
- POTUS interrupted and asked Rep. Camp to get back to addressing
costs, said other stuff would be addressed later

REP. ROBERT ANDREWS (D-NJ)
Democrats don’t agree with allowing insurance companies to dictate how
long patients should stay in the hospital

SENATE MINORITY LEADER MITCH MCCONNELL (R-KY)
said Democrats are getting much more time than GOP’ers

REP. PAUL RYAN (R-WI)
let’s not regulate insurance, that would reduce competition and drive
up costs, said GOP wants to decentralize federal regulation of the
healthcare industry
“do we distrust insurers?”

POTUS
it’s not true that everyone will have to sign up for a government
insurance plan, House and Senate just want to set up some regulations

SEN. JOHN KYL (R-AZ)
said GOP has a hard time supporting hcr bills because it gives
Washington more control over healthcare system
cited a CBO letter to Sen. Bayh that said the individual mandates
within the bills would drive up premiums
said GOP doesn’t support raising Medicare payroll tax, called it a
“job-killer”
all the taxes and fees in the bills would raise costs, said GOP wants
a bill where the objective is not to raise a lot of money
said bills would raise taxes on middle-class Americans
bills “end up hurting the very people we’re trying to help”

POTUS
said folks will pay 10%-13% more because they’ll be purchasing better
insurance
discussed desire to have minimum baseline coverage for customers,
that’s “not some radical idea”
without a baseline minimum benefit, there won’t be protections for
customers who are less healthy than others
a baseline would allow interstate commerce and would prevent a “race
to the bottom” for insurance co’s at the same time
let’s set up some baselines, and then let the free market take things
from there

HOUSE MAJORITY WHIP JIM CLYBURN (D-SC)
- no matter what kind of plan we develop, there will be some ppl
uncovered, we need a safety net for those people
we need an expansion of community health centers, to help lower-income
people receive care
told a story about a Senior who needed treatment, but couldn’t get
treatment for more than 3 years because he was on Medicare, Clyburn
called for Medicare reform

POTUS
this has so far “been a very helpful conversation”
told Boehner that anyone with a private insurance plan could keep that
plan under the legislation
we all agree that insurance co’s can’t drop ppl for no reason, we all
agree on lifetime caps

REP. CHARLES BOUSTANY (R-LA)
we need to look at streamlining paperwork for doctors
GOP proposal would bring down cost of premiums, Democrats’ bills would
do opposite
I ran a small medical practice, i dealt with insurance co’s and was
offered very limited choices, small business help plans would take
care of this
glad that Democrats agree that enabling people to buy insurance across
state lines would promote choice and competition
we need to promote health savings accounts, “it won’t solve all the
problems,” but he said it would help
my arthritis meant that i had a preexisting condition, so i know how
that works, high-risk pools would help that
new entitlements won’t bring down costs, families want a step-by-step
plan
“we have a duty to reform healthcare, but we have an obligation to get
it right”

REP. GEORGE MILLER (D-CA)
preventative care should not carry a co-pay with it
we should allow HSA’s to continue
i have a kidney stone and have had hip replacements, i’m screwed when
it comes to buying insurance
back pain is a preexisting condition, stuff like that means that a lot
of people go without insurance
56 million people in US have insurance policies where preexisting
conditions could “knock them out” at any moment
high-risk pools don’t work because they trap people — once they’re in
that pool, they stay in that pool forever

SEN. McCAIN (R-AZ)
the Democratic bills were produced behind closed doors
blasted the exemptions for 800 Florida senior citizens from cuts to
their Medicare
“people are angry…we promised them change in Washington, and what we
got was a process that you and I both said we would change”
PhRMa deal was outrageous, their lobbyist was in the White House, that
deal stipulated that they wouldn’t have to compete, and it also
stipulated that White House would oppose provisions to import drugs
from other countries
my constituents want us to start over on hcr, they want “unified
treatment of all Americans”

POTUS
POTUS clearly annoyed with McCain
POTUS to McCain: “we’re not campaigning anymore, the election is over”
can we just focus on the issues of how we get a bill done?
“we can have a debate about process, or we can have a debate about how
we’re gonna get this done”

HHS SECRETARY SEBELIUS
right now there are too many insurance monopolies where markets should
instead exist
common areas of agreement are high-risk pools, House and Senate bills
would use these pools as stop-gap measures to get sick people into
better plans
we need consumer protections within high-risk pools
- let’s give people private sector choices, but at the same time make
private sector work better
let’s get a handle on rates by putting pressure on insurance co’s to
spend more money on coverage, and less on advertising, executive
compensation, waste, etc.

HOUSE MINORITY WHIP ERIC CANTOR (R-VA)
Cantor had the complete Senate bill laid out in front of him
“we don’t care for this bill, I think you know that”
if Democrats think Washington should define health benefits, we think
that is a problem
there are too many taxes on investment and income within the
Democrats’ bills
cited CBO letter that said 8-9 million people could lose their
insurance under the bill
people won’t be able to see the doctors they want under these bills

POTUS
said yes, people might lose coverage, but only because they will have
better options to choose from under the bill
we could make food cheaper if we got rid of all regulations, same
thing for perscription drugs, “but we don’t do that”
“we make decisions to protect consumers in every aspect of our lives”
we try to avoid situations where people think they’re getting one
thing, and instead they get another
we need laws in place to make sure people don’t get randomly dropped
from their coverage
told GOP that they agree with the Democrats on having at least some
regulations in the insurance industry
pooling works because it spreads risk around
“we insure ourselves by making sure we’re also insuring others”
we want to make sure that everyone has insurance so that people don’t
game the system by waiting until they are sick to buy insurance

REP. CANTOR
“we have a very difficult bridge to gap”
“we just can’t afford this” (referring to mandates)
“that’s why we say go step-by-step”
let’s lose the individual mandates

VPOTUS
“we don’t have a philosophical difference”

REP. CANTOR
government should not define what a health benefit should be

POTUS
yes, but only in the exchange

REP. LOUISE SLAUGHTER (D-NY)
preexisting conditions have to go, “all Americans should be treated
the same”
we need to think about economic benefits of passing hcr, think about
our trading partners who want us to prosper as a nation
proposal to turn Medicare into a voucher system is unfathomable, we’re
better than that

***LUNCH BREAK***

SEN. MIKE ENZI (R-WY)
Medicare — seniors are really nervous
“this summit would’ve been helpful if we had it 9 months ago”
GOP has problems with individual mandates, said if 26 states adopted
mandates, the other 24 would follow
Federal employees have HSA’s available to them, everyone in US should
have them too
“i like the exchanges…because it’s kind of a form of bidding”
Congress should mark which plans in the exchanges have minimum
benefits

SEN. TOM HARKIN (D-IA)
we’re a lot closer than we think to agreement on hcr
read a letter from a constituent who saw his rates increase almost 15%
both bills have a lot of GOP ideas
we can’t do hcr incrementally, every provision is complementary…“it
all hangs together”
states tried to do this in the 90’s, it didn’t work out, look at
Massachusetts
“an incremental approach is like a swimmer who’s 50 feet deep
drowning, and you throw him a 10-foot rope”
we still allow segregation today on the basis of people’s health
insurance co’s are flawed because they have to segregate people in
order to have good ratings
said he used to sell insurance and learned one rule: the more people
in the pool, the cheaper things are

REP. CAMP
GOP wants state universal access programs
States are pushing back on federal government over health insurance
mandates

POTUS
you need pools with sick and healthy people, if it’s just sick people
their premiums will be higher
only about 200K people in 20 or 21 states use high-risk insurance
pools, it’s not beneficial
“if everyone is in it, then that drives prices down for everyone”

SEN. JAY ROCKAFELLER (D-WV)
WellPoint CEO wrong to say she won’t cut down employee salaries,
including her own, we’re gonna end that, but we need a bill
insurance co’s can just kick people off their plans, it’s legal in 44
out of 50 states
insurance co’s don’t have enough oversight, no antitrust rules, “they
can do what they want and they do!…it makes me sick”
“the public option, i like that a lot, but it’s not gonna happen”
“this is a rapacious industry that does what it wants”
individual mandate not in the bills because government wants to
control everything, it’s in there because you need a big pool of
customers
when you make everyone participate, you create a bigger risk pool and
it’s better for everyone
“it’s good public policy” to require everyone to buy insurance

REP. MARSHA BLACKBURN (R-TN)
we need to let people purchase insurance across state lines
Senate bill requires federal approval to allow states to do compacts
Democrats’ bills also doesn’t implement any of the big reforms until
2016
“states have stop-lights up” right now in terms of selling across
state lines, Governors support reforming this

POTUS
insurance pool has become older and sicker, way to solve that is to
broaden the pool, that’s what the exchanges do
how about a national exchange with minimum standards? that would be a
way to bridge difference between Democrats who don’t want purchasing
across state lines and GOP’rs who do
I was opposed to the individual mandates when I ran for President.
After kicking and screaming, i supported it, because it’s about
responsibility
one reason i changed: cost-shifting — ex: if someone without health
insurance goes to the emergency room, we all pick up the tab
we’re not saving money by not asking people to be responsible and buy
their own insurance

REP. BLACKBURN
asked POTUS to “free it up”

POTUS
that’s not the problem. the problem is that there isn’t competition.
“we want competition, but we also just want some minimum standards”

VPOTUS
Biden thinks he knows what people thinks but doesn’t want you to think
he thinks too much about thinking.
costs have doubled over the years for healthcare — that wrecks budgets
we’re spending too much on Medicare and Medicaid
Biden read from notes, spewed a lot of numbers, not very inspiring,
nor helpful in my opinion
WH proposal closes Medicare donut hole, extends Medicare trust funds
Biden blabbered and rambled and yammered for roughly 10 minutes, phone
started ringing — a presidential-sounding themed ring tone — as he
wrapped up….continued ringing for about 2 minutes into Rep. Paul
Ryan’s remarks

REP. RYAN
bill placed in front of CBO is full of gimmicks
hcr bill raides Medicare, cited CMS Actuary report, which said doctors
who rely on Medicare payments will go out of business in the years to
come
the philosophical difference is that Democrats want the government to
be in control of healthcare, while GOP wants the American people to be
in control
main point is that the Democrats/Obama plan is a massive government
takeover of healthcare, and the majority of the public is against that

POTUS
we’re not talking about cutting Medicare benefits, we’re talking about
Medicare Advantage

REP. XAVIER BECCERA (D-CA)
little back and forth disagreement with Rep. Ryan over CBO numbers
called the CBO “the referee,” said CBO had scored Democrats’ bills
very favorably
said the bills closed the Medicare donut holes and produced savings at
the same time
we’re working with GOP to eliminate waste and fraud
coordinating care will reduce costs, to the tune of as much as $100
billion

Sen. Chuck Grassley (R-Iowa)

If you’re going to make cuts to Medicare, you need to make sure there
is still a system left.

Sen. Kent Conrad (D-N.D.)

“The biggest unfunded liability of the United States in Medicare.”

-Says the idea we don’t need to revamp Medicare is unrealistic,
dangerous.
By doing nothing, it is guaranteed Medicare will go broke.
5% of Medicare beneficiaries use half of all Medicare funds. They are
the chronically ill.
The system is characterized by chaos.

JOHN BOEHNER (R-Ohio)-HOUSE MINORITY LEADER

“The thing I’ve heard more than anything … the American people want us
to scrap this bill.”
“This bill … will bankrupt our country.”
A dangerous experiment.
Individual mandate: unwise, unconstitutional.

Boehner is bringing abortion back into the health care reform debate.
Claims it allows taxpayer funding for abortion.

OBAMA RESPONSE

This is going back to the standard talking points.
Claims “based on my analyses are just not true”

REP. JIM COOPER (D-TN.)

We’ve heard a lot of people try to outdo each other in deficit
reduction. I welcome that challenge.

Concedes support for McCain complaints about special deals, Ryan
arguments against waste.
Brings up deficit panel’s failure in the Senate.

If you love Medicare, you have to act to save it.

Too few people are making the tough votes.

Calls for a “new day.”

McCAIN

“None of us want to do nothing, but we want to start over.”
California/Texas shows tort reform is working.
“Law suit filings are down” so is defensive medicine spending.

McCain: I prefer being in the majority.

There has been reconciliation, but not at an issue of this magnitude.

Process has been “more than offensive”

OBAMA

Malpractice reform a real issue, but not the single biggest driver of
inflation as Boehner claims.

I would be interested in incentivizing states to experiment with ways
to reduce frivolous law suit as Coburn suggests.
Discussions on coverage is coming up.

DICK DURBIN- SENATE MAJORITY WHIP, D-Ill.

Says he’s practiced malpractice law.
As you lose accountability, more people will die says CBO reference to
study.
We should focus on reducing medical errors. Incentivize states.
Our jury system should make decisions on malpractice payments.
If you think it’s a socialist plot, stop taking federal insurance.
Very provocative point.

OBAMA

Make that 4:30.

Coverage- Can America do what every other advanced nation does?
Outlines basics of his plan…again.
Let’s not pretend we can get 30 million people covered for free. We
can’t.

JOHN BARASSO

If you go to any community in America and ask if health care bill will
raise health care costs, everyone says yes.
Seniors are most scared. Hospice care will be cut, etc.

Time to start over.

OBAMA

Would you be satisfied if Congress just have catastrophic coverage?

BARASSO

Yes.

OBAMA
What if you were making $40,000?

BARASSO
*Nothing*

Barasso and Obama clash over health savings accounts effectiveness and
accessibility.

WAXMAN

Under Republican proposal: People who get break are people who are
healthy.
If I heard only Republican rhetoric, I’d agree.
Exchange spread costs, make it so people don’t need to pay more etc.
This bill is good for people on Medicare. Without it people will be
“squeezed” like crazy.

OBAMA

“We’re not making campaign speeches here”

ROSCAM

“The problem with the bill is not the messenger, it’s the message”

Medicaid is house of cards

What Congress intends to do is expand Medicaid. Won’t work. Bad idea.

Unnecessary Metaphor time: Health care reform is like an etch a
sketch!

OBAMA

Very poor have coverage that is superior to those that have a little
bit more.

DODD

While everyone is entitled to a lawyer, not everybody is entitled to a
doctor.
Hidden tax supplied by the uninsured in emergency rooms.
6-8 will have lost their lives per day due to lack of health
insurance.
You can’t get to affordability, other issues, without increasing
coverage.

BARTON

Never before have so many politicians been so civil in front of so
many cameras.

Bills only play lip service to medical malpractice.

OBAMA

Let’s wrap it up.

Charlie Rangel next, Republican, Patty Murray, John Dingell, Ron Wyden
and more. That’s wrapping up?

McConnell

Health care savings accounts are not just for rich people. $60,000 the
median income of users.

Points out health care polls showing American opposition, says opinion
can’t be ignored.

OBAMA

When you poll people about individual aspects of the bill, they are in
favor of it.
Obama said he was hopeful there would be meaningful overlap and that
people wouldn’t run to their predictable positions. Doesn’t look like
it worked.

COBURN

Key goal is to reconnect purchase and payment, become good purchasers.

“We ought to have another talk like this”

RANGEL

“We are so close”
“We can’t start over.”

JOHN DINGELL

Current trajectory a recipe for disaster.
Can’t start over. Calls to do so are, to quote Schwarzenegger, “bogus”
and “partisan.”
“Here we have a chance to serve the people.”
Dingell defends 51 vote majority.
‘The last perfect legislation was the 10 commandments’

PELOSI

“We’ve come a long way.”
Insurance industry left to its own devices has acted shamefully.
I want the record to show two false statements: no public funding for
abortion, medicare cuts do not cut benefits to seniors

OBAMA

Wrapping it up an hour late. Says it beats his prediction.

Starting a 10 minute summary.

“We’re not being complicated for the sake of being complicated. If we
could have a five page bill we would.”

Tort reform still holds room for negotiation.

US STOCKS-Futures slightly higher as economy in focus

February 25, 2010

By Edward Krudy

NEW YORK, Feb 26 (Reuters) - U.S. stock index futures were slightly
higher on Friday as investors looked ahead to a raft of data,
including economic growth, home sales and manufacturing after a
disappointing week so far for the economy.

A second estimate of gross domestic product from the Commerce Dept
before the market opens is expected to confirm the U.S. economy grew
at a rate of 5.7 percent in the fourth quarter. The release comes days
after weak consumer sentiment and housing data rattled investor
confidence.

Confidence will be tested again later Friday, with the release of the
Reuters/University of Michigan consumer sentiment survey, followed by
a report on existing home sales from the the National Association of
Realtors.

"With a plethora of economic data, it's really hard to say we're going
to have a good read of what the market looks like in the first hour of
trade. We could have a tale of two markets here," said Arthur Hogan,
chief market analyst at Jefferies & Co in New York.

S&P 500 futures SPc1 rose 0.6 points and were above fair value, a
formula that evaluates pricing by taking into account interest rates,
dividends and time to expiration on the contract. Dow Jones industrial
average futures DJc1 added 26 points, and Nasdaq 100 futures NDc1 fell
1 point.

American International Group Inc (AIG.N) reported an $8.9 billion
quarterly loss, hurt by charges related to asset divestments, an
increase in commercial insurance loss reserves and a tax-related
allowance. The shares fell 3 percent to $26.68 in premarket trade. For
details, see [ID:nN26148455]

The Institute for Supply Management-New York releases its February
index of regional business activity before the bell, while the ISM
Chicago February index of manufacturing activity in the Midwest is due
just after the open.

Heavy snowfall and high winds in much of the Northeastern United
States disrupted traffic, making it hard for commuters to get to work.
Some brokerages said their staff were being delayed by the storm.
(Reporting by Edward Krudy; editing by Jeffrey Benkoe)

http://www.reuters.com/article/idUSN2610709520100226

Page last updated at 14:38 GMT, Friday, 26 February 2010

US economy sees upward revision

Stronger manufacturing has boosted US growth
The US economy grew at an annualised rate of 5.9% in the last three
months of 2009, revised official figures have shown.

The rate is higher than the first estimate of 5.7%.

The figures confirm the world's largest economy is emerging rapidly
from recession.

According to economists, the rise was down to an increase in
manufacturing output rather than stronger consumer spending.

In fact, growth in consumer spending was revised down from 2% to 1.7%
in the quarter.

Manufacturing rose to meet the demand from retailers and businesses
who had allowed stock levels to fall.

Business spending on equipment and software, for example, saw an 18.2%
rise, while exports of US goods rose by 22.4% - the fastest pace in 13
years.

Sustainable pace?

While the swift pace of recovery in the economy has impressed many
economists, few expect the rate to be sustained.

"[This is] nothing to change our view that GDP growth will maintain a
rapid pace in the first half of this year, before slowing sharply in
the second," comment Paul Ashworth, senior US economist at Capital
Economics.

A recent fall in consumer confidence and a persistently high rate of
unemployment are also causes for concern.

Consumer confidence slumped to a 10-month low in February, while the
rate of unemployment remains close to 10% and is expected to remain
high for the rest of the year according to the Federal Reserve.

http://news.bbc.co.uk/2/hi/business/8539099.stm

Top Story Friday February 26 , 2010 12:31 GMT
Investors await fourth quarter GDP report from the U.S economy

The world’s leading economy will release its second reading regarding
the fourth quarter 2009, the GDP report, which analysts expect to
produce and maintain the previous strong growth of 5.7 percent, due to
the strong performance pulled by the manufacturing sector in the
United States.

The manufacturing sector in the U.S did support economic growth over
the past period in the U.S. not due to the strong demand but due to
agitating goods for businesses that lowered their inventory levels in
order to cut cost and produce profits; therefore the weak economic
conditions that still dominate activities in the U.S., along with the
slump in demand should have its affects on this year that would
prevent the economy from continuing its strong growth, and will be
revised down either in the final reading for the fourth quarter GDP
reading, or in the first quarter of 2010.

Demand is still low, elevated unemployment along with tight credit
conditions will continue to hammer down economic activities in the
U.S.; therefore, the rise witnessed in manufacturing activities will
fade away to follow the housing sector, as we saw in earlier reports
released this month from the housing sector, where activities and
house purchases slumped to a record low, even with the extension of
the government’s “Tax Credit” program that spurred demand on houses,
where throughout the curernt month of February, demand failed to
continue to lift the sector and slumped beyond expectations.

2010 might stall economic recovery for a bit in the U.S. as
disappointing signs start to emerge from the world’s leading economy,
as the housing sector started to slump. Consumer confidence that was
released a short while back sank beyond expectations reaching 46.0
from the previous revised 56.5; meanwhile unemployment is still
standing at a 26 year record high of 9.7 percent; in addition rising
foreclosures as they currently settled at a record high and tight
credit conditions that makes it hard for consumers to acquire new
loans to expand their spending or investments in order to support
economic growth, spicifically since spending accounts for nearly two
thirds of the GDP.

Although the economy might seal 2009 on strong growth, the National
Association for Business Economics predicts that the first quarter of
this year will produce a 3.0 percent grow rate only, moreover the
following two quarter should witness the same amount of growth. At
normal conditions that would be reasonable for the economy to produce,
but when talking about recovering from the worst financial crisis in
more than 70 years, a growth rate of 5.0% or more helped the
unemployment rate to decline by nearly half a percent, since it stood
earlier at 10.2% and now at 9.7%; therefore the economy will need to
produce strong growth levels in the upcoming quarters, in order to
emerge victorious from the worst financial crisis in decades and
return to the long term growth potentials by 2011.

Meanwhile, today’s news will show as stated above that analysts
predicts mostly since the preliminary reading for the GDP report will
manage to sustain the previous growth records of 5.7%; while the GDP
price index is also expected to preserve its previous rate of 0.6%
throughout the fourth quarter. The same goes for Personal Consumption
as it’s projected to have inclined in the fourth quarter by the same
previous rate of 2.0%, moreover the Core PCE is projected to rise by
1.4%, also maintaining the previous estimate.

Other news from the world’s leading economy will discuss the housing
sector along with consumer confidence, starting with the housing
sector, its projected that sales of existing homes rose in the month
of January by 0.9% at an annual rate of 5.50 million; whereas demand
slumped in the previous month by 16.7 percent at an annual rate of
5.45 million units.

As stated above, the housing sector will need more time to stabilize
and support economic growth in the U.S., along with other sectors such
as the manufacturing, services and industrial sectors since they all
improved in a gradual pace, although the labor sector is still
attempting to find stability amidst weak economic conditions.

Moreover, the Uni. Of Michigan Confidence final report for the month
of February will be released to show that confidence inched higher to
73.9 from the previous reported estimate of 73.7, but given the fact
that other confidence reports showed that confidence dropped severely
in the same month, a rise in this report will send mixed signs for
investors; thus causing severe fluctuation in trading for today
whether in stock market, commodities or currency markets and therefore
investors should be cautious today in markets, since it might hold
severe volatility especially by the start of the U.S session.

The U.S economy growth rate beats market expectations
26 Feb 2010 14:02 http://www.ecpulse.com/en/topstory/2010/02/26/us-economy-growth-rate-beats-expectations/
Investors await fourth quarter GDP report from the U.S economy
26 Feb 2010 12:31
U.K.'s Fourth-Quarter GDP Revised to the Upside
26 Feb 2010 10:06 http://www.ecpulse.com/en/topstory/2010/02/26/uk-gdp/
Europe Ahead: The abysmal gloomy week comes to an end with an ironic
upside revision to UK GDP amid Greek downgrade woes
26 Feb 2010 04:34 http://www.ecpulse.com/en/topstory/2010/02/26/europe-ahead/
Deflation threatens the Japanese economy
26 Feb 2010 02:54 http://www.ecpulse.com/en/topstory/2010/02/26/deflation-japanese-economy/
Suffer from Milk Intolerance?! Well Think Again
25 Feb 2010 15:33
Durable Goods rise above expectations while labor sector deteriorates
further
25 Feb 2010 14:00 http://www.ecpulse.com/en/topstory/2010/02/25/durable-goods-rise-labor-sector-deteriorate/
Stocks decline ahead of opening while markets await Durable Goods
report and Bernanke’s testimony
25 Feb 2010 12:28 http://www.ecpulse.com/en/topstory/2010/02/25/stock-decline-durable-goods-bernanke-testimony/
Euro Zone's Confidence Halts Advances in February
25 Feb 2010 10:10
Europe Ahead: Confidence crisis in Europe confirmed by figures as
markets ponder upon earnings!
25 Feb 2010 05:08 http://www.ecpulse.com/en/topstory/2010/02/25/euro-zone-confidence/
South Korea's current account showed deficit for the first time in a
year
25 Feb 2010 00:06 http://www.ecpulse.com/en/topstory/2010/02/25/south-korea-current-account/
Kim Yu-na stunned the crowd with her stellar performance
24 Feb 2010 16:06
Home sales drop unexpectedly while Bernanke and Geithner Testifies in
Congress
24 Feb 2010 15:22
http://www.ecpulse.com/en/topstory/2010/02/24/home-sales-drop-unexpectedly-bernanke-geithner-testifies-congress/
The Housing sector returns with more fundamentals, while markets
await Bernanke and Geithner remarks
24 Feb 2010 12:33
http://www.ecpulse.com/en/topstory/2010/02/24/housing-sector-fundamentals-market-awaits-bernanke-geithner-remarks/
German 4Q GDP Raises Concerns
24 Feb 2010 07:28 http://www.ecpulse.com/en/topstory/2010/02/24/german-gdp/

http://www.ecpulse.com/en/topstory/2010/02/26/investors-awaits-fourth-quarter-gdp-report-us-economy/

[chhotemianinshallah]

Bloomberg

European Economy Risks Decoupling From Global Growth Recovery
February 25, 2010, 6:06 PM EST

By Mark Deen

Feb. 26 (Bloomberg) -- Europe’s economy may be coming unstuck from the
global recovery as governments to the south of the region struggle to
reverse budget deficits and consumers in the north pull back spending.

After the 16-nation euro economy almost stagnated in the fourth
quarter, data this week showed the weakness reaching into 2010.
Confidence among households and companies worsened unexpectedly,
French consumer spending fell and bank loans to the private sector
slid for a fifth month. At the same time, Standard & Poor’s said it
may soon downgrade Greece again as the country grapples with the
region’s largest budget shortfall.

Signs of a flagging recovery risk extending the euro’s slide against
the dollar. They are also prompting Citigroup Inc. to advise investors
to favor German government bonds and UBS AG to recommend European
stocks with links to the faster-growing U.S., such as Daimler AG. As
they cut their growth forecasts, economists predict slower interest-
rate increases from the European Central Bank, whose governing council
meets next week.

“Europe is where we see the biggest risk of a double dip at the global
level,” said Julian Callow, chief European economist at Barclays
Capital in London. “Europe has been lagging and we’ve continued to see
better numbers in Asia and now the U.S.”

The European Commission yesterday said the euro-area recovery may not
gather momentum until the fourth quarter and maintained its forecast
for 0.7 percent growth this year. Citigroup cut its 2010 growth
prediction to 1.1 percent, while raising its projection for the U.S.
to 3.2 percent.

ECB Policy

Having begun the year predicting the ECB would lift its benchmark
interest rate from a record low of 1 percent in the second quarter and
to 2 percent by the end of the year, economists at Bank of America
Merrill Lynch now don’t expect any increase until December.

Still, ECB policy makers meeting in Frankfurt on March 4 will take
decisions on a further “gradual” phasing out of emergency measures
introduced to fight the financial crisis, council member George
Provopoulos said in an interview on Feb. 19. After already announcing
the end of its 12- and 6-month loans, President Jean-Claude Trichet
has indicated the bank may return to an auction procedure in some of
its refinancing operations as a next step.

Stocks Decline

The outlook for the economy is unnerving investors and taking its toll
on stocks. While the S&P 500 Index in the U.S. has risen 3.8 percent
this year, Europe’s Dow Jones Stoxx 50 has dropped 9.5 percent, giving
up almost half of its 2009 gain.

The euro has fallen almost 6 percent against the dollar this year on
speculation the U.S. will recover faster and concerns about Greece’s
fiscal problems. That decline may continue, according to Chris Turner,
head of foreign-exchange strategy at ING Financial Markets, who says
the euro “will struggle” to return to $1.37 and is more likely to slip
to $1.30. The currency was at $1.3499 late yesterday in London.

Investors should favor German bonds over U.S. Treasuries because the
ECB will lag behind the Federal Reserve in raising rates, Citigroup
said on Feb. 23. At UBS, strategist Nick Nelson says that European
companies making more than a quarter of their sales in the U.S. may
benefit from the dollar’s strength and the U.S. rebound.

“There are tentative signs that the U.S. economy may be pulling ahead
from Europe,” Nelson said in a Feb. 23 report, which cited luxury
carmaker Daimler and publisher Wolters Kluwer NV among potential
winners.

‘Stalled’

The euro-area is also troubling policy makers abroad. Bank of England
Governor Mervyn King said on Feb. 23 that indications the U.K.’s
largest trading partner has “stalled” threatens U.K. exports.

Alcatel-Lucent SA, the world’s biggest supplier of fixed- line phone
networks, this month lowered its 2010 profit-margin targets. RWE AG,
Germany’s second-largest utility, yesterday reduced its earnings
growth forecast because of delays in developing power plants as well
as oil and gas projects.

“It will take several years for the European economy to return to the
level seen in 2008,” RWE Chief Executive Officer Juergen Grossmann
said.

Rising borrowing costs on the back of Greece’s mounting fiscal
problems may further undermine Europe’s economy. The impact of sliding
sovereign bonds could be “broader, weighing further on the recovery”
by pushing up financing costs, the commission said yesterday.

Growth Brake

The drive to shrink budget deficits in Greece, Spain, Portugal and
elsewhere is another potential brake. Barclays’s Callow estimates that
countries representing 20 percent of the euro region’s output will
have a fiscal tightening of 2 percent of gross domestic product in
2010.

“The sovereign debt crisis in Europe’s periphery reinforces drags on
euro-area growth,” said Michael Saunders, an economist at Citigroup in
London.

Consumers will also keep retrenching as unemployment rises from
December’s 11-year high after climbing slowly last year when
government aid limited firings, said Gilles Moec, an economist at
Deutsche Bank AG in London. Spending may also suffer as governments
cut programs used to stoke consumer demand in 2009.

“Now we’re getting the backlash,” said Moec, who predicts global and
euro-zone growth of 4.1 percent and 1.1 percent, respectively, this
year. “Domestic demand is feeling the lagged effects of the
recession.”

--With assistance from Jana Randow in Frankfurt, Alexis Xydias in
London and Simone Meier in Dublin. Editors: Fergal O’Brien, Simon
Kennedy

-0- Feb/25/2010 23:01 GMT

To contact the reporter on this story: Mark Deen in Paris at
mark...@bloomberg.net

To contact the editor responsible for this story: John Fraher at
jfr...@bloomberg.net

http://www.businessweek.com/news/2010-02-25/european-economy-risks-decoupling-from-global-growth-recovery.html

Double Whammy Times Two for U.S. Economy Printer Friendly Version
Reported by: Newsroom Solutions
Thursday, Feb 25, 2010 @04:30pm CST

The American economy suffered a double whammy times two on Thursday as
jobless claims spiked, factory orders fell, bad weather kept people
home and worries over Greece's sovereign debt prompted investors to
hit the "sell" button.

Demand for durable goods made in the U.S. -- from cars and trucks to
washers and dryers -- unexpectedly declined six-tenths of one-percent
in January.

That happened despite an incredible 126-percent spike in orders for
new aircraft.

People filing unemployment claims for the first time increased last
week by 22-thousand from the week before, bringing the total to more
than four-point-six million jobless claims.

Meantime, snowstorms and blizzards across the nation in the past
couple of months kept people home and out of stores, even if they were
employed and had money to spend.

On the Greek sovereign debt issue, officials and investors fear that
Greece will be unable to borrow 25-billion euros it currently needs to
meet obligations. That's because of complicated credit default swaps
issued on Greek debt in the past decade.

If the Greek government cannot get the money, the nation may have to
default.

Those concerns drove the stock markets down, with the Dow Industrials
dipping more than 150 points.

But the market began to recover near the end of the session, and the
Dow closed 53 points lower.

The Nasdaq Composite and the S&P 500 Index each lost only two points
on the day.

http://arkansasmatters.com/content/news/fulltext?cid=295141

Political Punch
Power, pop, and probings from ABC News Senior White House
Correspondent Jake Tapper

Political coverage and musings on pop culture from ABC News Senior
White House Correspondent Jake Tapper and the ABC News White House
team.

Hillary Blasts Greenspan on Debt, Says It Is a Threat to National
Security
February 25, 2010 5:53 PM

PrintRSSE-mailShare this blog entry with
friendsFacebookTwitterRedditStumbleUpon
More ABC News' Kirit Radia reports: Secretary of State Hillary Clinton
took a swipe at Alan Greenspan today, saying the former Federal
Reserve chair’s “outrageous” advice led to a ballooning national debt
that Clinton said is now a threat to national security.

"I served on the budget committee in the Senate, and I remember as
vividly as if it were yesterday when we had a hearing in which Alan
Greenspan came and justified increasing spending and cutting taxes,
saying that we didn't really need to pay down the debt -- outrageous
in my view," she said.

Clinton said that the US debt has hurt "our ability to protect our
security, to manage difficult problems and to show the leadership that
we deserve.”

"I do not like to be in a position where the United States is a debtor
nation to the extent that we are,” America’s top diplomat said.

Greenspan was first appointed as Fed chairman in 1987 by President
Ronald Reagan and served under four presidents, including Secretary
Clinton’s husband. During President Bill Clinton term in office,
Greenspan was hailed as the economic genius as the US economy expanded
in the latter half of the 1990s.

Secretary Clinton did not specify which hearing she was referring to
in her criticism of Greenspan today, but it would have come during
President George W. Bush’s time in office.

"It breaks my heart that 10 years ago we had a balanced budget, that
we were on the way of paying down the debt of the United States of
America," Clinton said.

She urged lawmakers to take steps to lower the deficit, which has
soared to new heights in recent years.

"We have to address this deficit and the debt of the United States as
a matter of national security not only as a matter of economics,"
Clinton said.

http://blogs.abcnews.com/politicalpunch/2010/02/hillary-blasts-greenspan-on-debt-says-it-is-a-threat-to-national-security.html#comments

February 25, 2010 | Permalink | Share | User Comments (24)

http://blogs.abcnews.com/politicalpunch/2010/02/hillary-blasts-greenspan-on-debt-says-it-is-a-threat-to-national-security.html

TD Ameritrade leaders say E-Trade deal unlikely; predict slow economic
recovery
JOSH FUNK

AP Business Writer
February 25, 2010 | 2:50 p.m.

OMAHA, Neb. (AP) — TD Ameritrade's CEO said Thursday there's no way
the online brokerage would consider acquiring rival E-Trade right now
because the deal would involve too much risk.

Ameritrade CEO Fred Tomczyk addressed the possibility of an E-Trade
deal after a shareholder asked about it at the company's annual
meeting in Omaha.

Typically, Tomczyk and other Ameritrade executives avoid talking about
acquisition rumors and any specific deals. But Tomczyk said Thursday
that there is no way Ameritrade would consider acquiring E-Trade
because E-Trade still has too much questionable debt.

"They're much better today, but there's still too much risk on that
balance sheet for our appetite right now," Tomczyk said about E-Trade.

Ameritrade continues to have a strong balance sheet with roughly $1
billion cash to help it handle surprises and pursue any attractive
opportunities.

"We think it is very important that our balance sheet remain
conservative," Tomczyk said.

E-Trade and Ameritrade have talked about merging in the past, but have
never agreed on terms. And analysts have previously questioned whether
the company's different strategies could be melded.

In the summer of 2007, Ameritrade rebuffed two hedge funds that put
pressure on the Omaha-based company to complete a merger with a major
competitor like E-Trade.

Ameritrade officials maintain that the company regularly considers
possible acquisitions or buyouts, but will only pursue such a deal if
it will benefit shareholders in the long run. For instance Ameritrade
acquired options-trading specialist thinkorswim last year to improve
its options capabilities.

Tomczyk said the company remains focused on its long-term goals, not
on maximizing quarterly results.

Tomczyk and Chairman Joe Moglia also told shareholders they expect the
U.S. economy to recover slowly. They say Ameritrade will thrive when
business does improve.

"We are still in a difficult and uncertain environment, and we don't
expect that to anytime soon," Tomczyk said.

Moglia told shareholders the economy has improved significantly over
the past year, but he predicted the recession will linger.

"While the worst of that is behind us, you don't go through something
like that without very significant after-effects," Moglia said.

One of the biggest challenges for Ameritrade in the current
environment is the low interest rates, which restrict how much the
company can make on its customers' deposit accounts and various
investment products.

When interest rates increase, Ameritrade's asset-based revenue will
also increase.

Both Ameritrade executives said they are concerned about new
regulations Congress might adopt in response to the financial crisis.

"We are in an incredibly intense regulatory environment," Moglia said.

Tomczyk said he wants to make sure that any new rules or taxes target
the three main sources of the nation's recent economic problems: a
flawed housing finance system, excessive borrowing and leverage
throughout the financial system and inadequate capital reserves.

During the business portion of the Ameritrade meeting, shareholders
approved two changes to the company's long-term incentive plan and re-
elected four directors to the board.

The changes to the incentive plan will allow Ameritrade to award stock
options to directors and consultants, as well as Ameritrade employees.

And Ameritrade will have the authority to change the vesting schedule
of the stock options it awards. Previously, Ameritrade's incentive
plan required stock awards to vest three years after they are awarded.

Copyright 2010 Associated Press. All rights reserved.

http://www.latimes.com/business/nationworld/wire/sns-ap-us-td-ameritrade-shareholders,0,5461773.story

Aussie Rises Versus Yen as Lending Adds to Rate-Increase Case
By Theresa Barraclough and Garfield Reynolds

Feb. 26 (Bloomberg) -- The Australian dollar climbed versus the yen as
an increase in bank lending added to the case for the South Pacific
nation’s policy makers to raise borrowing costs next week.

The so-called Aussie headed for the first monthly gain against the
U.S. currency since November as reports this week showed lending rose
in January and business investment rebounded in the fourth quarter.
New Zealand’s dollar headed for a second monthly decline as a
government report showed home-building approvals fell for a second
month in January.

“Data out of Australia justifies a rate hike next week,” said Masafumi
Yamamoto, chief foreign-exchange strategist in Tokyo at Barclays Plc,
Britain’s second-largest bank. “The Australian dollar will gain versus
the dollar and the yen.”

Australia’s currency advanced to 79.43 yen as of 4:33 p.m. in Sydney,
from 79.13 yen yesterday in New York. The currency traded at 88.98
U.S. cents from 88.83 cents yesterday and 88.38 cents on Jan. 29.

New Zealand’s dollar rose to 61.97 yen from 61.63 yen yesterday. It
traded at 69.42 U.S. cents from 69.18 cents yesterday and 70.10 cents
on Jan. 29.

Bank Lending

Loans provided by banks and other finance companies gained 0.4 percent
in January, after rising 0.3 percent the prior month, the Reserve Bank
of Australia said in Sydney today. Capital spending advanced 5.5
percent from the previous quarter, when it fell a revised 5.2 percent,
the Bureau of Statistics said in Sydney yesterday.

“Australia’s strong economic fundamentals are irrefutable,” Annette
Beacher, senior strategist at TD Securities Inc. in Singapore, wrote
in a research report. “We believe the RBA’s finely balanced judgment
will tip the decision toward a 25 basis point hike next week.”

Signs of an economic rebound, including higher consumer confidence and
demand for resources exports, prompted central bank Governor Glenn
Stevens to boost borrowing costs three times last quarter. Eight of
the 17 economists surveyed by Bloomberg News said the RBA will lift
rates to 4 percent on March 2.

The Aussie may climb to 90 U.S. cents by the end of March and 95 cents
by June-end, according to TD Securities forecasts.

Benchmark interest rates are 3.75 percent in Australia and 2.5 percent
in New Zealand, compared with 0.1 percent in Japan and as low as zero
in the U.S., attracting investors to the South Pacific nations’ higher-
yielding assets. The risk in such trades is that currency market moves
will erase profits.

Greek Concern

The Australian dollar headed for a weekly decline versus the greenback
as concern Greece’s credit ratings will be cut trimmed demand for
riskier assets. Standard & Poor’s and Moody’s Investors Service said
they may cut their ratings if Greece fails to implement a plan to
reduce its budget deficit.

“The Australian dollar remains hostage to investor risk- appetite,
which will continue to be under pressure while sovereign debt default
concerns worsen and economic reports in the major economies
disappoint,” John Kyriakopoulos, head of currency strategy at National
Australia Bank in Sydney, wrote in a note to clients.

New Zealand’s two-year swap rate, a fixed payment made to receive
floating rates which is sensitive to rate expectations, slid to 4.14
percent from 4.22 percent a week earlier.

Australian government bonds gained for a third day. The yield on the
benchmark 10-year note fell six basis points to 5.43 percent,
according to data compiled by Bloomberg. The 5.25 percent security due
March 2019 advanced 0.39, or A$3.90 per A$1,000 face amount, to
98.71.

To contact the reporter on this story: Theresa Barraclough in Tokyo at
tbarra...@bloomberg.net; Garfield Reynolds in Sydney at
greyn...@bloomberg.net.

Last Updated: February 26, 2010 00:36 EST

http://www.bloomberg.com/apps/news?pid=20601081&sid=a0cG2DFx9fiI

[bademiyansubhanallah]

Bloomberg

Treasuries Gain on Lower-Than-Anticipated Economic Data, Greece
February 27, 2010, 1:06 AM EST

By Cordell Eddings and Susanne Walker

Feb. 27 (Bloomberg) -- Treasuries advanced for the first time in three
weeks as weaker-than-forecast economic reports and the threat of
credit-rating downgrades for Greece spurred demand for the safety of
U.S. government debt.

Yields on 30-year bonds fell the most this week in six months as
reports showed sales of new and existing homes unexpectedly tumbled,
consumer confidence dropped and fourth- quarter consumer spending grew
less than forecast. A report on March 5 is forecast to show that U.S.
employers cut 50,000 jobs in February.

“The government did a lot to prop up our economy and get things going,
but there just has been no follow-through from consumers or
employment,” said Justin Hoogendoorn, Chicago- based chief investment
strategist at Bank of Montreal’s BMO Capital Markets unit. “Add the
sovereign concerns and you have a lot of uncertainty.”

The benchmark 10-year note yield fell 16 basis points, the most since
the five days ended Nov. 27, to 3.62 percent, according to BGCantor
Market Data. A basis point is 0.01 percentage point. The 3.625 percent
security due February 2020 rose 1 10/32, or $13.13 per $1,000 face
amount, to 100 2/32. The 30-year bond yield decreased 15 basis points,
the most since Aug. 28, to 4.56 percent.

The yield difference between 2- and 10-year notes, known as the yield
curve, was at 2.81 percentage points after narrowing for a second
week. It touched a record high of 2.94 percentage points on Feb. 18.

Treasuries advanced for a second month, returning investors 0.12
percent after a 1.6 percent gain in January, according to Bank of
America Corp.’s Merrill Lynch index data.

Greece’s Ratings

Standard & Poor’s and Moody’s Investors Service both said this week
that Greece faces potential debt rating downgrades as it struggles to
reduce the European Union’s biggest budget shortfall.

“The situation in Greece has been a factor for the last few weeks,”
said Tom Roth, senior Treasury trader in New York at Mitsubishi UFJ
Securities. “Any uncertainty will cause people to stay close to home
or stay in quality products. Uncertainty helps the Treasury market.”

Concern that Greek fiscal problems may spread boosted demand at a $32
billion auction of U.S. seven-year securities on Feb. 25. The number
of bids was 2.98 times the securities offered, the highest since the
note was reintroduced in February 2009 after a 16-year hiatus. The
sale was the last of four auctions this week totaling a record $126
billion of 2-, 5- and 7-year notes and $8 billion of 30-year inflation-
linked bonds.

Supply ‘Well Absorbed’

“Supply surely hasn’t become the concern that many had feared and
continues to be well absorbed,” Martin Mitchell, head government bond
trader at the Baltimore unit of Stifel Nicolaus & Co., a St. Louis-
based brokerage firm, wrote in a note to clients. “Friendly data” and
Federal Reserve Chairman Ben S. Bernanke’s congressional testimony
this week did nothing to derail the positive sentiment, he said.

Bernanke said the U.S. economy is in a “nascent” recovery. Conditions
are likely to warrant “exceptionally low levels” of the benchmark
interest rate for an extended but unspecified period, he said,
delivering his semiannual report on monetary policy.

Sales of previously owned U.S. homes unexpectedly tumbled in January
for a second month. Purchases fell 7.2 percent, the second-largest
drop ever, the National Association of Realtors said yesterday in
Washington. The data followed a Commerce Department report on Feb. 24
that showed new-home sales dropped to a record low last month, an
annual pace of 309,000.

Confidence among U.S. consumers fell in February to the lowest level
in 10 months, the Conference Board’s confidence index showed on Feb.
23.

Consumer Spending

“The economic data has been mixed to outright negative,” said George
Goncalves, head of interest-rate strategy at Nomura Holdings Inc., one
of 18 primary dealers that trade directly with the Federal Reserve.
“People expected to see brighter horizons, but actually the numbers
are coming in weaker.”

Traders cut bets the Fed will raise the cost of borrowing. Rate
futures on the Chicago Board of Trade yesterday showed a 48 percent
chance U.S. policy makers would raise the target lending rate by
November. The odds were 61 percent a week earlier.

The difference in yields between 10-year inflation-linked Treasuries
and comparable conventional U.S. notes, known as the breakeven rate,
touched 2.14 percentage points yesterday, the lowest since Dec. 11.
The rate, which reached a 2010 high of 2.49 percent on Jan. 11, is a
measure of traders’ expectations for inflation.

--Editors: Greg Storey, Dave Liedtka

-0- Feb/27/2010 05:00 GMT

To contact the reporters on this story: Cordell Eddings in New York at
cedd...@bloomberg.net; Susanne Walker in New York at
swal...@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at
dlie...@bloomberg.net

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http://www.businessweek.com/news/2010-02-27/treasuries-gain-on-lower-than-anticipated-economic-data-greece.html

TREASURIES-Up slightly after weak home sales, sentiment
Fri Feb 26, 2010 10:47am EST

(updates prices, comment after home sales, sentiment data)

By Ellen Freilich

NEW YORK, Feb 26 (Reuters) - U.S. Treasuries rose modestly on Friday
after news that home sales fell in January and consumer sentiment
slipped in February reinforced expectations for subdued economic
growth this year.

Trading volume was depressed, however, as a winter blizzard covered
the northeastern United States in deep snow.

"(The home sales drop) is not good news (for the economy)," said
Timothy Dwyer, chief executive at Entitle Direct Group in Stamford,
Connecticut. "It really negates the gains (from) the fourth quarter of
2009."

The consumer sentiment report was also negative for the economy and,
thus, positive for bonds which thrive when investors need a haven from
economic uncertainty.

At the long end of the maturity range, the benchmark 10-year note
US10YT=RR was up 2/32, its yield easing to 3.625 percent from 3.63
percent on Thursday.

"The rebound in business activity will not last long if consumers
can't provide support," said Alan Gayle, senior investment strategist
at Ridgeworth Investments in Richmond, Virginia.

Bonds appeared to pay less attention to a report showing that business
activity in the U.S. Midwest expanded more than economists had
forecast in January.

Also, the U.S. Commerce Department said the U.S. economy expanded at a
brisker pace than first thought in the final quarter of 2009 as
businesses drew down inventories at a much slower pace and boosted
investment.

The economy grew at a 5.9 percent annual rate rather than the 5.7
percent pace it estimated last month, still the fastest pace since the
third quarter of 2003, it said. The economy expanded at a 2.2 percent
annual rate in the third quarter.

The report had no impact on Treasury prices.

"The market is going to be quiet," said Cary Leahey, economist at
Decision Economics in New York. "If there's any excitement, it will
come from overseas with the continual worries about the EU and
Greece."

Greece's prime minister called on Friday for more solidarity from the
European Union over the country's debt crisis and announced plans to
visit Germany, whose backing would be vital for any EU financial aid.

Some of Greece's EU partners fear market volatility caused by Greece
will spread to other countries that use the euro and have big deficits
to cover, such as Portugal and Spain.

For the moment, however, the safety bid usually most evident among
short maturities, was subdued. Two-year Treasury notes US2YT=RR were
unchanged, yielding 0.84 percent.

News that business activity in New York City expanded in February to
its best level in more than three years also did not affect Treasuries
prices.

Treasuries rallied on Thursday, encouraged by solid demand in an
auction of $32 billion of seven-year notes, concluding sales of a
record amount of government debt this week.

News that rating agencies said they may downgrade Greece's sovereign
debt rating drew attention to the weak fiscal health of some euro zone
countries and played to the advantage of safe-haven bonds. For details
see [ID:nLDE6102OP].

Economic data this week, including a drop in consumer confidence and
falling home sales have fortified expectations for subdued economic
growth this year. On Thursday, the government reported a surprise jump
in new jobless claims. It also reported a higher-than-expected jump in
orders for long-lasting manufactured goods in January but a drop in a
category seen as a proxy for business spending. [ID:nN2597849]

Adding to the supportive tone for Treasuries was testimony from
Federal Reserve Chairman Ben Bernanke this week in which he restated
he expects the central bank to maintain interest rates at ultra-low
levels for an extended period of time.

Thirty-year bonds US30YT=RR were up 7/32, their yields easing to 4.56
percent from 4.58 percent.

At 10:10 a.m. (1510 GMT), U.S. Treasury trading volume totaled $64.305
billion, 26 per cent below its 20-day moving average of $86.443 bln at
this time, according to ICAP.

(Editing by Kenneth Barry)

http://www.reuters.com/article/idUSN2638094020100226

Bloomberg

Treasuries Advance on Economic Reports, Greece Ratings Concern
February 26, 2010, 4:20 PM EST
By Susanne Walker and Cordell Eddings

Feb. 26 (Bloomberg) -- Treasuries gained, with longer-term securities
leading the advance, as weaker-than-expected economic data and the
threat of ratings cuts for Greece fueled demand for the safety of U.S.
government debt.

Yields on 10- and 30-year securities touched two-week lows after
reports showed sales of existing homes unexpectedly fell last month
and fourth-quarter consumer spending rose less than forecast. Federal
Reserve Chairman Ben S. Bernanke pledged this week to hold interest
rates at a record low.

“It’s been a perfect storm in the bond market this week,” said George
Goncalves, head of interest-rate strategy at Nomura Holdings Inc., one
of 18 primary dealers that trade directly with the Fed. “Poor economic
data, strife in the sovereign arena and poor positions created the
perfect storm for yields to head lower. There are no real reasons to
sell this market, given the uncertainties.”

The 10-year note yield fell two basis points, or 0.02 percentage
point, to 3.62 percent at 4:09 p.m. in New York, according to BGCantor
Market Data. It touched 3.58 percent, the lowest level since Feb. 9.
The 3.625 percent security due February 2020 rose 1/8, or $1.25 per
$1,000 face amount, to 100 2/32. It posted a weekly gain, its yield
decreasing 16 basis points.

The 30-year bond yield slid two basis points today and 15 basis points
on the week to 4.56 percent after earlier touching 4.52 percent, also
the lowest since Feb. 9.

The yield difference between 2- and 10-year notes, known as the yield
curve, narrowed for a fourth day, decreasing to 2.80 percentage
points. It touched a record high of 2.94 percentage points on Feb. 18.

Monthly Gain

Treasuries returned 0.1 percent in February, according to indexes
compiled by Bank of America Corp.’s Merrill Lynch. The gain follows a
1.6 percent advance last month.

Sales of previously owned U.S. homes unexpectedly tumbled in January
for a second month. Purchases fell 7.2 percent, the second-largest
drop ever, to an annual pace of 5.05 million, the National Association
of Realtors said today in Washington.

“It is a poor showing,” said Guy Lebas, chief fixed- income strategist
and economist at Janney Montgomery Scott LLC in Philadelphia. “We’re
facing a situation that’s not comparable to what we’ve seen in the
past. It will take years to play out.”

Consumer Spending

American International Group Inc., the insurer rescued by the
government, posted a fourth-quarter loss on charges tied to paying
down its bailout debt and increasing commercial insurance reserves.

Business activity in the U.S. expanded in February at the fastest pace
since 2005, a report by the Institute for Supply Management-Chicago
Inc. showed. The group’s business index climbed to 62.6 from 61.5 last
month.

“It will be a healthy recovery, but not as strong as the rapid
recoveries coming out of prior recessions,” said Michelle Meyer, a
senior economist at primary dealer Barclays Plc in New York. “The
manufacturing recovery is still accelerating.”

Rate Bets Cut

Traders lowered bets the Fed will raise the cost of borrowing. Rate
futures on the Chicago Board of Trade showed a 48 percent chance U.S.
policy makers would raise the target lending rate by November. The
odds were 61 percent a week ago.

Bernanke said in testimony to the House Financial Services Committee
on Feb. 24 that slack labor markets and low inflation will allow the
Fed to keep the target rate for overnight bank loans low “for an
extended period.” It has been in a range of zero to 0.25 percent since
December 2008.

Fed Bank of Chicago President Charles Evans said in an interview with
CNBC today that an extended period means to him about three to four
central-bank policy meetings.

Standard & Poor’s and Moody’s Investors Service said this week Greece
faces potential debt rating downgrades as it struggles to cut the
European Union’s biggest budget deficit.

Concern the country’s fiscal problems may spread boosted demand at a
$32 billion auction of U.S. seven-year securities yesterday. The
number of bids was 2.98 times the amount, the highest ratio since the
note was reintroduced in February 2009 after a 16-year hiatus. The
sale was the last of four note and bond auctions this week totaling a
record $126 billion.

‘Well Absorbed’

“Supply surely hasn’t become the concern that many had feared and
continues to be well absorbed,” Martin Mitchell, head government bond
trader at the Baltimore unit of Stifel Nicolaus & Co., a St. Louis-
based brokerage firm, wrote in a note to clients.

Treasuries also rose today as investors bought securities to match
changes in the indexes they use to gauge performance of their
portfolios when the benchmarks incorporate debt sold during the month.
Duration is a measure of price sensitivity to interest-rate change
expressed in years. The Barclays Capital U.S. Treasury Index is being
extended by 0.12 percent, compared with 0.07 in January.

--Editors: Greg Storey, Dennis Fitzgerald

To contact the reporters on this story: Susanne Walker in New York at
swal...@bloomberg.net; Cordell Eddings in New York at
cedd...@bloomberg.net.

To contact the editor responsible for this story: Dave Liedtka at
dlie...@bloomberg.net

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About

What's it like to run your own company today? Entrepreneurs face
multiple hurdles new and old, from raising capital and managing
employees to keeping up with technology and competing in a global
marketplace. The writers and editors from the Small Business team,
Nick Leiber, John Tozzi, and Kimberly Weisul, discuss the news,
trends, and ideas that matter to small business owners.

In addition to our staff bloggers, attorney Jonathan I. Ezor,
franchising guru Don Sniegowski, and venture capitalist Jeff Bussgang
post regularly.

http://www.businessweek.com/news/2010-02-26/treasuries-head-for-monthly-gain-on-greece-outlook-rate-pledge.html

[bademiyansubhanallah]

Fears rise about a return of ‘Japan-bashing'

Akio Toyoda, President and CEO of Toyota Motor Corporation, arrives to
testify on Toyota's car safety recalls in front of the House Committee
on Oversight and Government Reform on Capitol Hill in Washington,
February 24, 2010.

Politicians in the country worry that Toyota's fallen reputation could
tarnish

. Article Comments (19) Chris Johnson

From Saturday's Globe and Mail
Published on Friday, Feb. 26, 2010 8:31PM EST
Last updated on Friday, Feb. 26, 2010 8:32PM EST

Toyota Motor Corp. is different. The chief's family name is on every
car, and Toyota is a flagship. Japan, too, is different, and what
happened to Akio Toyoda in Washington this week wouldn't have happened
in Tokyo.

To many Japanese, Mr. Toyoda's treatment by U.S. lawmakers at a widely-
watched hearing in Washington would have seemed rude. Rather than
demanding he step down from the helm of his grandfather's company to
take the fall for the auto maker's massive recalls, many industry
officials and analysts in Japan and Canada are rallying behind him
after his handling of the congressional hearings.

Beside the seeming rudeness, and faced with a declining population,
record unemployment and a deep recession, Japanese are particularly
wary of a return to the “Japan-bashing” days of the late 1980s, when
Americans tried to weaken Japan's export juggernaut. Dr. Cody Poulton,
professor of Japanese literature and head of the Pacific and Asian
Studies Department at the University of Victoria, said he has noticed
about 300,000 hits online of recent “Japan-bashing” related to Toyota.

Japanese are notably afraid of being scapegoated, or cast out of a
group. They call this nakama hazure, literally “torn away from the
inner circle.”

Politicians in Japan worry that Toyota's fallen reputation could
tarnish other key exporters. Japanese Trade Minister Masayuki Naoshima
said Toyota's problems could have an impact on the image of Japanese
products, and he said he wanted the car maker to win back consumer
trust. Foreign Minister Katsuya Okada also reflected those concerns
earlier in the week. “Although this is a matter of one individual
company, we wish to back them up as much as we can as it could become
a national issue,” Mr. Okada said.

Dr. Poulton said most Japanese would have been offended by the rude
and disrespectful treatment of Japan's top CEO, and many are feeling
sympathy for him. “It was extremely humiliating. Could you imagine the
presidents of Chrysler or GM being called to testify before the
Japanese Diet? An American company president wouldn't even do that.”

Many feel the U.S. government is unfairly targeting Toyota because it
ousted GM as the world's largest auto maker.

“This conspiracy theory can be true,” said Takashi Sendo, sales
process, training and method manager at Nihon Michelin in Japan. “It
is not very surprising that some of the government's constituents are
interested in weakening Toyota.”

And, added Dr. Poulton, “I'm not saying it's a conspiracy. But this
probably couldn't have come at a better time for the U.S. auto
industry, amid a recession, to find a scapegoat, and Toyota is the
perfect scapegoat.”

For more than three hours Wednesday, Mr. Toyoda withstood a barrage of
criticism and personal attacks from U.S. lawmakers. For some viewers,
the “interrogation” – as one U.S. lawmaker called it – evoked memories
of U.S.-led military tribunals in Tokyo after the Second World War.

Representative Nancy Kaptur waved a copy of a business book
celebrating Toyota's dedication to quality. “I'm not satisfied with
your testimony,” she said. “You said your company grew too fast. Some
smart lawyers gave you those words.” Rep. John Mica brandished
documents accusing the company of avoiding proper recalls. “I'm
embarrassed for you, sir,” he said. “This is absolutely appalling,
sir.”

Japanese culture at every level is based on deference and respect for
elders and superiors, and the head of Toyota – Japan's ultimate
flagship corporation – would be near the very top of the social
hierarchy, perhaps even above the Prime Minister.

“Some interest groups will defend Toyota,” said Dr. Poulton, who has
lived in Japan on-and-off over 30 years. “They'll rally to the support
of any Japanese individual or corporation that is threatened by the
Americans.”

Special to The Globe and Mail

Comments

Canadian in Thailand 2/27/2010 3:20:57 AM
At least the US Congress is learning that when they invite foreigners
to testify make sure they are mild-mannered and culturally not adapted
to come back on the abusive, disrespectful treatment they will
receive.

George Galloway made his interrogators look like a bunch of monkeys.
He was accused, of course, of not showing due respect to the Congress.

All actions have their consequences. This public humiliation of an
Asian icon will be remembered in Asia.

Chillz 2/27/2010 2:59:17 AM
B G 2/27/2010 1:45:30 AM
I like Toyota, they make good cars. I drive a Corolla that was built
by Toyota, in Canada.

If you're looking for a villain look at China, not Japan.
____

Actuall if it's the villain you want look no further than your own
backward... China doesn't force their crap onto us, we custom order
it, to keep the few "dollar or ten" like stores that we can still
afford to shop at well stocked. Made in americon or chinada these days
is just an indication of short boat trip to china.

Chillz 2/27/2010 2:53:35 AM
Yeh really, you'd think after being nuked they'd have a high degree of
expertise in the matters of EMI. Show them Americon, show them
again.

B G 2/27/2010 2:34:08 AM
"Politicians in Japan worry that Toyota's fallen reputation could
tarnish other key exporters."
--------------------
It's a little weird that Japan has to worry about the reputation of
it's exporters, they are almost always at the top in quality and
safety. It seems that the US is over-reacting to the Toyota recall.

Meanwhile the US imports kid's jewelry made of cadmium and lead from
China, milk products containing melamine and toothpaste with anti-
freeze in it - also from China. Strange ingredients deliberately put
into products to increase profits. That stuff is actually worthy of a
congressional hearing, wouldn't you agree dead Zepplin?

LedZepplin 2/27/2010 2:20:50 AM
BG, the villain is neither China nor Japan. It's BiGots like you we
need to beat up.

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U.S. revises growth estimate for 4th quarter
Business digest

Published: 9:42 p.m. Friday, Feb. 26, 2010

Estimate of national growth is raised; consumer trends weak

The nation's economy grew at a faster pace than initially estimated
for the end of 2009, but the economy is now likely expanding at just
half the fourth quarter's revised pace of 5.9 percent, according to
government data released Friday. Business spending appears likely to
make up for some of a slowdown in consumer spending but not enough to
reduce the jobless rate.

The Commerce Department bumped up its growth estimate for the final
quarter of 2009 to the strongest showing in six years, up from a 5.7
percent rate estimated last month. About two-thirds of the growth came
from a burst of manufacturing — but not because of consumer demand,
which weakened more at the end of the year than estimated.

Separately, a closely followed survey reported that U.S. consumer
sentiment fell slightly more than expected in February. The University
of Michigan's consumer sentiment index fell to 73.6 from 74.4 in
January, which agreed with a separate report this week that also
showed a decline in consumer confidence. But the Consumer Confidence
Index showed a much sharper drop, falling to its lowest level in 10
months.

Seesaw February ends with gains in Dow, S&P 500 indexes

The stock markets eked out a gain to end the week and month as
investors took downbeat economic news in stride. The modest gains
still left stocks with a loss for the week, but the Dow Jones
industrial average and the Standard & Poor's 500-stock index logged
their best month since November.

The mixed reports added to investors' uncertainty about the economy,
as analysts remain split on whether a recovery is on track.

GLOBAL FINANCE

China still No. 1 foreign holder of U.S. debt, revised data show

China did not lose its place in December as the largest foreign holder
of U.S. Treasury debt, the Treasury Department said. Under annual
benchmark revisions released Friday, China's holdings of Treasury
securities stood at $894.8 billion at the end of December, keeping it
in first place ahead of Japan.

On Feb. 16, the U.S. government reported that China had been surpassed
by Japan. However, those figures did not account for purchases by
Chinese investors not in China. When those purchases are taken into
account, China's holdings in December grew by $139.4 billion above
what was previously reported.

TECHNOLOGY

Microsoft raises antitrust flag on Google search practices

Microsoft Corp. made its case publicly for increased antitrust
scrutiny of rival Google Inc., while deflecting criticism that one of
its European properties helped spur a local investigation of the
Internet search giant.

"Microsoft would obviously be among the first to say that leading
firms should not be punished for their success," the company said in a
posting on its corporate Web site, adding, "We are concerned about
Google business practices that tend to... make it harder for Microsoft
to gain search volume."

Google announced this week that the European Commission is looking
into complaints that it's hindering competition. One of the companies
complaining to the regulator is Ciao GmbH, a unit of Greenfield Online
Inc., which Microsoft acquired in 2008.

The European Commission inquiry is the latest dose of antitrust
scrutiny for Google. The U.S. Justice Department has voiced concerns
about a proposed legal agreement between Google and book publishers
and authors. The department also helped scuttle Google's 2008 attempt
to partner with Yahoo Inc. in a search and advertising partnership.

http://www.statesman.com/business/u-s-revises-growth-estimate-for-4th-quarter-293402.html

China top US government debt holder: US Treasury
27 Feb 2010, 0726 hrs IST, REUTERS

WASHINGTON: The US Treasury Department said on Friday that China held
$894.8 billion of Treasury securities at the end of last December and
was the
largest single holder of US government debt.

That had appeared to change earlier this month, when monthly data on
international capital movements appeared to show Japan had surpassed
China. But Treasury has made benchmark revisions of the data that
again show China in the No. 1 spot.

The monthly data issued on Feb. 16 for December showed China's
holdings of U.S. Treasury debt slipping to $755.4 billion from $789.6
billion in November and had Japan as the top holder. Treasury said the
monthly data does not fully account for all transactions, including
some that occur outside the United States, and its revised data are
based on custodial reports that give a truer measure of foreign
holdings.

The revised data still show China's December holdings were down from
November's $929 billion. Treasury said the revised data show Japan was
the second largest U.S. debt holder in December, with $765.7 billion
worth, up from $754.3 billion in November.

http://economictimes.indiatimes.com/news/international-business/China-top-US-government-debt-holder-US-Treasury/articleshow/5622911.cms

FEBRUARY 26, 2010, 5:59 P.M. ET.UPDATE: China Didn&apos;t Lose Title
As Top US Treasurys Holder

By Meena Thiruvengadam
Of DOW JONES NEWSWIRES

WASHINGTON (Dow Jones)-- Japan didn&apos;t surpass China to become
the world&apos;s largest foreign holder of U.S. Treasury securities in
December, after all, the Treasury Department said Friday.

In a revision to figures released earlier this month, the Treasury
said China held $894.8 billion in Treasury securities at the end of
December, more than the $755 billion that had been previously
estimated. Japan in December held $765.7 billion in Treasury
securities, less than the $769 billion Treasury had estimated.

The large revisions stem in part from limits on data collected by the
Treasury. "There are many activities" the data will not pick up," Marc
Chandler, global head of currency strategy for Brown Brothers Harriman
& Co., said in a recent client note.

Treasury&apos;s International Capital, or TIC, report tracks
transactions based on the countries in which counterparties are
located. "Purchases of Treasuries by China would reflect only
purchases by an entity in China from an entity based in the U.S.,"
Stone & McCarthy Research Associates said in a recent client note.

"The data wouldn&apos;t pick up purchases done on behalf of Chinese
investors by dealers in the U.K. or Hong Kong, for example, nor would
it pick up purchases of Treasuries by investors in China from
investors based outside of the U.S."

The Treasury revises TIC reports annually to adjust for the
data&apos;s limitations. The revisions reflect foreign holdings at the
end of June. Preliminary estimates of those annual revisions are
typically released in February.

Friday&apos;s revisions to Treasury&apos;s data mean China retained
its status as the world&apos;s top foreign holder of U.S. Treasury
securities in December. Japan had been the largest holder of U.S.
Treasury securities until China gained that distinction in 2008.

Still, the figures show that the value of Chinese holdings of Treasury
securities has fallen since June.

In June, China held an estimated $915.8 billion in Treasury
securities. That figure climbed to $938.3 billion in September to
October but fell in November and December.

The total value of foreign holdings of U.S. securities as of
June&apos;s end stood at $9.7 trillion, according to Treasury&apos;s
revised data. The figure is down from $10.3 trillion at the end of
June 2008.

Treasury plans to release an updated version of its Friday report,
which could show more revisions to holdings figures, April 30.

-By Meena Thiruvengadam, Dow Jones Newswires; 202-862-6629;
meena.thi...@dowjones.com

http://online.wsj.com/article/BT-CO-20100226-715376.html?mod=WSJ_latestheadlines

The Buzz
Why Toyota may cause higher interest rates

Japan's bond buying binge has helped to offset pressure from China
reducing U.S. debt. But will Japan cool to Treausrys after Congress'
treatment of Toyota?
By Paul R. La Monica, editor at large February 26, 2010: 2:03 PM ET

NEW YORK (CNNMoney.com) -- China is one of the largest holders of U.S.
Treasurys. So some worry that our massive budget deficit, which China
has vocally complained about, is the equivalent of biting the hand
that feeds us.

Notice though that I said that China is one of our largest creditors,
not the largest. That honor now goes to Japan, which surpassed China
according to the most recently available data from the Treasury
Department.

So far, long-term interest rates remain low. But some fear that
selling (or a lack of buying) from Japan and China could lead to a big
spike in U.S. 10-Year Treasury yields.

Up until last month, you'd think there was no need to worry about
angering the Japanese. But now that our best and brightest in Congress
have done a wonderful job of verbally undressing the CEO of Toyota
Motor (TM) in front of the entire world, are we biting the other hand
that feeds us?

"We have to be the dumbest borrower around. It's pretty remarkable. We
don't want to alienate Japan," said Haag Sherman, managing director
with Salient Partners, an investment firm in Houston.

Japan held approximately $768.8 billion in U.S. Treasurys as of
December and China owned $755.4 billion. Those numbers were just
released last week. Given the lag in when Treasury reports foreign
holdings, we won't know what Japan and China did in February until mid-
April.

So far, there doesn't seem to be any evidence that Japan (or anyone
else for that matter) is unloading Treasurys. There has actually been
heavy buying interest for the U.S. 10-year Treasury this week, pushing
the yield on this benchmark down to 3.62% from 3.8%. (Bond prices and
rates move in opposite directions.)

Still, the U.S. might want to tread carefully in its future treatment
of Toyota. The fact that Japan has been a steady buyer of our debt at
a time when China has been unwinding some of its Treasurys has
arguably helped keep long-term rates from shooting higher.

Federal Reserve chairman Ben Bernanke stressed once again earlier this
week that he thinks short-term interest rates should remain low. He'll
have a major problem though if Japan and China cool to Treasurys and
that allows long-term rates to shoot up. Just do the math.

"$750 million times 2 is a much bigger problem than $750 million times
1," said Keith McCullough, CEO and founder of New Haven, Conn.-based
investment research firm Hedgeye Risk Management, about the
possibility of our two biggest creditors losing interest in our debt.
"It won't matter if Bernanke doesn't want to raise rates. The market
may do it for him."

And the last thing the U.S. economy needs right now is a sudden jump
in long-term rates, since that could have the potential to cause a
spike in mortgage rates and do further damage to the housing market.

Japan may not necessarily need to sell Treasurys to cause a jump in
interest rates. It could simply buy less -- or stop buying altogether.

"If you think the U.S. inspired the Japanese to buy more Treasurys in
February you must not be able to hear or see," said McCullough.

Of course, this is not to say that U.S. politicians should treat
Toyota with kid gloves. It goes without saying that the American
people have a right to find out what Toyota is doing to solve the many
problems in its cars and trucks.

Sherman said that Japan's government probably realizes this and would
not do anything rash with its Treasury holdings even if it does not
like how our lawmakers treated Akio Toyoda.

"I think the Japanese have a much bigger picture view of things and
understand the U.S. is a great export market for Toyota and other
Japanese companies," he said.

0:00 /1:50Japan reacts to Toyoda's testimony

That's probably true. But the bigger issue is that the U.S. is heavily
reliant on other countries to subsidize the federal government's
spending.

Sure, the U.S. has lucked out lately. Europe's financial problems make
our fiscal challenges look tame in comparison. That means that even if
the Chinese and Japanese aren't thrilled with the U.S., a dollar-
denominated asset is probably a heck of a lot more attractive than
anything tied to the euro.

"The euro no longer feels like a good trade. Foreign central banks
have to feel queasy about aggressive allocation to the euro at this
point," said Jonathan Lewis, chairman of the investing committee with
Samson Capital Advisors, a fixed income and currency investment
management firm in New York.

What's more, any signal by Japan or China that they are dumping
Treasurys would only serve to hurt the Japanese in addition to the
U.S. That's because fixed income investors could panic and the selling
would lead rates to shoot higher, which isn't what Japan ultimately
wants.

"Any retaliatory move could be disastrous and cause massive sell-off.
Japan, or China for that matter, is not going to put a gun to our head
and theirs next to it," Sherman said.

But someone has to absorb the massive supply of Treasurys we keep
pumping on to the market. Why risk unnecessarily ticking off two of
the parties that have been among the biggest buyers?

"People should be permanently concerned about large foreign holdings
of Treasurys. We are depending on the kindness of strangers like
Blanche DuBois in 'A Streetcar Named Desire' and that doesn't always
work out," Lewis said.

Reader comment of the week: Wal-Mart's acquisition of online video
company Vudu could be the deal that finally puts the company over the
hump in digital media. But I don't think that's the case. The
competition is brutal -- on both the high end and low end of the
market. Doug Walsh agrees.

"I think what Wal-Mart may not be taking into account is that the
households most likely to be buying broadband-capable HDTV's and Blu-
Ray players are also the same homes that very likely already have a
PS3 or Xbox 360 loaded up with Netflix's digital distribution
software." he wrote.

"As for DVD's, I stream everything these days and only get DVDs for
stuff that Netflix and ZuneHD don't offer digitally yet -- but, that
said, there is almost always a line of 3 or 4 people at the grocery
store waiting to use the Redbox kiosk!"

-- The opinions expressed in this commentary are solely those of Paul
R. La Monica.

http://money.cnn.com/2010/02/26/markets/thebuzz/

..and I am Sid Harth

[bademiyansubhanallah]

Today’s Economic News: Stronger Economic Growth
February 26th, 2010 by Karina

Today, the Department of Commerce reported economic growth of 5.9% for
the last quarter of 2009 (up from its earlier estimate of 5.7%). This
represents a large change in direction from when President Obama took
office and the economy was shrinking by -6.4% and is another
encouraging sign that actions by the Obama Administration and this
Congress are working to turn the economy around:

The Wall Street Journal reports:

the U.S. economy looks to be on the mend. The Commerce Department is
expected to report that U.S. gross domestic product rose at a 5.9%
annualized pace in the fourth quarter, according to forecasters polled
by Dow Jones, up from its prior 5.7% estimate…Growth of nearly 6% is a
notable turnaround from the deep declines seen during the recession…
Yet firmer business and consumer spending along with export growth
should ultimately provide support for a self-sustaining recovery this
year, many economists said. Macroeconomic Advisers sees GDP growth of
about 4% this year.

And Bloomberg:

The U.S. economy expanded at a 5.9 percent annual rate in the fourth
quarter, more than the government reported last month, reflecting
stronger business investment and a greater contribution from
inventories. The rise in gross domestic product… marked the best
performance in more than six years…Inventories added 3.88 percentage
points to GDP, more than previously reported, and investment in
software and equipment grew at the fastest pace in almost a decade.

This economic growth is critical to job creation and putting Americans
back to work. And more must be done. Congress will continue to take
additional steps to spur job growth and strengthen our economy, with
action on the Senate jobs bill, along with additional measures, soon.

This entry was posted on Friday, February 26th, 2010 at 7:12 pm by
Karina

http://www.speaker.gov/blog/?p=2168

Prospects Daily: U.S. Q4-2009 Real GDP growth revised up slightly
Submitted by Economic Monitoring Team on Fri, 2010-02-26 13:51
Important developments today:

1. U.S. GDP growth for Q4-09 revised up slightly

2. U.S. existing home sales tumble.

3. Japanese indicators shift upward, but deflation remains

U.S. GDP growth for Q4-09 revised up slightly. The Commerce Department
today marked-up GDP growth for the fourth quarter to 5.9% from the
initial estimate of 5.7% released last month. The improvement in growth
—which marks the best performance in over six years—was the result of
a larger that previously reported contribution from inventories, which
added 3.9 points to growth in the quarter compared to 3.3 points
earlier estimated. Business investment also grew at a substantially
faster pace, up 6.5% (3.5%) with spending on equipment jumping 18.2%
vis-à-vis 13.3% earlier believed. Consumer spending, however, grew
more sluggishly, by 1.7% for the quarter compared to 2% earlier,
leading to a reduced contribution to overall growth of 1.2 percentage
points compared to 1.4 in the first release.

U.S. existing home sales tumble. The number of previously owned single-
family homes in the United States sold in January dropped for a second
month running in another sign that the federal tax credit program
appears unable to generate demand as effectively as it did over the
third quarter of 2009. January sales dipped 7.2% (m/m) to an annual
rate of 5 million, from 5.4 million in December, dropping close to the
weakest sales volumes last seen in late 2008. Momentum in home sales
(rolling quarterly average, saar) also continued to diminish,
registering growth of 11% in January, down substantially from the 43%
recorded in November 2009.

U.-Michigan/Reuters consumer sentiment fell in February to 73.6 from
74.4 in the previous month, a clear downdraft, though not of the depth
witnessed in the Conference Board survey returns for the month.
Concern over jobs is weighing heavily on households in the current
environment, with new claimants for jobless benefits increasing to a
three-month peak last week. Furthermore, the weakness in the housing
market, which is undergoing a sharp contraction in home sales, has
consumers concerned about declining property values once more.

Japanese indicators shift upward, but deflation remains. Reports today
tend to confirm that the pace of growth set by the Japanese economy
during the final quarter of 2009 (GDP up 4.4%, saar) is being
maintained during the first months of 2010. Recent trade information
showed exports advancing at the fastest pace in more-than 30 years in
January (driven by surging Chinese and other East Asian demand), and
industrial production has now echoed the advance, picking-up 2.3% in
the month following a 2.2% gain in December. The resultant momentum of
factory output stands at 23.4% (saar) up from 19.7% during the fourth
quarter—favorable for a step-up in job creation. Today’s production
numbers suggest that the economy will keep expanding on the back of
Asian demand, while capital outlays of large Japanese manufacturers
accelerate.Moreover, retail sales volumes turned positive for the
first in 16-months, picking up 0.4% (y/y) in January despite a souring
of Tokyo consumer sentiment. But Tokyo-CPI continued in deflation,
dropping 1.8% in February (y/y) but marking an improvement from
January’s 2.1% decline. Finally the intermediate prices measured by
the corporate goods price index also marked improvement, falling 2.1%
from year earlier levels in January contrasted with a 3.5% slide in
the month preceding.

http://blogs.worldbank.org/prospects/node/551

Q&A with manufacturing business expert Richard McCormack

By Leo W. Gerard, USW International President, and Richard McCormack,
editor and publisher of Manufacturing & Technology News - 02/26/10
01:05 PM ET
Leo W. Gerard: Richard, when you appeared recently at Youngstown State
University as a guest of the Center for Working-Class Lecture Series,
you talked about how essential manufacturing is to the U.S. economy
and how politicians seem clueless about that. In fact, you said,
“Politicians don’t get it.” When did that happen because clearly
politicians in the 1950s understood that a solid economy rests on
manufacturing products of real value?

Richard McCormack: It happened imperceptibly over the past three
decades, but perhaps the defining (though little observed) event was
when Wal-Mart overtook General Motors as the country’s largest
employer. When that happened, the retail industry became one of the
most powerful political entities in the country, replacing the
manufacturing industry.

The crossover from GM to Wal-Mart is important because retail started
setting the terms of the debate not only with politicians, but also
with manufacturers. Retailers are driven by increasing profits by
pennies on the dollar by paying workers low wages with no benefits and
buying cheap imports.

The loss of the manufacturing sector’s political influence also
occurred with the rise of the finance sector, which became the
dominant force in political gift-giving. The Wall Street financial
sector does not give one-half hoot about American jobs.

The loss of America’s industrial capability also coincided with the
persistent selling of economic ideology to the American public and its
politicians that the country would be a lot more prosperous getting
rid of crappy manufacturing jobs and creating jobs in the service and
“knowledge” sectors. That grand experiment in creating a “post-
industrial economy” just suffered a monumental collapse.

Americans have allowed the big corporate multinational companies and
their agents to take control of their political system. It remains to
this day a system that is stacked against American workers and
American taxpayers. Americans have not entered the fight to save
American jobs. I wonder if the middle class is drugged up on Britney
Spears, Michael Jackson and Tiger Woods; addicted to sugar, salt and
fat; fake “news” shows on television; and Prozac to deal with
depression and lull them into thinking that their condition is beyond
control. Something is stopping Americans from getting off their
couches and demanding a voice in America’s economic future. Americans
have lost their country to a few people who make a lot of money off
outsourcing, off-shoring and importing everything Americans used to
make and continue to buy. Americans must take their country back
before it is too late.

Gerard: You have written about this problem in the book,
“Manufacturing A Better Future for America,” and elsewhere. How do we
make politicians understand how vital manufacturing is?

McCormack: Politicians need to be hit over their heads with a baseball
bat as forcefully as is possible, with Americans insisting that they
at least acknowledge that a country that doesn’t make what is consumes
is going to fail. It is a simple concept. There are many historical
precedents of countries and empires failing after having lost their
productive capacity. It is an ancient concept: a country that does not
have industry cannot support an army.

The United States has just gone through a period of unprecedented loss
of wealth. Its citizens have taken a collective economic step down.
Yet politicians are sitting smug in the belief that they can borrow
more money. They work in Washington, D.C., where I live. This place is
humming. Most of them have no idea what the country looks like. Have
they been to Detroit, Saginaw, Youngstown – America’s heartland?
America’s heartland is dead. That means its heart has stopped beating.
What happens to a person when their heart stops beating?

The financial meltdown wasn’t caused by the housing bubble or the
financial bubble or the dot-com bubble, although all of those things
contributed. It was caused by the simple fact that American consumers
have sent all of their wealth to China, Korea, Japan, Germany and
Mexico buying all of the things they once made. Tell that to the
politicians. They don’t get it. They don’t get it and they don’t get
it, which means they have to be hit over the head and be hit over the
head and be hit over the head as hard as is possible to hit them with
the simple message, over and again: the country cannot survive if it
sends all of its wealth offshore. The country has to produce what it
consumes. Our politicians do not understand this basic FACT. Have they
looked at why China is becoming a superpower? It’s not because China
exports its sports heroes and pop culture. It’s because China has
embraced manufacturing as THE means to economic superiority. It is the
same path the United States took to reach global dominance.
Inexplicably, the United States abandoned that path.

Gerard: In Youngstown, you quoted Ralph E. Gomory, the retired IBM
senior vice president for Science and Technology and a winner of the
Heinz Award for Technology, the Economy and Employment, as saying the
interests of American corporations have diverged from the interests of
America, yet politicians act as if they’re still the same. Can you
explain what that means both in terms of the economy and employment?

McCormack: Ralph Gomory has made one of the most profound and
important observations on the current global economic situation. He
says that outsourcing is not free trade. Yet the federal government
still represents the interests of the powerful companies that are
firing millions of American workers and shifting those jobs offshore.

Domestic manufacturers have told me repeatedly that the greatest
protectionists in our country are the corporate and financial
companies that are doing everything in their power to protect their
assets in China. To influence policy in their favor, the
multinationals, retailers, importers and foreign producers fund think
tanks, trade associations, lobbyists, lawyers and public relations
firms. These are the real protectionists, not American businessmen who
want to save American jobs and the American middle class.

The U.S. government continues to craft policies that are beneficial
for companies that outsource jobs. For instance, the U.S. government
refuses to confront China over its currency manipulation because the
companies that benefit most from China’s undervalued currency are the
American companies that have shifted their production there. Who does
the U.S. government represent? The tens of millions of American
workers who get the ax due to China’s blatant cheating, or the few
CEOs at multinational companies and the financial class who make more
and more money?

It was no coincidence that the stock market had its best year ever in
2009 – the same year millions of Americans were losing their jobs. The
dynamic still hasn’t changed, despite the financial sector’s meltdown:
Every time a company announces American worker layoffs, its stock
price goes up. Yet policymakers equate the stock market with a healthy
economy. They are as wrong on that as they are on the belief that the
world is flat.

Gerard: You have also said that politicians’ decision to implement
the concept of free trade – which is not fair trade – has largely
contributed to the nation’s problems. Would you talk about how
something as positive-sounding as free trade devastated American
industry?

McCormack: A friend of mine works at the Commerce Department. He says
that free trade is a farce. The United States has tariffs of 2 percent
or 3 percent on incoming products. Yet the United States trades with
countries with tariffs that are 10 times higher. Is that free trade?
He has a simple solution to the U.S. trade crisis: hold up a mirror to
any nation trading with the United States. Whatever their tariffs are
on U.S. products entering their country, that is what the U.S. tariff
should be on their products entering America.

How can U.S. producers compete when they must pay for all of the costs
that foreign producers don’t have to add to the price of their
product? These costs include things like scrubbers and baghouses on
coal plants. Not requiring the generation of clean power is a Chinese
subsidy offered to all manufacturers setting up shop in China. It is
an unfair subsidy that U.S. companies cannot counter without the U.S.
government saying that it is unfair. Even worse, 75 percent of the
mercury pollution in the United States can be attributed to Asian coal-
fired plants that do not have emissions controls. The majority of
these plants are located in China. China is poisoning America. If it
was happening in the United States, the federal government would take
the American utility or industrial company to court and impose fines
of millions of dollars. What does the U.S. government do about China’s
toxic emissions drifting over U.S. airspace? Nothing.

U.S. manufacturers have to abide by a thousand EPA rules and OSHA
standards. Not so in China. That is a huge advantage. The United
States government lets American companies that have set up shop in
China get away with not having to abide by American standards – even
though their products are being sold in the United States.

It is morally wrong.

Any foreign product sold in the United States should be required to be
produced under the same conditions as is required for producers of the
same product in the United States. If these requirements are not going
to be enforced on overseas competitors, as they are here so vigorously
by our federal government, then those cost advantages should be
calculated and tacked onto the price of the product entering the
United States.

Foreign producers should NOT have this unfair advantage. It is an
outrage that the United States has allowed this to occur.

It is time for the country to stop listening to importers, their
agents in Washington, including foreign governments, retailers and the
financial industry. The U.S. government has to start representing the
interest of American manufacturers, workers and business owners. It
does not now. This is not a conspiracy theory. This is reality.

Gerard: In the chapter you wrote for the book, “Manufacturing A Better
Future for America,” you said something that every American should
find frightening. You said that when Congress cuts the taxes of
individuals or gives them tax rebates in an attempt to stimulate the
economy, the actual effect is to create jobs in foreign countries. Can
you explain that?

McCormack: The U.S. government has just spent the past 10 years trying
DESPERATELY to stimulate the U.S. economy, with trillion-dollar tax
cuts, tax giveaways, low interest rates and even two wars that have
lasted for nine years. Then the Democrats took office in 2009 and
enacted their own $787 billion “stimulus.” Every time Americans have
had a few extra bucks in their pocket (from tax cuts to direct
government payments to home equity loans) they have spent that money
on products that are now made somewhere else in the world. Is it any
wonder why China’s economy was growing by 10 percent per year during
the past 10 years, as U.S. consumers shipped more and more of their
hard-earned dollars there to buy everything?

Gerard: You have been critical of the second economic stimulus bill –
called a jobs bill – that Congress is now talking about. You contend
that the proposed bill won’t create new jobs. Here’s what you actually
said, “I don’t see any jobs there. I just see more money being spent.”
What’s wrong with that bill?

McCormack: It is more of the same. Only a very small percentage of
the bill encourages investment in U.S. production. There is not a
single program aimed at countering the incentives that foreign
countries are providing their companies and U.S. producers to set up
operations in their country. The United States has to start competing
– to start countering those incentives with its own incentives to
manufacturing companies. It doesn’t matter if these companies are
American companies or foreign companies. To create lasting, decent
jobs, the United States needs global companies to open production in
the United States to serve the U.S. market.

Small American companies do not need a $30-billion tax cut to hire
workers. They need CUSTOMERS. They won’t hire a soul unless they have
a customer to sell them a product. Yet the country continues to lose
manufacturing plants to China.

Gerard: If you could actually get Congress to listen to you, what
would you tell them is necessary to create good new jobs?

McCormick: Ask the 50 economic development officers from each of the
states to form a U.S. Economic Development Council. These people and
their offices know what is being planned in terms of company
expansions. Give them a war chest, some of the TARP money or funding
from the proposed “jobs” bill, and tell them to deploy the same
tactics they use in their states to attract industry to America. All
of the states are competing against each other to attract industrial
investment. They should be working together, especially since supply
chains cross state borders.

Gerard: When I go to Washington, what I hear is that we don’t need
manufacturing. That’s old and dirty. So many politicians say the U.S.
can move to a financial and service economy. You disagree with that.
Why?

McCormick: I hear it too, though a little less often, thank goodness.
This argument is what has led to the demise of the United States.
People are just starting to realize that as manufacturing goes
offshore, high-end jobs in design and research and development go with
it. When a plant closes, the supply chain disappears. This supply
chain includes materials and parts producers, software providers, like
CAD (computer-aided design), ERP (enterprise resource planning) and
dozens of other high-tech equipment providers, machine tool companies,
maintenance, accounting, packaging – the list goes on to include such
things as the local restaurants, janitorial services and those
dependent on the plant’s tax revenues, like librarians, county clerks,
police officers and teachers. These are service jobs, all of which
depend on manufacturing. One manufacturing job supports 15 other jobs.
No other category of job has such a high multiplier. The United State
must do whatever it can to start creating manufacturing jobs.

Gerard: We are losing at the international trade game with imports far
exceeding exports and creating a massive trade deficit. Is it over for
the U.S., or can Washington actually do something to reverse this
situation?

McCormick: The game is not over. Not yet. But the country is
perilously close to a period of sustained pain caused by continuing
huge trade and budget deficits. The United States is assuming greater
and greater debt. The country cannot borrow its way to prosperity. At
some point very soon, the United States has to stop accumulating debt
and start the process of paying it down. The only way to do this is by
producing the products Americans consume – like cellphones,
televisions, digital cameras, computers, semiconductors, printed
circuit boards, autos, steel, household items, appliances, luggage,
clothes – everything – and to start producing a new generation of
radical and revolutionary products that the rest of the world needs to
buy.

Source:

http://thehill.com/blogs/congress-blog/politics/83937-qaa-with-manufacturing-business-expert-richard-mccormack

The contents of this site are © 2010 Capitol Hill Publishing Corp., a
subsisiary of News Communications, Inc.

Comments (5)Question: What do we still manufacture and how long will
we continue to do so?
BY Brainmaggot on 02/26/2010 at 18:30

1. What, as citizens, can we do to get these lawmakers to clean up
this mess and bring back the American Companies to setup shop here in
the US and hire more Americans (the main consumers of their products),
and help the American economy?2. The media has covered everything from
healthcare to home value declines, to jobloss, why are they not
talking about this issue of American Companies abandoning its workers,
the American people?
BY Ara on 02/26/2010 at 19:44

This should be required reading for every American.
BY Trevor on 02/26/2010 at 20:27

America has been held hostage by the eviromentalist and it's been
drilled that manufacturing is bad and operated by greedy business
owners. Greedy union bosses are'nt blameless either. Capitol Hill
echoes those sentiments (except about the union bosses). How long will
voters let the status quo of anti-manufacturing sentiment live on? How
long will the "manufacturing jobs kill the environment" attitude
reign?
BY Mon on 02/26/2010 at 22:27

Whlo are these slick propagandists for manufacturing?Let me look at
their hands and fingernails. I'll bet they never worked in a factory,
BY clairesolt on 02/27/2010 at 00:33

http://thehill.com/blogs/congress-blog/politics/83937-qaa-with-manufacturing-business-expert-richard-mccormack

Exclusive interview Brian Moynihan, CEO of Bank of America Recommend
Comments()
(NECN: Peter Howe) - In an exclusive NECN interview, Bank of America
CEO Brian Moynihan offered an insider's view -- a discouraging one --
on the U.S. economy.

As head of the nation's biggest bank, one that controls about (NECN:
Peter Howe) - In an exclusive NECN interview, Bank of America CEO
Brian Moynihan offered an insider's view -- a discouraging one -- on
the U.S. economy.

As head of the nation's biggest bank, one that controls about $1 of
every $8 Americans deposit with banks, Brian Moynihan leads a company
that has 60 million customers across the country, BofA has its finger
on the pulse of virtually every vein of the U.S. economy.
It's not hard these days to find business people or politicians
lamenting "the credit crunch," what they call banks' reluctance to
provide credit to business owners trying to grow.

But Moynihan said from his perspective, the bigger problem is
borrowers not making use of all the credit they already have. "They
could borrow more. They just don't have things to do with the money …
because they don't have fundamental demand for things that they borrow
money for. They're not employing more people. They don't happen to
build more products.''

Moynihan made his comments in an exclusive NECN interview taped for
This Week In Business, which airs at 12:30 p.m. Sunday and 4:30 a.m.
Monday. While he works out of the bank's headquarters in Charlotte,
N.C., he comes back to his hometown of Wellesley, Mass., near Boston,
almost every weekend to spend time with his wife and three kids.

Moynihan said his bank is poised to increase small business this year
by a third, or $5 billion over its usual small-business lending
activity.

"The problem we've really got, though, is that there are certain areas
that just because of the dynamics of the economy have made it very
difficult to lend to, and that's something we and the government and
others are trying to figure out a solution for. Whereas other areas
are fine, they just don't have anything to do with the money. So as we
sort this economy out, we've got to figure out how to create demand
for these clients and then at the same time figure out how to
restructure some of these industries that have been beaten up pretty
badly.'' Those he sees as having been especially hard-hit are those
dependent on home building and construction.

Moynihan officially became CEO of Bank of America on January 1 after
stints running the bank's consumer banking division, investment
banking, and wealth management, and also serving as general counsel.

The same economic stagnation he says keeps businesses from
borrowing ... is keeping him from adding jobs. "We're not really
hiring in the grand extent anywhere. Our employees are pretty flat
overall, because the economy's not giving us much revenue and growth"
to justify major expansions of his 300,000-person workforce.

In other comments, Moynihan indicated he is supportive of the concept
of a U.S. Consumer Financial Protection Agency, an Obama
Administration proposal for a still-to-be-negotiated congressional
overhaul of the U.S. financial regulatory system.

"It's to try to make sure that consumers can't get themselves in the
same shape, condition, financially that they got themselves into"
during the fiscal crisis of 2008-09. "We've been very supportive of
that … We believe in the themes. The question [is that] the devil's in
the details how it all will work, and, frankly, the policymakers can
work on that. But we have been ahead of those themes, and we basically
think that those are good themes for our country to get after. If you
can't drive 120 miles an hour down the highway, you've got to be
careful that we legislate [against] the same kinds of activities that
could cause financial damage to people, and we think that that agency
and other different types of ways to approach that problem are the
right types of things.''

Moynihan also had words of praise for U.S. Rep. Barney Frank, the
Massachusetts Democrat who chairs the House Financial Services
Committee. "The great thing about Barney is, he's so smart. He knows
the issues our industry faces, he knows the issues that consumers
face, and he has an incredible ability to sort of fit those
together.'' Moynihan, who lives in Frank's congressional district, was
asked whether he would vote for Frank when he comes up for reelection
this fall and said, "I will … I absolutely will.'' of every Americans
deposit with banks, Brian Moynihan leads a company that has 60 million
customers across the country, BofA has its finger on the pulse of
virtually every vein of the U.S. economy.
It's not hard these days to find business people or politicians
lamenting "the credit crunch," what they call banks' reluctance to
provide credit to business owners trying to grow.

But Moynihan said from his perspective, the bigger problem is
borrowers not making use of all the credit they already have. "They
could borrow more. They just don't have things to do with the money …
because they don't have fundamental demand for things that they borrow
money for. They're not employing more people. They don't happen to
build more products.''

Moynihan made his comments in an exclusive NECN interview taped for
This Week In Business, which airs at 12:30 p.m. Sunday and 4:30 a.m.
Monday. While he works out of the bank's headquarters in Charlotte,
N.C., he comes back to his hometown of Wellesley, Mass., near Boston,
almost every weekend to spend time with his wife and three kids.

Moynihan said his bank is poised to increase small business this year
by a third, or billion over its usual small-business lending
activity.

"The problem we've really got, though, is that there are certain areas
that just because of the dynamics of the economy have made it very
difficult to lend to, and that's something we and the government and
others are trying to figure out a solution for. Whereas other areas
are fine, they just don't have anything to do with the money. So as we
sort this economy out, we've got to figure out how to create demand
for these clients and then at the same time figure out how to
restructure some of these industries that have been beaten up pretty
badly.'' Those he sees as having been especially hard-hit are those
dependent on home building and construction.

Moynihan officially became CEO of Bank of America on January 1 after
stints running the bank's consumer banking division, investment
banking, and wealth management, and also serving as general counsel.

The same economic stagnation he says keeps businesses from
borrowing ... is keeping him from adding jobs. "We're not really
hiring in the grand extent anywhere. Our employees are pretty flat
overall, because the economy's not giving us much revenue and growth"
to justify major expansions of his 300,000-person workforce.

In other comments, Moynihan indicated he is supportive of the concept
of a U.S. Consumer Financial Protection Agency, an Obama
Administration proposal for a still-to-be-negotiated congressional
overhaul of the U.S. financial regulatory system.

"It's to try to make sure that consumers can't get themselves in the
same shape, condition, financially that they got themselves into"
during the fiscal crisis of 2008-09. "We've been very supportive of
that … We believe in the themes. The question [is that] the devil's in
the details how it all will work, and, frankly, the policymakers can
work on that. But we have been ahead of those themes, and we basically
think that those are good themes for our country to get after. If you
can't drive 120 miles an hour down the highway, you've got to be
careful that we legislate [against] the same kinds of activities that
could cause financial damage to people, and we think that that agency
and other different types of ways to approach that problem are the
right types of things.''

Moynihan also had words of praise for U.S. Rep. Barney Frank, the
Massachusetts Democrat who chairs the House Financial Services
Committee. "The great thing about Barney is, he's so smart. He knows
the issues our industry faces, he knows the issues that consumers
face, and he has an incredible ability to sort of fit those
together.'' Moynihan, who lives in Frank's congressional district, was
asked whether he would vote for Frank when he comes up for reelection
this fall and said, "I will … I absolutely will.''

http://www.necn.com/02/26/10/Exclusive-interview-Brian-Moynihan-CEO-o/landing.html?blockID=187677&feedID=4215

[bademiyansubhanallah]

From The Times February 27, 2010

US economy gains speed but economists say boost may not lastAlexandra
Frean, US Business Correspondent

The economy of the United States expanded more vigorously than
previously thought in the fourth quarter of 2009, showing its biggest
rise in six years. But economists warned that the boost to growth may
fade during this year as the effects of the Government’s stimulus wear
off.

Separate figures showing a surprise plunge in house sales also raised
concern about the sustainability of America’s return to economic
growth.

According to the US Commerce Department, the economy expanded 5.9 per
cent in the fourth quarter of 2009, an improvement from an earlier
estimate of 5.7 per cent.

The upward revision was driven by positive contributions from business
investment and inventories, but consumer spending was less than
originally thought.

The fourth-quarter figure compares with 2.2 per cent growth in GDP in
2009’s third quarter, lifting the world’s biggest economy from
recession after four quarters of contraction. For the full year of
2009, GDP fell 2.4 per cent, the biggest full-year decline since the
10.9 per cent recorded in 1946.

The better than expected US GDP figures come after data from the
Office for National Statistics, which indicated that Britain emerged
from recession more strongly than previously thought in the fourth
quarter, with 0.3 per cent growth, compared with an original estimate
of 0.1 per cent.

The US data was keenly awaited after unemployment data on Thursday
that was worse than expected, showing new jobless claims of 22,000
last week, giving a seasonally adjusted 496,000. The figures also
coincided with data suggesting that the housing market’s recovery is
faltering.

The US National Association of Realtors said that sales of previously
occupied homes had fallen by more than expected, at a rate of 7.2 per
cent in January, to a seasonally adjusted annual rate of 5.05 million,
from 5.44 million in December. Lawrence Yun, the trade group’s chief
economist, said that the results, the weakest since June 2009, were
“certainly not good”.

Markets gave a mixed reaction to the data. After falling 45 points in
early trading, the Dow Jones industrial average was flat at 10,322 by
lunchtime. The S&P 500 was also flat at 1,102.87.

The revised American GDP figures show that capital expenditure by
firms on equipment and software is estimated to have risen by 18.2 per
cent, against 13.3 per cent in initial estimates.

Consumption growth was revised down slightly to 1.7 per cent, from 2
per cent. The figure for export growth was revised up to 22.4 per
cent, from 18.1 per cent, but the figure for imports was revised up
more sharply to 15.3 per cent, from 10.2 per cent, reducing the
contribution from net external trade to 0.3 per cent, from 0.5 per
cent.

The rate at which inventories were run down in the fourth quarter
slowed by more than previously thought, contributing 3.9 percentage
points to GDP, against the previous estimate of 3.4. Although
rebuilding of inventories is giving the economy a temporary boost as a
backlog of projects put on hold during the recession is worked
through, not all analysts expect it to last.

Paul Ashworth, of Capital Economics, expects inventories to give a
strong boost to GDP growth in this year’s first half, as stocks start
to grow, rather than merely shrink more slowly, but he said that the
boost would fade in the second half as stocks returned to normal
levels.

http://business.timesonline.co.uk/tol/business/economics/article7043168.ece

US growth rate revised upwards to 5.9% in Q4
Saturday, 27 February 2010

The US economy expanded by 5.9 per cent in the fourth quarter of 2009,
the fastest increase in six years, it emerged yesterday as the
Commerce Department revised up its earlier estimate of 5.7 per cent.

The Q4 figure compares with 2.2 per cent growth in GDP in the third
quarter of 2009, lifting the world's biggest economy from recession
after four quarters of contraction. However, separate reports showed
that existing home sales fell sharply in January and consumer
confidence slipped this month.

http://www.independent.co.uk/news/business/news/us-growth-rate-revised-upwards-to-59-in-q4-1912447.html

US consumers lag behind economy
By Alan Rappeport in Washington

Published: February 27 2010 02:00 | Last updated: February 27 2010
02:00

US economic output grew at a faster rate than previously thought at
the end of last year, as a resurgence in business investment fuelled
the economy's strongest quarter since 2003, but consumers and the
housing market remain points of concern.

The US economy grew at an adjusted annual rate of 5.9 per cent in the
fourth quarter of last year, commerce department figures showed
yesterday . That was better than economists expected and was an
improvement from last month's preliminary reading of 5.7 per cent.

However, other data yesterday showed the US housing market was still
shaky. The National Association of Realtors said that home resales
fell by 7.2 per cent from December to January but they are still
higher than the depressed levels of a year ago.

The upgrade of GDP revealed slower inventory liquidation, stronger
exports and greater nonresidential fixed investment than previously.
The downshift in the pace of destocking accounted for 4 percentage
points of the rise in GDP, but "real final sales" increased more
slowly than thought.

Businesses cut inventories by $16.9bn (£11bn, €12.5bn) in the fourth
quarter after slashing them by $139.2bn in the prior three months.
Investment by businesses was also up, jumping by 6.2 per cent after
falling 1.3 per cent in the third quarter.

Economists have welcomed the surge in fourth-quarter growth but say
that a rise in output led by inventories is not sustainable because it
is a cyclical phenomenon that occurs after a deep downturn. To date,
the recovery has been led by a rebound in the manufacturing sector,
while consumer spending and confidence remain shaky .

"About two-thirds of fourth-quarter real GDP growth was due to a
slowing in the pace of inventory liquidation, and we expect the growth
rate of GDP to slow substantially in the first quarter," said John
Ryding and Conrad DeQuadros, economists at RDQ Economics. Most
analysts predict a growth rate of 2.2 per cent in the first quarter of
this year.

Consumer spending rose by 1.7 per cent in the fourth quarter and was
weaker than previously assumed. A separate report yesterday from
Thomson Reuters and the University of Michigan revealed that consumers
had begun to feel gloomier in February on fears about incomes and job
prospects.

Richard Curtin, chief economist of the sentiment survey, said that
with the labour market so uncertain consumers are now most focused on
building savings and reducing debt. He predicted consumer spending,
which accounts for about 70 per cent of economic output in the US,
would rise by 1.8 per cent this year.

Despite the recent upturn in growth, the US economy continues to face
headwinds and policymakers are debating the best way to unwind
government support.

On Thursday Ben Bernanke, chairman of the Federal Reserve, reminded
senators in his annual testimony that the economy was still "very
weak" and that persistent slack in the labour market poses long- term
risks. The Fed has also been working to unwind its support of the
housing market without destabilising that sector.

The housing market showed promising signs of recovery last year, but
more recent data show that residential real estate remains fragile and
dependent on stimulus. Distressed and foreclosure sales are weighing
on prices, which sit at 2002 levels, and analysts say the market has a
"hangover" from the first-time homebuyer tax credit.

Property bubble, Page 8
Copyright The Financial Times Limited 2010. You may share using our
article tools.

http://www.ft.com/cms/s/0/8e95240c-233e-11df-ba8f-00144feab49a.html

From The Times February 27, 2010

US economy gains speed but economists say boost may not lastAlexandra
Frean, US Business Correspondent

The economy of the United States expanded more vigorously than
previously thought in the fourth quarter of 2009, showing its biggest
rise in six years. But economists warned that the boost to growth may
fade during this year as the effects of the Government’s stimulus wear
off.

Separate figures showing a surprise plunge in house sales also raised
concern about the sustainability of America’s return to economic
growth.

According to the US Commerce Department, the economy expanded 5.9 per
cent in the fourth quarter of 2009, an improvement from an earlier
estimate of 5.7 per cent.

The upward revision was driven by positive contributions from business
investment and inventories, but consumer spending was less than
originally thought.

The fourth-quarter figure compares with 2.2 per cent growth in GDP in
2009’s third quarter, lifting the world’s biggest economy from
recession after four quarters of contraction. For the full year of
2009, GDP fell 2.4 per cent, the biggest full-year decline since the
10.9 per cent recorded in 1946.

The better than expected US GDP figures come after data from the
Office for National Statistics, which indicated that Britain emerged
from recession more strongly than previously thought in the fourth
quarter, with 0.3 per cent growth, compared with an original estimate
of 0.1 per cent.

The US data was keenly awaited after unemployment data on Thursday
that was worse than expected, showing new jobless claims of 22,000
last week, giving a seasonally adjusted 496,000. The figures also
coincided with data suggesting that the housing market’s recovery is
faltering.

The US National Association of Realtors said that sales of previously
occupied homes had fallen by more than expected, at a rate of 7.2 per
cent in January, to a seasonally adjusted annual rate of 5.05 million,
from 5.44 million in December. Lawrence Yun, the trade group’s chief
economist, said that the results, the weakest since June 2009, were
“certainly not good”.

Markets gave a mixed reaction to the data. After falling 45 points in
early trading, the Dow Jones industrial average was flat at 10,322 by
lunchtime. The S&P 500 was also flat at 1,102.87.

The revised American GDP figures show that capital expenditure by
firms on equipment and software is estimated to have risen by 18.2 per
cent, against 13.3 per cent in initial estimates.

Consumption growth was revised down slightly to 1.7 per cent, from 2
per cent. The figure for export growth was revised up to 22.4 per
cent, from 18.1 per cent, but the figure for imports was revised up
more sharply to 15.3 per cent, from 10.2 per cent, reducing the
contribution from net external trade to 0.3 per cent, from 0.5 per
cent.

The rate at which inventories were run down in the fourth quarter
slowed by more than previously thought, contributing 3.9 percentage
points to GDP, against the previous estimate of 3.4. Although
rebuilding of inventories is giving the economy a temporary boost as a
backlog of projects put on hold during the recession is worked
through, not all analysts expect it to last.

Paul Ashworth, of Capital Economics, expects inventories to give a
strong boost to GDP growth in this year’s first half, as stocks start
to grow, rather than merely shrink more slowly, but he said that the
boost would fade in the second half as stocks returned to normal
levels.

http://business.timesonline.co.uk/tol/business/economics/article7043168.ece

US Q4 GDP grows fastest in 6 years

05:55 AM Feb 27, 2010WASHINGTON - The United States economy
accelerated at the strongest pace in over six years late last year,
with the Commerce Department on Friday revising upwards its fourth-
quarter growth estimate as businesses slowed inventory reduction and
boosted spending.

Gross domestic product rose at a 5.9 per cent annual rate in the
period from October through December, the fastest rate since the third
quarter of 2003. GDP expanded by 2.2 per cent in the third quarter of
2009. A month ago, the department first estimated that GDP rose by an
annual 5.7 per cent in the fourth quarter.

But investors drew little cheer from the strong showing, as the jump
was mainly due to inventory adjustments. And although the data
confirmed that the economic rebound was picking up following a year-
long contraction that ended in the second quarter, the gains are not
expected to be sustained unless consumer spending can take up the
slack from waning stimulus money.

Ten minutes after the opening on the New York Stock Exchange, the Dow
Jones Industrial Average was at 10,318.31, little changed from the
previous close of 10,321.03. For all of 2009, GDP declined an
unrevised 2.4 per cent, which was the largest full-year contraction
since the 10.9 per cent drop in 1946. The economy expanded 0.4 per
cent in 2008 and 2.1 per cent in 2007.

The latest report showed that inventory liquidation slowed more than
expected, contributing 3.88 percentage points to GDP - the most since
the fourth quarter of 1987. US companies pared inventories October
through December by US$16.9 billion ($23.8 billion), revised from US
$33.5 billion.

Improved spending by businesses also contributed to the upward
adjustment in growth, adding 0.62 percentage point to GDP. Business
spending rose 6.9 per cent, up from an earlier estimate of 2.9 per
cent and a turnaround from the 5.9 per cent decline in the third
quarter.

Consumer spending rose by 1.7 per cent, compared to the previously
estimated 2 per cent gain. Consumer spending contributed 1.23
percentage points to GDP in the fourth quarter, a revision from 1.44
percentage points initially estimated. Another component of GDP,
housing, was revised down to 5 per cent from 5.7 per cent in the
fourth quarter. AGENCIES

http://www.todayonline.com/Business/EDC100227-0000132/US-Q4-GDP-grows-fastest-in-6-years

U.S. Economy
GDP Shines In Fog Of Recovery
Steve Schaefer, 02.26.10, 01:25 PM EST

Despite stubbornly high unemployment and nervous business owners, the
big fourth-quarter growth rate still stands, and then some.

Almost a month ago the Commerce Department reported that the U.S.
economy grew at a robust 5.7% clip in the fourth quarter. Some
economists and Fed watchers were stunned by the figure and said the
number would probably be revised lower once more data became
available. Not exactly.

On Friday the second estimate on fourth-quarter gross domestic product
was actually revised higher, to 5.9%. The increase reflects upward
revisions in private-inventory investment, exports and nonresidential
fixed investment that were partially offset by an uptick in imports
and downward revisions to personal-consumption expenditures and state
and local government spending.

The inventory increase is noteworthy, since many observers are
skeptical about the sustainability of such robust economic growth
because of the significant restocking that took place in the fourth
quarter. (See "Don't Rejoice Over Higher GDP Yet.")

Daniel Penrod, senior industry analyst with the California Credit
Union League, said the positive revision is a good sign, but
sustainability and stability are the keys. To get an accurate snapshot
of the U.S. economy "you need to look at the big picture, not just
cherry-pick one number" like GDP, he says.

The signals from the components that make up GDP (consumption,
investment, government expenditures and net exports) are still mixed,
says Penrod, who draws a comparison with the housing market. After
substantial upticks from a low pace of sales and new home
construction, recent figures have shown renewed weakness. That "two
steps forward, one step back" pattern is keeping consumers and
businesses wary.

Penrod warns that the slack in the labor market won't be taken up just
because inventories grew in the fourth quarter. The increase likely
means more production that results in more hours worked or temporary
staffing, but that isn't the same as gains in permanent employment,
which is the stuff that begins a virtuous cycle of spending, business
expansion and new hiring.

Related Stories

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http://www.forbes.com/2010/02/04/apple-google-pfizer-personal-finance-financial-advisor-network-goldman-sachs.html?partner=relatedstoriesbox
What Kind Of Recovery Can We Expect?
http://www.forbes.com/2010/02/04/economic-recovery-davos-entrepreneurs-finance-wharton.html?partner=relatedstoriesbox
Don't Rejoice Over Higher GDP Yet
http://www.forbes.com/2010/01/29/briefing-americas-midday-markets-economy-gdp.html?partner=relatedstoriesbox
A Raring Recovery
http://www.forbes.com/2010/02/08/gdp-growth-recovery-v-shaped-opinions-columnists-wesbury-stein.html?partner=relatedstoriesbox
Jump In Jobless Claims Raises Recovery Questions
http://www.forbes.com/2010/02/18/jobless-claims-increase-markets-equities-unemployment-indicator.html?partner=relatedstoriesbox

Another issue for concern is a lack of visibility for small
businesses, which Penrod says leads to doubts about whether any uptick
in demand is for real and warrants hiring more workers.

The consumer is indeed making limited contributions to GDP, and a
stunning dip in the Conference Board's consumer confidence gauge for
February fueled concern earlier this week. That worry was tempered
somewhat by the updated University of Michigan consumer sentiment
reading Friday that was more or less in line with expectations, and
Penrod says he takes such data with a grain of salt.

"There are biases in any survey," he said, noting that he relies more
on the hard numbers found in consumer spending reports. "Actually
buying a car, versus saying 'I might buy a car in the next six months'
is more concrete."

Reader Comments

So pray tell, with unemployment rising, no wage rises, lower number of
hours worked, falling house prices, higher commodity prices, falling
tax revenues, falling corporate turnover how does the GDP f [Read
More]

Posted by CJ_51 | 02/26/10 02:09 PM EST

http://www.forbes.com/2010/02/26/gdp-revision-increase-markets-economy-consumer.html?boxes=Homepagechannels

[bademiyansubhanallah]

Raymond Richman - Jesse Richman - Howard
Richman

Richmans' Trade and Taxes Blog

McCain's economic advisors cost him the Presidency and may cost him
his Senate seat
Howard Richman, 2/26/2010

A February 22 interview with the Arizona Republic editorial staff
(Sen. John McCain: I was misled on bailout) shows that Senator McCain
still doesn’t understand that his economic advisors' lack of common
sense cost him the presidential election. They made four huge
mistakes.

Mistake #1, The TARP Bailout

The American people have enough common sense to recognize a give-away
to Wall Street lobbyists. Yet McCain voted for TARP, suggesting that
his anti-lobbyist rhetoric was phony. Dick Morris and Eileen McGann
noted at the time that McCain's TARP position may have cost him the
presidency.

But McCain still doesn't understand his mistake. In his interview with
the Arizona Republic editorial staff, he claimed that Paulson and
Bernanke misled him about how the TARP money would be spent. But he
again defended his vote, citing his economic advisors:

"Something had to be done because the world's financial system was on
the verge of collapse," he said. "Any economist, liberal or
conservative, would agree with that. The action they took, I don't
agree with."

It is true that something had to be done. But McCain's advisors failed
to inform him that something had already been done. By the time that
the vote on TARP occurred, the Federal Reserve had already restored
liquidity to the U.S. economy. The TARP money was never spent as
advertised, because it was never needed.

Now, McCain is trying to distance himself from the TARP vote because
it has become a major issue in the primary election for his Senate
seat:

Republican Senate primary challenger J.D. Hayworth is using the TARP
vote as a bludgeon against McCain's reputation as a fiscal hawk. Tea
partyers point to it as the start of a new explosion of federal
spending that has continued into the Obama administration.

Mistake #2. Cap and Trade

The American people have enough common sense to realize that recent
winters and summers have been cooler than those a few years ago. But
President McCain made cap-and-trade advocacy, to fight global warming,
a centerpiece of his program. If he had been elected, his support for
a cap-and-trade would have made sure that an economically-harmful bill
passed.

Senator McCain should have switched to Sarah Palin's common sense
policy of encouraging drilling for inexpensive energy sources,
including Bering Straight natural gas and Alaskan oil. Inexpensive
energy reduces business costs, helps America’s trade deficit and
enhances American incomes. In contrast, cap-and-trade would raise the
costs to American businesses and make American products less
competitive in the international market place.

Mistake #3. Neglecting Savings

Since October 2008, the United States has been in the midst of a
financial crisis caused by excessive debt. The American people can no
longer borrow more and more on their homes to pay for exports, without
the equivalent income that would come from balanced imports. Common
sense says that when you are in the midst of a debt crisis, you save.
That common sense was tapped by Governor Palin in the Vice President’s
debate. According to a Fox News focus group this was the moment when
Governor Palin connected best with the American people. She said:

(L)et's commit ourselves just every day American people, Joe Six Pack,
hockey moms across the nation, I think we need to band together and
say never again. Never will we be exploited and taken advantage of
again by those who are managing our money and loaning us these
dollars. We need to make sure that we demand from the federal
government strict oversight of those entities in charge of our
investments and our savings and we need also to not get ourselves in
debt. Let's do what our parents told us before we probably even got
that first credit card. Don't live outside of our means. We need to
make sure that as individuals we're taking personal responsibility
through all of this. It's not the American peoples fault that the
economy is hurting like it is, but we have an opportunity to learn a
heck of a lot of good lessons through this and say never again will we
be taken advantage of.

Senator McCain should have jumped on this popular issue, which
happened to have been the correct solution to a problem caused by too
much debt. He should have started advocating tax changes, such as the
FairTax, that would have encouraged American savings. Instead he
completely ignored this huge issue.

Mistake #4. Unilateral Free Trade

The American people understand that it makes no sense for America to
give away its industry to China, but President McCain's advisors were
clueless. In January 2008 McCain told Republican primary voters in
Michigan that their "jobs aren't coming back." In late April, McCain
stood before a shuttered Youngstown Ohio factory and asked voters to
reject the "siren song of protectionism." The following exchange about
Asia was the moment when McCain lost the final presidential debate:

OBAMA: ... (W)e should enforce rules against China manipulating its
currency to make our exports more expensive and their exports to us
cheaper. And when it comes to South Korea, we've got a trade agreement
up right now, they are sending hundreds of thousands of South Korean
cars into the United States. That's all good. We can only get 4,000 to
5,000 into South Korea. That is not free trade. We've got to have a
president who is going to be advocating on behalf of American
businesses and American workers and I make no apology for that.

SCHIEFFER: Senator?

MCCAIN: ... Now, on the subject of free trade agreements. I am a free
trader. And I need -- we need to have education and training programs
for displaced workers that work, going to our community colleges.

Since becoming President, Obama has followed McCain's unilateral free
trade policy. But that doesn't excuse McCain. He and his economic
advisors failed to show any common sense whatsoever on this issue. Not
only did this position cost McCain the midwest, but it was foolish
from the standpoint of the American economy.

Our country desperately needs to stop the giveaways to lobbyists, to
encourage the exploitation of inexpensive energy sources, to encourage
domestic savings, and to demand balanced trade with China. Future
Republican presidential candidates desperately need economic advisors
with common sense.

http://www.idealtaxes.com/post3062.shtml

The Daily Reckoning
US Economy is shifting, but toward what?

As during the Great Depression, when agriculture was in permanent
decline, the US economy is in a period of transition. It remains to be
seen what it's transitioning toward.

Job seekers attend a job fair at Pace University in New York on Jan.
22. As during the Great Depression, the US economy is seeing a shift
in employment opportunities.

Frances M. Roberts/Newscom/file

By Bill Bonner Guest blogger / February 26, 2010

This afternoon, your editor’s aging aunt called from Pennsylvania.

Bill Bonner

Bill has written two New York Times best-selling books, Financial
Reckoning Day and Empire of Debt. With political journalist Lila
Rajiva, he wrote his third New York Times best-selling book, Mobs,
Messiahs and Markets, which offers concrete advice on how to avoid the
public spectacle of modern finance. Since 1999, Bill has been a daily
contributor and the driving force behind The Daily Reckoning
(dailyreckoning.com).

Why the US economic recovery is a scam
02.26.10

Rolling Stone: Wall Street’s con is alive and well

.“This economy has been very hard on my family,” she explained. “I’ve
got two sons-in-law…and they’re both laid off from their jobs.”

“What do they do?” we wondered.

“One drives a truck for a steel producer. The other is in
construction. There’s just not much work, I guess.”

Nope.

And that’s why, despite all the recovery talk, real people are turning
real gloomy. Consumer confidence just registered its lowest reading
since 1983. People don’t have jobs…and they’re beginning to worry that
it could be a long time before they work again. Mortgage demand just
fell to its lowest point in 13 years. State tax receipts are still
falling – for the 5th quarter in a row. And the number of problem
banks just rose 27%.

Recovery? Forget it. There is no real recovery. This depression has to
run its course, like it or not.

You’ve heard us say that a depression is a period of transition from
one economic model to another. You might ask: what’s an economic
model? And what economic model are we leaving behind? What economic
model are we going towards? And what’s this got to do with monetary
and fiscal stimulus?

Good thing you didn’t ask those questions before. We didn’t have any
answers. But here is David Goldman with a partial explanation:

“There is some analogy to the Great Depression in the present
situation. Between 1918 and 1939, American agriculture was in
permanent decline, because the end of the First World War reduced
demand for American exports, and because the substitution of the
tractor for draught animals freed up an enormous amount of land set
aside for animal feed. There was nothing to be done but to get the
farmers off the land into other occupations, and that was not
accomplished until the Second World War.”

The farmers found work in wartime factories…and in military service.
After the war, they took up new jobs, in a new economy with new
factories and new professions.

What work will today’s laid-off construction workers find? Darned if
we know.

Add/view comments on this post.

------------------------------

The Christian Science Monitor has assembled a diverse group of the
best economy-related bloggers out there. Our guest bloggers are not
employed or directed by the Monitor and the views expressed are the
bloggers' own, as is responsibility for the content of their blogs. To
contact us about a blogger, click here. To add or view a comment on a
guest blog, please go to the blogger's own site by clicking on the
link above.

http://www.csmonitor.com/Money/The-Daily-Reckoning/2010/0226/US-Economy-is-shifting-but-toward-what

24 February 2010
Bernanke: U.S. Economy Growing, Unemployment Persists

Traders at the New York Stock Exchange watch Federal Reserve Chairman
Ben Bernanke testify before Congress February 24.

Traders at the New York Stock Exchange watch Federal Reserve Chairman
Ben Bernanke testify before Congress February 24.By Merle David
Kellerhals Jr.
Staff Writer

Washington — The U.S. economy is growing, but unemployment is expected
to persist while inflation should remain low, Federal Reserve Chairman
Ben Bernanke told a congressional committee.

“The U.S. economy expanded at about a 4 percent annual rate during the
second half of last year,” Bernanke testified before the U.S. House
Financial Services Committee February 24. “A significant portion of
that growth, however, can be attributed to the progress firms made in
working down unwanted inventories of unsold goods, which left them
more willing to increase production.”

Bernanke was making the first of a series of appearances before
congressional committees to give his twice-a-year testimony on the
state of the U.S. economy and monetary policy decisions made by the
Federal Reserve, the nation’s central bank. The United States entered
one of the steepest recessions in its history in December 2007 and
slowly began its recovery in late 2009. Bernanke testified that U.S.
economic activity contracted sharply following the intensification of
the global financial crisis in the fall of 2008.

While concerted stimulus efforts by President Obama, the Treasury
Department, the Federal Reserve and other federal agencies have helped
stabilize the nation’s financial system and spur recovery, Bernanke
said, a sustained recovery will depend on continued growth in private
sector demand for goods and services.

“Consumer spending has recently picked up, reflecting gains in real
disposable income and household wealth and tentative signs of
stabilization in the labor market,” he testified. And there has been a
significant rise in business investment in equipment and software,
Bernanke said, which is often taken as an early sign of expanded
business growth.

On February 18, the Federal Reserve raised the discount rate it
charges commercial banks for emergency loans one-quarter point to 0.75
percent. The aim is to shift banks away from emergency borrowing from
the government and toward traditional money markets, he said.

The more potent federal funds rate — the Fed’s main policy tool — will
likely remain at a historically low range of 0 to 0.25 percent “for an
extended period,” Bernanke testified.

Bernanke also acknowledged that international trade — supported by a
recovery in the economies of many U.S. trading partners — is
rebounding from its deep contraction of a year ago.

According to a recent report by the U.S. Commerce Department, the U.S.
trade deficit in 2009 totaled $380.66 billion, the smallest trade
imbalance in eight years. That was because the recession cut sharply
into imports, lessening consumer demand as consumers spent less on
nonessentials. But government economists believe that will shift in
2010 as the U.S. economy recovers from the recession and demand for
imports grows, the Commerce Department reported.

The recovery in employment has been slower in coming. Since December
2007, the United States has lost 8.4 million jobs.

“The job market has been hit especially hard by the recession, as
employers reacted to sharp sales declines and concerns about credit
availability by deeply cutting their workforces in late 2008 and in
2009,” Bernanke testified. But he added that some recent indicators
suggest the deterioration in the nation’s labor market is changing.

“Job losses have slowed considerably, and the number of full-time jobs
in manufacturing rose modestly in January,” he said.

Bernanke said he is concerned about the long-term implications of high
unemployment for workers’ skills and wages. “More than 40 percent of
the unemployed have been out of work six months or more, nearly double
the share of a year ago,” he said.

Bernanke said most economic indicators suggest that inflation will
remain subdued for some time. He pegs that assessment to slack in the
labor and product markets that has reduced wage and price pressures,
sharp increases in productivity that have reduced producers’ labor
costs and a very slow rise in the cost of shelter, which figures
strongly in consumer price indexes.

REGULATORY REFORM

Bernanke told the congressional committee that strengthening the U.S.
financial regulatory system is essential to the nation’s long-term
economic stability. He called on Congress to pass legislation that
would enhance the regulation and supervision of the nation’s financial
system from banking to investing.

“The Federal Reserve strongly supports the Congress’ ongoing efforts
to achieve comprehensive financial reform,” he said. “The recent
crisis has also underscored the extent to which direct involvement in
the oversight of banks and bank holding companies contributes to the
Federal Reserve’s effectiveness in carrying out its responsibilities
as a central bank, including the making of monetary policy and the
management of the discount window.”

The Group of 20 advanced and emerging global economies said at two
summits held in 2009 that the financial sector needed greater
regulation and oversight to prevent risk-taking that has jeopardized
global economic stability.

http://www.america.gov/st/business-english/2010/February/20100224144559dmslahrellek0.7401392.html

Do We Really Want to Mimic Western Europe’s Stagnant Welfare States?
Posted by Daniel J. Mitchell

Since many of the politicians in Washington want America to be more
like Europe (including complete government-run health care instead of
the partially government-run health care system we have now), it’s
worth contemplating what that would mean for the economy.

America today is richer than Western Europe. Indeed, per-capita living
standards are about 30 percent higher in the United States — and
that’s according to the statists at the Paris-based Organization for
Economic Cooperation and Development (see page 6 of this report). And
we have been growing faster, which presumably should not be the case
according to convergence theory (see Annex Table No. 1 of this OECD
database).

It also seems that Europe’s economy is more likely to endure a double-
dip recession. Bloomberg reports:

Europe’s economy may be coming unstuck from the global recovery as
governments to the south of the region struggle to reverse budget
deficits and consumers in the north pull back spending. After the 16-
nation euro economy almost stagnated in the fourth quarter, data this

week showed the weakness reaching into 2010. …“Europe is where we see

the biggest risk of a double dip at the global level,” said Julian
Callow, chief European economist at Barclays Capital in London.

“Europe has been lagging and we’ve continued to see better numbers in
Asia and now the U.S.” …“There are tentative signs that the U.S.
economy may be pulling ahead from Europe,” [UBS strategist Nick]
Nelson said in a Feb. 23 report… “The sovereign debt crisis in

Europe’s periphery reinforces drags on euro-area growth,” said Michael
Saunders, an economist at Citigroup in London.

Left-wing populists genuinely seem to believe that the economy is a
fixed pie, so even though they are fundamentally wrong, their fixation
on redistribution is understandable. After all, given their inaccurate
view of the world, robbing Peter is the only way to lift Paul. What is
more mystifying is why the (presumably) thoughtful left wants America
to be more like Western Europe, where living standards lag America and
the gap grows wider with each passing year. The only logical
conclusion is that they are so fixated on differences in income (or,
less charitably, are so resentful of success) that they are willing to
make poor people worse off if they can impose even greater damage on
rich people. As Winston Churchill noted, “The inherent vice of
capitalism is the unequal sharing of blessings; the inherent virtue of
socialism is the equal sharing of miseries.”

Daniel J. Mitchell • February 26, 2010 @ 11:51 am

http://www.cato-at-liberty.org/2010/02/26/do-we-really-want-to-mimic-western-europes-stagnant-welfare-states/

The Baseline ScenarioWhat happened to the global economy and what we
can do about it
Should China Fear Us?

By Simon Johnson

Writing partly in response to “Should We Fear China?“, Robert Salomon
of NYU makes some good points – about how rapid appreciation of the
renminbi could hurt China and argues:

Although I agree that it is in the best long-term interest of the U.S.
and other countries throughout the globe for China to revalue its
currency, it isn’t entirely clear to me that such a maneuver is in the
near-term interests of China, …or maybe even the global economy.

Robert’s concerns are focused on the effects of a sudden revaluation –
a movement in the exchange rate that would be disruptive to Chinese
production and plunge that country into recession. But that scenario
hardly seems likely.
Even if the US decides to press China hard on the exchange rate issue,
we currently lack instruments to make this pressure effective.
Working through the IMF is not appealing – because it just won’t work
– and the World Trade Organization (WTO) does not have sufficient
jurisdiction on exchange rate issues (if pushed today, it would bring
in the IMF to determine the extent of exchange rate undervaluation;
again, we’re back to the IMF impasse).

To be sure, Congress could threaten bilateral action but this is a
blunt weapon that can easily cause a great deal of collateral damage.
At the Commission’s hearings on Capitol Hill yesterday, the consensus
appeared to be that China should be pressed harder on its exchange
rate – including being labelled a “currency manipulator” by Treasury
at the next opportunity (in April) – but we should not rush towards
any kind of trade war.

It would be much better to give the WTO teeth vis-a-vis exchange rate
manipulation, but this will take a while. Even in the best case
scenario, effective pressure will build only slowly on China.

On the other hand, if China steadfastly refuses to appreciate the
renminbi in any significant manner, the damage when the exchange does
eventually move could be even greater.

We should not fear China – our problems are about ourselves, not
anyone else. China should likewise mostly fear the unintended
consequences of their own misguided policies.

http://baselinescenario.com/2010/02/26/should-china-fear-us/

Congress, Intellectual Property
Thursday, February 25, 2010
Leahy: Patent Deal Is Close
By Juliana Gruenwald

Senate Judiciary Chairman Patrick Leahy, D-Vt., announced Thursday
that he has reached a tentative agreement on patent overhaul
legislation with the panel's ranking member Jeff Sessions, R-Ala. "We
have reached a tentative agreement in principle that preserves the
core of the compromise struck in committee last year," Leahy said in a
statement. Leahy said he hoped to release details of the agreement "in
the coming days" after consulting with other senators and House
lawmakers.

Leahy noted that when he began working on the issue several years ago
with Sen. Orrin Hatch, R-Utah, House Judiciary Chairman John Conyers,
D-Mich., and others "we wanted to improve patent quality and the
operations at the [Patent and Trademark Office], and address runaway
damage awards that were harming innovation. We are close to a
compromise that will address these issues."

He added, that "No one will think this a perfect bill, but we are
close to a comprehensive patent reform bill that benefits all corners
of the patent community." The patent bill approved by the Senate
Judiciary Committee in April 2009 aimed to address the PTO's chronic
application backlog and improve internal efficiencies. It also would
change the protocol for challenging patents - a move that has divided
small innovators, the life-sciences sector and the IT industry.

The Innovation Alliance, which has been critical of the bill, said the
changes "appear to be a positive step in the right direction." The
group's executive director, Brian Pomper, said in a statement "We have
advocated for significant changes to the post-grant review provisions
of the legislation that would prevent repeat legal challenges to
patents because allowing repeat challenges would dampen U.S. job
creation at the worst possible time." Sessions also has raised
concerns about the language related to challenging patents after they
have been granted that was included in the bill passed by the
committee.

3 Responses

Friday, February 26, 2010

""...agreement in principle that preserves the core of the compromise
struck in committee last year"

Sure, one pirate agrees with another how to split up thebooty. Small
entities and many others who have a survival stake in this were not
permitted to participate. What a farce!

Patent reform is a fraud on America. It is patently un-American.
Please see

http://truereform.piausa.org/ for a different/opposing view on patent
reform.

February 26, 2010
Dale B. Halling

The Director of the Patent Office David Kappos is arguing that patent
reform will be good for independent inventors.

I disagree that patent reform is good for independent inventors or the
US economy.

1) Damages – I believe that the patent reform bill still has the
provision that reduces damages for infringing. As long as this
provision is in the patent reform bill it will damage small inventors
and the US economy.

2) First-to-File: I understand and have made the point that very few
cases are won by the second to file. However, a first-to-file system
is a first step in eliminating the inventor from the patent process.
The next step will be to issue patents to entities, why name the
inventors since we are not serious about the true inventors anyway. A
first to file system is a fraud. It rewards not inventors but people
who are skilled at gaming the system.

This is similar to the publication rule. Most patent applications were
being published at 18 months anyway and if you did not want to foreign
file you could avoid publication. But, publication is a breach of the
social contract between the inventor and society. Society gets the
benefit of disclosure but the inventor may never receive his part of
the bargain. Note that immediately after this breach pendancy times
expanded and the allowance rate fell off a cliff. Ron Katznelson has
done a study showing that pendancy times always expand, usually by a
factor of two, when a country adopts publication.

3) Publication: I believe that the present bill requires the
publication of all patent applications. As stated above this is a
clear breach of the social contract between the inventor and society.
Publication discourages people from inventing and filing for patents.
If an invention can be kept a trade secret, more people will chose
this right to the detriment of everyone. We tried the trade secret
route in the middle ages and the level of innovation was pitiful. If
an invention cannot be kept a trade secret, investors will be less
willing to back a company whose inventions are known to the whole
world before the company even gets protection in their own country.

Real Patent Reform

Here are my suggestions for real patent reform that would not only
help small inventors but the US economy.

1) Repeal Publication: This would restore the social contract

2) Repeal KSR: A subject standard of patentability just increases
costs and uncertainty associated with the patent process

3) Repay PTO: Congress should repay the over $1B it stole from
inventors with interest.

4) Regional Offices for PTO: This would ensure steady funding of the
PTO and increase examiner retention

5) Repeal eBay: This decision is logical absurdity. If a patent give
you the right to exclude, then if you win a patent infringement case
you must be able to enforce your only right – the right to exclude

6) Eliminate “Combination of Known Elements”: The fact that the
Supreme Court does not understand that every invention in the history
of the world is a combination of known elements is high of ignorance.
Have they ever heard of “conservation of matter and energy”?

Dale B. Halling, Author of the “Decline and Fall of the American
Entrepreneur: How Little Known Laws and Regulations are Killing
Innovation.”
http://www.amazon.com/Decline-Fall-American-Entrepreneur-Regulations/dp/1439261369/ref=sr_1_1?ie=UTF8&s=books&qid=1262124667&sr=8-1

Link to this response: Print |Share | E-mailFriday, February 26, 2010
Steve R.

This is an incomplete article. Why only a citation from a pro-patent
industry special interest group? To balance your article, which would
be good jouranlism, I would suggest that you contact the Electronic
Frontier Foundation.

The patent system is broken. Patents are being granted for things
that should not be patentable, such as business methods, software,
genes, etc. The patent system needs to be fixed.

http://techdailydose.nationaljournal.com/2010/02/leahy-patent-deal-is-close.php

[bademiyansubhanallah]

Greek PM meets Deutsche Bank chief on crisis
By NICHOLAS PAPHITIS – 1 day ago

ATHENS, Greece — Greek Prime Minister George Papandreou held talks
with the head of Germany's biggest bank Friday on the country's wide-
reaching debt crisis, under intense EU pressure to show quick signs of
improvement or cut deeper into spending.

Meanwhile, the White House said President Barack Obama had spoken with
German Chancellor Angela Merkel and British Prime Minister Gordon
Brown about Greece as part of a Friday video teleconference.
Papandreou is expected to meet Merkel in Berlin on March 5 and Obama
in Washington on March 9.

The Greek government declined to provide any details on the
discussions with Deutsche Bank CEO Josef Ackermann.

"There was a half-hour meeting, one of several the Prime Minister has
had with heads of similar organizations on the international crisis
and Greece," Papandreou aide George Elenopoulos said.

Deutsche Bank spokesman Ronald Weichert said he could only confirm
that Ackermann is in Greece "on a normal business trip," meeting with
government officials.

But Ackermann refused to comment after the meeting on the prospect of
his bank playing a role in helping Greece, whose fiscal woes have
shaken global markets' confidence in the common European currency.

The country is widely expected to issue government bonds next week and
experts believe it could resort to selling them directly to a few
large institutional customers rather than auction them on capital
markets — at a prohibitively high interest-rate premium to offset
fears of a Greek default.

In Washington, Obama spokesman Robert Gibbs reiterated that the White
House believes the European Union "can and will act appropriately" to
ensure an effective response to the crisis in Greece.

Bolstered by polls showing that most Greeks — despite union anger —
back austerity measures, Papandreou warned Friday his center-left
government faces a stark dilemma: "Let the country go bankrupt or
react."

"We are being led to make violent changes," he said.

EU Finance Commissioner Olli Rehn will be in Athens next week to
inspect Greece's budget reforms, ahead of a March 16 EU deadline for
fiscal improvement or further tighten the belt.

Greece shocked its EU partners and international markets last year,
abruptly revising its budget deficit up to 12.7 percent of annual
output — four times the EU limit — from an initial forecast of under
four percent.

The government, elected in October, has vowed to cut overspending to
under 3 percent of GDP in 2012 through public sector salary and hiring
freezes, combined with hikes in consumer taxes and retirement ages.
For this year, it is targeting a cut equivalent to 4 percent of GDP,
more than euro10 billion.

In the first good news so far, Finance Ministry figures released
Friday confirmed earlier reports that public finances in January were
stronger than expected.

However, EU, European Central Bank and International Monetary Fund
inspectors in Athens this week expressed doubts Greece would be able
to meet all its deficit-busting targets and urged additional austerity
measures.

The government has said it will do more if needed, but draws the line
at sweeping civil service pay cuts.

Labor Minister Andreas Loverdos said the EU was urging further
spending cuts of euro1.4 billion ($1.9 billion).

"What we have proposed in the stability plan for 2010 is the reduction
of expenditures by euro12 billion, and this additional figure would be
euro1.4 billion," he said.

Papandreou insists Greece is not seeking direct financial aid from EU
countries but support that would calm financial markets and allow
Athens to borrow money at pre-crisis rates.

"We expect our partners ... to fulfill their commitments, both
explicit and implicit, that derive from a community built on the dream
of a unity that goes far above simple economic relations and narrow
national interests," he told parliament.

"At the end of the day, it is a matter of honor and pride for our
country to put our own house in order," Papandreou said. "We must
forget the political cost and only think of our country's survival."

Vague expressions of political backing from Brussels this month failed
to convince markets a quick solution was at hand for Greece, whose
borrowing costs remain cripplingly high.

The interest rate difference, or spread, on Greek government bonds
over the equivalent German bond — a key indicator of market confidence
— remained high Friday, at 337.8 basis points.

Data on the budget execution in January indicated that the austerity
plan is paying off, so far. A Finance Ministry statement said the
month showed a budget surplus of euro578 million ($784 million),
compared with a euro1.55 billion ($2.1 billion) deficit in January
2009.

Although much of the revenue boost was due to a one-off tax on company
profits, both revenue and spending figures were better than expected.

Net revenues were up 16.6 percent — against the annual budget target
of 10.8 percent — while spending fell 10.7 percent compared with the
annual target of 2.8 percent.

Greek stocks ended the day higher Friday, with the benchmark general
index closing 2.17 percent up.

Associated Press Writers Matt Moore in Berlin, George Frey in
Frankfurt and Derek Gatopoulos in Athens contributed to this story

Copyright © 2010 The Associated Press. All rights reserved.

Greek Prime Minister George Papandreou is seen at his office in the
parliament in Athens on Friday, Feb. 26, 2010. Papandreou said his
country will not raise the issue of World War II reparations payments
from Germany during the financial crisis. Speaking in parliament,
George Papandreou rejected calls from opposition parties to seek
further payments, which Berlin denies it owes beyond reparations made
in 1960. (AP Photo/Thanassis Stavrakis)

http://www.google.com/hostednews/ap/article/ALeqM5iXUJvBknZVGqsBenIusBgBvWj5WQD9E46S3O0

Greek PM to meet Merkel, Obama amid debt crisis
By ReutersPublished Sunday, February 28, 2010

Greece's prime minister announced plans to meet German Chancellor
Angela Merkel next week as signs grow that diplomatic efforts are
under way to resolve Greece's debt crisis.

Prime Minister George Papandreou, who is also due to meet US President
Barack Obama on March 9 in Washington, told parliament on Friday that
he expected help from Greece's European Union partners, for which
German backing would be vital.

Obama held a call with Merkel and British Prime Minister Gordon Brown
on Friday in which they discussed the Greek debt crisis, among other
issues, the White House said.

Papandreou also met Deutsche Bank's CEO Josef Ackermann, although an
Athens Government spokesman denied Greek press reports the German bank
was considering buying €15 billion (Dh75bn) in Greek bonds.

Greece wants to restore investors' confidence in its economic
statistics and reassure buyers its debt is manageable after revealing
that the previous government understated the budget deficit by half.
The EU has offered political support but no bailout.

"We must do whatever we can now to address the immediate dangers
today. Tomorrow it will be too late and the consequences will be more
dire," said Papandreou. "We ask the EU for its solidarity and they ask
us to meet our obligations.

http://www.business24-7.ae/economy/international-economy/greek-pm-to-meet-merkel-obama-amid-debt-crisis-2010-02-28-1.54760

http://newsletter.business24-7.ae/index.html

Greek PM Begins Key Crisis Talks
Posted 02/26/2010 07:29 PM ET

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Greek austerity measures and will-they-won’t-they KfW
Posted by Stacy-Marie Ishmael on Feb 26 16:35.

Greece continued to dominate the headlines on Friday.

Here’s the FT on Greek austerity:

George Papandreou, Greek prime minister, vowed on Friday to put aside
the political cost and take what steps were necessary to lift the
country out of its debt crisis, preparing the public for more belt
tightening.

…Mr Papandreou said Greece did not want other countries to pay its
public debt but expected a strong show of support from its EU
partners.

This raises the possibility that the government may try to surprise
the markets by going for a bigger fiscal package of tax rises and
spending cuts. If that was the case, Greece could announce the extra
measures earlier than expected, by the end of Friday.

Bloomberg, meanwhile, confirmed earlier speculation that Germany’s KfW
might form one prong of any pan-European aid to Greece:

Feb. 26 (Bloomberg) — Germany is considering buying Greek bonds
through state-owned lender KfW Group, German lawmakers said today.

KfW is preparing measures that are part of a European plan to grant
Greece as much as 25 billion euros ($34 billion) in aid should the
need arise, said four lawmakers, who spoke on the condition of
anonymity because the information is confidential.

KfW’s purchase of Greek bonds, backed by German government guarantees,
would be an emergency measure as it risks inviting investors to
speculate against other euro region countries, the lawmakers said. No
decisions have been taken yet, they said.

Rival newswire Reuters promptly took the Bloomberg story to the German
finance ministry, only to be told:

That’s not a source we will react to.

Will someone get a grip here?

Related links:

Greece’s austerity plans: not enough? – FT Alphaville
http://ftalphaville.ft.com/blog/2010/02/26/160131/greeces-austerity-plans-not-enough/
Unleashing the forces of Hellas – Reuters Macroscope
http://blogs.reuters.com/macroscope/2010/02/26/unleashing-the-forces-of-hellas/
Let’s throw a concert for Greece – FT Alphaville
http://ftalphaville.ft.com/blog/2010/02/12/148006/lets-throw-a-concert-for-greece/
Delicious Greek ironies – Money Supply
http://blogs.ft.com/money-supply/2010/02/11/delicious-greek-ironies/

This entry was posted by Stacy-Marie Ishmael on Friday, February 26th,
2010 at 16:35 and is filed under Capital markets. Tagged with Greece,
KfW. Edit this entry.

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comments.

Priska | February 27 5:17pm

Owe Jessen 26.2 @ 10.08pm.

1. Acc to the German "Welt am Sonntag" of 14 Feb, quote: "most EU
politicians want to exclude the IMF from dealing with the Greek
problem" - because then the USA and China would be in a position to
have a say in (mitbestimmen) in Greek resp. in EU politics.

2. There are 2 "gateways" in the AEUV (Vertrag über die Arbeitsweise
der EU) which would permit EU countries to assist Greece. Apparently
"many legal experts" see a legal basis for assisting Greece espcially
in Article 122 para. 2 which allows for a "financial contribution"
under specific conditions, to a member state in difficulties with a
debt crisis arising from a "natural catastrophe or another form of
exceptional occurrence". Clearly this leaves the way open to ask ALL
EU member countries to contribute to financial assistance for Greece.
I've seen a mention of up to 20% to come from Germany.

3. This is my opinion: The next president of the ECB will need to have
the full support of France and Germany (i.e.Merkel and Sarkozy)
over a long period of 8 years in office which will cover considerable
amounts of restructuring and consolidation within the EU and the ECB.
Apparently Axel Weber has that and in return for Sarkozy's support for
Weber, Merkel has allegedly promised to support Sarkozy's plan for a
"Governing Body for the European Economy".

There is aymk, no specific procedure laid down for selecting an ECB
president, hence the haggling I suppose.

Owe Jessen | February 26 10:08pm

And the argument for German involvment in a bailout in Greece is? I
think the IMF is the right institution, because it would be easier for
them to enforce conditionallity than for European institutions.

Besides, it should be obvious that this cannot be paid for by Germany
alone - even if it were fiscally feasable, it is politically not
feasable.

And what does Weber have to do with anything?

Priska | February 26 8:59pm

@ Owe Jesson 5.40pm.

The indications are that the Eurozone wants to deal with this "within
the family"; there might be other Eurozone members with problems.
Running to the IMF each time some country in the Eurozone is in
trouble seems to me out of the question.

Furthermore, Axel Weber looks sure to be the next ECB president in
2011 and he would be in office for eight years. A series of
appointments/promotions in the EU/Eurozone so far have convinced the
FAZ that Merkel and Sarkozy have agreed on this. And also "Die Welt am
Sonntag" remarked "If Merkel and Sarkozy have made a
"Vorentscheidung" (preliminary decision) in favour of Weber, then
nobody can do anything against a Franco-German alliance" - quoting a
central banker. With Weber heading the ECB, I believe there will be
some very considerable restructuring there.

A Reader | February 26 6:51pm

S-MI, selling CDS in this environment is for people with guts. My
question about who is buying them wasn't about banks with exposure.
Are there any CDS buyers who are not exposed to Greek paper?

EC | February 26 6:13pm

Owe Jessen: you are a loser

It will be intersting to see the UK as next, ones Greece has his
problems sorted. Just check what happen to UK 10 years bonds when the
Greeks ones lower. Next after Greesce is sorted is the UK. And
everibody will be there to help. Just wait and see!

Ones crisis is over you will some regulation to shut up this hedge
funds. They don t pay taxes and expect to bailed out every 10 years

Owe Jessen | February 26 5:50pm

LOL - are those the same funds who just discussed the danger of Greek
sovereign debt, as reported by http://www.nakedca...ds-crosshairs.html
?

Stacy-Marie Ishmael, FT | February 26 5:42pm

Owe Jessen - at least three big credit hedge funds.

Owe Jessen | February 26 5:41pm

@ A Reader: It has been reported that most of the buyers are the
European banks with considerable exposure. I think the better question
is: Who is selling the CDS?

Owe Jessen | February 26 5:40pm

Priska: Whats the logic in letting Germany bail out Greece? I think
they should go to the institution which has the most expirience in
situations like these, which is the IMF.

A Reader | February 26 5:13pm

CF, this could be the future for more countries, the higher taxes and
lower government expenditures. And very unhappy people. I hope it
works. It will be interesting to see who has been buying the CDS.

Cabin Fever | February 26 5:03pm

Oh damn! Will that mean that KFW bonds will be downgraded 18 months or
so from now?

Priska | February 26 4:57pm

The KfW is the Kreditanstalt für Wiederaufbau - a govt. bank set up
post WW2 to finance the reconstruction of Germany. It has been touring
Germany (with staff in buses) recently to offer financial assistance
to SMEs (KMUs in Germany) which need better access to credit during
the recession.

After the verbal castigation in Germany's media, it's about time
Germany now takes the lead to do something concrete to aid the Greeks
instead of adding to the incessant criticism.

As Germany will no doubt provide the ECB with its next president in
2011 (Axel Weber, currently heading the Buba, who will get the job for
8 years), now is the RIGHT time for the Germans to show their
capabilities in the area of crisis-management.

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Greek Prime Minister Papandreou, facing dangerous debt crisis, to
visit Obama
By: THE ASSOCIATED PRESS

26/02/2010 6:48 PM

WASHINGTON - Greek Prime Minister George Papandreou is coming to
Washington in early March for a meeting with President Barack Obama.

In announcing the March 9 visit, White House press secretary Robert
Gibbs said Friday that the two presidents would discuss "a broad range
of strategic issues" but mentioned no specifics. Neither did he speak
of Greece's deep debt crisis that is causing serious financial worries
in Europe.

Gibbs earlier said Obama had spoken with German Chancellor Angela
Merkel and British Prime minister Gordon Brown about the Greek
problem.

Papandreou is to visit Merkel on March 5 before his Obama meeting four
days later.

http://www.winnipegfreepress.com/world/breakingnews/greek-prime-minister-papandreou-facing-dangerous-debt-crisis-to-visit-obama-85585262.html

Greece's Debt Crisis: Blaming Nazi Germany
By Nicole Itano / Athens Friday, Feb. 26, 2010

ENLARGE PHOTO+
Germany's Chancellor Angela Merkel, Greece's Prime Minister George
Papandreou and France's President Nicolas Sarkozy leave the EU Council
building after a meeting before an informal summit of European Union
heads of state and government in Brussels February 11, 2010.

Yves Herman / ReutersPrint Email Digg Facebook Yahoo Buzz Twitter MORE

It's not quite World War III, but tension over Greece's debt crisis
has ignited a battle of words between Athens and Berlin, reopening old
wounds and raising the specter of Nazism. As Greece struggles to avoid
default, and Germans debate whether to bail out their spendthrift
neighbor, the question of what, if anything, Germany owes Greece for
the past has become a topic of bitter debate and angry mutterings in
the southern European nation. The row began with a tongue-in-cheek
magazine cover in the German magazine Focus. The Venus de Milo — known
by Greeks as the Aphrodite for Milos (and considered by some to be
part of the country's looted heritage) — was depicted making a rude
gesture, with the caption: "Cheats in the euro Family."

The response in Athens was widespread outrage. A daily newspaper,
Eleftheros Typos, retaliated with its own doctored photograph
depicting the golden statue atop Berlin's Column of Victory holding up
a swastika. On Friday, Greece's oldest consumer group called for a
boycott of German products.

See pictures of the global financial crisis.

Politicians have thundered their outrage too. Greece's deputy prime
minister, socialist stalwart Theodoros Pangalos, told the BBC that
Germany still owed Greece for stealing its gold during World War II.
Parliamentary speaker Filippos Petsalnikos summoned the Germany
ambassador to discuss the "offensive" coverage of the crisis in the
German press.

But it was Athens' oft-intemperate mayor, Nikitas Kaklamanis, who
upped the ante by invoking the ghosts of Greece's war dead: "Ms
Merkel, you owe us for Kalavryta, you owe us for Distomo, you owe us
�70 billion ($95 billion) for the ruins you left us," he said,
referring to two World War II incidents in which hundreds of Greeks
were massacred in reprisal attacks by German soldiers.

See the top 10 financial-crisis buzzwords.

Germans, for their part, feel they've already paid enough. "A
discussion about the past is not helpful at all to solve the problems
facing us in Europe today," German Foreign Ministry spokesman Andreas
Peschke told Reuters, pointing out that Germany has already paid
billions to Greece in the form of official reparations for World War
II as well as bilateral and European Union assistance.

http://www.time.com/time/world/article/0,8599,1968381,00.html

In Paris and Berlin, Fury Over a Greek Bailout
By Bruce Crumley / Paris Tuesday, Feb. 16, 2010

Demonstrators in Athens try to burn a European Union flag during a
protest outside E.U. offices

Thanassis Stavrakis / AP

When the euro was launched in 2002, it was celebrated as a triumph of
monetary unity. The 16 nations in the so-called euro zone could
certainly use another dose of that founding spirit today. As questions
mount about the very future of the currency due to the ongoing Greek
debt crisis, there seems to be more anger in parts of Europe over
Greece's financial recklessness than a willingness to save Planet Euro
from imploding by bailing Athens out. That's certainly the case in
Germany and France — the two largest euro zone economies — whose
peeved taxpayers will have to contribute the most if Greece has to be
rescued from its profligacy.

(See pictures of the global financial crisis.)

"That entire country has no sense of responsibility, and now we're
supposed to fix it," says Karen Schumann, 27, a Berlin media
consultant. The complaint has a familiar ring to it. Greece has a
staggering budget deficit of 12.7% of GDP and a $410 billion public
debt, which free-spending Greek officials long kept secret from the
rest of the euro zone. Now that Greece is on the verge of defaulting,
its monetary partners will have to hand over huge loans to help keep
the country solvent — all in order to prevent the euro from going into
a free fall and becoming mere Monopoly money.

This strikes some people in France and Germany as being agonizingly
ironic following last year's bank bailouts. "First we're forced to
watch our taxes save irresponsible bankers and immoral financial
markets from collapsing under their own greed, and now we'll watch as
the same politicians give the Greek government money to pay debts it
piled up and lied about," complains Jean-Charles Robert, an
information-technology employee from suburban Paris. "It never ends —
in fact, it just gets worse."

It may indeed get even worse. At a summit in Brussels on Feb. 11,
European leaders pledged to help Greece deal with its crushing debt
while Athens said it would slash its budget deficit to 3% by 2012 —
but the leaders produced few details on how exactly they would help.

(Read "E.U. Comes to Greece's Rescue, with Strings.")

The pledge failed to uplift the global financial markets, which
continued dumping Greek government bonds and pushing the euro down
even further. Hopeful to reverse that, euro zone finance ministers
held a follow-up meeting on Monday that was intended to show their
collective determination to back Athens up. But the ministers seemed
instead to belittle the cost-cutting measures that Greece had proposed
by putting forth their own plan for the country to cut spending, raise
taxes and finance its debt within 30 days.

"Risks are materializing, and therefore there is a clear case for
additional measures," said Olli Rehn, European Commissioner for
Economic and Monetary Affairs, perhaps airing a not illogical belief
that Greece may try to avoid all the pain necessary to resolve the
crisis it created. "We're trying to change the course of the Titanic,"
shot back Greek Finance Minister George Papaconstantinou. "Anyone else
doing this would get applause. But they tell us, 'You're not doing
enough. You won't be able to do it anyway.' "

Why the public displays of vexation when the message is supposed to be
unity, cohesion and the will to prevail together? The reason: many
Europeans don't have the same "there's no other choice" attitude with
Greece that they had last year when confronted with the need to bail
out their banks to prevent a financial collapse. "I'm against [a Greek
bailout], especially since the Greek government cheated in the first
place and hushed up the real numbers," says Berlin physician Peter
Seidel, 52.

(Read "Why Greece's Economic Debt Crisis Threatens the Euro.")

He's not alone. According to polls conducted in Germany last week, 53%
of people want Greece tossed out of the euro zone if it can't resolve
its deficit dilemma without outside funding — a financial helping hand
that a full 71% of Germans don't want their government to extend.
Though no similar surveys have been conducted in France, leaders there
say the public sentiment is much the same. "There are cultural
differences for why the French wait for something to happen before
reacting when the Germans respond as they see it developing, but
opposition to a bailout — if that happens — is likely to be similar in
both [countries]," says an adviser to French Economy Minister
Christine Lagarde, who commented on background due to the sensitive
nature of the situation. "Try explaining to public opinion you're
using its money to help Greece after it kept building up debt and lied
about it the whole way."

A hard sell indeed, but one that European governments may have to make
if the financial markets keep attacking Greece — and by extension, the
euro. Helping an undeserving partner may be unpopular, but it's
probably less so than the euro's possible demise.

— With reporting by Stephanie Kirchner / Berlin

http://www.time.com/time/world/article/0,8599,1964443,00.html?iid=sphere-inline-sidebar

Europe Talks Bailout Plan For Greece — and the Euro
By Nicole Itano / Athens Wednesday, Feb. 10, 2010

A man walks past a screen showing falling stocks at the Athens Stock
Exchange.

Petros Giannakouris / AP

For weeks, European leaders have dismissed talk of a bailout for debt-
plagued Greece, saying the country could tackle its enormous budget
problems on its own. Now, however, as fears of a default domino effect
in Europe have shaken global confidence in the euro, the continent's
major powers are changing their tune. Suddenly, the question is not,
Will Greece need assistance? but, Who is going to help it out and
how?

As Europe's less profligate members are realizing, the problem with
family is that a good name can be tarnished by a single member's bad
behavior. Concern over Greece's public deficit — which now exceeds
12.7% of GDP, well over the E.U. limit of 3% — has sent the euro
tumbling and caused stock markets across the continent to fall. And
with the finances of eurozone countries now under a market microscope,
questions are now being asked about Spain and Portugal, which are also
battling high deficits.

(See pictures of the global financial crisis.)

The goal now, European officials say, is to try to contain the crisis
to keep it from spreading beyond Greece's rocky shores by creating a
so-called "firewall" around the country. In Berlin, officials said
talks were underway about the possibility of offering loan guarantees
to Greece and other heavily indebted eurozone countries, such as Spain
and Portugal. Other governments have mentioned the possibility of
buying Greek bonds from the primary or secondary markets. Finance
ministers from the 16 eurozone countries held an emergency
videoconference to discuss how to deal with the situation Wednesday,
and the issue was expected to be at the top of the agenda when
European Union leaders meet in Brussels on Thursday. Investors are
watching closely for any sign of agreement — the euro rose against the
dollar Wednesday as it appeared that a bailout might be imminent, then
fell following signs from Germany that a plan may not emerge this
week.

If a bailout is agreed upon, it would be the first time in the 11-year
history of the eurozone this has happened — and there's no rulebook
for how it should be done. There's been little agreement so far on the
details of a possible rescue plan or even who should take the lead.
Some investors think any bailout should be the responsibility of the
International Monetary Fund, not other E.U. countries. "A large-scale
bailout would make taxpayers across Europe liable, either directly or
indirectly, for the mistakes of a government over which they have no
democratic control. Such a policy simply isn't reasonable and lacks
public support," says Pieter Cleppe, head of the Brussels office of
Open Europe, a think tank that opposes greater centralization of power
in the E.U. Indeed, the IMF has already given millions in bailout
money to E.U. countries like Hungary and Latvia, neither of which uses
the euro, but eurozone countries fear that such a move would hurt the
reputation of their union on the global stage.

( Read: "Taxing Times in Greece.")

Back in Greece, the economic news is being followed with obsessive
intensity. Widows in black are chattering about "the spread" — the
premium investors demand to buy Greek debt — while the country's
unions are mustering their strength, hoping to show the government
they will not accept pay and benefit cuts quietly. Thousands of public
sector workers and their supporters took to the drizzly streets of
Athens on Wednesday to protest the government's proposed austerity
measures, which include a 10% cut on bonuses, which make up a large
percentage of many state employees' total wages, and increases in the
retirement age for women. A strike organized by Greece's largest
public workers' union, ADEDY, also caused schools and government
offices to shut and planes to be grounded. "They cannot shift the cost
of their mistakes to the working people," said Ilias Vrettakos, vice
president of ADEDY. "We will not compromise."

Although polls show that Greek Prime Minister George Papandreou still
has broad support for his economic plans, with about 65% of Greeks
agreeing that painful measures are necessary to slash the deficit,
many of the street protesters said they did not believe the government
claims that it had run out of money. Others argued that it was the
rich who should pay. "It's a crisis caused by the capitalist system,"
said Sissy Vovou, a 60-year-old pensioner. "Those who should pay are
the capitalists, not the working classes."

Papandreou's government is walking a difficult line. It's been trying
to convince its European partners — as well as the global markets —
that it is taking serious steps to cut state spending and tackle its
deficit without causing civil unrest at home. But the choice may soon
be out of Greece's hands, and Papandreou must know that any outside
assistance is likely to come with strings attached.

http://www.time.com/time/world/article/0,8599,1963410,00.html?iid=sphere-inline-sidebar

Why Greece Could Be the Next Dubai
By Adam Smith / London Wednesday, Dec. 09, 2009

Striking stage workers, who face unemployment, burn invoices in front
of the Greek Parliament on Dec. 9, 2009

Louisa Gouliamaki / AFP / Getty

Anyone believing the global economic crisis to be over should have
taken a look around Europe this week. Desperate to revive his
country's feeble economy, Irish Finance Minister Brian Lenihan
promised $6 billion worth of savings in a budget aimed at taming the
country's stubborn deficit. The plan is his second budget this year,
and Ireland's harshest in decades. In a mini-budget announced a couple
of hours earlier, Britain's Alistair Darling unveiled his government's
latest plan to fix the U.K.'s broken economy, including a punitive tax
on bankers' bonuses, a rise in social security contributions and a cap
on public-sector workers' pay.

In other parts of Europe, things are looking even worse. Shares on the
Greek stock market have fallen 9% over the past two days. The parlous
state of Greece's public finances has prompted credit-rating agency
Fitch to lower the country's debt rating to BBB+, the lowest in the
euro zone, Europe's single-currency region. Further blows could
follow: rival agencies Moody's and Standard & Poor's have threatened
similar moves in recent days.

(See 10 things to do in Athens.)

Two weeks after Dubai stunned investors by requesting a standstill on
$60 billion in liabilities belonging to its main corporate arm,
Greece's downgrade is yet more evidence that the economic crisis is
far from over. For countries left to fill gaping holes in their public
finances exposed by the meltdown, there's plenty of pain still to
come.

Nowhere more so than Greece. Years of debt-fueled consumption and lax
fiscal policies have left the country drowning in red ink. National
debt is expected to rise to 125% of GDP in 2010, the highest in the
euro zone. "If you want an example of a political élite that thought
membership of the euro zone was a panacea," says Simon Tilford, chief
economist at the Centre for European Reform in London, "you don't need
to look further than Greece. They're in very serious trouble."
(See pictures of the global economic crisis.)

Getting out of it won't be easy. Jean-Claude Trichet, president of the
European Central Bank, which sets interest rates for the euro zone's
16 countries, urged the country on Monday, Dec. 7, to take
"courageous" steps to tackle the crisis. Greek Finance Minister George
Papaconstantinou, part of the socialist government that won power in
the country last October, duly pledged to do "whatever is required" to
shore up the country's finances. Key to the recovery plan: slashing
Greece's budget deficit next year from 12.7% — more than four times
the level allowed under E.U. rules — to 9.1%.

While that has triggered revenue-raising measures like a crackdown on
tax evasion, there's little sign of the deep spending cuts the country
needs to rebalance its books. What's more, reviving growth will mean
shifting from an economy founded on domestic consumption to one driven
by exports. "That's going to be extremely difficult, given that [the
Greeks have] allowed their cost competitiveness within the euro zone
to erode massively," says Tilford. "We're still seeing big increases
in Greece's wages."

Contrast that with Ireland. Since losing its edge in Europe — rising
labor costs helped the country's share of euro-zone exports fall one-
fifth between 2001 and 2008 — the Irish haven't shied from cutting
their cloth in recent months. In his budget announced Dec. 9, for
instance, Lenihan unleashed deeply unpopular cuts in public-sector pay
that look set to trigger strike action. But when it comes to a
spending squeeze of their own, says Tilford, "the Greeks are a long
way from recognizing that they really have no choice."

(Read "Ireland's Economy: Celtic Crunch Time.")

That surely irks the E.U., which is limited in the amount of help — or
punishment — it can impose on Greece. Allowing the country to default,
or to approach to the International Monetary Fund for emergency funds,
would deal a huge blow to the credibility of the 11-year-old euro
zone. Whatever financial concessions it can offer, therefore, will
almost certainly come with stiff conditions. Greece may have little
option but to accept.

Read "The Lesson of Dubai: The Crisis Is Not Over."

http://www.time.com/time/business/article/0,8599,1946594,00.html?iid=sphere-inline-sidebar

Greece's 'worst fears' confirmed, says PM George Papandreou
The Greek Prime Minister, George Papandreou, told parliament on Friday
that the worst fears about Greece's economy had been confirmed.

By Angela Monaghan, Economics Reporter
Published: 8:31PM GMT 26 Feb 2010

Comments 8 |

A woman writes 'closed due to usery' at a branch of an Eurobank in
central Athens Photo: AFP/Getty Images
He made the comments following a visit by European Union inspectors,
who delivered a grim assessment of the Greek economy.

Mr Papandreou said that the previous Conservative administration had
"fled from its responsibilities", understating the budget deficit by
half.

Greek boy's funeral marred by violence"The damage is incalculable. It
is not only financial or fiscal but also affects the position of the
state," he said.

"Our duty today is to forget about the political cost and think only
about the survival of our country. Past policies make it necessary to
proceed to brutal changes and reduce accumulated privileges."

Mr Papandreou announced that he would meet Angela Merkel, the German
Chancellor, next week, amid growing signs that diplomatic efforts are
underway to find a solution to Greece's problems. He also met Josef
Ackermann, Deutsche Bank's chief executive.

However, the Greek prime minister insisted that his country would find
a solution to its financial problems.

"We ask the EU for its solidarity and they ask us to meet our
obligations. We will meet our obligations ... we will demand European
community solidarity and I believe we will get it," he said.

"No other country will pay for our debts," he said. "It is a matter of
honour and pride for our country to put our own house in order."

Greece's debt problems have put pressure on the euro and have
triggered jitters in world markets, as fears that the country will
default on its debt persist, which would potentially destabilise a
global recovery.

In a sign of how much of an impact Greece's problems are having
elsewhere, Mr Papandreou will also meet President Barack Obama.

Concern over Greece has been mounting since the government warned the
deficit is running at 12.7pc of gross domestic product, far above the
European Union's 3pc limit.

Moody's has warned that Greece is at risk of a "slow death" unless it
sharply reduces its deficit, as higher debt costs cause the economy's
economic potential to diminish.

Mr Papandreou said on Friday: "There is only one dilemma: Will we let
the country go bankrupt or will we react? Will we let the speculators
strangle us, or will we take our fate in our own hands?

"We must do whatever we can now to address the immediate dangers
today. Tomorrow it will be too late, and the consequences will be much
more dire," he added.

Analysts at Credit Suisse have predicted that Greece's debt to gross
domestic product ratio will peak at around 130pc in 2012-13 from an
estimated 113pc in 2009. That compares with the Greek's government
forecast of a 120pc peak in 2011.

Comments: 8

I'm half Greek and live in Athens. The latest tactic of deflecting
blame is a typical Greek trait. They are the victims! The culture of
corruption and cheating, as well as a state system with nearly 1
million workers (some retiring in their forties) has brought them to
this point. I myself am embarrassed by most modern Greeks.
Andy
on February 27, 2010
at 07:35 PM

70 % of Greeks agree with austerity measures, they accept they and
their state have to change their ways. The Greek gov't says it wants
to deal with its problems on its own, while EU partners have promised
help if they cannot cope anymore (as Wall St is working against them).
Let's forget the past for a moment and think about the good that will
come out of this: Greece wanted to be part of the euro (prematurely),
they cannot devalue their currency as an easy answer anymore (moral
hazard: what kind of a reputation does a country deserve that goes
deep into debt and then cheats its creditors by devaluing its
currency?!), Greeks will have to make sacrifices. Germans have made
sacrifices under the Schröder government,too. Greece is in a
collective learning process that will make it stronger eventually. I
remain optimistic about Greece. And my apologies to our Greek friends
- Focus magazine is not representing Germany, its "focus" is on making
money.
Berlin dude
on February 27, 2010
at 06:24 PM

If the GREEKS pride themselves as a nation of tax dodgers....why
should GERMANY help them.

References by the Deputy Greek Prime Minister to "NAZIS"....adds the
final insult.
GREECE is a nation of cheats by their own admission.
STUFF GREECE!
magpie
on February 27, 2010
at 01:11 PM

It's interesting that much of the cause of the vulnerability of so
many to so few was likely caused by Thatcherist deregulation. Thatcher
was an economic liberal (laissez faire) and this is what happens when
you depart from conservatism.
Greg Lorriman
on February 27, 2010
at 09:46 AM

As a Half Greek, I've got to admit that we are worthy of our current
situation. Secondly its part of Greek Culture when it comes to
politicians 'Since they cheat me, I will cheat them'. This all comes
down to the ridiculous relationship between people and state.

Yes! the EU has helped a great deal this country as much as our fellow
Club Med brothers (I can't deny that).

It is true that Pangalos (I want to say the worst for this guy..but it
will get censored) is trying to deflect current political moves, using
the WW2 card to keep the people busy, while creating a rift in Greco-
German relations.
Let me point you out that Greece is merely the FOREPLAY of that giant
ORGIE that is about to hit everyone. You might be asking yourselfs
'what on earth is he on about?' Well.... according to Billionaire
Financier Jim Rogers 'The pound will collapse within weeks' check out
the article. Just google it because it wont allow me to add links.

Let me remind you folks that what we are all going through on a global
scale is good for all of us because we are seeing the deep seeded
decay of bankers and politicians alike in action.

This will in my belief, tear down the old guard that has been running
the show for so long and giving us a chance to rebuild our global
economy in a more realistic and fail safe manner.

PS. To ALL of you out there who believe into all that NWO (NEW WORLD
ORDER) STUFF. It will never HAPPEN!! AS LONG AS YOU GOT COUNTRIES LIKE
GREECE TO BRING THE WHOLE PLAN BELLY UP. Cheerios.
Nick
on February 27, 2010
at 08:06 AM

As a Half Greek, I've got to admit that we are worthy of our current
situation. Secondly its part of Greek Culture when it comes to
politicians 'Since they cheat me, I will cheat them'. This all comes
down to the ridiculous relationship between people and state.

Yes! the EU has helped a great deal this country as much as our fellow
Club Med brothers (I can't deny that).

It is true that Pangalos (That FAT Ignoramus excuse of a man) is
trying to deflect current political moves, using the WW2 card to keep
the people busy, while creating a rift in Greco-German relations.

Let me point you out that Greece is merely the FOREPLAY of that giant
ORGIE that is about to hit everyone. You might be asking yourselfs
'what on earth is he on about?' Well.... according to Billionaire
Financier Jim Rogers 'The pound will collapse within weeks' check out
the article.

http//media.einnews.com/article.php?pid=73800
Let me remind you folks that what we are all going through on a global
scale is good for all of us because we are seeing the deep seeded
decay of bankers and politicians alike in action.

This will in my belief, tear down the old guard that has been running
the show for so long and giving us a chance to rebuild our global
economy in a more realistic and fail safe manner.

PS. To ALL of you out there who believe into all that NWO (NEW WORLD
ORDER) STUFF. It will never HAPPEN!! AS LONG AS YOU GOT COUNTRIES LIKE
GREECE TO BRING THE WHOLE PLAN BELLY UP. Cheerios.
Nick
on February 27, 2010
at 08:06 AM

Utterly ridiculous, stuff and nonsense--they're STILL hiding things.

Get out of the EU and default, fools!

http://www.telegraph.co.uk/finance/financetopics/financialcrisis/7326924/Greeces-worst-fears-confirmed-says-PM-George-Papandreou.html

[bademiyansubhanallah]

James Jubak

Investor columnist, founder JubakPicks.com
Posted: February 26, 2010 02:44 PM

The Greek Debt (and Euro) Crisis Will Drag On and On...

Have to have one. This crisis will either blow over in the next two
months or so or run until the end of 2010 and threaten to take down
Greek and German banks (German banks look like the biggest holders of
Greek government and bank debt) and the euro. It all depends on how
the chronology plays out.

Deadline #1. End of March. Standard & Poor's said three days ago
(February 23) that it may lower the credit rating on Greece's
sovereign debt again at the end of March if political opposition
prevents the government from delivering on its plans to reduce a
budget deficit now running at 12.7% of GDP (gross domestic product.).
A downgrade would raise the interest rates that Greece has to pay on
its debt and make it harder to sell new bonds to repay those that
mature in May.

Deadline #2: May. Greece needs to refinance about $27 billion in debt
that matures in May, according to calculations by Bloomberg. Already
investors are demanding a 3.48 percentage point premium over the
benchmark German bonds before they'll buy Greek 10-year debt. That
premium is four times the average premium of the last five years.

Deadline #3: June-July. If the bond sales go badly and if the Greek
government's plan for cutting the budget deficit looks dead in the
water, Standard & Poor's could cut the country's credit rating again
and Moody's, which has kept its rating on Greece the same since
December, could join in. That could take the credit rating on Greek
bonds below investment grade. A junk-bond-like rating for Greece would
send Greek interest rates higher yet and usher in a new stage in the
crisis.

Deadline #4: The end of 2010. The fourth quarter is crunch time. The
European Central Bank has said it wants to remove the emergency
measures that let banks use below investment grade debt as collateral
for loans from the bank. If the bank, as it has indicated, removes
that emergency measure at the same time as the credit ratings on Greek
sovereign debt fall below investment grade, it will set off a crisis
at Greek banks. Greek banks are big holders of Greek national debt,
which they then use as collateral for loans at the European Central
Bank. Those loans are essential to the ability of Greek banks to fund
themselves. No loans and the Greek banks wind up sitting on a huge
supply of Greek sovereign debt that they would have to sell into what
would become a market rout in order to remain liquid.

If this crisis gets to Deadline #4 without a resolution, it reaches a
new level of seriousness because the operation of the entire Greek
banking system comes into question. And if liquidity in the Greek
banking sector freezes up, then so does the Greek economy.

And that would set the dominoes falling as banks in other European
countries, especially German banks with their relatively large
holdings of Greek government and bank debt, would face rapidly
declining prices for debt in their portfolios.

It's the vulnerability of German banks to a Greek crisis, oddly
enough, that's the best guarantee that the German government, whatever
its current rhetoric, will intervene to prevent a Greek collapse. The
Merkel government in Berlin knows that at some point the consequences
of not acting will be felt in Frankfurt as much as in Athens.

My calendar, unfortunately, isn't a crystal ball. It can't predict
when "at some point" will be. Until then, expect the euro to continue
its retreat. The euro was trading at a one-year low to the yen this
morning and had fallen below $1.35.

Follow James Jubak on Twitter: www.twitter.com/JubaksPicks

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[chhotemianinshallah]

Opinion

America, the fragile empire

Here today, gone tomorrow -- could the United States fall that fast?
By Niall Ferguson

February 28, 2010

For centuries, historians, political theorists, anthropologists and
the public have tended to think about the political process in
seasonal, cyclical terms. From Polybius to Paul Kennedy, from ancient
Rome to imperial Britain, we discern a rhythm to history. Great
powers, like great men, are born, rise, reign and then gradually wane.
No matter whether civilizations decline culturally, economically or
ecologically, their downfalls are protracted.

In the same way, the challenges that face the United States are often
represented as slow-burning. It is the steady march of demographics --
which is driving up the ratio of retirees to workers -- not bad policy
that condemns the public finances of the United States to sink deeper
into the red. It is the inexorable growth of China's economy, not
American stagnation, that will make the gross domestic product of the
People's Republic larger than that of the United States by 2027.

As for climate change, the day of reckoning could be as much as a
century away. These threats seem very remote compared with the time
frame for the deployment of U.S. soldiers to Afghanistan, in which the
unit of account is months, not years, much less decades.

But what if history is not cyclical and slow-moving but arrhythmic --
at times almost stationary but also capable of accelerating suddenly,
like a sports car? What if collapse does not arrive over a number of
centuries but comes suddenly, like a thief in the night?

Great powers are complex systems, made up of a very large number of
interacting components that are asymmetrically organized, which means
their construction more resembles a termite hill than an Egyptian
pyramid. They operate somewhere between order and disorder. Such
systems can appear to operate quite stably for some time; they seem to
be in equilibrium but are, in fact, constantly adapting. But there
comes a moment when complex systems "go critical." A very small
trigger can set off a "phase transition" from a benign equilibrium to
a crisis -- a single grain of sand causes a whole pile to collapse.

Not long after such crises happen, historians arrive on the scene.
They are the scholars who specialize in the study of "fat tail" events
-- the low-frequency, high-impact historical moments, the ones that
are by definition outside the norm and that therefore inhabit the
"tails" of probability distributions -- such as wars, revolutions,
financial crashes and imperial collapses. But historians often
misunderstand complexity in decoding these events. They are trained to
explain calamity in terms of long-term causes, often dating back
decades. This is what Nassim Taleb rightly condemned in "The Black
Swan" as "the narrative fallacy."

In reality, most of the fat-tail phenomena that historians study are
not the climaxes of prolonged and deterministic story lines; instead,
they represent perturbations, and sometimes the complete breakdowns,
of complex systems.

To understand complexity, it is helpful to examine how natural
scientists use the concept. Think of the spontaneous organization of
termites, which allows them to construct complex hills and nests, or
the fractal geometry of water molecules as they form intricate
snowflakes. Human intelligence itself is a complex system, a product
of the interaction of billions of neurons in the central nervous
system.

All these complex systems share certain characteristics. A small input
to such a system can produce huge, often unanticipated changes -- what
scientists call "the amplifier effect." Causal relationships are often
nonlinear, which means that traditional methods of generalizing
through observation are of little use. Thus, when things go wrong in a
complex system, the scale of disruption is nearly impossible to
anticipate.

There is no such thing as a typical or average forest fire, for
example. To use the jargon of modern physics, a forest before a fire
is in a state of "self-organized criticality": It is teetering on the
verge of a breakdown, but the size of the breakdown is unknown. Will
there be a small fire or a huge one? It is nearly impossible to
predict. The key point is that in such systems, a relatively minor
shock can cause a disproportionate disruption.

Any large-scale political unit is a complex system. Most great empires
have a nominal central authority -- either a hereditary emperor or an
elected president -- but in practice the power of any individual ruler
is a function of the network of economic, social and political
relations over which he or she presides. As such, empires exhibit many
of the characteristics of other complex adaptive systems -- including
the tendency to move from stability to instability quite suddenly.

The most recent and familiar example of precipitous decline is the
collapse of the Soviet Union. With the benefit of hindsight,
historians have traced all kinds of rot within the Soviet system back
to the Brezhnev era and beyond. Perhaps, as the historian and
political scientist Stephen Kotkin has argued, it was only the high
oil prices of the 1970s that "averted Armageddon." But this did not
seem to be the case at the time. The Soviet nuclear arsenal was larger
than the U.S. stockpile. And governments in what was then called the
Third World, from Vietnam to Nicaragua, had been tilting in the
Soviets' favor for most of the previous 20 years.

Yet, less than five years after Mikhail Gorbachev took power, the
Soviet imperium in central and Eastern Europe had fallen apart,
followed by the Soviet Union itself in 1991. If ever an empire fell
off a cliff, rather than gently declining, it was the one founded by
Lenin.

If empires are complex systems that sooner or later succumb to sudden
and catastrophic malfunctions, what are the implications for the
United States today? First, debating the stages of decline may be a
waste of time -- it is a precipitous and unexpected fall that should
most concern policymakers and citizens. Second, most imperial falls
are associated with fiscal crises. Alarm bells should therefore be
ringing very loudly indeed as the United States contemplates a deficit
for 2010 of more than $1.5 trillion -- about 11% of GDP, the biggest
since World War II.

These numbers are bad, but in the realm of political entities, the
role of perception is just as crucial. In imperial crises, it is not
the material underpinnings of power that really matter but
expectations about future power. The fiscal numbers cited above cannot
erode U.S. strength on their own, but they can work to weaken a long-
assumed faith in the United States' ability to weather any crisis.

One day, a seemingly random piece of bad news -- perhaps a negative
report by a rating agency -- will make the headlines during an
otherwise quiet news cycle. Suddenly, it will be not just a few policy
wonks who worry about the sustainability of U.S. fiscal policy but the
public at large, not to mention investors abroad. It is this shift
that is crucial: A complex adaptive system is in big trouble when its
component parts lose faith in its viability.

Over the last three years, the complex system of the global economy
flipped from boom to bust -- all because a bunch of Americans started
to default on their subprime mortgages, thereby blowing huge holes in
the business models of thousands of highly leveraged financial
institutions. The next phase of the current crisis may begin when the
public begins to reassess the credibility of the radical monetary and
fiscal steps that were taken in response.

Neither interest rates at zero nor fiscal stimulus can achieve a
sustainable recovery if people in the United States and abroad
collectively decide, overnight, that such measures will ultimately
lead to much higher inflation rates or outright default. Bond yields
can shoot up if expectations change about future government solvency,
intensifying an already bad fiscal crisis by driving up the cost of
interest payments on new debt. Just ask Greece.

Ask Russia too. Fighting a losing battle in the mountains of the Hindu
Kush has long been a harbinger of imperial fall. What happened 20
years ago is a reminder that empires do not in fact appear, rise,
reign, decline and fall according to some recurrent and predictable
life cycle. It is historians who retrospectively portray the process
of imperial dissolution as slow-acting. Rather, empires behave like
all complex adaptive systems. They function in apparent equilibrium
for some unknowable period. And then, quite abruptly, they collapse.

Washington, you have been warned.

Niall Ferguson is a professor at Harvard University and Harvard
Business School, and a fellow of Jesus College, Oxford. His latest
book is "The Ascent of Money: A Financial History of the World." A
longer version of this essay appears in the March/April issue of
Foreign Affairs. foreign.affairs.com

http://www.foreignaffairs.com/articles/65987/niall-ferguson/complexity-and-collapse

Copyright © 2010, The Los Angeles Times

http://www.latimes.com/news/opinion/la-oe-ferguson28-2010feb28,0,2697391.story?track=rss

After Iran Gets the Bomb
Containment and Its Complications James M. Lindsay and Ray Takeyh
March/April 2010

Summary: Despite international pressure, Iran appears to be continuing
its march toward getting a nuclear bomb. But Washington can contain
and mitigate the consequences of Tehran's nuclear defiance, keeping an
abhorrent outcome from becoming a catastrophic one.

JAMES M. LINDSAY is Senior Vice President, Director of Studies, and
Maurice R. Greenberg Chair at the Council on Foreign Relations. RAY
TAKEYH is a Senior Fellow at the Council on Foreign Relations and the
author of Guardians of the Revolution: Iran and the World in the Age
of the Ayatollahs.

David G. comments on After Iran Gets the Bomb

8 Comments Join The Islamic Republic of Iran is determined to become
the world's tenth nuclear power. It is defying its international
obligations and resisting concerted diplomatic pressure to stop it
from enriching uranium. It has flouted several UN Security Council
resolutions directing it to suspend enrichment and has refused to
fully explain its nuclear activities to the International Atomic
Energy Agency. Even a successful military strike against Iran's
nuclear facilities would delay Iran's program by only a few years, and
it would almost certainly harden Tehran's determination to go nuclear.
The ongoing political unrest in Iran could topple the regime, leading
to fundamental changes in Tehran's foreign policy and ending its
pursuit of nuclear weapons. But that is an outcome that cannot be
assumed. If Iran's nuclear program continues to progress at its
current rate, Tehran could have the nuclear material needed to build a
bomb before U.S. President Barack Obama's current term in office
expires.

The dangers of Iran's entry into the nuclear club are well known:
emboldened by this development, Tehran might multiply its attempts at
subverting its neighbors and encouraging terrorism against the United
States and Israel; the risk of both conventional and nuclear war in
the Middle East would escalate; more states in the region might also
want to become nuclear powers; the geopolitical balance in the Middle
East would be reordered; and broader efforts to stop the spread of
nuclear weapons would be undermined. The advent of a nuclear Iran --
even one that is satisfied with having only the materials and
infrastructure necessary to assemble a bomb on short notice rather
than a nuclear arsenal -- would be seen as a major diplomatic defeat
for the United States. Friends and foes would openly question the U.S.
government's power and resolve to shape events in the Middle East.
Friends would respond by distancing themselves from Washington; foes
would challenge U.S. policies more aggressively.

http://www.foreignaffairs.com/articles/66032/james-m-lindsay-and-ray-takeyh/after-iran-gets-the-bomb

The End of the Beijing Consensus
Can China's Model of Authoritarian Growth Survive? Yang Yao
February 2, 2010

Beijing's ongoing efforts to promote growth are infringing on people's
economic and political rights. In order to survive, the Chinese
government will have to start allowing ordinary citizens to take part
in the political process.

YANG YAO is Deputy Dean of the National School of Development and the
Director of the China Center for Economic Research at Peking
University.

Bruce B. comments on The End of the Beijing Consensus

7 Comments Join Since China began undertaking economic reforms in
1978, its economy has grown at a rate of nearly ten percent a year,
and its per-capita GDP is now twelve times greater than it was three
decades ago. Many analysts attribute the country's economic success to
its unconventional approach to economic policy -- a combination of
mixed ownership, basic property rights, and heavy government
intervention. Time magazine's former foreign editor, Joshua Cooper
Ramo, has even given it a name: the Beijing consensus.

But, in fact, over the last 30 years, the Chinese economy has moved
unmistakably toward the market doctrines of neoclassical economics,
with an emphasis on prudent fiscal policy, economic openness,
privatization, market liberalization, and the protection of private
property. Beijing has been extremely cautious in maintaining a
balanced budget and keeping inflation down. Purely redistributive
programs have been kept to a minimum, and central government transfers
have been primarily limited to infrastructure spending. The overall
tax burden (measured by the ratio of tax revenue to GDP) is in the
range of 20 to 25 percent. The country is the world's second-largest
recipient of foreign direct investment, and domestically, more than 80
percent of its state-owned enterprises have been released to private
hands or transformed into publicly listed companies. Since the Chinese
Communist Party (CCP) lacks legitimacy in the classic democratic
sense, it has been forced to seek performance-based legitimacy
instead, by continuously improving the living standards of Chinese
citizens. So far, this strategy has succeeded, but there are signs
that it will not last because of the growing income inequality and the
internal and external imbalances it has created.

The CCP's free-market policies have, predictably, led to major income
disparities in China. The overall Gini coefficient -- a measure of
economic inequality in which zero equals perfect equality and one
absolute inequality -- reached 0.47 in 2008, the same level as in the
United States. More disturbing, Chinese city dwellers are now earning
three and a half times as much as their fellow citizens in the
countryside, the highest urban-rural income gap in the world.

How, then, has the Chinese government been able to adopt the
principles of neoclassical economics while still claiming Marxism as
its ideological anchor? The answer is that China has for three decades
been ruled by a disinterested government -- a detached, unbiased
regime that takes a neutral stance when conflicts of interest arise
among different social and political groups. This does not mean that
Beijing has been devoid of self-interest. On the contrary, the state
is often predatory toward citizens, but its predation is "identity-
blind" in the sense that Beijing does not generally care about the
social and political status of its chosen prey -- unlike many
governments elsewhere that act to protect and enrich specific social
or political groups. As a consequence, the Chinese government has been
more likely than other authoritarian regimes to adopt growth-enhancing
policies.

As the Chinese people demand more than economic gains as their income
increases, it will become increasingly difficult for the CCP to
contain or discourage social discontent by administering the medicine
of economic growth alone. For the last 30 years, the CCP has
intentionally adopted policies favoring specific groups or regions to
promote reform and economic growth. It has helped that the
disinterested CCP government was not permanently beholden to certain
groups or regions. China's integration into the world economy is a
case in point. At the end of the 1970s, the United States was eager to
bring China into its camp as a buffer against Soviet hegemony, and
China quickly grasped the opportunity. Yet that early adoption of an
"open-door" policy gave rise to domestic resistance: special economic
zones, such as Shenzhen, enjoyed an abundance of preferential
treatments that other parts of the country envied. Moreover, the CCP's
export-led growth model required that Beijing embrace an unbalanced
development strategy that encouraged rapid growth on the country's
east coast while neglecting the interior; today, nearly 90 percent of
China's exports still come from the nine coastal provinces.

China's accession to the World Trade Organization in 2001 was also a
calculated move. Before accession, it was widely believed that China
would have to endure painful structural adjustment policies in many
sectors in order to join the WTO. Even so, the central government
actually accelerated negotiations with the organization's members.
Despite the burdens it placed on the agriculture and retailing
sectors, accession boosted China's exports, proving wrong those who
worried about its effects. Between 2002 and 2007, Chinese exports grew
by an annual rate of 29 percent, double the average rate during the
1990s.

China's astronomic growth has left it in a precarious situation,
however. Other developing countries have suffered from the so-called
middle-income trap -- a situation that often arises when a country's
per-capita GDP reaches the range of $3,000 to $8,000, the economy
stops growing, income inequality increases, and social conflicts
erupt. China has entered this range, and the warning signs of a trap
loom large.

In the last several years, government involvement in the economy has
increased -- most notably with the current four-trillion-yuan ($586
billion) stimulus plan. Government investment helped China reach a GDP
growth rate of nearly nine percent in 2009, which many applaud; but in
the long run, it could suffocate the Chinese economy by reducing
efficiency and crowding out more vibrant private investment.

The End of the Beijing Consensus
Can China's Model of Authoritarian Growth Survive? Yang Yao
February 2, 2010

Bruce B. comments on The End of the Beijing Consensus

The economy currently depends heavily on external demand, creating
friction among major trading partners. Savings account for 52 percent
of GDP, and consumption has dropped to a historic low. Whereas
governments in most advanced democracies spend less than eight percent
of government revenue on capital investment, this figure is close to
50 percent in China. And residential income as a share of national
income is declining, making the average citizen feel poorer while the
economy expands. As the Chinese people demand more than economic gains
as their income increases, it will become increasingly difficult for
the CCP to contain or discourage social discontent by administering
the medicine of economic growth alone.

Despite its absolute power and recent track record of delivering
economic growth, the CCP has still periodically faced resistance from
citizens. The Tiananmen incident of April 5, 1976, the first
spontaneous democratic movement in PRC history, the June 4 movement of
1989, and numerous subsequent protests proved that the Chinese people
are quite willing to stage organized resistance when their needs are
not met by the state. International monitoring of China's domestic
affairs has also played an important role; now that it has emerged as
a major global power, China is suddenly concerned about its legitimacy
on the international stage.

The Chinese government generally tries to manage such popular
discontent by providing various "pain relievers," including programs
that quickly address early signs of unrest in the population, such as
reemployment centers for unemployed workers, migration programs aimed
at lowering regional disparities, and the recent "new countryside
movement" to improve infrastructure, health care, and education in
rural areas.

Those measures, however, may be too weak to discourage the emergence
of powerful interest groups seeking to influence the government.
Although private businesses have long recognized the importance of
cultivating the government for larger profits, they are not alone. The
government itself, its cronies, and state-controlled enterprises are
quickly forming strong and exclusive interest groups. In a sense,
local governments in China behave like corporations: unlike in
advanced democracies, where one of the key mandates of the government
is to redistribute income to improve the average citizen's welfare,
local governments in China simply pursue economic gain.

More important, Beijing's ongoing efforts to promote GDP growth will
inevitably result in infringements on people's economic and political
rights. For example, arbitrary land acquisitions are still prevalent
in some cities, the government closely monitors the Internet, labor
unions are suppressed, and workers have to endure long hours and
unsafe conditions. Chinese citizens will not remain silent in the face
of these infringements, and their discontent will inevitably lead to
periodic resistance. Before long, some form of explicit political
transition that allows ordinary citizens to take part in the political
process will be necessary.

The reforms carried out over the last 30 years have mostly been
responses to imminent crises. Popular resistance and economic
imbalances are now moving China toward another major crisis. Strong
and privileged interest groups and commercialized local governments
are blocking equal distribution of the benefits of economic growth
throughout society, thereby rendering futile the CCP's strategy of
trading economic growth for people's consent to its absolute rule.

An open and inclusive political process has generally checked the
power of interest groups in advanced democracies such as the United
States. Indeed, this is precisely the mandate of a disinterested
government -- to balance the demands of different social groups. A
more open Chinese government could still remain disinterested if the
right democratic institutions were put in place to keep the most
powerful groups at bay. But ultimately, there is no alternative to
greater democratization if the CCP wishes to encourage economic growth
and maintain social stability.

http://www.foreignaffairs.com/articles/65947/the-end-of-the-beijing-consensus

A Trade War with China?Neil C. Hughes
July/August 2005

Summary: With China's economic clout growing rapidly, Americans are
accusing Beijing of every offense from currency manipulation to
crooked trade policies. None of these charges has much merit, but they
have increased the probability of a U.S.-Chinese trade war that would
do considerable damage to both sides.

Neil C. Hughes is the author of China's Economic Challenge: Smashing
the Iron Rice Bowl. He was Senior Operations Officer in the China and
Mongolia Department of the World Bank from 1992 to 1997 and a
consultant on China to the World Bank until 2004.

THE EAGLE AND THE DRAGON

Americans are increasingly disturbed by the growing economic clout of
China. With Chinese growth rates consistently above nine percent, they
accuse it of stealing U.S. jobs, of keeping the yuan undervalued by
pegging it to the dollar, of exporting deflation by selling its
products abroad at unfair prices, of violating the rights of its
workers to keep labor costs low, and of failing to meet its
commitments to the World Trade Organization (WTO). Most of these
charges have little merit. But the misunderstandings behind them have
opened the way to a trade war between the United States and China --
one that, if it escalates, could do considerable damage to both sides.

China is not stealing U.S. jobs or engaging in unfair trade practices
to undercut U.S. economic might and export its way to global power. In
fact, almost 60 percent of Chinese exports to the United States are
produced by firms owned by foreign companies, many of them American.
These firms have moved operations overseas in response to competitive
pressures to lower production costs and thereby offer better prices to
consumers and higher returns to shareholders. U.S. importers with
dominant positions in China, such as Wal-Mart and Hallmark, have the
power to compel Chinese suppliers to keep their costs as low as
possible. Wal-Mart alone purchased $18 billion worth of Chinese goods
in 2004, making it China's eighth-largest trading partner -- ahead of
Australia, Canada, and Russia.

So who is really "to blame" for China's "exporting deflation" and for
the surge of Chinese exports? American importers, the American
consumers who buy their Chinese goods at very low prices, and their
American shareholders who demand results. A sustained trade war with
China would hurt these groups more than anyone else.

FEELING FOR EACH STONE

One of the principal charges leveled against China in the United
States stems from a misunderstanding of the dollar-yuan relationship.
A chorus of critics -- from government officials to corporate
executives and union leaders -- are charging Beijing with keeping the
yuan undervalued by pegging it to the dollar in order to gain an
unfair export advantage. This unfair advantage, they assert, is the
main cause of the U.S. trade deficit with China, which grew from $124
billion in 2003 to $162 billion in 2004.

http://www.foreignaffairs.com/articles/60825/neil-c-hughes/a-trade-war-with-china

China: The Coming PowerBarber B. Conable, Jr., and David M. Lampton
Winter 1992/93

Summary: An economic bnoom is underway in China, and the United States
is in danger of isolating itself from the benefits. A forward-looking
policy would not only offer tremendous opportunity for American
investment,trade and jobs, but it could also be a force for political
moderation in Beijing.

Barber B. Conable, Jr., is a former congressman from New York and
president emeritus of the World Bank; he is chairman of the National
Committee on United States-China Relations. David M. Lampton has
written widely on Chinese foreign and domestic politics and is
president of the National Committee. The views expressed are their
own.

A Troubled Relationship

ONE OF THE FIRST tests of the Clinton administration’s ability to
develop a forward?looking foreign policy will be the troubled U.S.-
China relationship. The successful conclusion of market-access
negotiations with Beijing in October, and the decisions of the
recently concluded 14th Party Congress to promote younger technocratic
leaders and widen economic reform in China, provide an opportunity for
progress.

Within the United States there has been little consensus on an
appropriate China policy. Since the June 1989 Tiananmen tragedy
Congress has tried to use sanctions to prod China to better observe
human rights. Although President Bush imposed some sanctions in the
aftermath of the crackdown, he consistently opposed legislation that
would eliminate or impose conditions on most-favored-nation treatment
for China. In September he vetoed legislation to place conditions on
renewal of China’s MFN trade status, saying it would hurt Chinese
citizens and American companies that sell goods there. For his part
President-elect Clinton has stated that he would be firmer, by linking
continued MFN status for China to improvements in human rights
practices. Beijing categorically rejects such a linkage and promises
retaliation.

China’s political repression, its nuclear technology and weapons sales
to Iran and other volatile regions of the world, along with some
illegal trade practices and a mounting trade surplus with the United
States, have only added to the tensions in a relationship already
strained by the unnecessary and tragic violence of June 1989 and
subsequent repression. China’s strategic value is inaccurately
perceived as having greatly diminished following the collapse of the
Soviet Union. If the current strains in America’s relations with China
deteriorate into a U.S. policy of benign neglect or outright
hostility, the damage could be widespread to the United States’
economic future, its relations with other countries and its hopes for
cooperation on global problems

http://www.foreignaffairs.com/articles/48470/barber-b-conable-jr-and-david-m-lampton/china-the-coming-power

A New China Strategy: The ChallengeKenneth Lieberthal
November/December 1995

Summary: China's reform policies have created economic opportunities,
but they have also unleashed political tensions. Some U.S. strategists
advocate a containment strategy, yet such a strategy is both
undesirable and infeasible. America's fortunes in Asia depend on the
evolution of a China that is secure, cohesive, reform-oriented, and
open to the world. Failed reform could easily lead to a nationalistic,
obstructionist China. In recent years, Washington, while trying to
engage the People's Republic, has driven it into a corner over human
rights. America must develop a long-term strategy to integrate China
into the world community and avert serious damage to this crucial
bilateral relationship. And it must begin to do so now.

Kenneth Lieberthal is Arthur F. Thurnau Professor of Political Science
and William R. Davidson Professor of Business Administration at the
University of Michigan. His most recent book is Governing China: From
Revolution through Reform (W.W. Norton, 1995).

Sign-up for free weekly updates from ForeignAffairs.com.The People's
Republic of China has been in the news this year for a number of
disturbing reasons. It has mounted muscular military actions to back
its diplomacy regarding Taiwan and the South China Sea, allegedly
transferred m-11 missile technology to Pakistan, sold nuclear
technology to Iran, conducted nuclear weapons tests, and augmented its
military budget when most other countries have been cutting back in
the wake of the Cold War. It has continued the repression of political
dissidents, displayed gross insensitivity in its handling of the U.N.-
sponsored Fourth World Conference on Women and Nongovernmental
Organization Forum, and become a prickly interlocutor at many
international negotiations. One of the most important issues now
confronting Asia is how an increasingly strong China will act in the
region.

Beijing recognizes the importance of expanding its economic links with
the rest of the world. The People's Republic of China (P.R.C.) has
sustained very rapid economic growth: since 1978, the per capita GDP
of more than one-fifth of the globe's population has roughly
quadrupled. China's foreign trade grew more than 16 percent per year
from 1978 to 1994, with imports exceeding exports for all but six of
those years. Concurrently, it has overseen huge changes in its
economy, social development, and political dynamics.

These domestic changes, generally welcomed abroad, have nurtured many
of the problems that now cause concern. They have vastly reduced the
compliance of the country's officials with Beijing's directives,
making it difficult for China's leaders to implement international
agreements they have signed on such issues as intellectual property
rights, and they have made the military a far stronger domestic
player, with potentially worrisome consequences abroad. They have
undermined faith in communism, and China's leaders have turned to
nationalism to tighten discipline and maintain support. Most
important, these changes have strengthened the P.R.C. to such an
extent that it is becoming a major regional and global actor.

http://www.foreignaffairs.com/articles/51600/kenneth-lieberthal/a-new-china-strategy-the-challenge

India's Rise, America's Interest
The Fate of the U.S.-Indian Partnership Evan A. Feigenbaum
March/April 2010

Summary: The future of the U.S.-Indian relationship will depend on
whether India chooses to align with the United States and whether it
sustains its own economic and social changes -- and on what policies
Washington pursues in those areas that bear heavily on Indian
interests.

EVAN A. FEIGENBAUM is Senior Fellow for Asia at the Council on Foreign
Relations. He served during the George W. Bush administration as
Deputy Assistant Secretary of State for South Asia and Deputy
Assistant Secretary of State for Central Asia.

Sign-up for free weekly updates from ForeignAffairs.com.Until the late
1990s, the United States often ignored India, treating it as a
regional power in South Asia with little global weight. India's weak
and protected economy gave it little influence in global markets, and
its nonaligned foreign policy caused periodic tension with Washington.
When the United States did concentrate on India, it too often fixated
on India's military rivalry with Pakistan.

Today, however, India is dynamic and transforming. Starting in 1991,
leaders in New Delhi -- including Manmohan Singh, then India's finance
minister and now its prime minister -- pursued policies of economic
liberalization that opened the country to foreign investment and
yielded rapid growth. India is now an important economic power, on
track (according to Goldman Sachs and others) to become a top-five
global economy by 2030. It is a player in global economic decisions as
part of both the G-20 and the G-8 + 5 (the G-8 plus the five leading
emerging economies) and may ultimately attain a permanent seat on the
United Nations Security Council. India's trajectory has diverged
sharply from that of Pakistan.

With economic growth, India acquired the capacity to act on issues of
primary strategic and economic concern to the United States. The
United States, in turn, has developed a growing stake in continued
Indian reform and success -- especially as they contribute to global
growth, promote market-based economic policies, help secure the global
commons, and maintain a mutually favorable balance of power in Asia.
For its part, New Delhi seeks a United States that will help
facilitate India's rise as a major power.

Two successive Indian governments have pursued a strategic partnership
with the United States that would have been unthinkable in the era of
the Cold War and nonalignment. This turnaround in relations culminated
in 2008, when the two countries signed a civil nuclear agreement. That
deal helped end India's nuclear isolation by permitting the conduct of
civil nuclear trade with New Delhi, even though India is not a party
to the Nuclear Nonproliferation Treaty. Important as the agreement
was, however, the U.S.-Indian relationship remains constrained. For
example, although U.S. officials hold standing dialogues about nearly
every region of the world with their counterparts from Beijing,
Brussels, and Tokyo, no such arrangements exist with New Delhi.

http://www.foreignaffairs.com/articles/65995/evan-a-feigenbaum/indias-rise-americas-interest

[Sid Harth]

fivethirtyeight [new article]
US Manufacturing Is Not Dead http://bit.ly/bY5izI
3 hours ago reply

Today’s economic article at 538 is from me (Hale Stewart) and my co-
blogger at the Bonddad Blog Silver Oz. Over the last few weeks we have
been discussing manufacturing in the US – or, more specifically, the
argument that the US doesn’t make things anymore largely as a result
of free trade agreements. Unfortunately, the US still makes plenty of
goods. In addition, free trade is not the boogie-man job killer many
purport it to be. As always, please click on all the pictures to get a
larger picture.

There is a common theme across the internet: US manufacturing is dead
and it's never coming back. Well, there's a big problem with that
analysis: it's not true. In fact, as the chart above indicates, it's
actually false. Note that since 1960, the index of industrial
production has risen from a little below 30 to its current level of
about 100. And note the increase is continual -- meaning the number
didn't just hover around 30 for most of that time only to spike up in
one big move. The index has continually risen over that entire period.
This situation is also obvious on a logarithmic chart:

Instead, what people are commenting on is the drop in manufacturing
employment. Consider these two charts.

Durable Goods Employment remained fairly steady at 10 million to 11.5
million employees between the mid-1960s to the early 2000s. Then total
employment dropped like a stone, losing three million people over the
last 10 years. These are levels last seen in 1950.

Non-durable goods manufacturing is even worse. From the mid-1960s to
the early 200s, total employment in this area hovered around a 6.8
million. However, starting in 2000, the number fell off a cliff,
losing almost 2 million people. This is the lowest the number has been
in over 60 years.

However, over the last 15 years we've seen an increase in
manufacturing productivity. Consider the following:

Manufacturing Output per hour has increased continually since records
have been kept, as has

Multi-factor productivity.

What does all this information tell us?

US Manufacturing is alive and well. The real issue is manufacturing
employment, which is dropping like a stone. And the reason for the
drop is an increase in productivity.

In addition, SilverOz adds the following:

Many people have a knee-jerk reaction to the decline in manufacturing
jobs and immediately blame outsourcing/imports for this decline. The
following graph demonstrates that the linkage between increased
imports and a decline in manufacturing jobs is virtually
nonexistent.

What we clearly see is that imports increased quite dramatically over
the last 30 years, while good producing jobs remained fairly level
(dipping during recession and then recovering) until this last
recession, which took a huge toll on manufacturing employment even
though imports actually declined. This again plays much better to the
argument that productivity increases are the greatest contributor to
our decline in manufacturing employment than the outsourcing/imports
argument.

And the following is from co-blogger SilverOz:

A recent debate elsewhere interested me enough to do some research on
the effects trade has on goods producing employment in the US. Now, I
want to state upfront that this is a look at the aggregate and that
there are obviously anecdotal cases of individual companies/plants
moving to overseas locations for competitive reasons, however, I want
to separate the publicized and emotional loss of individual plants
from the broad case that free trade is a job killer.

As we all know, the trade deficit has ballooned in recent decades as
is evidenced by the following graph (all graphs are thumbnails due to
the quantity in this piece):

We can clearly see that really beginning for good at the end of the
1991 recession the trade balance went down dramatically, with the only
sustained recoveries occurring during recessions. So, let's look at
how goods producing employees have been affected by this trade deficit
by decade.

The trade deficit really got its start during the early 80's
recessions when high interest rates by the Fed created a strong dollar
really hurt exports causing their nominal dollar value to flat line
from 1981 through 1986 before they took off again in 1987. The
following graph shows goods employment vs. the trade deficit for the
80s:

This graph shows no link between the increasing trade deficit and
goods employment in the 80s with goods employment rebounding even
while the deficit grew following the end of the 81 recession.

Next up are the 90s; the decade of grunge, the stock market bubble,
and NAFTA. One would expect to see massive declines in goods
employment following the implementation of NAFTA and a ballooning
trade deficit towards the end of the decade, but as you can see by the
following graph the opposite actually occurred. Following goods jobs
reaching their post-recession trough (the first jobless recovery) in
late 1992, the exploded up 10% from that bottom at the same time that
the trade deficit went from essentially -$18 billion to over -$90
billion.

Now let us move on to our most recent decade; where trade with China
exploded, we endured two recessions (both with jobless recoveries),
and an enormous increase in national debt. AS you can see from the
following graph, the goods employment trough didn't occur until about
2 years after the first recession ended, which also coincided with a
huge increase in the trade deficit, yet once again goods jobs held
their own during the massive trade imbalance.

Then, during the most recent recession, goods jobs dropped like a rock
(down nearly 20% from the pre-recession peak) and yet the trade
deficit actually decreased (and yes, oil was a part of this, but it
has also been a big part of our trade deficit all along.

So then, what does can account for our decline in goods employment
over recent years, especially over the last decade where it really
dropped off a cliff? The most simple answer seems to be that our
productivity has reached a point where it can outstrip production
demands, which leads to a decline in the labor intensity needed for
goods production.

Let's examine this a bit further. From the end of the 1990 recession
to the pre-2001 recession peaks productivity was up about 47%,
industrial production was up about 61%, and goods employment was up
about 9.3% (I used the end of 1990 recession value and not the trough
in actual goods employment here). So during the 90s, production
outstripped productivity (although both were up a ton), while job
creation came in at only +9.3%, obviously lagging. However, from their
2001 recession troughs (again using the end of the recession for
jobs), productivity was up about 25%, industrial production was up
about 15%, and jobs declined by about 4.3%. This graph demonstrates
that when productivity outstrips production goods jobs decline, but
that even when production outstrips productivity job growth can be
anemic so long as the productivity growth is still substantial. The
current recession is showcasing productivity's effects on jobs very
well, as while production has dropped about 13% during this recession,
productivity is actually up over 5%, and industrial production is now
at it's 2002 levels, but with roughly 20% fewer workers making those
goods.

In conclusion, the data appear to show that the real factor in goods
job creation (or loss) is the relationship between productivity and
production, which unfortunately leaves little room for protectionism
(even sans the trade war implications that would create), as unless
productivity falls precipitously we would see no net job creation from
any such endeavor.

And just so we don't define this as a US problem, I will direct you to
a conference board study that highlights China's loss of manufacturing
jobs to productivity too.

Here are some general conclusions.

1.) The US still manufactures goods. In fact, the US still
manufactures plenty of goods. Take a look at the types of exports in
the latest trade data from the Census. It includes exports of
industrial supplies, capital goods, autos and consumer goods.

2.) While outsourcing does happen -- that is, companies do go overseas
to open new factories at the expense of US employees -- it is not the
primary cause of manufacturing job losses.

3.) Going back to the recent post on employment remember that in this
recession the unemployment rate of specific groups was heavily
influenced by education level. In fact, according to the BLS, higher
education levels (college graduates and above) were remarkably
untouched in the latest recession while lower education levels (high
school graduates, high school with some secondary education) had
higher rates of unemployment. Lower levels of education are typically
associated with manufacturing and construction employment -- the two
areas of jobs that account for the largest percentage of job losses in
this recession.

US manufacturing would be greatly helped by two developments.

First, China needs to float its currency. A country that has 10% GDP
growth but little currency appreciation is obviously manipulating its
currency's value to a high degree. Given China's growth rate,
investors should be flocking to China driving up the yuan's value.
That is not happening. A real free-floating currency would cure a lot
of the trade deficit problems.

Secondly, there have been calls for a US industrial policy -- that is,
for Washington to essentially "pick winners and losers" by promoting
some industries that they feel have a high probability of success.
Asian countries have been doing this for years with remarkable success
and it is a policy which we clearly need to copy. I'm a big promoter
of nano-technology, alternative energy and stem cell research, but
those are just my choices. There are plenty others out there that
would also make sense.

27 comments

James Call: Expert said...
So glad to hear this thoughtful analysis and endorsement of industrial
"targeting," i.e., "picking winners and losers". It might be
"socialism" but it's also a proven winner, not only overseas, but in
this country, historically. We have a jobs and income problem, and
we've had one, really, for long before this recession/depression -
it's time to adopt a sensible industrial policy. Green energy is just
the tip of the iceberg. Let's hope reason can prevail over cries of
"socialism" in the future.

February 28, 2010 9:35 AM
Dan Warren said...
I'm a bit confused about the index being used at the beginning - does
that only count the output of products manufactured entirely within
the US? If, for example, GM moves their parts manufacturing to Mexico
but continues to do final assembly in the US, does that change show up
in an index like this?

Also it seems to me that some of these numbers should be corrected for
US population in order to mean much - if the number of manufacturing
jobs is holding steady over decades where we're gaining a lot of
people, it seems to me that manufacturing is arguably going down in a
very real sense.

February 28, 2010 9:39 AM
Rose Fox said...
In other words, this is the inevitable and long-predicted result of
the Industrial Revolution: machines have put people out of work by
replacing some outright and enabling others to work vastly more
efficiently.

I wish our response as a nation was to help those out-of-work people
train for jobs where machines have a much harder time replacing
people--customer service, home maintenance and repair, medicine,
massage therapy, teaching, martial arts, etc.--and to fund and
generally support those sectors. It seems to me that that would be
much more efficient and sensible than trying to protect those
vanishing manufacturing jobs, since the only way to do so would be to
make manufacturing less efficient, which is not really in anyone's
interests.

February 28, 2010 9:40 AM
Don said...
Great detail, but I suspect the housing bubble has skewed the metrics
on good manufacturing the last decade. If that could be factored out,
I suspect there would be a stronger correlation between employment and
trade.

I'd like to see a solution from the 1700's--import duties. Tax cargo
enough to pay for ports, roads, and rails. I'd also tax imported oil
enough to pay for middle east wars. Reduce business taxes. This would
slow job exporting, which would help in working retraining. No sense
taxing local business to subsidize importing of goods.

February 28, 2010 10:05 AM
sowhatsplanb said...
I'd like to know if there's a more direct measure of manufacturing job
losses due to movement of factories overseas. I ask because it seems
that shipping jobs overseas could increase productivity, depending on
how it's measured.

Imagine that a country has two factories. In one, it takes four hours
of labor to make $1,000 worth of socks. In the other, it takes one
hour of labor to make $1,000 worth of nanotubes. Overall productivity
in this country is $400/hour ($2,000 worth of goods for every five
hours of labor). The sock company decides to move sock production to a
country with cheaper labor and shuts down the factory. National
productivity rises to $1,000/hour (the level of productivity at the
nanotube factory), but no one has become more productive.

I'd be interested to know how our measurements of productivity control
for this effect.

February 28, 2010 10:07 AM
HelenSouth said...
An excellent article well supported by the graphs! It is not just an
American problem, it is a Western World problem & needs to be dealt
with in that larger arena.

I agree in part with promoting new industries as PBO has been saying
relentlessly since his campaign, but consider that we need some major
innovations to arise to create totally new industries, not yet
considered. Even the combination of both aspects of industry
development will not be sufficient to absorb the massive number of
"street sweepers" currently unemployed.

Many people do not have the IQ to train them above that level of
simple manual labor. What is to be done with them? O.K. leave out mass
murder!

My thoughts are that low level jobs with reasonable living wages need
to be created for many by the nation, while other should be paid &
encouraged to go fishing. Put training into charity work & other
helpful pursuits as well as preparation for early retirement via
hobbies. Hell! The GOP will hate this idea!

February 28, 2010 10:10 AM
Trevor said...
Thank you for the very interesting information. If you are considering
a follow up piece, could you compare the regional effect of these
changes? Hasn't the job decline been more pronounced in the Great
Lakes region? Isn't it possible even that there were manufacturing
losses in the Great Lakes region, but that this is offset by
manufacturing in the sun belt? (Think of Detroit and Buffalo.)

Sometimes the massive transition of jobs seems just as difficult for a
society to bear as the outright loss of those jobs would be. These
harships are not necessarily seen when you look only at the top-line
national numbers.

February 28, 2010 10:12 AM
annelies said...
I think you're oversimplifying the issue quite a bit by ignoring at
least two things:
1) The role of increased technology in greater productivity translates
into fewer jobs at higher pay, which translates into more bifurcation
between low wage, low skill service occupations and high wage, high
skill occupations. That means higher income inequality. Moreover, you
will also notice more stark rural-urban inequality as shifts to higher
tech production take place.
2) The relative role of manufacturing compared to other sectors such
as the finance, real estate, insurance sector in terms of
contributions to GDP is shrinking. When you have banking and finance
sectors where wages are astronomical and investors are grabbing up
property, it distorts the housing markets in global cities (Sassen,
2000) and contributes to even further inequality. Why is no one
talking about increasing marginal tax rates on millionaires and
billionaires? In the "Golden Era" of Fordist production in the post-
war years, we did redistribute income to the benefit of the middle
classes.

The effects of changes in manufacturing, therefore, are not confined
to the issue of jobs going overseas or "free trade," but reflect
larger structural shifts in society. Promoting increased productivity
will do nothing to address these heightened inequalities or generate
effective demand.

Also, to the commentator who said that protecting small firms the way
Asian Tiger countries did is "socialism," you're imposing an American-
centric notion of capitalism on other countries and don't seem to know
what socialism is at its core: broad government or worker (not
private) ownership and control over production. The East Asian
subsidies to incubate industries were not socialist. They promoted the
capitalist development of the countries in question. I wish people
would begin to pay more attention to the varieties of capitalism that
are present in the world and stop proliferating the image of the US
economy as some ideal prototype of what pure capitalism is. The US has
plenty of subsidies for industries such as cotton, to the great
detriment of cotton producers worldwide. Let's move beyond
reductionist ideals of socialism and capitalism and talk about how
economies actually exist in practice with a myriad of combinations of
protectionism and market liberalism. Let's also analyze the politics
of those institutional arrangements in the global economy. Neither
utopia is going to materialize, nor would it be all that desirable if
they did.

February 28, 2010 10:45 AM
Bart DePalma said...
Hale:

That was one outstanding analysis of American manufacturing, puting
the lie to the Left's common wisdom that our manufacturing sector is
doomed absent the government intervention of the moment ("fair trade,"
subsidies, tariffs, etc). Then, almost as if to add a punch line, you
post:

US manufacturing would be greatly helped by two developments.

First, China needs to float its currency...

Secondly, there have been calls for a US industrial policy -- that is,
for Washington to essentially "pick winners and losers" by promoting
some industries that they feel have a high probability of success.
Asian countries have been doing this for years with remarkable success
and it is a policy which we clearly need to copy. I'm a big promoter
of nano-technology, alternative energy and stem cell research, but
those are just my choices. There are plenty others out there that
would also make sense.

Did you just miss the point of your own analysis?

Free market American manufacturing has been relentlessly growing so
the solution is to add a healthy dose of socialism?

I would suggest a second project analyzing the actual track record of
industrial planning around the world and its current track record here
in the United States with Obama's "Green jobs" programs and
nationalization of Chrysler and GM.

When I was going through university in the 70s, industrial planning
was all the rage in my economics classes. Japan and Europe were going
to leave us in the economic dust because smart guys in the government
were choosing winning industries while the primitive Americans were
muddling along with a 19th Century market economy. Most of that
nonsense went by the wayside when Reagan freed up the US economy,
which promptly left the planned economies in the dust, forcing them to
free up their markets to attempt to keep up with the dreaded "Anglo
Saxon model."

China is the newest challenger on the block. However, it is far less
planned than you might think for a nominally communist country. In
many ways, the Chinese economy is freer than ours and the communists
can hardly keep up with the free market growth, nevertheless plan
which businesses stay in business and which do not. That is what makes
China a true economic rival.

Obama is currently demonstrating the folly of turning over parts of
the economy to government czars who have never run a business,
nevertheless turned a profit. The stimulus bill set aside over $100
billion towards growing "green" industries without any notable
success. Meanwhile, the auto task force and its hand picked boards in
"government motors" has compelled Chrylser and GM to make "green cars"
which littered the latest auto shows in "electric avenue" exhibits.
The problem with choosing "green cars" is that consumers are not
choosing them. Meanwhile, the only remaining American owned free car
company - Ford - is making hefty profits.

You might want to look into this and write an equally excellent sequel
debunking the myth of industrial planning. You will be soon be a free
market libertarian.

February 28, 2010 10:45 AM
Rudy said...
You guys were going great right up until the conclusions part. And
then right off the rails.

1. China "should" allow the value of the yuan increase. We've been
telling them that for years. Why? Because it would increase the
relative cost of Chinese labor content on exported good and reduce the
relative cost of American labor on imported goods.

But they aren't going to do it, at least not meaningfully. Why?
Because they're going for market share. We cannot control that, so
competitively, The US must improve productivity more, effective
reducing labor cost content. If the yuan wasn't pegged to the dollar,
we could also use a weaker dollar as a tactic. But doing that hurts
the US in other ways.

2. Industrial targeting is a roadmap to failure. Washington is
incapable of doing so and any such efforts would be bastardized by
politically connected cronyism.

The US only wins in the world market based on innovation, something
Washington can never control and does badly when it tries. If the
battle gets down to slugging it out on labor costs, the US cannot win.

The right thing to do is stop shackling businesses with evermore
regulation and mandates, which necessarily make them less competitive
in world markets.

February 28, 2010 10:48 AM
Bart DePalma said...
The shift in jobs from manufacturing to service is no more a "problem"
to be solved than the shift in jobs from agriculture to manufacturing
a century ago. The mechanization of agriculture has provided us a
wealth of cheap, high quality food and allowed workers to go to more
productive pursuits to create additional wealth. The same thing is
happening in manufacturing now.

February 28, 2010 10:49 AM
WCG said...
Excellent. But doesn't including oil imports weaken your case?

Yes, you say that "oil was a part of this, but it has also been a big
part of our trade deficit all along." But has oil stayed the same
percentage of our trade deficit all along? Oil imports don't replace
American manufacturing jobs, so any variability there might mask a
correlation with goods imports.

What do these graphs look like with oil imports removed? Without
knowing that, I have a hard time accepting your conclusions. (I don't
deny them, but I'm not quite ready to accept them, either.)

February 28, 2010 10:50 AM
Rose Fox said...
@HelenSouth: I think it's a big mistake to suppose that the industry
workers losing their jobs aren't smart. Don't confuse class strata and
geography with intelligence. There are extremely smart people in every
type of job, in every area of the U.S., and on every rung of the class
ladder.

February 28, 2010 11:16 AM
parksie555 said...
BDP - I respectfully disagree with the conclusion that the shift from
manufacturing to service is no different than the shift from
agriculture to manufacturing. Maybe I'm old fashioned, but I see both
agriculture and manufacturing as enterprises that create value, taking
things of lesser value (dirt, water, sunlight, steel, petroleum,
silicon) and creating wealth. What wealth does the service industry
create?

February 28, 2010 11:17 AM
Rose Fox said...
@Parksie555: The service industry turns one person's time into another
person's comfort, convenience, and peace of mind.

February 28, 2010 11:20 AM
parksie555 said...
@Rose Fox - Those are nice things, but to oversimplify you can't eat
them, can't live in them, can't use them to keep warm, can't use them
to cure yourself when you get sick,.......

February 28, 2010 11:23 AM
Carwil said...
While I appreciate the clarification from "the US doesn't produce
anything" to "the US doesn't employ many producers any more" (and the
real issue, politically, is doesn't allow a substantial number of
lower-skilled workers to enjoy the benefits of all that industrial
production), the explanatory section has major problems.

First, explaining the shift in industrial employment. Reading and re-
reading this piece, I'm struck by the one major flaw in the argument,
right at the center of the explanation. The industrial employment
graph has two kinks, before and after the 1950s to 1980s plateau. The
main argument of the piece is that this kink can be explained by
rising labor productivity after 1987. What changed before and after
1987? We have no idea here, because there's no data presented (at the
Dept of Labor, it seems not to be online). Was labor productivity
rising before? Slower or faster? Did an increase in labor productivity
drive the earlier (1950s ish) stop in growing industrial production?

Second, and probably equally as important, the rest of the article is
an attempt to see patterns of correlation in each business cycle. Yet,
the variables involved (trade balance, productivity, and employment)
have dominant business cycle-based influences. Specifically,
recessions cause major changes in demand for imports, encourage
employers to lay people off, and yield sometimes temporary, sometimes
permanent gains in productivity as people in workplaces strive or are
pushed to maintain production levels (while fearing for their jobs).
These effects dominate any short term causation. The question is
really at the larger scale (say, averaging for business cycles, or
comparing comparable points in them, between the 1950s-1980s and the
1980s-2000s).

Free trade vs. protectionism may not be the only external factor
involved. The key question seems to be whether a set of policies could
have maintained industrial employment while increasing productivity.
That would seem to involve either more exports or the production of
more public goods in the US (assuming that consumer demand here is
saturated). The policy questions may be a bit different under this
perspective (extending from your industrial targetting idea)... Given
fairly significant crises in infrastructure, mobility, energy and
trade balance, there seems to be a major upside in pursuing this path.

February 28, 2010 11:31 AM
Kevin said...
There is a simple solution. 30 hour work week. 6 weeks of vacation.

February 28, 2010 11:54 AM
OctaviusIII said...
Only every so often do I agree with Bart de Palma and in this case I
agree in spirit: the US shouldn't pick winners and losers like the
tiger economies.

We have always been more flexible than other economies simply because
we allowed the market to allocate resources. Granted, we didn't grow
as fast as those others for a while but we are able to grow out of
recessions more easily: somebody's always a little successful when the
economy isn't based entirely the winner industries.

February 28, 2010 11:56 AM
AlphaAlpha said...
I guess I am dreaming when I walk around my house and notice that most
of the things are manufactured in China, Southeast Asia, Japan, India.
And the big trade deficit with China is imaginary or due to the fact
that they must be exporting non-industrial aka agricultural goods.
Wait the US is still good at manufacturing specialist goods but those
optical telescopes are made in China now and my camera says made in
China by Nikon.
And the memory chips in my computer come from Malaysia.

to paraphrase CR Rao (National Medal of Science winning statistician)
one needs to make sure that the statistics actually reflect the
underlying trend.

Most economists did not see this recession coming. Now they have at
least two camps each of which has
"famous economists" saying that the other side doesn't understand
economics 101. They can't agree on prescriptions for the future (eg
stimulus and whether it helped). The
better scientific disciplines require that models have predictive
power.
At least one set of economists (Chicago) believe that economic models
cannot predict things like the
recession. Given this why should we even think that this is a serious
discipline? Why should the rest of us listen to prescriptions from
such people - some of which have resulted
in major unemployment etc.

For those who say that graphs don't lie, numbers make sense in terms
of a model (there is a story by TH Huxley about this) not in the
abstract.
Correlations don't imply causation
and also not having correlations don't
imply anything either. I don't have time to peruse every set of
statistics that the BLS etc put out but one example is the CPI. The
CPI has a weightage of 40% for housing. Given that more than 60% of
people own their houses in this country and the 200-300% increase in
house prices in the late 90's, early 2000's one would think that
inflation would be very high in that period. However, somebody came up
with a remarkable thing called "owner equivalent rents" which
essentially ensures that the CPI showing low inflation. This is
contrary to everybody's experience where buying a house became much
more expensive.
Another wonderful statistic is the employment index which tends to
eliminate "people who are no longer actively looking for employment".
With such wonderful statistics its no wonder that economists can't
build reasonable models even if their other assumptions of rationality
etc hold.

People who think that a big country like the US can survive without
manufacturing will doom the country to long term unemployment at low
wages. India seems to finally realize that the fraction of people who
can be employed or are interested in software jobs is a small
proportion of the country and is now trying to expand into
manufacturing (eg cars).

I don't blame China or the Southeast Asian countries. They are doing
the right things in terms of lifting their people from poverty and
looking for their rightful share of world resources.

Unfortunately, America's leaders and
intellectuals have lost their way. It is ironic that capital markets
are not very efficient. If you have done a startup you notice that the
venture capitalists take most of the company for lending other
people's money and not doing much else. The huge wall street bonuses
also illustrate this.

I once read that a Logitech mouse cost $3 to build in China but sold
for $27 in the US. The difference is mostly marketing, sales and the
salaries of high priced executives. It should be possible to make such
a mouse in the US for $15 or $20 and selling it for $27 preserving
employment. However, this would mean
that the high executive salaries would be more moderate.

February 28, 2010 12:03 PM
etalbot said...
ok thank its a good thing

February 28, 2010 12:19 PM
Todd Dugdale said...
This basically supports what the Administration has been saying about
unemployment: these jobs are gone and they are not coming back. Tax
cuts, lower minimum wages, relaxing occupational safety standards, and
all of the other "magic fixes" of the conservative standard-bearers
are not going to induce domestic manufacturers to hire workers that
they don't need.

The days of when an unskilled high-school graduate can walk into a
machine shop and get a high-paying job are largely gone. The things
that Mr. Stewart points out (nano-technology, alternative energy and
stem cell research) need skilled, educated people. And the 50-year-old
guy who ran a Bridgeport for 25 years until he was laid off is not
going to be able to compete for those jobs.

One could look at the case of Iceland: poor soil, no forests or
mineral resources to exploit, remote location and forbidding climate.
Everything must be imported, at relatively high cost and with an
immense trade deficit. Faced with these restrictions, they did two
things: invested in education and infrastructure.

Using the engineers that they educated, they harnessed hydroelectric
and geothermal power. This reduced energy imports to practically
nothing. Then they began a massive infrastructure project to bring
geothermally-heated water to their population centres. About 90% of
the homes and businesses in Iceland are heated virtually free. The
streets and sidewalks of the cities are kept bone-dry the entire year
using this infrastructure. No plowing, salting, or sanding costs. If
there were a feasible method to export electricity and heat, then
Iceland could eliminate its trade deficit.

They also "exported" brain-power on a large scale by training
engineers in virtually every discipline, IT techs, and diverse fields
of scholarship. Students pay no tuition, and a robust adult education
programme keeps the workforce skills agile.

Does this cost money? Yes.
It also saves money and makes money. None of this happened through the
"magic of the free market". It was the product of conscious government
planning and investment, or what passes for "socialism" among the
Right.

February 28, 2010 12:19 PM
Rudy said...
Uhhh, Todd, Iceland is bankrupt.

February 28, 2010 12:41 PM
BSM said...
Some wing-nuts have reflexively responded that the government
shouldn't pick winners and losers (in the sense suggested by the OP)
because we need innovation and the government does innovation badly.

Never mind that major and revolutionary innovations have come from the
government - the Internet, the leap in many technologies because of
the space program; and many more have come from the government's
research program known as the university system. In contrast, private
"entrepreneurs" have given us a "revolutionary" featureless box called
the iPod and hyped it up.

February 28, 2010 12:45 PM
Cristian said...
I live in Europe and I haven't seen a product made in US for the last
5 or even 10 years. Everything I see now is made in Asia (China,
Taiwan, Thailand, Singapore, Malayasia, Philippines) or sometimes in
Ireland or Germany.

February 28, 2010 12:59 PM
K. said...
"...allowed workers to go to more productive pursuits to create
additional wealth."

Yeah? Who gets the wealth?

In addition to annelies points, the U.S. has either lost altogether or
lost greatly the high-paying manufacturing jobs in steel and auto
manufacturing.

February 28, 2010 1:12 PM
Number_Seven said...
"Rudy said...
Uhhh, Todd, Iceland is bankrupt."

Are you claiming Iceland is bankrupt because of the policies described
by Todd?

February 28, 2010 1:16 PM

http://www.fivethirtyeight.com/2010/02/us-manufacturing-is-not-dead.html

Will China Weaponize U.S. Debt After Arms Sale to Taiwan?
By BRUCE WATSON
Posted 10:00 AM 02/28/10 Economy
Comments: 5Print E-mail More Text Size A A A Following the United
States's $6.4 billion arms sale to Taiwan in January, some members of
the Chinese military have advocated using China's considerable bond
holdings as a weapon to retaliate against the U.S. In a recent article
in Chinese magazine Outlook Weekly, senior army officers at China's
military university called for a stern response to the arms sale,
stating that "we could sanction [the U.S.] using economic means, such
as dumping some U.S. government bonds."

This anger isn't surprising: Many Chinese perceive the Taiwan weapon
sales as American interference in their country's internal affairs.
Xiong Lei, writing in China Daily, suggested that the sale was
comparable to a nosy neighbor getting involved in a family quarrel,
and asked "How would [the U.S.] react if China would sell weapons to
Alaska or Hawaii?"

On this side of the Pacific, the view is considerably different. While
the U.S. officially recognized the People's Republic of China in 1979,
it passed the Taiwan Relations Act in the same year. The act legally
formalized the U.S.-Taiwan relationship, guaranteeing that the U.S.
would continue to supply weapons to the island country. Noting the
2001 sale of four decommissioned Isaac Kidd-class destroyers, military
analyst and author Norman Polmar notes that "we've always given Taiwan
earlier-generation tech."

Significant Political Differences

Despite America's close economic relationship with China, the two
countries have significant political differences, an issue that was
highlighted by the recent fight over Google censorship in China. On
the other hand, Taiwan, which has held democratic elections since the
mid-1990's, hews far closer to American political ideals. Freedom
House, a non-governmental organization based in Washington D.C., lists
the island country as one of the most democratic countries in Asia.

Even apart from Taiwan, China and the U.S. have a strained
relationship. The latest military incident between the two occurred in
2001, when a Chinese fighter jet brushed a U.S. EP-3E Aries II spy
plane, disabling the craft before crashing into the ocean. China
allowed the American flight crew to land, then held them for 10 days,
regularly interrogating them and depriving them of sleep. After
President Bush apologized, China released the crew members were
released, but held the plane for three months, during which it
disassembled the craft.

China's increasingly aggressive posture may owe much to the growing
strength of its military, whose budget has had double-digit year-over-
year growth for the past two decades. In 2009, its budget increased by
14.9%, and experts estimate that it will have comparable growth in
2010. The Outlook Weekly article quoted Major General Zhu Chenghu as
stating that the anticipated 2010 increase should take into account
America's "meddling" in Taiwan. Major General Luo Yuan emphasized that
China should state that "due to the threat in the Taiwan Sea, we are
increasing military spending."

Increased Grumbling About U.S. Debt

While America's relationship with Taiwan could have a significant
impact on China's military budget, it seems more likely that China
will use the 2010 increase to increase employment and industrial
output, not unlike much of the country's current infrastructure binge.
A more worrisome development is the increased rumbling about America's
debt. With $755 billion in Treasury bonds, China has the power to
severely disrupt America's economy.

But the close relationship between the American and Chinese economy
means that this move would also have a devastating impact on China. A
flooded market would cause the value of China's remaining holdings to
plummet, in addition to killing the American market for Chinese
products. It could also result in a freeze on China's other holdings
in the U.S., and could even lead to a more direct conflict between the
two countries. According to Polmar, "It's hard to think of any
scenario under which China would dump our bonds."

Polmar suggests that Luo, Ke, and Zhu's statements might be back-door
saber-rattling, intended to unnerve the U.S., while appeasing China's
military. In Zhu's case, this makes sense: In 2005, he suggested that,
if the U.S. intervened in a Taiwan dispute, China could destroy
"hundreds of American cities" with nuclear weapons. The fact that his
2005 statements were made at a lecture sponsored by the foreign
ministry, coupled with the fact that his most recent comments were
published in a state-run magazine, suggests that Beijing tacitly
approves of his comments, but is not likely to endorse them further.

http://www.dailyfinance.com/wire/ap/

http://www.dailyfinance.com/wire/

ow Our Writers

Pallavi Gogoi Financial Writer
Peter Cohan Financial Columnist
Sarah Gilbert Features Writer
Gene Marcial Financial Columnist
Jeff Bercovici Media Columnist
James Altucher Financial Columnist
Mercedes M. Cardona Retail Reporter
Nikhil Hutheesing Assistant Managing Editor

http://www.dailyfinance.com/story/will-china-weaponize-u-s-debt-after-arms-sale-to-taiwan/19373579/

UK Digital Economy Bill will wipe out indie WiFi hotspots in
libraries, unis, cafes
By Cory Doctorow at 10:23 PM February 27, 2010

GlennF sez, "The Digital Economy Bill in the UK that Cory has written
about has a new, horrible portion that could cause many (most?) public
hotspots to shut down unless run by companies large enough to handle
the recordkeeping requirements. This ZDNet UK article cites legal
experts who say that the penalties associated with failure to comply
will make small businesses turn off hotspots. Universities and
libraries may face huge liability as well."

Lilian Edwards, professor of internet law at Sheffield University,
told ZDNet UK on Thursday that the scenario described by the
Department for Business, Innovation and Skills (BIS) in an explanatory
document would effectively "outlaw open Wi-Fi for small businesses",
and would leave libraries and universities in an uncertain position.
"This is going to be a very unfortunate measure for small businesses,
particularly in a recession, many of whom are using open free Wi-Fi
very effectively as a way to get the punters in," Edwards said.

"Even if they password protect, they then have two options -- to pay
someone like The Cloud to manage it for them, or take responsibility
themselves for becoming an ISP effectively, and keep records for
everyone they assign connections to, which is an impossible burden for
a small café."

The Digital Economy Bill is being sold to us on the grounds that
copyright infringement harms the British economy because of the
importance of our entertainment industry. But while the measures in
the DEB won't stop copyright infringement (copying isn't going to slow
down -- as computers and the technology they enable gets cheaper and
more widely distributed, copying will continue to speed up, just as it
has done since the dawn of the computer industry), they will harm
British business and British families, by making the Internet
generally less useful and more difficult and more expensive for honest
people to use.
In other words, the Digital Economy Bill will do no good for the
analogue economy industries, and will weaken the digital economy.

Open Wi-Fi 'outlawed' in Digital Economy Bill (Thanks, Glenn!)

Previously:

■Liberty's briefing on Britain's Digital Economy Bill
http://boingboing.net/2009/12/03/libertys-briefing-on.html#previouspost
■Digital companies object strenuously to UK Digital Economy bill
■http://boingboing.net/2009/11/19/breaking-leaked-uk-g.html
■Britain's Digital Economy Bill will cost ISPs £500M, knock 40K poor
households
offline
http://boingboing.net/2010/01/10/britains-digital-eco.html#previouspost
■Britain's new Internet law -- as bad as everyone's been saying, and
worse. Much, much worse.
http://boingboing.net/2009/11/20/britains-new-interne.html#previouspost

6 Comments

rikkus • #1 • 03:20 on Sun, Feb.28

Of course this should require records to be kept. I have a list of who
has borrowed my books, ready to hand over to the authorities when they
want to check for copyright infringement or sedition.

Don't you?

bengersfood • #2 • 04:32 on Sun, Feb.28

• Reply Quite so. I keep a list of everyone who enters my house, in
case they steal copyrighted content using brain-based "remembering"
technologies.

cd in canada • #3 • 07:54 on Sun, Feb.28

• Reply Thank you, Cory, for raising awareness...

the growing tension between copyfighters and the world-wide
government(-military?)-entertainment complex makes me wonder when the
tipping point will be reached?
How much pain and financial damage will the public bear before it
rises up and says ENOUGH!? And what's to be done to counter the
stupity of these selfserving laws masquerading as concern for public
safety and security? They do more to undermine freedom than they
protect the rights and income of creators and distributors of IP
material, which is the goal of copyright.

If this were the sixties we'd be taking it to the streets... but in
this internet age it's not clear how to make our voice stronger...
hammering the local MPs on this is critical, but clearly the politicos
who aren't in the copywrong camp don't get it.

It feels like we're watching the start of an historic time, and
strikes me that there will need to be new forms of internet activism
to take this on...

manicbassman • #4 • 08:32 on Sun, Feb.28 •

Reply it's a typical move by the big boys to raise barriers to entry
by means of legislation that they can absorb the costs of yet small
fry can't...

yet another case of "if you can't compete, legislate"...

It's massively anti-competitive...

RevEng replied to comment from cd in canada • #5 • 08:45 on Sun, Feb.
28 • Reply The problem is that the implications of copyright are too
abstract to explain to the general public. The MPs already hear from
many of us, but we are a vocal minority without deep pockets, so they
aren't concerned about losing votes. If it was an issue in the general
public, we might see something of it, but the public doesn't get it.

For one, most people are too worried about keeping their jobs and
their homes. Even in Canada, where "the recession isn't hitting
us" (bold-faced lie), stagnating wages, rising housing prices, and
slow business elsewhere (which is where Canadian companies sell to)
have people worried about their livelihoods. Among the uncertainty and
penny-pinching, they aren't thinking about abstract laws like
copyright.

Beyond that, try explaining both sides of the story to Joe Public. The
copyright guys say, "Musicians are poor, they have a right to their
music, and people are stealing, so we need tougher laws." And aside
from the last part, they are right, and a morally-just person would
have trouble denying that (most) musicians are poor and have a right
to make a living from their music. What they don't know is that it's
the labels who own the copyrights, who are pulling in all of the cash
and, except for those artists who end up on the radio, the other
musicians are poor because the labels are screwing them over. They
don't understand the actual laws and why those don't provide the
benefit that the lobbyists say they are trying to fight for.

On our side, we can talk about how these laws will affect people, like
the three-strikes law causing innocent people to lose access to the
internet for life, or how letting border patrol inspect laptops and
media players is an intrusion of privacy and rife with abuse (taking
items as "evidence" with no appeal or expectation to get them back).
We can try to explain how the laws actually work and their
repercussions, but it's all too detailed for the public: if we can't
say it in 140 characters or less, they won't follow it.

I wish I had an answer, but as I see it, these are the problems. We
need a concise way of describing the problems such that the general
public wouldn't want those laws placed on them. It needs to be short,
simple, and needs to fight the (strawman) moral argument that the
copyright lobbyists have put up front. And it needs to do it with far
less money, time and interest than the copyright lobbyists have.

It's no wonder our legal system is a mess.

tom frog • #6 • 08:51 on Sun, Feb.28 •

Reply If you own an open network in the UK, change the network ID to
something like "preserve open WiFi - oppose the DEB"

http://www.boingboing.net/2010/02/27/uk-digital-economy-b.html

Sunday, February 28, 2010
There's a new Red Scare. But is China really so scary?
There's a new Red Scare. But is China really so scary?
By Steven Mufson and John Pomfret
Copyright by The Washington Post
Sunday, February 28, 2010
http://www.washingtonpost.com/wp-dyn/content/article/2010/02/26/AR2010022602601.html#

With the American economy struggling and the political system in
gridlock, there is one thing everyone in Washington seems to agree on:
The Chinese do it better.

Cyberspace? China has an army of hackers ready to read your most
intimate e-mails and spy on corporations and super-secret government
agencies. (Just ask Google.) Education? China is churning out
engineers almost as fast as it's making toys. Military prowess? China
is catching up, so quickly that it is about to deploy an anti-ship
ballistic missile that could make life on a U.S. aircraft carrier a
perilous affair. The economy? China has gone from cheap-clothing-maker
to America's banker. Governance? At least they can build a high-speed
train. And energy? Look out, Red China is going green!

This new Red Scare says a lot about America's collective psyche at
this moment. A nation with a per capita income of $6,546 -- ensconced
above Ukraine and below Namibia, according to the International
Monetary Fund -- is putting the fear of God, or Mao, into our hearts.

Here's our commander in chief, President Obama, talking about clean
energy this month: "Countries like China are moving even faster. . . .
I'm not going to settle for a situation where the United States comes
in second place or third place or fourth place in what will be the
most important economic engine in the future."

And the nation's pundit in chief, Thomas Friedman of the New York
Times, even sees some virtue in the Chinese Communist Party's monopoly
on political power: "One-party autocracy certainly has its drawbacks.
But when it is led by a reasonably enlightened group of people, as
China is today, it can also have great advantages."

In the past, when Washington worried about China, it was mainly in
terms of a military threat: Would we go to war? Would China replace
the Soviet Union as our rival in a post-Cold War world? Or we fretted
about it as a global workshop: China would suck manufacturing jobs out
of our economy with a cheap currency and cheaper labor. But today, the
threat China poses -- real or imagined -- has flooded into every arena
in which our two nations can possibly compete.

And it's not just in Washington. Asked in a Washington Post-ABC News
poll this month whether this century would be more of an "American
century" or more of a "Chinese century," many Americans across the
country chose China. Respondents divided evenly between the United
States and China on who would dominate the global economy and tilted
toward Beijing on who would most influence world affairs overall.

"We have completely lost perspective on what constitutes reality in
China today," said Elizabeth Economy, the director for Asia studies at
the Council on Foreign Relations. "There is a lot that is incredible
about China's economic story, but there is as much that is not working
well on both the political and economic fronts. We need to understand
the nuances of this story -- on China's innovation, renewables,
economic growth, etc. -- to ensure that all the hype from Beijing, and
from our own media and politicians, doesn't lead us to skew our own
policy."

Having lived in China during the past two decades, we have witnessed
and chronicled its remarkable economic and social transformation. But
the notion that China poses an imminent threat to all aspects of
American life reveals more about us than it does about China and its
capabilities. The enthusiasm with which our politicians and pundits
manufacture Chinese straw men points more to unease at home than to
success inside the Great Wall.

This is not to say that China isn't doing many things right or that we
couldn't learn a thing or two from our Chinese friends. But in large
part, politicians, activists and commentators push the new Red Scare
to advance particular agendas in Washington. If you want to promote
clean energy and get the government to invest in this sector, what
better way to frame the issue than as a contest against the Chinese
and call it the "new Sputnik"? Want to resuscitate the F-22 fighter
jet? No better country than China to invoke as the menace of the
future.

Take green technology. China does make huge numbers of solar devices,
but the most common are low-tech rooftop water-heaters or cheap, low-
efficiency photovoltaic panels. For its new showcase of high-tech
renewable energy in the western town of Ordos, China is planning to
import photovoltaic panels made by U.S.-based First Solar and is
hoping the company will set up manufacturing in China. Even if
government subsidies allow China to more than triple its photovoltaic
installations this year, it will still trail Germany, Italy, the
United States and Japan, according to iSuppli, a market research
firm.

China does have dozens of wind-turbine manufacturers, but their
quality lags far behind that of General Electric, not to mention
Europe's Vestas and Siemens. And although a Chinese power company has
some technology that might be useful for carbon capture and storage,
which many companies see as the key to cutting greenhouse gas
emissions from coal plants, it has built only a tiny version to
capture carbon dioxide for making soda, rather than exploring needed
innovations in storage.

If not for our economic distress, we might be applauding China's clean-
energy advances; after all, one first-place position we have ceded to
China is in greenhouse gas emissions. Limiting those emissions is a
job big enough for both of our economies to tackle.

But domestic anxieties have morphed into anxiety about China. "Every
day we wait in this nation, China is going to eat our lunch," Sen.
Lindsey Graham (R-S.C.) said this month. Arguing for nuclear power, as
well as renewable energy sources and cleaner ways to use coal, Graham
said: "The Chinese don't need 60 votes. I guess they just need one
guy's vote over there -- and that guy's voted. . . . And we're stuck
in neutral here."

Like others, Graham emphasizes the China threat to propel his fellow
lawmakers into action. "Six months ago, my biggest worry was that an
emissions deal would make American business less competitive compared
to China," he said on a different day. "Now my concern is that every
day that we delay trying to find a price for carbon is a day that
China uses to dominate the green economy."

In other areas, politicians and pundits also have a tendency to
overestimate China's strengths -- in ways that leave China looking
more ominous than it really is. Recent reports about how China is
threatening to take the lead in scientific research seem to ignore the
serious problems it is facing with plagiarism and faked results.
Projections of China's economic growth seem to shortchange the
country's looming demographic crisis: It is going to be the first
nation in the world to grow old before it gets rich. By the middle of
this century the percentage of its population above age 60 will be
higher than in the United States, and more than 100 million Chinese
will be older than 80. China also faces serious water shortages that
could hurt enterprises from wheat farms to power plants to microchip
manufacturers.

And about all those engineers? In 2006, the New York Times reported
that China graduates 600,000 a year compared with 70,000 in the United
States. The Times report was quoted on the House floor. Just one
problem: China's statisticians count car mechanics and refrigerator
repairmen as "engineers."

We've seen this movie before, and it didn't end in disaster for the
United States. Some decades ago, Americans were obsessed with another
emerging Asian giant: Japan. People were so overwrought about the
"threat" that autoworkers smashed imported Japanese cars. On June 19,
1982, a Chrysler supervisor and his stepson, who had been laid off
from a Michigan auto plant, killed a Chinese American man they
apparently thought was Japanese. Author Michael Crichton's 1992
potboiler "Rising Sun" summed up the nation's fears. In 1991, 60
percent of Americans in an ABC News/NHK poll said they viewed Japan's
economic strength as a threat to the United States.

But then something happened. Japan's economy lost its game. The 1990s
became a "lost decade," so much so that during the toughest days of
the recent financial crisis, Japan was invoked as a cautionary tale,
lest we not do enough to jump-start our economy.

Now, some experts, such as Kenneth Lieberthal, a former senior
director for Asia at the National Security Council and a man who has
taught us a lot about China, say using China's green-tech rise as an
excuse to whip America into shape isn't such a bad idea, because the
result -- a cleaner environment or a more high-tech workforce -- makes
a lot of sense. And certainly it's better to compete on that than on
the size of our respective militaries.

But there is a certain irony to the new Red Scare. When we reported
from China in the 1990s, some Chinese neoconservatives achieved rock-
star popularity there for promoting the notion that the United States
was conspiring to contain China, militarily and economically. They
argued that global economic growth was a zero-sum game and that
China's gain would be America's loss; as a result, Beijing had to be
more assertive in its dealings with the United States.

Legions of U.S. diplomats and business leaders said no, no, no. They
assured China that the two nations could grow together. Americans
tried to teach Chinese the meaning of the expression "win-win."

And that is the way introductory economics courses teach it. As N.
Gregory Mankiw, a former chairman of President George W. Bush's
Council of Economic Advisers, writes in his popular textbook: Trade
"is not like a sports contest, where one side wins and the other side
loses. In fact, the opposite is true. Trade between two countries can
make each country better off."

And yet a sports contest -- or worse -- is exactly what the U.S.-
Chinese relationship sounds like these days. In discussing energy at
the Feb. 3 meeting with governors, Obama warned: "We can't afford to
spin our wheels while the rest of the world speeds ahead."

Speeding ahead is a worthy goal, but the United States does not need a
bogeyman on its tail to get moving. What may seem like a throwaway
line here could damage U.S. relations there, and there are enough
reasons for tension with China without manufacturing new ones. As the
Chinese strategist Sun Tzu said: "If ignorant both of your enemy and
yourself, you are certain to be in peril."

China is no enemy, but inflating the challenge from China could be
just as dangerous as underestimating it.

Steven Mufson and John Pomfret are reporters on the national staff of
The Washington Post and former Post Beijing bureau chiefs. They will
be online to chat with readers on Monday, March 1, at 12 p.m. Submit
your questions and comments before or during the discussion.

posted by Carlos T Mock at 3:28 AM

http://ctmock.blogspot.com/2010/02/theres-new-red-scare-but-is-china.html

[Sid Harth]

Toyota Chief's Tears Win Over Forgiving Japan
Crying Typical Ritual Of Japanese Exec Under Attack
YURI KAGEYAMA, AP Business Writer

POSTED: 7:24 pm CST February 24, 2010
UPDATED: 1:50 pm CST February 27, 2010

TOKYO --
He hasn't bowed in apology. He hasn't resigned. But this week Toyota
President Akio Toyoda did perform one of the typical rituals of a
Japanese executive under attack: He wept publicly.

The image of Toyoda choking up during a meeting with American dealers
is winning accolades in Japan, a society that has always had a soft
spot for such displays of emotion.

The footage was broadcast over and over on TV news Thursday. Toyoda,
53, was barely able to finish his sentences at the meeting with dozens
of Toyota dealers in Washington -- a far more receptive crowd than the
skeptical American lawmakers who had grilled him about the automaker's
safety lapses and massive recalls at a congressional hearing.

A photo of his sobbing face was on the front page of the evening
editions of the Yomiuri and Tokyo Shimbun newspapers. "Toyota
president offers apology, thanks, tears," said a headline in the
Asahi.

"People are going to feel sorry for him because he had to go through a
theatrical ordeal overseas, a very unusual situation for a Japanese
executive," said Kuniyoshi Shirai, executive adviser at A.C.E.
Consulting in Tokyo.

Japanese protocol for corporate chiefs under fire usually starts with
a deep bow, perhaps a resignation to take responsibility -- both of
which Toyoda skipped -- and sometimes sobbing.

A show of heartfelt remorse goes a long way in consensus-oriented
Japan, where intentions, not just results, carry meaning.

While tears would be a sign of weakness for an American executive, the
Japanese public are swayed by emotions because empathy for a weak
person is valued as an honorable trait, says Tatsumi Tanaka, president
of Risk Hedge, a consultant for major companies.

"It's a special Japanese aesthetic," he said. "It's a virtue to
acknowledge one's mistakes and mend one's ways, and crying is seen as
a symbol of that."

Even with rigid social definitions of femininity as a soft dependence
and masculinity as a stoic silence, high-profile men crying in public
draws not only surprise but also favorable reviews.

Athletes and other male celebrities often win extra marks from public
weeping -- in circumstances such as winning an Olympic medal or
mourning death in the family.

The most memorable case in the history of Japan Inc. by far was Shohei
Nozawa, once president of Yamaichi Securities Co., who outright bawled
at a news conference when his brokerage went bankrupt in 1997, and
begged the public to show mercy to his employees.

In Japan, he was widely praised as an ideal executive.

The tears were a little more subdued for Toyoda after his appearance
at the House Oversight and Government Reform Committee. He had
initially delegated testifying to his top U.S. executive but decided
to attend after getting a formal invitation and amid media criticism.

"At the hearing, I was not alone. You and your colleagues across
America, around the world, were with me," he said in English to the
Toyota dealers, shaking his head and his face scrunching up as the
crowd broke into applause.

Later, when a dealer told him they stood behind him, Toyoda was so
overcome with emotion he practically broke down and cried.

Keiko Hamada, a 56-year-old college official, found it touching.

"I'm so worried about him. As a Japanese, I was so moved," she said.
"As one Japanese, I'm rooting for Toyota."

Japan is increasingly nervous about Toyota Motor Corp.'s unfolding
recall crisis, which has ballooned to more than 8.5 million cars being
fixed for faulty gas pedals, floor mats and antilock braking.

Concerns are growing that electronic glitches, still relatively new
turf for the industry, may be behind the cases of unintended
acceleration that have led to deaths and horror stories of runaway
cars on highways.

Toyoda's appearance before Congress was a top news item for major
Japanese broadcasters.

News shows, including those on public broadcaster NHK, showed clips of
Toyoda reading introductory remarks in English and answering questions
from lawmakers described as "tough."

A colorful Fuji TV morning show, which mixes entertainment and social
news, characterized Toyoda as the "prince under attack," a reference
to his almost royal status as grandson of the company's founder.

Some analysts gave Toyoda passing marks for his performance.

"By Japanese standards, he was doing his best," said Ryoichi
Shinozaki, a crisis management expert at Kyodo Public Relations Co.,
noting Toyoda at least avoided blatant gaffes. "He answered the
questions, and he appeared comfortable."

But the company's crisis is deepening because of possible defects in
the electronic throttle, new investigations by federal authorities and
concerns there may be cover-ups, according to Shinozaki.

"The problems aren't going away," he said after watching the hearing
on TV. "The hearing is over, but the crisis is only getting more
serious."

Tears and apologies will only get him so far in Japan and possibly
prove disastrous in the U.S. in the long run. Even in Japan,
sentiments are fickle, and an outpouring of sympathy can turn to
hostility in a flash.

In recent weeks, Toyoda has earned a new nickname that highlights a
growing perception of ineptitude in handling the recall fiasco --
"child president," a sarcastic reference to Toyota's Japanese TV ads
that feature a popular child actor billed as "child dealer." The
moniker also takes a stab at Toyoda's privileged status as heir of a
well-to-do family.

"Japanese public opinion is cruel and can shift in an instant," Shirai
said. "For the U.S., an apology isn't going to be enough. As
management, he needed to present specific measures."

Associated Press writer Kelly Olsen contributed to this report.

Copyright 2010 by The Associated Press. All rights reserved.

http://www.koco.com/money/22664179/detail.html

After the Great Recession in US Business Markets
Business Recovery and Reorganization after an Economic Recession
Feb 27, 2010 Vanessa Cross

Economists and business commentators debate on when the US recession
started -- in 2007 or 2008. What they are beginning to agree on is
that 2010 is the rebound year.

A global market economic drop was triggered by the collapse of the
U.S. residential housing market in the U.S. economy. Among the
commentators, this is now commonly referred to as the Great Recession,
and in historical terms. It appears that U.S. President Barack Obama
has led the U.S. out of the free fall drop of the U.S. dollar. As of
this writing, the U.S. currency has stabilized activity at .0734
against the euro. Globally, however, all is not clear.

“Europe still looks ill,” reports WSJ.com economic editor David
Wessels in his article “Asia's Latest Export: Recovery” (Wall Street
Journal on-line, 02/24/10). “The recession was deeper there, and

fiscal and monetary stimulus less aggressive than in the U.S. and
China. Its businesses are more dependent on banks than U.S. firms, and
European banks haven't been—or haven't been forced to be—as open about

their losses or as quick to bolster capital cushions.”

Business Reorganizations
While the Great Recession started in the U.S. housing market, it
quickly moved into all capital markets. In the U.S., Wall Street was
humbled and hopefully learned some core lessons about valuing
individual greed and the interests of multinational corporations over
core national economic interests. It was a failure of American
business values, the business model of which has been equating quality
service and customer interests with increased business success.

There are various degrees of economic impact on a business. This often
depends on the efficiencies of the business at the time of the market
impact and the level of business risk exposure of the company. The
amount of assets and resources and the supply-and-demand for products
or services are contributing considerations. During the Great
Recession some companies and some business sectors failed. Other
businesses had business efficiencies sufficient to whether the
economic storm. Some U.S. businesses required a business
reorganization under Chapter 11 of the U.S. Bankruptcy Code.

In a Chapter 11 Bankruptcy, the business executive(s) or board members
evaluate and determine that it has a viable going concern if it had
the re-organizational resources provided through a court
reorganization of executory contracts and leases, and maybe
administered liquidation or voluntary release of some business assets
and liabilities. The business plan created in a Chapter 11 is the
survival plan. It must be viable to the bankruptcy court - and to a
great extent major business creditors - for the plan's confirmation of
the plan by the court that have binding effect on both the debtor
business and its surviving creditors.

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Business Recovery
The Great Recession resulted in great job losses. The market shifted
its valuation of labor and resources. Thrift started in the business
sector and is now playing a greater part in consumer values as it
applies to the exchange and trade activities.

National and state wide-systems become more important during recovery.
There are times for government to be lean and times for government to
step-up service. The New Economy will include obtaining greater
understanding and control over matters of national and state interest.
Valuing labor for talent and not arbitrary affinities will create
increased global market advantages in a U.S. recovery from the Great
Recession.

This article is for informational purposes only and should not be used
as a substitute for tax or legal advice.

Read more at Suite101: After the Great Recession in US Business
Markets: Business Recovery and Reorganization after an Economic
Recession http://business-market-analysis.suite101.com/article.cfm/after-the-fall-of-the-great-recession-in-the-us#ixzz0grGzCbut

http://business-market-analysis.suite101.com/article.cfm/after-the-fall-of-the-great-recession-in-the-us

The future of the international currency system and China’s RMB
February 28th, 2010

Author: Yiping Huang, Peking University and ANU

The global financial crisis could mark the beginning of the end for
the US dollar’s dominance over the global economy.

But the US dollar will not leave the global stage in the foreseeable
future. It will remain one of the world’s most important currencies
for many years to come. But the difficulties in maintaining the US
dollar’s role as a global reserve currency are large, and are best
characterised by the ‘Triffin Dilemma’. As growing international
economic transactions increase offshore demand for US dollars, the US
current account deficit necessarily grows. But the high deficit
diminishes global investors’ confidence in the dollar. In sum, the
international currency system is going to change.

These changes are important for China.

First of all, the US dollar has been the most important foreign
currency for China’s external economic relations, including in the
area of exchange rates. Should the US dollar begin its long decline,
China will need to find an alternative.

Secondly, China is already the world’s second largest economy, and a
very open one when compared with its economic peers. International
trade and investment transactions are critical for the Chinese
economy. Therefore, it has a vested interest in ensuring that
international financial system reform is moving ahead smoothly.

Thirdly, China’s large foreign exchange reserves have become a ‘hot
potato’. Since a large portion of the reserves is in US dollar
denominated assets, any fluctuations in the US dollar exchange rate
have significant implications for the value and purchasing power of
the reserves.

And finally, China is moving toward liberalisation of capital accounts
and internationalisation of the renminbi (RMB). The evolution of the
international currency system will have implications for reform of
China’s RMB policies. The RMB could play a greater role in the
international economy in the future, if its own reforms are smooth and
successful.

The conclusion is that a global monetary system based on a national
currency as its reserve currency is not sustainable. In this
discussion, I look at three possible scenarios.

The first scenario is continuation of the US dollar as the dominant
global currency.

Current debate surrounding the decline of the US dollar focuses mainly
on the dollar’s weakening role as a reserve currency, i.e., as a store
of value. It isn’t clear that the dollar’s roles as medium of exchange
or unit of accounting will decline rapidly in the short term. The key
reason for this is not so much because the fundamentals underscoring
the dollar’s global function are solid. Rather, there is a lack of
viable alternatives.

The US dollar’s disadvantages relative to other reserve currencies –
the euro, pound and yen – are not pressing in the near term. The
economies that are strengthening their positions in the global system
are mainly those from the emerging market world, such as China and
India. Unfortunately, these economies do not offer any feasible
substitutes to the US dollar as a global or reserve currency in the
short term.

Further, a key cause for collapsing confidence in the US economy was
very large external deficits. But if the US current account deficit of
3 per cent could be sustained in the coming years, it would allay
fears of the persistent depreciation of US dollar and remove an
important obstacle to the US dollar continuing to play its global
role.

The second scenario involves the emergence of a multi-global currency
system.

A multiple system based on national currencies still doesn’t solve the
‘Triffin dilemma’. But it certainly lessens the severity of the
problem by reducing deficit pressures on a single country. For
instance, if other major currencies constitute greater portions of the
world’s foreign exchange reserves, it might be possible for the US to
maintain its current account deficits at manageable levels.

The ‘G3’ (dollar, euro and yen) monetary union proposed by Bob Mundell
in 2002 could be a way forward for the multi-global currency regime.
Clearly, Mundell’s ultimate goal is to achieve a global currency. But
at least during the transition, as Mundell points out, it may be the
case that these three international currencies dominate.

A third scenario is creation of a supranational international
currency.

In 2009, the UN Commission on Financial Reforms identified a number of
problems with a national currency serving as the global reserve
currency.

Interestingly, the UN Commission argued that a multiple reserve
currency system may be worse than a single reserve currency system,
since it adds an additional element of instability to a purely US
dollar-based system. The Commission believes that not only is a new
global reserve system desirable, but that the global financial crisis
also provides an ideal opportunity to overcome political resistance.

People’s Bank of China (PBOC) Governor Zhou Xiaochuan’s proposal last
year to transform the IMF’s Special Drawing Rights (SDRs) into a true
global currency aims at solving the short term problem of a credible
reserve currency. One approach proposed by the Commission is for
countries to agree to exchange their own currencies for International
Currency Certificates (ICC), which could be converted into Special
Drawing Rights, and vice versa.

Another approach proposed is for the creation of an international
agency responsible for creating and issuing ICCs, and to allocate it
to the member countries. Commitment by central banks to accept it in
exchange for their own currencies would give ICC the character of an
international reserve currency.
But whichever direction international monetary system reform is
heading, Asia is under-represented in the global currency system.
Traditionally, much of Asia was a part of the ‘dollar bloc’. But as
the future of the dollar dims and economic interdependence among Asian
economies intensifies, the question arises: should Asia have its own
currencies, regional or international, that better reflect its growing
global economic importance?

The yen’s time has passed. But so far, the direction and nature of a
future regional currency regime remains an open question. If currency
integration is the name of the game, then perhaps America and Europe
offer two different models – the European model based upon political
will and coordination between governments, and the American model more
driven by market forces.

Strategic thinkers in Asia have already set their eyes on the long-
term goal of establishing an ‘Asian dollar’, much the same way as
Europe established the euro. Masahiro Kawai laid down a road map for
regional currency integration, first creating an ‘Asian currency unit
(ACU)’ based on a basket of regional currencies, with the ultimate
goal of unifying regional currencies into a single supranational
regional currency.

But there is an alternative. The RMB could emerge as Asia’s dominant
regional currency. This hinges on the successful continuation of
China’s rapid growth and the smooth transformation of the RMB into a
global currency.

In this context, China has actively participated in international
financial system reform, through both intellectual debate and policy
development. Further, Chinese policy-makers are more positive about
the role played by existing international financial architectures,
such as the IMF and the World Bank, than many of their East Asian
counterparts. But, objectively speaking, the track records of these
global institutions, especially the IMF, remains subject to question.

In sum, it is difficult to predict how soon the RMB will become an
international currency. This depends largely on the pace of
liberalisation. But it is clear that moves towards liberalisation that
will assist that development have been accelerating in recent years.

If all these reforms move forward smoothly, then we can expect the RMB
to become an international currency within a relatively short
timeframe. But only time will tell as to what role it will play in a
future international monetary system.

Yiping Huang is professor of economics in the China Center for
Economic Research at Peking University and a professor of economics in
the China Economy Program at the Australian National University.

Related articles:

1.The China syndrome on exchange rates
http://www.eastasiaforum.org/2010/02/09/the-china-syndrome-on-exchange-rates/
2.China’s exchange rate policy, its current account surplus, and the
global imbalances
http://www.eastasiaforum.org/2009/12/02/china%e2%80%99s-exchange-rate-policy-its-current-account-surplus-and-the-global-imbalances/
3.Currency ‘reform’ in North Korea http://www.eastasiaforum.org/2010/01/11/currency-reform-in-north-korea/
4.Brazil, Russia, India, and China (the BRICs) throw down the gauntlet
on monetary system reform
http://www.eastasiaforum.org/2009/06/28/brazil-russia-india-and-china-the-brics-throw-down-the-gauntlet-on-monetary-system-reform/

What other people are reading:

1.Pakistan: The final frontier http://www.eastasiaforum.org/2010/01/14/pakistan-the-final-frontier/
2.G20: Tangible results of Pittsburgh
http://www.eastasiaforum.org/2009/10/07/g20-tangible-results-of-pittsburgh/
3.China’s growing presence in India’s neighbourhood
http://www.eastasiaforum.org/2010/02/05/chinas-growing-presence-in-indias-neighbourhood/

http://www.eastasiaforum.org/2010/02/28/the-future-of-the-international-currency-system-and-chinas-rmb/

[Sid Harth]

Words from the Investment Wise 2.28.10
By Prieur du Plessis - February 28th, 2010, 8:15AM

Words from the (investment) wise for the week that was (February 22–
28, 2010)

As investors vacillated about the impact of developments in Greece,
together with the uncertainty of strong fourth-quarter economic data
possibly not carrying over to the first quarter, stock markets
experienced two sharp sell-offs and two rebound rallies, limping to
small gains on Friday but ending the week modestly down.

Renewed fears over Greece’s debt woes, disappointing German business
confidence statistics and lower-than-expected US consumer confidence
data tempered investor optimism for risky assts, triggering haven
demand for government bonds and the Japanese yen.

Fed Chairman Ben Bernanke provided some support for stock markets on
Wednesday by indicating in his testimony to the US House Financial
Services Committee that the fed fund rate will remain at exceptionally
low levels for an extended period. However, the flip side of the coin
is his gloomy picture of the economy still battling high unemployment
and a weak housing sector.

“Greece hasn’t gotten so much press since 146 BC when the Romans took
over,” said Paul Kasriel (Northern Trust). In news after the close of
the markets, the Financial Times reported: “Germany’s biggest banks
are looking at a rescue plan for Greece under which they would buy
Greek debt backed by financial guarantees from Berlin. One senior
German bank official said serious thought was being given to a plan
for the German government, working through KfW, its development bank,
to issue guarantees to banks that bought Greek debt.”

Source: Patrick Blower, Guardian http://www.guardian.co.uk/commentisfree/video/2010/feb/12/greece-euro

The past week’s performance of the major asset classes is summarized
in the chart below – a set of numbers indicating that a degree of risk
aversion has crept back into financial markets. Interestingly, unlike
equities, both investment-grade and high-yield corporate bonds ended
the week in the black. “We believe investors can capture attractive
yields and excess spread in the high-yield market with relatively low
default risk,” Andrew Jessop, high-yield portfolio manager at Pimco,
said in a note on the company’s website (via MoneyNews).

Source: StockCharts.com

A summary of the movements of major global stock markets for the past
week and various other measurement periods is given in the table
below.

It was essentially a flat week, with the MSCI World Index declining by
0.1%, but the MSCI Emerging Markets Index managing to eke out a
positive return of 0.3%. With the Chinese returning from the lunar
holiday, Hong Kong (+3.6%) put in one of the better performances among
important markets, whereas mainland China (+1.1%) also closed the week
in the black.

Notwithstanding the huge rally since the March lows, only the Chile
Stock Market General Index has been able to reclaim its 2007 pre-
crisis peak and is now trading 9.4% higher. Mexico could be the next
country to eliminate the bear market losses.

Click here or on the table below for a larger image.

Top performers among stock markets this week were Ukraine (+4.5%),
Greece (+3.7%), Hong Kong (+3.6%), Cyprus (+3.2%) and Thailand
(+3.0%). At the bottom end of the performance rankings, countries
included Turkey (‑6.8%), Malta (-5.7%), Austria (-5.2%), Argentina
(-4.9%) and Latvia (-4.2%). Turkey suffered from tensions between the
government and the military. Debt-ridden European countries such as
Italy (-3.2%), Spain (-3.2%), Ireland (-3.2%) and Portugal (-2.1%)
featured strongly at the bottom end of the performance ranking.

Of the 96 stock markets I keep on my radar screen, 33% recorded gains,
60% showed losses and 7% remained unchanged. The performance map below
tells the past week’s somewhat bearish story.

Emerginvest world markets heat map

Source: Emerginvest (Click here to access a complete list of global
stock market movements.)

Eight of the ten economic sectors of the S&P 500 Index closed lower
for the week, with Financials and Consumer Discretionary the only two
sectors not under water. (Who would have guessed the Conference
Board’s Consumer Confidence Index would fall to its lowest level since
July 2009 on Tuesday?)

Source: US Global Investors – Weekly Investor Alert, February 26,
2010.

John Nyaradi (Wall Street Sector Selector) reports that as far as
exchange-traded funds (ETFs) are concerned, the winners for the week
included Vanguard Extended Duration Treasury (EDV) (+4.3%), iShares
MSCI Thailand (THD) (+3.9%) and CurrencyShares Japanese Yen (FXY)
(+3.1%).

At the bottom end of the performance rankings, ETFs included iShares
MSCI Turkey (TUR) (-8.8%), Claymore/MAC Global Solar Energy (TAN)
(-7.2%) and United States Natural Gas (UNG) (down 5.1%).

Referring to a regulatory report released on Tuesday by the Federal
Deposit Insurance Corp (FDIC), the quote du jour this week comes from
Addison Wiggin, co-author of Financial Reckoning Day Fallout and The
New Empire of Debt. He said in a column on The Daily Reckoning site:
“The FDIC is even more broke than it was three months ago. The fund
the FDIC uses to ‘insure’ your bank account went $20.9 billion in the
red during the fourth quarter of 2009. That’s more than twice the
deficit reported when the fund first entered negative territory in the
previous quarter. Incredibly, the FDIC is still trying to reassure us
that all is well because it’s collecting three years of advance
payments on the annual assessments paid by its member banks. The fees
total $45 billion – barely twice the amount of the current deficit.
Yeah, we feel better.

“On top of that, the FDIC’s list of ‘problem banks’ grew during the
fourth quarter from 552 to 702. That’s the highest number since 1993
(when, we presume, more independently owned banks were around, so it’s
worse than it sounds). Hmmm, let’s see. The number grew 27% in just
one quarter. At this pace, every bank in the country will be on the
problem list by the fourth quarter of 2012. Another tidbit from the
FDIC’s report: Bank lending last year dropped at the biggest clip
since 1942. Of course, in that year, the entire economy was shifting
to a war footing. So it’s safe to say what we’re seeing now is another
unprecedented postwar occurrence.”

Next, a quick textual analysis of my week’s reading. This is a way of
visualizing word frequencies at a glance. “Bank”, “debt”, “economy”,
“Fed”, “rate” and “market” all featured prominently, but it was
somewhat surprising to see “China” commanding more media mentions than
“Greece”.

The major moving-average levels for the benchmark US indices, the BRIC
countries and South Africa (where I am based in Cape Town when not
traveling) are given in the table below. With the exception of the Dow
Jones Transportation Index, the Nasdaq Composite Index and the Russell
2000 Index, the indices in the table are all trading below their 50-
day moving averages, but all the indices are still above their
respective key 200-day moving averages. However, a red light is
starting to flash regarding the Shanghai Composite Index, which is
within striking distance (20 basis points) of this key support line.

Click here or on the table below for a larger image.

Commenting on the technical picture of the S&P 500, Kevin Lane (Fusion
IQ) said: “The Index hit minor resistance a few trading sessions back
near the 1,112 level. Until this level is taken out the near-term
directional bias remains neutral. Lower down, the key level to watch
is in the 1,072 area. This support level represents a much more
significant uptrend line and if violated would suggest a bigger
correction.

“Sentiment indicators are neutral at present, which is a positive,
while market breadth remains a mixed bag. Clearly the recent trading
activity suggests volatility will be more present in day-to-day
trading than over the past few months.”

On the topic of charts, when considering S&P 500 monthly data, going
back to 1998, three momentum-type oscillators (RSI, MACD and ROC) all
still signal a bullish trend (see chart below). According to Yahoo
Finance – Tech Ticker, Barry Ritholtz (The Big Picture) is not as
bullish as he was last March when he called the market bottom, but is
sticking with stocks. “The easy thing to do now would be to go to
cash,” he said, “[But] I rarely find the easy trade is the one that
makes you money.” (Incidentally, the long-term chart for US government
bonds is in bearish mode.)

Source: StockCharts.com

David Rosenberg, chief economist and strategist of Gluskin Sheff &
Associates, said: “Let’s face it, the surprise two months into the
year is that the stock market is down more than 1% and 10-year
Treasury yields are also down 20bps. It is still early in the year to
be sure but it also seems clear that the economic data are starting to
show some fragility. The S&P 500 has done little more than hover
around the 1,100 mark now for six months in what can only be
classified as a major topping formation. The VIX index is at 20, not
40; market vane sentiment is closer to 60 than 30; the US dollar is
strong, not weak; policies are moving tighter, not easier; and the
government is now aiming to curtail the banks whereas a year ago it
was all about saving them.

“With a V-shaped earnings recovery already priced in and economic
houses, like MacroEconomic Advisors, calling for 4% GDP growth for
2010, it certainly is difficult to highlight where the upside
surprises for the market are going to be.”

From across the pond, David Fuller (Fullermoney) adds the following
perspective: “Do we have a real crisis today? It is real enough for
Southern European countries and obviously heightens sovereign debt
concerns from Greece to the USA via the UK, but is this another global
crisis? I do not think so, at least not yet although the OECD
countries’ problems are far from resolved.

“The loss of upside momentum by most stock markets and many
commodities, including precious metals, clearly indicates that global
investors have reduced leveraged exposure in the last three months.
Whether this is a normal correction (our previously stated 40%
possibility) or likely to become a self-feeding and more significant
pullback (also a 40% possibility) is hard to gauge, but action near
the 200-day moving averages will be revealing. Even in the latter
instance, I do not think the global economic background justifies a
resumption of bear markets (20% possibility), which were discounting
near-depression conditions between 4Q 2008 and 1Q 2009.”

I side with Fuller on his conclusion, but am also cognizant of the 12-
month momentum of the S&P 500 narrowly tracking the US GDP-weighted
PMI (see graph below). Current levels of the S&P 500 indicate the
market is expecting a GDP-weighted PMI in excess of 60.0 vs a current
level of 52.3. If the S&P 500 maintains its current levels around
1,100, the 12-month momentum will drop to 39% at the end of March and
27% at the end of April this year. Even this drop in momentum requires
the GDP-weighted PMI to rise to 55 and higher. Although not
impossible, it seems improbable given the sub-par economic recovery.
It can therefore be deduced that the US equity market is somewhat
overpriced even if the GDP-weighted PMI should improve to 55.
Understandably, Marc Faber suggests (via a Financial Times interview)
“investors should make 2010 the year of ‘capital preservation’”.

Source: Plexus Asset Management (based on data from I-Net Bridge).

For more discussion on the economy and financial markets, see my
recent posts “Montier: Was it all just a bad dream? Or, ten lessons
not learnt“, “Barry Ritholtz sticks with stocks, especially emerging
markets“, “Q4 earnings in perspective“, “Face to face with Marc Faber”
and “Is the credit malaise really over?” (And do make a point of
listening to Donald Coxe’s webcast of February 26, which can be
accessed from the sidebar of the Investment Postcards site.)

Twitter and Facebook

I regularly post short comments (maximum 140 characters) on topical
economic and market issues, web links and graphs on Twitter. For those
readers not doing so already, you can follow my “tweets” by clicking
here. You may also consider joining me as a friend on Facebook.

Economy

“Business sentiment has improved markedly since hitting bottom about a
year ago. This improvement has been about the same across the globe,
with South Americans somewhat more optimistic and North Americans
somewhat less so,” according to the results of the latest Survey of
Business Confidence of the World by Moody’s Economy.com. Businesses
are most upbeat when responding to broader questions about current
conditions and the outlook into this summer, but remain cautious when
responding to specific questions regarding the strength of sales,
pricing, inventories and hiring.

Source: Moody’s Economy.com

Meanwhile, the Ifo Business Survey for industry and trade in Germany
clouded over somewhat in February. For the first time in ten months,
the business climate index has not risen, blaming especially the
situation in retailing, which experienced a setback in February. On
the whole, the firms have assessed their current business situation
somewhat more unfavorably than in the previous month.

Source: Ifo Business Survey, February 23, 2010.

A snapshot of the week’s rather mixed US economic reports is provided
below. (Click on the dates to see Northern Trust’s assessment of the
various data releases.)

Referring to Fed Chairman Bernanke’s testimony, Asha Bangalore
(Northern Trust) said: “The most important message from Chairman
Bernanke’s testimony is that the federal fund rate will be held at
0%-0.25% for an extended period. In light of the higher discount rate
(0.75% vs. 0.50%) announced on February 18, 2010, market participants
obtained confirmation from the Chairman that the change in the
discount rate was a removal of emergency accommodation put in place to
address the financial crisis and not a sign of tightening of the
monetary policy stance.”

“I don’t think the Fed dares increase the fed fund or policy rate in
the face of unemployment at double-digit type of levels. This is more
of a technical maneuver,” Bill Gross of Pimco told Reuters (via
MoneyNews).

In related news, the Treasury said on Tuesday that it would bolster
its Supplementary Financing Program by selling $200 billion in short-
term debt and storing the proceeds at the central bank, thereby
helping the Fed remove reserves from the financial system.

Summarizing the growth outlook, Bangalore said: “Going forward, the US
economy is predicted to show moderate growth in the first three
quarters of 2010 and strong growth in the final three months of 2010,
with the virtuous cycle of real and financial recovery working
together to lift economic growth.”

Bespoke highlights a daily Life Evaluation Poll conducted by
Gallup.com and Healthways in which participants are asked whether they
are “thriving”, “struggling” or “suffering”. As shown below, 56% now
say they’re thriving, while 41% say they’re struggling (3% are
suffering, which is not shown on the chart). “These readings are at
just about the widest spread we’ve seen since the markets’ recovery
began,” remarked Bespoke.

Source: Bespoke, February 26, 2010.

Week’s economic reports
Click here for the week’s economy in pictures, courtesy of Jake of
EconomPic Data.

Date Time (ET) Statistic For Actual Briefing Forecast Market Expects
Prior
Feb 23 9:00 AM Case-Shiller 20-city Index Dec -3.08% -4.5% -3.1%
-5.34%
Feb 23 10:00 AM Consumer Confidence Feb 46.0 56.5 55.0 56.5
Feb 24 10:00 AM New Home Sales Jan 309K 325K 354K 348K
Feb 24 10:30 AM Crude Inventories 2/19 3.03M NA NA 3.08M
Feb 25 08:30 AM Initial Claims 02/20 496K 425K 460K 474K
Feb 25 08:30 AM Continuing Claims 02/13 4617K 4570K 4570K 4611K
Feb 25 08:30 AM Durable Orders Jan 3.0% 1.6% 1.5% 1.9%
Feb 25 08:30 AM Durable Goods – ex Transportation Jan -0.6% 0.7% 1.0%
2.0%
Feb 25 10:00 AM FHFA Housing Price Index Dec -1.6% 0.4% 0.4% 0.4%
Feb 26 08:30 AM GDP – second estimate Q4 5.9% 6.0% 5.7% 5.7%
Feb 26 08:30 AM GDP Deflator – second estimate Q4 0.4% 0.6% 0.6% 0.6%
Feb 26 09:45 AM Chicago PMI Feb 62.6 57.5 59.7 61.5
Feb 26 09:55 AM U Michigan Consumer Sentiment – final Feb 73.6 72.7
73.9 73.7
Feb 26 10:00 AM Existing Home Sales Jan 5.05M 5.10M 5.50M 5.44M

Source: Yahoo Finance, February 26, 2010.

Click here for a summary of Wells Fargo Securities’ weekly economic
and financial commentary.

Next week sees interest rate announcements by the Bank of England
(BoE) and the European Central Bank (ECB) (Thursday, March 4). In
addition, US economic data reports for the week include the following:

Markets
The performance chart obtained from the Wall Street Journal Online
shows how different global financial markets performed during the past
week.

Source:Wall Street Journal Online, February 26, 2010.

Final words

Sam Stovall, chief investment strategist for Standard & Poor’s Equity
Research Services, said: “If everyone is forecasting something, then
you know it won’t come true.” (Hat tip: Charles Kirk.) Let’s hope the
news items and quotes from market commentators included in the “Words
from the Wise” review will assist readers of Investment Postcards in
guarding against popular (and often wrong) market views.

That’s the way it looks from Cape Town with its sun-drenched days.

Did you enjoy this post? If so, click here to subscribe to updates to
Investment Postcards from Cape Town by e-mail.

Source: Adam Zyglis, Comics.com

Real World Economics Review Blog: Greenspan, Friedman and Summers win
Dynamite Prize in Economics

“Alan Greenspan has been judged the economist most responsible for
causing the Global Financial Crisis. He and 2nd and 3rd place
finishers Milton Friedman and Larry Summers, have won the first – and
hopefully last – Dynamite Prize in Economics.

“They have been judged to be the three economists most responsible for
the Global Financial Crisis. More figuratively, they are the three
economists most responsible for blowing up the global economy.

“More than 7,500 people voted – most of whom were economists
themselves – from the 11,000 subscribers to the real world economics
review. With a maximum of three votes per voter, a total of 18,531
votes were cast.

“This blog established the prize in response to attempts by economists
to evade responsibility for the crisis by calling it an unpredictable,
‘Black Swan’ event. In reality, the public perception that economic
theories and policies helped cause the crisis is correct.”

Source: Real World Economics Review Blog, February 22, 2010.

BCA Research: Sowing the seeds of the next fiscal crisis?

“Mushrooming government indebtedness has reemerged to the forefront as
a major issue. “Global policymakers learned from the volatility during
the first half of the 20th century: when faced with an adverse
economic shock, the natural tendency for a modern economy with
leverage is to deflate and undergo an Austrian-style cleansing
process. Thus, there is an incentive for authorities to reflate each
time economic and financial problems break out, encouraging a further
buildup of debt and leverage in the economy (i.e. push today’s
problems forward to the next generation).

“We have coined this the Debt Supercycle. Unfortunately, the dramatic
increase in the policy response needed to end the current recession
suggests that the Debt Supercycle is nearing an end. In fact, we would
argue that the household sector in the US, UK, and many parts of the
euro area have already moved beyond their natural debt ceilings, due
in part by lax bank lending standards in recent years.

“Given that authorities have reached the limit of their ability to
convince households to take on more leverage, governments have instead
been forced to leverage themselves to prevent a deflationary economic
adjustment. In addition, the nature of the synchronized global
downturn meant that substantial currency depreciation was not a viable
reflation option for policymakers. As such, monetary and fiscal policy
had to do the heavy lifting. Sizable deficits were a necessary evil if
authorities wanted to avoid a sustained period of debt-deflation.”

Source: BCA Research – Daily Insights, February 26, 2010.

David Fuller (Fullermoney): Concentrate long-term investments in low
risk countries
“There has been a great deal of discussion in the financial press
about whether Greece will successfully navigate the crisis it now
finds itself in, if the Eurozone will survive a sovereign debt default
should one occur and if there is a risk of contagion for countries
such as the UK, Japan and the US. These are all important questions
which we will have definitive answers for in the coming months and
years but to my mind there is a more important question that needs to
be addressed first.

“All the issues facing these governments are in essence related to a
problem with too much debt and leverage and not enough tax receipts to
pay it down. The questions so far have focused on how one country or
another might survive this crisis but from the perspective of a judge
at an international beauty contest do we want to invest in these
countries at all since there are plenty more where these problems are
relatively minor if they exist at all?

“Commodity producers such as Australia and Canada have come through
this crisis comparatively unharmed. Most of the others are primarily
in the so-called emerging markets. Brazil is now a net creditor, China
has the biggest foreign currency reserves in the world. Large numbers
of countries in Latin America and Asia run trade surpluses. If we look
at the world with a broader perspective we see clearly where risk and
leverage are concentrated.

“The outcome of the major challenges facing the US, UK, Eurozone and
Japan are crucial because of the effect they have on the global
market. However, we do not have to invest in the debt, currencies or
equities of these countries. Others are better equipped to deal with
these issues from a position of strength. They have shown to be
credible managers of their economies in a truly testing era and it is
surely in these countries one should concentrate long-term
investments.”

Source: David Fuller, Fullermoney, February 24, 2010.

Financial Times: Experts eye possible Greek bail-out

“As Greece battles to stop its public finances from drowning in debt,
technical experts in eurozone capitals are already looking at the
shape of a possible bail-out – despite a chorus of governments
insisting that no plans for such a move exist.

“Even Berlin has become so worried about the stability of the euro –
and of German banks holding Greek debt – that officials have begun
toning down Germany’s “No financial aid for Greece” mantra.

“One senior German official said Berlin and other eurozone governments
were prepared to lend Athens money or buy its sovereign bonds, should
the Greek administration run into trouble rolling over debt on the
markets.

“Lorenzo Bini Smaghi, of the European Central Bank’s executive board,
told Italian television that it was ‘possible that money will be
needed’ to help Greece. But it would be a sum ‘much more limited’ than
the figure of about €20bn ($27bn) discussed by eurozone officials this
month.

“Athens has about €20bn in debt coming due in April and May, which
will need to be refinanced. Eurozone nations hope that current Greek
reforms will convince investors to buy its bonds – with the eurozone
only covering any shortfall.

“German officials have said any funding gap the zone might have to
fill could well prove ‘quite small’. Berlin might push for the
symbolism of all euro nations chipping in modest amounts to meet this
shortfall, according to these officials.

“A tried-and-tested allocation key under consideration for this
approach is based on the gross domestic product and population-
weighted shareholdings of the European Central Bank. By this measure,
Berlin would cover 28 per cent of Greece’s funding gap, Paris 21 per
cent and Rome 18.

“The bigger the Greek funding need, however, the more this would
strain other budgets also under pressure in Italy, Spain, Portugal and
Ireland. For this reason, a French official said helping Athens could
yet be voluntary.

“In a sign that any help would be decided in an ad hoc manner, a
German official said measures would be agreed ‘on a case-by-case
basis’. It would be up to each country to decide for itself how to
structure its contributions.”

Source: Gerrit Wiesmann and Peggy Hollinger, Financial Times, February
23, 2010.

The Wall Street Journal: Greek debt crisis – Athens choked by general
strike
“A massive general strike to protest EU-mandated austerity measures
closed banks, government offices and post offices, crippling the Greek
capital on Wednesday. The Wall Street Journal’s Andy Jordan reports
from the streets of Athens.”

Source: The Wall Street Journal, February 24, 2010.

MartinKronicle: Greece and California death match

“The spreads between Greece/German bunds and California/30-yr
Treasuries are widening. Investors are demanding more for carrying the
risk. The downgrade in CA paper yesterday will give the Greek bonds a
run for their Drachmas …

“According to a Reuters report, the spread between 10-year Greek
government bonds and the benchmark Euro zone German bunds has risen to
an 11-month high of 298 bps, up from 265 the day before. The high is
300 bps set about a year ago. The equivalent for Spanish bonds is
trading at 81 bps premium over German bunds.

“According to an article in Bloomberg, the spreads between CA debt and
the 30-year bond are also widening and PIMCO was quoted as saying that
the CA debt crisis is headed back to disaster levels.

“Bloomberg: ‘A taxable California bond that matures in 2039 traded
today for an average yield of 7.79 percent in blocks of more than $1
million, the highest since December 28, according to Municipal
Securities Rulemaking Board data. That opened a gap of 3.15 percentage
points between California’s bond and 30-year Treasuries, according to
Bloomberg data.’

“Yikes …!

“Add to that the fact that S&P downgraded California’s debt rating to
AA- from AA … not that I hold S&P in any esteem – I don’t. But the
fact is that CA will now have to pay higher coupon payments on the
issuance of new debt thanks to the downgrade. They deserved it.”

Source: MartinKronicle, February 24, 2010.

Financial Times: Goldman role in Greek crisis probed

“The US central bank is looking into Goldman Sachs’s role in arranging
contentious derivatives trades for Greece, which helped the country to
massage its public finances, Ben Bernanke, chairman of the Federal
Reserve, revealed on Thursday.

“‘We are looking into a number of questions relating to Goldman Sachs
and other companies and their derivatives arrangements with Greece,’
Mr Bernanke said, apparently referring to Greek currency transactions
structured by Goldman.

“Testifying before Congress, Mr Bernanke also responded to concerns
that instability in markets for Greek debt and other securities has
been heightened by trading in other derivatives, known as credit
default swaps, which compensate investors in case of default.

“Mr Bernanke said default swaps are ‘properly used as hedging
instruments’ and that ‘using these instruments in a way that
intentionally destabilises a company or a country is
counterproductive’.

“The Securities and Exchange Commission is ‘examining potential abuses
and destabilising effects related to the use of credit default swaps
and other opaque financial products and practices’, said a spokesman.

“Separately, Phil Angelides, chairman of the US Financial Crisis
Inquiry Commission, told the Financial Times he was concerned about
the practice of creating securities and ‘fully betting against them’ –
and about Goldman’s role in particular. Goldman declined to comment.”

Source: Alan Rappeport, Tom Braithwaite and David Oakley, Financial
Times, February 25, 2010.

Financial Times: Bernanke signals US rates to be kept low
“US interest rates will remain at exceptionally low levels for an
‘extended period’ in spite of the ‘nascent’ economic recovery, Ben
Bernanke, chairman of the Federal Reserve, told Congress on Wednesday.

“Mr Bernanke painted a gloomy picture of the economy, still struggling
with high unemployment and a weak housing market. Inflationary
pressures, the main driver of tighter monetary policy, were likely to
remain ’subdued’, he said.

“Facing lawmakers for the first time in his second term as Fed
chairman, he told the House financial services committee: ‘The Federal
Open Market committee continues to anticipate that economic conditions
– including low rates of resource utilisation, subdued inflation
trends and stable inflation expectations – are likely to warrant
exceptionally low levels of the federal funds rate for an extended
period.’

“The insistence that rate rises are months away will damp fears that
last week’s increase in the discount rate – at which commercial banks
can borrow emergency cash from the central bank – from 0.5 per cent to
0.75 per cent heralds a swifter tightening of monetary policy.

“Fed officials, including Mr Bernanke, have indicated it was simply a
move to unwind emergency liquidity measures put in place during the
crisis, as a result of improving conditions in the financial markets,
and not a tightening move. Goldman Sachs economists said it was
‘crystal clear’ the Fed did not anticipate raising rates soon.

“Nevertheless, the Fed this month began to lay out its vision for the
sequence of measures that it expects to take to withdraw reserves from
the financial system once the economic recovery is sufficiently
strong. Although the economy grew at an annualised rate of 5.7 per
cent in the fourth quarter of 2009, economists are expecting the pace
of growth to slow over the course of the year. The Fed is expecting
growth of 3 per cent to 3.5 per cent this year.

“‘A sustained recovery will depend on continued growth in private
sector final demand for goods and services,’ said Mr Bernanke.

“Mr Bernanke also addressed the fallout from the financial crisis. He
said the US central bank would step up surveillance of financial
institutions and agreed that congressional investigators should be
allowed to audit the emergency facilities put in place during the
crisis.”

Source: James Politi, Financial Times, February 24, 2010.

MoneyNews: Pimco – Fed move isn’t start of tightening cycle

“The Federal Reserve’s surprise move on Thursday to raise the interest
rate it charges banks for emergency loans does not mean that a full-
fledged tightening cycle has begun, the manager of Pimco, the world’s
biggest bond fund, told Reuters.

“‘I don’t think it’s the beginning, really, of a tightening from the
standpoint of monetary policy,’ Bill Gross told Reuters soon after the
Fed’s decision.

“‘I don’t think it is the beginning of an increase in the fed funds
rate or in terms of interest on reserves that has been discussed as
well.’

“The US central bank took pains to draw the distinction between the
discount rate and its target for the overnight interbank rate, its
main monetary policy tool. That rate remains unchanged near zero
percent as a fragile US economic recovery struggles to gain traction.

“‘Like the closure of a number of extraordinary credit programs
earlier this month, these changes are intended as a further
normalization of the Federal Reserve’s lending facilities,’ the Fed
said in a statement.

“‘The modifications are not expected to lead to tighter financial
conditions for households and businesses and do not signal any change
in the outlook for the economy or for monetary policy,’ it said.

“‘I don’t think the Fed dares increase the fed funds or policy rate in
the face of unemployment at double-digit type of levels. This is more
of a technical maneuver,’ said Gross.

Source: MoneyNews, February 19, 2010.

Financial Times: Fed efforts boosted by Treasury’s $200 billion debt
plan
“The Federal Reserve’s ability to drain excess liquidity from the
financial system received a boost on Tuesday when the Treasury revived
a plan to sell $200bn in short-term debt and store the proceeds at the
central bank.

“The move comes as the Fed lays the groundwork to shrink its balance
sheet in preparation for the time when the economy is sufficiently
strong to require a tightening of monetary policy.

“By bolstering its Supplementary Financing Programme, the Treasury
would help the Fed remove $200bn in reserves from the financial
system. Some economists said that this would help bring the Fed’s main
interest rate closer to the upper end of its current 0-0.25 per cent
target.

“‘This move does mean there will be $200bn fewer reserves in the
banking system, which could provide a little bit of lift to the
effective fed funds rate,’ said Michael Feroli of JPMorgan. ‘As such,
it could be seen as a first step in putting the Fed in position to
raise rates.’

“However, the move was described as a ‘purely technical adjustment in
liquidity’ by Joseph Abate of Barclays Capital. He said: ‘The $200bn
worth of reserves drained … is unlikely to have a noticeable effect on
the effective funds rate, which remains locked under 15 basis points.’

“The Fed did not comment on the move, but Ben Bernanke, chairman,
could address the issue when he faces Congress on Wednesday. The
Treasury programme was introduced during the crisis to help the Fed
better manage its balance sheet.

“It had been wound down since last September, when the government’s
borrowing capacity ran up against the US debt ceiling. Congress
recently agreed to raise the debt ceiling to $1,900bn, making it
possible to revive the programme.”

Source: James Politi, Financial Times, February 24, 2010.

TheStreet.com: Stiglitz says beware of double dip

“Joseph Stiglitz, Nobel prize winning economist and the author of
Freefall, says the worst effects of the credit crisis may be behind
us, but the American economy remains highly vulnerable to a double dip
recession.”

Source: TheStreet.com, February 24, 2010.

Asha Bangalore (Northern Trust): Minor revisions of Q4 real GDP

“Real gross domestic product grew at an annual rate 5.9% in the fourth
quarter of 2009, slightly higher than the previously reported increase
of 5.7%. Upward revisions of inventories, exports, structures, and
equipment and software more than offset downward revisions of consumer
spending, government spending, and residential investment expenditures
to yield a higher headline reading compared with the advance estimate.

“At the cost of reiterating, the fourth quarter headline GDP number is
large but not strong because real final sales increased only 1.9% in
the fourth quarter, while inventories accounted for nearly seventy
percent of the increase in real GDP during the fourth quarter.

“Going forward, the US economy is predicted to show moderate growth in
the first three quarters of 2010 and strong growth in the final three
months of 2010, with virtuous cycle of real and financial recovery
working together to lift economic growth.”

Source: Asha Bangalore, Northern Trust – Daily Global Commentary,
February 26, 2010.

Asha Bangalore (Northern Trust): Total continuing claims remain at
elevated level
“Initial jobless claims rose 22,000 to 496,000 in the week ended
February 20. Essentially, initial jobless claims established a bottom
in January and have once again resumed an upward trend, which is very
worrisome. Continuing claims, which lag initial claims by one week,
were virtually steady at 4.617 million and the insured unemployment
rate was unchanged at 3.5%.

“Total continuing claims, inclusive of claims under special programs,
fell slightly to 10.29 million during the week ended February 6 from
10.56 million in the prior week. Total continuing claims have risen
3.95 million over the past year. The labor market remains the biggest
concern of the FOMC, competing closely with the housing market.”

Source: Asha Bangalore, Northern Trust – Daily Global Commentary,
February 25, 2010.

Clusterstock: The unemployment chart you’ll love and hate

“Here’s an unemployment chart you’ll both love and hate, from Citi’s
Steven Wieting.

“As shown below, since 1980, employment (in red) has fallen after
corporate profits (in black) have risen, and vice versa. The
relationship is very clear.

“Problem is, there’s about a one-year lag between the two trends. This
highlights what should simply make sense – companies hire people once
they see profits rebounding, and more importantly once they believe
that adding more people will lead to higher profits. Still, this fact
of economics isn’t fun for the unemployed.

“But here’s the good news. Given the recent rebound in corporate
profits the US has already experienced, there is a very high chance
that employment will get better over the coming twelve months. One
can’t stress enough the fact that employment is a lagging indicator.”

Source: Vincent Fernando and Kamelia Angelova, Clusterstock – Business
Insider), February 25, 2010.

Financial Times: US senate moves ahead on $15 billion jobs bill

“The US Senate on Monday voted to move forward on a $15 billion jobs
bill proposed by Harry Reid, leader of the Democratic majority in the
Senate.

“The 62-30 vote in favour of ending ‘cloture’ prevents a Republican
filibuster and came as an exception to the months of gridlock in
Congress. It will pave the way for a jobs bill to clear the Senate,
just as other critical employment benefits are set to expire.

“Democrats needed to secure two Republican votes to block the
filibuster and one came thanks to Scott Brown, making his first vote
since he filled Edward Kennedy’s former seat in Massachusetts.

“‘I hope this is the beginning of a new day in the Senate,’ Mr Reid
said, invoking Mr Brown by name for his bipartisanship.

“The scaled-back measure is expected to create 250,000 jobs through an
array of tax credits and payroll tax exemptions to stimulate hiring.
The bill frees businesses from payroll taxes on workers who are hired
after more than 60 days of unemployment and gives them a tax credit of
$1,000 for new hires that they keep for more than a year.

“The bill also provides funding for highway and transportation
projects, allows companies to write-off equipment purchases as
expenses and expands the Build America bond scheme to help subsidise
school and energy projects.”

Source: Alan Rappeport, Financial Times, February 22, 2010.

Standard and Poors’: Home prices continue to send mixed messages

“Data through December 2009, released today by Standard & Poor’s for
its S&P/Case-Shiller Home Price Indices, the leading measure of US
home prices, show that the US National Home Price Index fell in the
fourth quarter of 2009 but has improved in its annual rate of return,
as compared to what was reported in the third quarter.

“The chart above depicts the annual returns of the US National, the 10-
City Composite and the 20-City Composite Home Price Indices. The S&P/
Case-Shiller US National Home Price Index, which covers all nine US
census divisions, recorded a 2.5% decline in the fourth quarter of
2009 versus the fourth quarter of 2008. This is a significant
improvement over the annual rates reported in the first, second and
third quarters of the year, at -19.0%, -14.7% and -8.7%, respectively.
In December, the 10-City and 20- City Composites recorded annual
declines of 2.4% and 3.1%, respectively. These two indices, which are
reported at a monthly frequency, have seen improvements in their
annual rates of return every month since the beginning of the year.

“‘As measured by prices, the housing market is definitely in better
shape than it was this time last year, as the pace of deterioration
has stabilized for now. However, the rate of improvement seen during
the summer of 2009 has not been sustained,’ says David Blitzer,
Chairman of the Index Committee at Standard & Poor’s.”

Source: Standard and Poors’, February 23, 2010.

VisualEconomics: Cost of home ownership

“The last three years have seen a significant drop in the cost of
housing in the United States; bringing prices back down from once
astronomical levels.”

Source: VisualEconomics, February 23, 2010.

Asha Bangalore (Northern Trust): Existing home sales and inventories
disappoint
“Sales of all existing homes fell 7.2% to an annual rate of 5.05
million units in January after a 16.2% drop in December. Sales of
existing single-family homes declined 6.9% to an annual rate of 4.43
million units. Purchases of existing single-family homes have risen
nearly 9.0% from the trough in January 2009. Sales of existing homes
fell in all four regions across the nation during January. It appears
that the extension of the first-time home buyer tax credit program is
yet to translate into increased sales; the program expires in April
2010.

“The median price of an existing single-family home was down 0.4% from
a year ago to $163,600. There is a gradual stabilization of home
prices visible in latest movements of the median price of an existing
single-family home but the recent increase in inventories of unsold
homes casts a shadow on projections of further improvements on the
price front.

“The seasonally adjusted inventory-sales ratio of single-family
existing homes rose to 8.4-month supply during January from a 7.6-
month mark in December.”

Source: Asha Bangalore, Northern Trust – Daily Global Commentary,
February 26, 2010.

Asha Bangalore (Northern Trust): Consumer confidence slips in February

“The Conference Board’s Consumer Confidence Index fell to 46.0 in
February from 56.5 in the prior month. This is the lowest since July
2009. Sluggish employment conditions are seen to be a major reason for
the loss of confidence in February after a string of three monthly
gains. The Present Situation Index (19.4 vs. 25.2 in February) and the
Expectations Index (63.8 vs. 77.3 in February) declined in February.

“The number of respondents indicating that ‘jobs are to hard to get’
rose in February (47.7% vs. 46.5% in January), while the number
claiming that ‘jobs are plentiful’ fell (3.6% vs. 4.4% in January).
The net of these two indexes tracks the unemployment rate closely. The
difference between these two indexes widened to 44.1 in February from
42.1 in January, suggesting that the jobless rate is most likely to
inch higher in February.”

Source: Asha Bangalore, Northern Trust – Daily Global Commentary,
February 23, 2010.

Asha Bangalore (Northern Trust): Have durable goods orders and
shipments turned the corner?

“The headline number for orders of durable goods in January (+0.3%) is
strong. But, shipments of durable goods edged down 0.2% after a 2.4%
increase in the prior month. The durable goods numbers always show big
swings because of large ticket items. The January increase in orders
was lifted by the 126% increase in orders of aircraft, with orders
excluding transportation posting a 0.6% drop. One way to sort out the
large deviations of month-to-month data is to look at year-to-year
changes. On a year-to-year basis, orders (+9.9%) and shipments (+1.5%)
of durable goods posted gains in January, after an extended period of
declines going back to early-2008. This change in trend is noteworthy
and warrants close watching.”

Source: Asha Bangalore, Northern Trust – Daily Global Commentary,
February 25, 2010.

Financial Times: Foreclosures in the US
“Aline van Duyn, US markets editor of the Financial Times, says that a
number of American homeowners whose houses are worth less than their
mortgages are choosing to let their homes go into foreclosure and let
the banks suffer the losses.”

Source: Financial Times, February 22, 2010.

Clusterstock: Bankers getting paid a lot to sit on their hands and do
nothing
Yesterday we pointed you to the latest data from the St. Louis Fed
showing that bank lending continues to plunge. Rather than ply
businesses with loans, banks are instead opting to hoard cash and buy
Treasuries.

“And yet despite the lending shutdown, bonuses are back up, per fresh
data out today from the New York Comptroller. In other words, sitting
on your hands and doing nothing is a pretty lucrative gig.”

Source: Joe Weisenthal and Kamelia Angelova, Clusterstock – Business
Insider, February 23, 2010.

Financial Times: Number of US “problem” banks soars

“The number of problem banks in the US continued to soar in last
year’s fourth quarter, hitting their highest level since 1993,
according to a regulatory report released on Tuesday.

“The findings by the Federal Deposit Insurance Corp suggest that,
although the US economy is on the mend, the financial industry,
bedevilled by souring residential and commercial real estate loans,
will take longer to recover.

“The FDIC said 702 banks were considered troubled at the end of 2009,
up from 552 three months earlier. Problem assets totalled $402.8bn in
the final period, compared with $345.9bn in the third quarter. By
contrast, Lehman Brothers listed $639bn in assets at the time of its
bankruptcy filing in September 2008.

“No longer confined to Wall Street, the financial crisis has cascaded
over to regional and community banks that are feeling a
disproportionate amount of the pain. ‘The great recession has very
much become a Main Street problem,’ said Richard Brown, the FDIC’s
chief economist.

“Although bank earnings showed a slight improvement in the fourth
quarter, totalling $914m against a $37.8bn loss in the year-ago
period, they still remain below historical highs. Any improvement in
earnings, the FDIC said, was concentrated among the largest
institutions.

“For the full year, banks earned $12.5bn, up from $4.5bn in 2008 but
far below the $100bn recorded in 2007.

“Loan losses jumped for the 12th consecutive quarter to total $53bn,
an increase of 37 per cent over the year-ago period. On an annualised
basis the rate of losses accounted for in the quarter was the highest
in more than two decades.

“Losses rose in all significant categories, including residential
mortgage loans and credit card debt. One of the fastest growing
categories for uncollectable debt was commercial real estate.

“Although the level of bank failures is alarming, it pales against the
troubles of the savings and loan crisis. At the height of that
meltdown, in 1987, some 2,165 banks were considered troubled and
problem assets totalled $833bn.

“But the full weight of the current crunch has yet to be felt. The
FDIC took over 140 banks in 2009 and analysts expect more to follow.
The FDIC said on Tuesday it set aside another $17.8bn in the fourth
quarter for bank failures. It expected total bank failures to cost
$100bn from 2008 to 2013.”

Source: Suzanne Kapner, Financial Times, February 23, 2010.

John Authers (Financial Times): US yield curve

“We ignore the yield curve at our peril. That is one of the lessons
from the financial implosion that started in 2007, but how do we apply
it now?

“The yield curve is the popular name for the spread between the yields
on 10-year and two-year Treasury bonds. Usually, investors require a
bigger yield to compensate them for the greater risks that come with
lending money over a longer term.

“When short-term yields rise above long-term ones, then market jargon
holds that the yield curve is “inverted”. This has been a great
recession indicator, as it implies the market thinks short-term
interest rates must imminently be cut. Each of the past seven
recessions was preceded by a brief period when the yield curve was
inverted and there has only been one false signal.

“But what happens when the yield curve gets very steep? That is
happening now and there are few, if any, precedents. Last week, 10-
year yields exceeded two-year ones by 2.94 percentage points, the
highest figure since the Federal Reserve’s records for this indicator
began in 1976.

“Its previous peaks were at about 2.5 percentage points in October
2003, when a brief bull market in equities was gathering pace, and
October 1992, when years of expansion for both markets and the economy
lay ahead.

“Should this, then, be regarded as a big reason for optimism? Perhaps
not. An implicit bet that rates will rise over the next 10 years is
not daring when rates are virtually at zero. Neither is a call for an
intermediate economic recovery after a savage recession.

“In any case, the extremes that financial markets have touched in the
past few years make it dangerous to read any indicator with too much
confidence. But it does seem to suggest that the market is more
convinced than economists both that central banks will be raising
rates sooner rather than later and that the US economy is enjoying a
true recovery.”

Source: John Authers, Financial Times, February 22, 2010.

MoneyNews: Rogers – China will keep dumping US Treasuries
“China will continue to sell US Treasuries in the future, says Jim
Rogers, co-founder of the Quantum Fund.

“China will unload more debt as the ‘euro scare’ continues, he said.

“The government reported that appetite for Treasuries declined by the
largest amount in December as China reduced its allocation by $34.2
billion to $755.4 billion. Japan made a similar move and lowered its
amount by $11.5 billion to $768.8 billion.

“‘I am surprised China has not dropped more,’ Rogers told CNBC.

“The United States should be concerned about this change in
investments, he said.

“‘The US should be worried about everyone lightening up – not just
China,’ Rogers said.

“Lawrence Summers, director of the White House National Economic
Council, said the paring back is not a concern, CNBC reported.

“‘The truth is that these numbers fluctuate and that there’s a wide
range of holders of Treasury debt. What’s been very clear from the
market responses over the last two years is that the United States is
seen as a major source of quality and a place people run to when
they’re uncertain,’ he said.

“Other analysts said the amount of US government debt held by the
Chinese is likely to be a larger amount since they also buy
anonymously via banks in Switzerland, Britain and other countries, the
Associated Press reported.

“‘We do not believe that the Chinese are dumping Treasuries. What they
are doing is diversifying the channels through which they make these
purchases so that it is much more difficult for the market to
ascertain what they are doing,’ said Arthur Kroeber, managing director
of GaveKal Dragonomics, a Beijing research firm.”

Source: Ellen Chang, MoneyNews, February 25, 2010.

MoneyNews: Pimco – junk bonds may post double digit returns in 2010

“US high-yield bonds could post investment returns in the high single
digits to the low double digits this year after their record 58
percent return in 2009, Pimco, the world’s biggest bond fund, said in
a new report.

“With yields still attractive and the risk of a financial system
collapse largely in the past, ‘we believe investors can capture
attractive yields and excess spread in the high-yield market with
relatively low default risk,’ Andrew Jessop, high-yield portfolio
manager at Pacific Investment Management Co, said in a note on the
company’s website.

“High-yield bonds also look attractive compared with equities, which
typically depend on faster growth to perform well at this point in the
economic cycle, Jessop said.

“However, Pimco’s forecast is that slower economic growth will become
the ‘New Normal’ amid broad deleveraging trends, increased regulation
and deglobalization, he said.

“‘In that environment, many investors believe equities could continue
to underperform high-yield’ bonds, he said.”

Source: MoneyNews, February 24, 2010.

Bespoke: Country and region ETFs

“Below we highlight the recent action in a number of country and
region ETFs. For each ETF, we provide its 5-day price change, its
percentage from its 50-day moving average, and its percentage
overbought or oversold. An ETF is overbought if it’s trading more than
one standard deviation above its 50-day, and the percentage number
shown indicates how far the ETF is trading above its overbought level.
One standard deviation below represents the oversold level.

“As we highlighted in our prior post, the US has been outperforming
emerging markets recently. Where the various country ETFs are trading
versus their 50-days shows a similar trend. The S&P 500 tracking SPY
ETF is one of just four ETFs highlighted below trading above its 50-
day moving average. The only other country ETFs trading above their 50-
days are Australia (EWA), Canada (EWC), and Mexico (EWW). All of North
America is doing well. If we look at the various regional ETFs
(Europe, Emerging Markets, Asia, etc.), all of them are still trading
below their 50-days.”

Source: Bespoke, February 22, 2010.

Bespoke: Welcome back – USA back in style

“In the charts below, we show the performance of ETFs which track the
S&P 500 (SPY) and the MSCI Emerging Market Index (EEM). The third
chart shows the relative strength of emerging markets versus the S&P
500. In the relative strength chart, a rising line indicates that
emerging markets are outperforming the US, while a falling line
indicates the US is outperforming.

“Based on the performances of both ETFs over the last several years,
investors have become conditioned to the theme that when equities are
rising, emerging markets typically outperform the US. On the other
side of the coin, during periods when equities are weak, US stocks
have typically held up better than their emerging market peers. As
seen on the relative strength chart, the only period where US stocks
meaningfully outperformed emerging markets was during the credit
crisis (red line in all three charts).

“The existence of this long-term trend makes recent developments all
the more interesting. Since the recent lows in early February, equity
markets around the world have all recovered to some degree. However,
unlike prior rebounds, emerging markets have been underperforming. In
fact, while the major US averages (S&P 500, DJIA and Nasdaq) closed
above their 50-day averages on Friday, all four BRIC countries
(Brazil, Russia, India, and China) had yet to achieve that milestone.
Whether or not this trend fizzles out or is an early warning sign for
the global economy is debatable, but in either case, emerging market
investors would be wise to be on alert.”

Source: Bespoke, February 22, 2010.

Bespoke: S&P 500 sector stats

“As shown below, Consumer Discretionary and Consumer Staples are
currently trading the farthest above their 50-day moving averages of
the ten sectors. The other two sectors currently above their 50-days
are Industrials and Financials. Below we provide the year-to-date
change, % from 50-DMA, dividend yield, P/E ratio, price to sales
ratio, and price to book ratio for the various sectors. Across the
board, we use red to green as the color code from lowest to highest,
but obviously for ratios, the lower the better.

“While it used to have one of the highest yields, the Financial sector
currently has the second lowest yield at 1.15%. It also has the
highest P/E ratio at 66.44, but it has the lowest price to book at
1.14. Consumer Staples, Consumer Discretionary and Telecom have the
lowest price to sales ratios, while Technology has the highest.
Technology also has the highest price to book.”

Source: Bespoke, February 24, 2010.

Bespoke: Retail sector closes at new bull market high

“Yesterday’s weak Consumer Confidence report has many worried that the
consumer is still down in the dumps. If so, no one has told the
consumer sectors of the stocks market. As shown below, the S&P 500
Retail sector actually made a new bull market high today. The S&P 500
still has a ways to go to get back to new highs. While the Consumer
Confidence report is indicating a weak consumer, the market still
seems to be predicting strength from the consumer. If it weren’t for
groups like retail, the overall market would be doing worse.”

Source: Bespoke, February 24, 2010.

Bespoke: Percentage of stocks above 50-day moving averages

“As shown below, 55% of stocks in the S&P 500 are currently trading
above their 50-day moving averages. The index itself is still trading
below its 50-day, so breadth in this case is strong. Looking at
sectors, Energy and Consumer Discretionary have the highest percentage
of stocks above their 50-days at 69%. Consumer Staples ranks third at
64%. Technology, Materials, Utilities, and Telecom are the four
sectors with readings that are still below 50%.”

Source: Bespoke, February 19, 2010.

Bespoke: Final earnings season stats

“The fourth quarter earnings season came to an end yesterday with Wal-
Mart’s report. Below we highlight the final earnings and revenue beat
rate for all US companies that reported this earnings season. For the
third quarter in a row, 68% of companies beat earnings estimates. The
revenue beat rate was really strong this quarter at 70% – the highest
reading since Q4 ‘04. Does this put the ’strong bottom line, but weak
top line’ bearish argument to rest?”

Source: Bespoke, February 19, 2010.

MoneyNews: Biggs – US, Asian stocks will rally higher

“Stocks have further room to rise, thanks to buoyant global economic
growth, says Barton Biggs, managing partner at hedge fund firm Traxis
Partners.

“‘There is every reason to believe the US is in a strong recovery, and
Asia is in a very strong recovery,’ he says.

“While Europe’s growth has been a bit disappointing, the Greek crisis
could actually help economies on the continent by pushing the euro
down, he told Bloomberg.

“‘A little weakness in the euro is probably good for European exports
and for the European economy.’

“Biggs thinks the European Union is handling the Greek situation
properly.

“‘The Europeans sent the right message, saying if you can convince us
you’re going to practice some discipline, then we’ll take care of you.
And I think that’s going to happen.’

“Biggs also approves of China’s steps to deflate its credit bubble.

“‘The Chinese authorities are doing the right thing in terms of
gradually tightening. … In all probability China is going to have a
soft landing.’

“So what does all this mean for stocks?

“‘On balance, … I’m pretty bullish here,’ Biggs said.”

Source: Dan Weil, MoneyNews, February 22, 2010.

BCA Research: Hot money flows are driving the US dollar trend

“Recent data shows that speculative flows have been a major driver of
the bounce in the dollar, especially versus the euro. ‘Hot money’
positions have now reached levels where marginal dollar buyers will be
increasingly scarce. For the dollar’s recovery to persist and to be a
genuine cyclical advance, it needs the tailwind of long term capital
inflows.

“Foreign flows into US equities and Treasury bonds have accelerated
smartly and net sales of agency bonds have come to a halt. But capital
flows should be analyzed alongside trade and current account deficit
positions. While foreign portfolio flows into the US are improving,
the US trade account is deteriorating anew. Moreover, capital outflows
by US-based investors have resumed. The sum of net long term portfolio
inflows and the trade deficit, a monthly proxy for the basic balance,
remains well below the 2002 – 2007 average, which was a period of
steady dollar weakness.

“Over the coming months, the cyclical economic recovery and the record
low national savings rate should keep the US current account deficit
on a widening path. This will make it difficult for the basic balance
to improve. Indeed, the healthiest environment for the dollar is when
the current account deficit is financed by private sector capital
inflows. This is typically a sign of strong US growth and attractive
expected returns.

“History shows that whenever the US becomes reliant on foreign
monetary authorities, the dollar has been under pressure. Foreign
reserve accumulation can prevent a dollar crash, but it has never led
to sustainable dollar strength. Bottom line: Trends in long term
capital flows suggest that the dollar is not yet in a sustainable bull
trend.”

Source: BCA Research, February 25, 2010.

MoneyNews: Soros – euro’s future in question even if Greece saved

“A makeshift assistance should be enough to rescue Greece but bigger
problems facing Europe would leave the future of the euro currency in
question, billionaire investor George Soros said.

“Writing in the Financial Times, Soros said what the European Union
needed was more intrusive monitoring and institutional arrangements
for conditional assistance.

“He said a well organized euro bond market was desirable.

“‘A makeshift assistance should be enough for Greece, but that leaves
Spain, Italy, Portugal and Ireland. Together they constitute too large
of a portion of euro land to he helped in this way,’ Soros said.

“‘The survival of Greece would still leave the future of the euro in
question.’

“Greece’s deficit swelled to 12.7 percent of gross domestic product in
2009, way above the EU’s cap of 3 percent.

“Greece has pledged to reduce its budget deficit to 8.7 percent in
2010.”

Source: MoneyNews, February 22, 2010.

Bespoke: Commodity snapshot

“Below we highlight the year-to-date change for ten key commodities.
As shown, orange juice has gotten off to a nice start (+13.15%), while
natural gas has once again resumed its seemingly perpetual decline
(-13.75%). Platinum is the second best performing commodity shown with
a gain of 5.34%, followed by gold at +1.59%, and oil at +0.34%. While
gold and platinum are up in 2010, silver is down 2.69%.”

Source: Bespoke, February 26, 2010.

Reuters: India seen as potential buyer for IMF gold

“India’s central bank, which has increased its gold holdings to
diversify its reserves, looks set to be a buyer again when the
International Monetary Fund begins selling 191.3 tonnes of the
precious metal amid volatility in major currencies.

“The uncertain outlook for two of the world’s major reserve currencies
– the dollar and euro – provides a spur for central banks, including
India’s, to buy gold. India’s gold holdings lag those of major
economies despite a big purchase in October.

“‘India is no stranger to gold. They are gearing up for growth and
want to recalibrate their reserves,’ said Mark Pervan, senior
commodities analyst at ANZ.

“‘They can’t lift their gold holdings from domestic output, unlike
China. And they have shown an appetite to buy in the past.’

“Reserve Bank of India officials declined to comment on their gold
plans but some said the central bank considered gold to be a safe
investment strategy.

“The IMF said last Wednesday it would soon begin selling the gold in
the open market in a phased manner to avoid disrupting the market.

“The sale is part of an IMF programme announced last year to sell a
total of 403.3 tonnes of gold, or about one-eighth of its total stock.

“China, with about $1.6 trillion in reserves, is a producer of gold
and is unlikely to buy the gold being offered by the IMF, the official
China Daily reported on Wednesday.”

Source: Abhijit Neogy and Suvashree Dey Choudhury, Reuters, February
24, 2010.

BusinessWeek: Soros more than doubled gold ETF stake in Q4
“Billionaire George Soros’s Soros Fund Management LLC more than
doubled its holding in the biggest gold exchange-traded fund in the
fourth quarter after bullion advanced 8.9 percent to a record.

“The $25 billion New York-based firm became the fourth-largest holder
in the SPDR Gold Trust, adding 3.728 million shares valued at $421
million, according to a filing with the US Securities and Exchange
Commission yesterday. Its investment was worth about $663 million, the
fund’s largest single investment, as of December 31.

“Soros joined China Investment Corp. and central banks including those
in China and India in acquiring gold. China Investment, the $300
billion sovereign wealth fund based in Beijing, took a 1.45 million-
share stake in the SPDR Gold Trust worth $155.6 million, according to
a SEC 13F filing posted on February 5.

“SEC filings are done quarterly, with a 45-day lag, so Soros could
have sold some or all of the position since then. Soros, speaking last
month at the World Economic Forum in Davos, called gold the ‘ultimate
asset bubble’ and said the price could tumble, according to a report
in the UK’s Daily Telegraph newspaper.”

Source: Katherine Burton and Glenys Sim, BusinessWeek, February 17,
2010.

MoneyNews: Credit Suisse – gold set to surge to $1,227
“Credit Suisse analyst David Sneddon says the price of gold is poised
to move sharply higher.

“‘If we look at the (rising) momentum chart … it suggests to us that
price should follow suit,” he told CNBC.

“‘We think gold is going all the way back up to $1,227.’

“Gold denominated in euros shows a much more bullish position than
denominated in dollars, Sneddon says. ‘Gold in euros has moved to an
all time high with all the euro weakness that’s been going on,’
Sneddon observes.

“Gold priced in euros reached a record today as European Union finance
ministers failed to agree on measures to help Greece reduce its budget
deficit, Bloomberg reports.

“The precious metal climbed to a four-week high in New York, before
paring gains, on speculation that wider Greek budget deficits will
spur demand for the metal as an alternative to holding currency.”

Source: Julie Crawshaw, MoneyNews, February 23, 2010.

Financial Times: China taps more Saudi crude than US

“Saudi Arabia’s oil exports to the US last year sank below 1m barrels
a day for the first time in two decades just as China’s purchases
climbed above that level, highlighting a shift in the geopolitics of
oil from west to east.

“The drop in US demand for oil from the kingdom, traditionally one of
its primary sources, is the result of overall lower energy consumption
but also greater reliance on imports from Canada and Africa.

“China’s economic growth, meanwhile, is prompting Beijing to buy more
Saudi oil, a trend Riyadh has encouraged through refinery joint
ventures.

“‘China offers demand security, something that for a long time the oil-
producing countries including Saudi Arabia have called for,’ said John
Sfakianakis, chief economist at Banque Saudi Fransi in Riyadh. ‘As
global demand has been picking up in the east … Saudi Arabia has been
looking east.’

“Barack Obama, US president, wants to reduce US dependence on foreign
oil and encourage renewable fuels. Meanwhile, Saudi Arabia wants
stable markets for its oil reserves.

“The divergence will provide the backdrop as Steven Chu, US energy
secretary, visits Riyadh on Monday. His agenda reflects Washington’s
focus, with an emphasis on technology research rather than oil
politics.”

Source: Gregory Meyer, Financial Times, February 21, 2010.

Financial Times: Harsh winter hits European recovery hopes

“Severe winter weather could have hit economic growth significantly in
continental Europe, and especially Germany, at the start of this year,
dealing another blow to the region’s recovery hopes.

“Disruption in the construction, retail and leisure industries caused
by exceptionally low temperatures and persistent snow is likely to
have set back further an economic turnround that had already shown
signs of losing momentum in the final months of last year – before the
bitter weather took grip.

“In Germany, growth in the first quarter of this year could have been
reduced 0.3 percentage points, according to Frankfurt-based
Commerzbank. January’s weather was the coldest since 1987 and the 12th
coldest January since 1900, according to the German weather service.

“Axel Weber, Bundesbank president, told Reuters this month that German
gross domestic product ‘could move sideways or even contract slightly
in the first quarter’.

“Jörg Krämer, Commerzbank’s chief economist, said, however, that lost
business could be made up, and ‘people’s perceptions of the
performance of the German economy are driven by the data on
manufacturing – that is, excluding construction’.

“Purchasing managers’ indices on Friday showed that German
manufacturing ‘grew strongly’ in February, he added.”

Source: Ralph Atkins, Financial Times, February 21, 2010.

Nationwide: House prices slip in the winter snow during February

“The price of a typical UK property fell by a seasonally adjusted 1.0%
month-on-month (m/m) in February, ending a strong run of nine
consecutive monthly increases. The relatively smoother three month on
three month rate of inflation remained positive at +1.6%, though this
is down from +2.0% in January and a peak of +3.7% in September 2009.
The annual rate of price inflation still managed to increase from 8.6%
to 9.2% year-on-year, as this month’s fall was smaller than the 1.5% m/
m decline recorded in February 2009. The average price of a typical
property sold in the UK during February was £161,320.

“There is evidence from a range of indicators that the market may have
lost momentum in early 2010 as the stamp duty holiday ended and house
hunters were obstructed by the icy weather. New buyer enquiries
dropped sharply in the New Year and there was also an associated drop
in the number of new mortgages taken out by homebuyers in January.
This drop in demand seems to have fed into agreed prices during
February.

“Judging from the fall in retail sales during January, however, the
housing market does not appear to be the only sector of the economy to
have experienced a setback related to adverse weather and the expiry
of economic stimulus measures. At this stage, it is difficult to gauge
how much of the drop in housing activity is attributable to one-off
factors and therefore whether February’s fall in prices is just a
temporary blip or the start of a new trend.”

Source: Nationwide, February 26, 2010.

Nouriel Roubini (Forbes): Easy money in China
“When will Beijing tighten monetary policy?

“A credit-fueled investment boom successfully boosted China’s growth
to 8.7% in 2009, but cheap money drove up asset prices as well,
especially in property markets. As China’s output gap closes, loose
money is now set to become inflationary, particularly if China’s
potential growth rate has come down slightly, as we think it has. The
People’s Bank of China (PBoC) has twice hiked banks’ required reserve
ratios (RRR) in 2010, following a return to net liquidity reductions
through open-market operations in October 2009, but we suspect that
the tightening moves have had little effect. China’s monetary policy
has shifted toward a neutral stance in recent months, but it will have
to tighten further if inflation and the property bubble are to be
contained.

“China has not yet started to tighten liquidity significantly, nor has
it laid out a clear path for its exit from the extraordinarily loose
monetary conditions put in place at the end of 2008. The recent RRR
hike, which came into effect on Feb. 25, will drain just over 300
billion renminbi (RMB) in liquidity, but in the first two weeks of
February, the PBoC injected a net RMB 508 billion into the banking
system through open-market operations to ensure that banks had enough
cash on hand for last week’s Chinese New Year holiday. It is widely
expected that the bank will drain this liquidity after the holiday,
and the RMB300 billion withdrawn through the RRR hike will prove
helpful but insufficient in this effort. Tuesday’s RMB 17 billion one-
year bill sale suggests that the central bank may be waiting to see
the effect of the RRR hike before moving to a more aggressive
tightening stance. It will be difficult, however, for the central bank
to tighten very much, even if it had the political backing to do so.

“Other sources of liquidity make this task harder. There are RMB 1.2
trillion in central bank bills and repurchase agreements set to expire
in the next two months. In March alone, RMB 680 billion in bills will
expire, more than double the RMB 290 billion monthly average over the
past four months. Banks are already thought to be holding about 1.5%
of deposits in additional excess reserves at the PBoC, dulling the
impact of the RRR hike even further.

“The political will to tighten monetary conditions looks weak in
China, particularly concerning any appreciation of the RMB. On Monday
President Hu Jintao headed a Politburo meeting on economic issues that
reiterated the ‘active’ fiscal and ‘moderately loose’ monetary
policies put in place at the end of 2008. On March 5 Premier Wen
Jiabao will present the government’s work plan to the National
People’s Congress (nominally China’s highest government authority),
likely reiterating this stance.

“Still, we expect the gradual tightening of monetary policy will
continue in the coming weeks and months. Rising inflationary pressures
are likely to push China’s policymakers to tighten monetary conditions
in Q2. This will cause some pain to important interest groups this
year, and in our view, policymakers will look to distribute the pain,
including by allowing higher consumer inflation.”

Click here for the full article.

Source: Nouriel Roubini, Adam Wolfe and Rachel Ziemba, Forbes,
February 25, 2010.

Financial Times: Japan exports jump on Asian recovery
“Strong shipments to Asia helped Japan report the biggest increase in
exports in almost 30 years in January, underlining the strength of the
country’s economic recovery.

“The value of exports increased 40.9 per cent last month from a year
earlier, the fastest pace since February 1980, according to the
Ministry of Finance. The increase, however, has been helped by a
plunge in exports in the same period a year ago as a result of the
global financial crisis.

“Shipments to Asia, which accounted for more than half of total
exports, were up 68.1 per cent on the previous year while exports to
China, its biggest trading partner, rose 79.9 per cent.

“Like other Asian economies, Japan has benefited from the robust
recovery of China, which spurred demand for everything from cars to
cement.

“In January, shipments of motor vehicles were up 342.8 per cent while
the value of auto parts sales rose 156.6 per cent.

“China’s expanding manufacturing sectors also led to strong demand for
chemicals from Japan, which jumped 107.5 per cent, and machinery,
which rose 68.8 per cent.

“Japan’s trade data came after Taiwan and Thailand reported
unexpectedly strong economic growth this week due to solid exports to
China. Taiwanese exports to China, its biggest trading partner, rose
45 per cent year-on-year in the fourth quarter. In Thailand, January’s
exports to China grew 94 per cent year-on-year.

“Economists warned that the pace of increase in exports was likely to
moderate in the coming months.

“‘Fiscal stimulus programs that supported auto exports in 2009 have
now expired in China, the US and EU economies. The boost from
inventory adjustment abroad is also beginning to wane,’ said Nikhilesh
Bhattacharyya at Moody’s Economy.com.

“‘This should result in slower growth in exports, which would be
reflective of the weak growth now being seen in advanced economies
across the globe,’ he said.

“In January, imports rose for the first time since October 2008,
rising 8.6 per cent. Japan posted a trade surplus of Y85.2bn last
month.”

Source: Justine Lau, Financial Times, February 24, 2010.

Financial Times: Toyota’s damaged reputation

“Spencer Jakab, Lex columnist of the Financial Times, says Toyota’s
slow response to addressing safety problems brought the world’s
largest carmaker to its knees.”
Source: Financial Times, February 24, 2010.

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Facebook One Response to “Words from the Investment Wise
2.28.10”
foxmuldar Says:

February 28th, 2010 at 10:27 am
FDIC’s Problem Banks List: Where Will It End?
By Addison Wiggin

02/24/10 Baltimore, Maryland – The FDIC is even more broke than it was
three months ago. The fund the FDIC uses to “insure” your bank account
went $20.9 billion in the red during the fourth quarter of 2009.
That’s more than twice the deficit reported when the fund first
entered negative territory in the previous quarter.

Incredibly, the FDIC is still trying to reassure us that all is well
because it’s collecting three years of advance payments on the annual
assessments paid by its member banks. The fees total $45 billion –
barely twice the amount of the current deficit. Yeah, we feel better.

On top of that, the FDIC’s list of “problem banks” grew during the
fourth quarter from 552 to 702. That’s the highest number since 1993
(when, we presume, more independently owned banks were around, so it’s
worse than it sounds).

Hmmm, let’s see. The number grew 27% in just one quarter. At this
pace, every bank in the country will be on the problem list by the
fourth quarter of 2012.

Another tidbit from the FDIC’s report: Bank lending last year dropped
at the biggest clip since 1942.

Of course, in that year, the entire economy was shifting to a war
footing. So it’s safe to say what we’re seeing now is another
unprecedented postwar occurrence. The report confirms data released by
the St. Louis Fed earlier this week that show commercial and
industrial lending have fallen off a cliff.

As long as banks can continue to borrow from the Fed at 0.25% and park
it in 10-year Treasuries for nearly 3.7% (and leverage it up, of
course), we don’t see this changing soon.

Foxmuldar says: Would this explay why we didn’t see any Friday bank
closing notices this weekend? Or did I miss them.

http://www.ritholtz.com/blog/2010/02/words-from-the-investment-wise-2-28-10/

[Sid Harth]

Janet Tavakoli
President, Tavakoli Structured Finance, Inc.
Posted: February 28, 2010 10:00 AM

Washington Abandons Greece: Beware of Geeks Bearing Grifts

The European Union (EU) is shocked--shocked I tell you!--that Greece
used financial engineering to qualify for admission. Exactly how did
they think that weaker countries managed to meet the requirements? Now
the EU is concerned that geeks used their knowledge of Greece's hidden
debt (and bailout negotiations) to manipulate financial markets for
their own profit.

A few years ago, Greece engaged in derivatives transactions which
essentially gave it a disguised loan, a gift from geeks. Greece may or
may not have had plans to invest the money to create national wealth
instead of say, blowing it all on national bling. Either way, Greece
used its national credit card in a futile attempt to keep up with the
EU Joneses.

The National Bank of Greece seems embarrassed. Last week, it removed
the prospectus for Titlos PLC, the financial engineering vehicle
arranged for it by Goldman Sachs International, from its web site.

Now Federal Reserve Chairman Ben Bernanke is concerned with the way
credit derivatives and other financial instruments are being used
during Greece's current debt crisis. In his semi-annual economic
report to Congress, Benanke said the Fed and the Securities and
Exchange Commission (SEC) would look into the involvement of the banks
they oversee:

"Obviously, using these instruments in a way that intentionally
destabilizes a company or a country is--is counterproductive."

He should question all related Greek and Euro transactions (not just
derivatives). Banks claim their trades aren't risky because they are
doing customer business. One should remember that Goldman Sachs
claimed its destabilizing transactions with AIG were "customer
business." How did that work out?

EU Needs its Own Investigation

To paraphrase Winston Churchill, U.S. financial regulators
occasionally stumble over the truth, but they pick themselves up and
hurry off as if nothing ever happened. In February 2007, I wrote the
SEC about U.S. corporate credit derivatives indexes--similar to the
sovereign indexes that reference Greece's debt. Banks persuaded U.S.
state pension funds to use them as "hedges" to protect their large
fixed income portfolios.*

Next banks served other customers by creating phoney "AAA" rated
products. These fake investments used lots of leverage (borrowing),
and they pushed hard in the opposite direction of the pension funds'
trades. As a result, the pension funds' "hedges" collapsed, and they
lost money. The customers that bought the new "investments" lost
money, too. Within a year, the phoney AAA investments were downgraded
to junk, and customers lost around 90% of their money. (These
financial instruments were unrelated to phoney mortgage
securitizations.) Banks made hefty fees, but the pension funds and
customers they suckered into taking these "gifts" were harmed.

I gave the SEC a map and a flashlight, yet it went nowhere. (My letter
still sits on the SEC's web site.) I'm called the "Cassandra of credit
derivatives," but it's a misnomer. I'm not prescient, I have no
psychic ability, and the geeks at U.S. banks--that claim they are
great risk managers--are capable of the same analysis. Moreover, only
pension funds and banks' customers were the victims of an unholy
rape.

Today, rumors are that crony capitalists are using derivatives to
profit from Greece's misery. There are allegations that investment
banks and hedge funds used their knowledge of Greece's hidden debt to
drive up its borrowing cost and drive down the Euro. Then these
speculators reversed their positions, when they had advance
information of a potential bailout for Greece.

Other rumors suggest customized trades on the sovereign credit
derivatives index also exploited Greece's problems. Still other rumors
point to a campaign to manipulate Greek debt prices and knock down the
Euro.

The European Union and Greece should launch their own investigations.
When U.S. regulators say they'll "investigate," it seems to mean "get
lost."

The U.S. Should Investigate Transactions that Destabilized America

If the U.S.'s "photo-op regulators" are investigating transactions
that destabilize countries, they should start at home. Is it "God's
work" to enrich crony capitalists--Washington and Wall Street's new
chosen people--while siphoning money from hard-working taxpayers?

Geeks used financial technology in a way that destabilized the U.S.
economy while the U.S. is at war. I believe there is a much stronger
word for it than "counterproductive."

*Pension funds shorted corporate credit default swap indexes (bought
credit protection) and took a long position in swap spreads to hedge
their bond portfolio credit risk.

Books & More From Janet Tavakoli

Structured Finance and...
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An up-to-date look at the exploding CDO and structured credit products
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him over 2 years, they both saw the writing on the wall, made clear by
the implosion of Bear Stearns. Tavakoli, in clear and engaging prose,
explains how the credit mess happened beginning with the mortgage
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its impact on the dollar.

Credit Derivatives & Synthetic...
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Fully revised and updated Here is the only comprehensive source that
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BANANA HYMN OF THE REPUBLIC

(America the Beautiful)

WilliamBanzai7

O beautiful and spacious lies,
For fraudulent Wall Street gains,
With pinstriped swindling tragedies
Above your 401k!

America! America!
God won't shed this disgrace from thee
And crown those hoods--the banksta brotherhood
From scheme to ponzi scheme!

O beautiful for thievery and political lies
Whose two faced impassioned distress
A thoroughfare of lobbying and greed
Across the populist wilderness!

America! America!
God send thine every corrupt and crony fiend,
Confirm thy soul without self-control,
Their liberties above the law!

O beautiful for heroes screwed
In bungled economic strife.
Those who love themselves above their land
And moral hazard more than life!

America! America!
May God's work Goldman's Blankfein refine
Till all success be Fat Cat nobleness
And bailout gains divine!

O beautiful for patriots reamed
That sees beyond the tears of subprime slime
Thine asset bubble cities gleam
Undimmed by quantitative legerdemain!

America! America!
God won't shed this disgrace from thee
And crown those hoods-- the banksta brotherhood
One big den of Wall Street thieves!

Posted 10:42 AM on 2/28/2010

http://www.huffingtonpost.com/janet-tavakoli/washington-abadons-greece_b_479848.html

[Sid Harth]

3,000 Banks at Risk of Failure

Posted by Mark Noonan in Economy on February 28th, 2010 at 05:57am
with 4 responses.

Over the massive commercial real estate bust:

…Unlike the largest banks, such as Citigroup and Wachovia, that got
into so much trouble early on, the community banks in general fared
better in the residential mortgage crisis. But their turn is coming:
Not only did community banks issue a higher proportion of commercial
loans, but they also have held on to them rather than sell them to
other investors.

Nearly 3,000 community banks — 40 percent of the banking system — have
a high proportion of commercial real estate loans relative to their
capital, said Warren, whose committee issued a report on commercial
real estate last week. “Every dollar they lose in commercial real
estate is a dollar they can’t use for small businesses,” she said.
Individuals — who saw their home values drop in the residential
mortgage crisis — would not feel that kind of loss, but, Warren said,
a large-scale failure would “throw sand into the gears of economic
recovery.”…

…Nationwide, at least $1.4 trillion in commercial real estate debt is
expected to roll over during the next three years. Warren said that
half of commercial real estate mortgages will be underwater by the
beginning of 2011. A fifth of residential mortgages are underwater
now, she said.

Unlike residential mortgages, which often can be paid over 30 years,
commercial real estate mortgages typically must be paid off or
refinanced within five years. Commercial properties mortgaged in 2005,
2006 and 2007, at the height of the boom, are reaching their maturity
date. “Do the math on this,” Warren said. “This is a significant
problem.”

Yeah, no kidding. Only a rapid and sustained turn around in the US
economy can soften the blow. Keep that in mind – the crash cannot be
avoided. It can merely be very bad, or it can be catastrophic.

In 2009, there were 140 bank failures – about 1 every 2.6 days. So far
in 2010, we’re slightly slower at 1 failure every 2.7 days. Unless
things start to go astoundingly well, we can expect over the next two
years or so to lose at least 1,000 of the at-risk banks over a couple
year period – about 1 per day, or more. Getting the picture?

Now, Obama and the Fed can try to bail out these banks – but that
would take, probably, something close a trillion dollars, on top of
all the money we’re already spending. Additionally, Bernanke at the
Federal Reserve and Geithner have shown themselves mostly concerned
with keeping the big banks afloat – and Obama simply might not see
this coming. Additionally, if there was a bail out, it would just
delay the inevitable.

A shake out is necessary as we are over loaded with office and strip
mall space. Too much of it was built and some of it will have to come
down, and a lot of banks simply will have to fail (even if Obama and
Co put them on life support to make more “zombie” banks). But a
recovery is possible if we put in place, very quickly, the policies
needed to restore wealth creation in the United States. The bad news
is that Obama and Co don’t understand the phrase “wealth creation”,
let alone any of the policies which will encourage it.

Get ready for a long and bumpy economic ride.

HAT TIP: Mish’s

4 Responses to “3,000 Banks at Risk of Failure”

retiredspook says: February 28, 2010 at 9:16 amI’ve been doing some
research on banks because I’m thinking about moving my personal
checking account from Fifth Third Bank, the 23rd largest U.S. bank
holding company. Back when the whole financial crisis came to head,
Fifth Third was listed on the top twenty list of large, at-risk banks.
What’s I’ve discovered is that the FDIC publishes a list of banks that
have failed since 2000, but does not publish a list of banks that are
at risk.

Having to do research on my own to determine what bank is safe to put
my money in is something I never before contemplated having to do.
Interesting times we live in.
Log in to Reply js02 says: February 28, 2010 at 10:29 ami was of the
mind that the 1.4 trillion we busted out would stop this problem…and
the 700 Billion before that…but it aint so…shoow…bama spent enough to
pay off about every mortgage out there for low income folks…but
somehow…it went other places…no bail out for the poor…no sir…only the
rich banking system gets to take advantage of government handouts the
likes of which the entire world has never seen before…strange how that
works, eh…they take money outta the guys pocket who flips burgers in
miki’d’s and gives it all to those big bankers who dont do anything
for anyone but themselves…and the guys kids…from miki’d’s…well…they
gotta pay off even more than thier dad did…cause soros and bank of
america and citibank can…exploit the american economy…

Log in to Reply sadieannmartin says: February 28, 2010 at 10:38
amPublishing a list of banks considered at risk would erode consumer
confidence in the banking system and in turn cause bank runs. But you
knew that already. ;)

Log in to Reply retiredspook says: February 28, 2010 at 2:03 pmI did
(know that already). In fact, several articles that I read mentioned
that as the reason they don’t. At one time, however, they did, because
such a list was where I read about Fifth Third a couple years ago.

Mark Noonan is co-author (with Matt Margolis) of Caucus of Corruption:
The Truth About The New Democratic Majority. He also blogs at Nevada
News and Views. Follow Mark on Twitter.

Caucus of Corruption: The Truth about the New Democratic Majority
(Paperback)
~ Matt Margolis
Matt Margolis (Author)

(Author), Mark Noonan (Author)

http://www.amazon.com/gp/product/0977898474/002-1030667-8676006?ie=UTF8&tag=blogsforvictory-20&linkCode=xm2&camp=1789&creativeASIN=0977898474#reader_0977898474

Editorial Reviews

Product Description

When Democrats made "ethics" the centerpiece of their 2006 campaign,
respected bloggers Matt Margolis and Mark Noonan went to work online
chronicling the corruption endemic to the Democratic Party. But there
s so much more to Democratic corruption than can be told online! "In
Caucus of Corruption: The Truth About The New Democratic Majority,"
Margolis and Noonan take dead aim at the "ethical" leaders of today's
ruling party. You'll discover... - Nancy Pelosi s cronyism, campaign
finance and immigration law violations - Harry Reid's questionable
land deals and connections to disgraced lobbyists and billionaire
casino owners - Media darling Barack Obama's cozy relationship with
the indicted fundraiser next door - Clinton foot soldier Rahm Emanuel
s love for dirty money - William Jefferson's refrigerated $80,000 cash
stash and much, much more! The definitive resource on Democratic
corruption, Caucus of Corruption is a must-read for conservatives,
political junkies, and everyone concerned about the dubious ethics and
goals of the new Democratic "ruling class."
About the Author
When Matt Margolis launched Blogs For Bush (www.blogsforbush.com) in
2003, Mark Noonan became a regular contributor. It became one of the
top blogs of the 2004 presidential campaign season. Margolis was among
the first bloggers to receive media credentials to cover the
Republican National Convention. As popular bloggers, Margolis and
Noonan have appeared on CNN, MSNBC, and BBC Radio.

--------------------------------------------------------------------------------
Product Details
Paperback: 209 pages
Publisher: World Ahead Publishing (May 8, 2007)
Language: English
ISBN-10: 0977898474
ISBN-13: 978-0977898473
Product Dimensions: 8.4 x 5.5 x 0.6 inches
Shipping Weight: 8.8 ounces (View shipping rates and policies)
Average Customer Review: 3.1 out of 5 stars See all reviews (13
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Amazon.com Sales Rank: #1,222,315 in Books (See Bestsellers in Books)

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Caucus of Corruption: The Truth about the New Democratic Majority

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The most helpful favorable review The most helpful critical review

8 of 13 people found the following review helpful:
the truth

The book is an expose of the current Democrat ilk...unfortunately not
enough will be inspired to read and heed it..
Published on June 9, 2007 by Same

Same Old Bunk
After the past decade of Republican cronyism, secrecy, lies, greed and
mismanagement, these authors attempt to point the finger at the
Democrats and lay our current woes at their doorstep. Fortunately,
most people can see through their chicanery and would not buy this
sophomoric collection of half-truths and supposition posing as actual
fact if it was on sale for free...
Read the full review ›

Published 3 months ago by K. Theis

8 of 13 people found the following review helpful:
the truth, June 9, 2007
By Same (Portland) -

The book is an expose of the current Democrat ilk...unfortunately not
enough will be inspired to read and heed it..

20 of 33 people found the following review helpful:
Interesting read, May 12, 2007
By Family of 4 (Ohio) -

One has to admit that the Democratic Party leaders, who spent every
minute of my TV ads last election telling me how bad Republicans are,
is only talking the ethics talk, not walking the ethics walk, shoot
they are not even moving on ethics. One cannot slam someone with the
left side of their mouth, while doing the EXACT SAME THING, with the
right side. The authors point out various Democrat leaders who are
more than 2-faced, they are 100% viable crooks. One can slam the
writers Blog, one can slam them personally, but one cannot argue about
facts laid out in this book.. I learned more about Democrat corruption
in the few days reading this book, than I did watching TV news in the
past 5 years. It is a must read for anyone who would like to know what
is going on with our current Congress leadership. After you have
completed reading this book, you are not going to like the answer.

5 of 10 people found the following review helpful:
Read it before you rank it, August 7, 2007
By Ms Nomer (Live Free or Die) -

Typical hogwash - (oh, not the book, it seems to have some
credibility, it effectively paints the picture it set out to do) - but
the liberal commenters...
These reviewers, who have chosen not to read the book they are
commenting on, form absolute opinions on something they have no
knowledge of - then share it like a cold sore. Kind of like how they
decide to vote. THIS is what gets this country into trouble.
Uninformed voters casting dangerously ignorant ballots. Is it shear
laziness? Or some sort of holier than thou ideal that makes them think
they know everything without lifting a finger? (Well, if Barbra
Streisand said it was so, it must be so!)

It is a shame that educated progressives cheapen themselves with knee
jerk reactions about things they assume, but have no inclination to
know. This is why our political climate is in trouble...along with our
global environment. There is no truth, not even informed choice of
opinion - just vapid hysteria...

Further, the ranking of this book on Amazon is inconsequential. Al
Franken's book about "Lies and the Lying Liars...." that takes on
conservatives and Republicans is ranked at 84,651. "Stupid White
Men.." by Michael Moore is ranked at 1,770,458. It doesn't matter.
These ranks are about personal tastes, and who buys what on
Amazon....
So, keep the following in mind:

Sharing insight means you have to have some. In order to have some, in
this case at least, you need to read the book.

23 of 41 people found the following review helpful:
Finally..., May 9, 2007
By Aquaza -

A well written exposé of all the stories about corruption the media
didn't tell you about last year. It's about time that corruption in
the Democratic Party got discussed, and this book is a great resource
of all corrupt activities today's Democrats are guilty of. Hopefully
now Democrats won't be allowed to get away with all their corruption.
This book is a must read for those liberals who think their party is
full of angels.

20 of 38 people found the following review helpful:
A Well-Researched Expose, May 12, 2007
By Butterfly -

This book is a great example of citizen journalists (bloggers) doing
what they do best--reporting on the stories the mainstream media
refuses cover. The book is a well-researched expose of the corruption
that exists in the Democratic party, which came to its majority
position by painting the Republican Party as the party of sleaze and
corruption. This book does not attempt to gloss over ethical lapses in
the Republican party, but rather to show that corruption extends to
both sides of the political aisle. A quick, yet informative read, this
one is definitely worth checking out.

0 of 3 people found the following review helpful:
Same Old Bunk, November 2, 2009
By K. Theis "Left Hook" (Chicago, IL USA) -

After the past decade of Republican cronyism, secrecy, lies, greed and
mismanagement, these authors attempt to point the finger at the
Democrats and lay our current woes at their doorstep. Fortunately,
most people can see through their chicanery and would not buy this
sophomoric collection of half-truths and supposition posing as actual
fact if it was on sale for free across the street.

When there is actually something to write about, instead of dealing
with the issues honestly, these authors attempt to inflate minor
indiscretions into huge "scandals" yet ignore the rampant corruption
and moral decline of their own party.

Typical. Sad, but typical.

1 of 6 people found the following review helpful:
Easy reading, September 23, 2008
By Ron Wasserman "raw" (Los Angeles) -

All you 'hard working folks' out there who love to hate everything and
anything you don't fully understand will love this book. It's very
easy to read with lots of simple words. You could even hang the funny
cover picture on your locker and just have a great laugh.

19 of 48 people found the following review helpful:
Thank God!, May 9, 2007
By J. Stowe "Yes!" (New York, NY) -

Finally we have a quality fictionalized account of corruption in
Washington! Never before has there been such a beautifully-crafted
stitching of unfounded accusations, refuted facts and childlike
characaturing. I bet a 12-year-old could be taught to deny reality
after reading this awesome book.

And better yet, this book ought to refocus attention from Republican
Scooter Libby, Republican Tom Delay, Republican Bill Frist, Republican
Duke Cunningham, Republican Jack Abramoff, Republican Bob Noe,
Republican James Giffen, Republican David Satterfield, etc. all of
which have been investigated, indicted or convicted of crimes in the
real world. Let's not forget Alberto Gonzalez who fired U.S. Attorneys
to help the Republican party, Karl Rove who destroyed a CIA agent's
career in WMD intelligence to help the Republican party, and nepotisim
on such a scale that placed Michael Brown in charge of FEMA during
Katrina.

This book truly shows the party of corruption: the Democrats.

20 of 54 people found the following review helpful:
Noonan Can't Handle Opposing Viewpoints, May 10, 2007
By Jim (Rochester Hills, MI United States) -

Noonan and Margolis have a blog "BlogsforBush" at which they routinely
ban people who make comments which they disagree with. Ask yourself
why Noonan and Margolis are uncomfortable with opposing views--and
what they may be trying to hide--when reading this book.

17 of 54 people found the following review helpful:
World Ahead Publishing, May 22, 2007
By D. R. Martin -

The publisher of this book also publishes, "Help! Mom! There Are
Liberals Under My Bed", "Help!, Mom! Hollywood's in My Hamper", Uncle
Teddy, Hands Off My Piggybank!"... books that are written for YOUNG
CHILDREN.

It's just creepy (left or right) when a publisher tries to POLITICALLY
indoctrinate YOUNG CHILDREN... isn't that what they do in North
Korea??

Look at their website, About Us... World Ahead Publishing is run by
right-wing millionaires and political hacks that have ZERO publishing
backgrounds, the chairman (a multi-millionaire) serves on the board of
Vanguard PAC, a far right-wing group (Now what about George Soros and
his millions again?).

Just like a publisher that specializes in white separatist, socialist,
communist, fascist political works, you can pretty much see where this
book is coming from... sight unseen.

Enjoy

21 of 68 people found the following review helpful:
awesome... not, May 9, 2007
By R. J. Anderson "bmf" (Galveston, TX) -

A childish retelling of previously debunked non stories. Only the
Jefferson story has any factual basis. Partisan hackery at its
finest.

1 of 18 people found the following review helpful:
Buy this book ...., November 14, 2007
By K. L. Gallaher "sir_ken_g" (Bartlesville, OK USA) -

...if you are a wingnut who likes to read what he wants to be told not
what he needs to be told.
For anybody else flee.

9 of 69 people found the following review helpful:
Laughable..., June 25, 2007
By M. Aves (Mechanicsburg, PA) -

I would like to write of review of the book, but I honestly haven't
read it. Instead I think a summary of the relevance of the subject
matter is perhaps more appropriate, and as such I will compare the
Amazon sales ranking of this, ahem, "book" against other mundane
titles:

If ever there were a symptom that Conservatism is dying a slow and
miserable public death, sales figures like these coming from the
vanguard of "New Media" punditry should affirm the view that, as Bob
Dylan sang so eloquently, "the times - they are a changing"...and none
too soon.

http://www.amazon.com/gp/product/0977898474/002-1030667-8676006?ie=UTF8&tag=blogsforvictory-20&linkCode=xm2&camp=1789&creativeASIN=0977898474#noop

http://nevadanewsandviews.com/

http://blogsforvictory.com/2010/02/28/3000-banks-at-risk-of-failure/#postcomment

[Sid Harth]

The economy's eternal optimist

Over a year into vice presidency, Biden has hope -- but he also knows
Washington needs to be fixed

By NICOLE GAUDIANO and GREG BURTON • The News Journal • February 28,
2010

Vice President Joe Biden says he spends up to five hours a day with
President Barack Obama as different agencies and Cabinet members
report, and from what he's heard of late he's ready to make a
prediction: The U.S. economy will begin churning out 100,000 to
200,000 jobs a month as spring turns to summer.

Long known for his expertise in foreign affairs, Biden says he
relishes his new role focused on domestic issues, explaining that a
sizable amount of his time is spent on executing the massive stimulus
spending bills aimed at pulling America out of the deepest downturn
since the Great Depression.

On the eve of last week's bipartisan health care summit, the 47th vice
president met with The News Journal in his West Wing office to discuss
the triumphs and troubles of his first year in the White House. Biden
is hopeful about economic recovery, of success in Iraq, of the future,
but the 2010 midterm elections will be dangerous for both parties if
Washington can't move forward.

"The message [is] that the public wants us to work together more,"
Biden said. "It's sort of ricocheting around the room like a bullet
and, guess what, it's as likely to kill a Republican as it is a
Democrat. I really mean it. I promise you. I may not be good at much;
I'm not bad at politics."

In many ways, Biden is the same guy who took the train every day to
Washington from his home in Wilmington as a senator. Same broad grin
and animated gestures, same blunt manner, same obvious delight in
spinning a yarn.

But he believes Washington is broken.

In his final remarks as a U.S. senator last year, Biden told
colleagues that his life lesson was to see the good in all members,
that compromise and collaboration was possible. He was in the Senate
when President Ronald Reagan worked with Democratic New Jersey Sen.
Bill Bradley to pass tax reform and when President Bill Clinton and
Republican House Speaker Newt Gingrich reformed welfare.

He saw Vietnam and Watergate expose deep fissures in America, and he
watched as those wounds healed. But neither of those watershed events
was a "reordering [of] our role in the world." And that is what's
different today.

A year into his term as vice president, Biden is at the center of what
he considers "a historic moment of transition in the world economy."
It is an epic time in American history where there are "fundamental
alterations in the world economy, in foreign policy and the social
structure of the nation."

Energy policy and international banking are disrupting global
politics. The balancing of twin Superpowers, Russia and the United
States, has "evaporated." "Non state actors" such as al-Qaida defy the
influence of a foreign policy dependent on nations.

At home, populist rancor is driving a wedge. Tea Party protesters
marched against budget bloat in Washington. In Delaware, out-of-work
laborers chanting "we need jobs" hurled empty work boots onto the
steps of the General Assembly in Dover.

Yet Biden, dubbed "the sheriff" of the American Recovery Act by Obama,
says, "just because it seems gridlocked, we're not left with the
luxury of not continuing to try."

West Wing

A fire crackled in the fireplace as Biden sat for the interview in his
West Wing office with dark blue walls and bright white molding. It's
located just around the corner from the Oval Office, a privilege vice
presidents have retained since former Vice President Walter Mondale's
term, according to Joel Goldstein, a vice presidential scholar at St.
Louis University School of Law.

Large paintings of John Adams and Thomas Jefferson, the first and
second vice presidents, adorn the walls. But there are also plenty of
personal touches here: family photos, a large vase that says
"Delaware" and a silver-framed photo of his German shepherd, "Champ."

By noon, Biden is sounding upbeat. He had already spent an hour and a
half with Obama, getting the Presidential Daily Briefing and Economic
Daily Briefing in the Oval Office.

They routinely spend long hours together, from ceremonial functions to
meetings in the Situation Room on relations with countries such as
Iran or Iraq, he said. After their fifth meeting in one day, Biden
says, he recently kidded Obama: "I'm getting tired of sitting with
you."

Wednesday morning's meeting was promising, Biden says, in that people
in the meeting are arguing now about the way the economy will grow --
and not how it will decline.

"Watch what happens," he says. By summer or as early as May, "we're
going to start creating 100,000 to 200,000 jobs a month."

Biden was reminded of an analogy he told the president that morning
about cliff diving he did as a teenager and young man at the Avondale
(Pa.) Quarry. Diving from a height of 70 feet or so drove divers deep
into the water, where there was little light. Yet as the divers swam
back up from the depths, "you see the light and there's no panic,"
Biden recalls. That time is coming for people who are struggling in
this economy, the vice president predicts.

"Their problem will not be solved, but they can see the light."

The optimistic analogy -- digression and all -- is vintage Biden. But
13 months into his new job, Biden acknowledges he's also sounding
something like Federal Reserve Chairman Ben Bernanke, rattling off
facts and figures about the $787 billion stimulus. He says it's
responsible for a 12.5 percent turnaround in the GDP and creating or
saving 2 million jobs.

"No serious econometric model suggests we created any fewer than
800,000 jobs," he says.

The stimulus is one of Biden's babies, and he says he is "absolutely
satisfied" it's living up to expectations. He hosts weekly phone calls
with governors, mayors and county executives to talk about projects,
answering questions for up to an hour.

At one point, Biden sprang from his seat, grabbed copies of an annual
report on the effects of the stimulus and distributed the reports to
his visitors.

In his opening letter to the president, he thanks him for his
confidence in giving him this important task.

"I believe that we have served the American people well," he wrote,
signing "Cordially, Joe Biden."

He and the administration have taken hits from Republicans who say the
stimulus was too expensive and has created too few jobs. To that
charge, Biden says he's been in 65 cities for stimulus events where
projects and new jobs were announced, and "I've not failed to have a
Republican show up to cut the ribbon."

The vice presidency

Biden isn't really known, first and foremost, as an economic policy
wonk. After 36 years in the Senate, foreign policy is what typically
comes to mind as his bailiwick for those who know the former chairman
of the Senate Foreign Relations Committee. The gavel he used as
chairman of that committee is displayed in his West Wing bookcase, and
the desk is on loan from his former office in the Russell Senate
Building.

He took heat recently from former Vice President Dick Cheney and other
Republicans for his comment on CNN that Iraq could be one of the
administration's great achievements. He later explained on CBS that
the administration put the political solution in motion.

But Cheney accused Biden of trying to take credit for the Bush
administration's success. And even Biden's old friend Sen. John
McCain, R-Ariz., was "stunned" by the comment and poked fun at Biden's
long-touted plan to promote federalism in Iraq, calling it a plan "to
divide Iraq into three countries."

On Biden's side of the aisle, however, opinions are more glowing.

"There's nobody in the world who knows more about foreign affairs than
Joe Biden," said Senate Majority Leader Harry Reid.

Biden, who Obama designated as his point man on Iraq, has traveled to
the country four times since the election. He has also visited other
trouble spots in Europe, sits in on a weekly terrorism briefing, and
spends a couple of hours a week talking on the phone with foreign
leaders, particularly from Iraq, Afghanistan and Europe. He meets with
Secretary of State Hillary Rodham Clinton regularly for breakfast at
his Naval Observatory home.

But today his job focuses on the national economy. Along with
overseeing the stimulus, he said, he spends a sizable portion of his
time working with his Middle Class Task Force. Obama has given him the
authority to call Cabinet meetings once every 10 days to two weeks to
deal with both.

"Find one Cabinet member you could call and [who will] say, 'When
Biden calls me, I don't rush to his office,' " Biden says.

Task force recommendations in Obama's budget would cap payments on
student loans, require employers to provide the option of a direct-
deposit IRA for employees, expand tax credits to match retirement
savings, provide support for elder care and provide tax credits for
child care. The goal is to ensure that when there is an economic
recovery, the middle class isn't left behind as with previous economic
recoveries, Biden says.

He also is involved in the health care debate, which the
administration sees as a key component of strengthening the economy.
Before the Senate passed its version of the health care reform bill in
December, Biden was on the phone with senators lobbying for the bill,
says Sen. Tom Carper, D-Del. "I don't know whose vote he swayed, but
as you recall, we got 60 votes to pass the health care bill, warts and
all."

An aide twice interrupted the interview to slip Biden notes, telling
him he was late for a health care summit prep session. He folded the
notes. And then he kept talking, at one point tapping the note on the
wrist of a listener to drive home a point.

Quayle: Job can be 'awkward'

Being vice president can be "awkward at times," says former Vice
President Dan Quayle, who served during the George H.W. Bush
administration. When the president gives the vice president a specific
assignment, there's always someone else in the government with that
responsibility as well.

"Obviously, the president is going to listen to you more than others,"
Quayle says. "But you have to be really sensitive that other people
have to be involved in that process and that takes a lot of political
and diplomatic skill."

It also requires some holding back, Quayle explained in an interview
with The News Journal. "You can fight for your ideas in private, but
when the president makes the decision, that's it," he says.

All vice presidential models are different, Quayle notes, because the
president establishes what that role will be. "You work for the
president. It's not your agenda."

Just before taking office, Biden fretted that his foreign travels and
policy issues would come at the expense of his domestic efforts. "I
don't want to be taken out of the domestic piece," he explained then.

Biden says his work has been "gratifying" and he doesn't see it as
unrelated to his experience in the Senate.

"The economic stuff is stuff that I have done my whole career," he
adds. "The good news is, I get credit I don't deserve for being this
expert on foreign policy. The bad news is, I'm fairly well informed
about a lot of these subjects that I've been doing."

Contact News Journal Washington Bureau reporter Nicole Gaudiano at
ngau...@gannett.com

Contact Assistant Managing Editor Greg Burton at
gbu...@delawareonline.com.

http://www.delawareonline.com/comments/article/20100228/NEWS02/2280366/The-economy-s-eternal-optimist

http://www.delawareonline.com/article/20100228/NEWS02/2280366/The-economy-s-eternal-optimist

Differing views on health care, the economy
Allison Brophy Champion, abr...@starexponent.com, (540) 825-0771 ext.
101
Published: February 28, 2010
Updated: February 28, 2010

Leading Republicans in Washington say the president’s attention to
health care reform takes the focus away from where it should be — the
economy and job creation.

Virginia’s Democratic junior U.S. senator says all are integrally
intertwined; that is, in order to fix the economy, health care needs
fixing too.

But Culpeper’s congressman thinks Republicans have a better way.
Here’s what both had to say during their recent visits to the area.

Warner links health reform to a brighter economy

Our federal deficit will explode without reform, Sen. Mark Warner,
former Virginia governor, wrote in a letter Jan. 14 to Senate Majority
Leader Harry Reid.

“Medicare will go bankrupt, American companies will be at a
competitive disadvantage in the global economy and American families
will face a double digit increase in their health-care costs,” he
wrote.

Earlier this month in Culpeper, Warner reiterated that message before
a gathering of more than 100 local business and government leaders.
What many are missing in the debate, he said, is that health care
costs are increasing dramatically.

Warner, in emphasizing this point, mentioned recent double-digit
increases by Anthem Blue Cross in California, noting government health
care spending is also on the rise year after year.

“It’s running up the deficit,” he said.

According to a recent report in the Health Affairs journal, U.S.
health care spending last year was 1.1 percent higher than in 2008 —
the largest one-year increase since records were kept starting in
1960.

Health care spending reached $2.5 trillion last year — $1.2 trillion
for government programs (Medicaid and Medicare) and $1.3 trillion in
employer-based health insurance and private spending, the report said.

Currently, according to Warner, health care costs account for 17
percent of the gross domestic product, and are projected to grow to
one-third of the GDP by 2040. In addition, the primary cause of the
national debt is the per-person costs of Medicare and Medicaid, he
said.

The cost of health care, at the end of the day, Warner continued, is
making American businesses less competitive on a global market.

“How is American business going to compete when they are paying $4,000
to $5,000 more per employee for health care?” he asked.

If no reform is undertaken, health insurance premiums are expected to
consume nearly 40 percent of the average family’s disposable income
over the next decade, according to Warner.

The senator said he does not believe in a public option, but that all
Americans should have access to adequate and affordable health care.

He spoke against insurance companies dropping or limiting coverage
based on pre-existing illness, saying, “I don’t think insurance
companies are bad, per say, but they are moneymakers.”

In order to pay for a system that covers all Americans, Warner said,
the government either has to raise taxes or require all citizens to
have insurance. He said he supports “a slimmed-down” version of health
care reform, backing Republican initiatives such as allowing insurance
companies to sell across state lines.

That proposal, however, would require financial scrutiny, Warner said,
since different states charge different rates based on age.

He named access to hospice care as among his top issues, noting that
his recently deceased mother was a hospice patient.

“It’s a moral issue,” Warner said in Culpeper, adding, “We are the
only industrialized country in the world that has never had a societal
conversation about end-of-life issues.”

He encouraged religious leaders to get more involved in that
conversation and characterized Republican-led claims that health care
reform would lead to “death panels” for the elderly as “the most
disrespectful, irresponsible behavior.”

“I believe every family member has a right to die at home instead of
in the hospital with 47 tubes in them,” Warner said.

Asked where he saw health care reform heading in Congress in the next
few months, Warner said if the Senate bill could be stripped “of some
of the bad stuff” he would support it.

“If we put it off for another decade,” he warned, “financially, the
system is going to collapse.

“I just wish and hope some of my colleagues will be willing to help us
get to yes on this,” Warner added, noting of Medicaid and Medicare,
“We are the only system in the world that compensates based on volume.

“We ought to have a free market in health care, but nobody knows what
its actual costs are right now.”

Rep. Cantor outlines policy initiatives in Q&A session

Culpeper’s congressman swung around the 7th District the other week,
criticizing President Barack Obama’s stimulus effort on the one-year
anniversary of its adoption.

U.S. Rep. Eric Cantor, R-Richmond, sounded well rehearsed and versed
on the GOP position regarding America’s economy and, as minority whip
in the U.S. House, advocated a different way going forward.

“For me, it’s really stunning to see what a difference a year makes in
terms of the political landscape in this country and the decisions we
have to make,” Cantor said in a meeting Feb. 17 with the Star-Exponent
editorial board and this reporter.

“If you look back a year ago, we had gone back to Congress with a new
president — he was at 70 percent approval rating — the economy was the
No. 1 issue, still is, and the first (action) for his administration
and the majority in Congress was to pass that stimulus bill with a lot
of back and forth and not too much progress in the bipartisan
process.”

Cantor said he — like most Virginians — does not believe the stimulus
has been successful. He acknowledged that it saved government jobs,
however, at least in the short-term.

“There is a better way for us; one of those is encapsulated in our ‘No
Cost Jobs Plan,’” Cantor said of a GOP option, viewable online at the
Republican whip’s Web site. “It suggests measures we can take right
now, but don’t cost anything, that could help the situation and the
environment that’s been created.”

American business continues to struggle, Cantor said, because of fear
and uncertainty regarding Democratic initiatives such as imposing a
Medicare tax on capital gains, versions of health care reform and
charging for carbon emissions.

Democratic spending “has gotten the ire of the public in a big way,”
the congressman went on, noting he supports an immediate freeze on
domestic discretionary spending — not next year, like the president
proposes.

Cantor also supported “reform” to government unemployment programs and
rescinding distribution of unspent stimulus funds.

“It really comes down to we can do some things now without spending
money, because I believe that way has proven not successful.”

Cantor, in his hour-long meeting with the Star-Exponent, answered
questions on a variety of other topics.

Here’s a look at what he had to say about:

- Jumpstarting bank loans to small business: “Part of the ‘No-cost
jobs plan’ is to ask the administration to impose on auditors in the
field … to disclose how many of those performing loans that they’re
calling, to put pressure on lenders to really look at the strength of
the borrower. What that does, it strikes the right sort of balance
because you don’t want Washington saying, ‘Here’s when you want to
make a loan, bank.’ That’s what helped us get into this bad state
anyway when Washington begins to say how you ought to lend money.”

- Being called a hypocrite by Democrats: “First of all, I never tried
to pursue any of the stimulus money. Second of all, it’s so laughable
that I had a job fair in Culpeper and Richmond and somehow that’s
being a hypocrite. I feel it’s my job right now to help people get
back to work in any way I can. I’ve also been accused of being a
hypocrite because I’m for high-speed rail — something I’ve been for
since the first day I got in office. I can be for a project that
creates jobs in this state without being for $860 billion in stimulus
money.”

- The number of jobs created at the Culpeper job fair: “We don’t know
exactly, but the reason we had the one in Culpeper was because … the
folks in Richmond … said do it again because we have hired people from
it.”

- Tea Partiers: “Overall, the Tea Party movement is something we all
ought to say is a good thing. When you have people committing their
resources and time to get together to be involved in the debate in
this country is always good. What the Tea Party is about is a
frustration that government has begun to encroach into too many
aspects of our lives and that we began as this nation with a sense of
limited government that’s really been lost.”

- Sarah Palin: “She has a tremendous following. She’s an inspiration
to a lot of people in this country, and I have always said she is
emblematic of what America means to working women; that she can have
everything — a family of five, dual working household in Alaska, and
become governor. She will continue to play a role in debate of issues,
and I welcome that.”

- Job growth legislation he authored: “I was the author of legislation
that extended the reduction in cap gains tax rate and dividend rate.
That had a huge impact on job creation. I also authored the bill which
liberalized the ability of people to contribute tax-free to health
savings accounts.”

- Making health insurance cheaper for small business: “An association
of health plans to allow small businesses to pool and access a larger
risk pool would bring down rates. In addition, we ought to be putting
small businesses, sole proprietors, in the same posture that you’re
putting larger businesses in from a tax standpoint. You ought to be
allowing competition to grow in the individual market. That’s what has
priced everybody out of health insurance right now.”

- The GOP approach to health care reform: “Let’s try and address, No.
1, some inequities in the system that exists from a government program
standpoint — reimbursement rates to providers. We also want to make
sure you get a real market going, but you can’t if you’ve got the
government in there in such a big way. Purchasing across state lines,
the ability to accept a health savings account.”

- 2012 political ambitions: “No, I am not running for president. I am
very focused on gaining re-election and making sure I have the
confidence of the people in this district.”

- His relationship with Virginia’s Democratic senators, Jim Webb and
Mark Warner: “Any senator could have stood up and stopped the health
care bill from moving forward. And neither one of them did that —
that’s a little disappointing. We still work together for the good of
the people of the state.”

- GOP momentum in this year’s election: “I do think we can reclaim the
majority in the U.S. House. Most pollsters would say if the election
were today it would happen. I think the primary driver is that people
want to see a check and balance on what one-party power has shown them
over the past year. Who would have ever thought in this state it would
had swung the way it did from a six-point win with the Obama
experience to McDonnell’s win of 18 points? Who would have ever
imagined a Republican winning in Massachusetts? I think it has gone
real deep now into people’s sense of, hey, wait a minute, we have
embarked upon a direction we do not want to go in.”

- The independent vote: “You don’t win elections without winning
independents — at least in this state. To this day, independents have
rejected the agenda that the Obama administration is pushing and want
there to be a focus on jobs.”

- The ‘party of no’ label: “It’s not true. Every step of the way … as
a minority party … we’re going to disagree with the president after
having attempted to contribute to the process. It is our obligation to
present coherent counter proposals. We have done that at every turn,
whether it’s been the stimulus bill, the budget bill, the health care
bill, the financial regulatory bill.”

- A bipartisan Congress: “That is the danger for our party heading
into this election is to take the wrong message from the elections in
Virginia, New Jersey and Massachusetts. Right now people don’t like
the agenda, but it doesn’t mean extreme on the other side is where
this country is either. This country is a center-right nation. I like
to say it is about the commonwealth conservative principles that
started right here.”

- The recent Supreme Court ruling on campaign finance: “It doesn’t
affect my campaign, Cantor for Congress. What the ruling would do in
this district, just like any other, if a company wanted to go in and
advocate for an issue or impact my election, they could do so up until
the last day, whereas before they could only do so up until the last
60 days. Now there is no limits; in a sense you are giving a corporate
entity the right to its First Amendment speech rights.”

- GOP fiscal responsibility under George W. Bush: “Republicans got
fired in ’06, for sure, got fired in ’08; (voters) basically said,
‘No, you can’t have the White House anymore because you messed up.’ So
I do think there is an amount of contrition in order. You look at the
amount of debt incurred over the past decade, 60 percent of it has
been incurred since Democrats have been in control of Congress, so
there’s equal blame.”

- Free trade with China: “China is a real threat to us economically,
and we are not playing with both our hands free. Its currency
manipulation and what it does is something that puts American
manufacturers at a disadvantage every day. We have a complex situation
because so many of our retailers and so many families in this country
go to Target or Wal-Mart and are used to paying the prices we do. If
we were to prevail on a free trade negotiation with their currency,
you may see some impact on that. But we are going to get our clocks
cleaned if we don’t get serious.”

- American manufacturing: “We need to be focused on how we can regain
our competitiveness as a manufacturer. We have to make things. That’s
why it’s so important to tackle the situation with China.”

- Obama’s approach in Afghanistan: “I have supported him in
Afghanistan, and I will continue to do that if he continues to follow
this course. He essentially gathered the information from his
commanders on the ground there, committed the resources necessary.
That’s not easy — that’s one of the toughest votes you take in elected
office.”

- Iraq: “I think there is still a volatile situation in that region of
the world. In the post-9/11 environment, everybody has realized there
is a real threat as far as sovereign entities, governments, countries
involving themselves in terrorist operations. That is why we went into
Iraq.”

- Iran: “We continue to see lack of any progress as far as any
concessions from the regime in Tehran. They have been on again, off
again about whether they want to cooperate or not. They are going to
pursue their nuclear aspirations. We ought to try sanctions, we ought
to encourage the Treasury Department to continue to isolate that
regime from the financial global network, and we also ought to be
doing everything we can — clandestinely, openly — to support the
opposition in Iran.”

http://www2.starexponent.com/cse/news/local/article/differing_views_on_health_care_the_economy/53019/

Bloomberg

Payrolls Probably Declined in February: U.S. Economy Preview
February 28, 2010, 12:07 AM EST

By Timothy R. Homan

Feb. 28 (Bloomberg) -- Companies in the U.S. probably cut more jobs in
February and the unemployment rate increased, indicating the labor
market in the world’s largest economy is still struggling to rebound,
economists said before a government report this week.

A lack of job growth since the economy began expanding again in
mid-2009 is making for an uneven recovery from the worst recession
since the 1930s. Companies are reducing head count to trim costs, a
trend that’s likely to restrain consumer spending in coming months.

“Even leaving aside the effects of inclement weather, the economy
still appears to be shedding jobs,” said Aaron Smith, a senior
economist at Moody’s Economy.com in West Chester, Pennsylvania.
“Although businesses have stopped cutting inventories and are
beginning to invest more, they have been more hesitant to increase
their hiring.”

Job growth, and the wage gains that accompany it, are needed to
further fuel consumer purchases, which account for about 70 percent of
the economy.

After the creation of 64,000 jobs in November, the first monthly
increase in almost two years, payrolls fell in December and January.
The economy has lost 8.4 million jobs since the recession began in
December 2007, the most of any downturn in the postwar era.

Bernanke on Employment

Federal Reserve Chairman Ben S. Bernanke told Congress last week that
there were “tentative” signs of stabilization in labor markets, such
as fewer job losses and a gain in factory employment last month.

“Notwithstanding these positive signs, the job market remains quite

weak, with the unemployment rate near 10 percent and job openings

scarce,” Bernanke said. The economy is in a “nascent” recovery that he
said will require low interest rates.

U.S. stocks have declined this year, due in part to signs the economy
is struggling to accelerate. The Standard & Poor’s 500 Index and the
Dow Jones Industrial Average are both down 1 percent so far this year.

The jobless rate probably increased for the first time since October,
the survey median showed. The rate is forecast to end the year at 9.5
percent, according to the median estimate of economists surveyed this
month.

East Coast Snowstorms

Snowstorms that crippled portions of the East Coast earlier this month
may cause the February payroll numbers to look worse than they
otherwise would be, some economists said. The job losses associated
with the blizzards may result in a bigger gain in March payrolls, they
said.

“The weather will certainly play a role,” said Raymond Stone, managing
director and an economist at Stone & McCarthy Research Associates in
Skillman, New Jersey, who projects payrolls will be reduced by as many
as 200,000 because of the storms. His overall forecast is for a
decline of 150,000 and he referenced a snow-related payroll drop in
January 1996.

Factories are at the forefront of the economic recovery, and orders
for manufactured goods are forecast to increase in January for a fifth
straight month, according to the median estimate of economists
surveyed. The 1.8 percent gain in factory orders, projected before a
March 4 report from the Commerce Department, would follow a 1 percent
rise in December.

Manufacturing Growth

Manufacturing probably expanded in February for a seventh straight
month, economists said before a report from the Institute for Supply
Management tomorrow. The Tempe, Arizona- based group’s factory index
slowed to 58 from a January reading of 58.4 that was the highest since
August 2004, the survey showed. Index readings greater than 50 signal
expansion.

The U.S. economy expanded in the fourth quarter at a 5.9 percent
annual rate, led by business spending on equipment and software,
figures from the Commerce Department last week showed. Consumer
spending slowed to a 1.7 percent pace, from 2.8 percent during the
previous three months.

At the start of 2010, Americans probably increased their spending by
0.4 percent, from 0.2 percent in December, economists said before a
report tomorrow from the Commerce Department. Incomes probably rose
0.4 percent in January for a second month, the survey showed.

Store Closings

The pace of spending is causing some companies to reduce payrolls.
Sears Holding Corp., the largest U.S. department-store chain, said
this month that it will close 21 underperforming stores in April and
May. The closings will affect about 1,000 full-time and part-time
workers, Kimberly Freely, a spokeswoman for the Hoffman Estates,
Illinois-based company, said in a Feb. 22 telephone interview.

Construction also remains a weak spot for the economy. The Commerce
Department tomorrow is expected to report construction spending
declined in January for the eighth time in nine months, according to
the survey median. The projected 0.6 percent drop would follow a 1.2
percent decrease.

--With assistance from Chris Middleton in Washington. Editors: Vince
Golle, Chris Wellisz

-0- Feb/28/2010 05:01 GMT

To contact the reporter on this story: Timothy R. Homan in Washington
at tho...@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz
at cwel...@bloomberg.net

http://www.businessweek.com/news/2010-02-28/payrolls-probably-declined-in-february-u-s-economy-preview.html

Key officials weigh in on future of economic development in Va.

Jeff Anderson, executive director of the Virginia Economic Development
Partnership, says development proposals from manufacturing, IT and
energy are increasing in number.

Renee Chapline, executive director of Virginia’s Gateway Region, says
Fort Lee has been a sparkplug for economic development in the region.

Nurse aides in training: The aging population is creating jobs in
health care. Meet some future nurse aides and watch them train.
By Staff Reports
Published: February 28, 2010

Key officials weigh in on prospects for 2010

The Times-Dispatch asked three key economic-development officials --
Jeff Anderson of the Virginia Economic Development Partnership,
Gregory H. Wingfield of the Greater Richmond Partnership and Renee
Chapline of Virginia's Gateway Region -- to give their take on our
prospects.

QAfter the economic tumult of 2009, how does 2010 look from your
perspective?

ANDERSON: Inquiries from consultants working on behalf of companies,
and from company decision-makers, are on the rise, especially in the
manufacturing, data center and energy sectors. The quality of the
prospects we are hearing from has also improved. While we still have a
ways to go, economic indicators are pointing in the right direction.

WINGFIELD: In the first two months we have had nine prospect visits.
As we look forward into March, we have several more interested
companies queued up to visit. This year's start is much stronger
compared with this same time in 2009 when we were dead in the water.

I attribute this uptick in activity to the lowering of inventory and
business's need to replenish, the loosening of commercial credit,
federal stimulus funds beginning to trickle down, increasing consumer
confidence, an unusually good talent pool and undervalued real estate.

CHAPLINE: We are encouraged that activity in late December and January
brought nine new projects to the region. We anticipate that the U.S.
economy will grow in 2010, but only at a very moderate rate. as many
of the same issues remain: high unemployment/underemployment, tight
credit markets and inflationary fears. What does this mean for
Virginia and more specifically the Gateway Region? We must remain
vigilant and active in our core industry sectors.

The aerospace sector, although down overall along with all
manufacturing, remains a growth sector because Rolls-Royce is here and
needs essential suppliers to operate. Likewise, the defense sector
will grow in our region because Fort Lee is expanding, almost doubling
in size.

We are also actively marketing to green technology companies that can
take advantage of federal and state funding in support of new advanced
manufacturing techniques. The Gateway Region is transitioning away
from traditional manufacturing techniques and ideologies to a new era
of advanced, sustainable manufacturing technologies essential to our
economy.

QWhat are your economic-development goals for the coming year?

ANDERSON: The economic recession has challenged Virginia to evaluate
its economic-development strategy and, where necessary, reposition our
assets and incentives. VEDP will continue to aggressively recruit
businesses to Virginia from across the industry spectrum. In addition
to our present efforts, we plan to focus marketing resources on three
business sectors: advanced manufacturing, information technology and
energy. In addition, we want to continue to work with the public and
private research and life-sciences companies and universities to
create the assets and programs necessary for the commonwealth to
expand in these markets.

We will also continue to focus on Virginia's more distressed
communities. Many rural areas of Virginia have unemployment rates that
well exceed the state average. We will continue working with the
regional and local leaders and their economic-development teams to
ensure we are marketing them appropriately both domestically and
internationally.

WINGFIELD: We are funded on a five-year cycle, so we have both a
2009-2014 series of goals and annualized goals that we monitor year by
year for each of four programs we manage. They include:

•Business attraction and regional marketing to help create 8,500 jobs
generating $391 million in new payroll and encourage $1.5 billion in
new capital investment. •Talent development and promotion, with the
Greater Richmond Chamber, to help fill the need for a trained and
available work force for existing and new companies to meet their
competitive needs. •Business retention and expansion to support the
creation of 7,500 jobs and secure $250 million in new investment. •New
business formation and small-business support to assist in the
expansion of 600 existing companies, stimulate $30 million in new
capital investment and stimulate $35 million in new sales revenue.

CHAPLINE: The goals for Virginia's Gateway Region are largely centered
around the greatest need in our member communities: the creation of
new, quality jobs. Existing company expansions are a large part of the
VGR strategy. We work closely with these companies to facilitate
growth opportunities for companies.

Economic development has always been centered around the creation of
jobs and investment, but to enable us to come further out of this
recession, we need new, quality jobs. A significant part of this
organization's resources are centered around that goal, our marketing
efforts, our independent research and our outreach.

Our international base of companies that are looking to locate in the
U.S. continues to grow and therefore we will expand upon our
international outreach efforts to meet this new demand.

QWhat attributes make the area appealing for companies looking for
sites?

ANDERSON: We have received numerous accolades from CNBC, Forbes.com
and others for Virginia's pro-business climate. There's good reason
for that. The commonwealth offers streamlined business regulations and
fair corporate taxes, state-supported work-force training and export
assistance. We provide a stable 6 percent corporate income tax rate
that has not increased in more than three decades, property tax
exemptions, one of the lowest average workers' compensation costs in
the country, and one of the lowest combined state and local sales and
use taxes at 5 percent.

The commonwealth comprises an excellent work force. In fact, Virginia
has one of the nation's highest concentrations of technology workers.
As one of Education Week's top states for overall education quality
and "the place where a child is most likely to have a successful
life," Virginia schools provide an excellent education from
kindergarten to adult learning. Our many training resources help keep
Virginia's workforce on the cutting edge and Virginia's corporate
partners competitive.

Our state enjoys global access that is unique when compared to other
states. We are home to both the Port of Virginia and Washington Dulles
International Airport, two major international gateways that ease
companies' ability to move people and product around the world quickly
and cost-effectively. Our central location on the Atlantic Coast
provides interstate and rail access to the Northeast, Southeast and
Midwest, and Virginia provides a location that is in close proximity
to our nation's capital.

WINGFIELD: Depends on the type of industry we are seeking to attract
to the region, but as part of our "elevator speech," we cite four
features:

•The region's strategic mid-Atlantic East Coast location. We are an
overnight delivery to 55 percent of the nation's consumers. We have
the Port of Virginia two hours east and our own Port of Richmond, and
the gateway to the world, Dulles airport is two hours to our north.Our
RIC airport provides outstanding domestic air service at a competitive
rate. •Our outstanding educational opportunities, including both
public and private K-12 and higher-education institutions. We have 18
colleges and universities within 100 miles of Richmond with 190,000
students.Thirty-one percent of people in our labor force have a
college education, one of the highest rates in the South. •We have one
of the best quality of place of any community our size in the U.S. as
recognized by third-party publications such as Trail Runner, Forbes,
Business Week, WomenCo.com and more. Our housing options vary from
downtown urban options, out to the suburbs and rural locations, all
accessible with an average 24-minute commute. •The greater Richmond
area has a diverse economy. The Richmond region is not dependent on a
single industry, so the variety helps soften the effects of a
difficult economy. The region claims 140 internationally owned
companies, and 10 Fortune 1000 companies are headquartered here.

CHAPLINE: The region has the benefits of a major metropolitan area but
not the high costs of doing business, high traffic and high cost of
living that are typically associated.

Our slogan is "access is everything," and the region's access to a
strong transportation infrastructure (highways, interstates, rail,
ports); strong, diverse and large labor pool; varied and affordable
housing; and available land and properties make this region a very
appealing place to do business.

The region is strategically located within a day's drive of the
majority of the U.S. population -- making this area a logistical nerve
center for distribution and manufacturing operations on the East
Coast.

QWhat are the state's deficiencies, and how can they be compensated
for or remedied?

ANDERSON: Virginia is fortunate to possess many economic-development
strengths that have earned it numerous "Best State for Business"
rankings. But the irony of these rankings is Virginia's lack of
marketing resources to promote the recognition to the global business
community. Additional funding for marketing and advertising campaigns,
and a greater overseas presence, especially in Europe and emerging
markets such as China and India, can leverage these accolades that
will differentiate Virginia from other North American locations in the
minds of global corporate decision-makers.

We believe Virginia has a real opportunity to shine in the life-
sciences sector, but the state must be cohesive in its approach. We
need to continue working with Virginia's publicand private-sector
entities to ensure we have the focus, assets and programs that will be
conducive to the expansion of this important sector.

There is also room for improvement in Virginia's incentives program.
The complexity of the global business environment and competitiveness
both nationally and abroad dictate that we work with our partners and
allies to develop the programs that support the commonwealth's
economic-development strategy, specifically developing incentives that
align with the industries and sectors we believe are critical to the
future of Virginia.

Even more important than incentives is a strong work force. In today's
highly competitive market, a quality work force is our clients' top
consideration.

We need to continue collaborating with Virginia's education community
to develop, train and re-train a highly skilled workforce in all
regions of the Commonwealth. A strong workforce will attract companies
and entrepreneurs that bring quality jobs, capital and innovation that
will place Virginia in the forefront of the global economy.

WINGFIELD: Over the past 10 to 12 years, we have addressed some of the
most serious deficiencies as a community.

When our murder rate rose to one of the highest in the U.S., the
community came together to support our police force as we implemented
Project Exile. When our business retention surveys consistently cited
the airport's high airline ticket prices and ancient terminal as a
problem, the business community came together through the Chamber and
the GRP with the RIC Airport Commission to fix these problems.

Today, in my opinion, we have challenges around transportation
improvements: road, rail (high-speed) and mass transit. Until the
Virginia government finds new sources of revenue, these problems will
continue.

The other area of concern is in the lack of attention and resources
given to early child development and education. I am pleased to note
there are several groups addressing this issue: the United Way,
Capital Region Collaborative, Bridging Richmond P-20 are all working
together to set aggressive goals to help combat this situation.

CHAPLINE: The main deficiency is the perception associated with not
being the nucleus of a metropolitan area. Additionally, constraints on
water/wastewater within some parts of the region prohibit certain
industrial users.

As in many areas in the U.S., work-force development is the key to
successful growth and a healthy economy, and therefore VGR will
continue to partner with our academic community to collaborate on
building a competitive work force to retain and attract industries.

QWhich industries or economic sectors are you targeting to bring jobs
to Virginia?

ANDERSON: Virginia is fortunate to have a diverse economy,
demonstrating strength in everything from food processing to global
logistics. While we will continue to leverage our diversity, we plan
to place a strong focus on four broad business sectors: advanced
manufacturing, information technology, energy and life sciences.
Virginia has all the right ingredients to succeed in these business
sectors now and in the future.

WINGFIELD: We have eight industry clusters we are attempting to
attract to the greater Richmond area and have developed business cases
for them to locate here that are part of our marketing outreach
strategies: advanced manufacturing, including specialty chemicals,
advanced materials, aerospace, marine and defense; green, clean and
energy technologies; life sciences; information and communication
technologies; creative and knowledge-based services; food processing;
finance, securities and insurance; and logistics and supply chain.

CHAPLINE: Logistics/warehousing/distribution and advanced
manufacturing have had a historical and successful presence in our
region. We continue to grow existing companies and expand these
sectors.

With the emergence of green tech/clean tech/renewable energy
companies, we continue to target this growing sector as well.

VGR is actively working to grow the aerospace sector's presence in the
region as a direct result of the Rolls-Royce aero-engine facility
currently under construction, assisting in the attraction of its
suppliers.

The presence of Fort Lee and its logistical expertise also draws
industries related to defense/logistics. VGR will continue efforts to
support the growth of the installation and leverage the opportunities
for job growth and private investment.

http://www2.timesdispatch.com/rtd/business/local/article/O-EDEV28_20100226-225405/327203/

[Sid Harth]

Sound Economy

Where we go from here depends on how Great Recession shapes up
The national trends can't be avoided, even in a Seattle that didn't
depend on a housing boom for its sustenance. Our overseas trading
partners in Asia offer only partial relief.

Jon Talton

Special to The Seattle Times

THOMAS JAMES HURST / THE SEATTLE TIMES

You don't have to live in Phoenix or Dayton, Ohio, to see how the
Great Recession has damaged your city and state, perhaps permanently.
Although Seattle and the Puget Sound region remain one of the nation's
stronger metro economies, the hurt here is obvious.

Marquee companies such as Boeing, Alaska Airlines, Starbucks,
Weyerhaeuser and, for the first time in its history, Microsoft have
laid off workers. More than 171,000 workers in the Seattle-Tacoma-
Bellevue area are officially unemployed, with the real number likely
far larger.

Downtown Seattle has lost 10 percent of its retailers, a sign of a
deeper retail crisis that has affected suburbs, too. Commercial real
estate is in trouble.

Container traffic at the Port of Seattle fell 7 percent last year
compared with the year before (from August to December, it dropped
almost 12 percent). And the nation's largest bank failure destroyed a
major headquarters and eliminated thousands of well-paying jobs.

What happens next will weigh heavily on what kind of place the Puget
Sound region will be over the next generation.

The United States appears to be in a technical recovery, but the
relief for many seems slight. Foreclosures continue. Many companies
still have trouble getting loans as U.S. bank lending pulled back at
its steepest rate since 1942.

State and local government finances remain in crisis, despite repeated
and often unprecedented cuts.

Unemployment is a particularly dangerous enemy of a real recovery.
Most economists agree it could take years to recover the jobs lost in
the recession, and then many people will work for less pay than they
did before.

Joblessness among teenagers, young people, minorities and men is
particularly high. Entire classes of jobs will never come back.

Seattle, of course, has been in bad unemployment territory before. The
Boeing bust starting in 1969 produced a peak unemployment rate of more
than 12 percent. But not since the Great Depression has the national
and global economy been so damaged.

The national trends can't be avoided, even in a Seattle that didn't
depend on a housing boom for its sustenance.

Our overseas trading partners in Asia offer only partial relief. While
China and other nations appear to be rebounding, American demand for
imports is weak and the Chinese economy faces a dangerous bubble. A
downturn there would batter Washington state exporters.

If China avoids that fate, it becomes an even more formidable
competitor against the region's technology sectors.

Economists have wondered about the shape of recovery. We can rule out
a "U," with a quick rebound to match the white-knuckle collapse. An
abstract "V," with a long, lazy left leg implies a continuation of
today's trends, a slow, extended recovery. But that assumes no further
shocks on a fragile system.

Now the scary stuff: A "W" indicates a double-dip recession. "L"
lingers as a lethal likelihood (hey, if you don't laugh, you'll cry).
An L-shaped outlook means the economy would bounce around on the
bottom for perhaps years. Nobody knows: We've never been in this
territory before.

With that caveat, let's consider two scenarios:

Goldilocks: In this just-right recovery, the world and local policy
work in our favor to create a steady, sound expansion.

We continue to do better than the nation as a whole. Microsoft
rebounds. Boeing wins the Air Force tanker contract and labor peace.
Talented young people and top researchers continue to come here,
seeding new ventures and expanding our footprint in software, gaming
and biotech.

In this scenario, green tech becomes profitable and Seattle a leader.
Inflation stays low. Government is able to plug its fiscal hole in a
way that does the least damage to job creation, education, university
funding and business formation, especially in vulnerable blue-collar
industries.

The U.S. economy recovers enough, combined with exports, to give the
region's ports a lift.

The big bad wolf: The dismal decade of the 2000s is followed by one
even worse, without a real-estate bubble to cloak decline. We suffer
more financial collapses and fiscal crisis.

Because of the persistence and depth, Seattle can't avoid the worst
consequences. Among them: more layoffs and persistent joblessness,
massive loss of local businesses, declining living standards,
draconian cuts to public services, scarce venture capital and even
political unrest.

Here, the metro area becomes Balkanized as cities fight over a
shrinking pie. It is unable to prepare its transportation
infrastructure for a high-cost energy future, or to keep the ports
competitive.

Also, because of the dismal capital markets and rising Asia, Seattle
stops creating hot tech companies and, combined with severe university
cutbacks, stops luring top talent.

Neither of these possibilities is a fairy tale. A middle ground will
be challenging enough. That's why the Puget Sound area will have to
make all the right moves, and hope a highly unstable world economy
cooperates.

You may reach Jon Talton at jta...@seattletimes.com

http://seattletimes.nwsource.com/html/jontalton/2011216339_biztaltoncol28.html

.Australia's Chinese future
1 March 2010 | by Janine Mace

While the Australian share market has traditionally taken its lead
from Wall Street, these days it is also keeping a close eye on events
in Beijing.

According to Schroders Investment Management’s head of Australian
equities, Martin Conlon, China is increasingly moving centre stage
when it comes to the economic outlook for Australia.

“The ability of the Australian economy to avoid the downward
gravitational

pull of imploding Western economies has provided strong evidence that
economies such as the US and Europe are now far less relevant to
Australia’s outlook,” he says.

This view is echoed by Lonsec in its March Quarter 2010 Investment
Insight. “The US economy is now less relevant to Australia than in the
past but investor sentiment is still driven by the US lead. It seems
that if Australia’s future is increasingly tied to the developing
economies of Asia, the US lead will become increasingly irrelevant,”
it notes.

“China and broader Asia will become increasingly important to the
Australian economy in terms of trade and capital flows.”

With the International Monetary Fund forecasting the Chinese economy
will grow 8.5 per cent over 2010, any reduction in this level of
growth will have significant implications for the Australian economy
and share market.

“Any faltering in China’s growth path would exacerbate the risk to
export income,” Lonsec points out.

Perpetual’s head of investment markets research, Matthew Sherwood,
believes the future performance of many Australian stocks is now tied
to the performance of the Chinese economy.

“Australia has more exposure to the Chinese economy than almost any
other economy, so the developments there are vital,” he explains.

Although most experts believe Australia’s close trade links to China
are ushering in a new ‘golden era’ of growth, voices of concern are
being raised about the so-called China miracle.

A controversial analysis of China by Pivot Capital Management, China’s
Investment Boom: The Great Leap into the Unknown, focuses on Chinese
capital spending and concludes it “will not be sustained at current
rates and that the chances of a hard landing are increasing”. The
report argues there will be a Chinese investment slowdown during 2010
as it has reached “an impasse in terms of its dependency on capital
spending to generate growth”.

Conlon is another with questions about a steady continuation of
Chinese growth.

“Very few are considering the risks to Chinese growth and the likely
impact of a sharp slowdown,” he says.

“When so few question why Chinese growth is sustainable, our level of
concern rises, as the risks to the value of investments which are
premised on this assumption being true are unlikely to be adequately
considered.

“We have questioned the sustainability of growth in the Chinese
economy in the past as extreme reliance on fixed investment together
with the increasingly dubious quality of investments would normally be
reason for concern,” he says.

Sherwood agrees this is an issue Australian investors need to at least
consider. “If a recession was to occur [in China] – and I don’t think
it will – it would have a major impact here.”

However, he believes the longer-term outlook is bright. “China has
some structural issues to deal with, but its growth profile is very
strong. I don’t think there are too many downside risks to the
economy.”

Recent moves by the Chinese Government to reign in its credit markets
are a positive for the long-term growth of its economy, Sherwood says.
“They are not going to be a growth killer and are about excess
liquidity, so these are all positive things and show the Chinese are
continuing to manage their economy.”

Legg Mason chief investment officer of Australian equities Reece
Birtles also views the announcement by the Chinese Government as a
positive one.

“China grew its credit strongly in 2009 to stimulate its economy, so
it is likely that it will have to normalise that,” he says.

“Credit growth was a lot compared to the size of their economy, so
that needs to be unwound without affecting the economy too much.”

However, he acknowledges the decision will affect Australian
companies.

“The removal of the stimulus has to flow on to the construction sector
and that will impact demand for Australian raw materials like iron
ore,” Birtles says.

Risks for resources

The resources sector has been one of the major beneficiaries of the
economic growth occurring in China and – together with cyclical stocks
– it has led the Australian market rally since March 2009.

However, this great performance is not without its risks. As Paul
Winter, an equity strategist for PRV’s investment manager, Investors
Mutual Limited (IML), notes, “Pinning our economy to China comes at a
price”.

Although demand from China has remained strong and local resource
companies have been able to maintain production levels, this is
unlikely to continue, with China seeking to cool its economic
stimulus, according to Winter.

“We believe this will mean a slowing in demand for resources over 2010
and as a result prices will come off. Of course, with resource stocks
making up almost 40 per cent of the Australian stock market, this will
mean a bumpy ride,” he says.

The Pivot Capital analysis echoes these concerns. “Anything that is
cyclical and dependent on Chinese investment demand would obviously be
the most vulnerable to a Chinese growth disappointment,” it notes.

This dependency also raises longer-term concerns about the growth and
profit performance of Australian resources companies, according to
Hyperion Asset Management's managing director, Dr Manny Pohl.

“The big risk is that China gets bigger and stronger. Over time the
Chinese will flex their muscles as the biggest buyer in town and they
could then become the price maker rather than a price taker,” he
worries.

“China is a growth economy, but we need to be careful we are not being
played as part of a long-term strategy.”

In the shorter-term, even without a major slowdown in the Chinese
economy, Conlon believes the resources sector is unlikely to repeat
its performance over the past decade and provide “the engine of
investor returns” for Australian investors.

“The continuing strong run in gold and commodities has left us in a
situation where we can see little value in most resource stocks in the
absence of commodity prices staying elevated for an extended period,”
he says.

“While prices have recovered sharply, the evidence of demand recovery
is more difficult to uncover. Inventory levels in nearly all
commodities are substantially higher than at the time prices were last
at these levels, and investment, rather than consumer demand, seems to
be a major factor.”

The recent market pullback has underlined the caution IML senior
portfolio manager Hugh Giddy has felt about the resources sector for
some time.

“There were early warning signs such as high stockpiles and a
significant decline in freight rates, yet the speculative hot money
continued to indiscriminately chase the sector,” he says.

“It is not a sector we will be rushing into given that the global
growth outlook remains fragile.”

http://www.moneymanagement.com.au/article/Australias-Chinese-future/512402.aspx

.The future is bright for equities
1 March 2010 | by Janine Mace

When it comes to the outlook for Australia’s economy and its share
market, if you talk to the experts the future is pretty bright. But
just make sure you watch out for all those bumps.

Perpetual’s head of investment markets research, Matthew Sherwood,
sums up current opinion about the outlook for the domestic economy by
referring to it as being in the early stages of its “next golden age”.

“We are positive on Australian equities this year as the economy is
going to be very strong and earnings are heading in the right
direction,” he says.

Legg Mason's chief investment officer Australian equities, Reece
Birtles, agrees with this assessment. “We have a positive view as
Australia has recovered from the global recession and the domestic
economy doesn’t have the issues the global economy does. There are no
banking or government debt problems to contend with like in other
countries.”

Another bull when it comes to the outlook for Australian equities is
AMP Capital Investors' head of investment strategy and chief
economist, Dr Shane Oliver.

“Share markets are likely to rise further thanks to the combination of
improving economic and profit growth, low inflation and sustained low
interest rates at a time when there is still plenty of cash on the
sidelines,” he notes.

“The Australian ASX200 and All Ords indices are expected to rise to
around 5,600 by the end of 2010 and we see Australian shares
continuing to outperform traditional global shares, reflecting their
higher dividend yields and stronger growth prospects.”

Lincoln Indicators chief executive Elio D’Amato is also upbeat. “We
are eternal optimists and feel that there will always be great
opportunities for investors willing to do their research and
understand the market,” he says. “If the market sees a consistent road
to recovery then it will flow on through the second half.”

These positive views are reflected in the recommended asset
allocations of most Australian research firms. In its March Quarter
2010 Investment Insight, Lonsec’s recommended portfolio currently has
a positive view of Australian equities and is advising investors to
use any corrections to move to a slightly overweight position.

The research house expects the local market to push higher over the
year and has a target of 5,500 by year-end. “The good news is the top-
down outlook for the Australian economy is quite positive and so
earnings growth should be quite strong for most sectors over the short
to medium term,” it notes.

Brace for the bumps

Despite the bullish assessments, there is recognition it will not be a
smooth journey this year – a view underlined by the mid-February
market slump.

“What we are going through is a correction within a still rising
trend, consistent with our assessment that this year will see a
bumpier ride for investors with more constrained but still positive
returns,” Oliver says.

D’Amato agrees things will be unsettled this year. “We suspect the
next two to three months will be a little volatile, with some
exceptionally good and bad days. The market is feeling very jittery
after such a big drive up during 2009,” he says.

“The market hates uncertainty and it can be spooked very easily.”

Hyperion Asset Management’s managing director and investment committee
chair, Dr Manny Pohl, agrees the coming year will be testing. “The
environment looking forward will be different and that will make
things more difficult,” he says.

“One could get caught up by the groundswell of positive views, but the
risks are still there.”

After the big rise in 2009, the market will have to work harder to
continue an upward momentum.

“In the past 12 months we have had a very strong rise, but the market
was recovering from very distressed levels and extreme levels of
pessimism,” Birtles says.

Sherwood agrees it will be tough going.

“The market has risen around 50 per cent from the lows and has come a
long way, but those were the easy gains. Now will be the extended
period of more difficult gains,” he says.

This is also Lonsec’s assessment. “The easy money has already been
made from PE expansion after the cyclical low and now most sectors are
beginning to look fully valued. The market will require solid earnings
growth to keep moving higher from here.”

Paul Winter, an equity strategist with PRV’s investment manager
Investors Mutual Limited, agrees there is potential for volatility.

“Unemployment remains relatively low and our exposure to South East
Asia and in particular China should see us perform better than the
average advanced economy, however, it will likely be a bumpy ride,” he
says.

Time for the report card

The current reporting period is seen as being particularly important
for Australian shares, with the focus being on corporate earnings.

“Shares are moving from a multiple driven phase to an earnings driven
phase,” Oliver explains.

This means analysts and investors are expecting to see evidence of
either corporate earnings growth or a much more positive outlook.

“The February reporting season is vital,” Sherwood says. “Even though
earnings may be negative for the last six months of 2009, it will be
the outlook statements that will be important.”

If companies disappoint, market analysts will be forced to revise down
their forecasts. However, this is something he believes is unlikely.
“We think they will surprise on the upside.”

D’Amato agrees corporate results will set the tone for the rest of the
year.

“During the reporting season – if we see earnings maintained – then
the positive outlook will kick in and we see the third and fourth
quarters as being positive,” he explains.

Analysts are setting the bar high for the market. Winter says the
consensus view has the Australian market pricing in a 25 per cent
increase in earnings for 2010 and 22 per cent for 2011, while the
market is currently trading on a price/earnings

multiple of 16 times earnings.

“Our view is that many sectors of the share market are currently
expensive and that many share prices, in particular for more cyclical
companies, are being based on earnings that are unlikely to
materialise,” he says.

Despite the potential for disappointment, some experts take a longer-
term view and see any downturns as buying opportunities.

“These issues will lead to volatility in Australian equities, but if
you have the view that earnings have gone up from their earnings
trough of 9 per cent then the outlook is positive,” Birtles explains.

“Volatility has implications for the Australian market, but it can
also offer opportunities for investors.”

Avoiding the traps

Despite their largely positive views, the experts agree there are
definite risks ahead for the Australian economy and share market.

One is the gap that will occur between the winding up of the
Government’s economic stimulus and the recommencement of business
investment.

“If you look at the economy last year, all the investment was driven
by government, but now that is coming to an end and the private side
must take over,” Pohl says.

Although the current tightening cycle in interest rates and the strong
foreign exchange rate reflect the strength of the Australian economy,
if the cost of money becomes too high, domestic demand could slide and
cut corporate earnings.

“Given that Australia has not had the downturn like in other countries
and has not had the deleveraging that has occurred, there is still the
potential for problems if household budgets become stressed due to
rising interest rates,” Birtles says.

“The risk is that the consumer gets stressed again.”

Pohl agrees: “If there is a major increase in interest rates it will
be a negative influence for the market, but it depends on how far up
they go. If it was to go higher than 6 per cent, it could cause
problems.”

The impact of rising bonds yields on the Australian equity market is
what keeps Sherwood awake at night. “The key risk [for Australian
equities] is rising bond yields,” he says. “This may lessen the
relative yield attractiveness of Australian equities to bonds.”

With the Reserve Bank on a tightening cycle, Sherwood is not entirely
convinced inflation is under control. “Rising inflation is a big risk
to the Australian economy and the share market, and it has not yet
received a lot of attention,” he says.

“Most of the inflation is coming from the supply side of the economy
and that is not very sensitive to interest rates, so the Reserve will
need to keep an eye on that.”

Signs of rising prices in the food and energy sectors are already
being observed in Australia and this could cause difficulties for the
local economy, according to Schroders Investment Management’s head of
Australian equities, Martin Conlon.

“The elevation of energy prices to levels closer to global parity will
inflict significant pain on consumers,” he says.

Continuing turmoil in global debt markets is also a concern for local
companies needing offshore funding.

“The problem for Australia is we need to source capital overseas,”
Pohl notes.

He believes a big ‘sleeper’ issue is the lack of credit availability
for Australian businesses – particularly small and medium enterprises.

“For smaller businesses it is really getting hard to obtain finance
and that could mean the Australian economy will not go as well as we
all expect. There has not been a lot of thought about what will happen
when funding for businesses is not flowing readily,” Pohl says.

For this reason, Hyperion is taking a close look at the balance sheet
of all its investments. “We always prefer companies with strong
balance sheets and a net cash position, but now the balance sheet is
the number one thing for investors,” Pohl argues.

Another important but largely overlooked risk for the local share
market is regulatory reform. As Lonsec notes, “Regulatory risk is
another risk that is on the increase of late. The Labor Government is
reviewing regulation and licences in a number of industries including
banking, wealth management, health, telecommunications, gaming and
media. The outcomes may have an adverse impact on certain sectors and
need to be watched closely.”

Pohl agrees this is a concern: “Australian regulators and the
Government may try to fix something that is not broken.”

He also points to the potential impact of the debate in Basel about
increases in the liquidity requirements for banks, which may represent
a major change for the banking sector and its earnings potential.

“These are the things one has to be aware of and keep an eye on. This
is especially the case for Australian banks, which have performed very
well, but may now be influenced by overseas changes,” Pohl says.

Where things look rosy

Given the relatively positive economic outlook for Australia, a number
of areas are seen as representing good opportunities for investors.

“We believe there are still a lot of better than average opportunities
in the market,” Birtles says. “One area is domestic cyclicals, which
are quite well positioned.”

Companies such as Adelaide Brighton Cement and Boral will do well from
the earnings recovery and rising housing starts in the local economy,
he says. Online employment company Seek will also benefit from rising
job advertisements.

Birtles believes the key this year is to find companies with a strong
balance sheet and earnings profile.

“The market lacks confidence in where sustainable earnings are, so
there is an opportunity to identify good businesses that can provide
strong earnings,” he says.

“We are very keen on something like News Corp as it is a strong
business with good earnings, as shown in its recent results.”

There are also opportunities in defensive stocks that have been left
behind in last year’s share market rise, Birtles notes. “A company
like Amcor is at a good multiple and has the opportunity to benefit
from synergies following its merger [with Alcan Packaging].”

Conlon believes investors need to shift their focus if they want to
make money.

“Few sectors are in obvious undervalued territory and the benefits of
focusing on stocks in which investors panicked over financial leverage
have passed. It’s time to focus on companies which are less reliant on
assistance from exogenous factors such as commodity prices or
strengthening growth,” he says.

One area in which financial advisers need to take a greater interest
is carbon trading. Pohl believes smart investors are already moving to
focus on this area.

“Carbon trading is a key issue and one that needs to be considered,”
he says. “You need to be sure of the impact of carbon on a portfolio.”

D’Amato agrees it is important, but prefers to view it in light of its
profit potential.

“There will be a range of great opportunities flowing from it in terms
of thought leadership and providing services,” he says.

“We have seen a boom in some green industries already and many will go
on in the future to become good investments. It is worthwhile thinking
about this from an investor’s perspective.”

http://www.moneymanagement.com.au/article/The-future-is-bright-for-equities/512401.aspx

.Slow recovery for equities
1 March 2010 | by Bob van Munster

The general consensus at the start of 2010 seemed to be that the
worst was behind us and Australia was well and truly on the road to
recovery.

While at Tyndall we are cautiously optimistic for the year ahead, our
emphasis is on caution rather than optimism.

With a number of global factors in play, notably concerns about
sovereign risk and uncertainty about the sustainability of the US
recovery and China’s growth outlook, investors will need all their
skill and research to navigate the potentially choppy waters.

At the beginning of the year there were a wide range of predictions
from leading brokers on where the S&P/ASX 200 Index may finish up in
2010, which gives an indication of the differing viewpoints and
opinions among the experts.

Those who were more bullish picked highs of 6,000, basing their
forecasts on a strong and rapidly improving economic outlook for the
global economy.

More bearish commentators saw 4,500 as a more reasonable level for the
index, believing the markets have had a good run already leading to
high valuations, and that economic risks around the world will come to
the fore during 2010.

For the more optimistic, the leading economic indicators have
supported their views. During 2009, risk assets such as equities,
credit and commodities largely followed indicators such as the OECD
Economic Indicator, which pointed to very robust economic world growth
going forward. Indeed, this indicator was at a 40-year high.

However, this doesn’t mean that these indicators will promise future
growth given the structural problems in the Western world that could
derail the recovery, such as the high level of fiscal deficits and, in
turn, sovereign risk.

In our view, the Australian market should deliver a positive return in
2010, with low inflation and accommodating government policies
providing a good backdrop for equity markets. However, market
conditions will be choppy, and this means that stock selection will be
paramount.

Some of the key areas we will be looking at include the following.

Valuations

Despite the recent market falls, price/earnings are currently higher
than average, which is not unusual during an economic rebound, as
market participants anticipate and price in higher earnings growth.

But if the earnings outcomes are not as strong as anticipated, these
valuations will start to look unreasonable, and share prices are
likely to suffer. The risk is that earnings expectations will not be
met, except in the more cyclical sectors and stocks.

China

China has been, in many ways, the shining beacon for equity markets,
particularly for Australia, which has relied heavily on China’s growth
and demand for resources to lead us out of the downturn. While
commodity markets remain broadly positive, albeit volatile, Chinese
authorities are starting to take stimulatory policies off the table,
which could have a knock-on effect on Australia’s growth.

Interest rates

The ‘carry’ trade, where low interest rates induced investors to buy
assets on a momentum basis including the Australian dollar and
commodities, has been responsible for a great deal of the share price
increases over the last six months. However, as interest rates start
to rise, the carry trade is likely to unwind, which poses another risk
for resources and commodities.

With so many crosswinds in play, and stock selection becoming
paramount, investors will need to concentrate on two things in order
to identify opportunities in the market – finding companies for which
earnings growth has been underestimated by the market, and finding
companies that will benefit from specific policy developments such as
regulatory changes.

For instance, there are companies that have been left behind by the
rising market, where the market has underestimated the leverage effect
of the cyclical turnaround. This provides opportunities for value
investors, particularly companies in the transport, building and
materials sectors.

The healthcare and telecommunications sectors are also attractive in
the medium to long term. For instance, the Government's policy changes
around the National Broadband Network (NBN) could create good
opportunities for companies operating in this sector. And the ageing
of Australia’s population will ultimately overtake any regulatory
imposts, and presents long-term value for investors in the healthcare
sector.

Reporting season

At time of writing, the reporting season is in full swing. Analysts
are looking for five main areas as indicators of how companies will
perform during the course of 2010. They are:

•Earnings outcomes – will a company beat expectations or not?

•Future outlook – what indications will a company give on its outlook
for the future? Overall, analysts are expecting a fairly subdued
reporting season with flat profits over the six months to December
2009 but then substantial growth over the 18 months to June 2011. They
will be looking for confirmation that this view is correct and, in
some cases, exceeded.

•Use of capital – companies will need to show that they are using
capital wisely. During the global financial crisis, there were a
number of capital raisings to shore up company balance sheets and
prepare for a worst-case scenario. As a result, there are now many
companies with excess capital on their balance sheets. How they
utilise this capital (eg, bringing forward capital expenditure,
increasing dividends, undertaking share buy backs, etc) and reward
shareholders will be an important factor in assessing how they will
perform.

•Cost pressures – costs will be closely watched for instance in
markets where the supply of labour is tight, such as engineers in the
resources sector.

•Dividend policies – the usual expectation is that, as the economic
environment improves, companies will increase their dividends and
payout ratios. Those that don’t will be viewed negatively, even if
they make positive statements about their outlook. Companies will need
to back up their positive statements with positive dividends in order
to show their outlooks are robust.

Overall, we expect the Australian share market will deliver a positive
return in 2010, however, it will be a more subdued outcome than last
year’s 37 per cent return. It won’t be smooth sailing either, with a
number of risks and crosswinds in play. Global factors, specifically
sovereign and banking risks as well as China policy outcomes, are also
likely to be a dominant influence, especially on a day-to-day basis.
With volatility set to remain a feature for 2010, stock selection will
be key.

Bob Van Munster is the head of equities at Tyndall Investment
Management.

http://www.moneymanagement.com.au/article/Slow-recovery-for-equities/512408.aspx

Bloomberg

Harvard’s Rogoff Gives Legs to China Crash Talk: William Pesek
February 28, 2010, 3:20 PM EST

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Commentary by William Pesek

March 1 (Bloomberg) -- The tale had Tom Clancy written all over it,
with the CIA investigating a far-off economy out of concern that its
collapse might pose problems for America.

That reportedly happened in 2002 as Japanese deflation threatened to
spread around the globe. If I were a Central Intelligence Agency
bigwig, I would now be setting up task forces on risks coming from
China.

Let’s not stop there. Add the U.S. into the mix and study what a
crackup within the so-called Group of Two would mean for the world
economy. It wouldn’t be pretty.

Pessimistic stuff, yes. Yet when the U.S. secretary of state says the
record U.S. budget deficit and debt are stoking national-security
concerns, you know the world is off kilter. Meanwhile, short-seller
Jim Chanos is finding more and more company as he bets on a Chinese
crash.

It’s time to consider the systemic fallout from a Chinese crisis. It
could cause recessions around the world.

As 2010 unfolds, such views are developing legs. It’s one thing when
Chanos, of New York-based Kynikos Associates Ltd., speaks of a bust.
Ditto for Marc Faber, publisher of the Gloom, Boom & Doom in Hong
Kong. It’s quite another when the likes of Harvard University’s
Kenneth Rogoff warn of a collapse of China’s debt-fueled bubble within
10 years.

China Is Due

The former chief economist at the International Monetary Fund can’t be
dismissed as talking his investment position. What’s more, Rogoff
offers perhaps the simplest reason why China may falter: It’s due.

Remember that five of the most frightening words in economics are:
“This time things are different.” Well, can you see where this story
is going?

“If there’s a this-time-is-different story in the world right now,
it’s China,” Rogoff said at a conference in Tokyo last week. People,
he added, say China “won’t have a financial crisis because there’s
central planning, because there’s a high savings rate, because there’s
a large pool of labor. I say, of course China will have a financial
crisis one day.”

It’s a point that few China bulls allow. For all the merits of China’s
model -- massive public spending, export-driven growth, cheap labor
costs -- it’s doubtful it can beat the system, so to speak. No
emerging nation has avoided a crisis that sent growth reeling and
markets plunging. Not one.

Not Unexpected

If a Chinese crisis occurs, it won’t be an entirely unexpected event.
Vitaliy Katsenelson of Investment Management Associates Inc. in
Denver, for example, raised eyebrows with a Feb. 12 report titled
“China: The Mother of All Black Swans.”

Could China be the first emerging economy to escape trouble? It’s
comforting to think so, and officials in Beijing have had a great
year. Stimulus efforts are producing growth of about 10 percent. And
investors haven’t made loads of money betting against China.

China will need to spend even more to maintain rapid growth. Japan is
mired in deflation, Europe is struggling to keep Greece afloat and
U.S. unemployment is worsening.

Stimulus efforts were always about holding Asia over until U.S.
consumers recovered. The worst recession since the 1930s is still
filtering through the biggest economy. So, China is largely on its own
in a hostile global environment. Trouble there is worth exploring
before it’s too late.

Rising Influence

“We would learn just how important China is when that happens,” Rogoff
said in an interview last week.

Nomura Holdings Inc. says China may provide more than a third of world
growth this year as it surpasses Japan’s economy. So we’re not talking
about Thailand crashing. We’re talking about what will soon be the
second-biggest economy, one on which the world is increasingly
relying.

China’s influence explains why Hillary Clinton has U.S. Treasuries on
her mind. We first saw that preoccupation in February 2009, when
Clinton made her maiden trip to Beijing as secretary of state. She
shelved human-rights issues in favor of talking up debt.

The White House projects a $1.6 trillion budget deficit for the 2010
fiscal year, following $1.4 trillion in 2009. It leaves Clinton and
Treasury Secretary Timothy Geithner with quite a bond-sales job. Only,
China might not be a reliable buyer of U.S. debt if it needs that
money at home to boost growth.

Victor Shih of Northwestern University in Evanston, Illinois, is
focusing on another $1.6 trillion figure. That’s how much debt he
estimates China’s local governments are sitting on. If the argument
Shih fleshed out in a Feb. 8 piece in the Wall Street Journal is
correct, local debt alone is one-third of China’s 2009 gross domestic
product and 70 percent of foreign- exchange reserves.

Between the U.S. and China, we’re talking lots and lots of debt. Any
unraveling on either side of the Pacific would devastate the global
economy.

It’s becoming less of a Black Swan scenario, and more a crisis
unfolding in slow motion. G-2 risks should be of growing concern to
investors, the CIA and perhaps even thriller writers.

Click on “Send Comment” in the sidebar display to send a letter to the
editor.

--With assistance from Aki Ito and Patrick Rial in Tokyo. Editors:
David Henry, Laurence Arnold.

-0- Feb/28/2010 20:00 GMT

To contact the writer of this column: William Pesek in Tokyo at
wpe...@bloomberg.net

To contact the editor responsible for this column: James Greiff at

jgr...@bloomberg.net

http://www.businessweek.com/news/2010-02-28/harvard-s-rogoff-gives-legs-to-china-crash-talk-william-pesek.html

[Sid Harth]

Punishing The Dead

February 28, 2010:

North Korean officials keep demanding large bribes (in food and
fertilizer) before they will schedule any meetings between the two
Koreas. This includes disarmament negotiations. Senior North Korean
officials apparently refuse to acknowledge that the new South Korean
government has dropped the former Sunshine Policy (which introduced
the payment of such bribes, which eventually became unpopular because
the North Koreans would talk, but rarely agreed to anything.) South
Korea will not budge on the "no bribe" policy, and the North Koreans
refuse to talk without payments. So any negotiations are stalled.
China, on the other hand, never paid to meet with North Korean
officials, and the Chinese are now telling them to stop trying to shut
down the market economy, and encourage it instead. The Chinese are
also hostile to the succession plan (with the Kim family staying in
power), and want the North Koreans to shut down their nuclear weapons
program. The Chinese are getting impatient, but fear being more
forceful, lest North Korea collapse into anarchy, which will mostly
spill over into China. There is a heavily mined and barb wired DMZ
(Demilitarized Zone) between north and south Korea. Besides, there are
a lot more personal and economic conditions between North Korea and
China.
Meanwhile, the border area with China is becoming ungovernable. In
response, the government has ordered officials (including "volunteers"
from the local Communist Party cells) to make regular headcounts of
families, to discourage kin from fleeing to China, or simply slipping
across the unguarded parts of the border to do business, and
eventually return. A greater problem is that North Koreans living near
the Chinese border have stopped using the North Korean currency, and
switched to Chinese currency. This is largely because the government
has printed a lot more money, so that everyone could have enough cash
to buy food. But with the free markets shut down, only government
stores were available, and these had little food. So inflation has
skyrocketed.

North Korea is also cleaning house in the military, forcibly retiring
many of the oldest (some in their 80s) generals. Several younger
generals were also relieved, indicating that loyalty (to Kim Jong Il)
was more a factor than age. Some government officials were relieved
because they were put on a UN sanctions list. This limits an
individuals' ability to travel overseas and do business.

The north has also decreed that local government and Communist Party
officials will lose their jobs (and access to cheap food) if anyone
starves to death in their area of responsibility. Since there is not
enough food to go around, officials are encouraged to hide starvation
deaths as best they can. A lot of people are going to "disappear."
Even the dead are subject to punishment in North Korea.

Kim Jong Il is responding to all this pressure by depending on family
members more and more. His 64 year old younger sister is seen now in
his entourage, and other kin, often previously unknown ones, are
showing up.

The currency revaluation (which wiped out the savings of most North
Koreans, especially those that ran small businesses), and the attempt
to shut down the markets turned out disastrously. Kim Jong Il not only
made a rare public apology, but dozens of senior officials lost their
jobs because of the currency and markets policy. The damage done by
the currency "reform" could not be undone, even though the government
allowed business people to exchange nearly all their old currency.
North Koreans had lost faith in their currency. North Korean cash is
basically worthless in China. Because so many goods are imported from
China, this means that the use of Chinese, instead of North Korean,
currency will spread throughout the north.

North Korea is so broke that it can't even expand its prison system.
Currently, there are six main work camps, holding 200,000 prisoners.
The camps run factories, mines and farms, but to build additional
camps requires cash and resources the government doesn't have. So food
for the camps is being cut, to encourage the weaker prisoners to die,
and make room for the many new "economic criminals" (especially those
sneaking food in from China.) There is also paralysis at the top when
it comes to resuming negotiations with the U.S. and neighboring
countries, that are willing to provide food and other aid, if the
north will abandon nuclear weapons. Many North Korean officials are
willing to make the trade, but refuse to allow the inspections
demanded. The big fear is that the outsiders will find out how bad off
North Korea really is. This, despite the fact that this is not much of
a secret anymore.

But the more prosperous south has its own special problems. South
Korea has the lowest birth rate (1.15 children per woman, on average)
in the world, for two years in a row. This is because of growing
affluence over the last half century. South Korea is now one of the
wealthiest nations on the planet. At the current birth rate, the South
Korean population is expected to stop growing in the next decade,
after reaching about 52 million (about twice the population of the
north). If the birth rate stays under 2.1, the population will then
begin to shrink. In North Korea, the birth rate is 1.9, and is also
declining, because of increasing poverty and famine. For example, life
expectancy in the north has declined from 72.7 years in the early
1990s, to 69.3 now. That's ten years less than in South Korea.
Northerners are not only living shorter lives, they are also shorter.
A study of teenagers in the north and south revealed that the
northerners are 8 percent shorter, and weigh nearly 20 percent less.
It's not as bad with adults, because they were not born during the
famine (which began after Cold War subsidies ended in the early
1990s).

China is unwilling to give North Korea enough food to halt the growing
famine. North Korea currently needs an additional 1.25 million tons of
food a year. But last year it only received 300,000 tons, most of it
bought from, or donated by, China. North Korea has refused foreign aid
from the West, because there are conditions attached (distribution
must be supervised to insure that the government does not resell the
food to raise hard currency, or just use the food for the military.)
Most of last year's food imports went to the military and government
workers.

North Korea tried to break the UN weapons embargo on Congo, and was
caught. South Africa revealed that, three months ago, it seized
several containers of spare parts for T-55 tanks. These parts were
estimated to be worth about $750,000. The crew of the French ship
transporting the containers were suspicious of the contents, and asked
port authorities in South Africa to investigate. The containers had
been put on the French ship in Malaysia (a growing center for arms
trafficking), and were marked "bulldozer parts." The containers had
earlier been shipped from North Korea to China, changed ships, and
carried to Malaysia.

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LEADERSHIP: Taliban Management Shuffle
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LEADERSHIP: Admirals Lost At Sea
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http://www.strategypage.com/qnd/korea/articles/20100228.aspx

[Sid Harth]

China Gets A Dose Of Economic Reality
Source: By Michael Pettis, Carnegie Endowment for International Peace
Posted on: 28th February 2010

It is easy to get over-excited about China.

When bulls aren’t predicting near infinite-growth and competing to
proclaim earlier and earlier dates by which China’s economy will
become the world’s largest, bears are proclaiming the country on the
verge of collapse.

In the past two months informed consensus seems to have shifted from
the former view to the latter.

To some extent this represents a welcome dose of reality. In spite of
outstanding growth rates in 2009, China nonetheless has serious
structural problems that were actually exacerbated by the quality of
last year’s growth. Many observers seem now to be waking up to this
fact.

That China has structural problems should not have surprised us. No
one could have reasonably hoped that the country’s institutions would
adapt as quickly as its underlying economic and social systems have
changed, and institutional mismatches must result in periods of
difficult adjustment.

This has been true of every rapidly developing economy in history.

But we need perspective on how China is likely to adjust. As with
Japan in the 1980s, China’s export growth relative to the rest of the
world has created one of its most serious mismatches.

When its share of global trade was tiny, China’s traditional response
to domestic economic contraction – to boost investment in
infrastructure and production capacity – had a negligible impact on
the global balance of payments. The subsequent surge in exports could
easily be absorbed by the rest of the world.

Today, China is the world’s largest exporter and its trade surplus
among the highest ever as a share of global gross domestic product.
This limits its ability to respond to domestic contractions.

The world can no longer easily accommodate its growth policies.

China’s financial system and policy responses will adjust, but neither
easily nor quickly. Increasing the private consumption share of
Chinese GDP will involve unwinding the many ways that income has been
systematically transferred from the household sector to subsidize
investment in manufacturing, infrastructure and real estate
development.

The speed and pain of the adjustment will depend, as it usually does,
largely on the shape of the national balance sheet. Countries with
unstable balance sheets adjust brutally and quickly; those with more
stable balance sheets can slow their adjustment, and so reduce its
social cost.

China specialists have known for a long time what the world suddenly
seems to be discovering: that China’s national balance sheet contains
much more debt, especially in the way of unstable contingent
liabilities, than had been assumed.

The first reaction is to conclude that China is on the verge of
collapse. But this is based on only a partial understanding of the
balance sheet. Yes, there is a lot more debt than many supposed, much
of it collateralised by non-viable, illiquid assets, but liabilities
are also a lot less liquid than we might think.

Capital controls, a high savings rate and limited alternative
investments will allow China to defend the domestic balance sheet
while it works through the adjustment.

Will China collapse? No. It may have a painful financial contraction,
but this will not necessarily lead to a collapse in growth. Instead it
will grind away at its over investment and excess capacity, which,
with a reversal of the favourable demographics enjoyed since the
mid-1970s, will slow growth sharply, but this will coincide with three
more favourable circumstances.

First, China will continue to urbanise rapidly, which will raise
household income and create new sources of growth. Second, even as the
workforce declines, increased education and infrastructure spending
will raise worker productivity. Third, a sharp contraction will force
Beijing finally to liberalize the financial system and transfer
resources from the inefficient state sector to small and medium
enterprises, increasing productivity.

Chinese growth will almost certainly slow dramatically, but the
country will nonetheless continue to grow faster than the rest of the
world. Its share of global GDP will rise.

No successful emerging country has experienced unbroken growth and,
contrary to inane claims by bulls, even China has had at least three
economic crises in recent decades. Denying the possibility of
difficult adjustment periods makes no historical sense. But adjustment
is not collapse.

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Cat: Stimulus Better If Aimed At Infrastructure
Published on February 28, 2010

I received this article in an infrastructure news alert this morning
and thought it was worth sharing. As February comes to an end so does
the current extension on SAFETEA-LU the highway trust fund bill that
expired September 2009. Unfortunately it now appears that it will be
extended again possibly until September or December of this year.

Another delay in its passage translates to a longer path to our
economic recovery. Without a new highway bill, a long term one, growth
in the construction industries will continue to be painfully slow.
Without the many needed improvements to our infrastructure we will
continue to fall behind, as other countries, like China and India,
will continue their economic growth at a robust rate.

If you are reading this and are concerned about our tomorrows, contact
your Washington representatives and tell them to move ahead on the
reauthorization of the highway trust fund; stalling it stalls our
economic growth.

Greg Sitek

Cat: Stimulus better if aimed at infrastructure
http://www.pjstar.com/business/x1475171516/Cat-Stimulus-better-if-aimed-at-infrastructure

By PAUL GORDON (pgo...@pjstar.com)

Journal Star

Posted Feb 27, 2010 @ 11:14 PM

PEORIA —

The economic stimulus package promoted last year during President
Barack Obama’s visit to Caterpillar Inc. has been beneficial to the
country, Caterpillar believes.

But the company also believes it could have done even more good for
the nation’s economy had it been more focused on infrastructure, said
spokesman Jim Dugan.

“It is easy to say in hindsight, but we have said that all along. A
year ago there was a tremendous amount of economic uncertainty, and it
was something we needed. We supported it from the start but felt it
needed more of an emphasis on infrastructure, including highways and
airport runways and ports,” Dugan said.

He added spending on infrastructure not only creates job and
stimulates economic growth but also improves the nation’s
competitiveness.

Dugan said highway equipment orders started increasing late in the
year and that there are highway projects – mostly resurfacing projects
– that will continue in 2010. But it has been somewhat limited to
date, and the effects on the economy have been slower to emerge.

Dugan said there is evidence that focusing on infrastructure
improvements can stimulate an economy more quickly. He said
Caterpillar estimated the amount of the $787 billion U.S. stimulus
package enacted a year ago that would be spent on infrastructure would
be about $70 billion. In contrast, China planned to spend $468 billion
from its own stimulus package on infrastructure last year alone.

“We believe that helped the Chinese economy recover much more
quickly,” Dugan said.

Caterpillar anticipates the U.S. economy will grow 3.5 percent in
2010, while emerging markets will see economic growth in the 6 percent
range. China, Dugan said, likely will experience better than 10
percent economic growth this year.

Dugan said stimulus-activated growth in any country where Caterpillar
does business helps the company, as well; that includes China.

But it is difficult to quantify how much of the company’s improvement
later in 2009 can be tied to the U.S. stimulus package, he added.

Caterpillar, he said, has recalled more than 600 laid-off workers in
the past two months because of increased demand, but many of those
workers have been at plants in East Peoria and Decatur. Most of the
products from those plants are exported.

“Also, just given the broad mix of our products, it would be very
difficult to tie increased demand to the stimulus package. There are
many factors that play into it for a global company,” he said.

Caterpillar could support more stimulus money being approved but
believes more should be earmarked for infrastructure.

“Continued investment and reinvestment in infrastructure is very
important. It makes us more competitive as a country. That’s the
reason why today we advocate a robust highway spending bill, which is
up for appropriation by Congress again,” Dugan said.

http://www.site-kconstructionzone.com/?p=3064

Trade Deficit Widening
by Dustin Ensinger on February 28, 2010 - 2:32pm

The narrowing of America’s trade deficit was short lived as the
Commerce Department announced that the December gap between exports
and imports had unexpectedly widened.

America’s trade deficit rose for the third consecutive month in
December, totaling $40.2 billion. That marks a roughly 10 percent
increase from the $36.4 billion trade deficit recorded in November.

Economic experts had expected the trade deficit to fall in December.
The consensus was that the U.S. would record a trade deficit in the
neighborhood of $35 billion for the month.

"We may be selling more overseas but the economic recovery is pushing
up our demand for foreign products even faster," Joel Naroff,
president of Naroff Economic Advisors, told AFP.

December’s deficit was the highest recorded since the December of
2008.

America’s biggest trading partner - China - accounted for nearly a
third of December’s trade deficit. The gap with China in the final
month of 2009 totaled $18.14 billion. America’s North America Free
Trade Agreement partners accounted for another fifth of the total
trade deficit in December. The gap with Canada totaled just over $3
billion while the trade deficit with Mexico reached $5.2 billion.

Overall on the year, however, America’s trade imbalance was
historically low for a decade in which trade deficit have exploded as
China has emerged as an economic force to be reckoned with.

In 2009, America’s trade deficit with the rest of the world fell 45
percent, to $380.7 billion. That marked the smallest trade deficit the
nation has recorded in the past eight years.

That may provide some short-term optimism, but experts believe that
demand for imports - which is growing more rapidly than demand for
U.S. exports - will cause the trade deficit to skyrocket again this
year.

"Trade may support the U.S. recovery going forward but only marginally
now that domestic demand is once again pulling in imports," Sal
Guatieri, senior economist at BMO Capital Markets, told The Associated
Press.

Commerce Secretary Gary Locke said that he was encouraged by the
report. However, he also said that the slow growth in demand for
American exports is yet another reason to push for the proposed
National Export Initiative.

"We can be encouraged by U.S. exports of goods and services increasing
in December for an eighth consecutive month," he said in a statement.
"However, it is critical we redouble our efforts to increase our
competitiveness and meet President Obama's goal of doubling U.S.
exports over the next five years to spur economic growth and support
jobs at home."

http://economyincrisis.org/content/trade-deficit-widening

ASIA NEWS
MARCH 1, 2010.Wen Engages Web Users in Rare Chat

Chinese Premier, Reflecting Government's Growing Internet Use,
Addresses Economy, U.S. ties, but Avoids Politics

By J.R. WUand JASON DEAN

Agence France-Presse/Getty Images

A Web user watches Chinese Premier Wen Jiabao's Internet chat on
Saturday.

.BEIJING—Chinese Premier Wen Jiabao sought to allay jitters on a range
of issues, pledging to maintain economic growth while managing
inflation and expressing hope for improvement in China-U.S. relations
in a rare, public Internet chat session that underscores the
government's growing use of the Web.

Mr. Wen's exchange with Internet users Saturday came ahead of the
annual full session of China's legislature, the National People's
Congress, which starts Friday with the premier's annual work report
laying out the policy agenda for the coming year. The chat session,
which Mr. Wen first did last year on the eve of the NPC, is part of
broader efforts by the ruling Communist Party to make the government
seem more responsive and accessible to the public, which generally has
almost no chance to interact with its leaders.

While China's government in recent years has tightened already strict
controls over the Internet, officials have also sought to use the
technology as a tool to monitor public opinion and to try to explain
their policies to an increasingly vocal and demanding citizenry.
That's especially evident with the NPC, whose nearly 3,000 members
have little power—they are largely expected to ratify laws and plans
set by party leaders—but which the leadership wants to be seen as a
conduit for public involvement in policy making. In addition to the
premier's Web chat, for example, the government has also established
online suggestion sites where citizens can propose or comment on
policies.

Mr. Wen's chat session elicited more than 60,000 questions, according
to the state-run Xinhua news agency, which arranged it. Mr. Wen didn't
address sensitive political issues in the two-hour discussion, but
spoke on economic and social subjects ranging from employment and
healthcare to product safety and the upcoming Shanghai Expo.

Asked about soaring housing prices that have raised fears of a
property bubble and that many Chinese complain have made new homes
unaffordable, Mr. Wen vowed to crackdown on speculation and to boost
the supply of low-cost apartments. "I am determined that this
administration will be able to deal with this problem during its
current term," said the 67-year-old premier, who is scheduled to
retire in 2013.

Concerns about asset price inflation have been on the rise in China
after a government-backed surge in bank lending last year to stimulate
economic growth. Policymakers in China have been tightening their
oversight on bank lending and the People's Bank of China has already
twice this year ordered banks to keep a larger portion of their
deposits parked with the central bank in an effort to mop liquidity.

Mr. Wen said that 2010 will be a "complicated" year for the domestic
economy, but that he is confident. "Currently we are still carrying
out a moderately loose monetary policy. That is to say 'moderately
loose' is on the one hand ensuring stable and relatively fast economic
development, and on the other hand being able to manage inflation
expectations," Mr. Wen said, adding that managing inflation
expectations is a "major task" this year.

The premier was also asked about trade ties with the U.S., where
friction has been increasing in the last year over allegations of
dumping and other unfair practices. Mr. Wen didn't address the most
sensitive aspect of that issue—U.S. complaints that China artificially
suppresses the value of its currency to boost its exports—but said "we
hope China-U.S. trade frictions can ease."

Mr. Wen reiterated that China doesn't seek a trade surplus and wants
economic and trade ties with the U.S. to be balanced and sustainable,
and again called on Washington to remove limits on its high-technology
exports to China.

"We also don't hope for this year to become an un-peaceful year in the
China-U.S. economic and trade relationship. This will require both
sides to work together," Mr. Wen said.

Write to J.R. Wu at jr...@dowjones.comand Jason Deanat
jjaso...@dowjones.com

http://online.wsj.com/article/SB10001424052748704089904575093102225297546.html?mod=googlenews_wsj

China does not want trade conflict with US: Wen
(AFP) – 1 day ago

BEIJING — Chinese Premier Wen Jiabao said Saturday he hoped 2010 would
not be "an unpeaceful year" for trade and economic relations with the
United States, in an online Internet forum.

Wen made the comments during an online chat with Internet users shown
live on the central government's website gov.cn and the official
Xinhua news agency website.

Trade disputes between China and the United States should be resolved
through "equal negotiations" rather than sanctions, Wen said in
response to a question on increasingly strained ties between the two
nations.

He said maintaining good relations would benefit both countries and
urged the United States to lift restrictions on US exporters selling
hi-tech products to China.

"If the United States loosens restrictions over the exports of some
high-tech products to China the bilateral trade surplus will narrow,"
Wen said.

"We hope the Sino-US trade is balanced and sustainable. Our goal is to
achieve a basic balance of international payments."

Ties between Beijing and Washington have been strained for months over
a series of issues -- from trade and currency disputes to the future
in China of Google, after it fell victim to cyberattacks it says
originated in the country.

On the trade front, the United States has imposed duties on a number
of Chinese imports, from tyres to electric blankets to steel tubes and
wire decking.

China has responded with its own penalties on imports from the United
States of chicken meat and steel products.

The online discussion on Saturday was a repeat of a similar exercise
last year and attracted thousands of questions from people in China
and abroad on issues such as the lack of affordable housing and
corruption among officials.

Wen has tried to forge a reputation as a man of the people,
contrasting with his colleagues in the ruling Communist Party
hierarchy who come across as much more staid.

China has the world's largest online population with at least 384
million users, according to official figures.

However the Internet in China is also regarded as one of the most
heavily censored, with the communist authorities seeking to block a
wide range of issues they believe may threaten their rule.

Copyright © 2010 AFP. All rights reserved.

Ties between Beijing and Washington have been strained for months

http://www.google.com/hostednews/afp/article/ALeqM5gYPdBWCVJmMNGXmoOo_Mu11DfM6w

Wen Jiabao Encourages China
Min Sun-young
Sunday, February 28th, 2010

People's Daily Online, China

Wen Jiabao, Chinese Premier, visited the Central People's Government
web site and the Xin Hua web site on February 27, the day before
holding the National People's Congress and Chinese People's Political
Consultative Conference.

At the meeting a reporter asked Wen Jiabao, why are books important?
Wen Jiabao answered the reporter by saying, "Reading is related to
people's lives, a book itself cannot change the world. However, a good
book can change people, and people can change society. Therefore,
reading is connected to self-discipline, and for the future of the
state."

He continued to say, “A good book can touch people's heart. It is,
however, difficult to find an instructive book. Generally, classics
are considered must have books. These books have survived through the
ages; many great brains have proved that these books are good books."

Wen concluded by saying, "I want to see youngsters reading books
everywhere in Beijing."

http://www.koreaittimes.com/story/7568/wen-jiabao-encourages-china-read-more

Backgrounder: China's to step up economic restructuring
Saturday,
February 27, 2010 4:11 AM

BEIJING, Feb. 27, 2010 (Xinhua News Agency) -- Chinese Premier Wen
Jiabao told Netizens Saturday that to secure a steady and fast
economic development, the most important thing is to well treat the
relationship among economic restructuring, the transformation of
development pattern and inflation control. Following are some facts
about the country's economic restructuring:

China has pledged more efforts to accelerate economic restructuring
this year to make its growth more sustainable, after its economy
posted a strong recovery of 8.7 percent growth in 2009, exceeding its
target of 8 percent.

Growth of the world's third largest economy slowed to 6.1 percent from
a year earlier in the first quarter of last year, led by a slump in
exports caused by the global financial crisis starting in 2008.

The Political Bureau of the Communist Party of China Central Committee
issued a statement Monday which vowed that the government would
accelerate economic restructuring and push forward substantive
progress in changing the mode of economic development this year, while
continuing the proactive fiscal policy and moderately loose monetary
policy.

The nation's top leaders have reiterated the need for economic
restructuring, which analysts said, would be the focus of this year's
macro policy.

Chinese President Hu Jintao said on Feb. 3 that "on the surface, the
global financial crisis impacted on the speed of China's economic
growth, but in essence it was the economic growth pattern that was
worst hit."

"The transformation of economic development mode brooks no delay based
on a comprehensive judgement on international and domestic economic
situation," Hu said.

The key for the transformation was to achieve it "at an accelerated
speed" and with practical effects, he noted.

Chinese Premier Wen Jiabao said on Feb. 4 that development of science,
education and culture was key to the transformation of China's
economic growth mode and its sustainable development.

He urged traditional industries should be upgraded with the latest
technologies to enhance their efficiency and competitiveness.

On Feb. 5, Chinese Vice Premier Li Keqiang said China had entered a
key period of time when adjusting economic structure was the only
approach to advance the country's sustainable development.

To achieve the end, China should further promote domestic consumption,
he said, emphasizing the important roles that employment and the
social security net play in fuelling domestic demand.

On Feb. 21, Li Yizhong, Minister of Industry and Information
Technology, noted China's economic growth should shift its dependence
to consumption, investment and exports from mainly on investment and
export.

Scientific advancement, labor quality and management innovation should
replace resource investment to sustain economic growth, he said.

To prop up growth, Chinese government has rolled out a raft of
stimulus packages. Some aimed to push forward economic restructuring
while striving to ensure growth.

The following are measures and policies unveiled to expand domestic
demand and offset falling exports.

-- The State Council, or the Cabinet, announced on Jan. 14, 2009 to
halve purchase tax on cars under 1.6 liters to 5 percent from Jan. 20
to Dec. 31 last year. The government decided on Dec. 10 to retain the
policy for the whole year of 2010, with purchase tax raised to 7.5
percent.

-- The government expanded the subsidy program for rural purchase of
home appliance throughout the country in February 2009, after the
program was launched in three provinces in 2007.

-- In March, 2009, Chinese government detailed a plan to give a
subsidy equal to 10 percent of the purchase price to rural residents
who buy a new minivan or light truck, effective from Mar. 1 to Dec.
31, 2009. The policy was extended for one more year in 2010, the
government announced in December 2009.

-- The detailed subsidy plan also said that from Feb. 1, 2009 to Jan.
31 in 2013, farmers who buy motorcycles would get 13 percent of the
purchase price back, with ceiling subsidies of 650 yuan.

-- China started a home appliance replacement plan on June 1, 2009,
which allocated 2 billion yuan to encourage home appliance upgrades in
nine pilot cities, including Beijing, Tianjin, Shanghai and Changsha.

Buyers would receive a subsidy of equivalent to 10 percent of the
retail price of new appliances including TVs, refrigerators, washing
machines, air conditioners and computers.

-- The government announced on Jan. 31, 2010 to offer subsidies to
farmers to increase output of grain, potato, highland barley and
peanut as well as to purchase agricultural machinery and construction
materials.

(Source: iStockAnalyst )

http://www.istockanalyst.com/article/viewiStockNews/articleid/3902775

[bademiyansubhanallah]

Bloomberg

Yen Falls as Japanese Government Puts Pressure on Central Bank
February 28, 2010, 11:22 PM EST

March 1 (Bloomberg) -- The yen fell against higher-yielding currencies
including Australia’s dollar after Japan’s government increased
pressure on the central bank to expand monetary easing to fight
deflation.

The euro weakened for the first time in four days versus the dollar on
speculation European Union Monetary Affairs Commissioner Olli Rehn
will today push Greece to deepen planned spending cuts to reduce its
budget deficit. The greenback traded near the lowest in almost a week
versus the Australian currency on speculation a report today will show
U.S. manufacturing expanded last month at a slower pace.

“Government officials appear to be calling on the Bank of Japan to do
more on the monetary policy easing front,” said Takashi Kudo, general
manager of market information service in Tokyo at NTT SmartTrade Inc.,
a unit of Nippon Telegraph & Telephone Corp. “This may weigh on the
yen.”

The yen declined to 79.96 per Australian dollar as of 1:18 p.m. in
Tokyo from 79.65 in New York on Feb. 26. The euro fell to $1.3608 from
$1.3631, and fetched 121.23 yen from 121.26 yen. The U.S. dollar
advanced to 89.08 yen from 88.97 yen.

Australia’s dollar was at 89.77 U.S. cents from 89.54 cents, after
earlier reaching 90.08 cents, the highest since Feb. 23. New Zealand’s
was at 69.84 U.S. cents from 69.82 cents.

Japan’s Kan, Kamei

Japan’s currency slipped versus 15 of 16 major counterparts after
Finance Minister Naoto Kan told lawmakers in Tokyo today that he wants
the central bank to boost its efforts to fight deflation. Financial
Services Minister Shizuka Kamei said in parliament he wants the BOJ to
underwrite government debt.

The Japanese government has increased calls on the Bank of Japan to
prop up growth since the administration declared the economy was in
deflation on Nov. 20. Consumer prices excluding fresh food fell 1.3
percent in January from a year earlier, an 11th month of declines, the
statistics bureau said on Feb. 26.

The euro weakened versus 13 of 16 most-active currencies before EU
Monetary Affairs Commissioner Rehn meets Greek Prime Minister George
Papandreou later today.

German Chancellor Angela Merkel and Luxembourg Prime Minister Jean-
Claude Juncker signaled yesterday that Rehn will warn Greece it must
take more steps to narrow the EU’s largest budget gap.

“A rescue measure, now said to be under consideration, won’t resolve
the root cause for debt problems in Greece immediately,” said Yuichiro
Harada, senior vice president of the foreign-exchange division at
Mizuho Corporate Bank Ltd., a unit of Japan’s second-largest lender.
“Uncertainties about prospects about Greece will continue to weigh
heavily on sentiment toward the region’s currency.

Frankfurt-based KfW Group is preparing measures that are part of a

European plan to grant Greece as much as 25 billion euros ($34

billion) in aid should the need arise, four German lawmakers, who
spoke on the condition of anonymity because the information is
confidential, said last week.

--With assistance from Mark Deen in London, Simon Kennedy in Paris
Maria Petrakis in Athens. Editors: Garfield Reynolds, Nate Hosoda.

To contact the reporters on this story: Yasuhiko Seki in Tokyo at
yse...@bloomberg.net; Ron Harui in Singapore at rha...@bloomberg.net

To contact the editor responsible for this story: Rocky Swift at

rsw...@bloomberg.net.

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Businessweek’s Emily Thornton, Amy Feldman, Ben Levisohn, and Ben
Steverman focus on matters great and small for investors, from the
views of a hot fund manager to an explanation of the latest products
devised by Wall Street’s rocket scientists. Exploring trends in any
area, from bonds and stocks to closed-end funds and futures, always
with an eye towards giving investors a better understanding of the
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Bloomberg

China’s Manufacturing Growth Slows, Surveys Show (Update3)
February 28, 2010, 10:14 PM EST

(Adds HSBC PMI in second paragraph.)

March 1 (Bloomberg) -- China’s manufacturing grew at a slower pace in
February, reducing the risk of overheating in the fastest-growing
major economy.

A Purchasing Managers’ Index released by the government today slid to
a one-year low. A second PMI, from HSBC Holdings Plc and Markit
Economics, showed the weakest expansion in three months. A weeklong
Chinese holiday last month may have affected the numbers.

Investors are concerned that China’s recovery may lose momentum as the
government reins in stimulus to counter inflation and asset-bubble
risks. Premier Wen Jiabao reaffirmed a “moderately loose” monetary
stance on Feb. 27 ahead of an annual address to lawmakers on March 5
where he will outline policy for 2010.

“We were looking for a lower PMI because of the Chinese New Year,
which always hits new orders, particularly exports, as well as the
beginning of the effects of government policy,” said Stephen Green, an
economist at Standard Chartered Plc in Shanghai. “Across a range of
policies -- monetary, fiscal and investment -- we have seen the
government shift position, to take some of the momentum out of the V-
shaped recovery.”

The Shanghai Composite Index rose 0.5 percent as of 11:04 a.m., paring
this year’s decline to 6.4 percent.

Contracting Export Orders

The government’s index fell to a seasonally adjusted 52, the
Federation of Logistics and Purchasing said today in an e-mailed
statement in Beijing. That was less than 55.8 in January and the
median 55.2 estimate in a Bloomberg survey of 15 economists. HSBC’s
PMI fell to 55.8 from 57.4.

Today’s reading in the official survey was the weakest since
manufacturing stopped contracting in March last year.

Ten industries, including clothing and footwear, reported contractions
in export orders versus 10 posting expansions, highlighting the risk
that global demand may be weak this year. Jingwei Textile Machinery
Co. is among Chinese companies forecasting a loss for 2009.

The number is “really ugly,” said Dariusz Kowalczyk, chief investment
strategist at SJS Markets Ltd. in Hong Kong. “The weakness cannot be
explained with the Lunar New Year holiday effect and indicates a
slowdown in growth momentum as well as easing price pressures, which
is likely to limit monetary tightening.”

‘Premature’ to Judge

In contrast, Brian Jackson, an emerging-markets strategist at Royal
Bank of Canada, said the holiday complicated the data and it was
“premature” to say China was losing steam. UBS AG and Bank of America-
Merrill Lynch echoed that view.

In today’s data, a reading over 50 indicates an expansion. The
official survey’s output index slid to 54.3 from 60.5. A measure of
orders tumbled to 53.7 from 59.9. An index of export orders fell to
50.3 from 53.2 in January.

“The decline in new export orders warrants close attention and we need
to be cautious on the outlook for export growth,” Zhang Liqun, a
researcher at the State Council Development and Research Center, said
in the statement. “China’s economy is still in the process of moving
from government policy-driven growth to organic and sustainable growth
and there are still many uncertain factors.”

Conflicting Evidence

In contrast, HSBC’s export-order index rose from the previous month to
the highest level in almost five years, “largely reflecting improved
economic conditions among a number of China’s key trading partners,”
HSBC said in a statement.

The world is counting on China to drive growth as Europe’s recovery
falters and the U.S. grapples with high unemployment. In a Feb. 27
webcast, Wen said 2010 would be a complicated mix of sustaining the
economic expansion, adjusting the nation’s growth model and managing
inflation expectations.

China’s economic growth accelerated to 10.7 percent, the fastest pace
since 2007, in the fourth quarter on stimulus spending, subsidies for
consumer purchases and a record 9.59 trillion yuan ($1.4 trillion) of
bank lending last year. Increased demand was a factor in Baoshan Iron
& Steel Co., China’s biggest publicly traded steelmaker, raising
prices for March delivery.

Policy makers are cooling credit growth to restrain inflation and
limit the risk of soured loans and asset bubbles as property prices
surge in cities such as Shenzhen and Sanya. The central bank has twice
raised lenders’ reserve requirements this year, while leaving interest
rates unchanged.

Export Gains

Exports climbed for a second straight month in January after
plummeting because of the financial crisis. Subsidies within China for
car and home-appliance purchases and tax rebates for exporters will
continue this year, the government said.

The central bank is also yet to loosen the yuan’s effective peg to the
dollar, which has kept the currency at about 6.83 since July 2008,
shielding exporters from a slump in global demand.

After last year overtaking the U.S. as the biggest auto market and
Germany as the largest exporter, China is poised to overtake Japan
this year as the second-largest economy. The nation will contribute
more than a third of global growth in 2010, according to Nomura
Holdings Inc.

Today’s government PMI figure was up from a record-low 38.8 in
November 2008, when recessions in the U.S., Europe and Japan sent
export orders plunging.

The official manufacturing index, released by the logistics federation
and the Beijing-based National Bureau of Statistics, is based on
replies to questionnaires sent to purchasing executives at more than
730 companies in 20 industries. The HSBC survey covers more than 400
businesses.

For Reated News and Information: Most-read stories on China: {MNI
CHINA 1W <GO>} Most-read China economy stories: {TNI CHECO MOSTREAD BN
<GO>} For top economic news: {TOP ECO <GO>} For top China news: {TOP
CHINA <GO>} Credit crunch page: {WCC <GO>} Government relief programs:
{GGRP <GO>}

--Li Yanping and Sophie Leung. Editors: Paul Panckhurst, Russell Ward.

To contact the editor responsible for this story: Michael Dwyer in
Sydney at

Mdw...@bloomberg.net

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Industry News: JP Morgan Chase (NYSE: JPM) Bullish on Japanese Banking
Sector
February 28th, 2010
by admin

JP Morgan Chase & Co (NYSE: JPM) raised its recommendation on the
largest Japanese bank, indicating that the firm may be bullish on the
Japanese financial sector, helping raise the Nikkei in Monday’s
trading.

JP Morgan Chase’s team of analyst raised its recommendation on
Mitsubishi UFJ Financial Group Inc., Japan’s largest bank in terms of
market value, to an “overweight” rating up from a “neutral” rating.
After the recommendation, the Japanese bank’s stock rose by more than
1.6%.

The upgrade may be an indication that the company may be bullish on
Japan’s banking sector as a whole. Japan’s recession ended during the
second quarter of 2009, well ahead of the United States’ end of the
recession which didn’t happen for a full quarter after Japan’s return
to growth. When Japan got out of its recession, many feared that
growth would remain shaky because of high inventories that Japanese
export companies had on stock. Others feared that the deteriorating
job market in Japan would inhibit growth as well.

The factors which dragged down Japanese growth appear to be having a
lessening impact on the world’s second largest economy. During the
first quarter of 2010, Japan saw an impressive annualized GDP growth
rate of 4.6%.

Japan’s economy now appears to be on the path toward a more sustained
recovery which will be beneficial for the Japanese banking industry.
JP Morgan Chase’s recommendation on Mitsubishi UFJ Financial Group is
a reflection of that optimism.

http://www.americanbankingnews.com/2010/02/28/jp-morgan-chase-nyse-jpm-bullish-on-japanese-banking-sector/

Bloomberg

Kamei Urges BOJ to Underwrite Debt to Beat Deflation (Update1)
February 28, 2010, 11:22 PM EST
(
Adds economist’s comment in the fourth paragraph.)

By Mayumi Otsuma and Toru Fujioka

March 1 (Bloomberg) -- Japanese Financial Services Minister Shizuka
Kamei said the central bank should contemplate directly purchasing
government debt, increasing political pressure for the policy board to
overcome deflation.

“The central bank should consider underwriting debt to help the
government create funds for fiscal stimulus,” Kamei said at a
parliamentary hearing in Tokyo today. By law, the Bank of Japan is
prohibited from buying debt directly.

Kamei’s remarks underscore the growing tension between the central
bank and Prime Minister Yukio Hatoyama’s administration over how
policy makers can fight price declines. Burdened by the largest public
debt in the industrialized world, the government has little room to
bolster spending and is urging the bank to take charge in beating the
deflation that threatens the nation’s recovery from its longest
postwar recession.

“The Bank of Japan is under siege with increasing government pressure
and severe deflation,” said Hiromichi Shirakawa, chief Japan economist
at Credit Suisse Group AG in Tokyo, who used to work for the central
bank. “The market knows that bond purchases won’t be a panacea for
deflation and they would hurt the BOJ’s independence.”

Having the central bank underwrite debt would give the government more
access to funds, though it could also heighten investor concern about
the nation’s fiscal discipline and drive bond yields higher. The yield
on benchmark 10-year government debt rose to 1.31 percent at 1:13 p.m.
today.

Fiscal Policy Needed

Kamei said the central bank alone won’t be able to eradicate price
declines and that fiscal policy is also needed. Finance Minister Naoto
Kan replied by saying fiscal discipline must always be exercised even
though spending can help prop up the economy.

“It’s necessary to provide funds for bold fiscal spending” with direct
purchases of debt from the central bank, said Kamei, who heads a
junior coalition party. “Without fiscal stimulus funds, Minister Kan
can’t resolve the economy’s output gap. He’s not a magician.”

The bank currently buys 1.8 trillion yen ($20 billion) of government
debt from lenders each month. Bank of Japan Governor Masaaki Shirakawa
has said the purchases are to provide liquidity and aren’t aimed at
paying for government projects.

Kamei, head of the People’s New Party, has championed that increased
government spending is key to spurring growth. Last year, he forced
the government to delay unveiling a stimulus package he said was too
small.

‘Show Its Commitment’

“Japan can’t overcome this economic crisis unless the Bank of Japan
shows its commitment by going as far as” underwriting debt to pay for
government spending, Kamei said.

Kan, a member of the ruling Democratic Party of Japan, has put heat on
the central bank to do more to halt price declines and last month
indicated he wanted Shirakawa to implement an inflation target. The
finance chief said he wants to stamp out deflation as soon as this
year and reiterated that he wants the bank to target inflation of 1
percent or higher.

“Given that various efforts to overcome deflation have failed, I won’t
say we can immediately overcome this in a few months,” Kan said. “If I
were allowed to be ambitious, I’d say I want prices to rise within the
year” adding that “that is just my hope.”

Consumer prices excluding fresh food, the central bank’s key gauge of
inflation, slid 1.3 percent in January from a year earlier, an 11th
straight decline, the government said last week.

Shirakawa, also speaking to lawmakers, said he is committed to keeping
policy very accommodative and that having the benchmark overnight
lending rate at 0.1 percent has helped lower borrowing costs for
companies.

--Editors: Lily Nonomiya, Russell Ward

%JPY

To contact the reporter on this story: Mayumi Otsuma in Tokyo at
mot...@bloomberg.net; Toru Fujioka in Tokyo at
tfuj...@bloomberg.net

To contact the editor responsible for this story: Michael Dwyer in
Sydney at Mdw...@bloomberg.net

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Nortel to Shed Yet Another Business Unit
Tech BeatNortel to Shed Yet Another Business Unit
Posted by: Olga Kharif on December 23, 2009

Bankrupt gearmaker Nortel has just inched closer to becoming a
gearmaker no more. On Dec. 23, the company announced a preliminary
agreement to sell a unit that makes software and gear for making cheap
Web calls to telecom gearmaker Genband for $282 million, a sum that is
subject to adjustment.

The agreement is not final: More companies could bid for the unit in
an auction early next year. Nortel has already sold a number of other
business units over the summer.

Once the sale of this unit, called carrier VoIP and application
solutions, is complete, Nortel will be left with only a few holdings,
including a unit that sells so-called multi-service switches, which
direct traffic along communications networks. It also still owns the
majority stake in the LG-Nortel joint venture, which has sold wireless
telcommunications equipment to carriers in South Korea. And Nortel
still owns as much as $2 billion worth of patents, which it might hold
on to or sell separately. I suspect that Nortel will finish selling
its assets in the first half of 2010

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[bademiyansubhanallah]

LONDON, Feb. 28, 2010
U.S. Banks Helped Fuel Greek Debt Crisis

A Familiar Culprit - Credit Default Swaps - Played Role in Financial
Crisis that Threatens to Topple Economies across Europe

A top European Union official will travel to Athens for talks on
bailing out the Greek economy. As Mark Phillips reports, fingers are
being pointed every which way, including at some U.S. banks.

Demonstrators try to burn a European Union's flag during a protest
outside EU offices in Athens on Wednesday, Feb. 10, 2010. The Greek
financial crisis threatens to destabilize many European economies and
U.S. banks are again being named as a culprit. (AP Photo/Thanassis
Stavrakis)

(CBS) A European Union official is traveling to Athens Monday for
talks on bailing out the struggling Greek economy. The mounting debt
crisis in Greece is also undermining confidence in the Euro and
prompting Europeans to blame some of America's biggest banks for
making the problem worse, as CBS News correspondent Mark Phillips
reports.

The demonstrators who have been filling the streets of Athens haven't
been Greeks bearing gifts - they've been Greeks wanting gifts. And so
far they aren't getting them.

"They think we are the enemy of Europe - that we are the enemy of
them," one protestor said.

"Them" is the rest of the European Union, which Greece has been asking
for a massive bailout so it can pay back some of its huge debt. The
Greek economy has been severely hit by the recession and the
government reportedly needs as much as $35 billion in loans to pay its
bills.

And there are fears that Greece, which is part of the Euro currency
zone, may drag the rest of the EU down with it, which is why European
leaders like Germany's Angela Merkel have been refusing to loan Greece
the money.

It's also why Greek Prime Minister George Papandreou has had to
promise drastic spending cuts to get the rest of the EU to even
consider helping him.

And now it turns out there's an American connection. Some of the big
banks, including Goldman Sachs, may have been helping Greece hide the
full extent of its debt by selling it a murky financial instrument
called a credit-default swap - a key player in the U.S. financial
crisis as well -
in which investors effectively bet against the Greek economy
improving.

It's an arrangement that's now being investigated in Washington.

"Obviously using these instruments in way that intentionally
destabilizes a country is counter-productive and we will be looking
closely into it," Federal Reserve Chairman Ben Bernanke said
recently.

The Greek economy is not large by European standards, but the
potential domino effect threatens other weak economies.

"The real fear is not Greece going under to be honest, as sad as that
would be, because Greece is actually a pretty small country," said
Steven Bell, chief economist at British financial firm GLC Limited.
"The problem is if Greece goes the speculators will move on to
Portugal and then to Spain and then to Italy and that really would be
a big effect."

And if the recession has proved anything, it's that once things start
to go bad, they go bad everywhere.

Play CBS Video

Video

Greek Economy Seeks Bailout

A top European Union official will travel to Athens for talks on
bailing out the Greek economy. As Mark Phillips reports, fingers are
being pointed every which way, including at some U.S. banks.

Demonstrators try to burn a European Union's flag during a protest
outside EU offices in Athens on Wednesday, Feb. 10, 2010. The Greek
financial crisis threatens to destabilize many European economies and
U.S. banks are again being named as a culprit. (AP Photo/Thanassis
Stavrakis)

Fast Facts
Greece
Introduction People Economy Resources

(CBS)Greece achieved independence from the Ottoman Empire in 1829.
During the second half of the 19th century and the first half of the
20th century, it gradually added neighboring islands and territories,
most with Greek-speaking populations.

In World War II, Greece was first invaded by Italy (1940) and
subsequently occupied by Germany (1941-44); fighting endured in a
protracted civil war between supporters of the king and Communist
rebels. Following the latter's defeat in 1949, Greece joined NATO in
1952.

A military dictatorship, which in 1967 suspended many political
liberties and forced the king to flee the country, lasted seven years.
The 1974 democratic elections and a referendum created a parliamentary
republic and abolished the monarchy.

In 1981 Greece joined the EC (now the EU); it became the 12th member
of the euro zone in 2001.

Source: CIA World Fact Book

http://www.cbsnews.com/stories/2007/09/10/country_facts/main3246514.shtml?tag=related

Learn about the people, economy and history.

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Bloomberg

Japan Stocks Advance on U.S. Economic Growth, Commodity Prices
February 28, 2010, 7:40 PM EST

By Akiko Ikeda and Toshiro Hasegawa

March 1 (Bloomberg) -- Japanese stocks rose as commodity prices
climbed and after data showed U.S. business activity expanded and
gross domestic product topped estimates.

Sumitomo Metal Mining Co. climbed 3.3 percent as copper futures jumped
after an earthquake in Chile. Mitsubishi UFJ Financial Group Inc.,
Japan’s largest bank by market value, advanced 1.3 percent as its
investment recommendation was lifted to “overweight” from “neutral” at
JPMorgan Chase & Co. Sharp Corp., Japan’s biggest maker of liquid-
crystal displays, gained 0.3 percent in Tokyo.

“The U.S. GDP data confirmed inventories are recovering to their
normal level,” said Tomochika Kitaoka, a senior strategist at Mizuho
Securities Co. in Tokyo. “The upward revision of the U.S. GDP may lead
to better-than-expected earnings at Japanese companies this fiscal
year.”

The Nikkei 225 Stock Average rose 0.2 percent to 10,144.43 as of 9:23
a.m. in Tokyo. The broader Topix index gained 0.2 percent to 895.99.

In New York, the Standard & Poor’s 500 Index rose 0.1 percent to
1,104.49 on Feb. 26. The U.S. economy expanded at a 5.9 percent annual
rate in the fourth quarter, more than the government reported in
January. The Institute for Supply Management-Chicago Inc. said its
business barometer climbed to 62.6 from 61.5 in January, a bigger
increase than economists forecast and the highest since 2005.

The London Metal Exchange Index, a measure of six metals including
copper and zinc, advanced 2.8 percent on Feb. 26. Copper futures due
March 10 jumped 4.9 percent today. Crude oil for April delivery
increased $1.49 to settle at $79.66 a barrel in New York.

--Editor: Sam Waite

To contacts the reporters for this story: Akiko Ikeda in Tokyo at
iak...@bloomberg.net. Toshiro Hasegawa in Tokyo at
thase...@bloomberg.net.

To contact the editor responsible for this story: Darren Boey at
db...@bloomberg.net.

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Monday March 1, 2010
China surpasses Japan as the 2nd largest world economy
Hock's Viewpoint - By Choong Khuat Hock

China's growth and challenges

CHINA surpassed Japan as the second largest economy in the world in
the fourth quarter of 2009.

Although Japan’s gross domestic product (GDP) for 2009 at US$5
trillion was higher than that of China at US$4.9 trillion, from the
fourth quarter, China produced more goods and services (i.e. enjoyed
higher GDP) than did Japan.

It still has some way to go before catching up with the United States,
which had a GDP of US$14.5 trillion in 2009.

If China can grow 4% faster than the US annually, it is likely to
surpass the US economy in 25-30 years. This could be sooner if the
undervalued renminbi is revalued upwards.

Advantages

On a purchasing power parity (PPP) basis, which assumes similar cost
for identical products and services in different countries, China
overtook Japan in 2001 (see chart) and could overtake the US by 2020.

As per the International Monetary Fund, China’s GDP per capita in 2009
at only US$3,566 was still significantly lower than that of Japan (US
$39,573) and the US (US$46,443).

Growing from a low base was the easy part; the challenge is to sustain
growth when China becomes a middle income nation.

China has a few advantages that will help it sustain growth. First, it
has a strong pro-growth government that can implement its plans.

In the past, such plans like the Great Leap Forward and the Cultural
Revolution were socio-economic disasters but under the collective
leadership structure, policies are more measured.

A strong government has enabled China to quickly modernise its
infrastructure (unlike India) and enhance its strong position in
certain sectors like renewable energy, steel and manufactured exports.

Second, China has a very large domestic market that enables domestic
producers to achieve economies of scale and attract foreign direct
investments and technology into the country.

Third, China has made good strides in education and research and
development. According to Unesco, China’s share of global researchers
rose to 20.1% from only 14% in 2002 (see table on the previous page).

Challenges

China also faces immense challenges. There is, firstly, an over-
reliance on investments and exports to boost the economy while private
consumption as a percentage of GDP remains low.

In the longer term, China will require a basic social net that will
encourage Chinese to save less for future medical and other bills.

China’s strong one-party rule may be suitable for leading a country
from a low to middle income nation but to make the leap to a high
income nation requires a focus on innovation and a liberal environment
that retains and attracts talent (like the US).

Taiwan and South Korea have made the transition from autocratic
governments to democratic governments.

The challenge is for China to maintain stability and yet sufficiently
relax its grip on its people to allow this transition.

Another challenge lies in how an emerging China interacts with the US
and the Western world. Both sides will have to resolve tensions from
differing world views and competition for natural resources and
markets.

In the longer term, China faces a demographic time bomb due to its one
child policy. China’s rapidly aging population is expected to peak at
1.45 billion in 2030 according to a UN study.

By then, China could suffer from what Japan is suffering now, a
stagnant economy and a declining population that represents a strain
on its healthcare and social welfare system.

China was the world’s richest nation until 1850, a position that was
toppled by an inept government in the last days of the Manchu dynasty
and unfair treaties imposed after the Opium War in 1842, aimed at
reducing British trade deficit with China by selling opium to the
Chinese in exchange for Chinese goods.

Barring major military conflicts (unlikely in the nuclear age) and
major policy blunders, China is likely to resume its position as the
world’s richest nation, a position it held for almost 2,000 years
since the days of the Han Dynasty (206 BC–AD 220) which rivalled the
Roman Empire.

The nature of the world will change as an emerging China interacts
with a declining but still powerful West.

Western liberal democratic traditions focused on individual rights
will square off with Eastern collectivist paradigm putting society
above the individual.

Inter-Asian trade and relations will strengthen China’s influence in
Asia and position the renminbi as the de facto trading currency for
the Asian bloc.

Failure of China and the West in accommodating each other could lead
to trade war and even a new cold war, an outcome that can be avoided
if more moderate voices that value an open diverse world can prevail
over xenophobic ultra-nationalistic/religious voices.

In this new global reality, Malaysia will find it increasingly
difficult to compete in manufacturing. Malaysia has to fight tooth and
nail to retain and attract talent and boost services (like tourism).
This means crafting an attractive liberal environment for its citizens
and foreign talent.

·Choong Khuat Hock is head of research at Kumpulan Sentiasa Cemerlang
Sdn Bhd.

http://biz.thestar.com.my/news/story.asp?file=/2010/3/1/business/5740897&sec=business

Payrolls, quake, ISM may steer stocks
Caroline Valetkevitch
NEW YORK
Sun Feb 28, 2010 4:15pm EST

NEW YORK (Reuters) - Payrolls could give the U.S. stock market some
direction this week as investors comb through the key report on one of
the economy's weakest areas.

When trading resumes on Monday, Wall Street will watch copper prices
and mining stocks such as Freeport-McMoRan Copper & Gold (FCX.N) for
impact from the massive earthquake that struck Chile, the world's top
copper producer, early on Saturday.

The earthquake, which killed more than 400 people, forced temporary
suspension of up to a fifth of Chile's mining capacity. In the quake's
aftermath, tsunami waves struck Pacific coastlines as far away as
Japan and the far eastern edge of Russia.

"While it appears that a modest proportion of production has been
halted, the major impact may come from the disruption on deliveries
from the mines and from the disruption of power supplies to the
mines," Citi analyst David Thurtell said.

Freeport McMoRan Copper & Gold Inc said on Saturday the quake did not
damage its two mines in Chile, but it is facing a power outage at its
Candelaria mine, which will result in a temporary shutdown.

More news on Greece's debt problems could also fire up investors after
a week of little market movement, with U.S. stocks ending Friday's
choppy session slightly higher in light trading volume due to a heavy
winter snow storm that hit much of the U.S. Northeast.

The Institute for Supply Management will give Wall Street vital
information on manufacturing and services this week, when it releases
its February indexes on those sectors.

But February's non-farm payrolls report from the Labor Department will
be the main event as job losses continue to give investors reason to
question the sustainability of the economy's recovery.

"The market is looking to move off center ... and the employment
report is probably going to be the most important of the week," said
Paul Mendelsohn, chief investment strategist at Windham Financial
Services in Charlotte, Vermont.

"If that number comes in weak, it really confirms the strong
unemployment claims data we've seen. If it comes a little bit better,
it would indicate maybe we're creating jobs at a fast enough pace to
offset the claims," he said.

Besides payrolls, Wall Street will have a flurry of other numbers to
mull over, including January personal income and spending, as well as
February domestic car and truck sales.

Fourth-quarter earnings reports are winding down, but investors will
see results from a handful of Standard & Poor's 500 .SPX companies,
including natural gas producer and pipeline operator El Paso Corp
(EP.N) and major U.S. office supplies retailer Staples (SPLS.O).

BEST MONTH SINCE NOVEMBER

While all three indexes finished slightly lower for the week, the
stock market capped its best month since November.

For the month of February, the Dow Jones industrial average .DJI was
up 2.6 percent, the S&P 500 .SPX was up 2.9 percent and the Nasdaq
Composite Index .IXIC rose 4.2 percent.

Although February was sweet, the final week of the month went down in
the loss column. For the week, the Dow slid 0.8 percent, while the S&P
500 shed 0.4 percent and the Nasdaq slipped 0.3 percent. Lingering
concerns about Greece's fiscal deficit problems and its effects on the
euro were among factors keeping investors on edge.

The S&P 500 has climbed as much as 70 percent from its lows in early
March 2009, largely because of stronger-than-expected economic data
and earnings, but it has since retraced some of those gains.

SNOW MAY BLUR JOBS PICTURE

Recent snow storms and other harsh winter weather may contribute to
the weaker February jobs picture and make the data even harder to
forecast, analysts said.

But, they said, the numbers remain among the most important for the
economic outlook.

"You can't describe the economy as in a recovery until you have job
growth," said Charles Lieberman, chief investment officer of Advisors
Capital Management, LLC in Paramus, New Jersey.

For this Friday's jobs report, the consensus forecast, according to
economists polled by Reuters, calls for a loss of 50,000 jobs in
February, compared with a decline of 20,000 in January. The U.S.
unemployment rate is forecast to rise to 9.8 percent in February from
9.7 percent in January.

"Productivity has gone through the roof, and so have earnings, and
that's likely to translate into hiring" at some point, Lieberman said.

More than 70 percent of S&P 500 companies have beaten earnings
estimates so far for the fourth quarter, well above the 61 percent in
a typical quarter, according to Thomson Reuters, which began tracking
data in 1994.

With 96 percent of S&P 500 fourth-quarter results already in, earnings
are expected to increase 201.3 percent from a year ago, when the
economic downturn took a big toll on corporate results.

SPENDING, FACTORIES AND SERVICES

Investors may need to keep the virtual snow shovels handy as they cope
with piles of economic data this week, starting with Monday's personal
income and consumption, or spending, report for January. Personal
consumption is forecast up 0.4 percent in January, twice December's
0.2 percent gain.

The ISM also will give its February snapshot of manufacturing activity
on Monday. The forecast from the Reuters poll: An ISM manufacturing
index at 57.5 in February, down from 58.4 in January. Construction
spending for January also will be released on Monday.

Monthly car and truck sales will be reported on Tuesday. The consensus
forecast indicates a slight decline in total vehicle sales to an
annual rate of 10.50 million units in February from 10.78 million in
January.

Wednesday will bring the ISM non-manufacturing index, which will give
a reading of how the important U.S. services sector is faring. A
private-sector report on national employment in February from ADP is
also due that day.

And while Wall Street's skies may be a hazy winter gray, the trendy
shade will be beige for market professionals. The Federal Reserve's
Beige Book, a collection of anecdotal reports on the U.S. economy from
the Fed's 12 district banks, will be released on Wednesday.

Thursday's economic indicators will include the latest weekly jobless
claims, revised fourth-quarter data on productivity and unit labor
costs, and the January pending home sales index.

(Reporting by Caroline Valetkevitch, with additional reporting by
Alonso Soto in Santiago; Nick Trevethan and Humeyra Pamuk in Singapore
and Cairo; Editing by Jan Paschal)

http://www.reuters.com/article/idUSTRE61R2RJ20100228

THE OUTLOOKMARCH 1, 2010.Japan Looks Hard at Trimming Huge Debt

By YUKA HAYASHI

Bond traders up to now have been relatively sanguine about Tokyo's
massive pile of government debt. But that attitude could be tested
over the next three months, as Japan's new center-left government
nears a self-imposed June deadline for crafting a plan to get its
fiscal house in order. Out-of-control sovereign debt is what plunged
Greece into crisis.

The main tool being considered to address Japan's debt problem is an
increase in the nation's sales tax, which at 5% is currently among the
lowest in the industrialized world. In Europe, such taxes run closer
to 20%. But members of Prime Minister Yukio Hatoyama's cabinet also
worry that a tax increase could hammer consumer spending and push the
country back into recession.

Japan has to do something. Government debt in the world's second-
largest economy has swollen to more than twice the size of its annual
gross domestic product, and some analysts question how long Japan can
keep borrowing without causing a spike in borrowing costs, or, in a
worst case scenario, a default.

Pundits predicting a looming Japanese debt crisis have already set off
brief spasms of selling in Japan's government bonds. Standard & Poor's
in January warned it might downgrade the country's sovereign-debt
rating to levels below those of Chile. Moody's on Thursday also
threatened to cut its view on Japan if the country fails to put
together a convincing plan for debt reduction.

"We will be looking closely whether the targets are clearly
identified," said Thomas Byrne, a Moody's analyst who focuses on Asian
government debt.

Tokyo's promised a "medium-term fiscal framework," due out in June,
should spell out its stance on spending and revenue for coming years.

A committee of a dozen lawmakers and private-sector economists have
met every two weeks since late January to prepare the report.

Mindful that many are watching how the government tackles its debt
problem, Mr. Hatoyama has backed away from costly promises made during
his election campaign, such as eliminating highway tolls and high
school tuition. The prime minister's aides are also putting more
pressure on the Bank of Japan to be more aggressive in fighting
deflation, the problem seen as the root cause of Japan's two-decade-
long economic malaise.

It's against this background that Finance Minister Naoto Kan recently
started talking about boosting Japan's sales tax. But it comes with
strings attached: The government has repeated a campaign pledge not to
implement such an increase until 2013.

Raising the tax could hurt Mr. Hatoyama's party in future elections,
including elections for the upper house of parliament set for July.

The idea is unpopular with voters, especially Japan's large bloc of
senior citizens. But advocates say a tax increase is probably the most
effective way to reduce the deficit and secure funds to cover the
nation's ballooning pension and medical costs.

Experts generally agree an increase in the sales tax is inevitable,
but differ on how it should be implemented. Some argue any increase
should be phased in slowly and not started until it's clear it won't
kill Japan's economic recovery.

Japan has gone down this road before. A 1997 sales-tax increase
triggered a sharp drop in consumption and was blamed for pushing the
economy back into a slump and sparking a broad decline of prices for
goods and services in the economy.

The tax idea faces opponents inside the government too. International
Affairs Minister Kazuhiro Haraguchi, said, "I'd like to point out
boosting tax burdens when [Japan's] regions and economy are fatigued
like this would only result in lower tax revenues."

But others argue that, done right, a tax increase could aid economic
recovery. For instance, Toshihiro Nishibori, a University of Tokyo
economics professor, said the government should start raising sales
taxes now, but spread it over 10 years by increasing it by one
percentage point every year.

This method, Mr. Nishibori explains, will not just soften the blow to
consumers but would help reverse deflation by creating inflationary
expectations. According to this logic, consumers would be expected to
slash spending if the tax is suddenly raised by 10%. But if it goes up
gradually, with the knowledge that it will keep climbing, people will
continue to spend.

"In this way, a tax hike will work as economic stimulus while at the
same time improving fiscal conditions," Mr. Nishibori said.

Japan's financial health has deteriorated over the past two decades
and, by some measures, Japan's fiscal health is among the worst among
major economies.

The nation's gross government debts soared to 229% of its GDP this
year, compared with 92% for the U.S. and 118% for Italy, according to
the International Monetary Fund.

Still, some experts say worries about Japan's debts are overblown.

"The chance of Japan defaulting on its debt is very small and a spike
in long-term interest rates is a risk for a few years down the road,"
said Tomoya Masanao, a fund manager watching Japan at bond fund Pimco.

Also working in Japan's favor is the fact that nearly 95% of its
outstanding government debt is held by domestic investors, a group who
has few other investment options. In the U.S., foreigners hold roughly
a quarter of the outstanding Treasury notes, making the market
inherently more unstable.

—Tomoyuki Tachikawa contributed to this article.
Write to Yuka Hayashi at yuka.h...@wsj.com

http://online.wsj.com/article/SB10001424052748703940704575089952215368646.html

Sound Economy

Jon Talton

Comments

Showing posts 1-4 of 4

Slugman
Lynnwood, WA
425 comments February 28, 2010 at 7:38 PM

Is there anything more despicable in the world than a neo-con blaming
dems for the financial ruin the neo-cons have wrought upon this
nation? Bush borrowed trillions to give away like candy to the
wealthiest Americans. The Washington state economy is bad because the
national economy is bad. Neo-cons have shipped our jobs to China, and
given out tax breaks to the companies that did it! The rape-publican
party is now trying to run a candidate for the US Senate in California
who, as head of Hewlett-Packard, shut down an American factory,
costing 18,000 jobs, and opened one in China, employing 20,000! Let
the rape-publicans run for office in China. It's their idea of
paradise anyway. Everything run by corruption, no labor laws, no
environmental laws, etc, etc.

Funny how the morons are complaining of the money Gore made AFTER he
left office. The numbers are a lie, but even if they were true, I
thought these nutcases worshiped the free market? Funny how when a
liberal sells some books, the free market suddenly becomes evil.
noel_r
main street, WA
344 comments February 28, 2010 at 6:39 PM

"That's why the Puget Sound area will have to make all the right
moves, and hope a highly unstable world economy cooperates"

this region, indeed this entire STATE, is hobbled in its efforts by
arrogant, out-of-touch Democrat lawmakers who can't get past their own
lust for our money, and who obviously view voters with utter disdain
and contempt. until and unless we have a major regime change in
Olympia, Washington in general, and Puget Sound in particular, will
continue their slide into the muck. Democrats will drive businesses
out with their idiotic taxes and regulations, and citizens who want to
actually make a decent living will wind up having to flee the state.
this is what 30 years of Democrat rule does. it's a shame, really...
this used to be such a nice place to live...
pumpkineater
puget sound, WA
556 comments February 28, 2010 at 12:41 PM

What, makes a diamond? Heat & Pressure; we have the heat, from the
crisis, so the pressure HAS to come from voters, who HAVE BEEN deaf,
dumb, lazy knee-jerk 'Keep the crooks we LOVE!' Party FAITHFUL. The
absolute waste, fraud, SELF-ENRICHMENT (hint Gore left office in 2000
with a million net worth, today he's at $100 million....is
UNprecedented - don't even get me started on that demented finger
puppet, Gomer W Bush!!). It would help IF the Repubs had ANYONE note
worthy, instead of useless Party nobodies. But WE, the people of WA,
MUST UPSET THE POLITICAL apple cart, and GET ALL NEW BLOOD into
Olympia, and D.C. The CONTEMPT the Dems and Repubs have for the
electorate, IS WELL DESERVED.
Helen1928
Dryden, WA
413 comments February 28, 2010 at 11:25 AM
Rating: (0) (1) Log in to

Fortunately, we have brilliant minds in office who are looking out for
us.

/sarc

http://seattletimes.nwsource.com/html/jontalton/2011216339_biztaltoncol28.html

FACTBOX-Keys to U.S. Senate compromise on financial reform
Sun Feb 28, 2010 8:00am EST

Thu, Feb 25 2010Feb 27 (Reuters) - A revised bill on financial
regulatory reform is expected to be unveiled next week in the U.S.
Senate by Democratic Banking Committee Chairman Christopher Dodd.

The bill will be the next step in a long drive by the Obama
administration and congressional Democrats to tighten bank and capital
market oversight after the worst financial crisis in decades tipped
the U.S. economy into a deep recession.

The Dodd bill will likely be scaled back from a sweeping regulatory
reform measure approved in December by the House of Representatives,
which itself was pared back in some respects from reforms proposed by
President Barack Obama in mid-2009.

Below is a look at some of the probable contours of the Dodd
legislation and their political prospects, based on discussions with
lawmakers, congressional aides and lobbyists:

* CONSUMER PROTECTION

Tackling the biggest obstacle to bipartisan support for reforms, Dodd
may call for creating a financial consumer protection watchdog as a
division inside an existing regulator, rather than an independent
agency.

Obama last year proposed an independent U.S. Consumer Financial
Protection Agency (CFPA) to regulate mortgages, credit cards and other
financial products. The White House still favors that approach. The
House has endorsed it.

But Republicans have refused to consider an independent agency, saying
it would unwisely divorce consumer protection and banking regulation.
They also oppose Dodd's latest approach to rule-writing power for a
consumer division inside another regulator, but perhaps not the idea
of a division itself.

Lobbyists for banks and Wall Street firms, whose profits would be
threatened by the CFPA, months ago made stopping it their top goal in
a broad push to weaken reforms.

* BANK SUPERVISION

Dodd is expected to call for a modest streamlining of the nation's
patchwork system for supervising banks, a significant step back from a
bold proposal he made in November to consolidate into a single, new
agency the bank supervision authorities now housed in several
agencies.

The Federal Reserve may keep oversight of large bank holding
companies, such as Citigroup and Bank of America, but surrender its
responsibility for some state-chartered banks to the Federal Deposit
Insurance Corp, which already oversees other state-chartered banks.

The Office of Thrift Supervision (OTS), which polices thrift
institutions, is likely to be closed, with its operations merged into
the Office of the Comptroller of the Currency (OCC), which now
regulates national banks. The OCC may remain in its present place as a
Treasury Department unit.

The House bill approved in December called for closing the OTS and
merging it into the OCC, but preserving the Fed's and the FDIC's
traditional bank supervision roles.

* VOLCKER RULE

Dodd will probably add to his bill a part of the House bill that
empowered regulators to order large firms that are in distress to halt
or divest risky businesses.

That would include proprietary trading desks, as well as hedge fund
and private equity interests, like those targeted by the "Volcker
rule" proposed by Obama in January.

The rule, named after White House economic adviser Paul Volcker,
sought a ban on banks' "prop trading" and hedge fund ventures. Dodd is
likely to be less proscriptive, leaving such decisions up to the
discretion of regulators.

The administration has voiced continued support for the Volcker rule
as proposed by the president.

* EXECUTIVE PAY AND SHAREHOLDER RIGHTS

Two senators assigned by Dodd to work out a bipartisan compromise on
these issues have failed to do so.

Democratic Senator Charles Schumer and Republican Senator Mike Crapo
are in a deadlock. The details of their disagreement are unclear. It
threatens proposals that would give shareholders more say on executive
pay, more clout in electing directors and more compensation committee
independence.

* SYSTEMIC RISK REGULATION

Most Democrats and Republicans agree on the need for a new regulator
to monitor the financial landscape and spot threats to stability
before they worsen and cause the next crisis.

The idea of a council of agency heads to do this has wide support,
despite reservations within the administration, which proposed last
year that the Fed take on the job.

The House bill proposed an inter-agency council chaired by the
Treasury, with the Fed as its chief policy agent.

Dodd will likely also recommend a systemic risk council chaired by the
Treasury Secretary, with the head of the Fed as vice-chair. Disputes
remain over the council's powers.

* RESOLUTION FUND

To deal with financial firms seen as "too big to fail," Dodd will
likely propose a new government process for shutting down large,
troubled firms.

Blending proposals from both Democrats and Republicans, Dodd will
probably propose allowing the government to seize distressed firms and
unwind them in a bankruptcy-like process, probably with help from
temporary government loans if needed. (For a FACTBOX on key players
reshaping U.S. financial rules, click on [ID:nN17146028]) (For a
recent story on the financial reform push in the Senate, click on
[ID:nN27197196] (Reporting by Kevin Drawbaugh, Rachelle Younglai,
Caren Bohan, David Lawder, Glenn Somerville and Karey Wutkowski;
editing by Todd Eastham )

StocksRegulatory NewsGlobal Markets

http://www.reuters.com/article/idUSN2719485020100228

Currencies Dollar Slides Against Euro Overnight
By Omer Esiner 02/26/10 - 09:51 AM EST

By Omer Esiner of Travelex

The dollar fell against the euro overnight but was still within
striking distance of last week's nine-month peak. Investors bought
back the badly beaten single currency to book some near-term profits
and square their positions ahead of the weekend. Generally firmer
stocks and commodities signaled improving risk appetite throughout
global financial markets, which further encouraged riskier trading
strategies and undermined some of the greenback's safe-haven appeal.

Going forward, however, the euro is likely to revert back towards
recent lows across the board as sovereign credit concerns about Greece
and other peripheral European nations weigh on the economic outlook
for the 16-member bloc.
The yen, one of the market's best performers this week, also trimmed
some of its recent gains. Generally soft global economic data combined
with heighted sovereign credit concerns had pushed the low-yielding
yen to two-week highs against the greenback and Canadian dollar and a
one-year peak against the euro earlier in the week.

Data overnight showed the U.K. economy expanded at a slightly faster
pace than originally reported in the final quarter of last year.

Still, on a yearly basis, Britain's contraction was worse than the
initial reading of GDP showed. Moreover, the soft domestic data of
late suggests that what little momentum the economy had in the fourth
quarter was likely lost in the early months of 2010. Sterling fell
back towards a nine-month low following the news.
USD: Fourth-quarter GDP was revised from an originally reported 5.7%
annualized growth to 5.9%, better than the 5.7% expected.

Consumer spending was revised down to 1.7% (quarter over quarter) from
an originally reported 2.1%. Business inventories fell by $16.9
billion, much less than the $33.5 billion decrease originally reported
and accounted for 3.8% of the 5.7% rise in GDP. While the robust pace
of expansion is not likely to be sustained in the quarters ahead, it
highlights the fact that the U.S. is outpacing in recovery, a view
that should continue to support the greenback.

EUR: The euro rebounded from across-the-board lows this week, boosted
by profit-taking and a bounce in investors' risk appetite.

The euro fell to near a nine-month low against the greenback, near a
15-month trough against the Canadian dollar and a one-year low against
the Japanese yen. Continued sovereign credit worries about Greece and
other eurozone nations have undermined the already anemic economic
outlook for the 16-member bloc, a view that should keep the euro under
significant pressure going forward.

Overnight, data showed the final reading of eurozone CPI for January
rose to 1.0% (year over year) from December's 0.9%, exactly as
expected. The benign outlook for eurozone inflation combined with
expected fiscal tightening in a number of the bloc's economies should
keep any policy normalization by the European Central Bank unlikely
until sometime in 2011.

The yen, which rose to a one-year high against the euro and two-week
highs against the greenback and Canadian dollar succumbed to some
profit-taking overnight. The yen rose this week as soft U.S. economic
data and sovereign credit concerns undermined the market's previously
upbeat mood.

The low yielding yen, much like the dollar, tends benefit during
periods of economic or financial market uncertainty. The yen should
remain generally underpinned heading into the fiscal year-end in Japan
in March, where firms tend to repatriate overseas earnings.

GBP: The pound fell back towards a nine-month low against the
greenback and a record low against the Canadian dollar overnight,
despite an upward revision to the quarterly reading of fourth-quarter
GDP.

Britain's economy expanded by 0.3% (quarter over quarter) in the final
quarter of 2010, three times the figure originally reported. However,
on a yearly basis, the British economy contracted by 3.3%, worse than
the 3.1% originally reported.
While the upward revision to the quarterly GDP data is marginally
positive news, the fact that more recent data out of the U.K. have
pointed to a slowdown in recovery suggests that what little momentum
Britain's economy had in the fourth quarter was likely lost in the
first.

Sterling should continue to suffer from its lackluster recover, which
keeps the door to further monetary easing open and from political
uncertainty ahead of an expected general election later this year.

CAD: Canada's current account, the broadest measure of trade in goods
and services, posted a C$9.77 billion dollar deficit in the forth
quarter, worse than the C$8.5 billion deficit forecast. Rebounding
trade with the U.S. helped narrow the third quarter's C$13.8 billion
shortfall. However, it was still the fifth-straight quarter of deficit
following a decade of current account surpluses. The Canadian dollar
was largely unmoved by the news.

Omer Esiner serves as the Senior Currency Market Analyst at Travelex,
Inc. a global financial institution specializing in corporate foreign
exchange services and international payment solutions. In this
capacity, he monitors, analyzes and interprets the economic,
financial, political and technical factors that drive the movements of
more than 100 currencies for Travelex. Mr. Esiner explains the
currency markets' reaction to market events to clients, employees and
members of the media.

You can view his daily reports, recording briefings, and quarterly
reviews posted here. As an expert in foreign exchange, Mr. Esiner is
quoted regularly by the financial media including The Wall Street
Journal, CNN, Dow Jones Newswires, Reuters, the Nightly Business
Report, National Public Radio, among others. Based in Washington,
D.C., Esiner joined Travelex in February 2000. Prior to his current
position, Esiner was a currency trader for several years. Mr. Esiner
holds a bachelor's degree in economics from the University of
Maryland, College Park. He is fluent in Turkish and proficient in
Spanish.

http://www.thestreet.com/story/10690570/1/dollar-slides-against-euro-overnight.html?cm_ven=GOOGLEN

[bademiyansubhanallah]

UPDATE 2-Japan finmin sets yr-end deadline to beat deflation
Sun Feb 28, 2010 10:42pm EST

By Leika Kihara and Rie Ishiguro

TOKYO, March 1 (Reuters) - Japan's finance minister said he wants the
country to pull out of deflation by the end of this year, setting a
deadline much earlier than the Bank of Japan's forecast as he ratchets
up pressure for further monetary easing.

Another cabinet minister went further, saying the central bank should
directly underwrite public debt to finance government spending,
although he added that monetary policy alone would not fix deflation.

"Escaping deflation is difficult so we won't see an immediate
improvement such as in several months. But taking two to three years
would be too long," Finance Minister Naoto Kan told a lower house
financial committee on Monday.

"Hopefully, we want Japan to see prices turn positive by the end of
this year," he said, adding that he hopes the BOJ will work with the
government in overcoming deflation.

The BOJ forecasts three years of deflation until March 2012 and has
said it is committed to fighting deflation, but has offered few clues
on what it could do in the future. Core consumer prices fell 1.3
percent in the year to January, marking the 11th straight month of
annual declines. [ID:nTOE61O06H]

The government, hobbled by ballooning fiscal debt, has been pressuring
the BOJ to support the fragile economy even as most other major
central banks mull rolling back stimulus steps put in place during the
global financial crisis.

Analysts say that while the BOJ will want to save its ammunition for
when sharp rises in the yen hurt a fragile economy, it may have to act
around June, when government pressure for more steps could escalate
ahead of upper house elections expected in July.

They say the most likely next step is for the BOJ to expand its fund-
supply operation adopted in December, at which it lends to banks at
0.1 percent, from 10 trillion yen ($112.4 billion) or extend the
duration of loans from three months. [ID:nTOE61L07O]

BOJ Governor Masaaki Shirakawa told the same lower house committee
that the central bank will keep monetary conditions very easy to pull
Japan out of deflation, which he sees as the most important goal for
monetary policy.

BOJ URGED TO MONETISE DEBT

Kan reiterated his view on Monday that Japan should aim for inflation
of "1 percent or somewhat higher", a goal that has eluded Japan in
nine of the past 10 years.

The call for 1 percent inflation is basically in line with the BOJ's
view of long-term price stability as annual inflation of 2 percent or
less, with 1 percent as an ideal level.

But the mere mention by Kan of such a goal in effect raises pressure
on the central bank, which yielded to government criticism by calling
an emergency meeting in December to announce it was pumping more cash
into the banking system.

"Kan may be putting more pressure on the BOJ to accept his calls for
setting an inflation target as the central bank has not given
favourable replies so far," said Hirokata Kusaba, a senior economist
at Mizuho Research Institute.

The BOJ is opposed to setting a rigid inflation target for fear of
tying its hands on monetary policy, particularly with increasing signs
that deflation will persist.

Japan's narrowest measure of consumer inflation matched a record
annual fall in January in a sign weak demand was forcing companies to
cut prices to lure consumers.

For a graphic of Japan's CPI click: r.reuters.com/rer72j

Shizuka Kamei, Japan's outspoken banking minister, called for even
more drastic action, urging the BOJ to directly underwrite public
debt, a move the BOJ is strongly opposed to for fear of triggering
runaway inflation in the long term.

"I suggest the BOJ directly underwrite government bonds to help the
government come up with financial resources," Kamei told the same
parliamentary committee.

Kamei has much less influence on monetary policy than Kan as his
ministry cannot send a representative to sit on BOJ policy meetings.

The BOJ currently buys 21.6 trillion yen worth of long-term government
bonds outright from the market each year. It has been hesitant to
raise that purchase amount, let alone directly underwrite government
debt.

While some analysts say the BOJ may increase its outright bond
purchases if yields shoot up on worries about Japan's worsening
finances, few expect the central bank to go as far as to directly
underwrite debt. ($1=88.93 Yen) (Editing by Michael Watson)

http://www.reuters.com/article/idUSTOE62002A20100301?type=usDollarRpt

Bloomberg

Japanese Bond Futures Fall on Stocks Gain, Pre-Auction Selling
March 01, 2010, 12:30 AM EST
By Yoshiaki Nohara

March 1 (Bloomberg) -- Japan’s bond futures declined for a second day
as stock gains reduced demand for the relative safety of government
debt.

Benchmark 10-year yields also climbed from near a two-month low on
speculation primary dealers will reduce holdings of debt to prepare
for a 2.2 trillion yen ($24.7 billion) sale of the securities
tomorrow. Household spending increased for a sixth month in January, a
government report tomorrow will show.

“With the auction tomorrow, investors don’t want to push up prices,”
said Naomi Hasegawa, a senior debt strategist in Tokyo at Mitsubishi
UFJ Securities Co., a unit of Japan’s largest lender by assets.
“Stocks are in a firm trend, which keeps a lid on bond prices.”

Ten-year bond futures for March delivery fell 0.13 to 139.74 as of
2:23 p.m. at the Tokyo Stock Exchange. They rose to 140.05 on Feb. 26,
the highest this year.

The yield on the 1.3 percent bond due December 2019 increased one
basis point to 1.31 percent at Japan Bond Trading Co., the nation’s
largest interdealer debt broker. The price declined 0.087 yen to
99.913 yen. The yield dropped to 1.29 percent on Feb. 26, the lowest
since Dec. 30.

The Nikkei 225 Stock Average gained for a second day, rising 0.8
percent. The Nikkei and 10-year yields had a correlation of 0.8 in the
past week, according to data compiled by Bloomberg. A value of 1 would
mean the two moved in lockstep.

Rising Debt Sales

Japan’s bond sales may swell to a record 51.3 trillion yen in the year
starting April 2011, following next year’s 44.3 trillion yen of
auctions, according to Finance Ministry data.

The previous offering of 10-year bonds on Feb. 2 drew bids for 3.62
times the amount on offer, up from 2.58 times at the January sale. The
bid-to-cover ratio has averaged 2.84 during the past year.

“Banks with abundant cash continue to support the demand for bonds,”
said Eishi Yokoyama, a fund manager in Tokyo at Daiwa SB Investments
Ltd., part of Japan’s second-largest brokerage. “The auction should go
smoothly.”

Japanese households boosted spending by 2.5 percent in January from a
year earlier, according to a Bloomberg survey of economists before the
statistics bureau report tomorrow.

The decline in bonds was tempered before a U.S. report today that may
show manufacturing in the world’s largest economy grew at a slower
pace last month.

The Institute for Supply Management’s factory index fell to 58.0 in
February from 58.4 in January, according to a separate Bloomberg
survey.

Japanese Exports

“The ISM index can give a hint for Japan’s export data,” said Tetsuya
Miura, chief market analyst in Tokyo at Mizuho Securities Co., a unit
of Japan’s second-largest banking group. “Should the data turn weaker
than expected, it could push down yields.”

Ten-year yields may fall as low as 1.27 percent this week, according
to Miura.

Financial Services Minister Shizuka Kamei said today in Tokyo that the
central bank should contemplate directly purchasing debt from the
government to help overcome deflation.

“The central bank should consider underwriting debt to help the
government create funds for fiscal stimulus,” Kamei said at a

parliamentary hearing. By law, the Bank of Japan is prohibited from
buying debt directly.

Consumer prices excluding fresh food slid 1.3 percent in January from
a year earlier, matching the drop in the previous month, the Cabinet
Office reported on Feb. 26. That was an 11th- straight decline.

--With assistance from Mayumi Otsuma in Tokyo. Editors: Nicholas
Reynolds, Garfield Reynolds

To contact the reporter on this story: Yoshiaki Nohara in Tokyo at
ynoh...@bloomberg.net.

To contact the editor responsible for this story: Rocky Swift at
rsw...@bloomberg.net.

http://www.businessweek.com/news/2010-03-01/japanese-bond-futures-fall-on-stocks-gain-pre-auction-selling.html

[bademiyansubhanallah]

The Asian region releases much data but with no effect on the market

Asian economy had a week full of economic data, but the impact was
limited on financial markets, due to excessive tension due to the debt
crisis faced by Greece which is threatening with a new contagion
especially across Europe.

With the beginning of the week, Thailand released the fourth quarter
GDP where growth accelerated by 3.6% beating the previous quarter’s
1.7%; it was also above that expected by analysts for 1.3% expansion.

On the year, Thailand’s annual GDP for the year ending 31 December,
the economy contracted by 2.3% in 2009 compared to 2.5% growth in
2008.

Thai Exports, which represented about 60% of the total GDP, inclined
to the highest in 18 months last December, especially with the
recovery of demand from the United States and Europe. That encouraged
Thai companies to increase production, which went up to near the
levels seen before global financial crisis, and they contributed
significantly to the recovery of the Thai economy after a year of
contraction.

The BOJ minutes for the meeting held on 25-26 of January; the bank
said it held rates intact at 0.1% to fight deflation pressures that
still affect negatively the second-largest economy in the world

The Minutes said that policy makers see the financial situation in
Japan as dangerous and that it became necessary to maintain confidence
in the markets through monetary and fiscal policies.

Monetary policy makers said that risk of rising public debt was due to
increasing government pressure on the Bank to combat deflation and
elevated yen exchange rates, which threatens exports, the nerve for
the Japanese economy.

The Japanese Economy has announced by the end of week the annual
consumer price index during the month of January dropped by 1.3% on
the year, compared with the earlier drop of 1.7%. Projections indicate
that price levels will continue declining in the Japanese economy
until the recovery reaches households. The receding demand by Japanese
consumer is forcing prices to the downside, which is pressuring
inflation to continue to decline and stalling the economic recovery.

The Japanese economy also released the Industrial Production index
increased 2.5% in January compared with the previous rise of 1.9% and
beat expectation for 1.0% gain. Continuous improvement in the
performance of the industrial sector in Japan reflects improvement in
global demand, which comes after governments utilized stimulus
measures and bailouts totaling 2.2 trillion dollars in order to snitch
the economy out of recession.

The MSCI Asia Pacific Index ended Friday’s trading by rising 0.6% to
117.66. Nikkei 225 ended Friday’s trading by rising 0.24% to close at
10126.03 points. The S&P/ASX 200 closed on Friday at 4637.70 after
rising 0.95%. Hang Seng ended Friday’s trading by rising 1.03% to
close at 20608.70 points.

Australia's current account deficit widened in the fourth quarter of
2009
01 Mar 2010 05:15 http://www.ecpulse.com/en/topstory/2010/03/01/australia-current-account-deficit/
Busy Week Ahead for U.S. Markets, as Income, Spending, Manufacturing,
Services, and Employment Data Await Investors
28 Feb 2010 10:29
http://www.ecpulse.com/en/topstory/2010/02/28/us-market-income-spending-manufacturing-services-employment-data-awaits-investors/
Europe Ahead: The start is with manufacturing and the end is with the
BoE and ECB rates!
28 Feb 2010 10:27 http://www.ecpulse.com/en/topstory/2010/02/28/europe-ahead-manufacturing-boe-ecb-rates/
Asia Ahead: major fundamentals awaiting the Asian region this week
28 Feb 2010 10:25 http://www.ecpulse.com/en/topstory/2010/02/28/major-fundamentals-awaiting-asian-region/
GDP Shows U.S. Economy Expanded Strongly in the Fourth Quarter, Yet
More Recent Data Suggest the Recovery Will Stall
27 Feb 2010 10:26
http://www.ecpulse.com/en/topstory/2010/02/27/gdp-us-economy-expanded-strongly-fourth-quarter-more-data-suggest-recovery-stall/
Euro Zone Risks Moving Away From Recovery, While U.K. Growth Figures
Surprise Markets
27 Feb 2010 10:24 http://www.ecpulse.com/en/topstory/2010/02/27/euro-zone-risk-move-away-recovery-uk-growth-surprise-market/

http://www.ecpulse.com/en/topstory/2010/02/27/asian-region-releases-data-no-effect-on-market/

[bademiyansubhanallah]

India, Korea factory output expands, China slows
Langi Chiang and Alan Wheatley

A graphic on China, India South Korea PMI.

(Reuters)
First Published : 01 Mar 2010 02:21:54 PM IST
Last Updated : 01 Mar 2010 02:24:39 PM IST

BEIJING: Factory activity in Asia's main economies expanded last
month, with India and South Korea growing at their fastest pace in
around two years although China showed some signs of weakening.

A pair of surveys of purchasing executives showed the pace of
manufacturing growth in the world's third biggest economy eased
slightly in February, but economists said the recovery trend remained
intact.

"Policymakers are driving with low visibility on the Chinese activity
data at the moment," said Brian Jackson, a strategist with Royal Bank
of Canada in Hong Kong, adding that the timing of the Chinese New Year
holidays complicated interpretation of data.

"So it would be premature to conclude that today's fall in the
headline PMI numbers show a broader easing in the momentum of China's
recovery."

The Purchasing Managers' Index (PMI) derived from a survey conducted
by the China Federation of Logistics and Purchasing for the National
Bureau of Statistics (NBS) fell to 52.0 in February, well below the
median forecast of 55.45 in a Reuters poll and from 55.8 in January.

The Australian dollar dipped and copper prices pared their gains after
the data, which markets took as a sign Chinese demand for metals and
other commodities might be softening. Shanghai stocks, however,
climbed in step with other Asian markets.

A separate survey conducted by research firm Markit for HSBC showed
the PMI dipping to 55.8 from a record high of 57.4 in January.

PMIs for the euro zone and the United States are due to be released
later in the day. Russia's PMI eased a touch to 50.2 last month, but
the index continued to show expansion for the second straight month.

RISING INFLATION PRESSURES

India's PMI rose to 58.5 in February, its strongest reading since June
2008, from 57.7 in January, boosted by expanding output and new
orders.

"At 58.5, the headline index is consistent with ongoing double-digit
gains in industrial production which in turn is likely to mean that
spare capacity is being eaten into rapidly," said Robert Prior-
Wandesforde, Senior Asian Economist at HSBC.

Signs of supply-side constraints in labour and product markets were
also emerging, which backed the case for further monetary tightening
next month.

"In our view, it is time to start unwinding the monetary stimulus and
we would be very surprised if the RBI were not to raise policy rates
at the 20 April meeting," said Prior-Wandesforde.

Price pressures were also building in South Korea, which saw its
headline PMI rise to the highest level since December 2007. Input
prices rose for the third straight month while output price index
inched up to 51.8.

"HSBC's Korea PMI suggests that price pressures are growing, something
that official price series have not yet picked up," the report said.

Bank of Korea Governor Lee Seong-tae warned last month that interest
rates needed to be raised soon to head off inflationary pressures, but
markets doubt he will act before his term ends next month.

The government has repeatedly expressed its opposition to an early
interest rate increase, fearing it could threaten the country's
economic recovery and prompting investors to push back their
expectations for a rate rise deeper into 2010.

Reuters

Manufacturing growth at 20-month high

Reuters

The HSBC Markit Purchasing Managers' Index rose to 58.5 in February.
(File photo: Reuters)First Published : 01 Mar 2010 02:03:28 PM ISTLast
Updated :
MUMBAI: India's manufacturing industry in February grew at its fastest
pace in 20 months, expanding for the third month thanks to expanding
output and new orders, a survey showed.

The HSBC Markit Purchasing Managers' Index , based on a survey of 500
companies, rose to 58.5 in February, its strongest reading since June
2008, from 57.7 in January.

A reading above 50 means activity is expanding.

"At 58.5, the headline index is consistent with ongoing double-digit
gains in industrial production which in turn is likely to mean that
spare capacity is being eaten into rapidly," said Robert Prior-
Wandesforde, Senior Asian Economist at HSBC.

"Although the output prices balance surprisingly dropped back in
February, while remaining consistent with price gains, there is more
and more evidence of emerging supply-side constraints in labour and
product markets."

The new orders index rose to 64.0 from January's 62.9.

"While new export orders grew less strongly in February than January
this didn't prevent the overall new orders series from hitting a high
in the current upturn," said Prior-Wandesforde. "The same was also
true of output growth, which has rarely shown such strength since the
series began in April 2005."

In the 2010/11 federal budget released on Friday, the government said
it expected Asia's third-biggest economy to grow faster than the 7.2
percent it forecast for this fiscal year ending on March 31. It sees
growth accelerating to 8.5 percent in the 2010/11 fiscal year.

http://www.expressbuzz.com/finance/story.aspx?Title=Manufacturing+growth+at+20-month+high&artid=SXt7l6b73a0=&SectionID=XT7e3Zkr/lw=&MainSectionID=XT7e3Zkr/lw=&SEO=Markit,+Purchasing+Managers+Index,+HSBC&SectionName=HFdYSiSIflu29kcfsoAfeg==

http://www.expressbuzz.com/edition/default.aspx?show=1

Budget fallout worries Congress
Anita Saluja
First Published : 01 Mar 2010 11:51:00 PM IST
Last Updated : 01 Mar 2010 12:34:35 AM IST

As the economists were trying to analyse the fallout of the Union
Budget, Congress floor managers were rattled by the sudden show of
Opposition unity, as even allies of the UPA joined the Opposition in
staging a walkout from Lok Sabha. Calculators were out to work out the
numbers game. It turned out that the UPA government enjoyed a slender
majority. A Union minister went on: Minus Madhu Koda, the party could
always count on Jayaprada, as she had fallen out with SP chief Mulayam
Singh Yadav. Then he went on to ask which way Jaswant Singh, expelled
from the BJP, would go. When told that Singh is to go abroad on a
lecture tour, the leader said Jaswant could always be flown back in
time for the vote on the Budget. There was comparison within the
ruling party on how Chidambaram would have managed the situation. The
clever way was to keep fuel price hike to the end of the Budget, as
that would have frustrated the Opposition walkout. In the age of live
telecasts, it is the clever packaging of the Budget that was required.
After all, the common man has no interest in the macro-economic
picture.

Supremacy tussle

Although the Prasar Bharati Board has been revamped, it is yet to hold
its first meeting. Now, it is slated to meet on March 17. Grapevine
has it that revamp is part of the larger tussle between Union I&B
minister Ambika Soni and Prasar Board CEO B S Lalli. Lalli reportedly
enjoys the backing of Manmohan Singh and Planning Commission deputy
chairman Montek Singh Ahluwalia. The government toyed with the idea of
going in for an ordinance, but had to abandon the move, as it is a
minority in the Rajya Sabha. The government was quick to seize
opportunity of filling-up vacancies in Prasar Bharati and appointed
Mrinal Pande as board chairperson and named new members like film
personalities Shyam Benegal and Muzaffar Ali, besides journalist Suman
Dubey. The idea was that the board would assert itself. But there has
been no evidence of it, resulting in disillusionment.

PM’s persona

Manmohan Singh is perceived to be a soft-spoken person, who seeks to
proceed on the basis of consensus. But the Opposition perceives him
otherwise — as someone rigid in his outlook. Grapevine has it that the
PM called the BJP top brass to discuss the situation arising out of
the posturing by China and raised the issue of his intentions to
engage Pakistan. The leaders conveyed their opposition. The PM quietly
conveyed through a background briefing that the BJP has been taken
into confidence ahead of the talks. This left the saffron party
leaders red-faced. A top BJP leader pointed out that Pakistan is in
turmoil and under these circumstances there could be no lasting
settlement. The government has to build up domestic consensus. Aware
that it cannot redraw borders, the government wants to dilute its
control of Kashmir through joint governance and dual currency.

http://www.expressbuzz.com/edition/story.aspx?Title=Budget+fallout+worries+Congress&artid=4K0oiBgihoo=&SectionID=XVSZ2Fy6Gzo=&MainSectionID=XVSZ2Fy6Gzo=&SEO=UPA,+Mulayam+Singh+Yadav,+Jayaprada,+Jaswant+Singh&SectionName=m3GntEw72ik=

Fuel may burn UPA fingers
Santwana Bhattacharya
First Published : 28 Feb 2010 02:12:00 AM IST
Last Updated : 28 Feb 2010 11:04:43 AM IST

NEW DELHI: What was restricted to the opposition yesterday became a
full-blown battle within the UPA today. Upset over the petrol-diesel
price hike, DMK supremo and Tamil Nadu Chief Minister K Karunanidhi
shot off two letters — one to Prime Minister Manmohan Singh and
another to Finance Minister Pranab Mukherjee. The other key UPA ally,
Trinamool Congress chief and Union Railway Minister Mamata Banerjee
too sent in a protest note to the Finance Minister.

Simply put, both the UPA allies are demanding a rollback of the
petroleum prices. The DMK says any increase in diesel price would have
a cascading effect on the prices of food and other essential
commodities, while for Banerjee, it’s a double whammy — it’s not just
the cascading effect of fuel prices on the common man’s budget she
fears for, but also the service taxes on rail travel.

For the Congress-led UPA, the Lok Sabha numbers are a bit of a bother.
With the RJD, SP and BSP — three parties which voluntarily gave
letters of support to the UPA — gone to the opposition camp, it has a
thin majority of 276. The UPA cannot afford to upset its allies as
Mukherjee himself said yesterday, “I have to, of course, keep my
allies in mind and look at the Lok Sabha number while formulating the
budget.’’ However, sources in the government ruled out any possibility
of a roll-back in the petroleum prices. “The allies have their own
political compulsion, but they will stand by us when the time comes
for voting (on the Finance bill),’’ a senior Congress leader plainly
said.

Comments

For every One rupee spent by an Indian 51 Paise is taken by the Govt
and this is looting> Govt should get out of the petrol business.
By Saudi Singh
3/1/2010 3:13:00 PM Hey,

If he rolls them back, what else he has in the budget. All other
factors mostly remain the same. There should be a differentiator to
call this as budget. So PM (Pranab Mukherjee) would hold to it atleast
in that view. Silly PM, FM, HM headed by anti-Indian Sonia. They have
ruined us completely
By Curious
3/1/2010 2:01:00 PM

Why should the UPA burn its fingers? The general elections are a full
four years away!
By Sonia Gand Hi
2/28/2010 11:56:00 PM

Real efforts had to be made by experts in finance sector to reveal why
and what warranted the hike in fuel prises. As regarding voicing
concern over the hike before joining the UPA the DMK should have
identified the common field of interest it had with the main party in
the UPA that is congress. The only common thing that DMK was expecting
the Congress to agree was in the field of sharing the ministerial
portfolios not policies. This was evident from the way Mr. Karunanidhi
left New Delhi when formation of UPA government was on. Once a
compromise had been arrived the Congress knew DMK having been
satisfied with what it wants will not pose a danger in not raising its
hands against the Govt. if voting takes place. Neither Mamtha will do.
What Mr. Karunanidhi is following is cheap politics.
By R.Thyagarajan
2/28/2010 8:58:00 PM

Solution to current oil imbroglio is very simple. Raise LPG price from
Rs 350 per cylinder (LPG 350) to Rs 850. LPG 850 is current scenario
in neighboring countries. At this price government will be able to
roll back recent price hike along with compensating LPG under
recoveries. Those who cannot afford LPG 850 will profitably switch
over to induction cooking in electrified areas which acts as LPG 150
or solar cooking during sunny hours which is absolutely free. Even
omnipresent unsubsidized SKO acts as sub 350 LPG. with every Rs 150
rise in LPG 850 petrol and HSD prices can be reduced by Rs 2/l from
pre budget price without loss.
By alok
2/28/2010 7:27:00 PM

Leaders of a frontline Naga separatist group on Sunday said they were
optimistic about the renewed peace talks with the government, to begin
Tuesday, but would not compromise on their demand for an independent
state in northeastern India. New, Hindustan Times, 28/02/2010. Who are
they working for?
By Rizwan Khan
2/28/2010 5:47:00 PM

(Contd...)And there are millions of bogus ration cards siphoning huge
quantities of kerosene, gas cylinders , diesel etc; Huge Votebank
financial measures mostly cornered misused by vested interests and
computerizations of records not effectively & quickly done for obvious
reasons. The service tax imposed and increased is also a tool towards
votebank politics funds gaps bridgings and this also needs to be
abolished immdtly in toto. Why to pay service tax on rly tickets, bus
tickets, for servicing of radios, TVs, phones, mopeds, scooters,
cycles etc? The servicing bill itself is quite heavy and on that
another 13% or so is further draconian levy. This service tax also
needs to be abolished in toto immdtly. Enough is enough on votebak
politics measures. How much financial bleedings can u do?
By Observer
2/28/2010 5:41:00 PM

Vote bank politics as well as mere tokenism on population controls
measures are main causes; so long as ur main idea is to stick to the
Delhi seats of power by hook or by crook, these questionables would
continue; self-seeking allies are like the other three wheels of
wagon; if one or more falls, the power wagon would derail immdtly!
Withdraw any measure or perpetuate votebabk politics depending upon
the magnitude of pulls & pressures from selfish allies. Shame that
cost of petrol production is less than Rs.25 per litre & and the rest
of pricing components go for various state/central levies & duties
from ; greater shame that even after sixty yrs of independence, eighty
percent of imports of crude oils have still to be made; U give
Navaratna & Maharatna status to oil companies but do not give them
freedom to fix prices as per market fluctuations.Even appointments of
the chairmen of oil companies are not purely on merit alone. And there
are millions of bogus ration cards siphoning
By Observer
2/28/2010 5:39:00 PM

No politicians are thinking regarding woes of poor and is fighting for
political mileage.The duties and taxes on petrol and diesel is 50% of
basic price and there is no justification for any further increase
which ultimately add further woes of people. The crocodile tears shown
by Karunanidhi will not yield any results as all politicians are in
league with each other.There are other ways by which govt. can
mobilize resources.If DMK is really concerned about poor,they must
pull out from the govt.The same action is needed from TMC. Let us see
what will the result and actual intention of both parties.
By S.N.Singh
2/28/2010 5:30:00 PM

The Congress FMs have no ideas about increasing taxation income except
flogging fuel and cigarettes.Our fuel is heavily taxed. Gone are the
days when the Congress thought that personal transportation was a
luxury. Today it is a necessity and even an increase of a Rupee in its
price has a cascading effect on prices. Our PM, when he was our FM
thought that air conditioners were a luxury and taxed air conditioned
restaurants.The day is not far off when our air and water will be
heavily taxed. Winston Churchill was correct when he opposed
independence saying that they would tax the very air that they
breathe. It is because of this mindset of politicians and the
bureaucrats that most people dodge paying taxes.If the Government
policies were fair and logical, I am sure that tax compliance will
improve considerably.Why can not our FMs think likewise? Is it because
they have been cheating all their lives that they can not think in a
fair and logical manner? It is difficult to solve this riddle
By S N IYER
2/28/2010 5:14:00 PM

The Congress FMs have no ideas about increasing taxation income except
flogging fuel and cigarettes.Our fuel is heavily taxed. Gone are the
days when the Congress thought that personal transportation was a
luxury. Today it is a necessity and even an increase of a Rupee in its
price has a cascading effect on prices. Our PM, when he was our FM
thought that air conditioners were a luxury and taxed air conditioned
restaurants.The day is not far off when our air and water will be
heavily taxed. Winston Churchill was correct when he opposed
independence saying that they would tax the very air that they
breathe. It is because of this mindset of politicians and the
bureaucrats that most people dodge paying taxes.If the Government
policies were fair and logical, I am sure that tax compliance will
improve considerably.Why can not our FMs think likewise? Is it because
they have been cheating all their lives that they can not think in a
fair and logical manner? It is difficult to solve this riddle
By S N IYER
2/28/2010 5:14:00 PM

The bold comments should not be suppressed.The public must know the
misdeeds of politicians.
By S.N.Singh
2/28/2010 5:11:00 PM

Karunanidhi shooting letters!!!!! What the DMK MPs were doing while
the budget session was on and the Opposition walked out? Were they
thumping and enjoying the Budget? They should have raised their voices
atleast. Why not Karunanidhi dash to Delhi, stay for three four days,
and fight for the recall? This is not a matter concerned with his
family welfare!!! Hence shooting letters, like srilankan tamils issue.
Spineless politicians. He has already sold Tamilnadu to Sonia for the
good of his family. Now there is nothing to lose for him. Like Cho
cartooned in Thuglag, he is shooting letters.!!! There ends the
matter.
By Southerner
2/28/2010 4:24:00 PM

fuel prices are said to be uncoltrallable for keeping a cap even for a
while, since we depend to a very substantial extent on crude imports
and our our indigenous exploration for oil and gas have yielded very
limited results despite rosy hopes that are raised when something like
Godavari belt "discoveries" are made which are hardly followed up by
any reports what happened after those "discoveries". Japan, in the
early 1970s, changed its car manufacturig strategy to concentrate on
highly fuel efficient engines with minimum loss of fuel through non-
conversion into energy, and it also changed gears to produce smaller
cars. India is zero in fuel or engine research, with no hope of our
"scientists and technologists" proving their worth in that area; and
the only way we can reduce the effects of further fuel price hikes is
to stop making over-sized cars just because more people can afford
them due to paying capacity. Mini cars must be the rule, besides
public transport, and bicycles as in
By Ragini and Radhika
2/28/2010 3:39:00 PM

Fuel will burn "anybody's" fingers. Reduced use of it, and substitutes
(already known or otherwise still being researched) will reduce this
risk if India pro-acts, rather than merely re-acts.
By Krishna S
2/28/2010 3:27:00 PM

Mr. B. S. Ganesh deserves kudos for his suggestion that 'minority'
commission should be replaced with a 'poverty reduction commission'.
Great thought!! But will it cut much ice with the 'only vote' hungry
politicians? For all advertisements emphasizing the Unity in Diversity
(in India), there is no doubt that throughout ages India has ALWAYS
been divided over many a factors 'the caste and creed' system being
one of the main followed by religious bigotry. There are many other
minor and major issues that has divided the common people in India.
The few of those common people, who due to various reasons aspire to
become politician capitalize on this divisional-factors and help the
process of widening the rift. We must understand that politicians are
not politicians from the begining. Even a a so-called political family
(dynasty) has its roots somewhere among the so-called common people,
at the onset. But I hope the suggestion as forwarded by Mr Ganesh
finds some takers who are cour
By Saumitra Chakraborty
2/28/2010 3:03:00 PM

Mr. B. S. Ganesh deserves kudos for his suggestion that 'minority'
commission should be replaced with a 'poverty reduction commission'.
Great thought!! But will it cut much ice with the 'only vote' hungry
politicians? For all advertisements emphasizing the Unity in Diversity
(in India), there is no doubt that throughout ages India has ALWAYS
been divided over many a factors 'the caste and creed' system being
one of the main followed by religious bigotry. There are many other
minor and major issues that has divided the common people in India.
The few of those common people, who due to various reasons aspire to
become politician capitalize on this divisional-factors and help the
process of widening the rift. We must understand that politicians are
not politicians from the begining. Even a a so-called political family
(dynasty) has its roots somewhere among the so-called common people,
at the onset. But I hope the suggestion as forwarded by Mr Ganesh
finds some takers who are cour
By Saumitra Chakraborty
2/28/2010 3:01:00 PM

Sub: MINORITY COMMISSION SHOULD BE REPLACED By POVERTY REDUCTION
COMMISSION Our politicians' fabulous food can not get digested without
dividing the country on " MINORITY AND MAJORITY " basis to enjoy power
and amass wealth and votes. Since poverty is an inanimate object and
is found in all religions it has to be changed as " POVERTY REDUCTION
COMMISSION ". The word Minority may encourage internal and external
terrorism also as seen in a number of cases of conflicts and
destructions. It is a pity even many judges are dividing inspite of
the ICON of the judiciary to be followed closing eyers on statuis of
litigants and lawyers. B S GANESH,
By B S GANESH BANGALORE
2/28/2010 12:22:00 PM

HIKE IN FUEL PRICES is a blunder on the nation as in the modern days
of plenty of vehicles and users specially those who travel by buses
and also trucks and trains which transpost food and other articles
suffer a lot. If prices of food stuffs increase people havre to
suffer. This is bad for the common people. I appreciate Mukherjee in
slashing the salary of the President of India as she has no need for
any salary. Similarly Mukherjee should have reduced salary and perks
of his other collegues also. B S GANESH BANGALORE
By B S GANESH BANGALORE
2/28/2010 12:06:00 PM

dear on lione editor, This is a THOUGHTLESS action based on obsilete
economuc thinking for increasin theincome but at what cost ias bever
considered.Petril an diesel isoneitem whic is used by the masses and
in huge qunatity but the casacading effect of this uninrilligent move
is not analtzed.There were so many ways the income can be increased
with out touching fuel in fact the government must resilve to reduce
the central excise and other levieson fuel then aitomatically
inflatioon will come down.Allwasrtefull expecesmust be rdced all
sinsidy be reduced andJ&K expebes reuced etc cumulatively sufficiet
amount will be there.The government must make it a policy not to
increae fuel prices any time then inflation will be controlled
also.Other sources of inreasing theincome msy be found out dted
Feb29tyh 2010 Time 1135Hrs ist AM
By P.M.G.Pilai
2/28/2010 11:37:00 AM

self goal by Congress??
By PK KUMAR
2/28/2010 9:18:00 AM

http://www.expressbuzz.com/edition/story.aspx?Title=Fuel+may+burn+UPA+fingers&artid=f9Hal4ihrs8=&SectionID=b7ziAYMenjw=&MainSectionID=b7ziAYMenjw=&SectionName=pWehHe7IsSU=&SEO=Tamil
Nadu Chief Minister K Karunanidhi,Prime Mini

Online banking scam busted
Express News Service
First Published : 01 Mar 2010 02:57:00 AM IST
Last Updated : 01 Mar 2010 07:18:49 AM IST

CHENNAI: Cyber Cell sleuths of the CB-CID in Chennai have busted an
online banking racket run by hackers with a string of ‘money mules’ in
different parts of the country. The hackers stole identities through
phishing e-mail addresses or by planting ‘key logger’ software.

The racket was busted while investigating a complaint filed in
November 2009, by a Tiruchy-based businessman, from whose bank account
Rs 26.55 lakh was siphoned off through 19 Internet transactions.

Three money mules have been arrested, one from Chennai in January and
two from Bangalore on Saturday, for siphoning money from the account
of S Salahudeen, of Ahamed and Company in Tiruchi.

The Chennai-based money mule C Sridhar, working in an engineering
company in Porur, had aided the illegal transfer of Rs 4 lakh.

The Cyber Crime Cell team that scrutinized the server log of the
victim’s bank, found that the hacker used computer systems connected
to networks belonging to Internet Service Providers of Nigeria,
Canada, Israel, Poland and Britain and has sought help from the CBI
and Interpol in getting the user details for the hacker’s internet
connections .

A scrutiny of the statement of accounts of the victim and money mules
revealed eight money mules across the country — in Chennai, Mumbai,
Calcutta, Bangalore and Sangli (Maharashtra) for transferring stolen
money.

The money mules had withdrawn the amount immediately and remitted it
into other accounts given by the hacker after deducting their
commission of 8 to 10 per cent, a CB-CID press release on Sunday said.
Investigations are on to trace the five other money mules and also the
mastermind behind the crime. The Cyber Cell has filed cases under
sections of the Information Technology Act, 2008, and the Indian Penal
Code.

http://www.expressbuzz.com/edition/story.aspx?Title=Online+banking+scam+busted&artid=3uFnw3hgobI=&SectionID=lifojHIWDUU=&MainSectionID=lifojHIWDUU=&SEO=&SectionName=rSY|6QYp3kQ=

Prudence could do with energy
The New Indian Express
First Published : 01 Mar 2010 11:04:00 PM IST
Last Updated : 01 Mar 2010 12:22:43 AM IST

Last year, in our comment on the Union Budget, we had said it was a
high-stakes gamble with the national finances, the plan to borrow an
extra Rs 4 trillion to sustain spending, on top of the Rs 3 trillion
of debt taken in the two earlier years. Union finance minister Pranab
Mukherjee himself admitted it was a “tremendous risk”, but said he had
no alternative to push growth, saying it would give breathing space
for change. “We have to initiate institutional reform measures this
year itself,” he promised. Well, he has been a lucky man — thank god,
for us. The reform has yet to happen, but the finances held up, due to
a combination of fortuitous factors, external and internal. The
Western world is still stuck in a slump, seemingly as much mental as
physical, while China and India remain in high-growth mode. The result
is the latter are among the few places where capital still not only
provides a good return, but also gives good hope for long-term
stakes.

So, foreign investment flows (direct and portfolio) touched Rs 2.3
trillion (lakh crore) between April and December 2009, the latest for
which we have confirmed figures. Hence, the real fear of non-
government investment needs being crowded out didn’t happen. Add the
fact that Pranab Mukherjee’s assumed Rs 75,000 crore of inflow from a
one-time auction of telecom spectrum and limited state sector
divestment, plus limited problems on world oil prices, thanks to the
slump in the West, and no big payouts, unlike last year, on the pay
commission arrears and loan writeoffs. Assume, too, a surge in tax
collections and a lid on spending, and he promises a fiscal deficit
reduction of about Rs 1,00,000 crore (to a still horrendous 5.5 per
cent of GDP).

Clearly, too much of a hire-wire act. As much as 80 per cent of
2009-2010’s government borrowing went to finance current consumption,
not investment; this is to reduce (an assurance) only to 73 per cent
in 2010-2011. The surge in inflation we have had is one indication of
how much can go wrong still. At the moment, we have promises; the
deficit is to be brought down by 2012-2013 to what it was in
2005-2006, borrowing to finance consumption is to be eliminated by
2015, debt levels (Centre plus all states) are to be tied by then to
Gross Domestic Product (GDP) levels (won’t exceed 68 per cent). We
haven’t got the institutional reforms; the coyness on the Kirit Parikh
report on freeing petro prices is one instance. Bear in mind that the
new Direct Taxes Code was to have been ready by last August, and
entirely a central decision; it is still being readied. The goods and
services tax revamp is now a year away, if all agree. We’ve got good
words: government must be an enabler, not a ban-imposer, said the
Union finance minister’s speech.

We are also to get a new Financial Sector Legislative Reforms
Commission, a Financial Stability and Development Council, a
Technology Advisory Group for Unique Projects, an autonomous Coal
Regulatory Authority, a promise on new private bank licences and much
else that shows the United Progressive Alliance (UPA) governing
alliance’s hearts and minds are somewhat in the right place, at least
at the top. Only, a government unable to let go of even sugar, and
creating such an almighty mess in the process, needs to show some
field action.

In fact, a lot more. One problem — we trust it isn’t an omen — is this
sort of thaali budget, of a bit for everyone, down to duty relief on
toy balloons. A touch here, a pat there, a reminder here, a hand there
— some of it nice, some welcome, some problematic, some worth
criticising. We aren’t going into all the micro issues; expectations
weren’t so high, there was trepidation on what was to come, everyone’s
got some relief, things have turned out better than possible,
everyone’s somewhat relieved…okay, broadly somewhat satisfactory. What
we would have liked was a central message, a thrust, a gathering of
forces in a forward direction on both, sobriety in finances and a more
open economy and polity. This isn’t being communicated enough.

What we have had is incremental bits of action in a number of okay
directions. Far more was both warranted and possible; it is a year
when there’s no major election scheduled, there’s a comfortable
majority, it’s still early in the government’s tenure, the external
environment such that everyone, West and East and neighbours, convey
that they could use — in fact, almost yearn for— action and ideas from
New Delhi. Perhaps we do the Sonia Gandhi-Manmohan Singh-Pranab
Mukherjee-etc team an injustice and this is the only way for enduring
change in India — cautious movement, civilised instinct, not very
combative, take it as it comes. Only, it doesn’t square with their own
diagnosis of how dire some things are, of the urgency for basic
change. In governance, delivery, accountability, majority. Everyone’s
talking figures and percentages, not outcomes. The scale of poverty
and expectations in this country is reason enough for more initiative,
for energising communication. Like last year, we hope, optimistically.

Comments

I am a layman in so far Annual Govt Budgets are concerned. My only
interest is whether I can have any benefits from the budgets. I am a
pensioner and income-tax assessee. While those with higher income of
above 3 lakhs are given hefty reliefs by raising tax slab at 10% to 5
lakhs, those with less than 3 lakh get no benefit at all. It is very
clear that Govt thinks more about rich and not middle class like
me.The FM should have shown mercy on people like me who are large in
number by raising income-threshold for tax to, say, 2 lakhs rather
than raising 10% slab to help serving Babus. I hope the FM would raise
the threshold limit rather than the tax slab during Budget
discussions.
By S.N.Hebbar
3/1/2010 10:12:00 AM

http://www.expressbuzz.com/edition/story.aspx?Title=Prudence+could+do+with+energy&artid=iJ0S4hoYJ0w=&SectionID=RRQemgLywPI=&MainSectionID=RRQemgLywPI=&SectionName=XQcp6iFoWTvPHj2dDBzTNA==

Our outmoded railway system
The New Indian Express
First Published : 26 Feb 2010 12:33:00 AM IST
Last Updated : 26 Feb 2010 12:58:39 AM IST

The Union railway budget for 2010-’11 underlines one central point:
the structure of its management ill-serves India. We are so used to
viewing the railways as a state undertaking, not an entity serving a
vital commercial purpose, that most citizens would view the absence of
any rise in fares as a measure of how ‘good’ or ‘bad’ the document is.
The fact is that the annual loss on passenger operations is as much as
Rs 14,000 crore. The net revenue in 2009-’10 is barely a third of what
was projected last year, despite huge cuts even then in the
allocations for depreciation and capital development funds. No money
has been set aside this year for the railway safety fund or for
allocation to create new assets; there is simply none. Working
expenses as a portion of traffic receipts total 94.7 per cent; it was
76 as recently as 2007-’08. Pay and pensions alone are taking half the
spending. Special projects for the minister’s home state total three
dozen items, considered par for the course.

With all this, where is the money for the ‘Vision 2020’ document to
come from? It envisages investment of Rs one lakh crore each year for
the next 10 years. Merely proclaiming ‘the time has come for the
business community to join hands to build partnerships’, as the
minister did, will not create the institutional mechanisms needed. The
fact is that Indian Railways cannot be run with this sort of structure
any more; it has to be run as a commercially professional undertaking.
Probably not as a monolith, either. Reams of paper have been spent
noting the reforms needed to stop treating the system as a vast milch
cow and to give it some wings. We have no idea if any of this will
happen, because no such vision has been communicated to us or, in
fact, of anything beyond a torrent of words about public-private
partnerships, new business models, task forces to speed proposals and
a lot of other familiar verbiage. We’d like to see an end to this
government culture in the railways and a roadmap to show what they
intend to do and at what schedule, in being economically viable, a
competitor to other forms of transport and to stay ahead of the needs
of an economy growing (or aiming to grow) at a compounded annual rate
of nine per cent for the next two decades. That just isn’t coming
through.

Comments

Indian democracy is a FARCE. Everything done by the elected FARCE
Govt. is also naturally FARCE. Everybody is cheating and looting the
tax payer. Even after sixty years of Independence, it is a pity, we
are still in the starting point only. Even if the passenger fares are
increased, nothing could be done, by the citizens. We have been
accustomed to GRIN & BEAR and will continue so.
By A Tax Payer
2/28/2010 6:12:00 PM

(Contd...)Rly Muster Rolls credibility/reliability/paddings also need
to be thoroughly checked by the Rly Vigilance Wing through some zonal
sample checks immdtly. This has rarely been done.(viii) Railways are
sitting for years on huge surplus land goldmines in very many cities,
towns, villages etc.Tens of thousands of crores could accrue if these
are encashed soonest possible cutting down on officialese, paper work
etc. Work progress is very slow.
By Observer
2/26/2010 6:15:00 PM

(Contd...)(iv) coaches & passengers safety compromised thru Laluji’s
revision of coaches annual maintenance overhaul schedule from one year
to 18 months; needs to be revised again to annual schedule with immdt
effect. (v) Anticollision devices installed on a very small No. of
trains only; this needs to be expedited to cover at least 75% of the
trains engines (vi) Enquiry reports findings need to be made public
immdtly for the accidents in the last two/three years involving
hundreds of crores of Rs.losses besides many casualties along with
ATRs on fixing of accountabiity and responsibility (vii) There are
substantial demands for addl. padded manpower in Railways; Railways
have already over 14 lakh employees; at least thirty percent are
nonperformers and are enjoying free lunches along with fat salaries,
allowances, so many annual LTCs etc; they need to be identified and
job rotated in the other Rly segments where motivated padded demands
for addl.manpower exist. Rly Muster Rolls credib
By Observer
2/26/2010 6:13:00 PM

Some reviewables, improvables in Railways by the Union Minister: (i)
Giving both male & female senior citizens fare concession of same
fifty percent; at present males get thirty percent only (ii) More than
hundred crores Rs.could be generated as addl.passengers revenue if so
many free Rly Passes/PTOs annually are reviewed by Mamata Banerjee in
favour of just one Rly Pass only per employee annually; At present the
Rly Officers/Workmen get nine to one dozen RlyPasses/PTOs.. Millions
of additional berths would get generated for the paying public. (iii)
improving work culture: Almost one year was taken in various ways for
removing the side middle berths in the sleeper class coaches; another
one year needed now for the simple job of readjusting/lowering the
height of the presently inconvenient crampy side upper berths to its
original height? (iv) coaches & passengers safety compromised thru
Laluji’s revision of coaches annual maintenance overhaul schedule from
one year to 18 months;
By Observer
2/26/2010 6:12:00 PM

What you have said is the essence of "sensible common sense".
Unfortunately politics signifies the absence of both - guts to think
out ofthe box as well as sound common sense! So we will have to wait
for an official with the good fortune to have wankled out soem
leveraing spce like Sreedharan who has made the Delhi Metro a sensible
means of transportation.
By Dr V Mani Iyer
2/26/2010 5:39:00 PM

http://www.expressbuzz.com/edition/story.aspx?Title=Our+outmoded+railway+system&artid=XPN5u9ib|54=&SectionID=RRQemgLywPI=&MainSectionID=RRQemgLywPI=&SectionName=XQcp6iFoWTvPHj2dDBzTNA==

[chhotemianinshallah]

Discussions / Live Q&A’s

Today 12:03 P.M.

There's a new Red Scare. But is China really so scary?

The Discussion

Total Responses: 37 About the hosts

About the host

Steven Mufson
Steven Mufson is a reporter on the national staff of The Washington
Post and has served as Beijng bureau chief for the Post.

John Pomfret
John Pomfret is a reporter on the national staff of The Washington
Post and has served as Beijing bureau chief for The Post.

Q.China's fault?
Great article, many thanks for attempting to debunk the mass anxiety
regarding China. My question: Can some of this "new Red Scare" be
legitimately blamed on China? That is to say, is there something new/
unusual/"wrong" that they are doing to rile the American psyche?
– March 01, 2010 11:33 AM

A.John Pomfret writes:
Good question. China's tone over the past year or so has become
increasingly strident, according to US officials. So they haven't
actually been helping their cause. Their reactions to the recent
Taiwan arms sales or President Obama's meeting with the Dalai Lama
have been generally more strident and pointed than before.

– March 01, 2010 12:06 PM
Q.Governance
The article could also have noted issues of governance in China.
Decisions made in Beijing, good or not, have difficulty finding their
way through the system. Handling of the Sichuan earthquake is a case
in point. Has China's efforts in handling the aftermath shown any more
competence than the efforts of the US to deal with the Katrina
catastrophe?
– February 28, 2010 3:33 AM

A.John Pomfret writes:
Obviously, the Chinese government was rightfully proud of the fast
response to the Sichuan earthquake. And Chinese government officials
have made comparisons between their work and the Katrina debacle. But
at the same time, the government has taken steps to crack down on
people who complained about the quality of the school construction in
the region. (Many schools collapsed, killing many students.) And the
government jailed several people for seeking compensation.
– March 01, 2010 12:08 PM

Q.On the threat from China
Your article overlooks two important points --

(1) starting from the decline of the Roman Empire, China & India had
the world's largest economies for over a millennium until the
Enlightenment began in the West.

As China finally catches up technologically, its ascendancy could be
viewed as a natural return to long-term historical trends.

(2) Unlike Japan, China has a billion-plus people, making it
inevitable that their economy will grow larger than ours (making this
an Asian century). Plus, per-capita income doesn't dictate world
influence -- just ask the rich (but small) Scandinavian countries.
– February 28, 2010 8:54 AM

A.John Pomfret writes:
Thanks for your point of view. I think China will no doubt have the
biggest economy in the world at a certain point. But how it translates
that economic power into real power is going to be a big question.
– March 01, 2010 12:09 PM
Q.China's opinion
Having spent some time in China, I am struck by how fascinated by the
U.S. and Americans the people there are. So, what do people in China
think about this sort of existential crisis Americans believe they
pose to the well-being of the U.S.?
– March 01, 2010 11:36 AM
A.John Pomfret writes:
This is a great topic. For years, Chinese were befuddled that the
United States was worried about China. Now many are actually proud
that Americans are concerned about China's rise. It's as if our
concerns about their power are validating that power.
– March 01, 2010 12:12 PM

Q.
Host Steven Mufson writes:
It's hard to deny that the US Senate is gridlocked and that the need
to get 60 votes has led to a lot of backscratching, or worse. China
has its own version of regional politics but it's obviously a lot more
centralized. In some cases that system produces its own quirks. One
example: the mad rush to build wind turbines in Inner Mongolia
outpaced the available transmission and a lot of turbines stood idle.
– March 01, 2010 12:14 PM

Q.One sided China reporting leads to public ignorance
The Pew Center poll in December showed a more favorable view of China
by members of Council on Foreign Relations, but American public's
views of China as an adversary remains largely unchanged. Do you think
journalists like you who have written many one-sided stories have
contributed to average American's ignorance of China?
– February 28, 2010 7:37 PM
A.John Pomfret writes:
I think the media can often be blamed for all of America's ills. But
in this case, I think if you read most of the stuff being written by
correspondents IN China writing for the New Yorker, the Post or the NY
Times, it's not anti-Chinese.
– March 01, 2010 12:14 PM

Q.one party rule
Do you think the majority of the Chinese people are happy with China
being a Communist dictatorship with one party rule? Do lot of people
yearn for more political freedoms?
– February 27, 2010 2:23 PM
A.John Pomfret writes:
This is a great question and it's difficult to tell because real
polling in China on these type of attitudes is restricted. However, I
think we can say that for most Chinese above the age of 40, it's quite
a good time to be alive. For younger Chinese, they have opportunities
for wealth and success that far surpass those of previous generations.
Do they yearn for political freedom or democracy? Hard to say. But I
also think the oft-repeated saw that Asians think differently about
these issues is also wrong.
– March 01, 2010 12:16 PM

Q.The commanding heights
With the remnibi, China seems determined to work against market forces
and keep its labor cheap. In a smaller country, I would guess that
kind of tinkering would blow up in their faces. Do they think they can
pull it off?
– February 28, 2010 8:35 PM

A.Steven Mufson writes:
The United States has a legitimate beef about China's currency.
Although China has been gradually increasing the value of its
currency, the renminbi is still undervalued and that helps China's
exports. But even in an economy China's size that could eventually
cause problems. With the economy growing extremely quickly, I think
Beijing might let the currency appreciate some more this year.
– March 01, 2010 12:17 PM

Q.There's a new Red Scare. But is China really so scary?
China seems to be dictating US behavior, being uncooperative on Iran,
threatening boycott of American companies after Taiwan arms sale, and
objecting to president one-year-delayed meeting Dalai Lama. Do you
think Obama has been weak in dealing with China so far? Or is the US
actually becoming weaker than China on the world stage?
– March 01, 2010 12:02 PM

A.John Pomfret writes:
This is another good question. I think as our piece said there are
many people in the United States -- including many people in the US
government -- that have overestimated China's strength. As such,
that's affected US policy decisions.
– March 01, 2010 12:18 PM

Q.Good article
Thank you for the good article. How long have you folks lived in
China?
– March 01, 2010 12:07 PM

A.John Pomfret writes:
We've lived in China for a combined total of 14 years. I lived there
for 10 and Steve has lived there for 4.

My years were 1980-82, 1988-1989 and 1998-2004.

Steve was 1994-1998
– March 01, 2010 12:19 PM

Q.Chinese Bureaucracy
Dear Sirs, Thank you for your informative Outlook article. My question
for you is this: how much of an internal threat to the Chinese economy
do you see coming from the behavior of government bureaucrats? It
seems to me that Chinese bureaucrats have more or less hijacked
economic reform to benefit themselves, but is there any truth to this?
– February 28, 2010 1:11 AM

A.John Pomfret writes:
I think corruption is a big problem in China and it could affect the
stability of the country. However, I would hesitate to go as far as
you and say that economic reforms have been hijacked by the
bureaucracy. Hard-working people can still succeed without official
government backing.
– March 01, 2010 12:21 PM

Q.Debt Policy
China has bought a lof of American debt. How might Chinese decisions
affect American spending, especially when choosing to not accept more
debt, and even selling American debt to other investors?
– March 01, 2010 11:14 AM

A.Steven Mufson writes:
China has actually become more cautious about buying US debt. In
December it was a net seller and Japan once again became the largest
holder of US Treasury securities. With China such a large holder of
those securities, it won't do anything that would damage its own
interests by dumping them and driving down their value. But it will
diversify more, I believe. Ultimately the US problem is the budget
deficit in the United States. That could eventually drive up interest
rates. Moreover, a lot of our government spending on interest will be
flowing out of the country, which is a drag on the economy.
– March 01, 2010 12:22 PM

Q.Bilateral cooperation
In your experience, what have you found to be some of the most
successful paths for increased bilateral cooperation and understanding
between China and the US? I feel as though a great part of the anxiety
in the US stems from a fundamental misunderstanding of the outside
world, and China is a perfect example of this phenomenon. What are our
best paths to diminish this disruptive chasm?
– March 01, 2010 11:30 AM

A.John Pomfret writes:
I think the areas that the US and China have cooperated well in are
areas where the two have done concrete things together. An example
would be law enforcement cooperation. And also cooperation on
protecting international fisheries. These might be small but they are
important
– March 01, 2010 12:22 PM

Q.Flow of information question
China is opening to the outside world, yet seems intent on containing
what messages from the outside reach its people. How soon do you see a
day when the Chinese government will not block selected web sites and
Internet communications between the Chinese population and outsiders?
– March 01, 2010 12:15 PM

A.John Pomfret writes:
Yes, I think that slowly but surely that day is coming. The Chinese
government controls a lot less of the information flow than it did 30
years ago when I first went to China. Obviously things get tighter and
then looser and then tighter again -- as they are now, for example.
But the general trajectory is towards more openness.
– March 01, 2010 12:23 PM

Q.Environment
What is the current status of environmental problems in China? How
clean is their air and how accessible is clean water throughout the
country?
– March 01, 2010 12:17 PM

A.Steven Mufson writes:
China is ground zero for environmental problems. I don't know the
current stats, but when I was based in Beijing in the 90s five of the
ten most polluted cities in the world were in China. Beijing's sky
usually looks pretty milky, and it's not from fog or clouds. Water
pollution is also a grave problem. One of the two main reservoirs for
Beijing is practically unusuable now. Only about a quarter of
industrial waste water nationwide is treated. The list goes on and on.
Pollution is one of the biggest threats to the country's economic
growth and to people's health there.
– March 01, 2010 12:24 PM

Q.US and China
I totally agree with the authors on the overstated China power and its
threats to America's position around the world.

China may have some cash reserve vs our huge debt. But its problems
are tremendous. And I don't think it's ready to challenge us.

As an American who grew up in China. I do know China a bit. I love the
United States of America. And the last thing I want to see is the two
nations fight each other.

The media is doing our country and the globe a disservice by crying
wolf. We need each other, especially at this kind of times. I thank
you for your insightful observations.

My question to Mr Mufson and Mr Pomfret is, do you think it's possible
for the relationship between the two countries to go back to normal?
If yes, what will it sake?
– March 01, 2010 11:33 AM

A.John Pomfret writes:
Back to "normal." I think the United States and China will never have
a "normal" relationship. We are just too big and too interconnected
for it to be "normal." Both sides will continue to have outsized
expectations for the other.
– March 01, 2010 12:25 PM

Q.China
China may be thriving, and we might not be, but can we really say that
China is "well governed?" Would you like your children to go to a
Chinese elementary school? Would you put your ailing parents in a
Chinese nursing home? Will you drink water out of the tap in
Chongqing? I am happy that China is doing better than ever, and I hope
that we can start do better than ever too...
– February 28, 2010 4:43 AM

A.Steven Mufson writes:
I think you've hit the nail on the head. That's a variation of what
we're saying. Yes, China is making incredible progress and will be a
bigger and bigger factor in world economics and politics. But...it
still has a ton of problems.
– March 01, 2010 12:27 PM

Q.Chinese imports--risky?
I've read about many unsafe products from China, including toxic toys
and tainted medicines. How real is the possibility of a major health
scare due to imported food from China?
– March 01, 2010 10:41 AM Permalink

A.John Pomfret writes:
The challenge that China -- and other countries that export to the
United States -- pose to us is one that really is our responsibility.
We've got to ensure that the FDA and the Consumer Products Safety
Commission do their jobs. It's easy to blame bad Chinese toothpaste or
pet food, etc. But at the end of the day its the responsibility of our
government to keep the American people safe.
– March 01, 2010 12:28 PM

Q.National Security Concern
In tandem with the U.S. losing manufacturing capacity to China, I'm
concerned that we're simultaneously losing key portions of our defense
industrial base. As but one example: the U.S. now purchases much of
its printed circuitboards from China. We also purchase naval sonabuoys
from China, which use these printed circuit boards. How wise is it to
become reliant on China for some of our key military technology and
components?
– March 01, 2010 10:32 AM

A.John Pomfret writes:
This is a good question. But my sense is that all important equipment
used by the US in the national security arena is either made in the
USA or by companies in allied countries -- e.g. the UK, Australia,
Japan, etc.
– March 01, 2010 12:29 PM

Q.China
As someone who lives in Asia and travels to Beijing on a regular
basis, make mistake that the Chinese do see the world right now in a
zero sum game

– February 28, 2010 6:10 AM Permalink
A.John Pomfret writes:
I think the zero-sum mentality in Beijing is a powerful one.
– March 01, 2010 12:31 PM

Q.We can work with China.
No question, but I must say how much I appreciated your common sense
approach. We have to look at the world as China sees it and think that
our best future is one of cooperation. We can trade our way to success
if we do it right. China needs to go easy on the espionage and tricks
and we need to let up on the attitude.
– March 01, 2010 12:30 PM Permalink
A.John Pomfret writes:
Thanks for your feedback
– March 01, 2010 12:31 PM

Q.Isn't our "fear" of China an indicator of our own problems?
Doesn't our new found fear about China's growing economic power
highlight the problem with how the US has maintained its economic
position? If China reaches oil consumption equal to that of the
poorest EU27 member world consumption would increase by over 45%. Even
a moderately successful threatens the US's 4.5% of world population's
ability to consume 10-20% of most resources.
– March 01, 2010 12:17 PM

A.John Pomfret writes:
I agree. Generally when the United States starts pointing fingers
abroad, it is because we are worried about things going badly at home.
Look at how much we feared Japan in the 1980s and early 1990s.
– March 01, 2010 12:33 PM

Q.Debtt
Does China expect its international debts to be repaid? If so, are
they looking for hard coin or enriching policy concessions? Can their
expectations be met?
– March 01, 2010 11:26 AM

A.Steven Mufson writes:
I think that China is investing its foreign exchange reserves in a
relatively conservative manner, with some tilt toward natural
resources. I think it expects all sovereign debts to be repaid, as
does the United States. These are primarily investments. But I do
think that people in the administration here have started to factor
China's holdings of U.S. Treasuries into their thinking about U.S.
policy toward China. Whether that's changed U.S. policy is another
question, and one I don't know the answer to. This is a story we'll
watch going forward, especially given how much more borrowing the US
government will do in the coming years.
– March 01, 2010 12:33 PM

Q.China's "Place in the Sun"
Given your many years experience in China, please address the issue of
any lingering sense among Chinese that they have been kept down by
malevolent outside powers and that they must seize what they are
entitled to.

Mao Tse Tung, at his moment of triumph, famously declared that "China
has stood up," suggesting that his revolution and seizure of power
established China among nations.

A sense of denied entitlement prevailed in Germany in the last 20
years before World War 1, German policy makers and public opinion felt
that the other powers has denied Germans their "place in the sun."

The naval race with Britain, the Agadir incident, the belated rush to
colonies in Africa, all were manifestations of this and contributed to
the tensions that led to WWI. Do you see similar public and official
opinions in China today?
– February 28, 2010 10:30 AM

A.John Pomfret writes:
I think there are two competing strains in Beijing right now. On one
side there are people who believe that China should continue taking a
low profile in international affairs and hide from the spotlight.
There are others, however, who embrace this "now is China's time"
view. They believe China should be bolder and more assertive. It's
unclear which side will hold sway.

More broadly, the world has always had a difficult time managing the
rise of a new power. Britain handled America's rise well. It was tough
but they made room -- but again we were very close to them culturally.
Germany and Japan were disasters. I think it's an open but very
important question how we will handle China's rise. So far, the US has
done pretty well, though. But it's still early days.
– March 01, 2010 12:36 PM

Q.Democracy and Living Standards
One of the most interesting aspects of China's economic success has
been the demise of the idea that living standards could only flourish
in a democracy.

The so called Chinese economic model has become attractive to despotic
regimes such as Sudan and Zimbabwe, and the Chinese leadership, with
their policy of not interfering in the political leadership of other
countries, could actually encourage more such despotic regimes.

I suppose that time will tell if China becomes more democratic or if
it will suffer an economic impasse like Japan, but don't you think
that the accendency of China in it's current state will alter the
geopolitical realities and expectations around the world?
– March 01, 2010 10:38 AM

A.John Pomfret writes:
This is a great topic. With China's rise you now hear people talking
about the China model or the Beijing Consensus -- a road map for
continued authoritarian government with market-oriented reforms.

That's what's been so successful in China, so far.

The issue though is will it be able to propel China up the value
chain. Will a political system that doesn't allocate capital very
efficiently and controls information flow be able to ride heard over
an economy in the information age?
– March 01, 2010 12:39 PM

Q.American business in China
I look at the labels as I walk through Wal-Mart and 90% are from
China. Are American businesses selling us down the river with all of
the product now being manufactured there? I don't blame the Chinese,
they are just doing what we have done in the past and what we should
be doing more now. What can be done to encourage American businesses
to manufacture more here?
– March 01, 2010 8:42 AM

A.Steven Mufson writes:
I was just talking to one of my teenage daughters about David Ricardo,
the 19th century British economist, and his theory of comparative
advantage. That supporter of free trade told us that countries will do
what they are relatively good at and sell those goods/services to
other countries. So our focus shouldn't just be in getting American
businesses to manufacture more for US shelves, but on keeping China's
market open (and currency fairly valued) so that we can sell the
things we're best at there while they sell what they're best at here.
– March 01, 2010 12:39 PM

Q.US-China trade
Hello, Can you explain why it would have been so difficult for China
to tend to its own people's needs, and the US to tend to ours? We have
a situation where the American consumer is helping ensure Chinese
stability by pouring money into China to get Chinese made goods, and
the Chinese are helping our stability by financing US government
spending. I know that there is benefit to be made from producing
things where labor costs are cheaper, but does that benefit outweigh
the US being in debt to China to the tune of $1 trillion and millions
of Americans out of work?
– March 01, 2010 10:08 AM

A.John Pomfret writes:
This is an issue that the Obama administration has raised with China.
The admininstration is trying to convince China to rebalance its
economy -- e.g. have its people buy more stuff and export less.
Whether this going to succeed is an open question.
– March 01, 2010 12:41 PM

Q.China, can we we learn from what makes it truly different?
Last year, thousands of books, articles, scholarly treatises, movies
and so forth were translated from English into Chinese, but just seven
Chinese books -- according to one Chinese author I recently spoke with
-- were translated into English.

The translation flow from English into Chinese far surpasses the
trickle of Chinese to English translation. In other words, Chinese
folks have much more access to our cultural reservoirs than we do to
theirs.

Is this lamentable? Is it correctible? Is there something in the
Chinese reservoirs that is worthy of translation, study, perhaps even
emulation?
– February 28, 2010 4:30 AM

A.John Pomfret writes:
China's social sciences are still really weak and too controlled to be
of general interest to American readers. However, there have been a
few interesting books translated. One is Will the Boat Sink the Water.

Another is a novel called Wolf Totem
– March 01, 2010 12:44 PM

Q.engagement
Has "'engagement" as presented (economic reforms => political reforms)
worked? How long should it be pursued?
– March 01, 2010 12:37 PM

A.John Pomfret writes:
Engagement has not led to political reform. But it has benefited the
United States, one could argue, in many other ways. For one, cheap
consumer goods. And it has also helped to bring millions of Chinese
out of poverty.
– March 01, 2010 12:44 PM

Q.China's "competitive advantage"
We frequently hear that US manufacturers should yield to China's
"competitive advantage," and focus our attention on what WE do
better .

The sense that China does things better than Americans is assumed,
largely, from the fact that they charge lower -- in some cases, much
lower -- prices, with very little attention to actual costs of
production.

I am wondering what you might think is China's "competitive
advantage?" Most people think it is labor costs, but that does not
really apply to industries -- such as steel -- where labor has become
a relatively minor "input" due to productivity gains over the years.

In fact, the cost of ocean shipping exceeds labor costs such that, in
many cases, labor could be FREE in China and there still would be no
real pricing advantage.

Studies have shown that China's steelmaking is higher cost than that
in the U.S. and yet they charge much less for their steel. How do you
think that is possible, in economic terms?
– March 01, 2010 10:57 AM

A.Steven Mufson writes:
I think Chinese companies do have to pay attention to actual costs,
but for years those costs were subsidized. Chinese energy costs were
subsidized, but they aren't now, for example. Chinese companies saved
money by not doing things like treating waste water, but that is
gradually changing too. State owned companies have drawn on cheap
credit from state-owned banks, but that is gradually fading too. It
will be interesting to see how China's trade changes going forward and
how its advantages change or disappear.
– March 01, 2010 12:47 PM
Q.Why not tell the whole story?

Drive down a highway in East China, and you will see mile after mile
of dense plantings. Ask a Chinese person about them, and they will say
they are there to combat pollution.

Visit a poor Chinese family's home, and find they have grown all the
food themselves except the two kinds of mushrooms they collected. No
wonder your number of $6546 for per capita income sounds low! And by
the way, in 1980, many states in the U.S. had per capita incomes
within a 1000 dollars of that!

Visit a Chinese family, and find, not only do they not have a car, but
they do not have central heating or air conditioning. Even in luxury
high-rise apartment building in downtown Shanghai, they will hang the
laundry out to dry. They have on-demand water heating, and they use it
sparingly, collecting the hot water they need for a day in the
morning. Bring the same family to America, and they will think you are
being extravagant for setting the heat to 58.

Go out drinking with a group of young Chinese men, and find that they
will order a plate of brocolli with their drinks. Join up with a mixed-
gender group of Chinese college students, and find they have the same
innocence as an American middle schooler.

And then ask yourself: what is the difference between England using
the banner of free trade to run drugs like opium into China and
America using the banner of free speech to enable the internet
pornography purveyors to expand their markets?

Walk up to an ordinary Chinese person and try a little English. Now
walk up to an American and try a little Chinese. What's the
difference? If the Chinese were actually speaking in a way Americans
could follow, wouldn't we be having McCarthy hearings?

In a world where resources are a real issue, what is the sense of
telling ordinary Chinese people who save like the dickens, that they
ought to start buying things they don't want or need, like the
Americans (my net worth literally went up 500 times after a married
one, although I haven't had a single pay raise during that period; my
environmental impact has gone way down although I was "environmentally
conscious" before). And of course, I could go on and on.
– February 28, 2010 8:54 AM

A.John Pomfret writes:
Of course, there are many wonderful things about China and the
Chinese. Both Steve and I have experienced them.
– March 01, 2010 12:47 PM

Q.Chinese production
Now that there have been some recent product scares and recalls with
Chinese manufacuted products and production is only increasing, aren't
we headed towards bigger problems faster. If American's want cheaper
products and Chinese factories produce them - isn't it inevitable that
shoddy products will be the result? It seems as though if worker
standards improve in Chinese factories that their wages will increase
and the cost of doing buisiness will increase as well. Am I thinking
too simplistically?
– March 01, 2010 12:31

A.John Pomfret writes:
I think the biggest issue is whether our bureaucractic structures --
like the FDA and the Consumer Products Safety Commission -- have the
wherewithall to protect American consumers.
– March 01, 2010 12:49 PM

Q.Is China really so scary?
Steve and John, Good piece that brings some balance to the issue.
Rather than look at different asopects of China's current conditions,
would it not be much better to looks at the long term trends? For
example in higher education where was China 20 years ago and where
will they be in 10 years? Snapshots of now look either bad or good
depending on where and from what anglke the picture is taken.
– February 28, 2010 4:36 PM

A.Steven Mufson writes:
Snapshots can be limited, but trend lines can be misleading. We tend
to see trendlines as straight lines when that's rarely the case.
Moreover, there is the fact that improvement from a very low base is
relatively easy, but it becomes harder and harder to improve at the
same rate from a higher base.

A word on education: You hear a lot of complaints these days about
access to good schools. Chinese people have higher standards /
expectations for their children but there are only so many top
schools.
– March 01, 2010 12:50 PM

Q.China
The term "red scare," in my opinion, is unnecessarily sensationalist,
not consistent with its traditional use by historians, and inaccurate,
as China no longer has a communist economic system.

Anyway, don't you agree, from a historical perspective, since the mid
or late 19th century, the United States has been more of a threat to
China than vice versa? This country's participation in the unequal
treaties system, role in helping suppress the nationalistic Boxer
rebellion, thousands of troops stationed in China until about 1945,
overt threats over the offshore islands during the Eisenhower
administration, assistance to Tibetan fighters around 1959, ongoing
support for Taiwan all seem examples.

Secondly, China has historically never posed a military threat to any
country not on its borders, except to Japan during one or two ancient
dynasties. Your comments?
– March 01, 2010 1:47 AM

A.John Pomfret writes:
Interesting points. China was a weak country then and it was routinely
bullied by Western powers, the US included. However, I'd take issue
with notion that China has never been expansionist. China's land mass
almost doubled during the Qing Dynasty for example. It also
controlled Korea and regularly fought with Vietnam.
– March 01, 2010 12:51 PM

Q.China
If the Chinese growth continues on a average yearly 8 to 9 percent and
your political gridlock keeps your decision making at 60 senators
versus to one person in China, I do not care what is your theory of
not to be scared of China, my friend you will be behind in the next 10
to 20 years. I spent a lot of time in China, I can tell you these
people are moving.
– February 28, 2010 7:48 AM

A.John Pomfret writes:
Interesting point. Moving they are! But is China's success to be
feared?
– March 01, 2010 12:52 PM

Q.China
the words "China" and "eco-friendly" in the same breath boggle the
mind. And why is it glossed over that China invaded and has occupied
Tibet by force?
– February 28, 2010 3:39 PM

A.Steven Mufson writes:
I don't think we would call China "eco-friendly." It is getting more
eco-conscious, but the environmental situation is grave.

As for Tibet, we do write about it as part of the whole story of China
and about negotiations between the Dalai Lama and his representatives
and the government in Beijing.
– March 01, 2010 12:53 PM

Q.Things May Not Be What They Seem To Be
I'm Chinese-American, and I know both cultures. It's difficult for
Americans to understand Chinese. Chinese media will publish mostly
praise and good news, but the American media will be contentious. For
a person, American people wear their clothes so that they are
comfortable, but Chinese emphasize how their clothes look to others,
even if they are uncomfortable.
– February 28, 2010 6:41 PM

A.John Pomfret writes:
I am always kind of leery about people saying how different the
Chinese are from the Americans. Actually, I believe as big continental
countries we have a lot more in common than people from other
countries. As for the media, China's will change with the times.
– March 01, 2010 12:54 PM

Q.There's a new Red Scare
As Sen. Graham said, "they don't need 60 votes to get things done."
The problem in the U.S. is that if I vote for your project, you vote
fo mine, that is why we have no money left for what we need rather
than what we want.
– February 27, 2010 8:48 AM

A.Steven Mufson writes:
Due to technical difficulties (my difficulties), my answer to this
question was posted without the question. So I'll repost the answer --
with the question this time.

It's hard to deny that the US Senate is gridlocked and that the need
to get 60 votes has led to a lot of backscratching, or worse. China
has its own version of regional politics but it's obviously a lot more
centralized. In some cases that system produces its own quirks. One
example: the mad rush to build wind turbines in Inner Mongolia
outpaced the available transmission and a lot of turbines stood idle.
– March 01, 2010 12:55 PM

About the topic

Washington Post staff writers Steven Mufson and John Pomfret, both
former Beijing bureau chiefs, discussed their Outlook article titled,

" There's a new Red Scare. But is China really so scary? "

http://live.washingtonpost.com/outlook-03-01-10.html

China Fears US to Adopt Weak Dollar Policy
By Oanda on 03/01/2010 – 11:12 am PST

Following the most recent row between China and the US, and the
fallout from China’s selling of nearly $35 billion of US securities
from its foreign reserves last December, China now finds itself having
to explain its actions. When asked during a press conference last week
if there were “political considerations” behind the move to reduce its
US exposure, Foreign Ministry Spokesperson Qin Gang noted China’s
“perspectives” with respect to its investment practices.

Citing the need to ensure “safety, liquidity, and good value”, Qin
noted that safety of funds is the primary directive overseeing China’s
foreign reserve policy.

“How much we buy and when we buy depends on the market conditions and
our own need”, Qin offered when pressed further.

“On the other hand”, noted Qin, “relevant major reserve currency
countries should take credible measures to boost confidence of the
international market in their currencies. It is like doing business,
you need both a buyer and a seller.”

Not exactly subtle to be sure, but there is no denying the message to
the Obama administration – “Don’t do anything that could undermine the
value of the dollar”.

China has good reason to fear the adoption of a weak dollar policy as
America looks to slow its growing trade gap and put more people back
to work. In January’s State of the Union address, President Obama
highlighted the need to tackle America’s trade imbalance:

“We need to export more of our goods. Because the more products we
make and sell to other countries, the more jobs we support right here
in America. So tonight, we set a new goal. We will double our exports
over the next five years, an increase that will support two million
jobs in America.”

US President Barack Obama

Realistically, there is only one way that Obama can hope to double
exports in five years and that is to devalue the dollar. A weaker
dollar will make American-made products less costly to foreign buyers.
At the same time, it will make imports more costly, resulting in a
further shrinking of the trade gap.

As the number one seller of consumer goods to America, a weaker US
dollar would be highly detrimental to the Chinese economy, and it is
unlikely China would accept its fate quietly. China depends on
maintaining a trade advantage over the US, and any closing of the
trade gap will surely elicit some form of response.

Without doubt, the first move China would make, would be to peg the
yuan even more closely to the dollar than it does now. This would
effectively negate a cost increase to China’s products for American
consumers. The downside of this is an overall loss of real income for
China. However, this may be inevitable in order for China to maintain
demand for its products in the US.

The second option for China would be to increase its US holdings. Yes,
I said increase. Buying US treasuries and sending a strong signal to
the bond market that China has faith in the US dollar, would see an
uptick in confidence for the greenback. The resulting increase in
demand for the dollar as a reserve currency would make it more
difficult for the government to devalue the currency.

Now, we all know that China has deep pockets. We also know that the US
has no choice but to run yearly deficits for the foreseeable future,
but there is a limit as to how much American debt China can absorb.
Having said this however, I don’t think we will see a dramatic shift
in policy by either party in the short-term. After all, no one wants
to rock the boat while the global economy is still trying to gain
momentum.

Tempest in a Teacup?

That leaves us with trying to explain the $34.2 billion sell-off. I
would argue that, looking at the big picture, it is really nothing
more than a minor warning to remind the Obama administration that
China is paying close attention to American monetary policy. Consider
that published estimates at the end of 2009, placed the total value of
China’s foreign reserves at $2.4 trillion. As of November of last
year, the US Treasury Department said that China held $789.6 billion
in US Treasury securities, which means that US securities make up
about 33 percent of China’s total reserves.

Suddenly, $34.2 billion doesn’t look like that big a deal. After all,
it represents a reduction of just over 4 percent of China’s total US-
denominated holdings, and less than 1.5 percent of its entire foreign
currency reserves.

http://www.favstocks.com/china-fears-us-to-adopt-weak-dollar-policy/013831/

DXY Hits 81.2, Euro Tumbles - Back To June 2009 Levels
Submitted by Tyler Durden on 03/01/2010 10:40 -0500

The DXY just hit a nine month high at 81.20. The euro tumble is
accelerating and was at 1.3468 last. In fact, total chaos in pairs
land. Equities now completely dislocating from the EURJPY signal:
Japanese biotechs expected to to hostile bids for all US stocks
imminently.

by 4shzl
on Mon, 03/01/2010 - 10:43
#249432

More euro rope-a-dope?

by Hephasteus
on Mon, 03/01/2010 - 10:47
#249443

No. People are just buying massive amounts of dollars to do massive
amounts of business. There's a recovery going on.

Either that or the IMF is loading up bailout bucks.

by Joanito
on Mon, 03/01/2010 - 10:44
#249435

denial is powerful. Equities waiting on equities to confirm move in
dxy. Monday will stay green at all costs. someone get the rumor mill
going.

by D.M. Ryan
on Mon, 03/01/2010 - 10:46
#249440

That jump was unexpected, at least by me. The sheep might as well
enjoy the rich pasture while they can...

by chunkylover42
on Mon, 03/01/2010 - 10:52
#249447

FT reporting that Kohn is resigning from the Fed Board of Governers.
He's the big deflationist on that panel and I wonder if he's
frustrated with the direction they are heading.

At a minimum it will be interesting to see if the tone becomes
increasingly more one-sided toward the inflation camp. I believe
Yellen is more of a realist as well but I could be mistaken.

by jmc8888
on Mon, 03/01/2010 - 12:55
#249622

Odds are very strong the both inflationists and deflationists will see
their day. Meaning both are wrong. (because both occur)

Of course we could straight deflate into nothing.

But hyper ben will probably keep printing until hyperinflation.

There is NO MIDDLE GROUND. It's either death through deflation,
inflation, or both. But one (at least) will surely occur.

It's inflation and deflation at the same time. Monetary aggregates
are inflating, while the physical economy is deflating. You can read
all the numbers you want, but the real economy is still deflating.
(and has been for 40 years, but not at the rate of the last 1 1/2)

LaRouche's triple curve says it perfectly. It's existance (since
1996) proves the writing was on the wall before we even repealed Glass/
Stegall.

by MarketTruth
on Mon, 03/01/2010 - 10:54
#249448

FYI: Gold at or near all-time highs in the Euro and British Pound
Sterling.

www.kitconet.com/charts/metals/gold/2a-euro-us-30d-Large.gif

www.kitconet.com/charts/metals/gold/2a-gbp-us-30d-Large.gif

by Mr Lennon Hendrix
on Mon, 03/01/2010 - 11:57
#249536

The doelarr moves up and gold is sitting pretty!

by JR
on Mon, 03/01/2010 - 11:05
#249465

The Pavlovian response is firmer prices for stock futures, oil, and
gold. If there is a deal, and details follow, stocks could benefit
further. If the deal disappears, stocks could suffer. ~ Art Cashin

The economy and the economists are seeing deflation with their figures
but the consumer is seeing higher prices and a tougher time. Always.
Something’s wrong in this Fed-driven economy.

San Francisco union muny drivers have in their contract with the city
that they must always be the second highest paid in the United States;
how can that factor be included in the relationship between costs
incurred and prices consumers have to pay? This web of middle
economic forces from public employee unions to bulk buying by
multinational corporations to the picking of winners and losers with
allocation of printed money from the Federal Reserve is the reason for
the continued disconnect between the deflation that the economists see
and the prices consumers have to pay.

According to NowAndFutures.com.(with charts):

Almost 90% of the Dow’s gains since 1963 is inflation.

Over 80% of the Dow’s gain since 1900 is inflation.

The average compounded total (Dow) return per year through 2007 is
about 6.5%. When corrected by CPI, it’s about 3.4%…and with full CPI
+lies corrections included, it’s about 2.8%. In other words, almost
60% of the total return is inflation only…and that’s before fees,
commissions and taxes.

Oil reached a low point in January 1999 of $17, and now hovers around
$80 per barrel.

Remember this from Scotia Economics (February 25, 2010)?—and tell me
the consumer economy is in a deflation. LOL:

The Scotiabank All Commodity Price Index February 25, 2010 (percent
change, annual rate) Growth Trends Index: (1997=100) shows Last Year
10.7; Last Five Years 6.1; Last Ten Years 6.3.

According to Scotia Economics: “Scotiabank’s Commodity Price Index
jumped by 4.5% m/m in January, beginning 2010 on a strong note. The
All Items Index has advanced by 26.5% from the cyclical bottom in
2009…

(“LME copper prices (the bellwether) climbed from US$3.17 per pound in
December to US$3.35 in January…while prices could pull back
temporarily when the Fed tightens monetary policy later this year,
copper should still average at least US$3.15 in 2010 and climb to US
$3.50 in 2011.”)…

“China now accounts for almost 40% of world demand for the four key
base metals and the United States only 10% (excluding inventory
accumulation). …

“Commodity prices are expected to strengthen in the first half of
2010, with restocking of manufactured goods and raw materials in the
United States adding to ‘emerging-market’ demand. U.S. Purchasing
Manager Indices have shown a marked pick-up in shipment and output in
recent months. A big increase in annual contract prices for coking
coal and iron ore, as tight international supplies strain to meet
strong Asian demand, will add to gains.”

http://www.scotiacapital.com/English/bns_econ/bnscomod.pdf

http://www.nowandfutures.com/inflation_long_term_log.html#copper

This is the carbon monoxide poisoning awaiting sleeping passengers on
this Fed freight now pullling into the Armi tunnel (see Cashin).
IMO.

by JR
on Mon, 03/01/2010 - 11:12
#249478

Face to Face With Marc Faber | Prieur du Plessis | LewRockwell.com |
03/01/10

Marc Faber, editor of the Gloom, Boom and Doom Report, sits down with
Ben McLannahan, Asia Lex Writer of the Financial Times, to discuss a
variety of pertinent economic and investment topics. In short, he
suggests investors should make 2010 the year of “capital
preservation”.

Part 1: Warns of partial US debt default
Faber says irrational monetary policy means there are asset-class
bubbles forming somewhere, only we don’t know exactly where yet.

Click here to view Part 1 of the interview.

Part 2: Forecasts negative US real interest rates
Faber says stocks won’t reach new highs this year.

Click here to view Part 2 of the interview.

Part 3: On gold and China’s economic slowdown
Faber predicts Asian stocks will underperform this year because of
China’s inevitable economic slowdown and suggests accumulating gold
and shifting more money to India and Japan.

Click here to view Part 3 of the interview.
Part 4: On the year of “capital preservation”
Faber says global investors should make 2010 the year of “capital
preservation”.

Click here to view Part 4 of the interview.

Source: Ben McLannahan, Financial Times, February 23, 2010. This
appeared on Investment Postcards from Cape Town.

http://www.lewrockwell.com/faber/faber53.1.html

by Gordon_Gekko
on Mon, 03/01/2010 - 11:33
#249504

I respect Mr. Faber immensely, but his prediction that "stocks won't
reach new highs this year" looks to be heading down the shitter
already...we're like about 35 points from the Jan high right now.
Perhaps Mr. Faber's error lies in thinking that we have any stock
"market" left, when in fact all we have is a PR screen with some
numbers painted on it by the Fed.

by Hephasteus
on Mon, 03/01/2010 - 11:37
#249512

A rolling loan gathers no loss. And a buffered block of stocks gathers
no loss either. Extend and pretend has become the ONLY reality
allowed.

by JR
on Mon, 03/01/2010 - 12:03
#249541

Thanks; I share your frustration. Faber is a key person to listen to
but he has been a little all over the map in past months. The fact is
with hands on the money supply operating in secret even Nostradamus
would have a problem predicting equity prices. My only thought is the
economy seems to be much weaker than the government economists will
admit and that if the economy exerts more pressure on stocks because
the Fed is unable to handle the debt load then equities could go much
lower. In fairness to Faber, the situation keeps changing. I base my
outlook on the fact the Fed has limitations and there’s an end to
this.

by SDRII
on Mon, 03/01/2010 - 11:14
#249483

If the IMF bails out CA/NY/IL/AZ/NV/KS.....would that be considered
paying with yourself...

by perchprism
on Mon, 03/01/2010 - 11:30
#249498

I think they've already gone blind.

by zarrmax
on Mon, 03/01/2010 - 11:21
#249488

didn't the DXY trade up to $81.342 on 2/19?

reply
by Gordon_Gekko
on Mon, 03/01/2010 - 11:25
#249495

Umm...stocks are the new "safe-haven"? ROFL. Expect ANYTHING in the
idiotland that are our so-called "markets" today.

by deadhead
on Mon, 03/01/2010 - 11:38
#249513

+100

my trading in the u.s. equity market will be very limited going
forward.

what a fucking joke the stock market is. that said, i'm confident the
day will come when it tanks and i'm just going to laugh at all the
suckers for getting burned again for the umpteenth time. all i can do
is tell those that i know that they are out of their minds for being
long u.s. equities.

by Anonymous
on Mon, 03/01/2010 - 11:53
#249531

They're going to have to get $nya over 7100 and $nyk over 4700 before
I throw in the towel on my shorts.

These are broad indices that are actually showing weakness- and they
can't be manipulated by any ETFs that I know of.

by Caviar Emptor
on Mon, 03/01/2010 - 11:39
#249514

The bubble is stealthy, my friends. But it is already big and growing
daily.

At the top is always the most irrational.

One clear measure of the trend: "Bewb_Flation"! As is clearly in
evidence on CNBC. The race is on between the morning anchorettes:
Trish Regan (just had twins) and Melissa Francis (pregnant). Adds to
already existing evidence of already rampant Bewbflation : average US
bra size is up 2 sizes since 1996 from 34B to 36C according to
Frederick's of Hollywood.

by Pinkfleud
on Mon, 03/01/2010 - 11:56
#249535

Finally some USEFULL data !!

by Anonymous
on Mon, 03/01/2010 - 12:27
#249573

"at the top is always the most irrational"

"Gold to 6000"

Need I say more?

by godfader
on Mon, 03/01/2010 - 12:03
#249543

Where are the idiots who were screaming how the Dollar was toast? LOL
They all disappeared.

by JR
on Mon, 03/01/2010 - 12:12
#249555

Just remember that the pushers of debt are actually WORSE that the
pushers of drugs. They cause more damage and reap more havoc across
most people’s lives than drugs ever could. ~ Nathan Martin

I don't think dollar's out of the toaster yet..

by Anonymous
on Mon, 03/01/2010 - 12:25
#249570

Likewise with most of the GOLD BITCHEZ crowd.

by godfader
on Mon, 03/01/2010 - 12:23
#249568

The Dollar may collapse down the road, I agree. The point that appears
obvious though is that blinding shorting it (like the idiots were)
without have a clue about trading is not enough to make it in the
markets.

by Anonymous
on Mon, 03/01/2010 - 12:43
#249596

Just as usual with the middle class. My wife is still AA. Glad she's
so good looking.

http://www.zerohedge.com/article/dxy-hits-812-euro-tumbles-back-june-2009-levels

[chhotemianinshallah]

Xinhua China News Digest at 16:00 GMT - March 1
Posted on: Mon, 01 Mar 2010 11:44:09 EST

Symbols: XHUA

Are you looking to increase your ETF knowledge?
See the PowerRating of XHUA now and learn how it rates on a 1-10
scale.The higher the PowerRating, the greater potential short-term
gain based on historical data.
Mar 01, 2010 (Xinhua via COMTEX) --

The following are China news stories moved by Xinhua News Agency as of
16:00 GMT, March 1.

TOP STORIES

* Toyoda offers apology to Chinese consumers for recalls

BEIJING, March 1 (Xinhua) -- Toyota Motor Corp. President Akio Toyoda
bowed at a press conference in Beijing Monday to apologize to Chinese
customers for vehicle recalls.

"I would like to express my sincere apologies as the massive global
recalls have affected and worried Chinese customers," Toyoda said.

* Former senior soccer officials arrested on match-fixing, bribery
charges

BEIJING, March 1 (Xinhua) -- Three high-ranking Chinese soccer
officials have been arrested for alleged match-fixing and bribery, the
Ministry of Public Security (MPS) said Monday.

The three were Nan Yong and Yang Yimin, vice chairmen of the Chinese
Football Association, and Zhang Jianqiang, former director of the
association's referee committee, according to the ministry.

* China allocates 28.6 bln yuan to support farmers

BEIJING, March 1 (Xinhua) -- China's central government has allocated
28.6 billion yuan (4.2 billion U.S. dollars) to support farmers, the
Ministry of Finance said in a statement Monday.

The bulk of the funding -- 18.6 billion yuan -- would be used to
subsidize farmers in growing improved varieties of crops such as rice,
corn, and cotton.

BUSINESS & FINANCE * China Focus: Booming real estate sector puts
China at crossroads in 2010

by Xinhua writers Chen Yongrong and Xu Xiaoqing

BEIJING, March 1 (Xinhua) -- For China, from ordinary citizens to top
policy makers, the phrase "real estate" brings a mixture of feelings.
Strong investment in the sector has helped China recover quickly from
the global financial crisis, but has also complicated China's economic
future.

* China Focus: Economic gap keeps narrowing between China's east,
west

by Xinhua writer Wang Hongjiang

BEIJING, March 1 (Xinhua) -- Since 2004, the economic gap between
China's east and west has narrowed, according to a Tsinghua University
report.

The report showed that since 1990, the coefficient of difference or
gap between China's east and west per capita GDP peaked in 2004,
hitting a record of 0.75, and then fell to 0.6 in 2008.

* China to develop low-carbon economy: top economic planner

BEIJING, March 1 (Xinhua) -- China's top economic planning body has
confirmed the government will take concrete actions to develop a low-
carbon economy after it pledged to substantially reduce carbon
intensity at last year's Copenhagen Conference.

China would include the low-carbon targets in the 12th five-year plan
for national economic development (2011-2015) to build an energy-
saving, ecologically friendly society, the National Development and
Reform Commission said in a report to the Standing Committee of the
11th National People's Congress (NPC).

* ICBC's NPL ratio in 2009 drops, overseas assets increase

BEIJING, March 1 (Xinhua) -- The non-performing loans (NPL) ratio of
the Industrial and Commercial Bank of China (ICBC), the world's
largest bank by market value, stood at 0.56 percent in 2009, down from
2.29 percent the previous year, ICBC said in a statement Monday.

YOUR QUERIES:

Duty editor: Yuan Ye @ 8610 6307 3665

For full details on (XHUA) XHUA. (XHUA) has Short Term PowerRatings at
TradingMarkets. Details on (XHUA) Short Term PowerRatings is available
at This Link

http://www.tradingmarkets.com/news/stock-alert/xhua_xinhua-china-news-digest-at-16-00-gmt-march-1-812378.html

China stepping up for Arctic influence: report
By Emma Graham-Harrison, Reuters
March 1, 2010

The Advanced Microwave Scanning Radiometer (AMSR-E), a high-
resolution passive microwave Instrument on NASAs Aqua satellite, shows
the state of Arctic sea ice on September 10 in this file image
released September 16, 2008.Photograph by: NASA, ReutersBEIJING --
China is stepping up efforts to secure a role in deciding the future
of Arctic issues such as shipping and energy extraction, as melting
ice raises hopes of a shorter shipping route to the Atlantic, a report
said on Monday.

Beijing is putting more resources into researching the high north,
although officials are pushing for a cautious policy approach to
avoiding causing alarm among Arctic states, the Stockholm
International Peace Research Institute (SIPRI) said.

"China is aware that its size and rise to major power status evoke
jitters but at the same time it is striving to position itself so that
it will not be excluded from access to the arctic," the report said.

The export-dependent structure of China's economy means shorter routes
to Europe and North America could have a massive impact, the report
said, citing estimates that nearly half of gross domestic product
could be reliant on shipping.

The Northern Sea Route could shave over 6,000 kilometres off some
journeys, it added.

A shorter route would also allow China to shave the cost - and the
risk - of shipping crude oil and other commodities from the Atlantic
coasts of Africa and the Americas.

China is at some disadvantage in negotiations over the future of the
area, because it has no Arctic coast. With only five littoral states,
most of the rest of the world is in a similar situation of jostling
for influence in a potentially vital area.

"Circumpolar nations have to understand that Arctic affairs are not
only regional issues but also international ones," the report quoted
Guo Peiqing, associate professor at the Ocean University of China, as
saying.

Beijing's traditional diplomatic emphasis on the importance of
respecting national sovereignty and "non-interference" in the internal
affairs of other countries, will make it hard for it to question the
territorial claims of arctic states.

So if China does not step up political research and expertise, it
could be excluded from being a decisive power in the management of the
area, the report quoted experts saying.

Traditionally China has had strong polar research capacities, with a
string of university programmes and concerted efforts to build up
international exchanges - but focused on issues like the environment
and climate change.

Researchers and officials have only started to weigh up the political
and commercial implications of ice-free shipping routes in recent
years, the report said.

But there are risks as well to the melting of arctic ice. Chinese
shipping firms will face "fierce competition", its ports in lower
latitudes could suffer, and current international laws do not favour
China's interests in arctic shipping, the report said, quoting an
assessment by a Chinese specialist panel.

Even if a sea route does open up, it could be ruled out as a practical
option by challenges including high insurance premiums, the danger
from floating icebergs, shallow passages or high charges from Russia
for passage through its waters.

© Copyright (c) Reuters

http://www.calgaryherald.com/China+stepping+Arctic+influence+report/2626826/story.html

.Research group: China prepares for Arctic melt
Published: Monday, March 1, 2010

By LOUISE NORDSTROM
Associated Press Writer

STOCKHOLM (AP) — China is starting to prepare for the commercial and
strategic opportunities arising as global warming melts the polar ice
cover in the Arctic, an international peace research group said
Monday.

Researchers expect the North Pole to be ice free during summer months
in a matter of decades, opening up new shipping lanes and potential
resource exploration in an area believed to contain as much as a
quarter of the world’s undiscovered oil and gas.

Competing sovereignty claims in the region are primarily being
discussed by the five nations bordering the Arctic: the U.S., Canada,
Russia, Norway and Denmark. Though China is keeping a low profile in
those disputes, it’s showing growing interest in the Arctic, the
Stockholm International Peace Research Institute said in a new study.

“China is slowly but steadily recognizing the commercial and strategic
opportunities that will arise from an ice-free Arctic,” said SIPRI
researcher Linda Jakobson, who authored the study.

Jakobson said China “is at a disadvantage as it is not an Arctic state
but is still keen to have the right to access natural resources.”

SIPRI said China is devoting extra resources to Arctic research,
mainly on science but also on the commercial, political and strategic
implications of the melting of the ice in the region and opportunities
to study the sea floor. Beijing has decided to build a high-tech
icebreaker for polar expeditions, which is expected to be operational
near 2013, the institute said.

“A few Chinese researchers already question China’s natural sciences-
approach to Arctic research and encourage the Chinese government to
make comprehensive plans,” Jakobson said in the report.

“These researchers are critical of China’s neutral position toward
Arctic politics,” she said. “But the government does not want to alarm
the Arctic states and, therefore, is cautious in its Arctic policies.”

Jakobson said China is seeking a more active role in the Arctic
Council — an intergovernmental body that deals with issues faced by
Arctic nations and indigenous populations there.

China’s economy relies heavily on shipping so the country stands to
gain from shorter routes to Europe opening up because of the Arctic
melt, instead of the traditional route through the Indian Ocean and
the Suez Canal.

The Shanghai-Hamburg shipping route could be cut by as much as 4,000
miles (6,400 kilometers) by using the Northwest Passage north of
Russia, SIPRI said. That would also allow Chinese ships to avoid the
pirate-infested waters off the Horn of Africa.

Two German merchant ships last year traversed the Northwest Passage, a
sea lane that has traditionally been avoided because of its heavy ice
floes.

In the summer of 2007, the Arctic ice cap shrank to a record-low
minimum extent of 4.3 million square kilometers (1.7 million square
miles) in September. The melting in 2008 and 2009 was not as
extensive, but still ranked as the second- and third-greatest
decreases on record.

Comments

The following are comments from the readers. In no way do they
represent the view of theoaklandpress.com.

It will shrink even more wrote on Mar 1, 2010 9:13 AM:

" Because China doesn't have to care about global warming due to their
developing nation status, they could speed the melt along even more by
emitting even more greenhouse gases.

They could devote smokestacks to accomplishing this very task.

Another win-win for China. Go China! "

http://www.theoaklandpress.com/articles/2010/03/01/news/doc4b8bc37ff29e9051079570.txt

CHINA SPY CAUGHT ON VIDEO….SEE NOTE

Chinese spy buy caught on surveillance video

REMEMBER CLINTONGATE JOHNNY CHUNG AND OTHERS INCLUDING THE LORAL
COMPANY WHICH TRANSFERRED MISSILE DATA TO CHINA?…..RSK

” Chung became intertwined in the Chinagate political and national
security scandal in 1994 when he started making donations to the
Democratic National Committee (DNC) and the Clinton-Gore re-election
campaign.
More than 100 witnesses to this scandal, including DNC donors and even
former members of the Clinton Administration, have taken the Fifth
Amendment or fled the country.

http://www.infowars.com/jchung.html

http://archives.cnn.com/2002/BUSINESS/asia/01/09/china.loral/

http://www.washingtontimes.com/news/2010/mar/01/chinese-spy-buy-caught-on-video//print/

FBI surveillance video made public Sunday reveals details of a Chinese
espionage operation to obtain secrets from the Pentagon through a
group of Americans who spied for China.

The rare video footage was the high point of a multiyear investigation
into Chinese espionage carried out by a ring of military intelligence
agents operating from Guangzhou, China.

The tape, made public by CBS’ “60 Minutes,” was recorded in 2007 with
two cameras hidden in a rental car during the investigation of
Pentagon analyst Gregg W. Bergersen. The video reveals Bergersen
pocketing a wad of about $2,000 in cash from Kuo Tai-shen, a Taiwanese-
born spy for the People’s Republic of China.

“I’m very, very, very, very reticent to let you have it because it’s
all classified,” Bergersen says to Kuo about classified reports he had
in his possession. “But I will let you see it.”

Bergersen, who is serving a five-year prison term, then said, “You can
take all the notes you want … but if it ever fell into the wrong
hands, and I know it’s not going to, but if it ever … then I would be
fired for sure. I’d go to jail, because I violated all the rules.”

Commenting on the video, former FBI agent John Slattery, who oversaw
the Bergersen case, told CBS that “information has been passed prior
and this is reward for that, or there is expectation that passage of
information is forthcoming so that’s what’s happening here.”

According to court papers in the case, Kuo, a businessman who was
based in Louisiana, took the information from Bergersen and provided
it to another Chinese agent, Kang Yuxin, with details of Taiwan’s Po
Sheng communications and defense system. Additionally, Bergersen
provided Kuo with classified lists of planned U.S. weapons sales to
Taiwan over the a five-year period.

Bergersen thought he was providing the classified information to
Taiwan, through Kuo, when in fact the information went to China’s
military intelligence service, known as the Second Department of the
People’s Liberation Army, or 2PLA, according to court papers.

Bergersen was sentenced to five years in prison in July 2008. Kuo
received a 15-year term in May 2008.

The Bergersen case grew out of an earlier spy case involving U.S.
defense contractor Chi Mak, who was arrested in 2005 and later
convicted of passing embargoed technology to China illegally and for
failing to register as a foreign agent. He is serving a 24-year prison
term. His brother, Tai Mak, is serving a 10-year prison sentence for
his role as a courier, and three other Mak family members also were
convicted in the case.

The cases produced a rare glimpse into the secret world of Chinese
military spying, which has scored major successes against the United
States over the past decade.

According to U.S. intelligence officials, data compromised through
Chinese spying included the theft of Aegis battle management
technology, which is the heart of the U.S. Navy’s warships and which
already has been copied in at least two Chinese warships.

Other losses attributed to Chinese military spies include secrets
related to U.S. attack submarines, U.S. bombers and other aircraft and
strategic missile and rocket technology.

In addition to the Mak and Bergersen cases, a third spy case involved
former Rockwell International and Boeing Co. engineer Dongfan “Greg”
Chung, who was convicted of supplying China with sensitive data on the
space shuttle and military and civilian aircraft and helicopters.
Chung was sentenced on Feb. 8 to 15 years in prison.

A fourth person involved in the spy ring was James W. Fondren, a
former Air Force officer who was working for the U.S. Pacific Command.
Fondren was sentenced on Jan. 22 to three years in prison for
providing classified information on U.S.-China military relations to
Kuo in exchange for money.

Prosecutors suspect that Kuo recruited Fondren and Bergersen.

The spy cases also revealed the identities of three Chinese officials
who U.S. counterintelligence officials say are likely working for the
2PLA.

The main contact for the Mak case was Pu Pei Liang, a Chinese military
official working for the Guangzhou-based Chinese Center for Asia-
Pacific Studies at Zhongshan University, which U.S. officials have
linked to the Chinese military.

Others included Lin Hong, a suspected military intelligence officer
who met Fondren and Kuo in China during a 1999 visit. Mr. Lin also was
linked to Bergersen.

Another official was identified as Guang Li, a suspected Chinese
military intelligence officer linked to Kuo, Fondren and Bergersen.

Gu Weihao, a suspected Chinese military intelligence officer working
for the Chinese Ministry of Aviation and China Aviation Industry
Corp., was the contact in China for Chung.

Michelle Van Cleave, a former senior counterintelligence official,
said recent spy cases involving China show that Beijing’s espionage
activities are pervasive.

“We’re only seeing the tip of the iceberg in these technology theft
and espionage cases,” she said in an e-mailed statement. “Even more
troubling are the parts we do not see.”

Along with China’s economy and military, “their intelligence
operations are growing too,” Ms. Van Cleave said.

Director of National Intelligence Dennis C. Blair said in
congressional testimony Feb. 3 that “during the past year, China’s
intelligence services continue to expand and operate in and outside
the United States.”

Former Chinese Ministry of State Security intelligence officer Li
Fengzhi is quoted in the documentary as saying China’s main spying
target is the United States.

The Chinese government routinely dismisses espionage convictions by
China-related spies as based on “groundless” accusations against
Beijing.

http://www.ruthfullyyours.com/2010/03/01/china-spy-caught-on-video-see-note/

March 1, 2010
China manufacturing continues to grow in February
by Kay Murchie

Surveys by the Chinese Government and HSBC have today revealed China’s
manufacturing activity continued to grow in February, albeit at a
slower pace.

The HSBC China Manufacturing purchasing managers’ index (PMI) dipped
to 55.8 in February from 57.4 the previous month.

However, a reading above the crucial 50 mark means the sector is
expanding.

In the meantime, manufacturing output grew for the 11th consecutive
month on the back of sharp gains in new business led by firmer client
demand, according to the HSBC survey.

HSBC’s chief China economist Hongbin Qu, said: “Despite the moderation
in the headline China Manufacturing PMI, growth momentum for China’s
manufacturing sector remains strong, pointing to a further
acceleration in industrial activities in the coming quarters.”

However, a separate closely-watched PMI published by the China
Federation of Logistics and Purchasing (CFLP) today revealed
manufacturing activity fell from 55.8 in January to 52.0 in February.

In related news, China‘s economy, which is currently the world’s third
largest, saw double digit growth in the fourth quarter of 2009 and the
economy is now on target to surpass Japan and become the world’s no.2
economy.

The economy expanded by 10.7% in the final quarter of 2009 compared
with the same period a year earlier.

Meanwhile, the economy grew by 8.7% in the 2009 year - which exceeded
the Government’s initial expectations.

Many analysts have described China’s recovery as “impressive” and it
was recently announced that China had overtaken Germany as the world’s
biggest exporter.

Related financial stories to: China manufacturing continues to grow in
February:

CIPS manufacturing index up in February
http://www.financemarkets.co.uk/2007/03/01/cips-manufacturing-index-up-in-february/
Data shows US economy expanding
http://www.financemarkets.co.uk/2006/05/01/data-shows-us-economy-expanding/
Renminibi revaluation speculation continues
http://www.financemarkets.co.uk/2005/04/29/renminibi-revaluation-speculation-continues/
Manufacturing to create economic turnaround
http://www.financemarkets.co.uk/2009/04/27/manufacturing-to-create-economic-turnaround/
Peru courts Chinese investment
http://www.financemarkets.co.uk/2005/05/30/peru-courts-chinese-investment/

http://www.financemarkets.co.uk/2010/03/01/china-manufacturing-continues-to-grow-in-february/

CASS: China's violent crimes rise for the 1st time in a decade
17:17, March 01, 2010

BEIJING, Feb. 25 (CNS) (Yu Lan) – Crime rates increased amid the
global economic crisis, as did the unemployment rate. According to the
2010 Rule of Law Blue Book released by Chinese Academy of Social
Sciences (CASS) February 25, China's crime cases in 2009 breached the
stable situation dating back to 2000 and increased substantially,
among which, violent crimes and property crimes witnessed sharp jumps.

As the blue book shows, the number of China's criminal and civil cases
increased by a large margin from January to October 2009, and reached
5.3 million and 9.9 million respectively by the end of 2009, with the
former’s growth rate up over 10 percent and latter’s up around 20
percent.

The deteriorating economy has made criminals much more violent.
According to the blue book, violent crimes such as homicide, rape, and
robbery saw sizable growth in 2009, the first increase of such cases
since 2001. China's violent crimes had been declining evidently for
about a decade prior to 2009.

In terms of intentional murder cases, vicious murders among family
members and those committed in vengeance against society, or simply
those by mental patients accounted for a large portion. Incitements to
murders also surfaced from time to time. Furthermore, gangs were
prevalent in some places, and some criminals killed the intellectually-
challenged and faked their deaths in mine disasters so that they may
blackmail for money.

The number of robberies has increased to a certain degree. In
addition, some robberies even involve the illegal use of guns, hostage-
takings and homicides. Since 2002, with the security system
enhancement in China's banks, the number of robberies in banks and
cash trucks has dropped dramatically. However, in 2009, Li Li's
robbery of a bank shocked the whole country (Li is a student from
Beijing University of Science and Technology).

The blue book predicts that China still faces a severe social
situation in 2010. As China's economy has not yet completely recovered
from the international financial crisis, some people may encounter
difficulties in finding jobs, and the number of relatively poor people
will rise and mass disturbances caused by all kinds of social
contradictions may occur here and there. Therefore, the pressure of
maintaining social stability under relevant government departments
will not reduce.

According to the author of the blue book, this year will continue to
witness frequent violent crimes, property violations and economic
crimes. The financial crisis and the slack fiscal and monetary
policies may lure those with potential criminal motives to commit a
crime. The number of economic crimes such as fraud and the illegal
pooling of public deposits will increase continuously.

By People's Daily Online

http://english.people.com.cn/90001/90782/90872/6905399.html

Crime In China. Say What?
Posted by Dan on March 1, 2010 at 07:58 AM

As regular readers know, I am fascinated by statistics. As regular
followers of China know, reliable statistics on China are frequently
hard to come by, and that is particularly true when it comes to
crime.

Now, the People's Daily, in an article, entitled, "China's violent
crimes rise for the 1st time in a decade," has come out with an
article flogging the rise in violent crimes in China, but without
really giving any good solid clues/numbers as to what is really going
on and where:

Crime rates increased amid the global economic crisis, as did the
unemployment rate. According to the 2010 Rule of Law Blue Book
released by Chinese Academy of Social Sciences (CASS) February 25,
China's crime cases in 2009 breached the stable situation dating back
to 2000 and increased substantially, among which, violent crimes and
property crimes witnessed sharp jumps.

As the blue book shows, the number of China's criminal and civil cases
increased by a large margin from January to October 2009, and reached
5.3 million and 9.9 million respectively by the end of 2009, with the
former’s growth rate up over 10 percent and latter’s up around 20
percent.

The article goes on to say the following:

The deteriorating economy has made criminals much more violent.
According to the blue book, violent crimes such as homicide, rape, and
robbery saw sizable growth in 2009, the first increase of such cases
since 2001. China's violent crimes had been declining evidently for
about a decade prior to 2009.

In terms of intentional murder cases, vicious murders among family
members and those committed in vengeance against society, or simply
those by mental patients accounted for a large portion. Incitements to
murders also surfaced from time to time. Furthermore, gangs were
prevalent in some places, and some criminals killed the intellectually-
challenged and faked their deaths in mine disasters so that they may
blackmail for money.

The article notes that 2010 will likely be no better as "China still
faces a severe social situation in 2010, having "not yet completely
recovered from the international financial crisis."

Is this a back-handed way of letting people know that China is
expecting major economic problems in 2010? I have a strange sense this
article may be very important, though I find it very strange. What is
going on here?

For more on crime in China, check out the following:

-- China Crime By The Numbers And By The Anecdotes
http://www.chinalawblog.com/2006/05/china_crime_by_the_numbers_and.html

-- Mapping China Crime Is Democracy In Action
http://www.chinalawblog.com/2008/03/crime_in_china_bs_upon_bs.html

http://www.chinalawblog.com/2007/02/mapping_china_crime_is_democra.html--
Crime In China: BS Upon BS

http://www.chinalawblog.com/2010/03/crime_in_china_say_what.html

[chhotemianinshallah]

MARCH 1, 2010, 3:49 P.M. ET.
China Manufacturing Slows as Rest of Asia Recovers
Dow Jones Newswires

BEIJING—China's manufacturing activity grew more slowly last month as
plants shut for the Lunar New Year, while business surveys elsewhere
in Asia suggested that the region's recovery from the economic crisis
was motoring ahead.

China's government-backed Purchasing Manufacturers Index fell to 52.0
in February from 55.8 in January, the China Federation of Logistics
and Purchasing said. HSBC's China Manufacturing PMI, prepared by
Markit, fell to 55.8 from 57.4 over the same period, according to HSBC
Holdings PLC.

A PMI reading above 50 indicates growth, while a reading below 50
indicates contraction.

.Elsewhere in Asia, the manufacturing surveys suggested that the
recovery is proceeding strongly. HSBC's PMI for South Korea rose to a
two-year high of 58.2, up from January's 55.6, on the back of improved
demand both domestically and from abroad.

"South Korea's economy looks set for another quarter of strong
sequential growth, with output continuing to accelerate from already
very robust levels," Frederic Neumann, senior Asian economist at HSBC,
said in a statement. "With numbers like these, the authorities may
need to exit highly accommodative economic policies earlier than
currently anticipated."

Indian manufacturing expanded for a third straight month, helped by
stronger new orders, output and employment. The HSBC PMI for India
rose to 58.5 in February from January's 57.6.

After it "wobbled slightly toward the end of last year," manufacturing
in India has accelerated to "levels last seen in mid-2008," said
Robert Prior-Wandesforde, senior Asian economist at HSBC. "The

headline index is consistent with ongoing double-digit gains in

industrial production, which in turn is likely to mean that spare
capacity is being eaten into rapidly."

That could have implications for Indian monetary policy. Summing up
the data, Mr. Prior-Wandesforde said: "In our view, it is time to

start unwinding the monetary stimulus and we would be very surprised

if the RBI were not to raise policy rates at the 20 April meeting."

In Taiwan, HSBC's PMI rose to 62.5 in February from 61.7 in January.
It was the index's biggest expansion in more than four years and
marked the 12th consecutive month the PMI has been in expansionary
territory.

"Taiwan's economy has entered a sustained expansion cycle, with rising
new orders pointing to further strength ahead," HSBC's Mr. Neumann
said.

Meanwhile, the Australian Industry Group-PricewaterhouseCoopers
Australian Performance of Manufacturing Index rose 2.8 points in
February to 53.8.

"The combination of rising new orders and production augurs well for
the industry in coming months," Ai Group Chief Executive Heather
Ridout said. "However, employment remained lackluster, reflecting the
still-patchy nature of growth with continuing weak results in some
five out of 12 manufacturing sectors."

But as the dominant economy in emerging Asia—and the one country in
Monday's surveys to buck the regional trend of faster manufacturing
growth—China drew the most attention among analysts.

Economists say the surveys show manufacturing is still growing and
cautioned against reading too much into last month's drop, since the
Lunar New Year break likely hurt business activity.

"It would be premature to conclude that today's fall in the official
PMI signals a broader easing in the momentum of China's recovery,"
said Brian Jackson, an economist from Royal Bank of Canada.

Still, because manufacturing accounts for a big part of China's
industrial activity, global investors have scrutinized the PMIs to
gauge how strongly the world's third-biggest economy is recovering and
how Beijing's efforts to restrain credit growth may hurt the rebound.
The PMIs offered one of the early signs of China's strong economic
pickup in 2009.

February's declines may give the government pause in its efforts to
withdraw some stimulus policies introduced in late 2008 to combat the
financial crisis. The central bank has already pressed banks to slow
lending and twice this year has crimped the amount of funds available
for lending.

Some economists say the softer PMI data for China suggest Beijing's
recent moves to tighten credit and slow public investments are hurting
business confidence. Others caution that the export outlook remains
challenging.

The February PMI "shows there are certain uncertainties in the trend
of recovery in China's economy. We should closely monitor the drop in
the new export orders subindex and remain cautious on the outlook for
exports growth," CFLP analyst Zhang Liqun said in a statement.

The Commerce Ministry last week offered a cautious outlook on exports,
saying restocking by overseas companies, rather than an improvement in
end-demand, had driven China's recent export recovery.

Companies in the CFLP PMI indicated that they received more export
orders and new orders in February than in January, but the pace of
that growth slowed. The HSBC survey indicate slower growth in new
orders but a tiny pickup in new export orders.

The CFLP survey showed that imports and employment fell in February
from January.

Still, the "growth momentum for China's manufacturing sector remains

strong, pointing to a further acceleration in industrial activities in

the coming quarters," Hongbin Qu, HSBC'S chief economist for China,
said in a statement.

The CFLP and the National Bureau of Statistics usually issue the PMI
on the first day of every month for the previous month's data.

—Liu Li and Terence Poon

http://online.wsj.com/article/SB10001424052748703411304575094260963667960.html?mod=googlenews_wsj

Communist Party Needs to Loosen Its Grip in China
By ALAN WHEATLEY
Published: March 1, 2010

BEIJING — Turkeys don’t vote for Christmas, and the Chinese Communist
Party is not exactly itching to release its iron grip on society and
the economy.

But that is exactly what the party needs to do to prolong the fast
economic growth that underpins its political legitimacy: Cutting state-
owned companies down to size and opening up to private enterprise hold
the key to sustaining productivity gains and redistributing income
more equitably.

Coming from Western economists, such a prescription is standard stuff.
What is striking is the urgency with which some prominent Chinese
academics are making the same case.

“In the financial crisis, China seems to have performed quite well,”
said Yang Yao, director of the China Center for Economic Research at
Peking University. “But the problem is that government involvement in
the economy has increased significantly.”

“Ultimately, this trend should be stopped, and the government should
retreat from the economy — not just from monopolistic areas but also
from competitive sectors,” he said in an interview.

The success of Beijing’s overwhelming fiscal and monetary response to
the global credit crunch has bolstered the confidence of state
planners and put advocates of freer markets on the defensive.

The phrase “guojin mintui” — the state advances as the private sector
retreats — has become common currency in debate about the Chinese
economy.

Mr. Yang said the phenomenon was real, especially in the financial
sector, where he fears overhauls could be postponed indefinitely.

Mr. Yang was elaborating on a recent hard-hitting article in the
journal Foreign Affairs in which he argued that there was no
alternative to greater democratization if the Communist Party wanted

to encourage economic growth and maintain social stability.

Attacking local governments for simply pursuing economic gain instead
of improving the average citizen’s welfare, Mr. Yang said popular
discontent over infringements of economic and political rights would
inevitably lead to periodic unrest. A way would have to be found soon
to let ordinary people take part in the political process, he said.

“The reforms carried out over the last 30 years have mostly been
responses to imminent crises,” he wrote. “Popular resistance and

economic imbalances are now moving China toward another major

crisis.”

He added that “strong and privileged interest groups and
commercialized local governments are blocking equal distribution of

the benefits of economic growth throughout society,” thereby rendering

futile the Communist Party’s “strategy of trading economic growth for
people’s consent to its absolute rule.”

Prime Minister Wen Jiabao pledged Saturday to redouble efforts to
increase the share of national income going to households, rather than
enterprises, but his government has shown no sign of wanting to rein
in rich and powerful state-owned companies.

Indeed, China Mobile intends to spend nearly $6 billion of its $37.5
billion cash mountain to buy 20 percent of Shanghai Pudong Development
Bank, according to two Chinese brokerage firms. The stakes of
Citigroup and private investors would be diluted in the process.

Zhang Lifan, a liberal scholar and historian, goes so far as to argue
that the retreat of the private sector was an underlying factor behind
the collapse of the Qing Dynasty in 1911 and the 1966-1976 Cultural
Revolution.

“History has proved that ‘guojin mintui’ is not sustainable,“ Mr.
Zhang wrote in a recent article. “If we can’t curb the advance of the
state sector, it will definitely have an impact on China’s future
industrial structure and economic development.”

This is not to deny the ruling party credit for some important
initiatives. Spending on social services has soared, which should
eventually reduce precautionary savings and increase consumption,
according to Andy Rothman, an economist at the brokerage firm C.L.S.A.
in Shanghai.

Outlays on health care rose 163 percent from 2005 to 2008; on
education by 125 percent; and on social security by 83 percent, he
said in a report.

Mr. Rothman said the trend continued in 2009, with central government
spending on education and health care estimated to have increased 25
percent and 48 percent, respectively.

And Mr. Yang, the Peking University professor, described unfolding
changes to make it easier for migrant workers to settle in smaller
cities with their families as a historic breakthrough.

It is the very success of such policies that make economists wish the
Communist Party were bolder.

Fan Gang, an economist who sits on the central bank’s monetary policy
committee, said China still had immense potential for changes that
could galvanize growth.

For all its achievements, he said, China could be a wealthier and
fairer society if it did more to curtail the power of the state over
the economy. Not doing this was hampering efficiency and feeding
corruption, one of the biggest complaints of ordinary Chinese.

“To truly address this problem we must press ahead with market reforms
and privatize state-owned enterprises, as well as reducing government
controls and the various powers of government departments, so that
market mechanisms play a bigger role,” Mr. Fan wrote in the magazine
Green Leaf.

Against this background, investors will comb Mr. Wen’s annual policy
speech Friday to the National People’s Congress, China’s parliament,
for signs that the Communist Party is ready to re-emphasize reform now
that the economy is back on solid ground.

Minggao Shen and fellow economists at Citigroup Global Markets said
that China’s current growth model could not last for more than a few
years. Structural adjustments long identified by the Communist Party
to rebalance the economy were inevitable, they wrote in a report.

In an echo of Mr. Yang’s argument that only crisis encourages change,
they said: “The only difference is whether this is a planned reform or
a forced reform. China’s experiences in the past three decades suggest
it’s very likely to be the latter.”

Alan Wheatley is a Reuters columnist.
http://www.nytimes.com/2010/03/02/business/global/02inside.html

China to develop low-carbon economy: top economic planner

English.news.cn 2010-03-01 20:59:19

BEIJING, March 1 (Xinhua) -- China's top economic planning body has
confirmed the government will take concrete actions to develop a low-
carbon economy after it pledged to substantially reduce carbon
intensity at last year's Copenhagen Conference.

China would include the low-carbon targets in the 12th five-year plan
for national economic development (2011-2015) to build an energy-
saving, ecologically friendly society, the National Development and
Reform Commission said in a report to the Standing Committee of the
11th National People's Congress (NPC).

The report said the government would launch a series of technological
and fiscal support policies to promote the use of non-fossil,
renewable energies including wind, solar, biomass, geothermal and
nuclear power, aiming to increase its proportion of primary energy
consumption to about 15 percent by 2020 from 9.9 percent at the end of
last year.

China's installed wind power capacity reached 15 million kilowatts,
with 10 million kilowatts under construction at the end of June 2009,
while nuclear power under construction, installed hydro-electric power
capacity and solar heating collection areas were the highest in the
world, it said.

The commission was also planning to compile an emissions inventory of
greenhouse gases in an effort to build a monitoring and checking
system to cut carbon emissions.

The economic planner decided to curb redundant construction and
industries with surplus production capacities, such as steel, cement
and electrolytic aluminum, to promote the energy efficiency and
environmental protection.

Another NDRC report on the transformation of the economic development
pattern delivered to the standing committee called for optimizing the
financial expenditure structure to increase input in public welfare
and step up efforts to expand the social security coverage.

The government had drafted a plan on regional development to transfer
industries in affluent eastern areas to central and western regions.

The commission said in a report that China would maintain a proper
lending scale under the guidance of the Central Bank to avoid credit
fluctuations and establish 1,300 rural financial institutions to
encourage lending in rural areas.

The State Council announced in November that China would reduce the
intensity of carbon dioxide emissions per unit of GDP in 2020 by 40 to
45 percent compared with the level of 2005.

Editor: Deng Shasha

http://news.xinhuanet.com/english2010/china/2010-03/01/c_13193015.htm

China's parliamentary sessions to draw global attention
English.news.cn 2010-03-01 21:04:15
by Xinhua writers Han Bing, Wu Liming

BEIJING, March 1 (Xinhua) -- China's upcoming parliamentary plenary
sessions are to become eye-catching events for major media and think
tanks across the globe.

As the annual plenary sessions of China's National People's Congress
(NPC) and the National Committee of the Chinese People's Political
Consultative Conference (CPPCC) are set to start on March 5 and March
3 respectively, the international community have started to cast their
eyes on China.

It is known to all that China have achieved marvelous economic growth
in 2009 when most economies across the world were still suffering the
global financial crisis and economic downturn. But, what kind of
answer sheet will China present in the year 2010?

So far, thousands of journalists and reporters from all over the world
have arrived in Beijing to cover the sessions, hoping to seek clues
and insight into the political life and economic prospects of China
through the two important meetings.

First of all, the international community wants to probe new signals
on economic policies and decisions by the Chinese government during
the parliamentary sessions.

Several Western media and think tanks, such as The Choice magazine of
Japan, have made comments that although the Chinese economy has seen
remarkable recovery, China is still facing various challenges
including trade disputes and inflation.

How China will resolve such challenges and whether China could
continue to be the world economy's engine are what the international
community intends to know from the sessions, during which the deputies
are expected to discuss the plans and measures on boosting economy.

The new plans and prospects of improving people's living standards
China will table during the sessions is another concern from the
international community.

In recent years, the Chinese government has attached more importance
to improving the people's living standards and various relevant
reforms and policies have been implemented.

Earlier this year, Chinese Premier Wen Jiabao said everything the
Chinese government has done is to let the people lead "happier lives"
with "greater dignity."

Just as Singapore's newspaper Lianhe Zaobao has put it, there is a
tendency in China that the government attaches more importance on
improving people's living standards and this year will be better than
last year.

The international community will also pay attention to new changes in
China's political and democratic process to take place during the
sessions.

A draft amendment to the Electoral Law is scheduled to present to the
deputies during the NPC session for approval.

The draft requires that both rural and urban areas adopt the same
ratio of deputies to the legislatures.

As a result, Chinese rural and urban people are about to get equal
representation in lawmaking bodies, which means farmers will have the
same say in the country's decision-making process as urbanites.

The legislation would promote China's democracy into a higher level,
Malaysian newspaper Sin Chew Jit Poh has commented.

In the meantime, China's efforts in fighting corruption have also
drawn worldwide attention.

Lianhe Zaobao said that facts have proven the determination of the
Chinese leadership to wipe out corruption and the international
community had spoken highly of China's anti-corruption drive.

Why is the international community so enthusiastic about China's
parliamentary plenary sessions? The answer is simple: China and the
world are relevant in development.

It is known to foreign experts that the annual parliamentary sessions
are a vital window to look into China's social and economic
development, and the policy signals sent by the sessions will play a
significant role in shaping China's development and thus influencing
the world at large.

Just as former French Prime Minister Jean-Pierre Raffarin has put it,
China's stability and development benefits the world.

At present, the global economic recovery has not yet stabilized and
the developed countries have yet to come out of economic downturn, so
China's policy orientation to be shown during the parliamentary
sessions would allure eyes from all over the globe.

Dominique Strausse-Kahn, managing director of the International
Monetary Fund, once said that it was beyond all doubt that China would
continue to play a vital role in boosting international and regional
economic recovery.

Editor: Deng Shasha

http://news.xinhuanet.com/english2010/indepth/2010-03/01/c_13193019.htm

[chhotemianinshallah]

China's economy loses some steam
March 1, 2010 - 5:14PM

The pace of Chinese manufacturing eased last month, suggesting slower
government spending and steps to curb credit growth could be taking
some of the steam out of the world's third-largest economy.

But a pair of surveys of purchasing executives showed the economy
remained firmly in expansionary territory, and economists were wary of
reading too much into the reports.

Brian Jackson, a strategist with Royal Bank of Canada in Hong Kong,

said the timing of the Chinese New Year holidays complicated
interpretation of data early in the year.

"Policymakers are driving with low visibility on the Chinese activity

data at the moment," he said in a note. "So it would be premature to
conclude that today's fall in the headline PMI numbers show a broader
easing in the momentum of China's recovery."

The Purchasing Managers' Index (PMI) derived from a survey conducted

by the China Federation of Logistics and Purchasing for the National
Bureau of Statistics (NBS) fell to 52.0 in February from 55.8 in
January.

It was the 12th straight month that the PMI has stood above the
threshold of 50 that demarcates growth from contraction, but the
reading was well below the median forecast of 55.45 in a Reuters poll
of 10 economists.

The Australian dollar dipped and copper prices pared their gains after
the data, which markets took as a sign Chinese demand for metals and
other commodities might be softening. Shanghai stocks, however,
climbed in step with other Asian markets.

An index derived from separate survey conducted by the research firm
Markit for HSBC fell less sharply. It dipped to 55.8 from a record

high of 57.4 in January.

Economists reckon the HSBC survey appears to better track current
conditions, while the NBS PMI seems to lead economic activity by about
one or two months.

Qu Hongbin, chief economist for China at HSBC, said he was not worried
by the dip in the PMI.

"Growth momentum for China's manufacturing sector remains strong,

pointing to a further acceleration in industrial activities in the

coming quarters," he said in a statement.

China's central bank has already ordered banks twice this year to keep
a greater proportion of their deposits in reserve, prompting global
market fears of an aggressive tightening that could slow the world's
fastest-growing major economy.

But Premier Wen Jiabao said on Saturday that China would stick to an
appropriately loose monetary stance as Beijing navigated the shoals of
what promised to be the most complicated year so far this century for
China's economy.

"I believe we can keep stable and relatively fast economic growth
while controlling prices at a reasonable level," Wen said in an online
chat.

The official PMI survey showed output and new orders remained above
the boom-bust line of 50. But backlogs of orders, employment and
stocks of purchases all fell below that mark.

"While still in expansion, overcapacity in manufacturing, wage
pressure and more restrained government spending may have affected
sentiment among purchasing managers," said Jing Ulrich, chairman of
China equities and commodities at JPMorgan.

Zhang Liqun, an economist with an official think-tank, said the
economy was still on a sustainable recovery course, driven by
government stimulus, but faced a number of uncertainties.

The drop in overseas orders gauge last month deserved particular
attention, he said. The new export orders sub-index fell to 50.3 from
53.2 in January.

"It shows we still need to be cautious about the export outlook,"
Zhang said in a commentary released by the logistics federation.

But HSBC's new export orders sub-index rose to 58.3 in February, a
near five-year high, from 58.1 in January.

Ulrich said signs of an export recovery were broadening and could be
found in rising container shipping rates, reports of labour shortages
in coastal manufacturing hubs and renewed political pressure for the
yuan to rise.

"Although the nascent recovery in external demand bodes well for
China's export manufacturers, the prospect of rising wages suggests
that companies with high labour costs could experience margin
pressure," she said in a note to clients.

Reuters

http://www.offshorecompany.com/banking/swiss/index.asp?c1=GAW_CM_NW&source=OFC_BNK&kw=opening_swiss_bank_account_phm&cr5=3756651201

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Navigation

Copyright © 2008 Offshore Company, Inc, All Rights Reserved

http://www.offshorecompany.com/banking/swiss/index.asp?c1=GAW_CM_NW&source=OFC_BNK&kw=opening_swiss_bank_account_phm&cr5=3756651201

China: A New Economic Model?
Posted by Michael Schuman Monday, March 1, 2010 at 1:43 am

8 Comments

A few days ago on Curious Capitalist, I asked whether China was headed
for trouble due to the potential damage done to its banking system by
the government's giant stimulus program. One of our readers,
identified as tanboontee, was kind enough to write a very interesting
comment. Here's an excerpt:

Excessive debts in the west support lavish lifestyles, not necessarily
so in China. Do not forget that capitalism is already malfunctioning.
What's wrong with introducing a new paradigm?

This has become a common view, not just out here in Asia, but around
the world. Many observers believe China has developed a “new
paradigm,” a superior economic model that challenges the dominance of
Western ideas about economies. But I have a question for tanboontee,
and for anyone else who wants to jump in on this discussion – what
exactly is this “new paradigm?” From what I can tell, China is
employing economic tools that many other countries have tried in the
past, with both good and bad results.

First of all, China has generated its rapid growth using the same
policies as the rest of Asia. The basic strategy looks something like
this: Jumpstart growth by capitalizing on low-wage labor to produce
cheap exports for consumers in the West. Take advantage of
globalization – free trade, international flows of capital – to raise
incomes at home. Tap into giant pools of domestic savings with pro-
business policies to spur high levels of investment. Japan, South
Korea, Taiwan, Singapore and others all did exactly the same thing
(using somewhat different policy menus.) China, therefore, isn't doing
anything all that unique.

Trade. Investment, Exports. Private Enterprise. These are the basic
building blocks of growth, in China and the rest of Asia. In a word:
CAPITALISM. (Warning: Shameless self-promotion coming up: If you want
to know more about how Asia became so rich, so fast, it's the subject
of my book, The Miracle: The Epic Story of Asia's Quest for Wealth.)

What supposedly makes China “different” and gives its economy a
special edge is the larger role of the government, in the form of
state ownership of banks and companies, controls on capital flows, and
other measures. But again, China is following in the footsteps of the
rest of Asia. South Korea used capital controls and state-owned banks
as part of its early development strategy. Japan's bureaucrats
employed all kinds of tools to direct bank lending to favored
projects. Nor is China's attempt to “mix” together state-dominated and
free market-oriented sectors terribly unusual. That's the basis of
Singapore's economic model. It was also tried in the “mixed” economies
of Europe, and India under the License Raj.

But what we've learned from these examples from history is that the
state-led aspects of "mixed" economies can create as much harm as
good. Bureaucratic meddling was a key factor behind Japan's Lost
Decade(s) and the Asian financial crisis of 1997. The sickest part of
the “mixed” economies in Europe and India was state-controlled
industry. And you can make the case that the same is true in China
today. The major troubles facing the Chinese economy right now –
ballooning property prices and a looming bad loan problem – are a
result of bureaucrats thinking they can turn on and off the banking
sector like a desk lamp. A hefty portion of the loans made during last
year's credit explosion went to state companies and local governments
– a sign that perhaps this lending was driven by government policy,
not necessarily the actual needs of the economy.

It's noteworthy as well that tanboontee mentions the risky consumer-
credit practices that got the U.S. into trouble. It is true that banks
in China tend to lend for investment, not consumption as in America.
But from the standpoint of the bank, it doesn't much matter who the
end borrowers are – as long as they pay the loans back. Whether a
Florida family who used a home equity loan to buy a flat-panel TV
can't meet its payments, or a Chinese company that invested in an
unnecessary steel mill defaults, a hole in the bank's balance sheet is
created either way. The practices of Chinese banks aren't a sign that
China is following some kind of “new paradigm.” They could possibly be
a repeat of the same mistakes that got the West into its financial
crisis.

So how is it again that China is rewriting the rules of economics?
Anybody? Anybody?

Comments (8)

1 "Take no thought of who is right or wrong or who is better than. Be
not for or against."

---Bruce Lee---

http://japan-russia.jimdo.com/civility/
.
.
bisaherr
March 1, 2010 at 3:13 am

2 Any system based on perpetual consumption and a disregard for
limited resources is inevitably unsustainable.

There is no arguing otherwise, unless fallacious reasoning is your
policy.
A story for the simple minded:

joe smoe grew up with plenty of food, but without shiny metal.
His neighbors flaunted it, and so he coveted it.

When joe grew up he did all he could to get as much of this shiny
metal as he could.
Joe hired others who had less shiny metal than him, to do the things
he was too lazy to do.

Joe's hording of the shiny metal kept them in positions of servitude
Joe dies and no one cares, in fact they're glad, he didn't contribute
he only horded.

Thats pretty much the american way. Aspire to be a broker, snatch and
run. Hey it works for me, I get to sit at my computer and laugh at old
dogs who cant seem to learn new tricks
infamous805187
March 1, 2010 at 8:20 am

3 The Chinese economy relies as much on overconsumption as does the
West. Their reliance is simply indirect. Massive investment in
production capacity to export manufactured goods to debt-burdened US
consumers is just as foolish as home equity loans to borrowers with no
equity.

The next gold medal in economic paradigms will go to the country that
can create a vibrant economy based on something besides consumption of
materials goods. That's very difficult because service economies don't
scale.
phoneranger
March 1, 2010 at 9:38 am

4 phoneranger, I don't know if your point about service economies not
scaling, in fact i is because of US' service industries that we
continue to lead the world in innovation and as a portion of our GDP,
service industries are still the area that has continued growth. I
would say not only are service industries scalable, its necessary that
we do more. But that's the problem, service industries are incredibly
people-intensive, the require serious investments in human capital.
Significant education, experience are all necessary in order for an
individual to be a valuable asset within service industries.

Unfortunately, many govt's, while knowing that its important to build
and develop their service industries, cater to the political
necessities of advocating for manufacturing because their constituents
expect it. Remember 'Drill Baby, Drill'...

There are so many opportunities for us to develop valuable service
industries, but do so little, because besides helping banks, the gov't
is bailing out the auto industry who won't innovate and change.
ymmartin
March 1, 2010 at 9:53 am

5 I don't think you guys can figure out whether it's a new model. In a
hasty world, nobody can make any accurate forecast an issue for a
short term, let alone medium or even long term.

Near-sighted mentality is dominating the whole world, so it's meanless
to spend time to discuss this sort of issue.

Everybody knows this world is running out of resources, suffering from
severe pollutions, global warming...but what all governments are doing
now ? They're encouraging spending to boost the economy!! Really, what
does spending mean? Doesn't it mean consuming more resources, getting
the climate warmer, the air dirtier? How foolish we really are! Always
focus on the temporary comfort, never mind the long term!
sunbinch
March 1, 2010 at 10:21 am

6 It is not so much a new model but better execution (so far) that
distinguishes the Chinese mandarins from their Japanese/Korean/
Singaporean counterparts. The other countries have enjoyed remarkable
successes too, but it is undeniable that guiding a country of China's
size from a really backward starting point through the same course has
been a much more challenging task, which the Chinese government seems
to have performed to a unprecedented degree that surprises the great
majority of observers.

The current bad loan problem is not much different from the one ten
years ago that resulted from the loosening after the 1997 Asian
financial storm. The previous administration resolved it in two years
and successfully restored Chinese banks to their health. My bet is
that the current administration will do the same before handing a
clean slate to the next one in 2012.

The economic excesses of Japan in the late 1980s were a direct result
of caving in to American pressure on the yen. Once the macro-economic
environment was tilted toward the abyss, there was preciously little
the mid-level bureaucrats could do to prevent the slide. This, not the
aversion towards rewarding the spendthrifts, is the true reason why
the Chinese government will never repeat that error no matter how much
political pressure the US tries to bring on the yuan.
duduong
March 1, 2010
at 11:47 am

7 Excellent article and input. Here is some additions:

1. China has used high tariffs and regulations to protect their
industries. (like the US and UK did).
2. Pollution is going to create 100 million+ with lung dieases. How
our they going to take care of them?
3. Still over three quarters of a million poor people. Don't pay
enough in wages to create enough quality customers to buy domestic
production nor imports! This is the reason they have to have their
domestic stimulus of about a trillion dollars.
4. No banking is close to being perfect! The reason is all people and
institutions makes errors. The only way to protect from this is to
have diversified monetary delivery systems that use equity as well as
debt. Or do away with debt as a monetary creation vehicle. Please
reveiw the website of the AMI

http://www.monetary.org and economicsfordemocrats.com.

We have the solutions!
Mark S. Pash, CFP
economicsforde…
March 1, 2010 at 2:58 pm

Take a well-known example, the copper mine in Afghanistan. The Chinese
company promised a new railway in its bid and won. According to Afghan
officials, this was the winning point (or one of them) over other
bidders. Mining and railways, two completely different industrial
systems, are integrated into one single fighting unit. It is
unimaginable without a strong backing and pushing from the Chinese
government. How many internal obstacles do they have to overcome to
marry/merge two such industries, in personnel, finance or
technologies?

It is important to notice that they are NOT government 'owned' or
'controlled', not in the traditional sense anyway. In the new
paradigm, government is functioning at a higher plane. The companies/
groups are autonomous with fairly large freedom. But they don't have
the will to move beyond their own individual domain. They are mindless
economical animals only caring about survival. Government does not
issue orders to these companies to make things or to go to a
particular area. Government's role is to point out strategic
directions that the Party believe are correct (often expressed as
consensus of the Central Committee), and to proactively encourage (or
even force) these animals to work together to achieve the specific
goals by applying political will upon them through law, executive
orders and party members' work.

That, Michael, has never been tried in the history. And I doubt it
could be easily replicated anywhere else.

http://curiouscapitalist.blogs.time.com/2010/03/01/china-a-new-economic-model/

Sunday, February 28, 2010

There's a new Red Scare. But is China really so scary?

http://www.washingtonpost.com/wp-dyn/content/article/2010/02/26/AR2010022602601.html#

http://ctmock.blogspot.com/2010/02/theres-new-red-scare-but-is-china.html

Survey shows China manufacturing growth slowed

By ELAINE KURTENBACH
Associated Press
2010-03-01 10:48 AM Fonts Size:

Growth in China's manufacturing slowed in February amid efforts to
curb overcapacity in some industries and cool inflation by tightening
control over bank lending, two surveys showed Monday.

The state-affiliated China Federation of Logistics and Purchasing said
its purchasing managers index, or PMI, slipped to 52 in February from
January's 55.8 on a 100-point scale. Numbers above 50 show
manufacturing activity expanding.

There were clear signs of weakening in many components of the index,
the federation said in a statement.

"Given changing trends in domestic and overseas demand, China's
economic recovery faces definite uncertainties. We should pay close
attention to the weakening in overseas orders," it cited federation
analyst Li Zhangqun as saying.

A separate index issued by HSBC Corp. fell to 55.8 in February from
57.6 in January and 56.1 in December.

Despite the decline, HSBC's assessment was more upbeat than that of
the federation.

The survey found strong new business growth and export sales at their
highest level since March 2005, thanks to improved conditions among
China's trading partners.

"Growth momentum for China's manufacturing sector remains strong,

pointing to a further acceleration in industrial activities in the

coming quarters," Qu Hongbin, chief economist for China at HSBC said
in a comment on the survey.

China's economic growth accelerated to 10.9 percent over a year
earlier in the final quarter of 2009, driven by 4 trillion yuan ($586
billion) in stimulus measures.

Subsidies and tax cuts boosted sales of home appliances and autos,
fueling a rebound in industrial output.

Now, the government has begun to tighten the lavish bank lending that
supported the expansion but also has worsened overcapacity in many
industries and is raising concerns over excess inflation.

Banks have been ordered to set aside more reserves to control credit
growth, and economists expect an interest rate increase this year.

"Overcapacity in manufacturing, wage pressure and more restrained
government spending may have affected sentiment among purchasing
managers," Jing Ulrich, JP Morgan's chairwoman of China equities, said
in a report.

The China Federation of Logistics and Purchasing's index for overseas
orders was at 50.3 in February, barely in positive territory.

Seasonal factors may also have contributed to the lower figure for
last month. Industrial activity tends to slow during the Lunar New
Year holidays, which this year fell in mid-February.

http://www.etaiwannews.com/etn/news_content.php?id=1191932&lang=eng_news&cate_img=35.jpg&cate_rss=news_Business

http://www.businessinsider.com/chinese-manufacturing-suddenly-contracting-2010-3

Sunday, February 28, 2010 << Previous Next >> Post a Comment
China's premier sees complicated economic year
BY CARA ANNA THE ASSOCIATED PRESS

Photo by: Associated Press
as In this photo released by China's Xinhua News Agency, Chinese
Premier Wen Jiabao chats on-line with netizens at two state news
portals in Beijing Saturday, Feb. 27, 2010.

Wen said 2010 will be the most complicated year for the country's
economy, and he promised the government would fight inflation and
soaring property prices.
BEIJING -- Premier Wen Jiabao promised Saturday to control inflation
and keep China's economic recovery on track and expressed hope for an
end to tensions with Washington over trade and currencies.

China's top economic official said 2010 will be the "most complicated"
year for the country's economy and indicated easy credit will continue
despite a recent tightening in lending controls. He gave no indication
that Beijing is ready to raise interest rates, which might slow growth
and affect the global economy by cutting China's demand for foreign
oil and other goods.

China's leaders have been carefully reaching out to the world's
largest online population with online chats. This one comes just days
before the country's annual meeting of the National People's Congress.

"Two things can hurt social stability. One is corruption. The other is
the price of products," Wen said, adding that the government should be
able to regulate both.

"We can keep economic development stable and fast and still manage
inflation," he said.

China's economic growth rebounded last year to 10.7 percent with the
help of a massive stimulus package and easy bank lending, but
Advertisement

the country's leaders worry the money is fueling inflation and a
dangerous bubble in real estate prices.

Inflation eased in January to 1.5 percent over a year earlier, a
decrease from December's

1.9 percent.

However, China's leaders are sensitive to price rises that erode
families' economic gains and could fuel social tensions.

Housing costs have soared, jumping 9.5 percent in January from a year
earlier, according to the government.

http://www.thonline.com/article.cfm?id=274627

Sino-Russian Energy Relations: True Friendship Or Phony Partnership?
Sunday, February 28, 2010
By Shoichi Itoh for RES

Over the last decade, China and Russia have devoted increasing
attention to what they term as their “strategic partnership.” Moscow
and Beijing share interests in standing against the predominant
influence of the United States and, more broadly, the West.

It appears that with the signing of a final agreement in 2004 on the
demarcation of the 4,000km-long Sino-Russian border and the completion
of the related works in 2008, the biggest seed of historical distrust
between the two countries has been removed, at least on the surface.

Recently, both countries’ governments have emphasized that the
political aspects of their cooperation need to be bolstered by the
deepening of economic ties. The energy sector has been highlighted as
one of the most promising areas within which to achieve this goal,
given the rich hydrocarbon potential in the regions of the Russian Far
East and Siberia and China’s surging energy demand. Indeed, Russia’s
exports of crude oil to China by rail have rapidly increased from
572,000 tons in 1999 to more than 15 million tons in 2009.

Additionally, in April 2009 Beijing and Moscow finally completed an
intergovernmental agreement to construct a spur pipeline from the end-
point of the first phase of the ESPO (East Siberia – the Pacific
Ocean) pipeline to Chinese territory, in spite of Russia’s earlier
equivocal attitude concerning the timing of the pipeline’s
realization.

Do these events imply that mutual trust between China and Russia has
grown through cooperation in the energy sector? Is it fair to assume
that their bilateral energy partnership will go through a phase of
evolutionary consolidation?

The Paradox of the China Factor

Russia is increasingly striving to develop new energy infrastructure
in its eastern flank, in order to capitalize on new market
opportunities in the Asia-Pacific region.

The Energy Strategy of Russia for the period up to 2030, approved by
the Russian government in November 2009, outlines a planned
acceleration in exploiting oil and gas supplies in eastern Russia,
with the aim of exporting these products to the Asia-Pacific region.
The strategy stipulates that Russia aims to increase the percentage of
oil exports to the Asia-Pacific region, among its total oil exports,
from 8 percent in 2008 to 14–15 percent in 2020–22 and to 22–25
percent in 2030 and that of natural gas exports from zero in 2008 to
16–17 percent in 2020–22 and to 19–20 percent in 2030.

China provides the main consumer market for Russia’s eastern energy
strategy. China’s primary oil demand, for instance, is projected to
increase by an average annual growth rate of 3.3 percent in 2007–2030,
whereas that of the world is predicted to be 0.9 percent (the
reference scenario in the International Energy Agency’s 2009 World
Energy Outlook). Unlike the upsurge in China’s energy demand, Japan’s
energy demand has almost peaked with oil demand already on a gradual
decline.

Ironically, however, domestic voices have emerged expressing alarm
that the rapid increases in the amount of energy supplied to China
might leave Russia as a “resource appendage”, which strengthens its
historical rival.

The share of crude oil in Russia’s total exports to China increased
from 5 percent in 2000 to 40 percent in 2008. Admittedly, it is true
that the Russian government is currently striving to boost the share
of value-added products rather than raw materials in the overall
structure of exports.

Yet, the same kind of concern was never heard with regard to the fact
that crude oil accounted for 40 percent of Russia’s total exports to
Japan in 2007.

Russia’s paranoia about China is based on a geopolitical mind-set and
has prevented it from adopting a trust ing attitude toward its
“strategic partner”. This mindset actually derives from Russia’s own
weakness in addressing its vast, yet economically underdeveloped and
scarcely populated eastern regions. The population of the Far East is
less than 6.5 million people, but comprises about 40 percent of
Russian territory, and a trend of further depopulation has remained
irreversible for the last two decades. By contrast, the combined
population on the Chinese side of the Sino-Russian border, including
the three northeastern provinces (Heilongjian, Jilin, Liaoning) and
Inner Mongolia, amounts to more than 130 million. Although border
control of illegal Chinese immigration into the Russian Far East has
been tightened and stabilized compared with the chaotic years
following the collapse of the Soviet Union, concerns about “Chinese
economic expansion” have continuously smoldered among the Russian
power elite against the backdrop of the increasing scale of Chinese
economic activities on Russian soil.

It is in this context that the Russians have been reluctant to
encourage Chinese investment in hydrocarbon fields in eastern Russia.
China’s involvement in upstream projects has been limited to only
economically questionable ones. Examples include the Zapadnochonsky
and Verkhnechersky mining deposits in the Irkutsk region, which
possess only small volumes of oil and gas unproven resources, in spite
of the involvement of the Vostok Energy joint-venture company,
established by the Russian oil company Rosneft and China National
Petroleum Corporation (CNPC). Rosneft has held a 51 percent stake in
Vostok Energy since 2006.

Russia’s Acceptance at Last

Sino-Russian talks about the possibility of constructing a
transnational crude oil pipeline date back to the mid-1990s. In 1998
CNPC and the Russian private oil company, Yukos started negotiations
over the possibility of constructing a crude pipeline from Angarsk, in
the Irkutsk region, to the Daqing oilfield in Heilongjian Province
(i.e. the Daqing route). When Beijing and Moscow signed the Sino-
Russian Treaty of Good-Neighborliness and Friendly Cooperation in July
2001, President Jiang Zemin and President Vladimir Putin agreed to
construct the pipeline, with the aim of Russia exporting 20 million
tons of crude oil to China from 2005 and 30 million tons from 2010.
Both governments subsequently signed an intergovernmental agreement on
undertaking a feasibility study for the pipeline to Daqing.

Meanwhile, however, the Russian state-owned oil pipeline company,
Transneft, coincidently proposed in July 2001 the construction of a
pipeline from Angarsk to Nakhodka in Japan (i.e. the Pacific route).
With the announcement of Japan’s support for the Pacific route during
Prime Minister Jun’ichiro Koizumi’s visit to Moscow in January 2003,
the so-called “Sino-Japanese scramble” over Russia’s crude oil began
to hit the headlines in media reports around the world.

For about six years after this announcement, Moscow’s equivocal
attitude with regard to the timing of the construction of the pipeline
remained unchanged, despite the Russians’ repeated verbal promises to
the contrary. Moscow formulated a compromise plan of designating the
Pacific route as the trunk pipeline and the Daqing route as a spur
pipeline from the former in May 2003.

This plan was also endorsed by the Energy Strategy of Russia for the
period up to 2020, authorized by the Russian government in August of
the same year. In February 2004, Transneft announced a revised Pacific
route originating from Taishet, about 130km northwest of Angarsk,
taking a northern detour from Lake Baikal, running via Skovorodino in
the Amur region and terminating at Perevoznaia Bay in the Primorsky
region. Subsequently, the would-be origin of the Daqing route became
Skovorodino.

However, no reference to the possibility of this spur pipeline could
be found in Russia’s official documents, including the Government
Decree of December 2004, which authorized Transneft’s proposal to
construct the ESPO pipeline, and the Directive by the Russian Ministry
of Industry and Energy in April 2005, which divided the ESPO project
into two phases. The latter document stipulated that the first phase
of the pipeline construction would enable a maximum capacity of 30
million tons of crude per annum to be transported from Taishet to
Skovorodino and that following the second phase, a maximum capacity of
another 50 million tons per annum from Skovorodino to Perevoznaia Bay
(later to be moved to Kozmino Bay) would be possible.

The first phase of the ESPO project commenced in April 2006, and the
construction of the 2,700km pipeline was completed in December 2009.
Rosneft, the biggest supplier of oil to China, announced in November
2006 that it would deliver 14 million tons of crude via the spur
pipeline upon completion of the first phase of the ESPO project. CNPC
and Transneft signed a memorandum to build the spur pipeline in July
2007, and two months later, Minister of Industry and Energy Viktor
Khristenko publicly stated that its construction would commence in
2008.

Nonetheless, as late as September 2007, Rosneft begun to suggest that
Russia should postpone the construction of the spur pipeline until the
second phase of the ESPO project, and also to imply that China was no
longer a promising destination for oil exports.

With the global financial crisis beginning in autumn 2008, however,
Moscow could no longer delay the signing of an agreement with Beijing,
eventually promising the prompt start of the construction of the spur
pipeline. The Russian economy was one of the most severely affected by
the crisis. Rosneft and Transneft were no exception and faced serious
cashflow problems, including loan refinancing. Against this
background, in February 2009, China agreed to provide a $15 billion
loan to Rosneft and a $10 billion loan to Transneft in return for
Russia’s extension of the spur pipeline from Skovorodino to Chinese
territory and an annual supply of 9 million tons of crude by Rosneft
and 6 million tons by Transneft for 20 years from 2011. These
agreements were finalized in the form of a Sino-Russian
Intergovernmental Agreement on the Oil Sector in April 2009. The spur
pipeline, running 70km from Skovorodino to the Chinese border, and
more than 900km within Chinese territory to Daqing, is scheduled for
completion by the end of 2010.

Initially, Russia hoped that it could maximize Japanese investment in
its ESPO pipeline project, in order to counterbalance China’s
influence from the standpoint of geopolitical calculations. However,
contrary to Russia’s expectation, rivalry with China has not always
been a crucial factor in Tokyo’s decisionmaking.

Neither the construction of the pipeline, nor oilfield development,
could attract massive inflows of Japanese capital. With crude oil
prices hitting historical highs up until summer 2008, the Russians
made no effort to improve a variety of unfavorable conditions for
foreign investors, believing that time was on their side, and aiming
to play China and Japan off against another.

However, with the financial crisis, Moscow’s geopolitical maneuvering
was quickly swept away.

Natural Gas Cooperation in Disguise

Russian-Chinese talks on cooperation in the gas sector also reflect an
uneasy development in their energy nexus.

The proposed project of constructing a pipeline from the Kovykta
mining deposit in the Irkutsk region (one of the biggest gas fields in
eastern Siberia) to China was one of the biggest symbols of their
bilateral partnership since the mid-1990s. As late as autumn 2003,
RUSIA Petroleum (the Kovykta mining deposit’s operator) and CNPC,
together with their Korean partner, Kogas, concluded a trilateral
international feasibility study of the proposed 4,900km pipeline to
the Korean Peninsula via Chinese territory. Beijing and Seoul
accordingly approved the results of the study. Moscow, however,
refused to clarify its position despite agreeing to evaluate the
feasibility of the Kovykta project in the “Action Program for
Implementing the Sino-Russian Treaty of Friendship for 2005–2008” in
October 2004. Indeed, Gazprom and CNPC signed an agreement of
strategic partnership in the same month.

It appears, in retrospect, that the Russian government had no
intention of considering this proposal from the outset. As early as
July 2002, Moscow designated Gazprom to draft the Eastern Gas Program,
including a plan of natural gas exports to China. The final version
was officially authorized in September 2007, ending the option of
exporting gas from the Kovykta mining deposit to China. At the same
time, the program has no concrete picture as regards specific pipeline
routes, even though it notes a plan to export 25–50 billion cubic
meters of gas per annum to China and South Korea after 2020. Gazprom
disagrees with Exxon, the operator of the Sakhalin-1 project, on the
idea of extending a natural gas pipeline through the Khabarovsk region
to Chinese territory, and instead, currently proposes to build a new
LNG plant at the southern edge of Primorsky region. The economic
viability of Gazprom’s plan remains questionable.

The so-called “Altai Pipeline” project, proposed by President Putin
during his visit to Beijing in March 2006, was another half-baked
concept. This proposed 3,000km pipeline from western Siberia to
Xingjiang Uighur Autonomous Region, aims at 30–40 billion cubic meters
per annum. However, prior to Putin’s announcement, Moscow had neither
estimated the costs nor reached an agreement on the price of gas with
Beijing. During this period, the Russians ascribed their
procrastination regarding a decision on the Kovykta pipeline to
disagreement on China’s purchasing prices, but the story of the Altai
project demonstrates that this is not necessarily the case. Moscow
merely sought to brandish the “China card” in order to influence its
negotiations with the EU, which gradually became critical of Moscow’s
high-handed approach in energy diplomacy.

Thus, it had nothing to do with the consolidation of Sino-Russian
energy linkages. Indeed, in August 2009 Gazprom officially shelved the
Altai project due to its economic non-viability.

Conclusion

A large part of the Sino-Russian energy partnership is rhetorical
rather than substantial. China’s skepticism about Russia may well have
been aggravated by the latter’s wavering attitude towards cooperative
oil and gas projects with Beijing. Cooperation with China on energy
has the potential to become an irreplaceable factor in Russia’s
development plans for its eastern regions, by exploiting its hitherto
untapped energy resources on commercial terms. However, Russia has yet
to make the most of this opportunity due to its own deep-rooted
geopolitical mind-set. The completion of the transnational oil
pipeline between the two countries will soon be realized. Yet,
Russia’s proposed project of constructing a gas pipeline to China will
require several years before it becomes a tangible prospect. This is
because mutual distrust will continue to lie beneath the politically
inflamed Sino-Russian strategic partnership.

Shoichi Itoh is currently a visiting fellow at the Center for
Strategic & International Studies (CSIS), Washington, DC. He is also
an associate senior researcher at Economic Research Institute for
Northeast Asia (ERINA) in Japan and a non-resident fellow at the
Institute for Security and Development Policy (ISDP) in Sweden.

This article, "Sino-Russian Energy Relations: True Friendship Or Phony
Partnership?" (PDF) first appeared in the "Russian Analytical Digest
No. 73: Russia-China Relations, 23 Feb 2010, pages 9-12," produced by
Russian and Eurasian Security (RES), and is reprinted with
permission.

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It's Love! India And Saudi Arabia Embrace
Monday, March 01, 2010
By Vijay Prashad

Construction projects on Sheikh Zayed Road in Dubai have come to a
virtual standstill. Financial agents in the region can't wait to
offload the real estate deals that burden the books of the Emirates
and its banks, not to mention the international banks whose chambers
in London and New York shudder with any mention of more real estate
failures. A fire sale has begun, with construction firms like Arabtec
now being offered for a song, and as Dubai's own sheikhs bend their
knees to Abu Dhabi to help with the $150 billion debt (the IMF says
$109 billion, EFG-Hermes pushes it upward). The Sultans of Arabia are
displeased. Oil profits sail in, but these are magically converted
into petro-dollars that then boomerang to Wall Street, where they are
welcomed by Goldman Sachs and its élèves who, these days, lock them up
in their vaults, afraid to lend to anyone despite the blandishments of
Obama and Bernanke. Petro-dollars are no salve to Dubai's ailments.

Riyadh's first family looks at the margins of their peninsula with
concern. The financial turbulence of Dubai is one indication. Another
is the rising insurgency in southern Yemen, compounded with the
restive radical Islamists, whether in or out of al-Qaeda. The Carter
Doctrine (1980) protects U. S. interests in the Persian Gulf, toward
which the U. S. created the Central Command to organize this defense.
Till now, those interests have included the protection of the House of
Saud, whose current king, Abdullah, has effectively governed since
1995. The huge U. S. troop presence in Saudi Arabia since August 1990
served as a barrier against Iraq, but also as a fire-starter for
domestic Islamists who were outraged at the presence of U. S. troops
in the land of Mecca and Medina (it is this that turned Osama Bin
Laden from an anti-communist militant to an anti-American one). Drone
attacks in Yemen continue the policy of preserving the petrified Saud
family, whose king is now personally worth about $22 billion (he is
the third richest royal, after Rama IX of Thailand and Sheikh Khalifa
bin Zayed of the United Arab Emirates). The U. S. is effectively
pledged to protect all these billionaire blue bloods against the
grievances and aspirations of their own peoples.

King Abdullah of Saudi Arabia recognized after 9/11 that the status
quo is not permanent. U. S. wars against Afghanistan and Iraq, and
Israeli wars against Lebanon and Gaza, as well as U. S. posturing
against Iran have inflamed the Arab population and put the Sultans of
Arabia in a box. They cannot be seen to be puppets of Washington, but
nor can they alienate their principle benefactors. Anti-Saudi
sentiment in the U. S. alarmed the royals (in 2002, a RAND expert told
the Pentagon's Defense Policy Board, without rebuttal, that Saudi
Arabia is a "kernel of evil"; even the ever-pliant Prince Bandar,
Saudi Ambassador to the Bush Family, was disheartened). In 2003, the
U. S. government relocated much of its forces from their Saudi bases
to Qatar. The U. S. then delivered Baghdad to the Shi'a political
parties, who have a special relationship with Iran. On the political
front, the Saudi royals no longer felt the warm embrace of Washington.

Economically things were even more fragile. Talk of "clean energy" has
Riyadh afraid (indeed, at climate treaty negotiations, the Saudis have
tried to mobilize the OPEC countries to push for compensation if oil
consumption is reduced; the principle Saudi negotiator at Copenhagen,
Mohammed al-Sabban proposed that the G-7 states provide the oil
producers with technology and investment toward economic
diversification). The U. S. has gradually shifted its oil dependence
on the Gulf to new suppliers, such as Nigeria (the top three suppliers
to the U. S. are now Nigeria, Venezuela and Saudi Arabia - the U. S.
imports crude oil from Mexico and Canada in large quantities, but
these are refined and exported back across the northern and southern
border). The Central Command is busy fighting wars that don't seem to
directly defend the Arabian Peninsula. Meanwhile, the Bush team
created the African Command (Africom), whose ambit appears to be the
protection of the oil lands of Africa. Finally, with oil itself being
finite, the Saudis are concerned that they must diversify their
economy.

If the Saudis could not look to Washington, Abdullah proposed that
Riyadh "look east." Abdullah was always a major defender of Washington
inside Riyadh Palace. But after his ascent to the throne, he began to
listen more carefully to the Minister of Defense, Prince Sultan (the
son of Prince Bandar). For the past three decades, the Chinese have
sold the Saudis missile technology, including intermediate-range
ballistic missiles. In making these deals, Sultan had a ringside seat
to China's transformation and was comfortable with Beijing's ambitions
in the Gulf. China is now the principle buyer of Saudi oil. It has
also begun to invest in the peninsula, putting some of its
considerable surplus to work on technological projects that might help
diversify the one-crop Saudi economy. The Saudi oil company, Aramco,
has thrown its wealth and expertise into China's petroleum refining
sector (it will invest $8 billion to build a new refinery in
Guangzhou). Abdullah visited Beijing in January 2006, and Hu Jintao
hastened to the peninsula in April, where he addressed the Shura, one
of the few foreign leaders to talk to the King's advisory council.
Abdullah has since honored China by calling the Chinese his
"brothers," a word reserved by Riyadh to describe fellow Muslims.

During Abdullah's January 2006 tour, he stopped in India. Here he was
the chief guest at India's Republic Day celebrations. The irony seemed
lost on both the Indian and Saudi governments. Here was a hereditary
monarch of a theocratic state as the guest of honor for a celebration
of India's freedom struggle and its secular, socialist Constitution.
Indeed, it was odd to have a Saudi monarch in India. The last time one
came was in 1955, when King Saud visited India. Earlier that year,
Saud was at the Afro-Asian conference at Bandung, where he had
befriended Nehru and had pledged his kingdom to "non-alignment." Not
long after this brief friendship, the Saudis gave themselves over to
the United States and drifted far from the Third World project. Nehru
went to Riyadh in 1956, but it was a frosty visit. The people who
gathered to welcome Nehru chanted marhaba Nehru rassoul al salam,
welcome prophet of peace, but Crown Prince Faisal and King Saud were
less enthused. Peace, for them, came in the form of the F-100 Super
Sabre.

In 1991, India's new "reform" era opened with a commitment to neo-
liberal state policy and a turn toward Washington against the non-
aligned traditions of the dirigiste state. Manmohan Singh left his
post at the South Commission for the Finance Ministry, where he guided
the reform process. Three years into India's liberalization process,
Singh traveled to Saudi Arabia. It had become clear to the Indian
Finance Minister and to the Indian business world in general that
India had to seek out new avenues for its growing energy needs. The
previously state-owned Oil and National Gas Corporation (ONGC) went
public, and began to prospect from the Persian Gulf to Sakhalin
Island. But even ONGC's finds would not be enough. Singh went to
address the Indo-Saudi Joint Commission, a body set up in 1982 on the
basis of increased South-South cooperation. Now, the main issue was
energy resources for India, and diversification of its economy for
Saudi Arabia. The diplomatic process had been stalled by several
intractable problems: Saudi Arabia's alignment with Pakistan on the
Kashmir issue, India and Saudi Arabia's divergence on the imbroglio in
Afghanistan, and so on. It was not a pretty picture. But, the economic
needs sidelined the political differences, which were soon re-packaged
into agreement (both parties, for instance, agreed in general that
terrorism is not a good thing, but neither took pains to define who
might be the terrorist in which case). Manmohan Singh's journey to
Riyadh was followed by a series of visits between the two countries,
and an onrush of oil. In 2006, King Abdullah came to Delhi, signed the
Delhi Declaration and turned on the spigot: Saudi Arabia is now
India's leading crude oil resource ($2.8 billion worth in 2008).

In the late 1990s, when the Hindu Right ruled in Delhi, they made a
strategic miscalculation, and so tripped up this relationship.
Believing that the way to Washington was via Tel Aviv, and that the
political fight against terrorism is far more important than the
economic lubricant from Saudi Arabia, the Hindu Right made an entente
with Israel (I recount this story in Namaste Sharon, LeftWord, 2003).
The Saudi royals sniffed at the poor choice of ally (they prefer their
own link to the Israelis to be pragmatically managed by Washington,
rather than openly celebrated at Herzilya). It was only when Manmohan
Singh returned to power in 2004, this time as Prime Minister, that the
far more strategically essential alliance was forged, this around oil
and technology, not hot pursuit and targeted assassinations.

Manmohan Singh made his triumphant return to Riyadh over this past
weekend (the first time in twenty-eight years that an Indian head of
state went to Saudi Arabia). Like Hu Jintao before him, Singh
addressed the Shura, and was received by King Abdullah not as
"brothers," but as "dearest friends." Deals of oil, capital and
technology are hastily being signed. Manmohan Singh's longest
handshake was with Saudi Oil minister Ali Al Naimi. The Saudis and
Indians celebrated the two million Indians who work in the Kingdom.
Many of them, on the other hand, might agree with Habib Hussain of
Moradabad, who complained that Indians are treated like cattle in
Arabia after he escaped the kingdom in the toilet of a commercial
aircraft. The Indian Minister for Overseas Indian Affairs, Vayalar
Ravi met with the Saudi Arabian National Recruitment Committee, but
nothing concrete came of it. Hard to treat workers nicely whose
advantage is that they are international serfs. All the right noises
were made, though. Dubai is the sore on the peninsula. It is also the
city-state with the greatest Indian influence, whether of bankers,
construction workers or gangsters. Not much was said of its financial
problems, nor for the elaboration of the Gulf Cooperation Council-
India Joint Study Group, set up in 2009 under Saudi auspices. Both
Delhi and Riyadh wanted to insulate themselves from the mess in Dubai.

The tangled world of alliances did come up for discussion, but not at
center-stage. That was reserved for economic matters. Prince Saud al-
Faisal, who runs foreign affairs, pointed out that Pakistan is going
through a rough patch, and that the Saudis worry about the "dangerous
things" ongoing there. The Indian tweeting minister, Shashi Tharoor,
got into his usual mess when the media thought that his use of the
term "interlocutor" to refer to Saudi Arabia meant that he wanted the
Saudis to mediate peace talks between India and Pakistan. That was not
so. But the subject did come up, as did Afghanistan, to which the
Saudis made clear that they severed their ties with the Taliban once
al-Qaeda took up residence in the country. Once more the right words
were spoken, but nothing tangible emerged, not even the usual promise
from Riyadh to bring India into the Organization of The Islamic
Conference (even as an observer, not as a member). None of these
countries wants to take leadership in the recovery of Afghanistan; not
as long as the U. S. occupation is ongoing.

What is clear from this new partnership is that India has now given
itself over to the political status quo in West Asia. India's
reticence from Saudi Arabia was founded on India's fealty to Arab
nationalism, whose standard-bearer in the 1950s and 1960s was Gamel
Abdul Nasser, the great enemy of the Saudi royal family. Now with the
demise of Arab nationalism and the transformation of Indian
nationalism, the stage has been set for these two powers of the Indian
Ocean to join hands. Abdullah looks east to the two emergent Asian
giants, wanting their technological expertise, and to link his kingdom
to the Asian Century. Manmohan of Arabia goes home with a trunk full
of oil, and the shattered dreams of Arab republicanism that once felt
that India was its ally, and whose hopes were lifted when the
Pakistani poet Faiz Ahmed Faiz sang his great anti-monarchical anthem,
hum dekhain gay (we shall see):

Jab arz-e Khuda ke kaabe se
Sab but uthwaaly jain gay
Hum ehl-e-safa mardood-e-haram
Masnad pe bithaalay jain gay
Sab Taaj uchalay jain gay
Sab Takht giraaiy jain gay.

When from God's palace
All icons will be removed
We who stand in the mosque
Will be elevated to the altar.
All the crowns will be thrown off,
Al the thrones will fall.

Vijay Prashad is the George and Martha Kellner Chair of South Asian
History and Professor of International Studies at Trinity College. His
book Darker Nations is now out in French (Les Éditions Écosociété) and
Swedish (Leopard Förlag). He can be reached at
vijay....@trincoll.edu.

http://www.eurasiareview.com/2010/03/32101-its-love-india-and-saudi-arabia.html

[chhotemianinshallah]

Knee-jerk selling hits dollar March 1, 2010

The dollar may down for the count..permanently

The Australian dollar slid from highs on Monday after unexpectedly
soft manufacturing data from top trading partner China triggered knee-
jerk selling.

But a possible interest rate rise here on Tuesday put a lid on losses.
Markets are priced for a 60 per cent chance of a 25-basis-point rate
rise when the Reserve Bank of Australia meets on Tuesday.

The Australian dollar slipped to $US0.8977 at the local close, from
an intraday high of $US0.9009, after data showed China's manufacturing
sector grew at a slower pace in February. The official purchasing
managers' index easing to 52.0 in February, from January's 55.8.

Despite the drop, the dollar was still trading well above Friday’s
close of $US8905. It also stayed firmly wedged between its 100- and
200-day moving averages of $US0.9068 and $US0.8679 respectively, with
near-term support around $US0.8955. Near-term resistance is seen
around $US0.9010.

Analysts warned against reading too much into the data.

They said the pull-back was likely driven by cold weather and the
Chinese New Year holiday, rather than waning demand.

"It's not a death knell for the Aussie," said David Forrester, an
analyst at Barclays Capital. "Any slowdown in the Chinese economy is
only modest."

Some investors have worried China's recent steps to curb bank lending
may slow its economy and hurt demand for commodities. Monday's fall in
the Aussie in part reflected these concerns.

Australia is one of the world's top commodity seller so fears of
softer commodity prices tend to hurt the local dollar.

Forrester said China is likely to tighten policy more aggressively in
the second-half of this year to prevent the economy from over-heating.

He predicts China may raise rates by 54 basis points and allow the
yuan to rise by 5 per cent then. That may again fuel selling in the
Aussie to drag it down to $US0.85, he said.

A soft local dollar may be at odds with Australia's healthy economy,
however. RBA's Deputy Governor Ric Battellino noted as much last month
when he said the Aussie should continue to rise in trend terms due to
Australia's strong fundamentals.

Data on Monday showed the trade deficit widened last quarter as firm
domestic demand and business investment sucked in imports, while firm
reported healthy sales and improving profits.

The Aussie's performance against the US dollar this year does not
reflect the buoyant outlook, however.

It has lost 3.8 per cent from the year's high of $US0.9331 as
Greece's debt crisis forced investors to dive into safer assets. In
contrast, the safe-haven yen has risen 5 per cent from its year's lows
against the US dollar.

All that said, the Australian dollar is soaring against sterling. It
hit a new 25-year high of 0.5930 pounds on Monday as sterling came
under pressure after a UK political poll suggested a hung parliament.

Reuters

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Bloomberg

Goldman Picks Tsingtao, Baidu on China Consumption (Update1)
February 28, 2010, 9:36 PM EST

(Adds analyst’s comments in fourth paragraph.)

By Shiyin Chen

March 1 (Bloomberg) -- Goldman Sachs Group Inc. recommended China’s
automobile, health-care, personal computer, insurance and Internet
stocks, predicting gains from consumption growth.

Tsingtao Brewery Co. and Zhejiang NHU Co. are among the top selections
in the mainland market, Goldman Sachs analysts Thomas Deng and Kinger
Lau wrote in a Feb. 26 report. Baidu Inc. and Lenovo Group Ltd. are
among offshore picks.

Living standards in China may match those in Taiwan and South Korea by
the end of 2020, as per capita gross domestic product rises to $14,000
from $4,220 currently, Goldman Sachs wrote. The forecast is based on
economic growth of about 8.2 percent a year for the next decade and a
potential gain in the currency and inflation.

“China is arguably one of the most promising investment cases in
today’s global equity market and the domestic consumption theme is
perceived as the best story within the equity universe by many market
participants,” the analysts wrote. “It is important to get the right
vehicle and means of exposure to successfully monetize the rising
consumption power.”

Tsingtao is China’s second-biggest brewery by volume while Zhejiang
NHU is a manufacturer of organic chemical products and feed additives.
Their shares have gained 82 percent and 56 percent, respectively, over
the past year.

Value Investors

So-called value investors should buy telecommunications stocks because
the potential for growth appears to be “under- appreciated,” the
analysts said. They should be more selective in the beer, clothing,
footwear and meat industries, which have entered a “relatively mature
stage” and may need to rely on product improvements or a consolidation
to boost earnings, according to the brokerage.

The rebound for China’s stocks may be limited as profit growth will
trail analysts’ estimates and the government’s crackdown on the
property market and tighter credit will weigh on so-called cyclical
stocks, according to Citic Securities Co., the country’s biggest
listed brokerage.

Listed companies’ earnings growth forecast for 2009 was cut to 23
percent from the previous 27 percent, said analysts led by Yu Jun in a
report today. The profit growth forecast for 2010 was also reduced,
according to the report, without giving a specific figure.

‘Struggle’

China’s stocks are “likely to struggle” until there’s more clarity on
government policies to rebalance the economy, according to JPMorgan &
Co.’s Adrian Mowat.

Investors are “concerned about rebalancing in China’s economy this
year,” Mowat, JPMorgan’s Hong Kong-based head of Asian and emerging-
market strategy, said in a Bloomberg Television interview. “A-shares
are likely to struggle to perform until we get more clarity on
policy.”

The benchmark Shanghai Composite Index has fallen 6.6 percent this
year as the government seeks to contain inflation while bolstering
domestic consumption to offset a slowdown in exports. The Hang Seng
China Enterprises Index, which measures Hong Kong-traded Chinese
companies, has dropped 8.1 percent, compared with a 3 percent fall in
the MSCI World Index.

On the mainland markets, Goldman Sachs also recommend Inner Mongolia
Yili Industrial Group Co., a producer of dairy products, and Tianjin
Tasly Pharmaceutical Co., a drugmaker.

The brokerage favors both the mainland- and Hong Kong- traded shares
of China Pacific Insurance (Group) Co., citing the prospects for
rising rates and economic growth as well as the company’s presence in
fast-growing second-tier cities.

In Hong Kong, investors can buy China Mengniu Dairy Co. while U.S.
investors can add shares of Mindray Medical International Ltd.,
according to the report.

--With assistance from Chua Kong Ho in Shanghai and Haslinda Amin in
Singapore. Editors: Reinie Booysen, Linus Chua

To contact the reporter on this story: Shiyin Chen in Singapore at
sch...@bloomberg.net

To contact the editor responsible for this story: Linus Chua at
lc...@bloomberg.net

http://www.businessweek.com/news/2010-02-28/goldman-picks-tsingtao-baidu-on-china-consumption-update1-.html

China's Shanda Interactive Q4 Profit up 13 Percent
February 28, 2010

NEW YORK/HONG KONG (Reuters) - Shanda Interactive Entertainment ,
China's No. 2 online game company, said on Sunday its fourth-quarter
profit rose 13 percent, as revenue rose to a record in China's booming
online game market.

China is one of the world's fastest growing online game markets, with
about 80 million gamers in a market worth about $4 billion. Shanda
competes in the market with the likes of NetEase , Changyou and
Tencent <0700.HK>.

Despite the record revenue, Shanda's quarterly profit of 369.3 million
yuan ($54.1 million), or 5.30 yuan per ADS, was still its weakest in
three quarters, reflecting intense competition in China's online game
market.

The quarterly profit compared with a profit of 326.5 million yuan a
year ago, or 4.70 yuan per ADS.

Quarterly revenue rose to a record 1.51 billion yuan ($221.6 million)
from 1.02 billion yuan a year earlier and compared with the average
analyst forecast for $213 million.

"Shanda closed the year 2009 with another quarter of solid progress,"
Shanda Interactive Chairman Chen Tianqiao said in a statement.

"With the goal of becoming a leading global entertainment media
enterprise, Shanda will continue to step up efforts to develop new
technologies as well as explore innovative business models to
transform the cultural landscape."

The company's core online game unit, Shanda Games , accounted for
about 88 percent of its total revenue and 75 percent of its gross
profit in the fourth quarter.

Last week, NetEase reported forecast-beating quarterly results, mostly
due to strong performance from its non-gaming online advertising
business as China's economy gains steam on spending from Beijing's 4
trillion yuan ($586 billion) economic stimulus plan.

Shanda spun off its online game unit last September in a $1 billion
initial public offering in New York, in a move to transform itself
into a more diversified media company.

But since then, Shanda Games' share price has fallen steadily, to as
low as $7.95 in trading last week from an IPO price of $12.50.

Shanda Games said its board has authorized the repurchase of up to
$150 million worth of its outstanding ADSs.

Shanda Interactive shares have fared somewhat better, rallying 63
percent last year on strong hopes for China's online game sector and
amid a broader U.S. rally. But the rally has fizzled this year, with
the shares down 14 percent, versus a more modest 1.5 percent drop for
the broader Nasdaq <.IXIC>.

(Reporting by Doug Young; Editing by Anshuman Daga and Muralikumar
Anantharaman)

Copyright 2010 Reuters News Service. All rights reserved. This
material may not be published, broadcast, rewritten, or redistributed.

http://abcnews.go.com/Business/wireStory?id=9972912

China’s Stocks Rise to Five-Week High; Copper Shares Advance
Bloomberg News

March 1 (Bloomberg) -- China’s stocks rose, sending the benchmark
index to a five-week high, as copper producers surged on concern that
supplies may be disrupted after an earthquake in Chile, the world’s
largest producer of the metal.

Jiangxi Copper Co. and Tongling Nonferrous Metals Group Co., China’s
top two producers of the metal, both climbed by the 10 percent daily
limit. China Life Insurance Co. paced gains for insurers after Goldman
Sachs Group Inc. recommended the industry. Suning Appliance Co.,
China’s biggest home appliance retailer by market value, rose 2.3
percent after reporting higher profit.

The Shanghai Composite Index added 35.90, or 1.2 percent, to 3,087.84
at the close, the highest since Jan. 25. The CSI 300 Index, measuring
exchanges in Shanghai and Shenzhen, gained 1.3 percent to 3,324.42.

“The Chile earthquake may destroy many transport facilities for copper
delivery and the initial reaction from investors is about supply
disruptions,” said Zhao Zifeng, who helps oversee about $10.2 billion
at China International Fund Management Co. in Shanghai. “The market
has been anticipating the government will ease tightening policies. If
the policy expectation isn’t met, the market’s likely to go back to
the fluctuation pattern.”

The Shanghai gauge added 2.1 percent in February as easing inflation
delayed prospects for higher interest rates. Concern the government
will raise borrowing costs and curb lending to cool the economy have
dragged the Shanghai index down 5.8 percent this year.

Copper Rally

Jiangxi Copper, China’s biggest producer of the metal, jumped 10
percent to 38.54 yuan, the highest since Jan. 19. Tongling Nonferrous
Metals, the second largest, surged 10 percent to 20.47 yuan. Yunnan
Copper Industry Co., the fourth- biggest, climbed 10 percent to 28.05
yuan.

Copper for three-month delivery on the London Metal Exchange surged as
much as 5.6 percent to $7,600 a metric ton, the highest price since
Jan. 20. The June-delivery contract on the Shanghai Futures Exchange
climbed 5 percent from the previous settlement price to 61,150 yuan
($8,958) a ton. The quake which hit central Chile on the morning of
Feb. 27 forced Codelco and Anglo American Plc to halt mine
operations.

China Life, the nation’s biggest insurer, gained 3.4 percent to 27.90
yuan. Ping An Insurance (Group) Co., the second biggest, added 3.7
percent to 46.70 yuan. The insurer received approval from the nation’s
cabinet for its planned acquisition of Shenzhen Development Bank Co.,
the Economic Observer reported on Feb. 27, citing the insurer’s vice
chairman, Sun Jianyi. China Pacific Insurance (Group) Co., the third
largest, advanced 3.8 percent to 24.64 yuan.

Besides insurers, Goldman Sachs recommended China’s automobile, health-
care, personal computer and Internet stocks, predicting gains from
consumption growth.

Manufacturing Growth

Suning Appliance gained 2.3 percent to 18.89 yuan after saying profit
gained 33 percent last year to 2.88 billion yuan.

China’s manufacturing grew at a slower pace in February, reducing the
risk of overheating in the fastest-growing major economy. A Purchasing
Managers’ Index released by the government today slid to a one-year
low. A second PMI, from HSBC Holdings Plc and Markit Economics, showed
the weakest expansion in three months. A weeklong Chinese holiday last
month may have affected the numbers.

The nation’s stocks are “likely to struggle” until there’s more
clarity on government policies to rebalance the economy, JPMorgan &
Co.’s Adrian Mowat said in a Bloomberg Television interview.

Consumer-related stocks are unlikely to outperform the market on
accelerating inflation and as the government remove its “very pro-
growth policy,” Mowat said. China’s banking stocks offer “fairly high
growth” and “modest valuations,” he said.

The rebound for China’s stocks may be limited as profit growth will
trail analysts’ estimates and the government’s crackdown on the
property market and tighter credit will weigh on so-called cyclical
stocks, according to Citic Securities Co., the country’s biggest
listed brokerage.

The following companies were among the most active in China’s markets.
Stock symbols are in brackets after companies’ names.

Aluminum Corp. of China Ltd. (601600 CH), the nation’s biggest maker
of the lightweight metal and also called Chalco, added 2.2 percent to
12.96 yuan. Chalco had its Hong Kong-listed shares rated “buy” in new
coverage at BNP Paribas, which said a correction in prices of the
metal offers a “good re-entry opportunity” given the outlook for the
industry.

China Construction Bank Corp. (601939 CH), the country’s second-
largest bank, added 1.2 percent to 5.70 yuan. Chairman Guo Shuqing
said that the lender doesn’t have plans to raise funds this year.

Chongqing Sanxia Paints Co. (000565 CH) rallied the 10 percent daily
limit to 21.04 yuan, the third most on the CSI Smallcap 500 Index. The
company reported 2009 profit surged eightfold, according to a
regulatory filing.

--Zhang Shidong. Editor: Allen Wan

To contact Bloomberg News staff for this story: Zhang Shidong in
Shanghai at +86-21-6104-7014 or szh...@bloomberg.net

Last Updated: March 1, 2010 02:28 EST

http://www.bloomberg.com/apps/news?pid=20601080&sid=ajlm6mBxjA7c

China PLA officer urges challenging U.S. dominance
Chris Buckley

BEIJING
Sun Feb 28, 2010 11:11pm EST

BEIJING (Reuters) - China should build the world's strongest military
and move swiftly to topple the United States as the global "champion,"
a senior Chinese PLA officer says in a new book reflecting swelling
nationalist ambitions.

China

The call for China to abandon modesty about its global goals and
"sprint to become world number one" comes from a People's Liberation
Army (PLA) Senior Colonel, Liu Mingfu, who warns that his nation's
ascent will alarm Washington, risking war despite Beijing's hopes for
a "peaceful rise."

"China's big goal in the 21st century is to become world number one,
the top power," Liu writes in his newly published Chinese-language
book, "The China Dream."

"If China in the 21st century cannot become world number one, cannot
become the top power, then inevitably it will become a straggler that
is cast aside," writes Liu, a professor at the elite National Defense
University, which trains rising officers.

His 303-page book stands out for its boldness even in a recent chorus
of strident Chinese voices demanding a hard shove back against
Washington over trade, Tibet, human rights, and arms sales to Taiwan,
the self-ruled island Beijing claims as its own.

"As long as China seeks to rise to become world number one ... then
even if China is even more capitalist than the U.S., the U.S. will
still be determined to contain it," writes Liu.

Rivalry between the two powers is a "competition to be the leading
country, a conflict over who rises and falls to dominate the world,"
says Liu. "To save itself, to save the world, China must prepare to
become the (world's) helmsman."

"The China Dream" does not represent government policy, which has been
far less strident about the nation's goals.

Liu's book testifies to the homegrown pressures on China's Communist
Party leadership to show the country's fast economic growth is
translating into greater sway against the West, still mired in an
economic slowdown.

The next marker of how China's leaders are handling these swelling
expectations may come later this week, when the government is likely
to announce its defense budget for 2010, after a 14.9 percent rise
last year on the one in 2008.

"This book represents my personal views, but I think it also reflects
a tide of thought," Liu told Reuters in an interview. "We need a
military rise as well as an economic rise."

Another PLA officer has said this year's defense budget should send a
defiant signal to Washington after the Obama administration went ahead
in January with long-known plans to sell $6.4 billion worth of arms to
Taiwan.

"I think one part of 'public opinion' that the leadership pays
attention to is elite opinion, and that includes the PLA," said Alan
Romberg, an expert on China and Taiwan at the Henry L. Stimson Center,
an institute in Washington D.C.

"I think the authorities are seeking to keep control of the reaction,
even as they need to take (it) into account," Romberg said in an
emailed response to questions.

Liu argues that China should use its growing revenues to become the
world's biggest military power, so strong the United States "would not
dare and would not be able to intervene in military conflict in the
Taiwan Strait."

"If China's goal for military strength is not to pass the United
States and Russia, then China is locking itself into being a third-
rate military power," he writes. "Turn some money bags into bullet
holders."

China's leaders do not want to jeopardize ties with the United States,
a key trade partner and still by far the world's biggest economy and
military power.

Yet Chinese public ire, echoed on the Internet, means policy-makers
have to tread more carefully when handling rival domestic and foreign
demands, said Jin Canrong, a professor of international relations at
Renmin University in Beijing.

"Chinese society is changing, and you see that in all the domestic
views now on what China should do about the United States," said Jin.
"If society demands a stronger stance, ignoring that can bring a
certain cost."

Liu's book was officially published in January, but is only now being
sold in Beijing bookstores.

LIGHTING A FIRE IN AMERICA'S BACKYARD

In recent months, strains have widened between Beijing and Washington
over trade, Internet controls, climate change, U.S. arms sales to
Taiwan and President Barack Obama's meeting with Tibet's exiled
leader, the Dalai Lama, who China reviles.

China has so far responded with angry words and a threat to sanction
U.S. companies involved in the Taiwan arms sales. But it has not acted
on that threat and has allowed a U.S. aircraft carrier to visit Hong
Kong.

Over the weekend, Chinese Premier Wen Jiabao said he wanted trade
friction with the United States to ease. U.S. Deputy Secretary of
State James Steinberg is due to visit Beijing this week.

Liu and other PLA officers, however, say they see little chance of
avoiding deepening rivalry with the United States, whether peaceful or
warlike.

"I'm very pessimistic about the future," writes another PLA officer,
Colonel Dai Xu, in another recently published book that claims China
is largely surrounded by hostile or wary countries beholden to the
United States.

"I believe that China cannot escape the calamity of war, and this
calamity may come in the not-too-distant future, at most in 10 to 20
years," writes Dai.

"If the United States can light a fire in China's backyard, we can
also light a fire in their backyard," warns Dai.

Liu said he hoped China and the United States could manage their
rivalry through peaceful competition.

"In his State of the Union speech, Obama said the United States would
never accept coming second-place, but if he reads my book he'll know
China does not want to always be a runner-up," said Liu in the
interview.

(Editing by Benjamin Kang Lim and Jeremy Laurence)

http://www.reuters.com/article/idUSTRE6200P620100301

[chhotemianinshallah]

FEBRUARY 28, 2010, 9:23 P.M. ET.UPDATE: China&apos;s Manufacturing
Economy Grew For 12th Month

BEIJING (Dow Jones)--China&apos;s manufacturing activity grew for the
12th straight month in February, the country&apos;s official
Purchasing Managers Index showed Monday, but the rate of expansion
slowed as factories closed for the Lunar New Year holiday in mid-
February.

The government-backed PMI was 52.0 last month versus 55.8 in January,
the China Federation of Logistics and Purchasing said. A PMI reading

above 50 indicates growth, while a reading below 50 indicates
contraction.

"It would be premature to conclude that today&apos;s fall in the
official PMI signals a broader easing in the momentum of China&apos;s
recovery," given the uncertainties caused by the long holiday, said

Brian Jackson, an economist from Royal Bank of Canada.

Wang Tao, China economist for UBS, said the decline is "a temporary
issue" caused by the public holiday.

"The outlook for China&apos;s manufacturing economy is good. Growth in
the domestic building industry and exports can support manufacturing,"
Wang said.

The new export orders and new orders subindexes of the PMI were lower
in February than in January, though they remained above the
expansionary threshold of 50, according to the PMI survey.

However, the subindexes for imports and employment dropped below the
expansionary threshold of 50 last month, the survey showed.

CFLP analyst Zhang Liqun remained cautious on the outlook for the
recovery in China&apos;s economy and exports.

"The February PMI...shows there are certain uncertainties in the trend
of recovery in China&apos;s economy. We should closely monitor the

drop in the new export orders subindex and remain cautious on the

outlook for exports growth," Zhang said in a statement.

The CFLP and the National Bureau of Statistics usually issue the PMI

on the first day of every month for the previous month&apos;s data.

-Liu Li contributed to this article, Dow Jones Newswires;
8610-8400-7713; li....@dowjones.com

http://online.wsj.com/article/BT-CO-20100228-704489.html?mod=WSJ_latestheadlines

Bloomberg

South Korea Exports Rose for Fourth Month in February (Update2)
February 28, 2010, 8:04 PM EST

(Adds regional breakdown in seventh paragraph.)

By Kevin Cho and Seyoon Kim

March 1 (Bloomberg) -- South Korea’s exports rose for a fourth month
in February as a pickup in the world economy spurred demand for the
nation’s semiconductors, cars and flat- panel displays.

Rising exports signal the economy’s slowdown in the fourth quarter,
when it expanded just 0.2 percent, may prove temporary. Samsung
Electronics Co., the world’s second-largest mobile-phone maker, said
its handset shipments may expand about a fifth this year, helped by
demand for smartphones.

“South Korean exports are benefitting from rising demand from China
and other countries,” said Kim Seung Hyun, head of research at Taurus
Investment & Securities Co. in Seoul. “The base effect is also
spurring a big increase in shipments.”

South Korea’s exports declined from November 2008 to October 2009 as
the global financial crisis cut demand, providing a low base for
comparison. Economic growth in China, the biggest buyer of South
Korean products, rose 10.7 percent in the fourth quarter, the fastest
pace since 2007.

Financial markets are closed for a public holiday in South Korea
today. The benchmark Kospi stock index has declined 5.2 percent this
year after advancing 50 percent in 2009.

Exports to China

Exports to China rose 38 percent in the first 20 days of February,
today’s report showed. Shipments to the U.S. climbed 14 percent and
those to Japan gained 20 percent over the same period. Imports
increased mainly on rising crude-oil prices and more demand for fuel
amid the economic recovery, the ministry said.

Shipments of semiconductors more than doubled last month, and display-
panel exports increased 60 percent, the government said.
Petrochemicals exports gained 51.6 percent.

President Lee Myung Bak said Dec. 30 the economy is likely to expand
more than 5 percent in 2010, the fastest pace in three years. Hanjin
Shipping Co., South Korea’s largest container-box carrier, expects to
post a profit this year and boost sales 27 percent as world trade
picks up.

Exports will increase 13.2 percent this year, compared with a 13.9
percent decline in 2009, the government forecast in December. The
Knowledge Economy Ministry estimated last month that the nation is
likely to post an annual trade surplus of $20 billion.

--Editors: Michael Heath, Lily Nonomiya

To contact the reporters on this story: Seyoon Kim in Seoul at
sk...@bloomberg.net

To contact the editor responsible for this story: Chris Anstey in
Tokyo at can...@bloomberg.net

More From Businessweek

Japan’s Consumer Prices to Resume Rising in 2010, Watanabe Says
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London Leads Office Property Recovery Among Financial Centers
http://www.businessweek.com/news/2010-02-16/london-leads-office-property-recovery-among-financial-centers.html
Asian Stocks Decline on Qantas Earnings, Lower Metal Prices
http://www.businessweek.com/news/2010-02-17/asian-stocks-rise-most-since-november-on-outlook-for-recovery.html

http://www.businessweek.com/news/2010-02-17/asian-stocks-rise-most-since-november-on-outlook-for-recovery.html

UPDATED: February-27-2010 NO. 9 MARCH 4, 2010
Crisis Focus: Ditching U.S. Securities?

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Japan overtook China as the largest foreign holder of U.S. Treasury
securities at the end of 2009 after China sold $34.2 billion in
American securities last December. China had previously surpassed
Japan as the largest holder in September 2008. Since then, China has
increased and reduced its holding from time to time. The latest
amount, however, accounted for 4 percent of all Chinese holdings and
was the biggest single month reduction in years. Some analysts
attributed the reduction to intensifying bilateral trade disputes and
political threats from the United States. Three scholars recently
shared their views with Xinhua News Agency. Edited excerpts follow:

Tan Yaling (President of China Foreign Exchange Investment Research
Institute): China's decision was made after careful consideration of
the market risk and was part of the government's plan to diversify the
investment portfolio of its huge foreign exchange reserves.

This reduction does not necessarily mean China is giving up investing
in dollar assets. On the one hand, we still hold a large amount of
dollar-denominated assets. Therefore, to ditch U.S. Treasury
securities completely would exert an enormous negative impact on our
dollar assets in hand, leading to a substantial loss in value. On the
other hand, no other currency can compare with the U.S. dollar's
status in the world in terms of stability, security and profitability.

Liu Yuhui (Director of the China Economy Appraisal and Rating Center
of the Institute of Finance and Banking under the Chinese Academy of
Social Sciences): It was the right time to reduce the U.S. Treasury
securities holdings, because in the long run, we expect a downward
tendency in the value of U.S. dollars.

The debt risk of the U.S. Government is ballooning and we have not
seen any positive results in the short term. Judging by President
Barack Obama's reform plans, it will be hard to reduce America's
deficit, giving rise to worries from dollar asset investors.

A weak greenback will be the only solution for the United States to
shake off its economic imbalance and rejuvenate its economy, as the
weak currency could help it develop a stronger manufacturing sector,
expand exports, lower the debt burden and drive the development of
emerging industries such as the low-carbon economy.

The most recent dollar appreciation was only temporary and was pushed
up by a sharp depreciation of the euro due to rising risks among the
euro area caused by the Greek debt crisis. Therefore, it was wise to
reduce U.S. holdings when the dollar rebounded.

Cao Honghui (Director of the Department of Financial Markets of the
Institute of Finance and Banking under the Chinese Academy of Social
Sciences): Currently, Japan, China and the UK are the biggest holders
of U.S. Treasury securities and these standings will remain the same
for a relatively long period of time. China might increase or decrease
its dollar asset holdings in the future, but in the long run, it is a
must to diversify and improve its foreign exchange investment
portfolio. If the dollar loses its value substantially, it will lead
to unavoidable losses to all securities holders.

The ever-expanding U.S. federal government debt and local government
debt, as well as the high budget deficit, will require the government
to print more greenbacks, thus inevitably leading to dollar
depreciation, which in turn will result in a considerable loss of
dollar assets held by foreign creditors.

http://www.bjreview.com.cn/business/txt/2010-02/27/content_249022.htm

World stocks gain amid Greece hopes, China data
By JEREMIAH MARQUEZ (AP) – 13 hours ago

HONG KONG — Global stocks advanced Monday amid new hopes of a bailout
for debt-ridden Greece and as slower Chinese manufacturing eased
worries the government would accelerate steps to cool the world's
third-largest economy.

European shares opened up and major Asian markets posted their second
day of gains. Oil climbed above $80 while copper prices shot higher
after the devastating earthquake in Chile, the world's biggest
supplier. The dollar strengthened against the yen.

China said its purchasing managers index, a survey of manufacturers,
indicated manufacturing activity expanded in February but at a lower
rate than the previous month. The slower growth came as the government
intensified efforts to curb overcapacity and inflation in its booming
economy by preventing excessive bank lending.

Analysts said the slower pace of manufacturing helped calm investor
concerns Beijing would soon introduce aggressive new measures to put
the brakes on the economy.

"It's a good sign. It suggests the economic activity is more
sustainable, so this eases the fears of more control policies coming
out in the short term," said Linus Yip, a strategist at First Shanghai
Securities in Hong Kong.

Further boosting sentiment, analysts said, were reports over the
weekend that German banks may buy Greek debt with the German
government offering guarantees. Greece's massive debts have rattled
global markets in recent weeks over fears of financial contagion.

"The report gave hope that Greece and its European partners were
working on concrete steps to help solve the nation's debt problems,"
said Masatoshi Sato, market analyst at Mizuho Investors Securities in
Japan.

On Monday, Germany's chancellor reiterated the country's opposition to
EU countries bailing out fellow euro zone member Greece, but she did
not explicitly rule out state-owned banks buying bonds issued by
Greece.

As trading started in Europe, Britain's FTSE 100 rose 1.1 percent,
Germany's DAX gained 1.5 percent and France's CAC-40 added 1.4
percent.

In Asia, the benchmark Nikkei 225 stock index advanced 46.03 points,
or 0.5 percent, to 10,172.06.

In greater China, Hong Kong's Hang Seng benchmark jumped 448.23, or
2.2 percent, to 21,056.93 and Shanghai's market was up 35.09, or 1.2
percent, at 3,087.84.

Elsewhere, Singapore's market rose 0.9 percent and Taiwan's index
climbed 1.9 percent.

Markets in South Korea, India and Thailand were closed.

Commodity firms got a lift after copper prices surged amid speculation
the earthquake in Chile would significantly disrupt supplies. In Hong
Kong, shares of Chinese producer Jiangxi Copper surged nearly 6
percent.

In oil, the benchmark contract rose 91 cents to $80.57 after adding
$1.49 on Friday.

The dollar rose to 89.32 yen from 88.84 yen. The euro rose to $1.3628
from $1.3623.

Wall Street futures suggested U.S. stock would start the week on a
positive note. S&P futures were up 6.8, or 0.6 percent, at 1,110.20.

Friday in the U.S., markets eked out a small gain.

The Dow rose 4.23, or less than 0.1 percent, to 10,325.26. It fell 0.7
percent for the week but rose 2.6 percent for the month.

The broader S&P 500 index rose 1.55, or 0.1 percent, to 1,104.49. It
fell 0.4 percent for the week and climbed 2.9 percent in February.

Associated Press Writer Shino Yuasa contributed to this report from
Tokyo.

Copyright © 2010 The Associated Press. All rights reserved.

Businessmen are reflected in the electric stock board of a securities
firm in Tokyo Monday, March 1, 2010. Asian stock markets advanced
Monday, with Hong Kong's index up nearly 2 percent, after China said
manufacturing continued to grow last month albeit at a slower pace.
Nikkei 225 stock average ended at 10,172.06, up 46.03 points. (AP
Photo/Koji Sasahara)

http://www.google.com/hostednews/ap/article/ALeqM5h3kgMAkbLwyfxBdjzw8Pc4KZ7DhQD9E5O1VO0

Mines struggle back to life in quake-ravaged Chile
Mon Mar 1, 2010 10:46am EST

NEW YORK, March 1 (Reuters) - Chile's mines and seaports were
struggling to get up and running early Monday, two days after a
massive earthquake disrupted commodity production in the world's top
copper supplier, as damage to the power grid hindered a return to
normal operations.

The price of copper initially jumped more than 5 percent when markets
opened on Monday, after Saturday's 8.8 magnitude quake, one of the
largest on record, closed up to a fifth of copper mine capacity in
Chile.

Despite severe damage to Chile's infrastructure, the market impact on
supply from a crucial producer of metals, not to mention agriculture
goods and forestry products, appeared to have been limited.

The mines most affected were south of Santiago, near where the quake
was centered off the coast of Chile.

State-owned Codelco, the world's No. 1 copper producer, reported
Monday that its Andina mine was still shut. But its massive El
Teniente underground mine, which accounts for more than 7 percent of
Chile's copper, restarted on Sunday.

U.S.-based Freeport McMoRan (FCX.N) said its Candelaria mine,
northeast of Santiago, was restoring operations to normal levels,
although the power supply was still unsettled.

"At Candelaria, reliable power is the issue there. It went out on
Saturday and as of reports today that is being restored," Freeport CEO
Richard Adkerson told an investor conference hosted by BMO Capital
Markets.

Antofagasta PLC (ANTO.L) said Monday power was restored at the Los
Pelambres mine and that the mine was coming back on line as of Sunday.

Anglo American PLC (AAL.L) said on Monday production was affected at
the Los Bronces, El Soldado and Mantoverde mines and the Chagres
copper smelter.
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

To see a map locating Chile's major copper mines and the quake
epicenter, see: link.reuters.com/qug92j
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

Chilean ports were also restarting operations on Monday

Denis Yanez, the head of a national confederation of port workers,
said the copper exporting port of San Antonio was scheduled to restart
operations at 10 a.m. EST (1500 GMT).

He said the major port of Valparaiso started receiving shipments on
Sunday and was expected to increase its load later on Monday.

Chilean fertilizer, lithium and iodine producer Soquimich (SQM.N) said
it sustained no damage to local facilities following the earthquake.

Iron ore producer CAP CAP.SN said Monday it was forced to close its
southern Huachipato steel unit and that repairing the damage will take
at least 3 months to get output back to normal.

BG Group (BG.L) said Monday the Quintero liquefied natural gas
terminal in Chile was not accepting vessels after the loading arms at
the terminal jetty were damaged by Saturday's quake.

The biggest mines in Chile, which produces a third of the world's
copper, are about 1,000 km (600 miles) to the north and were spared
any damage, but interruption of supply from the mid-sized deposits
nearer the capital were sufficient to send 3-month copper MCU3 up 5.6
percent in early trading on the London Metal Exchange.

At 9:56 a.m. EST (1456 GMT) May copper HGK0 at the COMEX division of
the New York Mercantile Exchange was up 6.60 cents, or 2 percent, at
$3.35 a lb. (Writing by Alden Bentley; additional reporting by Alonso
Soto in Santiago, Carole Vaporean and Edward McAllister in New York,
Rebekah Curtis in London; Editing by Walter Bagley)

http://www.reuters.com/article/idUSN0125243320100301?type=marketsNews

Copper To Jump, Markets End February With Gains
By Aireview
01 March 2010 @ 08:49 am AEST

While government officials say exports of copper metals and
concentrates won't be stopped, prices will rally strongly just on
fear.

In all cases, early reports said the stoppages were due to power
supplies being knocked out or destroyed by the powerful quake.

Officials and miners are now on alert for after shocks which can also
prove damaging.

Earthquakes have hit operating mines in past years (Escondida was shut
briefly a couple of years ago) and prices rallied strongly until the
full extent of the position was known.

Copper had a solid February, thanks to rising activity in Asian
economies.

News reports from Reuters and Bloomberg said the 8.8-magnitude quake
forced the government-owned mining company Codelco to halt operations
at its El Teniente and Andina mines because the power supply had been
knocked out.

Production from Codelco's Caletones smelter was also stopped.

It may take two days for output to resume.

Other Codelco operations were unaffected.

In addition, Anglo-American's Los Bronces and El Soldado mines which
together produce about 280,000 tonnes of copper a year, also stopped
operations.

The main copper ports of Antofagasta and Mejillones are operating
normally, but the government said the smaller copper port of San
Antonio was closed.

Most of Chile's copper mining industry is in the north of the country.
The quake, which killed over 200 people, struck in central Chile.

Government officials confirmed to Reuters that the two biggest mines
in the far north - Escondida and Chuquicamata - were unaffected.

Freeport McMoRan Copper & Gold Inc said the quake did not damage its
two mines in Chile, but its Candelaria mine is being shut because the
power has also been cut.

A day earlier on Friday prices rose, giving copper its best month
since last August.

Copper prices have more than doubled in the past year thanks to the
weaker US dollar and rising demand from Asia, and now the US.

Comex May copper futures jumped 7.4 cents, or 2.3%, to $US3.284 a
pound in New York (storm and all).

That left the metal up 7.6% for the month, not enough though to regain
the entire 8.8% drop in January.

On the London Metal Exchange, three month copper rose $US196, or 2.8%,
to $US7,195 a metric tonne ($US3.27 a pound).

Zinc, aluminum, tin, lead and nickel rose.

Oil futures climbed back within striking distance of $US80 a barrel
Friday, with prices up 9.3% in February.

That's a bit less than the 11% surge a week earlier, but dealers say
supply-and-demand issues have started dominating over moves in the US
dollar.

April crude rose $US1.49, or 1.9%, to end at $US79.66 a barrel on the
New York Mercantile Exchange.

For the week, crude ended off 0.5% from last Friday's close of
$US80.06 a barrel.

For the month, crude was up $US6.77, or 9.3%, from the $US72.89 a
barrel level at the end of January.

Prices have ranged between $US69 and $US84 a barrel since October.

Gold jumped on Friday, rising for a second day, as the US dollar fell.

April Comex gold futures rose $US10.40 to $US1,118.90 an ounce, the
highest since a week ago.

Prices fell 0.2% over the week but were up 2.3% for the month.

Wheat had its first monthly gain since last November.

Dealers say investors are unwinding short positions in the grain now
that it seems the price has fallen far enough and the US dollar is
firmer.

Futures on the Chicago Board of Trade jumped 9.5% last month.

The current May contract rose 15.5c, or 3.1%, to $US5.1925 a bushel
and finished 3% up over the week.

Still the grain is still down. It shed 19% in two months to the end of
January on rising production and stocks.

And a big faller in February was sugar, previously the best performer.

Sugar futures prices lost 11% last month.

ICE March raw sugar fell to 23.86 USc per pound, down 2% on the day
and an eight-week low.

Sugar prices have fallen 23.5% since its 29-year high of 30.40c in
early January.

And cotton rose, capping a 19% jump in its futures price as demand for
the fibre reappeared.

It was the biggest rise for two years.

May Cotton futures rose 1.6%, to 82.46 USc a pound in New York, to
leave it up 19% on its January close and the biggest gain since
February 2008.

Markets finished the week and the month all a bit mixed, as the
worries about Greece and the economic recovery came to the fore last
week, once again.

Oil rose, gold was a bit firmer, sugar fell, and copper had a good
month, as did wheat.

Equities overall had a solid month, but the economies of Europe and
the US slowed according to some figures, but Asian economies showed
that they have recovered from the GFC and are now growing strongly.

We find out this week how our economy went in the December quarter.

Fourth quarter US economic growth proved to be a bit stronger than
first forecast (5.9% annual compared with 5.7%), but consumer
confidence fell (in the University of Michigan survey, as well as the
US Conference Board), but sales of existing homes dropped sharply last
month, mirroring the slump in new home sales.

So the Dow rose 4.23 points to 10,325.26 on Friday, which was down
0.8% for the week, but up 2.6% for the month.

That was its best performance since a 6.5% gain in November.

The Standard & Poor's 500 index edged up 0.1% to 1104.48, down 0.40%
for the week, but up 2.9% for the month.

The Nasdaq rose 0.2% to 2,238.26, up 4.2% for the month, but off 0.30%
for the week.

February turned out to be a bit better, but only because of the strong
second last week.

The month was dominated by concerns about the impact of weather,
inflation, poor to moderate growth, jobs and of course Greece and
sovereign debt.

Volatility was high with the month seeing eight days where there were
triple digit movements in the Dow.

In fact the Dow is still down 1% since the start of 2010, the Nasdaq
is off 1.4% and the S&P 500 is off 1%.

European stocks rose, trimming the weekly fall for the Dow Jones Stoxx
600 Index.

The Index rose 1% on Friday, cutting its decline this month to 0.5%.

This left the index down 5.6% from the year's high on January 19.

Canada's S&P/TSX rose 4.8% last month, making it the best performing
index among the world's 20 biggest stock markets by market
capitalization, according to Bloomberg.

The MSCI Asia Pacific Index rose 2.4% last week and 1.5% for the
month. It is still down 6.9% from the high on January 15.

Hong Kong's Hang Seng Index rose 3.6% last week, the biggest gain in
the region.

The Australian sharemarket ended firmer on the final day of the
interim profit reporting season.

The ASX200 index rose 43.9 points, or 0.9%, at 4637.7 points, while
the broader All Ordinaries index added 36.2 points, or 0.8%, at
4651.1.

The index managed to chalk up a small gain for the week and a rise of
1.3% for the month.

http://ibtimes.com.au/articles/20100301/copper-to-jump-markets-end-february-with-gains.htm

Chile's biggest copper mine operating- union
Sat Feb 27, 2010 7:05am EST

SANTIAGO, Chile, Feb 27 (Reuters) - The world's largest copper mine,
Escondida, was operating normally on Saturday after a major earthquake
hit mining powerhouse Chile, a union leader said.

"Everything is normal here. Operations are normal," said Zeiso
Mercado, president of Escondida's workers union. "The earthquake
wasn't felt as strongly in Atacama (desert region)."

BHP Billiton's Escondida BLT.L BHP.AX copper mine is in Chile's major
mining region in the north of the country.

To the south, roads to Chile's Los Bronces copper mine were blocked
after the quake, security officials at the mine said.

The Anglo-American Los Bronces (AAL.L) and the Codelco mines are the
closet mines to the earthquake epicenter on Chile's south-central
coast.

Officials at state-run Codelco's El Teniente and Andina copper mines
were not immediately available for comment. (Reporting by Alonso Soto;
Editing by Doina Chiacu)

http://www.reuters.com/article/idUSN2713587720100227?type=marketsNews

[chhotemianinshallah]

It will be another golden decade if ...
By Zhu Qiwen (China Daily)
Updated: 2010-03-01 08:04

Three decades of nearly double-digit growth have made China into a
unique economic miracle. Will it be able to continue its long-term
growth story into the new decade?

The V-shaped rebound of the Chinese economy last year has seemingly
convinced many observers to give their vote of confidence for the
largest developing economy.

With its beginning as a poor developing country hampered by poverty
and underdeveloped economies, China has ascended to the world's
largest exporter and the third largest economy with a per capita GDP
of about $3,500 by 2009.

There were plenty of bumps along the road. Yet, even the worst global
recession in several decades did not stop the Chinese economy from
expanding by 8.7 percent last year.

It is this resilience that has led people to believe that the
country's catch-up story is far from over, though the size of its
economy has already grown by so much.

Goldman Sachs economist Jim O'Neill forecasted last November that
China will overtake the United States by 2027 - compared to a previous
forecast of 2041 made in 2003.

Lu Feng, an economist of the China Center for Economic Research under
Peking University came up with a bolder prediction. Based on the fact
that the Chinese economy reached about $5 trillion by the end of 2009,
accounting for 35.6 percent of the US economy, he reckoned that it is
highly likely that the size of China's economy will exceed that of the
United States before 2025.

China does seem to have a good chance of maintaining its rapid
economic growth in the new decade.

First, fixed-asset investments will continue to serve as a powerful
boost for economic growth as China presses ahead with urbanization and
industrialization.

Thanks to the government's $586 billion stimulus package and
unprecedented loans support, a 30-percent surge in investment over the
previous year has contributed to more than 90 percent of China's 8.7-
percent GDP growth last year.

The investment binge has given rise to domestic worries about
overcapacity. Yet, since infrastructure construction such as high-
speed railway and roads has taken a large part of the investments,
economists argue that overcapacity will not become a serious problem
anytime soon.

Some Chinese economists further point out that the last boom of
infrastructure construction following the Asian financial crisis in
the late 1990s had actually dismantled some supply-side bottlenecks.
By doing so, it has enabled the Chinese economy to grow rapidly
without triggering runaway inflation in the first decade of the 21st
century.

As China's urbanization ratio remains below 50 percent and
industrialization has yet to see its limits, growth of fixed-asset
investments will more than likely remain healthy.

Second, China's export engine will keep humming as long as the global
trade system is not completely undermined by protectionism.

Though rising protectionism in the West will clog up the wheel of
China's export engine, Chinese economists believe that the huge gap of
labor costs between China and developed economies as well as the
rising productivity of Chinese exporters will help secure domestic
companies' share in the international market.

Third, domestic consumption is rising steadily, much to the surprise
of both Chinese companies and foreign producers.

Two numbers provide enough evidence: China's imports rocketed by a
record 85.5 percent in January, while the Chinese bought 1.66 million
cars, more than any month before.

One should certainly not read too much into these monthly figures. But
they can help explain why auto sales jumped by over 40 percent to make
China the world's largest auto market while refuting the false
assumption that Chinese consumers have spent too little. As their
incomes increase, consumers may have already grown into a critical
source of economic growth more important than it has ever been
acknowledged.

In theory, all the elements for another golden decade are thus ready
for the Chinese economy.

Nevertheless, the magnitude of the challenges that China will face is
not smaller than the opportunities it will enjoy in the new decade.

A metaphor to illustrate its rapid ascension to economic supremacy
might be a high-speed train running at full steam rather than a
bicycle that has to go fast to keep its balance.

On the one hand, it highlights the great impact that China's growing
economic clout has brought about on the world, be it good or bad. And
the challenge for China is whether it can properly adapt to the
changing expectations placed upon it by other nations.

But more importantly, the metaphor sheds light on a key challenge
China must face in the new decade.

For a high-speed train to travel safely and swiftly, all parts must
move in accordance with the locomotive. However, a widening income gap
between the rich and the poor as well as between rural and urban areas
has emerged, undermining efforts to redesign the country's growth
model to a more sustainable trend.

This is the root cause for China's unbalanced growth. How fast can
China fix this will largely determine how far its economy can continue
to advance in the new decade.

E-mail: zhuq...@chinadaily.com.cn

http://www.chinadaily.com.cn/china/2010-03/01/content_9515485.htm

China $125 Billion Health Spending Spurs GE, Philips Sales Boon
By Frederik Balfour

March 1 (Bloomberg) -- Wang Huijuan and her husband braved an
overnight train ride to Beijing from Anhui province to see a doctor
about her ailing intestines. The clinic back home could only take her
temperature and blood pressure.

“They don’t have the equipment or expertise to treat more serious
illnesses,” said Wang, who shivered in the cold as she waited in vain
last week to see a physician at Beijing Xiehe Hospital. “We’ll come
back at 4 a.m. tomorrow.”

The 10,000 yuan ($1,460) in life savings the couple brought to pay
their costs may become an expense of the past after the Chinese
government spends $125 billion to start a national health insurance
system. The benefits will be felt beyond the sick as General Electric
Co. and Philips Electronics NV compete to sell imaging equipment and
household savings are freed up to buy clothes and cars.

More than 300 million Chinese are without health insurance, the World
Bank says, and the remaining 1 billion have only partial coverage. In
part to pay for those costs, Chinese save about one-quarter of their
income each year and have accumulated as much as $5 trillion, said
Stephen Green, chief China economist for Standard Chartered Bank Plc
in Shanghai.

Unlocking those savings is key to China’s plan to shift its economic
drivers from exports and investment to domestic consumption after the
global crisis and a 16 percent export decline in 2009 laid bare the
country’s vulnerability to swings in external demand.

“If they want to broaden out the economy they have got to be serious
about building the social safety net,” said Stephen Roach, Hong Kong-
based Chairman of Morgan Stanley Asia and author of “The Next Asia,”
in an interview. “Health care is absolutely critical in accomplishing
that.”

People’s Congress

The Politburo, China’s top decision-making body, called for that
transformation to be sped up this year, the official Xinhua News
Agency reported after a meeting of the group chaired by President Hu
Jintao. The Feb. 22 meeting discussed the report that Premier Wen
Jiabao will deliver March 5 at the National People’s Congress, in
which the government will outline policy initiatives for 2010.

More spending also would appease China’s trading partners, which are
on the receiving end of a trade surplus that reached $196 billion last
year, more than Malaysia’s gross domestic product.

In addition to GE Healthcare China and Philips Healthcare China, the
$41 billion being spent to build 31,000 hospitals and equip them with
diagnostic and imaging equipment may benefit Chinese companies. Among
them: imaging manufacturer Mindray Medical International Ltd. and
vaccine maker Sinovac Biotech Ltd.

Buying Stakes

China’s focus on health care is spurring private deals. Eli Lilly &
Co.’s venture-capital arm paid almost $15 million last year for about
15 percent of privately held CITIC Pharmaceutical Ltd., a drug-
distribution company.

Fidelity Asian Ventures, the Asia venture-capital unit of Bermuda-
based Fidelity International, in 2008 took a stake in Shanghai-based
China NovaMed Pharmaceuticals.

Indianapolis-based Eli Lilly sees pharmaceutical distribution
opportunities in the interior, where incomes are lower, as well as on
the urban east coast, Darren Carroll, the company’s vice-president for
new ventures, said in a phone interview.

China’s pharmaceuticals market, including nutritional products and
consumer drugs, will more than double to $110 billion by 2015 from $44
billion in 2008, Credit Suisse AG estimated in a November 2009
report.

Device Makers

Vicky Chen, who manages the $80-million closed-end China Healthcare
Partnership Fund under the auspices of Martin Currie Investment Ltd.,
favors equipment and device makers that sell to lower-cost health
providers.

She has held Shenzhen-based Mindray, whose shares have risen 113
percent in the past 12 months, since the fund was launched in July
2008.

Chen on February 2 increased her stake in Beijing-based Sinovac, the
first company to have its H1N1 vaccine approved in China, during a
secondary share sale. Sinovac shares have risen 472 percent in the
past 12 months. It and Mindray are listed in New York.

Chen’s fund was up 81.4 percent in the first 11 months of 2009, the
most recent period available.

“Government initiatives have lent tremendous support to the sector,”
Chen said from Shanghai. “That is really opening up the market for
subsectors, especially medical devices and equipment.”

Stimulus Plan

At the depths of the economic crisis, China’s GDP growth rate fell to
6.1 percent in the first quarter of 2009 compared with the year
earlier, its lowest level in a decade. Growth rebounded to 8.7 percent
for the year, thanks largely to government investment in
infrastructure in a $586-billion stimulus plan unveiled in November
2008.

China overtook Germany as the world’s largest exporter of goods last
year, shipping $1.2 trillion. Its $143.4-billion trade surplus with
the U.S. and $108.5-billion surplus with the European Union, according
to China Customs data, have prompted leaders in those countries to
press Beijing to allow the yuan to appreciate.

The currency has been kept at about 6.83 to the U.S. dollar since July
2008. Already the world’s third-largest economy, China will overtake
Japan this year, the International Monetary Fund says.

Consumer spending accounts for 35 percent of China’s GDP, a percentage
that has barely changed since the government made it a priority in the
2006-10 five-year plan. In the U.S., the world’s largest economy,
consumption represents about two-thirds of GDP.

‘Simply Fragile’

“It’s simply fragile to depend on other countries to have demand,”
said Standard Chartered China economist Jinny Yan in a telephone
interview from Shanghai. “China cannot rely on exports to drive
growth.”

While China accounts for 20 percent of the world’s population of 7
billion people, it is responsible for just 3 percent of global
consumption. The U.S., with about one-fifth of all global consumer
spending, has just 5 percent of the global population, according to
2008 data compiled by Bloomberg.

The Chinese government said in April that it would earmark $125
billion between 2009 and 2012 in additional health-care spending as
part of a plan to offer universal basic health-care coverage by 2020.
Two-thirds will go toward broadening access to health care for migrant
workers, the unemployed and the elderly who aren’t covered by work-
related plans.

U.S. Health Care

The initiative comes as President Barack Obama is trying to extend
health coverage to 31 million uninsured Americans by requiring them to
get insurance and penalizing large employers that don’t offer it.

In China, some progress to help the likes of Wang is under way, thanks
to a government program to keep a lid on the cost of drugs. Last
August the government placed a cap on reimbursement prices for 307
essential drugs used in rural hospitals and community health-care
centers.

In November, it announced another 770 drugs would be included in the
price controls. That could let consumer drug costs fall as much as 12
percent, Goldman Sachs Group Inc. analyst Du Wei said in a Dec. 18
report.

China’s leaders have emphasized for years the need to improve the
country’s health system as part of a broad goal of addressing the
divide between urban and rural income levels.

At the National People’s Congress in Beijing in March 2007, at a time
when China’s GDP was growing by almost 12 percent, Premier Wen
described the economy as “unbalanced, unsustainable, uncoordinated and
unsustainable.”

Iron Rice Bowl

The patchwork health system has its roots in the 1990s as China,
embracing a market economy, abandoned what was called the “iron rice
bowl” system of guaranteed lifelong jobs and benefits. State
hospitals, which still account for about 90 percent of medical
services, became self-funding, inducing physicians to overprescribe
drugs and tests.

China trails in health-care delivery: Its spending per person was just
$121 in 2007, according to the Ministry of Health. The U.S. spent
$7,290 and Germany $3,588 in the same year, according to a November
2009 report by the Organization for Economic Cooperation and
Development.

That spending has been concentrated in urban areas.

“In the big cities there are state-of-the art hospitals that can
handle any complex disease as well as any big hospital in a fully
developed country,” said Marcelo Mosci, CEO of GE Healthcare China,
which expects its China sales to exceed $1 billion in 2010.

Scanner Market

GE Healthcare declined to disclose its 2009 revenue for China, where
GE Chief Executive Officer Jeffrey Immelt visited at least twice in
the past year, according to publicly available information. Fairfield,
Connecticut-based GE doesn’t disclose his schedule.

Shai Dewan, a spokesman for Amsterdam-based Royal Philips Electronics,
said in an e-mail that last year China surpassed North America as the
biggest market for its most advanced CT scanner, which provides three-
dimensional imaging of the brain.

Outside the major urban centers, where 800 million people live, a
different picture emerges.

“Village clinics and township health centers are sometimes not very
inviting,” John Langenbrunner, the World Bank’s lead economist for
health in Beijing said during a phone interview. “You see very elderly
people, stroke victims and people who are clearly vulnerable with no
money.”

The 10,000 yuan that Wang Huijuan, 47, and her husband, Ding Xuejun,
are spending for transport, rent and doctors in Beijing is more than
five times what they earn each year from farming corn, wheat and
soybeans.

“The local clinic is for minor sicknesses like colds,” Wang said,
noting that the doctor in their village of Xidijiu, now 60, began
practicing medicine at the age of 14.

To contact the reporter on this story: Frederik Balfour in Hong Kong
at fbal...@bloomberg.net

Last Updated: February 28, 2010 11:29 EST

http://www.bloomberg.com/apps/news?pid=20601087&sid=acxSkkthtQJM&pos=6

Soros “Very Cautious” on China’s Economy
By Rocky Vega

02/27/10 Stockholm, Sweden – With over 10 trillion yuan in Chinese
bank loans disbursed in 2009, and more trillions on the way, George
Soros, chairman of Soros Fund Management, remains concerned China’s
economy is overheated. In a recent Hong Kong interview he explains how
a hard landing could be in the making.

From MarketWatch:

“Caixin: What is your attitude toward China now? Positive or negative?

“Soros: I’m very cautious, until the economy cools off a little. When
it does, I will be more optimistic again.

“Caixin: In 2009, Chinese banks issued 10 trillion yuan in new loans.
The government has said there will be another 7.5 trillion yuan in
loans this year, although banks loaned more than 1 trillion yuan in
January alone. Do you think this unprecedented credit growth will
eventually lead to overheating, inflation and harsher policy
tightening? Do you worry about the potential risk of non-performing
loans in the medium- to long-term?

“Soros: The overheating, the inflation, the harsh policy tightening is
happening right now and it will continue to happen until the economy
cools off. And with this explosion of credit, there are bound to be
non-performing loans in due course. The extent depends on whether it
is a hard landing or soft landing.”

We’ve seen the consequences of a credit bubble here in the US, and now
we may see just how ugly a Chinese version may look. Soros goes into
more detail on the bubble aspects of the Chinese economy, as well as
how China’s currency revaluation may end up panning out, in
MarketWatch’s coverage of froth in China’s economy.

Rocky Vega

Rocky Vega is a regular contributor to The Daily Reckoning.
Previously, he was founding publisher of UrbanTurf and RFID Update,
which he operated from Brazil, Chile, and Puerto Rico, and associate
publisher of FierceFinance. He specialized in direct marketing at MBI,
facilitated MIT Sloan School of Management programs, and has been
featured on CBS. Vega graduated with honors from Harvard University,
where he was on the board of Let’s Go Publications and directed
business programs involving McKinsey, Goldman Sachs, and Harvard
Business School faculty. He is also enrolled at the Stockholm School
of Economics.

http://dailyreckoning.com/soros-%E2%80%9Cvery-cautious%E2%80%9D-on-chinas-economy/

3-01-10
The China We're Stuck With
By Warren I. Cohen

Warren I. Cohen is Distinguished University Professor Emeritus in the
Department of History at the University of Maryland, Baltimore County,
and senior scholar at the Woodrow Wilson International Center for
Scholars. This article originally appeared at the website of the
Columbia University Press.

In 1908, President Theodore Roosevelt spoke to a Chinese emissary of
America’s hope for a strong, stable, and prosperous China. He
professed to believe that such a China would be in the interest of the
United States. Vice President Walter Mondale repeated Roosevelt’s
words when he visited Beijing in 1979. In the early years of the new
millennium, China has become strong, prosperous and reasonably stable—
but many Americans are not so sure that’s good for them or their
country.

Apprehension about the future of Chinese-American relations derives
only marginally from the fact that China remains a nominally communist
country in which the Communist Party monopolizes power. Unlike the
days of the Cold War, when Soviet nuclear power loomed over us, few
Americans fear a Chinese attack on the United States or the spread of
communism. They do fear, however, the possibility of China
outstripping the United States, China as # 1 in economic power and
global influence.

For the United States, China’s recent surge has been a mixed blessing.
For some years, China’s purchase of US debt has kept the American
economy afloat, enabling its people to buy and enjoy cheap Chinese
goods. Similarly, China’s economic growth has been the engine that
drives the economies of its Asian neighbors. The boom years that much
of the world enjoyed in the 1990s were in part a result of Deng
Xiaoping’s economic reforms, of China’s leap into the global
marketplace. And however grudgingly, Beijing has moved toward
acceptance of some international norms of behavior as evidenced by its
role in the United Nations and in the World Trade Organization. But
there are obvious caveats: American (and European) workers have lost
jobs to lower paid Chinese workers and the undervalued Chinese
currency has had a negative impact on the economies of the United
States and the European Union.

Moreover, Chinese leaders share few Western values or priorities and
there is little evidence of mutual trust between Beijing and
Washington. Most recently, China has obstructed efforts to halt Iran’s
march toward becoming a nuclear power. It has done too little to help
the international community in its efforts to end North Korea’s
nuclear threat and it has sustained vicious dictatorships in Burma,
Sudan, and Zimbabwe

At home, its human rights record, much improved over the days of Mao
Zedong, is nonetheless appalling—and trending toward becoming even
worse. Not only dissidents, but lawyers who attempt to defend them and
other victims of Chinese officialdom are subjected to beatings,
torture, long imprisonments—and disappearances. Tibetans and less
familiar minority groups such as the Uighers of Xinjiang are
discriminated against in their own territories and often brutally
repressed.

And then there is the issue of Taiwan. Within the intelligence
community, the Taiwan Strait is frequently referred to as the most
dangerous place in the world, the only spot where two nuclear armed
Great Powers have confronted each other in the past—and might again.
American presidents have interpreted the Taiwan Relations Act of 1979
as a commitment to provide Taiwan with military equipment it requires
for its defense. Each time Washington approves an arms sale to Taiwan,
Beijing roars its disapproval—as it has in recent days. A defenseless
Taiwan, without expectation of American intervention to protect it
from the growing power of the People’s Republic, would presumably be
intimidated into surrendering its de facto independence and submitting
to reunification with the mainland. The United States insists that
reunification can only be achieved when the people of democratic
Taiwan accept it without coercion—an event not likely to occur in the
lifetime of anyone reading this.

Much of Beijing’s current outrage with American policy toward Taiwan,
with American sympathy for the Dalai Lama, is based upon the
conviction that China is a rapidly rising power and the United States
is in steep decline. Chinese leaders, perceiving a change in the
correlation of forces in their favor, expect Washington to behave more
deferentially. They probably don’t expect the koutou, the prostrations
and head-bangings that the emperors demanded of foreign visitors back
in the days when China was on top of the world, but the rough
equivalent—acceptance of Chinese values and priorities—would be
welcome. Of late, American scholars and diplomats have been struck by
the growing arrogance of their Chinese counterparts, lectures on the
superiority of the Chinese model to the American model, the failure of
American democracy, American economic profligacy, even on human rights
in the United States. This will only get worse until we get our house
in order, until we can demonstrate again that democracy works and that
our economic system can provide jobs and a decent standard of living
for all Americans.

The Chinese have been wrong before about America’s decline, their
analysts predicting it on the eve of the great expansion of American
economic and military power in the 1990s. We can only hope to prove
them wrong again—before they do much more harm to the international
system. In the interim, our choices are very limited. China is too
strong, too important to the world economy to be ignored or pressured
into doing what we believe to be right. That leaves us with the
unappealing policy of “engagement,” to which Washington has ultimately
turned under both Democratic and Republican administrations for
decades. It means coexisting with a difficult, unsavory regime,
relying on diplomacy to persuade Beijing that what we want is in its
interest and accepting what little progress can be made.

Historically, China has overreached and self-destructed whenever it
played the role of hegemonic power. The arrogance it currently
exhibits suggests it is headed in that direction again. But it is not
in the interests of the United States for China to collapse. It
remains in our interest to have a strong, stable, and prosperous
China. Optimally it would also be friendly and democratic. Don’t hold
your breath.

America’s Response to China, Fifth Edition: A History of Sino-American
Relations
Warren I. Cohen

Paper, 344 pages,
ISBN: 978-0-231-15077-4
$27.50 / £19.00

Fifth Edition
February, 2010
Cloth, 344 pages,
ISBN: 978-0-231-15076-7
$84.50 / £58.50

America's Response to China has long been the standard resource for a
succinct, historically grounded assessment of an increasingly
complicated relationship. Written by one of America's leading
diplomatic historians, this book analyzes the concerns and conceptions
that have shaped U.S.-China policy and examines their far-reaching
outcomes. Warren I. Cohen begins with the mercantile interests of the
newly independent American colonies and discusses subsequent events up
to the Tiananmen Square massacre and the policies of George H. W. Bush
and Bill Clinton. For this fifth edition, Cohen adds a chapter on
America in the age of potential Chinese ascendance, envisioning future
partnerships and the shrinking global influence of the United States.
Trenchant and insightful, America's Response to China is critically
important for understanding U.S.-China relations in the twenty-first
century.

About the Author

Warren I. Cohen is Distinguished University Professor Emeritus in the
Department of History at the University of Maryland, Baltimore County,
and senior scholar at the Woodrow Wilson International Center for
Scholars.

http://www.cup.columbia.edu/book/978-0-231-15076-7/americas-response-to-china

http://www.hnn.us/articles/123675.html

Why You Should Be Worried About China
By Bryan Rich on February 28, 2010

Toward the end of last year, many market followers were speculating on
a Fed hike as early as the first half of 2010. Global stock markets
had experienced explosive bounces, commodity prices had surged from
the crisis lows, and risk spreads and market volatility had all
subsided.

In short, markets were pricing in a very optimistic outlook for global
economic recovery - a return to normalcy.

But just two short months into 2010, the exuberance about recovery has
deflated. As I’ve explained in many of my Money and Markets columns,
the world is still saddled with problems and vulnerable to lurking
threats …

In the U.S., unemployment is sustaining high levels, the housing
market continues to weigh on consumer balance sheets and confidence
has again taken a dive.

There is more uncertainty, which is likely to impact the prospects for
global growth. People are waking up to what’s likely a long road to
recovery, given the damage from, what Alan Greenspan calls, “the worst
financial crisis ever.”

And for now, the global financial markets are taking cues from three
key themes …

Theme #1:
Sovereign Debt Problems

The saga surrounding Greece’s finances has created tremors in the
European monetary union. And the speculative pressures on countries
surrounding their fiscal challenges will likely find bigger targets in
the coming months, namely the UK, Japan and the U.S.

The impact of this theme on global growth prospects: Negative.

Theme #2:
China Tightening Credit

The bubble alarm for Chinese authorities was the massive surge of new
loans in the first half of January. New bank loans last month
approached levels of last year, when liquidity pumping was in
emergency mode. Now China is tightening up bank reserve ratios and
curtailing easy money programs, fearing a bubble burst of its own.

The impact of this theme on global growth prospects: Negative.

Theme #3:
Fed’s Exit Strategy

The Fed’s move in the discount rate last week was the first active
step it has taken toward reversing its emergency policies. Up to that
point, the Fed had only guided (or allowed) the programs in place to
either expire or mature - indeed, passive steps. And the timing was a
surprise …

The move came only eight days after the text of a Bernanke speech that
said the discount rate would start moving higher “before long.”

To act so soon after making that comment will create loads of
excitement and speculation whenever the Fed chooses to drop the magic
words - “extended period” - from its guidance on keeping the benchmark
Fed Funds rate at current levels.

The impact of this theme on global growth prospects: Positive.

Overall …

A Sentiment Shift Has Taken Place

These three themes are keeping the dollar on solid footing and keeping
pressure on European currencies and those currencies that are
dependent upon sustained growth and demand from China (i.e. the
Australian dollar, the New Zealand dollar, Brazilian real).

With all of that said, there is clearly a sentiment shift that has
taken place when it comes to the recovery prospects for global
economies.

Now the growing consensus is shifting away from the theories of a V-
shaped economic recovery and toward the alternative scenarios … most
visibly, a sovereign debt crisis.

But while a sovereign debt crisis is already underway and will likely
continue to spread, I don’t think it’s the biggest threat to the
global economy.

Rather, the biggest threat will likely come from growing trade
tensions between China and the rest of the world.

That’s because …

China’s Currency Is Enemy #1 to Global Recovery

Over the last 14 years, China’s economy has grown a whopping eight-
fold, to $4.9 trillion, and has quickly ascended to become the world’s
third-largest economy.

During the same period, the U.S. economy has only doubled in size.

As far as currencies are concerned, the dramatic outperformance of the
Chinese economy relative to the U.S. economy would normally be
reflected in a much stronger Chinese currency.

But, of course, China controls the value of its currency. They allowed
it to strengthen only 18 percent during those 14 years - a mere drop
in the bucket.

And that’s where tensions are threatening to boil over. It’s not just
with its key export market, the United States, but equally as
tumultuous with its Asian neighbors.

Just how out of line is China’s currency?

Let’s take a look …

In the table below, you can see on a purchasing-power parity basis,
the Yuan (China’s currency) is 40 percent to 50 percent too cheap
relative to the U.S. dollar.

Source: IMF

You can also see how China’s export-centric neighbors are feeling the
pain of China’s artificially cheap currency, too. For example, based
strictly on currency values, it would cost 37 percent more to import
identical goods from South Korea than it would from China.

Threat of Protectionism

In my September 19 column, Protectionism an Enemy of Recovery, I wrote
extensively about the threats that protectionism represents to the
global economy.

And it’s widely believed that the world economy cannot find a path of
sustainable growth until those key countries with lopsided trade
become more balanced.

Consequently, the G-20 has made Chinese currency policy its number one
agenda, under the code word “rebalancing.”

As it becomes increasingly evident that China will not play ball on
allowing its currency to appreciate to a fair value, expect the
geopolitical tensions to rise and expect to see two forms of
protectionism follow: Trade tariffs and currency devaluations against
major currencies, to which the value of the Yuan is primarily linked.

And while a global economic recovery is already beginning to look like
a longer road than many have expected, an outbreak of protectionism
would likely derail recovery all together.

That’s why I continue to think that safety and capital preservation
will re-emerge as the primary driver of capital flows around the world
towards the U.S. dollar.

http://www.dailymarkets.com/economy/2010/02/28/why-you-should-be-worried-about-china/

[bademiyansubhanallah]

Nikkei gains 0.5 pct on techs; economy worry weighs
Tue Mar 2, 2010 1:47am EST
By Aiko Hayashi

TOKYO, March 2 (Reuters) - Japan's Nikkei average rose 0.5 percent on
Tuesday, buoyed by gains in chip-linked stocks such as Advantest
(6857.T) after a bullish outlook from flash memory maker SanDisk Corp
(SNDK.O) pushed up shares of their U.S. peers.

Shares of Mitsubishi Heavy Industries (7011.T) and its partners in a
consortium aiming to win a 1.7 trillion yen ($19.08 billion) project
for a Brazilian high-speed railway gained after the Nikkei business
daily said the Japanese government is considering providing financial
support for the bid.

But overall trade was cautious throughout the day, with the Nikkei
swinging into negative territory earlier due to worries about the
outlook for the U.S. economy following mixed data.

Investors were also waiting for Friday's U.S. non-farm payrolls
report, the most closely watched measure of the country's labour
market.

"A majority of investors don't appear to be bearish about the outlook
for the global economy, but they still can't actively buy and are
taking a wait-and-see approach as consumer spending and the job
situation haven't really recovered," said Kenichi Hirano, an operating
officer at Tachibana Securities.

In thin trade, the benchmark Nikkei .N225 rose 49.78 points to
10,221.84, after falling as low as 10,150.30 at one stage.

The broader Topix added 0.4 percent to 902.71.

"We're seeing a lot of data from the U.S. lately that is weaker than
market expectations, and that is fuelling uncertainty about the U.S.
economic outlook," said Yutaka Miura, a senior technical analyst at
Mizuho Securities.

Recent data in the United States suggested the economic recovery still
faced major headwinds, including Friday's report of a surprise drop in
January home sales to a seven-month low and weaker consumer sentiment.

Still, other data showed U.S. manufacturing grew in February, though
more slowly than expected, while consumer spending rose for a fourth
straight month, showing the economy continued a modest recovery.
[ID:nN01245103]

Friday's jobs data is expected to show 50,000 jobs lost in February
compared with a decline of 20,000 in January, and the U.S.
unemployment rate ticking up to 9.8 percent from 9.7 percent.

ASTELLAS DRAGS, CHIP STOCKS GAIN

Astellas Pharma (4503.T) dropped 2.1 percent to 3,275 yen, becoming
the top drag on the Nikkei 225, after it launched a hostile bid for
U.S.-based OSI Pharmaceuticals (OSIP.O), seeking to gain access to its
blockbuster Tarceva cancer drug.

In the United States, OSI shares surged 51.9 percent to $56.25, well
above Astellas's $52-per-share offer as analysts expect a higher price
or even a rival bid from potential suitors such as Swiss drugmaker
Roche Holding AG (ROG.VX), OSI's partner on Tarceva. [ID:nSGE6200CW]

"Astellas will have to sweeten its offer to satisfy OSI's management
and shareholders," said Kenji Masuzoe, an analyst at Deutsche
Securities.

Shares of chip-tester maker Advantest Corp (6857.T) rose 2.3 percent
to 2,147 yen, while Nikon (7731.T), which makes steppers that produce
chips from silicon wafers, added 1.7 percent to 1,988 yen. Memory
maker Tokyo Electron (8035.T) gained 2.2 percent to 5,630 yen.

Mitsubishi Heavy rose 1.8 percent to 338 yen. Partners in the
consortium include trading house Mitsui & Co (8031.T), Hitachi Ltd
(6501.T) and Toshiba Corp (6502.T).

Shares of Mitsui & Co added 1.1 percent to 1,423 yen and Hitachi
advanced 0.7 percent to 301 yen. Toshiba was up 2 percent at 457 yen.

Gains in Toshiba also followed news that U.S. firm SunPower Corp
(SPWRA.O) has signed an agreement to supply Toshiba with 32 megawatts
of solar panels this year.

The deal, for which no financial details were released, will "form the
cornerstone" of Toshiba's new residential solar offering in Japan,
SunPower said in a release. [ID:nN01243741]

Some 1.5 billion shares changed hands on the Tokyo Exchange's first
section, well below last year's daily average of 2.3 billion shares.

Advancing stocks outnumbered declining ones 943 to 546. ($1=89.11 Yen)
(Additional reporting by Elaine Lies and Yumiko Nishitani; Editing by
Michael Watson)

http://www.reuters.com/article/idUSTOE62105X20100302

US recovery continues to be fragile

Consumer income, manufacturing, construction show mixed picture
Last Updated: Monday, March 1, 2010 | 4:13 PM ET
CBC News

Separate reports on the U.S. economy issued Monday suggest recovery
continues but is far from robust.

The U.S. Commerce Department reported personal spending rose by 0.5
per cent in January, extending December's 0.3 per cent gain.

A rebound in U.S. housing construction in January wasn't enough to
counter a fall-off in in commercial activity, such as office buildings
and hotels.
(Gerry Broome/Associated Press)

Personal income rose 0.1 per cent. Less than many economists had
expected. Taking inflation into account, spending rose 0.3 per cent.

In a commentary, Ian Pollick, economics strategist with TD Securities,
called it a "highly mixed" report, showing consumer spending remains
"quite healthy," but many family incomes "remain tied to the hip with
government assistance."

The Commerce Department also reported Monday that construction
spending fell for a third straight month in January by 0.6 per cent.

A pickup of 1.3 per cent in housing activity wasn't enough to counter
a 2.1 per cent drop in commercial activity, such as office buildings
and hotels.

Construction falls from a year ago

Construction spending in January totalled a seasonally adjusted annual
rate of $884.12 billion, down 11.5 per cent from a year ago. Private
residential construction was off 6.4 percent from a year ago.

And the Institute for Supply Management, a industry organization of
purchasing managers, said its widely watched manufacturing index
slipped to 56.5 last month, down from 58.4 in January. Anything above
50 is a sign of growth.

The ISM said a reading over 56 shows strong growth in manufacturing
and overall economic growth of 4.9 per cent.

TD Securities' Millan Mulraine described the report as "somewhat
disappointing," as it suggests the pace of manufacturing growth slowed
in February.

With files from The Associated Press Post a comment

Story comments (11)

Meaty Vitamin wrote:
Posted 2010/03/01
at 11:53 PM ET
Oh great US Recovery! Please, allow the world to be at peace again!
10 1 Agree 0 Disagree

Hippie Redneck wrote:
Posted 2010/03/01
at 11:50 PM ET"US recovery continues to be fragile"

Of course it is. It is based on debt. Never a stable structure.
40 4 Agree 0 Disagree

Brewster wrote:
Posted 2010/03/01
at 10:27 PM ET

Have to laugh at the CBC, they think it's a recovery because the last
quarter of `09 was up 5%.
In the news today, Air Canada is laying off over a thousand
machinists, nice recovery all right.
Gas is $4.60 an gallon, I know its cheaper stateside but it's still
takes a whack out of disposable income.
And as being said, we follow the US, they're in trouble still and we
won;t see the light anytime soon.
90 9 Agree 0 Disagree

Soylent Purple wrote:
Posted 2010/03/01
at 8:36 PM ET

Delusional. There is no recovery yet. It's all generational debt,
disguised as a "stimulus package". The sooner governments turn off the
taps, raise interest rates and the chips fall, the sooner the healing
can begin. They are only postponing the inevitable. All cowards who
refuse to "let a depression happen on their watch".
2002 0 Agree 0 Disagree

firsthings wrote:
Posted 2010/03/01
at 8:26 PM ET
As far as I'm concerned if it's "fragile" it's not a recovery. When
the patient is out of the hospital you can say he's in recovery. This
economy is still in bed on intravenous stimulus drip .

centraldude wrote:
Posted 2010/03/01
at 8:16 PM ETCANADIANS ARE DREAMING

If USA does NOT recover, neither will Canada because Canada is so
dependant on USA.

Canada is "NOTHING" if the USA economy does not recover.

Canadians are in some kind of dream because they think they can
survive without USA.

WRONG WRONG...
1731 7 Agree 3 Disagree

leonswallow wrote:
Posted 2010/03/01
at 8:01 PM ETCongressman Ron Paul for President...

http://www.prisonplanet.com/broken-us-government-with-ron-paul.html

70 7 Agree 0 Disagree

think with your head, not your party wrote:
Posted 2010/03/01
at 7:08 PM ET

isitoveryet wrote:Posted 2010/03/01
at 6:19 PM ET

I seriously think that the government of USA should of let the banks
fail and create a entrepreneurship program so the kids of the future
won't fall in this stupid trap every time... Its a cycle every 10-20
years remember that.
-------------------------------------
Yes they should, but the major banks own most of congress, on both
sides of the House. They should let them fail because without failure,
a free-market economy is really just a corporatist one. Bad business
practices are not punished with failure as they are meant to be, and
corporations now receive welfare, albeit on a scale real welfare never
even dreams of. If the big banks fail to the extent that the financial
system is threatened due to lack of short-term credit, let the fed
lend out money directly, rather than printing it off and handing it to
the banks to hoard. That way capital held by the failing banks is
freed up, and competitor and startup banks will take over the place of
the failed banks.
1601 6 Agree 0 Disagree

isitoveryet wrote:
Posted 2010/03/01
at 6:19 PM ET
I seriously think that the government of USA should of let the banks
fail and create a entrepreneurship program so the kids of the future
won't fall in this stupid trap every time... Its a cycle every 10-20
years remember that.
1701 7 Agree 0 Disagree

llanm wrote:
Posted 2010/03/01
at 5:15 PM ET
"consumer spending remains quite healthy"

Sure, the rich had their losses covered, they've got lots of cash to
spend.

The whispers of sadness are ignored by those bringing us the news.
28028Agree 0DisagreePolicy Report abuse

leonswallow wrote:Posted 2010/03/01
at 4:23 PM ET

Recovery.. Come on CBC who are you trying to kid this time.. Why don't
you read the real number.. The US is bankrupted and there fiat money
isn't wanted.. Stick around for the revolution when the American
public finally wake up and find out they have been robbed by the banks
36 Agree 10 Disagree

Economy expanded at 5% pace in Q4
Comments 234|Recommend 43

Canada's economy expanded at a five per cent annualized pace in the
fourth quarter, well ahead of the 0.9 per cent pace in the previous
quarter.
GM recalls 1.3M Chevrolet, Pontiac cars
Comments 70|Recommend 18

General Motors Co. said Monday it will recall 1.3 million Chevrolet
and Pontiac compact cars sold in the U.S., Canada and Mexico to fix
power steering motors that can fail.
Keep stimulus money flowing: research group
Comments 198|Recommend 36

The federal government should not turn off the taps on stimulus
spending when it releases its budget this week, the Canadian Centre
for Policy Alternatives says.
US recovery continues to be fragile
Comments 11|Recommend 11

Separate reports on the U.S. economy issued Monday suggest recovery
continues but is far from robust.

Thow pleads guilty to defrauding investors
Comments 26|Recommend 15

http://www.cbc.ca/money/story/2010/03/01/us-recovery-fragile.html

March 2, 2010, 1:34 a.m. EST · Recommend · Post:

OIL FUTURES: Crude Steady Ahead Of U.S. Oil Stocks Data

By Florence Tan

SINGAPORE (MarketWatch) -- Crude futures Tuesday were little changed
and above $78 as prices remained sandwiched between a strong dollar
and expectations of a recovery in oil demand while the market awaits
U.S. oil stocks data due later today.

On the New York Mercantile Exchange, light, sweet crude futures for
delivery in April traded at $78.64 a barrel at 0621 GMT, down 6 cents
in the Globex electronic session after settling nearly $1 lower
overnight as the U.S. dollar strengthened. A rise in crude supply from
the Organization of Petroleum Exporting Countries also weighed on
sentiment.

April Brent crude on London's ICE Futures exchange fell 4 cents to
$76.85 a barrel.

For prices to break out of the $78.00-$80.50 range, the market will
need data to show a drop in oil inventories, affirming expectations of
a rise in consumption as the U.S. economy recovers, said Jonathan
Barratt, managing director at Commodity Broking Services.

"All these (economic data) suggest it (a rise in demand), but we're
still seeing inventory builds. I really want to see whether or not
we'll get that support from economies picking up."

The American Petroleum Institute will release data for the week ended
Feb. 26 later today while same-week statistics from the government's
Energy Information Administration are scheduled for release at 10:30
a.m. EST Wednesday.

A Dow Jones Newswires survey of eight analysts showed that this week's
data may continue to disappoint as U.S. crude oil and gasoline stocks
are seen rising in Wednesday's data.

Crude oil inventories are expected to rise by 700,000 barrels while
gasoline stocks are expected to increase by 600,000 barrels, the
survey showed.

Distillate stocks, including diesel and heating oil, are expected to
fall 300,000 barrels. Refiners are expected to leave utilization
unchanged at 81.2% of capacity.

Oil prices remained technically supported as they stayed above last
week's lows despite Monday's downward pressure from a strong U.S.
dollar and a rise in OPEC production, Jim Ritterbusch, president of
trading advisory Ritterbusch and Associates, said in a note.

He expects support to push oil to a fresh high of $81.50-$82.00 this
week.

Weekly EIA data due Wednesday may have some impact on oil prices, but
"the employment numbers on Friday will likely be the most important
item in this week's array of financial inputs," he said.

At 0622 GMT, oil product futures were mixed.

Nymex reformulated gasoline blendstock for April--the benchmark
gasoline contract--rose 18 points to 215.74 cents a gallon, while
April heating oil traded at 202.45 cents, 10 points higher.

ICE gasoil for March changed hands at $627.25 a metric ton, down $6.50
from Monday's settlement.

(Brian Baskin in New York contributed to this article.)

1.Economy is running on empty
http://www.marketwatch.com/story/economy-is-running-on-empty-2010-03-02
2.Australian central bank hikes policy rate to 4.0%
http://www.marketwatch.com/story/australian-central-bank-hikes-policy-rate-to-40-2010-03-01
3.Wall Street is stealing another 20% from you
http://www.marketwatch.com/story/wall-street-is-stealing-another-20-from-you-2010-03-02

http://www.marketwatch.com/story/oil-futures-crude-steady-ahead-of-us-oil-stocks-data-2010-03-02

Paul B. Farrell

Feb. 23, 2010, 12:01 a.m. EST · Recommend (66) · Post:

'Death of American Capitalism:' The 10 final scenes
Commentary: Munger warns 2012 is our tipping point on 'road to

By Paul B. Farrell, MarketWatch

ARROYO GRANDE, Calif. (MarketWatch) -- Good news, Americans are
"downbeat about today. Upbeat about tomorrow," says the latest USA
Today/Gallup Poll. "Americans feel battered by hard times, record home
foreclosures, stubbornly high unemployment rates and war."

And yes, we are "fed up with Washington and convinced more than 3 to 1
that the nation is heading in the wrong direction," yet there's
"confidence that there will be better times ahead, that the classic
American dream endures and hasn't been extinguished. It's not even at
its low ebb." Why? Because we're in denial!

Bull market for bonds is endingBond investors enjoyed stellar gains
for several years but that's about to end, says Kurt Brouwer, chairman
of Brouwer & Janachowski and editor of MarketWatch's Fundmastery blog.
He talks with Money & Investing Editor Jonathan Burton.

Do Main Street's 95 million investors know something Warren Buffett's
long-time partner, Charlie Munger, doesn't know? Munger is warning us
"It's Over" for America. Yes, "o-v-e-r," America's in decline, at the
end-of-days, coming to "financial ruin," says Munger.

Optimism has always been the enduring spirit that made us a great
nation, brought us back from overwhelming challenges and impossible
odds -- WW II, the Civil War, the 1776 Revolution. Yes, that spirit
still burns in our soul, says the poll.

But we also know, as we said earlier in "The Death of the Soul of
Capitalism," that over the long-term, through many centuries,
historians give nations an average of about 200 years before they burn
out. Why? Because the "blind optimism" that makes a nation great in
the early years of its rise to power and glory becomes, paradoxically,
its worst enemy in the end-days.

Their arrogance traps them in a self-sabotaging cycle that weakens
their resolve, makes them vulnerable to new, unpredictable challenges,
ultimately destroying them from within. That happens over and over
throughout history, even as their optimistic brains tell them they're
still the greatest.

So for a moment, please set aside your "optimism," listen to our
translation of Munger's drama as a 10-scene crime-thriller about
America on the "road to ruin."

Plot notes: Warning, America is on a 'road to financial ruin'

Turns out that like Buffett, whose tales we detailed earlier, Munger's
a good storyteller. His parable, "Basically It's Over: A parable about
how one nation came to financial ruin," appeared in Slate magazine.
Clearly he's warning about the end of capitalism, the end of
democracy, the coming end of America.

In his parable Munger calls America "Basicland ... rich in all
nature's bounty." In our recasting it as a drama, we'll use "America"
rather than "Basicland" in the narrative to drive home the full impact
of Munger's powerful message.

Scene 1: Power and wealth create false sense of invincibility

Significantly, Munger says 2012 is the turning point, a signal, the
moment setting up the final crisis scene. We've often made a similar
timing prediction, one tied to the 2012 election, and a reminder of
the warning made by Jared Diamond in "Collapse: How Societies Choose
to Fail or Succeed." In the late stages of a nation's cycle: A crisis
hits. Everyone, leaders and citizens, act surprised. But it's too
late: "Civilizations share a sharp curve of decline. Indeed, a
society's demise may begin only a decade or two after it reaches its
peak population, wealth and power." Just 20 short years to ruin?

Munger warns: "Even a country as cautious, sound, and generous as
America could come to ruin if it failed to address the dangers that
can be caused by the ordinary accidents of life. These dangers were
significant by 2012, when the extreme prosperity of America had
created a peculiar outcome: As their affluence and leisure time grew,
America's citizens more and more whiled away their time in the
excitement of casino gambling." Yes, Main Street "feels battered"
while Wall Street gambling casinos generate billions.

Scene 2: Greed consumes America: Gambling replaces real work

In Munger's brilliant parable "the winnings of the casinos eventually
amounted to 25% of America's GDP, while 22% of all employee earnings
in America were paid to persons employed by the casinos" and "many of
the gamblers were highly talented engineers attracted partly by casino
poker but mostly by bets available in the bucket shop systems, with
the bets now called financial derivatives." Yes, the same derivative
bets Buffett targeted when he warned against "financial weapons of
mass destruction."

Scene 3: Wall Street's casinos prosper as Main Street suffers

Munger's also not talking about just the million or so gamblers
working in Wall Street's "too political to fail" casino-banks. No,
"gamblers" are also among Main Street America's 95 million average
investors, though most of the high rollers are the slick pros on
casino payrolls where "most casino revenue now came from bets on
security prices under a system used in the 1920s." Think of Goldman's
trading operation that often makes $100 million profits daily, while
America has close to 20% underemployed.

Scene 4: America's side-bet debt to foreign casinos skyrockets

Now comes the crucial turning point in Munger's crime-thriller: "Many
people, particularly foreigners with savings to invest, regarded this
situation as disgraceful. After all, they reasoned, it was just common
sense for lenders to avoid gambling addicts ... They feared big
trouble if the gambling-addicted citizens of America were suddenly
faced with hardship." They were right.

Scene 5: Nations in denial rarely prepare for disasters in advance

"Then came the twin shocks," a plot twist borrowed from "Avatar,"
"Wall-E" and Al Gore, the kind of shocks that most
"optimists" (especially those hell-bent on voting Obama and the
liberals out of office by 2012) always deny. So, "hydrocarbon prices
rose to new highs." Munger must mean a twist like oil hitting a scene-
stealing $1,000 a barrel.

Scene 6: In the later stages, get-rich-quick beats real work

America seeks the advice of the "Good Father," a tall ex-Fed chairman
who suggests "America change its laws. It should strongly discourage
casino gambling, partly through a complete ban on the trading in
financial derivatives, and it should encourage former casino employees
-- and former casino patrons -- to produce and sell items that
foreigners were willing to buy." Never happen: Not as long as Wall
Street's gamblers can make more in a year trading derivatives than
most Americans make in a lifetime. Why "work?"

Scene 7: Wall Street CEOs, economists, lobbyists love gambling

Sounds great, many approved, "but others, including many of America's
prominent economists, had strong objections. These economists had
intense faith that any outcome at all in a free market -- even wild
growth in casino gambling -- is constructive. Indeed, these economists
were so committed to their basic faith that they looked forward to the
day when America would expand real securities trading, as a percentage
of securities outstanding, by a factor of 100, so that it could match
the speculation level present in the United States just before
onslaught of the Great Recession that began in 2008."

Scene 8: Wall Street gamblers love Reaganomics, hate change

Though Munger and his partner got rich in this bizarre parable, his
plot turns dark as America's "investment and commercial bankers were
hostile to change. Like the objecting economists, the bankers wanted
change exactly opposite to change wanted by the Good Father." Wall
Street "came to believe that the Good Father lacked any understanding
of important and eternal causes of human progress that the bankers
were trying to serve" by leaving today's free market gambling casino
operations untouched, so it could quickly return to pre-2008 "greed is
very good" reality.

Scene 9: Main Street investors join Wall Street's 'Happy Conspiracy'

The endgame now unfolds rapidly. Munger warns that America's
investors, workers and citizens have become so jaded they merge with
Wall Street's self-sabotaging conspiracy: "Of course, the most
effective political opposition to change came from the gambling
casinos themselves. This was not surprising, as at least one casino
was located in each legislative district." They "saw themselves as
part of a long-established industry that provided harmless pleasure
while improving the thinking skills of its customers."

Scene 10: Politicians love Wall Street's derivative casino: Game
over!

The 86-year-old Munger is himself a metaphor for America's version of
the classic historical cycle: He was an optimist as he and Warren
built their $267 billion company over four decades. But sadly, his
parable, his vision of America's future, has no optimistic finale.
Rather it's reminiscent of Diamond's "Collapse," Bogle's "Battle for
the Soul of Capitalism," and so many other recent reminders about how
America just went over a cliff and how Wall Street's casino-banks will
soon drive us off a bigger cliff into the Great Depression II by
2012.

Munger's parable is more than a Hollywood suspense-thriller, it's
another example of the classic historical life-cycle of a nation.

In the final scenes "politicians ignored the Good Father one more
time," the casino-banks returned to gambling in derivative "securities
with extreme financial leverage. A couple of economic messes followed,
during which every constituency tried to avoid hardship by deflecting
it to others. Much counterproductive governmental action was taken,
and the country's credit was reduced to tatters. America is now under
new management, using a new governmental system. It also has a new
nickname: Sorrowland."

Epilogue: Your moral dilemma: a no-win scenario or historical
destiny?

Do we really have a choice? Ask yourself, what's ahead after 2012? Can
you see beyond a destructive campaign: Obama at war with Palin and the
"Tea Party of No?" What are the long-term prospects of our
"civilization." Do you share Munger's dark vision?

Or does the USA Today/Gallup Poll tell you guys like Munger, Buffett
and Volker do "lack any understanding of important and eternal causes
of human progress that the bankers are trying to serve" with their
gambling casinos. "Optimists" in those polls are just politicians,
bankers and citizens like you, in denial, can't hear the warnings. So
we get no changes, no action, no preparations because at this stage in
the long-term historical cycle, optimism has turned into our worse
enemy, wishful-thinking.

Solution? Get into action, let's launch the "Second American
Revolution." Got any constructive, optimistic strategies? Share them.
Add your comments.

Reader Response »

God Bless you Paul for having the courage to tell it like it is. I
have been in arguments daily with my professors who preach the
Keynesian doctrine. They think we can expand the economy by printing
money out of thin air and supporting bankrupt abominations. 10 reasons
why this market is run by ponzi finance, fraud, and Wall Street elites
hellbent on destroying true free market capitalism. 1..."

- stockfreefall | 12:25 a.m. Feb. 23, 2010

http://www.marketwatch.com/story/death-of-us-capitalism-the-final-10-scenes-2010-02-23

Chile's high-stakes copper play
By MarketWatch

SAN FRANCISCO (MarketWatch) -- When a massive 8.8 magnitude earthquake
hit Chile this weekend, the news shook commodities traders worldwide
faster than the tsunami alert fanned out across the Pacific.

That's because Chile accounts for about a third of the world's copper
output. Any long-term disruptions to the country's mining districts
could cause a serious shortage of the metal and send prices soaring --
a serious blow to manufacturers' tenuous recovery from a severe
recession.

While copper prices did briefly spike Monday, the move -- much like
the tsunami -- was far smaller than first feared.

News Hub: Chile Tries to Recover from QuakeDow Jones newswires
reporter Carolina Pica says that looting in Chile has escalated from
taking basic necessities to stealing goods, as the country continues
to suffer from no electricity, no water and no way to get money.
News that Chile's richest mines, well north of the quake's epicenter,
escaped relatively unscathed quickly beat copper futures into
submission, but not before they popped 6% to $3.49 a pound on the New
York Mercantile Exchange, their biggest one-day move of the year. Read
more about copper prices.

The whole episode was a stark reminder of copper's underlying
volatility.

Two years ago, copper was at the center of one of the biggest
speculative commodity bubbles ever. That bubble burst, along with much
of the global economy, and prices came crashing back to earth.

Ever since, copper traders have been lulled into a relatively
predictable pattern in which prices are shuffled around by economic
indicators. Prices predictably go up on any sign of economic
improvement and fall on signs of economic weakness, with minor
adjustments along the way pinned to rather boring inventory reports.

What happened Monday was a shockwave from the supply side that
overwhelmed the data wonks. Long-term demand projections crumble
before fears of an impending shortage. And nothing wakes up
speculators like the smell of fear.

Copper, much like crude oil, has a volatile history shaped by strikes,
wars and political upheaval.

Unlike crude, however, copper is often subject to the same violent
geological forces that forged it in the first place. With most of the
world's copper being mined in one of the most unstable strips of real
estate on the planet, the earthquake premium is never far below the
surface. And that makes it one of the highest-stake commodities games
around.

Saturday's massive temblor was just a little reminder of that.

-- Jim Jelter

http://www.marketwatch.com/story/chiles-high-stakes-copper-play-2010-03-01

[bademiyansubhanallah]

Asia stocks up amid hopeful regional economic data
By JEREMIAH MARQUEZ (AP) – 1 hour ago

HONG KONG — Asian stock markets were mostly higher Tuesday as positive
regional economic reports and corporate dealmaking buoyed optimism
about the global recovery.

The upward move followed Western markets, where investors were
encouraged by news debt-ridden insurer American International Group
Inc. was selling its Asian life insurance unit to Britain's Prudential
PLC for $35.5 billion.

The news, part of a rash of buyouts and mergers overnight, was seen as
an indication companies are more confident about the economy's
prospects.

Tuesday also brought further evidence of Asia's rebound.

Japan's unemployment rate fell in January for the second straight
month and household spending posted solid growth, providing the latest
signal the world's second-largest economy was healing. In South Korea,
exports jumped more than 30 percent last month from a year earlier
amid strengthening overseas demand.

Still, several major markets bucked the broader buying or fluctuated.

Tim Condon, head of Asia research for ING Financial Markets in
Singapore, said that while there was little to derail the region's
recovery, investors were still climbing a wall of worry over lingering
problems in the global economy.

"Sentiment is fragile," Condon said. "Investor concerns about problems
surrounding Greece and China are still fresh enough, and I don't think
a consensus view of the endgame is sufficiently formed so that people
can rest easy."

Japan's Nikkei 225 stock average was up 47.83 points, or 0.5 percent,
at 10,219.89.

In Hong Kong, the Hang Seng dropped 173.94, or 0.8 percent, to
20,882.99. Heavy selling in HSBC shares, down more than 6 percent,
weighed on the broader market after the British-based bank reported
disappointing results.

Elsewhere, South Korea's Kospi gained 1.2 percent to 1,613.64 and
India's Sensex climbed 1.5 percent to 16,665.92.

In Australia, stocks traded about 0.3 percent higher after the
country's central bank hiked its key interest rate to 4 percent.
Markets in Taiwan and Singapore also gained.

In currencies, the dollar rose to 89.31 yen from 89.11 yen. The euro
was lower at $1.3537 from $1.3555.

Oil drifted lower in Asia trade, with the benchmark contract down 3
cents at $78.67 a barrel.

Wall Street futures were little changed, pointing to a flat open in
the U.S. Tuesday.

Overnight in the U.S., the Dow rose 78.53, or 0.8 percent, to
10,403.79, its highest close since Jan. 20. The Dow is down 24 points
for the year, though still down 322 points from a 15-month high on
Jan. 19.

The broader S&P 500 index rose 11.22, or 1 percent, to 1,115.71, its
best level since Jan. 21. It is now up 0.1 percent for 2010. The
Nasdaq rose 35.31, or 1.6 percent, to 2,273.57. It is up 0.2 percent
for the year.

Copyright © 2010 The Associated Press. All rights reserved.

A passer-by looks at the electronic stock board of a securities firm
in Tokyo, Tuesday, March 2, 2010. Asian stock markets mostly gained
ground in early Tuesday trading after U.S. markets climbed to their
highest levels in more than a month and Japan reported its
unemployment rate fell in January. Most markets rose except in Japan,
where the Nikkei 225 stock average is down about 2 points to 10,169.
(AP Photo/Koji Sasahara)

http://www.google.com/hostednews/ap/article/ALeqM5h3kgMAkbLwyfxBdjzw8Pc4KZ7DhQD9E6AKMG0

Asian stock markets mostly higher after positive Japan, South Korea
economic reports
Updated 02:35 PM Mar 02, 2010HONG KONG (AP) - Asian stock markets are
mostly higher as positive regional economic reports and corporate
dealmaking buoy optimism about the global recovery.

Japan's unemployment rate fell in January for the second straight
month and household spending posted solid growth. South Korean exports
jumped more than 30 percent last month from a year earlier.

Japan's Nikkei 225 rose 49.78 points, or 0.5 percent, to close at
10,221.84 on Tuesday.

Hong Kong's Hang Seng was down 0.8 percent in afternoon trading.

South Korea's Kospi closed up 1.3 percent, while India's Sensex was up
1.6 percent in afternoon trading.

Australia's benchmark finished 0.3 percent higher after the central
bank hiked the key interest rate to 4 percent.

- AP

Other Breaking News headlines

Euro falls to $1.3516 in European morning trade as Greek debt worries
persist
http://www.todayonline.com/BreakingNews/EDC100302-0000238/Euro-falls-to-$1,3516-in-European-morning-trade-as-Greek-debt-worries-persist
Pakistani prosecutors lay out charges against 5 US citizens accused of
terror ties
http://www.todayonline.com/BreakingNews/EDC100302-0000237/Pakistani-prosecutors-lay-out-charges-against-5-US-citizens-accused-of-terror-ties
Japan stocks rise on improving jobless rate, but gains limited
http://www.todayonline.com/BreakingNews/EDC100302-0000236/Japan-stocks-rise-on-improving-jobless-rate,-but-gains-limited
US envoys' Beijing visit aims to heal ties rocked by disputes over
trade, Taiwan, Tibet
http://www.todayonline.com/BreakingNews/EDC100302-0000208/US-envoys-Beijing-visit-aims-to-heal-ties-rocked-by-disputes-over-trade,-Taiwan,-Tibet
Toyota apologies to Europe on eve of show unveiling new models
http://www.todayonline.com/BreakingNews/EDC100302-0000207/Toyota-apologies-to-Europe-on-eve-of-show-unveiling-new-models
North Korea vows to bolster nuclear deterrent and its means of
delivery
http://www.todayonline.com/BreakingNews/EDC100302-0000206/North-Korea-vows-to-bolster-nuclear-deterrent-and-its-means-of-delivery
Asian stock markets mostly rise after unemployment falls in Japan, US
markets rise
http://www.todayonline.com/BreakingNews/EDC100302-0000205/Asian-stock-markets-mostly-rise-after-unemployment-falls-in-Japan,-US-markets-rise

http://www.todayonline.com/BreakingNews/EDC100302-0000209/Asian-stock-markets-mostly-higher-after-positive-Japan,-South-Korea-economic-reports

Asian stocks open positive
Source: IRIS (02-MAR-10)

Most markets in Asian climbed for a third day, led by electronics and
technology companies, after U.S. consumer spending increased more than
expected and global semiconductor sales gained.

Japanese benchmark index Nikkei 225 rose 23.87 points, or 0.23%, to
trade at 10,195.93. Hong Kong`s was trading lower 135.49 points, or
0.64%, at. 20,921.44. China`s Shanghai Composite decreased 2.69
points, or 0.09% to trade at 3,085.16.

Taiwan`s Taiex index increased 72.71 points, or 0.96%, to trade at
7,650.46. South Korea`s Kospi index rose 22.05 points, or 1.38% to
trade at 1,616.63. Singapore`s Straits Times index increased 12.64
points, or to 0.46% trade at 2,786.73. (07.30 a.m., IST)

http://www.myiris.com/newsCentre/storyShow.php?fileR=20100302073648199&secID=fromnewsroom&secTitle=From%20the%20News%20Room&dir=2010/03/02

[bademiyansubhanallah]

Japan's fragile economy

Kabuki economics
A set of positive indicators hides troubling realities
Feb 18th 2010 | TOKYO | From The Economist print edition

PICK a number, any number. Statistics released this week show that the
Japanese economy staged a vigorous rebound in the fourth quarter of
last year. Real gross domestic product grew by 1.1% from the previous
quarter, which amounted to an annualised rate of 4.6% (see chart). The
economy is growing, but the closer you look the murkier things get.

The bounce in fourth-quarter GDP partly reflects the economy’s
starting point. In the previous quarter growth had been nil, having
been readjusted downward twice, from an initial estimate of 1.2% in
November and a revised one of 0.3% in December. (If the latest numbers
are to be believed, Japan’s GDP ended up contracting by 5% last
year.)

Similar revisions are possible this time round. Japan’s number-
crunchers continually update the economic numbers using new
information and eschew statistical methods to smooth the figures, as
in other countries. Like Japanese kabuki theatre, in which characters
use exaggerated gestures to energise the audience, the country’s
statistics unrealistically magnify both good news and bad.

The uncertainties do not end there. The big drivers of growth last
quarter were domestic demand, which contributed 2.1 percentage points
to annualised GDP growth, and exports, which contributed 2.2
percentage points. (The balance came from public-sector demand.) This
might suggest that Japan’s economy is gradually rebalancing away from
a dependence on external demand. Not so.

Nearly all the growth in consumer spending came from durable goods
like cars and electronic gadgets, which have benefited from government
subsidies introduced last year. These subsidies are ending in
September (for cars) and December (for electronics and appliances).
Once durable goods are removed from the data, consumer spending in the
fourth quarter was flat. That is unsurprising. Wages are falling and
unemployment, though below its peak of 5.7% last July, remains above
5%, high by Japanese standards. Household consumption fell in 2009 as
a whole but sales of beansprouts, a classic belt-tightening purchase
in Japan, jumped by more than 10%.

What about investment? Capital expenditure rose by 1% in the final
three months of 2009, the first increase in seven quarters. But that
came after a cumulative 25% decline since mid-2008. Firms’ capacity-
utilisation rate, which measures the usage of existing equipment, is
low. This suggests that capital expenditure has stabilised but not
recovered, says Hiroshi Shiraishi of BNP Paribas.

That leaves exports, Japan’s normal route out of recessions. Exports
produce the bulk of corporate profits, even though domestic
consumption accounts for about 60% of GDP. The recovery is fragile
here too. The country’s biggest export destination last quarter was
China, sales to which increased by 43% in December alone. As Beijing
tamps down on bank lending to address potential overheating, that
number may yet turn out to be another illusion.

Readers' comments

Carlito Brigante wrote: Feb 21st 2010 3:22 GMT .

"Kabuki economics"

...What kind of headline is this? Sir, you don't necessarily
have to associate a country's woes with its own culture in
making headlines. Sure, you're a journalist, hence should
be prolific. Sooner or later you'll be in trouble in churning
out headlines, as the country's woes deteriorate. Quite a
long slog. Such a long way to go. Take it easy, sir.

"...sales of beansprouts, a classic belt-tightening purchase
in Japan,..."

...I'd spent some time in Tokyo, but I never ever knew that.
Living with "beansprouts" sounds pathetic. But those stems
should be much, much better for your health than going for
French fries, a classic "belt-tightening, fattening" purchase
somewhere in the West.

Perhaps other symptoms of "belt-tightening" in the country.
Learned that sales at department stores have declined ever
since 2006--one year before the country fell into recession.
And that youngsters in Japan are not eager (keen) to own
automobiles (all the more reason, say, alas, Toyota has to
be a desperate seller outside Japan).

Given its all the woes like terrible demographics, deflation,
anemic policymakers, the Japanese might, it is said, have
to lower their living standards. And it's safe to say that not
least the "belt-tightening" of the youngsters--Japan's next
generation--should be a harbinger of, well, frugality in the
country, used to be ostentatious, for many years to come.

It's not a sin to own a car today. Too frugal. Let's see how
Japan's "new normal" turns out to be. That won't be that
pathetic. But that won't be gorgeous at all.

Japan's next generation, at the onset of another (couple of)
lost decade(s), knows better, it seems.

Supernova Barber wrote: Feb 23rd 2010 12:31 GMT .

not to consider Toyota's shambles,evidently making it worse to the
economy, Japan is seemingly not going to leave the economic trap by
anytime soon.

but well the whole world is in this together, so it is nothing to fret
much.

Carlos Collaco wrote: Feb 23rd 2010 4:56 GMT .

Most news out of Japan say perhaps in the last 15-20 years sound like
the country is mired in some sort of trouble.

This, however, may be a little unfair on a society that attained a
fully mature developed economy and generally high levels of
performance all-round.
True many of Japan's current woes are rooted in underlying trends
across the developed world to which a number of specific factors may
be added.

Despite its geographic location - the farthest of the Far East - Japan
has up until recently been mostly tied to and regarded as a Western
bloc developed country.
However, its growing economic ties with China, ASEAN countries,
Australia, and India particularly strong trade flows with the first
two probably represent an increasingly Asian-bound Japan.

As long as Western markets remain flat or sluggish most opportunities
for the country's renowned exporting powerhouse will arise in the Asia-
Pacific region.
That astonishing surge in exports to China is quite telling indeed.

A fallback adjustment will only reflect a more stable at high levels
two-way trade between the world's 2nd. and 3rd. biggest economies
whose spots now look interchangeable.

Japan's strengths may yet disprove those who dwell excessively on the
'lost decades' - while we may agree on the first,the second is open to
question.
Before the financial meltdown the country had been picking up speed.

There is less room for expansion when an economy reaches maturity - a
stable home market no longer able to generate first-time new demand
from public and private sources.

In my view Japan will continue to seek and gain advantage from the
buoyant regional markets closest to its borders.

These will provide a major contribution to enhancing growth, much
harder to achieve in highly developed mature economies.

ObsTheTimes wrote: Feb 23rd 2010 8:35 GMT .

People fail to understand these words of gloom and doom in the context
of the state of the ground in Japan, to which, the dsr words, aka
deflation, stagflation , recession, are routinely applied.

And I've been reading about the lost decade for a decade and a half.

Meanwhile after having been to Japan twice recently, I could see
things are just fine with the Japanese export machine and even
domestic consumption.

Readers should know that Japan is not a developing country and most
Japanese are doing OK while their country is in and I quote 'a
recessionary spiral'. :)

avid punter wrote: Feb 23rd 2010 9:12 GMT .

IMF research is completely off the mark on everything from the crisis
to the recovery and in between. BIS provides better, more accurate
reasearch; however, the Economist rarely uses them at the expense of
the IMF who just follows the crowd in everything they do.Pity

http://www.economist.com/business-finance/displaystory.cfm?story_id=15546424

Japan Economic Indicators Forecast (19 Feb, by Citi Research)
by world@nextvietnam on 20/02/2010

January Customs-Clearance Trade Balance — Our January trade balance
forecast is ¥70.0 Billion before seasonal adjustment and ¥754.0
Billion on a seasonally adjusted basis. Real exports likely continued
to rise amid a gain of final demand in Asia.

January Nationwide Consumer Prices — The nationwide core CPI (CPI
excluding fresh food) likely declined 1.3% YoY for the second
consecutive month.

January Industrial Production — We expect industrial production to
rise by 0.8% MoM in January, after +1.9% MoM in December. The increase
in production will continue amid solid exports.

http://world.nextvietnam.biz/wp-content/uploads/2010/02/Jforecast1902.pdf

http://world.nextvietnam.biz/2010/japan-economic-indicators-forecast-19-feb-citi-research/

Reactions to Japan Economic Indicators Forecast (19 Feb, by Citi
Research)

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Japan economic growth exceeds expectations
Posted by Alfonso Esparza at 7:15 am EST, 02/16/2010

Japan’s economy grew by a better-than-expected 1.1% in the final
quarter of last year, according to official figures.

This is the equivalent of an annualised increase of 4.6%.

However, despite the growth in October to December, the economy
contracted by 5% over the whole of 2009.

China now rivals Japan for the rank of the world’s second-biggest
economy, and is on course to overtake Japan. China’s economy expanded
by 8.7% in 2009.
“The Japanese population has become quite sober about themselves and
relatively pessimistic about the country’s outlook,” said Takuji
Okubo, chief economist at Societe Generale in Tokyo.

Japan’s return to growth has been led by exports, particularly to
China, which is now its largest overseas market.

BBC

For more Japanese Economic Indicators visit FXEconostats
http://fxtradeinfocenter.oanda.com/fxeconostats/

http://forexblog.oanda.com/20100216/japan-economic-growth-exceeds-expectations/

Associated Press
Japan's jobless rate falls, spending increases
By SHINO YUASA , 03.01.10, 10:51 PM EST

TOKYO -- Japan's unemployment rate fell for the second straight month
in January and household spending posted solid growth despite a
decline in wages - further signs of recovery in the world's second
largest economy.

The jobless rate fell to 4.9 percent from a revised 5.2 percent in
December, the Ministry of Internal Affairs and Communications said
Tuesday. The result was better than the 5.1 percent expected by
economists in a Kyodo News agency survey.

"At least in the labor market, the worst is over," said Hideki
Matsumura, senior economist at the Japan Research Institute.

The jobless rate reached a record high of 5.7 percent in July last
year as Japanese workers were reeling from layoffs amid the global
economic downturn.

"The January figure reflects a recovery in Japan's economy," Matsumura
said. "But the pace of the recovery is very slow. Many companies are
still reluctant to hire people."

Japan's economy emerged last year from its worst recession since World
War II, but it remains threatened by deflation, a strong yen and
sluggish domestic demand.

The fall in joblessness was driven by a drop in the rate for women to
4.6 percent in January from 5.1 percent in December as more women were
taking up jobs in the medical and welfare sector, the ministry said.
The rate for men improved to 5.2 percent from 5.3 percent.

The number of jobless people in January, however, rose by 460,000 from
a year earlier to 3.23 million.

In a separate report, the Ministry of Labor said Tuesday that the
average ratio of job offers to job seekers came in at 0.46 in January
from 0.43, where it had been steady since September. The figure means
that there were 46 job offers for every 100 job seekers. It said the
January ratio marked the first improvement since September.

Along with the improving labor market, Japan's consumer spending
continued to grow.

Household spending in January expanded 1.7 percent from a year
earlier, marking the sixth straight month of increase, the Ministry of
Internal Affairs and Communications said in a separate report.

The figure represents a key indicator of private consumption, which
alone accounts for around 60 percent of Japan's economy.

Spending on cars, including vehicle purchases, jumped 11.3 percent in
January from a year earlier. The ministry said government incentives
for consumers buying eco-friendly cars helped boost demand.

Spending on food, including eating out at restaurants, grew 2.3
percent.

"Private consumption is showing steady growth," Matsumura said. "But
to sustain that the government needs to implement fresh measures aimed
at stimulating domestic demand."

The ministry added that average monthly household income in January
fell 0.5 percent to 434,344 yen ($4,900), marking the six consecutive
month of year-on-year decrease.

The latest data come after the government announced Friday that
industrial production in January rose for the 11th straight month amid
demand in China and elsewhere in Asia, while retail sales increased
for the first time in nearly a year and a half.

The country's key consumer price index, however, fell in January for
the 11th straight month in a worrisome sign that consistently falling
prices - known as deflation - still weighs on Japan's recovery.

Japan has wrestled with periods of deflation since the 1990s. Price
declines are a burden as they can hamper economic growth by depressing
corporate profits, spurring wage cuts and causing consumers to put off
buying things. It also can increase debt burdens.

Japan's economy grew at an annual pace of 4.6 percent in the October-
December period, the government said last month. Gross domestic
product, or the total value of the nation's goods and services, has
climbed for three straight quarters.

Copyright 2009 Associated Press. All rights reserved.

http://www.forbes.com/feeds/ap/2010/03/01/business-as-japan-economy_7397888.html

Japan’s Unemployment Rate Unexpectedly Falls to 4.9% (Update2)
By Aki Ito

March 2 (Bloomberg) -- Japan’s unemployment rate unexpectedly fell to
a 10-month low in January as the economy added the most jobs in more
than 30 years.

The jobless rate dropped to 4.9 percent from a revised 5.2 percent in
December, the statistics bureau said today in Tokyo. The median
forecast of 25 economists surveyed by Bloomberg News was for the rate
to be unchanged from a preliminary 5.1 percent.

A separate report showed that households increased spending for a
sixth straight month, adding to signs that a rebound in exports is
starting to benefit consumers in the world’s second- largest economy.
Still, further improvements in the job market may be limited because
companies are still burdened by excess labor, according to economist
Masamichi Adachi.

“Today’s report was encouraging, especially looking at the payroll
numbers,” said Adachi, a senior economist at JPMorgan Chase & Co. in
Tokyo. “But I don’t think we’ll continue to see these kinds of
improvements in the months ahead. Companies aren’t at a point where
they need more workers.”

The yen traded at 89.28 per dollar at 11:45 a.m. in Tokyo from 89.13
before the report was published.

Electronics retailer Bic Camera Inc. will hire more graduates than
initially planned for the year starting April 1, according to
spokesman Masato Takata, who didn’t provide an exact figure. At the
same time, textile maker Nisshinbo Holdings Inc. and retailer Best
Denki Co. are among companies that have announced job cuts in the past
month.

Spending Climbs

The unemployment figures were revised to reflect a change in seasonal
adjustments, the government said. Household spending climbed 1.7
percent in January, the bureau said, led by increased outlays for
food.

The economy added 540,000 jobs in January, the most since October
1973, today’s report showed. Service industries including hotels and
restaurants as well as medical and welfare firms hired workers,
according to year-on-year breakdowns. The government doesn’t provide
seasonally adjusted job data by industry.

Japanese workers are better placed to find work compared with their
American and European counterparts. The unemployment rate in Europe
was 9.9 percent in January, the highest in more than 11 years, and in
the U.S. was 9.7 percent.

In other signs Japan’s labor market is past its worst, the job-to-
applicant ratio rose to 0.46, meaning there are 46 positions for every
100 candidates, the Labor Ministry said today. Historical figures
revised to reflect seasonal adjustments showed it was the first
increase since September.

Expansion

Separate reports released in the past week show the nation’s expansion
may be extending into the first quarter. Exports grew at the fastest
pace in more than 30 years in January while industrial production
advanced the most since May.

Overseas shipments, the main driver of Japan’s annualized 4.6 percent
growth in the fourth quarter, have been spurred by increase demand in
China, the nation’s largest customer.

The Labor Ministry said there were 85 newly advertised jobs in January
for every 100 people who started looking for a job that month, marking
a second monthly increase. Analysts regard the gauge as a leading
indicator of employment.

Even so, deflation remains a risk for the outlook. Slumping prices are
squeezing profit margins, requiring firms to slash costs. Consumer
prices excluding food and energy dropped 1.2 percent in January,
matching December’s record decline, the government said last week.

Underwrite Debt

Finance Minister Naoto Kan renewed calls on the Bank of Japan to help
arrest deflation yesterday, saying he hopes prices will rise this
year, while Financial Services Minister Shizuka Kamei said the bank
could underwrite government debt to fund fiscal stimulus needed to
support the economy.

Kan said today at a press conference that the unemployment data show
the labor market is “improving somewhat.” He also repeated a request
for the central bank to take “appropriate action” to combat
deflation.

Separately, Trade Minister Masayuki Naoshima told reporters today
global recalls for Toyota Motor Corp. cars may weigh on Japan’s
economy, Kyodo News reported. The automaker has recalled 8 million
vehicles because of accelerator and brake problems.

Nisshinbo Holdings said last month it will eliminate 150 positions at
its Nisshinbo Industries unit as it aims to reduce its domestic
facilities. Business deteriorated as a result of falling prices,
according to the maker of textiles and chemical products.

Cut Jobs

Best Denki, a consumer electronics retailer, said yesterday it will
shut 63 stores by February 2012 and is in talks with its labor union
to cut jobs. The company may pare about 1,000 jobs, or 20 percent of
its workforce, through an early retirement program and a reduction in
new hiring, Kyodo News reported yesterday, citing unidentified
sources.

Others are trimming their hiring plans. Mizuho Financial Group Inc.,
Japan’s third-largest bank by market value, has announced that it will
hire 34 percent fewer graduates for the fiscal year starting April
2011.

“I bet there are very few people who think the labor market has made
big advances,” said JPMorgan’s Adachi. “ It was very, very bad for a
while, and since then it’s gotten a little better.”

To contact the reporter on this story: Aki Ito in Tokyo at
ait...@bloomberg.net

Last Updated: March 1, 2010 21:51 EST

http://www.bloomberg.com/apps/news?pid=20601087&sid=avcHSqld7png&pos=6

Japanese Minister says Toyota recall may effect economy
English.news.cn 2010-03-02 11:17:16

TOKYO, March 2 (Xinhua) -- Japan's minister for economy, trade and
industry Masayuki Naoshime said on Tuesday that there was a
possibility that the current crisis at Toyota Motor Corp., which has
led to a recall of millions of vehicles across the world, could have
an impact on Japan's economy.

"I have heard that Toyota has felt an adverse impact on the number of
sales it has made. This could have an impact on the Japanese economy,
we need to watch the situation closely," said Naoshima who used to
work for Toyota.

Naoshima also expressed a fear that the fallout from the Toyota crisis
could have an impact on small businesses that supply parts for the
giant automaker.

The company announced Tuesday that in Aichi Prefecture, the home of
Toyota, 43,059 nonregular workers are expected to have lost their jobs
between October 2008, generally considered to be the start of Japan's
economic downturn, and the end of March 2010.

In recent months, Toyota has recalled millions of vehicles worldwide
because of faults in the brakes and accelerators on some of its
models. The recalls have been a PR disaster for the company, with
media across the globe questioning whether cars produced by Toyota are
safe and whether its management did all they possibly could to
prioritize their customers' interests during the recall.

On Monday, it emerged that Toyota has been repairing another 1 million
vehicles on a voluntary basis in the United States and China over an
oil leak in some of its models. The automaker said that it had
notified owners of the vehicles that they can go to dealerships to get
the repair done, and that the fault would not leave drivers in any
danger.

Meanwhile, in China on Monday, Toyota President Akio Toyoda apologized
over the massive recall and vowed to make his company's cars safer in
the future.

http://news.xinhuanet.com/english2010/business/2010-03/02/c_13193787.htm

[chhotemianinshallah]

Recovery begins in nearly half of metros
/ Bill Dedman
Investigative reporter

updated 7:31 a.m. ET, Tues., March. 2, 2010
—
Nearly half the metro areas in the U.S. began an economic recovery by
the end of 2009, according to new Adversity Index data for December
from Moody's Economy.com and msnbc.com.

Out of 384 metro areas in the nation, 183 had begun to recover, or 48
percent, according to the December Adversity Index. That's up from 146
metro areas in November, or 38 percent.

Each month, the Adversity Index uses government data on employment,
industrial production, housing starts and home prices to label each
state and metro area as expanding, at risk of recession, in recession
or recovering. The index was developed by msnbc.com and Moody's
Economy.com, which sells in-depth economic forecasts on metro areas.

"In recovery" doesn't mean that an area's economy is above where it
was at the beginning of the recession, just that the area has begun to
dig its way out of the hole.

A slightly larger group, 200 areas, still were in a "moderating
recession" in December, meaning their economies were still shrinking
but not so severely as earlier this year. In other words, the
recession in general had slowed by December, but a slight majority of
metro areas were still in a decline.

Only a single metro area was still spiraling downward in a full
recession at the end of 2009: Las Vegas-Paradise.

Nevada was also the only state shown in a full recession, with 29
states in the "moderating recession" category, and 20 states plus the
District of Columbia beginning a recovery, up from 16 a month
earlier.

The states in recovery were Alabama, Alaska, Arkansas, Idaho, Indiana,
Iowa, Kentucky, Louisiana, Massachusetts, Mississippi, Missouri,
Montana, Nebraska, New Hampshire, North Dakota, Oklahoma, South
Carolina, South Dakota, Tennessee and Texas.

The new states on that list in December were Kentucky, Massachusetts,
New Hampshire, Oklahoma and Tennessee.

‘Play’ the index
Here are several ways to explore this month's Adversity Index:

An interactive map above this story shows the economic health of every
state and metro area. You can "play" the map on this page to watch the
economy's ups and downs over 15 years, or select any state to see data
for each metro area for each month. You can also see the map on its
own page.

A month-by-month chart shows when the current recession enveloped each
metro area.
The updated index will be published every month at
adversity.msnbc.com. There is a lag of about six weeks, so January
data will be out later in March.

An explainer tells how the Adversity Index assesses the economy.

These were the metro areas that moved into the recovery category in
December:

Abilene, Texas; Anderson, S.C.; Ann Arbor, Mich.; Anniston, Ala.;
Asheville, N.C.; Athens, Ga.; Auburn, Ala.; Beaumont, Texas; Bowling
Green, Ky.; Charleston, W.Va.; Chattanooga, Tenn.; Cheyenne, Wyo.;
Cincinnati, Ohio; Columbia, Mo.; Denver, Colo.; Dothan, Ala.; Durham,
N.C.; Florence, S.C.; Fort Collins, Colo.; Gadsden, Ala.; Greensboro,
N.C.; Jonesboro, Ark.; Killeen, Texas; Lafayette, La.; Louisville,
Ky.; Mankato, Minn.; Mansfield, Ohio; Midland, Texas; Montgomery,
Ala.; Napa, Calif.; Oklahoma City, Okla.; Peoria, Ill.; Port St.
Lucie, Fla.; Raleigh, N.C.; Rockingham County, N.H.; Springfield,
Ohio; Texarkana, Texas; Tuscaloosa, Ala.; Washington, D.C.;
Wilmington, N.C., and Youngstown, Ohio.

Most of the nation's biggest metro areas, including New York, Chicago,
Miami and almost every city in California, were still listed "in
recession" as of December.

No metro area yet is shown in "expansion," the most positive category;
that label is triggered when a metro area's economy grows past its
previous peak. Most of the recovering areas are far from that level.

Many areas include multiple counties, and many cross state lines. This
list shows which counties are within each metro area.

© 2010 msnbc.com

Eye on the economy

Wicked winter adds to economy’s woes
http://www.msnbc.msn.com/id/35606058/ns/business-eye_on_the_economy/
Bernanke faces tough choices, lousy options
http://www.msnbc.msn.com/id/35564089/ns/business-eye_on_the_economy/
Senate approves tax breaks for new hires
http://www.msnbc.msn.com/id/35561633/ns/politics-capitol_hill/

http://www.msnbc.msn.com/id/35649279/ns/business-eye_on_the_economy/

China Holds More U.S. Debt than Indicated
Tuesday, 02 Mar 2010 08:44 AM Article Font Size
By: David M. Dickson

Despite recent government reports that China's holdings of U.S.
Treasury debt declined during the second half of last year, the Asian
economic giant almost certainly owns far more Treasury securities than
official statistics indicate.

After peaking at $801.5 billion, China's holdings of U.S. Treasury
securities declined to $755.4 billion at the year's end, dropping the
communist power into the position of second-largest holder of Treasury
debt after Japan's $768.8 billion, official government data reveal.

But these numbers don't tell the whole story.

"The U.S. Treasury data almost certainly understate Chinese holdings
of our government debt because [the U.S. figures] do not reveal the
ultimate country of ownership when [debt] instruments are held through
an intermediary in another jurisdiction," Simon Johnson, an economics
professor at the Massachusetts Institute of Technology, told the U.S.-
China Economic and Security Review Commission, a bipartisan forum
established by Congress in 2000 to monitor the security implications
of the U.S. economic relationship with China.

Mr. Johnson told the commission last week that "a great deal" of last
year's $170 billion increase in Treasury holdings by the United
Kingdom "may be due to China placing offshore dollars in London-based
banks" and then using the funds to purchase Treasury debt.

Mr. Johnson, a former chief economist for the International Monetary
Fund, estimated that China owns about $1 trillion in U.S. Treasury
securities, or nearly half the $2.37 trillion stock of Treasury debt
held by "foreign official" owners.

The amount of U.S. debt held by China is even higher than that, said
Eswar Prasad, an economist at Cornell University.

Under the widely held assumption that 70 percent of China's $2.4
trillion in foreign exchange reserves is invested in dollar-
denominated bonds, Mr. Prasad told the commission that China probably
holds about $1.7 trillion in U.S. government debt.

That would include the more than $400 billion in debt issued by U.S.
government agencies, such as Fannie Mae and Freddie Mac, whose
obligations are liabilities of the U.S. government, Mr. Prasad said.

Derek Scissors, a China scholar at the Heritage Foundation, described
as "unusable" the official U.S. government data on foreign holdings of
Treasury debt.

China's mercantilist policies generate "by far the world's largest
balance of payment surpluses" and contributed to China's $453 billion
increase in foreign exchange reserves last year — surpluses that "are
too large to put anywhere other than the United States. No other
country has financial markets capable of absorbing them," Mr. Scissors
said.

But the economists at last week's hearing disagreed about how much
leverage China's creditor status commands over the U.S.

Maj. Gen. Luo Yuan told China's state-run Outlook Weekly magazine last
month, shortly after the U.S. detailed new arms sales to Taiwan, that
China's "retaliation should not be restricted to merely military
matters" but also should be "covering politics, military affairs,
diplomacy and economics."

"We could sanction them using economic means, such as dumping some
U.S. government bonds," Gen. Luo said.

Michael Wessel, a member of the U.S.-China commission, began the
hearing by noting that China, whose economy expanded by 10.7 percent
during 2009, "emerged from the global recession stronger than ever,
expecting its status as America's banker to convey new political
power."

"The United States government, with its fiscal and monetary tools
constrained by the recession, cannot easily extricate itself from its
growing financial dependence on China," he said.

Leverage, however, works both ways, Mr. Wessel suggested, when he
quoted oil magnate J. Paul Getty. "If you owe the bank $100, that's
your problem," Getty famously said. "If you owe the bank $100 million,
that's the bank's problem."

Mr. Johnson also downplayed China's leverage.

"There is a perception that China's large dollar holdings confer upon
that country some economic or political power vis-a-vis the United
States," said Mr. Johnson, citing the view that Chinese reserves
prevent the United States from pressuring China to increase the value
of its currency, the yuan, also known as the renminbi. "This view is
incorrect and completely misunderstands the situation."

Daniel Drezner, a professor of international politics at the Fletcher
School of Law and Diplomacy at Tufts University, compared today's
financial situation between China and the U.S. to the Cold War nuclear
situation between the Soviet Union and the U.S.

He argued that the "balance of terror," which was connected with the
nuclear policy of mutually assured destruction adopted by both
adversaries, proved to be "a source of stability."

Mr. Drezner approvingly cited the analogy of Lawrence H. Summers,
President Obama's chief economic adviser, who earlier coined the
phrase "the balance of financial terror" to describe the U.S.-China
financial relationship. Such a scary balance, Mr. Drezner told the
commission, is "a source of stability and a source of anxiety."

Economists generally agree that the yuan is 25 percent to 40 percent
undervalued, in large part because Chinese authorities instruct the
central bank to purchase massive amounts of dollars in order to peg
the yuan's value to the dollar at a level much lower than it otherwise
would be, Mr. Johnson said.

A bipartisan coalition in Congress wants the Treasury Department to
label China a currency manipulator in its next report, due April 15.
Such a designation would require the Treasury Department to begin
negotiations with China to let its currency rise in value and reduce
the massive U.S. trade deficit with China, which has exceeded $200
billion for each of the past five years.

Under legislation proposed in Congress, currency manipulation would be
designated as an unfair trade subsidy and would let U.S. companies
seek import duties on Chinese goods.

"China is obviously a currency manipulator and should be so labeled by
the U.S. Treasury," Mr. Johnson said.

Mr. Johnson called Chinese threats to dump dollar-denominated assets a
"paper tiger" and "at worst a bluff and at best a way to help the U.S.
with a depreciation of the dollar."

Mr. Scissors agreed. "Until the Chinese government is willing to break
its dependence on the dollar — which there is not the slightest
indication it is willing to do — [China] is compelled to buy American
bonds and lacks the flexibility to wield any influence," he said.

Mr. Johnson said the current U.S. economic situation ensures that a
substantial downward movement in the dollar "would have no noticeable
effect on inflation and therefore would not force the Federal Reserve
to increase interest rates."

Mr. Prasad, however, noted that the damage to the two countries'
economies would not be equal.

"Any Chinese threat to move aggressively out of Treasuries is a
reasonably credible threat as the short-term costs to the Chinese of
such an action are not likely to be large," he said.

Moreover, even though China's share of the financing of the soaring
U.S. budget deficit has declined over time, its actions still could
affect U.S. interest rates, Mr. Prasad said.

"Its actions could serve as a trigger around which nervous market
sentiments could coalesce," Mr. Prasad said. "Given that there are no
clear prospects of reining in exploding deficits and debt in the
U.S.," he added, "changes in availability of deficit financing at the
margin can have potentially large consequences."

Mr. Scissors estimated that U.S. interest rates would rise at most
three percentage points.

However, with U.S. national debt set to exceed $14 trillion before the
end of the year, a three-percentage-point increase in interest rates
would raise the annual cost of paying interest on that debt by more
than $400 billion.

The commission was told that U.S. policymakers also need to consider
the geopolitical and national security implications of operating a
fiscal policy that depends on China and other foreign creditors, who
collectively hold 50 percent of U.S. publicly held debt.

Clyde Prestowitz, president of the Economic Strategy Institute,
recalled for the commission Britain's experience with the United
States in 1956 after Britain joined France and Israel in seizing the
Suez Canal after Egypt's nationalization of the waterway.

"President Eisenhower was furious over the seizure of Suez and
informed the Brits that America would ruin the pound sterling if
Britain did not withdraw," Mr. Prestowitz said. "And that was the end
of the seizure.

"Now, America is not Britain and China is not America," Mr. Prestowitz
said. "But if that is how your friends can treat you when you owe
them, it is not difficult to imagine that less-friendly states could
be quite difficult in certain circumstances."

© Copyright 2010 The Washington Times, LLC

http://newsmax.com/Newsfront/China-Holds-More-U-S-/2010/03/02/id/351341

RPT-PREVIEW-Bank of Canada seen holding rates steady March 2
Tue Mar 2, 2010 8:40am EST(Repeats PREVIEW first run Feb 26 without
changes)

WHAT: Bank of Canada interest rate announcement

WHEN: Tuesday, March 2, at 9 a.m. (1400 GMT)

FORECASTS: All 12 primary securities dealers surveyed by Reuters
expect the Bank of Canada to maintain its overnight target rate
CABOCR=ECI on Tuesday at 0.25 percent. [ID:nN25112645]

Nine of the 12 forecast the bank will follow through on its
conditional pledge to hold rates at their current level until the end
of June, with one seeing the first hike in April and two expecting a
hike in June.

All think the bank will raise rates at some point this year, with
forecasts for the year-end rate ranging from 0.75 percent to 1.75
percent.

Yields on overnight index swaps, which trade based on expectations for
the key central bank rate, showed investors expect the bank's
overnight rate to rise to around 0.50 percent by September whereas a
week ago they expected rates to reach that level by July. BOCWATCH

FACTORS TO WATCH:

Exit Strategy: Markets are eager for guidance from the bank on how
soon it thinks rate tightening is needed. The bank may take a cue from
U.S. Federal Reserve Chairman Ben Bernanke and dampen incipient market
talk of an early rate hike. Canada's central bank has said it plans to
keep rates on hold until the end of June but that pledge is
conditional on inflation following a desired path. In the unlikely
case that the bank wants to abandon that plan, it would likely signal
that shift in March or April.

Inflation: Inflation has jumped a bit faster toward the bank's 2
percent target than it had predicted, so it will likely acknowledge
that but will choose its message carefully. It can either repeat the
language it used in January and suggest price pressures are offset by
considerable slack in the economy, meaning it sees no need to hike
rates. Alternatively, it could issue a more upbeat message on growth,
signaling a slightly more hawkish tone.

Core inflation rose to 2 percent in January and overall inflation was
1.9 percent, leading to some expectation that the bank would react by
either hiking rates earlier than planned or waiting out its low-rates
period but then hiking rates aggressively after that.

Recovery: The bank predicted economic growth would pick up in the
fourth quarter but recent data points to even stronger growth than the
bank's 3.3 percent estimate. Given the uncertainty of the outlook
throughout the recession and early recovery stages, the bank has been
willing to overlook short-term deviations from its projections and has
maintained its longer-term view. Any suggestion otherwise in its
statement would mean a substantive policy shift. It also emphasizes
the strong linkages to the U.S. economy, which has disappointed on the
growth front.

Dollar: The Canadian dollar has retreated from highs against the U.S.
dollar that threatened to hamper the recovery and led the bank to fret
openly about exchange rate dangers as recently as January. Investors
should expect softer language on the currency.

MARKET IMPACT:

A statement that stays the course and upholds the existing rate
outlook would put to rest any concerns about imminent monetary
tightening. That would likely bump down the Canadian dollar versus the
U.S. dollar and cause bond yields to fall.

Conversely, an unexpectedly hawkish statement would lead investors to
prepare for earlier rate hikes, pushing the Canadian dollar up.
(Reporting by Louise Egan; Editing by Rob Wilson and Jeffrey Hodgson)

http://www.reuters.com/article/idUSN0222324420100302?type=usDollarRpt

Road to the budget

Canada's prospects outshine realities challenging U.S.
A smaller deficit leaves Canada in a better position to take advantage
of the rebound in the global economy

Washington — From Tuesday's Globe and Mail
Published on Tuesday, Mar. 02, 2010 12:00AM EST

Last updated on Tuesday, Mar. 02, 2010 8:09AM EST

.Canadians have long tended to define themselves by what they are not:
Americans. As Finance Minister Jim Flaherty prepares to deal with the
fiscal cost of the recession, that distinction is taking on new
meaning.

Facing the biggest budget deficit since the Second World War and none
of the spirit of political compromise necessary to fix it, prospects
for the United States. Fiscal reality limits the Obama
administration's options, and it remains uncertain whether the economy
is strong enough to reverse an unemployment rate of about 10 per cent
without government spending.

As a general rule, what's bad for the United States is worse for
Canada. Exports account for about a third of Canada's gross domestic
product and more than 70 per cent of those shipments are destined for
buyers in the country's southern neighbour. In 1982, the U.S. economy
contracted 1.9 per cent, compared with a 2.9-per-cent slump in Canada,
according to the International Monetary Fund; in 1991, U.S. gross
domestic product dropped 0.2 per cent, compared with a decline of 2.1
per cent in Canada.

But Canada appears destined to do better during this period of
American economic woe, which has come to be typified by that
stubbornly high unemployment rate and a budget deficit that is 10.6
per cent of gross domestic product, the highest since the U.S. faced
the bill for its participation in the Second World War.

The biggest reason is that Canada's finances are so much stronger. The
federal deficit, while a record in nominal terms, is about 4 per cent
of GDP. The difference with the U.S. and other industrial countries
has captured the attention of international investors, who bought a
record amount of Canadian bonds in 2009.

Demand of that kind is lowering federal and provincial governments'
borrowing costs, suggesting Canadian taxpayers won't be facing the
degree of tax increases or spending cuts coming the way of their
American cousins. That leaves Canada in a better position to take
advantage of the rebound in the global economy: While the U.S. and
other countries will be paying off their debts, Canada will be
relatively free to take advantage of the upturn.

"That's a competitive advantage right off the bat," said Peter Hall,
chief economist at Ottawa-based Export Development Canada, the
country's export credit agency. "On a relative basis, Canadians will
be better off."

To understand Canada's competitive advantage, consider the gap between
yields on Canadian and U.S. 30-year bonds. The difference, or spread,
is currently about 50 basis points, or half a percentage point, in
Canada's favour. The average spread since 2000 is seven basis points,
according to Mark Chandler, a fixed-income strategist at RBC Dominion
Securities Inc. in Toronto. The current spread shows investors are
willing to forgo yield for the security of lending money they can be
certain will be repaid, something that will make Finance Minister Jim
Flaherty's job far easier because he will be able to save billions in
interest payments.

"Canada, from a safe-haven perspective, looks good," Mr. Chandler
said.

U.S. President Barack Obama's deficit could also help Canadian
companies in a more immediate way. Only 36 per cent of the President's
original $787-billion (U.S.) stimulus plan has been spent. That means
more than $500-billion from that program will be injected into the
American economy over the next couple of years, a jolt that should
help Canadian exporters.

There's also potential for an additional $100-billion in stimulus
spending, which Mr. Obama pledged in his budget last month. That money
has an even greater chance of reaching Canadian companies because
differences over the Buy American provisions that were attached to the
original stimulus program have been ironed out.

See also:

•Broad recovery gains traction
http://www.theglobeandmail.com/report-on-business/economy/broad-recovery-gains-traction/article1485998/

•Chronology: Recession 'relatively mild in Canada'
http://www.theglobeandmail.com/report-on-business/economy/recession-relatively-mild-in-canada/article1486328/

•Market View : Strong growth, higher rates?
http://www.theglobeandmail.com/blogs/markets/market-view-video/strong-growth-higher-rates/article1485437/

http://www.theglobeandmail.com/report-on-business/economy/canadas-prospects-outshine-realities-challenging-us/article1486322/

[chhotemianinshallah]

Bloomberg

Mexican Peso Rises to Five-Week High on U.S. Economic Outlook
March 01, 2010, 5:30 PM EST

By Ye Xie

March 1 (Bloomberg) -- Mexico’s peso rose to a five-week high after a
report showed U.S. consumer spending climbed, signaling increased
demand for the South American country’s exports.

The peso gained 0.3 percent to 12.7325 per dollar, from 12.7719 on
Feb. 26. It earlier reached 12.7313, the strongest level since Jan.
21.

U.S. consumer spending, which accounts for about 70 percent of the
economy, rose 0.5 percent in January, the fourth straight gain,
figures from the Commerce Department showed today. The U.S. buys 80
percent of Mexico’s exports.

The yield on Mexico’s 10 percent peso bond due in 2024 fell three
basis points, or 0.03 percentage point, to 7.92 percent, according to
Banco Santander SA. The price of the security rose 0.32 centavo to
118.03 centavos per peso.

--Editor: Glenn J. Kalinoski

To contact the reporter on this story: Ye Xie in New York at
yx...@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos
at papado...@bloomberg.net

More From Businessweek

Mexican Peso Rises to Highest Since January on U.S. Recovery
http://www.businessweek.com/news/2010-03-01/mexican-peso-rises-to-highest-since-january-on-u-s-recovery.html

Euro May Slide Further Without Greek Rescue Details, UBS Says
http://www.businessweek.com/news/2010-03-01/euro-may-slide-further-without-greek-rescue-details-ubs-says.html

Mexican Peso Posts First Monthly Advance Since November
http://www.businessweek.com/news/2010-03-01/mexican-peso-rises-to-highest-since-january-on-u-s-recovery.html

Mexican Peso Rises as Fed’s Low-Rate Pledge Spurs Risk Demand
http://www.businessweek.com/news/2010-02-24/mexican-peso-rises-as-fed-s-low-rate-pledge-spurs-risk-demand.html

http://www.businessweek.com/news/2010-03-01/mexican-peso-rises-to-highest-since-january-on-u-s-recovery.html

Buyouts lift stocks to highest level since Jan.
By STEPHEN BERNARD and TIM PARADIS (AP) – 19 hours ago

NEW YORK — Major stock indexes rose to their highest levels in more
than a month Monday after corporate buyouts raised hopes about the
economy.

The Dow Jones industrial average rose 79 points. The Standard & Poor's
500 index, the basis of many mutual funds, erased its losses for the
year. The Nasdaq composite index also turned positive for 2010 after a
Japanese drugmaker said it was pursuing OSI Pharmaceuticals Inc. and
SanDisk Corp. raised its revenue forecast.

The biggest boost for the market came from insurer American
International Group Inc., which agreed to sell its prized Asian life
insurance business to Britain's Prudential PLC for $35.5 billion. It
is seen as a sign of confidence in the economy when big businesses go
ahead with takeovers.

AIG wants to sell the division, known as AIA Group, as part of its
plan to streamline operations and repay the government. AIG received
$182.5 billion from the U.S. government in September 2008. It had
reduced that amount to $129.26 billion by end of last year but is
still majority-owned by taxpayers.

Stocks also rose on hope that European nations will announce a bailout
deal to help Greece with its mounting debt problems. Stocks around the
world have been hit at times in recent months because of concerns debt
problems in Greece would spread to other countries and undermine
Europe's shared currency, the euro.

European Union and Greek officials are meeting and media reports said
a deal could be hammered out soon that would involve state-owned banks
in Europe buying Greek government bonds.

The corporate takeovers and the possibility of some fix for Greece's
problems bolstered a sense that the economy could continue to rebound.
Major stock market indexes rose more than 2 percent in February for
their best performance since November. Stocks have jumped in the past
12 months but investors have still been concerned that a rebound in
the economy will stall.

Trading volume was light Monday, which is a sign that many investors
aren't taking part in the buying.

Dave Hinnenkamp, chief executive KDV Wealth Management in Minneapolis,
said the deals signal that companies are becoming more confident in
the economic recovery and willing to spend some of their cash.

"They are at a point now where they can see that the light at the end
of the tunnel isn't a train," Hinnenkamp said.

The Dow rose 78.53, or 0.8 percent, to 10,403.79, its highest close

since Jan. 20. The Dow is down 24 points for the year, though still
down 322 points from a 15-month high on Jan. 19.

The broader S&P 500 index rose 11.22, or 1 percent, to 1,115.71, its
best level since Jan. 21. It is now up 0.1 percent for 2010. The
Nasdaq rose 35.31, or 1.6 percent, to 2,273.57. It is up 0.2 percent
for the year.

The Russell 2000 index of smaller companies rose 14.09, or 2.2
percent, to 642.65.

Bond prices mostly rose, pushing down yields. The yield on the
benchmark 10-year Treasury note fell to 3.61 percent from 3.62 percent
late Friday.

The dollar rose against other major currencies, while gold fell.

Crude oil fell 96 cents to settle at $78.70 per barrel on the New York
Mercantile Exchange.

In stocks, AIG rose $1.01, or 4.1 percent, to $25.78. AIG reported
disappointing fourth-quarter results Friday, which tempered gains in
the market on the final day of trading for February.

OSI Pharmaceuticals jumped $19.23, or 51.9 percent, to $56.25.
Astellas Pharma Inc. said it would take a $3.5 billion takeover bid to
OSI shareholders after management rejected the offer.

SanDisk increased its first-quarter revenue forecast. Shares of the
maker of flash memory cards, which are used in electronics like
cameras, rose $3.48, or 11.9 percent, to $32.63.

Millipore Corp. jumped $10.49, or 11.1 percent, to $104.90 after
Germany's Merck KGaA said it would pay $6 billion to acquire the maker
of biotechnology equipment.

MSCI Inc. struck a deal to acquire RiskMetrics Group Inc. for about
$1.55 billion in cash and stock. The companies sell services to
financial companies. MSCI fell $1.39, or 4.6 percent, to $28.59, while
RiskMetrics rose $2.46, or 13.2 percent, to $21.09.

Manny Weintraub, president of Integre Advisors in New York, said
investors are still trying to determine what an economic recovery will
look like. In past downturns, the rebound is often more swift than
investors expect. But economic reports in the past two months have
signaled a more tepid rebound.

Still, Weintraub sees the buyouts as a good sign that solid companies
can obtain financing a year after stocks tumbled to 12-year lows.

"It's definitely a show of confidence," he said.

The Commerce Department said personal spending rose 0.5 percent in
January. Economists had forecast an increase of 0.4 percent. Investors
saw the gain in spending as a welcome sign for the economy. However,
personal income edged up 0.1 percent, below the 0.4 percent forecast
by economists. It was the slowest growth in income in fourth months
and could eventually hurt spending.

The spending figures lifted retailers. Macy's Inc. rose 63 cents, or
3.3 percent, $19.78, while Tiffany & Co. rose $1.20, or 2.7 percent,
to $45.59. Home Depot Inc. rose to its highest level in a year during
trading. The stock finished up 23 cents, or 0.7 percent, to $31.43.

Four stocks rose for every one that fell on the New York Stock
Exchange, where volume came to a light 966.6 million shares compared
with 1.2 billion Friday.

Britain's FTSE 100 gained 1 percent, Germany's DAX index jumped 2.1
percent, and France's CAC-40 climbed 1.6 percent. Japan's Nikkei stock
average rose 0.5 percent.

Copyright © 2010 The Associated Press. All rights reserved.

FILE - In this Feb. 25, 2010 file photo, Trader Albert Young, left,
studies his screens as he works on the floor of the New York Stock
Exchange. Stocks rose Monday, March 1, following AIG's biggest asset
sale since being rescued by the government and reports of a new
bailout package for Greece.(AP Photo/Richard Drew, file)

http://www.google.com/hostednews/ap/article/ALeqM5jmT59dgLTTziX4p9X9MRBRpWZGdQD9E63NH82

Page last updated at 21:27 GMT, Monday, 1 March 2010

US consumer spending rose 0.5% in January

Shoppers spent more than expected in January
US consumer spending rose more than expected in January, providing
further evidence of a steady recovery for the world's biggest economy.

Spending during the month increased by 0.5%, following upwardly
revised growth of 0.3% in December, the Commerce Department said.

The measure has now risen for four consecutive months.

Consumer spending is watched closely because it accounts for more than
two-thirds of overall US economic activity.

Last week, revised figures showed that the US economy grew by 5.9% in
the last three months of 2009 - higher than the first estimate of
5.7%.

While the US economy is growing strongly, high unemployment and fears
of a renewed downturn are curbing spending.

http://news.bbc.co.uk/2/hi/business/8544506.stm

Page last updated at 17:49 GMT, Monday, 1 March 2010

Canada's economy grows at fastest pace since 2000
Russell Padmore
Business reporter - BBC World Service

Good news in the Olympics and the economy for Canada

Canada's economy grew at an annual rate of 5% during the last quarter
of 2009, its fastest pace of expansion in nine years, according to
official figures.

The figures underpin claims the economy is recovering quickly from the
fallout of the global downturn.

It comes after data for the previous three months showed growth of
0.9%, on an annualised basis.

The country's economy was boosted by rising consumption, government
spending and property investments.

Canada's economy has rebounded strongly like its neighbour, the US.

A number of small and medium-sized companies need to diversify
beyond that market

Len Crispino, chief executive, Ontario Chamber of Commerce

The American economy grew at an annualised rate of 5.9% in the last
three months of 2009, the Commerce Department said last week, revised
higher from the first estimate of 5.7%.

A majority of Canadian exports head to customers south of the border,
but businesses are being encouraged to focus on markets other than the
US.

Len Crispino, the president and chief executive of the Ontario Chamber
of Commerce, told the BBC World Service: "There are still concerns
about how fast [the US] economy will pick up. A number of small and
medium-sized companies need to diversify away from that market," he
said.

Fast economic growth

Canada's growth, its fastest since the third quarter of 2000, was more
than economists had predicted, as well as outstripping the forecasts
of the country's central bank.

Canadian dollar strength could hamper recovery, analysts say
The news pushed the value of the Canadian dollar higher against the US
dollar, a nagging concern for companies that export to America.

The independent Virginia-based economist, Dennis Gartman, is telling
his clients to go long on the Canadian dollar, or the Loonie, as it is
colloquially known.

He told the BBC World Service: "The data simply underscores the fact
that the Canadian economy is in demonstrably better shape than that of
the US. Am I surprised by the news from Canada? No I am not. I am only
more certain that erring long of Canadian dollars and short of euro
and sterling makes more and more sense," he said.

Higher interest rates?

The fact that the economy is growing faster than forecasts will be
welcome at the Bank of Canada, but it also brings a new challenge,
analysts said.

On Tuesday, the central bank is due to announce its latest decision on
interest rates, and the strong economic growth puts it under pressure
to consider increasing rates.

However, economists are predicting that the Bank of Canada will keep
rates on hold for now, but increase the cost of borrowing in the
coming months.

LATEST NEWS

Canada's economic growth picks up
http://news.bbc.co.uk/2/hi/business/8543650.stm
US economy sees upward revision
http://news.bbc.co.uk/2/hi/business/8539099.stm
Greek finances better in January
http://news.bbc.co.uk/2/hi/business/8538918.stm
UK economic growth revised upward
http://news.bbc.co.uk/2/hi/business/8538293.stm
Japanese economic data improves
http://news.bbc.co.uk/2/hi/business/8538364.stm

http://news.bbc.co.uk/2/hi/business/8543650.stm

Economic outlook, merger talk boost U.S. airlines' stock
CHICAGO
Mon Mar 1, 2010 1:02pm EST

CHICAGO (Reuters) - Shares of U.S. airlines rose on Monday amid
growing sentiment the economy may be on the mend and that the airline
industry is poised for mergers.

Gains came after U.S. data that showed consumer spending increased
slightly faster than expected in January while the U.S. manufacturing
sector also grew. Experts say travel demand follows economic recovery.

The Arca airline index .XAL rose 2.99 percent. Shares of United
Airlines parent UAL Corp (UAUA.O) rose 6.9 percent to $18.34 on
Nasdaq.

"My guess on UAL is that the market is pricing in the potential for a
merger," said Morningstar airline analyst Basili Alukos. He noted
comments made by airline executives last week at the Reuters Travel
and Leisure Summit.

The chief financial officers for UAL Corp and US Airways Group (LCC.N)
told Reuters they were open to mergers. Their pro-consolidation view
was echoed a day later by the president of the Air Line Pilots
Association.

(Reporting by Kyle Peterson; editing by Gunna Dickson)

http://www.reuters.com/article/idUSTRE6203X020100301

March 1, 2010
Buffett: Economic war "going slightly our way"

Billionaire Warren E. Buffett said this morning the U.S. economy is
recovering and that the economic war is "going slightly our way," but
warned that health care costs are a drain on business.

Buffett, head of Berkshire Hathaway, fielded questions on CNBC's
Squawk Box for three hours this morning following the weekend release
of his annual shareholder's letter.

"We got past Pearl Harbor," Buffett told CNBC. "But we will win the
war."

He added, "it's going slightly our way."

Buffett, whose company owns The Buffalo News, also told CNBC viewers
that health care costs are like an economic "tape worm."

View a portion of Buffett's remarks in this CNBC video:

http://blogs.buffalonews.com/live/2010/03/buffett-economic-war-going-slightly-our-way.html

[Sid Harth]

March 02, 2010
China insider sees revolution brewing
http://www.smh.com.au/world/china-insider-sees-revolution-brewing-20100226-p92d.html

JOHN GARNAUT
February 27, 2010

Mass unrest … Uighur women surround a Chinese riot policeman during
protests in Urumchi, the capital of Xinjiang province, last July.
Photo: AFP

BEIJING: China's top expert on social unrest has warned that hardline
security policies are taking the country to the brink of
''revolutionary turmoil''.

In contrast with the powerful, assertive and united China that is
being projected to the outside world, Yu Jianrong said his prediction
of looming internal disaster reflected on-the-ground surveys and also
the views of Chinese government ministers.

Deepening social fractures were caused by the Communist Party's
obsession with preserving its monopoly on power through ''state
violence'' and ''ideology'', rather than justice, Professor Yu said.

Disaster could be averted only if ''interest groups'' - which he did
not identify - were capable of making a rational compromise to
subordinate themselves to the constitution, he said.

Some lawyers, economists and religious and civil society leaders have
expressed similar views but it is unusual for someone with Professor
Yu's official standing to make such direct and detailed criticisms of
core Communist Party policies.

Professor Yu is known as an outspoken insider. As the director of
social issues research at the Chinese Academy of Social Sciences'
Institute of Rural Affairs he advises top leaders and conducts surveys
on social unrest.

He previously has warned of the rising cost of imposing ''rigid
stability'' by force but has not previously been reported as speaking
about such immediate dangers.

''Some in the so-called democracy movement regard Yu as an agent for
the party, because he advises senior leaders on how to maintain their
control,'' said Feng Chongyi, associate professor in China Studies at
the University of Technology, Sydney.

''I believe Yu is an independent scholar. This speech is very
significant because it is the first time Yu has directly confronted
the Hu-Wen leadership [President Hu Jintao and Premier Wen Jiabao] and
said their policies have failed and will not work.''

Pointedly, Professor Yu took aim at the policy substance behind two of
Mr Hu's trademark phrases, ''bu zheteng'' [''stability'', or ''don't
rock the boat''] and ''harmonious society''.

His speech was delivered on December 26, the day after the rights
activist Liu Xiaobo was sentenced to 11 years in jail for helping to
draft a manifesto for constitutional and democratic government in
China, called Charter '08.

The sentence, which shocked liberal intellectuals and international
observers, followed a tumultuous year during which the party tightened
controls over almost all spheres of China's burgeoning civil society,
including the internet, media, legal profession, non-government
organisations and business.

Professor Yu's speech has not been previously reported but has
recently emerged on Chinese websites.

He cited statistics showing the number of recorded incidents of ''mass
unrest'' grew from 8709 in 1993 to more than 90,000 in each of the
past three years.

''More and more evidence shows that the situation is getting more and
more tense, more and more serious,'' Professor Yu said.

He cited a growing range and severity of urban worker disputes and
said Mafia groups were increasingly involved in state-sponsored
thuggery while disgruntled peasants were directing blame at provincial
and even central government.

''For seeking 'bu zheteng' we sacrifice reform and people's rights
endowed by law … Such stability will definitely bring great social
disaster,'' he said.

Professor Yu's speech reflects deep disillusionment among liberal
thinkers in China who had hoped Mr Hu and Mr Wen would implement
political reforms.

Dr Feng said he still hoped the two would ''do something'' to leave
more than a ''dark stain'' on China's political development before
stepping down in 2012.

''The conservative forces are currently very strong,'' he said.
China's security-tightening and potential for future loosening were
linked to a leadership succession struggle between Mr Hu and the Vice-
Premier, Li Keqiang, on the one hand, and the former president, Jiang
Zemin, and the current Vice-President, Xi Jinping, on the other.

''I haven't given up the hope that the Hu-Li camp may make some
positive political changes to mobilise public support.'' .

The latest edition of the newspaper Southern Weekend broke a two-
decade taboo by publishing a photo of a youthful Mr Hu with his early
mentor, former party chief Hu Yaobang, who was purged in 1987 for his
liberal and reformist leanings. But Chinese internet search results
for the names of both leaders were yesterday blocked for ''non-
compliance with relevant laws''.

A Beijing political watcher said such crackdowns were being led by
officials who had the most to hide, which did not include Mr Hu or his
allies.

''Corrupt officials have such a high and urgent interest in
controlling the media and especially the internet,'' he said. ''The
more they feel that their days are numbered due to the internet and
free information, the more ferocious and corrupt they become, in a
really vicious circle leading to final collapse.''
Posted by Naxal Watch at 6:28 AM

1 comments:

Anjaneya said...
exccellent article. thanks for posting.

March 02, 2010 9:54 AM

http://intellibriefs.blogspot.com/2010/03/china-insider-sees-revolution-brewing.html

China, US seek to put tensions behind them
By CHRISTOPHER BODEEN (AP) – 9 hours ago

BEIJING — U.S. envoys hope to ease a two-month spike in tensions with
China, but differences over the issue of new sanctions against Iran
have emerged as a snag even before this week's talks in Beijing can
begin.

Deputy Secretary of State James Steinberg and Senior White House Asia
adviser Jeffrey Bader are aiming to put relations back on track
following frictions with Beijing over trade, Tibet, and Taiwan.

An hour before their plane landed Tuesday, however, Foreign Ministry
spokesman Qin Gang offered a reminder of the tough challenges
remaining, reiterating Beijing's insistence that now is not the time
for new U.N. Security Council sanctions against Tehran for its nuclear
defiance, as proposed by the U.S. and others.

"We call for resolution of the Iranian nuclear issue through
diplomatic means," Qin told reporters.

Qin was responding to questions about Russian President Dmitry
Medvedev's comments Monday that Moscow was ready to consider new
sanctions, after initially being skeptical of them. China, one of five
veto-wielding permanent Security Council members, signed on to three
earlier rounds of sanctions but has showed no indication of budging on
new measures.

Israel's prime minister told members of parliament Tuesday that an
Israeli delegation sent to Beijing last week to make the case for
sanctions found China's intentions unclear.

"I don't think that they are going to vote in favor of sanctions, but
it's possible they won't impose a veto," Prime Minister Benjamin
Netanyahu told the Foreign Affairs and Defense Committee, according to
a meeting participant, who spoke on condition of anonymity because the
session was closed.

China may want to avoid any damage to its burgeoning economic
relationship with Iran, an important source of energy for the booming
Chinese economy. Beijing shares relatively few of Washington's
concerns in the Middle East beyond energy security, and the recent
bilateral tensions may have made the leadership even less inclined to
cooperate with the U.S. push for sanctions.

Beijing was incensed by Washington's January announcement of a $6.4
billion weapons package for Taiwan, the self-governing island it
considers Chinese territory. Beijing suspended military exchanges and
has threatened to retaliate against U.S. aerospace firms involved in
the deal.

Beijing protested again when President Barack Obama met at the White
House with the exiled Tibetan spiritual leader, the Dalai Lama, whom
Beijing accuses of seeking independence for the Himalayan region.

Other irritants include Google's contention that its e-mail accounts
were hacked from China, followed by U.S. Secretary of State Hillary
Rodham Clinton's criticisms of the censorship of cyberspace by China
and others. Beijing lashed out at Google and what it labeled U.S.
"information imperialism," while the Foreign Ministry said Clinton's
remarks damaged bilateral relations.

The new tensions join recurring friction over human rights and
commerce, with U.S. critics accusing China of deliberately
undervaluing its currency to boost its massive trade surplus.
Meanwhile, Beijing last month charged Washington with abusing trade
relief measures after U.S. regulators increased import duties on
Chinese-made steel pipes.

"We hope the U.S. side takes seriously the Chinese position and ...
works with the Chinese side to push the China-U.S. relationship back
to the track of sound and healthy development," Qin said, reiterating
Beijing's insistence that the U.S. was solely responsible for damage
to relations.

Few details have been given about the U.S. envoy's visit, although the
Americans will meet with Chinese Foreign Minister Yang Jiechi and
other leaders. The visit is scheduled to run through Thursday.

In Washington, State Department spokesman P.J. Crowley said Iran would
be discussed, along with efforts to coax North Korea back to six-
nation talks on ending its nuclear programs.

But he indicated bilateral relations would be the main thrust of the
exchanges.

"We've gone through a bit of a bumpy path here, and I think there's an
interest both within the United States and China to get back to
business as usual as quickly as possible," Crowley said.

The success of the U.S. envoys' would depend on their ability to
reassure China that its core interests — those related to sovereignty
and national security — would being respected, said Zhao Qizheng, head
of the foreign affairs committee for the Chinese legislature's
advisory body.

"It's like a tennis match. The U.S. served this ball and all the
Chinese side has done is return," Zhao said.

AP reporter Aron Heller in Jerusalem contributed to this report.

Copyright © 2010 The Associated Press. All rights reserved.

A Chinese security personnel on duty is seen near reflections of
Tiananmen Square on the glass door of the Great Hall of the People in
Beijing Tuesday, March 2, 2010. China's top leadership will gather in
the Chinese capital this week for its annual CPPCC and National
People's Congress (NPC) meetings. (AP Photo/Ng Han Guan)

http://www.google.com/hostednews/ap/article/ALeqM5jzzULJt2ZiW2IZR3KKuViEpbOAlQD9E6JTQ00

Mar 02, 2010
Yahoo CEO Carol Bartz speaks her mind
06:16 PM

In this Nov. 10, 2009 file photo, Yahoo CEO Carol Bartz addresses an
American Chamber of Commerce lunch in Singapore.

CAPTIONBy Wong Maye-E, APGive Carol Bartz credit for her chutzpah and
honesty.

The blunt Yahoo CEO, who took over the foundering Internet pioneer 14
months ago, sat down for lunch with about a dozen reporters today and
spared few words in her assessment of Yahoo, the economy, Google,
China and more.

She broke bread with the media ostensibly to celebrate Yahoo's 15th
anniversary, but spent about 90 minutes offering a sobering account of
the company's strengths --she sees a major opportunity for Yahoo as a
social-media-like service for older users fried on Facebook -- and
weaknesses. "Yahoo had a lot of good ideas along the way, and didn't
finish them," she said.

In between, she said Yahoo is focused this year on possible
acquisitions and ways to gain market share and ad dollars after
concentrating on reviving the company and shutting down "space debris"
sites. "I took over a company in trouble during the great recession. I
don't want to make excuses, but we've done a pretty good job so
far,"Bartz said.

"Our focus is not how we split the company up," she said, stressing
that Yahoo is not for sale nor interested in a high-profile
acquisition.

Bartz, who has been credited with stabilizing Yahoo, also offered some
zingers on several topics:

On whether Yahoo would assist Microsoft in its efforts to have the
Justice Department closely scrutinize the business practices of rival
Google: "I don't wish anti-trust actions on anyone."

On hacking, in light of China's reported cyber-intrusion of Google:
"We are hacked a lot, but don't talk about it. I have nothing to say
about Google."

On the economy: "The consumer is coming back, but it's a bumpy road."

On the Winter Olympics: "We had a record amount of traffic, more than
NBC and ESPN. People say Yahoo isn't cool, but we did great."

As Bartz enters her second year at the helm, the business indicators
at Yahoo are encouraging despite the daunting challenge of taking on
Google. She says Yahoo is picking up engineering and sales talent from
Google, Yahoo is hiring, and advertisers are showing renewed interest
the company. "I took over a company in trouble during the great
recession. I don't want to make excuses, but we've done a pretty good
job so far," Bartz said.

As with everything, time will tell.

By Jon Swartz

http://content.usatoday.com/communities/technologylive/post/2010/03/yahoo-ceo-carol-bartz-speaks-her-mind-to-reporters/1

Lower Chinese PMI: Canary in the coalmine?
By Prieur du Plessis on 03/02/2010 – 3:20 am PSTLeave a Comment .

China’s PMI numbers for February were released yesterday and received
surprisingly little media attention. Although I am usually not keen to
slice and dice single-month statistics too intensely, the latest suite
of manufacturing indices does seem to warrant more than cursory
attention.

Firstly, a summary of the numbers as provided by the Chinese
Federation of Logistics & Purchasing (CFLP) and reported by the Li &
Fung Group.

PMI Report on China Manufacturing: February 2010

The rate of expansion of China’s manufacturing sector that accounts
for more than 50% of the economy has moderated sharply, with the
overall PMI falling to 52. Just on its own (excluding the non-
manufacturing sector) it seems as if China’s year-on-year economic
growth in the second quarter could slow to 10% and even less.

The following graph provides the same information, but over the longer
term.

The manufacturing industry has started to shed excess inventories as
stocks of major inputs indicate contraction. This does not bode well
for metal prices in at least the short term.

New orders are still expanding but at a significantly reduced pace.
However, new export orders fell sharply from 53,2 to 50,3, indicating
only marginal expansion. New orders and new export orders lead the
Economist Metals Index by approximately one month. The drop in
especially new export orders does not augur well for metal prices and
downside pressure can be expected.

The roll-over in new export orders is particularly evident and the
question is whether this could indicate a trend change.

The drop in both new orders and stocks of major inputs perhaps
explains the weakness in the Baltic Dry Index. Imports of raw
materials such as ores and metals have probably dropped significantly.

A major question is how the slowdown in China is going to affect the
rest of the global economy. The contraction in China’s PMI for imports
indicates that the US GDP-weighted PMI for exports could be negatively
influenced in especially the second quarter of this year.

Likewise the US GDP-weighted PMI for imports could be under pressure …

The further austerity measures put in place recently by the Chinese
authorities still need to rub off on China’s economy. As such the
outlook for commodities, the US and global economy has possibly
darkened somewhat.

Elsewhere, the PMIs of India and South Korea were also published, with
both economies expanding at the fastest pace in nearly two years.
There are already calls for India to suspend the stimulatory measures
in order to cool the economy.

One swallow does not make a summer, but I will be monitoring the
Chinese situation closely to try to gauge the possible impact of any
cooling on the developed economies.

Note: All graphs used in this post were provided by Plexus Asset
Management (based on data from CFLP, I-Net Bridge, ISM and Dismal
Scientist).

Did you enjoy this post? If so, click here to subscribe to updates to
Investment Postcards from Cape Town by e-mail

http://www.favstocks.com/lower-chinese-pmi-canary-in-the-coalmine/023880/

Surveys show China's economy weakening a touch

1 Mar 2010, 2148 hrs IST, REUTERS

BEIJING: The pace of Chinese manufacturing eased last month,

suggesting slower government spending and steps to curb credit growth

could be taking some of the steam out of the world's third-largest
economy.

But a pair of surveys of purchasing executives showed the economy

BALANCING ACT

http://economictimes.indiatimes.com/news/international-business/Surveys-show-Chinas-economy-weakening-a-touch/articleshow/5631206.cms

http://economictimes.indiatimes.com/headlines.cms#1

Not a day without ET, says Pranab Mukherjee

28 Feb 2010, 0126 hrs IST, Partha Ghosh & Shantanu Nandan Sharma , ET
Bureau

On Saturdays, Raisina Hill isn’t the usual hub of big business and
policy. There are few cars and fewer men. But for one man, finance
minister Pranab Mukherjee, this Saturday is just another normal day.
At the corner office in North Block, Mukherjee, 74, who presented the
Union Budget on Friday, is busy clearing stacks of files. He is just
back from the annual meeting of an industry association and has to
meet industrialists again in the evening. SundayET caught up with him
for a freewheeling chat over a cup of tea—on what it is like to be FM,
his vision and what the future holds. Here are edited excerpts from
the interview.

How does it feel the day after the Budget? You have just accomplished
yet another feat in your life.

It is quite a busy day today. I have a number of interactions. I
attended the Ficci annual meet in the morning. They wanted to hold it
before the presentation of the Budget, but I advised them that I don’t
attend any major function before the Budget. So they postponed it for
today. I am also constantly getting responses and feedback on the
Budget. It’s an usual day.

Did you go to bed last night with a feeling that yours was a job well
done? Having heard your critics, any regrets?

You see, we have made a product. Now, whether it will have an impact
or not, let’s wait and see. But I have one satisfaction that whatever
was possible in the given situation, we have done it. Not that it’s a
spectacular Budget. I won’t say so. Let others work out and comment on
it, but whatever I committed during the last year, you link it with
that, I tried my best to fulfil my earlier commitments. Whatever I
have done on fiscal consolidation, I have done it according to my
earlier commitments. Regarding the partial roll-back of the stimulus,
it’s not prudent on my part to roll back the stimulus completely till
we have a robust economy. So, I have done it partly. You if look at
the Budget, you will also find my thrusts on inclusive growth. See,
37% of the gross budgetary support for this year, is made in social
sectors alone. While allocating the fund, I had to be pragmatic. I
decided that I would allocate fund to a ministry, not exactly
proportionately of what they spent during the last year, but keeping
in mind how they utilised their fund. We did an assessment of the
absorption capacity of a particular ministry before allocating fund to
it.

When you began preparing this year’s Budget, what was on your mind?
Did you have a vision, say India is going to be like this 10 years
from now and our children should remember this Budget for something
special?

You know, in our Parliamentary system, we have our own agenda being
covered in manifestoes. So, the government that comes to power has its
own agenda. It’s not about any individual, but it’s more a collective
responsibility. For any major policy, we do go back to our manifesto.
Also in India, we have another document—the Five Year-Plan. During the
earlier time, Five Year Plans were synchronised with our government
formation. It’s no longer the case now.

But anyway, the current plan was done during our time only. Our
manifesto is in sync with the government’s economic agenda. So from
the day one, we have an economic agenda well in place. I have been
involved in drafting of Congress party manifestoes right from 1977. I
know it very well that our economic agenda is the same as our
political agenda.

So, while preparing for the Budget, does politics come in the way of a
larger vision?

Yes, but it’s alright. After all, the Budget is very much a political
document. We are not economists, technocrats or civil servants. I get
the back-up from civil servants and economists, but I am a political
activist. And the Budget is essentially a document that largely
follows our political ideology.

People who know you well say you are a workaholic? What drives you
work so hard?

You see, I am a village boy, very hard-working. I had to travel 6
kilometres every day to reach my school. There was no road to go to my
school. The road was constructed only after I became a minister.

How do you relax, then?

I like work. Without work I find it quite uncomfortable. Hard work
itself is relaxation to me.

Of course, I have a tremendous capacity to sleep wherever I find a
place to sleep. I go to bed at about 1.30 am or 2 am, and I start my
day at about 7 in the morning.

I go for a walk around the house and then settle down to read the
newspapers.

Do you read ET regularly?

How can I not read ET? I need to. I usually check the headlines, read
the main economic news on page 1, and then read your two pages of
Political Theatre. I can’t think of a day without reading ET.

You have done so much. Do you think you deserved more?

No. I am fine with what I am.

http://economictimes.indiatimes.com/features/the-sunday-et/special-feature/Not-a-day-without-ET-says-Pranab-Mukherjee/articleshow/5626047.cms

http://economictimes.indiatimes.com/News/Economy/articlelist/1373380680.cms

Reading between the lines

1 Mar 2010, 0424 hrs IST, Mythili Bhusnurmath , ET Bureau

What does the Thirteenth Finance Commission (TFC) report placed in
Parliament last Thursday have in common with Budget 2010 presented on
Friday?

Prima facie, nothing; apart from the fact that both are essentially
about government finances. But there is another common element: a flaw
in both that greatly takes away from the overall happy picture.

In the case of the TFC, it is its high-handed approach in mandating a
‘model’ goods and services tax (GST) on pain of withholding money to
states. At a time when an empowered group of state finance ministers
is already on the job, this strikes at the very root of our federal
structure.

In the case of Budget 2010, it is the less obvious, but equally
insidious, neglect of the revenue deficit (RD). Let me explain. At
first glance, finance minister Pranab Mukherjee’s first full Budget
after the UPA government’s electoral victory last year presents a
vastly improved picture of government finances compared to his July
2009 Budget.

The main macro number that both economists and markets set store by —
the fiscal deficit/gross domestic product (FD/GDP) ratio — is a tad
below the Budget estimate of 6.8% for the year, though it is higher in
absolute terms. Better still, it is slated to come down to 5.5% by
March 2010 as promised by the finance minister while unveiling his
roadmap for fiscal consolidation earlier in the year.

But look a little closer at the kind of fiscal consolidation the
Budget promises and the story begins to unravel.

Indeed, the apparent improvement in fiscal health reflected in the
lower FD/ GDP ratio turns out to be a bit of a mirage. On the
contrary, it conceals a worsening in the quality of the fiscal
deficit, not only in the current year but also in the Budget estimates
for the next fiscal compared to the earlier years (see accompanying
table).

Why is this dangerous? The reason is that the RD is the far more
dangerous part of the GFD and continues to be unconscionably high. As
a result, the RD/GFD ratio , which shows how much of the borrowed
funds will be used to finance consumption (as against investment), has
increased from just 41% in 2007-08 to 79% in the revised estimates for
2009-10 , and is expected to go down only marginally to 73% in
2010-11 .

What this means is that every Rs 100 borrowed by the government will
have to be serviced from whatever the government can earn on Rs 27 as
the balance Rs 73 will be spent on consumption and will not earn
anything. Assuming an average interest cost of 8% on government
borrowing , this means the government must earn a return of close to
30% to be able to just meet its interest costs.

This is the kind of return that even the most efficient private sector
corporate will not dream of; so, to imagine government will be able to
generate this kind of return is absurd. Consequently, the government
will have no option but to borrow more and more simply to repay its
loans. When a private party does this, we call it a Ponzi scheme and
are quick to condemn it. But when the government does it, we fail to
sit up and take notice.

Yet, it is precisely because of this danger that all roadmaps on
fiscal consolidation — whether it is the Fiscal Responsibility and
Budget Management (FRBM) Act or the TFC report — attach so much
primacy to getting the RD down to zero, even as they are okay with an
FD of about 3%.

THE difference between the RD and FD is best understood with a simple
analogy. It is like comparing an individual who borrows to buy a house
with another who borrows to have a good time at a pub. The former gets
an asset, the latter, a hangover. The former can service his loan with
the rent he earns — or saves if he stays in his own house — the latter
has to borrow some more to be able to repay his earlier loan.

It is no different with governments. Today, Adam Smith might have
fallen from grace and ceded place to Keynes in all economies, but it
might be useful to recall Smith’s famous words, “What is prudence in
the conduct of every private family can scarce be folly in that of a
great kingdom.”

Alas! High RD is not the only cause of concern. Take gross market
borrowing for 2010-11 . At Rs 4,57,143 crore, government’s draft on
public savings might suggest fairly smooth sailing compared to last
year’s Rs 4,51,000 crore (RE). But remember , last year, the
government had the benefit of tapping into Rs 28,000-crore worth of
market stabilisation bonds (MSS) that had been sequestered in a
separate account with the Reserve Bank of India. These were de-
sequestered in 2010-11 to meet the government’s gargantuan stimulus
package. So, the government had to tap the market for much less, a
task made easier by the fact that credit offtake was slow. That
situation is unlikely to be repeated this year.

Again, going by past trends, the improvement in the deficit numbers is
premised on a sharper than warranted increase in net revenue and a
lower than warranted increase in expenditure, especially non-Plan
expenditure. Net tax revenue to the Centre grew only 5% in the current
year, according to revised estimates for 2009-10 . Yet, Budget 2010
projects a far more robust growth of 15%. On the expenditure side,
though non-Plan expenditure grew 16% over actuals in 2008-09 , it is
expected to grow by a far more modest (unrealistic?) 4% in the next
fiscal year. And no, I didn’t hear the finance minister mention the
Centre’s obligations under the Right to Education Act to be notified
on April 1, 2010.

And last, but not least, unless inflation comes to the government’s
rescue, the GDP estimate for 2010-11 at Rs 69,34,700 crore is likely
to prove over-optimistic . Third-quarter GDP growth numbers released
by the CSO on Friday show growth at just 6%, which means the economy
must register growth of about 8.8% in the fourth quarter if we are to
live up to the CSO’s advance estimate of 7.2%. For now, that seems
decidedly over-ambitious . So, the final GDP number for March 2011,
assuming a nominal GDP growth of 12.5 % on this year’s base, may be
lower.

What does that mean? It means we may end up with a higher FD/GDP ratio
and worse, a higher RD/GDP ratio than budgeted. The promise of
improved fiscal health may turn out to be a pipe dream. Sure, markets
don’t seem to think so. At least not now! But after the financial
crisis , will anyone seriously argue any more that markets are a good
lodestar?

http://economictimes.indiatimes.com/articleshow/5629637.cms

Every penny we spend goes to common man: FM

1 Mar 2010, 0700 hrs IST, Deepshikha Sikarwar & Vinay Pandey, ET
Bureau

When finance minister Pranab Mukherjee walked into Parliament for his
Budget 2010 speech, India Inc was on the edge, worried about the
contours of Pranab Mukherjee, Finance Minister a government plan to
roll back the booster measures announced to combat last year’s
financial slowdown. That Mr Mukherjee managed to dispel all such fears
was amply reflected by the stock markets that rallied in defiance to
the trends of previous years, despite the lack of any major reform
measures in the budget. Industry was pleased that the rollback was
well-calibrated while taxpayers were happy with an unexpected bounty.
Relaxing at his North Block office after months of hectic activity, Mr
Mukherjee spoke to ET on the fine print of Budget 2010 and the road
ahead for India. Excerpts:

There is this apprehension that the budget is inflationary. While
taxpayers have got some relief, some others may be hit hard...

The development process is for the ordinary people. Every penny we
spend goes to the people—we are going to spend Rs 3,73,000 crore as
budgetary support towards the central Plan. It is meant for the people
of this country, not for those of another planet. Everyone is a
beneficiary here.

Yes, the budget has some inflationary ingredients, but not much. I
have calculated that the tax proposals will have an impact of about
0.4% on the wholesale price inflation. But it will be absorbed in the
course of time. Otherwise, the alternate would have been to leave a
big gap. You have to bridge this deficit. If you don’t do this and go
on borrowing, then that is not good for the people, particularly for
the economy. We will have to be careful from all sides. We cannot be
unidimensional.

On fiscal consolidation, you seem to have bettered even the Finance
Commission proposals. But you didn’t show any such urgency in cutting
revenue deficit...

I have mentioned the revenue deficit in the budget documents, although
I have not mentioned it in the speech. The targets are there in the
budget documents (revenue deficit is proposed to be cut to 2.7% by
FY13 from a revised 5.3% for FY10). Revenue deficit will be a little
more this year because of a revenue shortfall. Direct taxes have shown
some improvement. But there is some shortfall in overall collections
because indirect taxes are down around Rs 26,000 crore. So revenue
deficit is high.

Has revenue deficit consciously been kept high?

I have not kept anything below the line. You know, if I would have
kept measures like fertiliser subsidy and oil subsidy out of the
budget, I could have easily kept Rs 25,000-30,000 crore out. The
revenue deficit would have been down. But I wanted to be honest and
bring out every expenditure in a transparent way.

I have also said I would be targetting an explicit reduction in the
government’s domestic public debt-GDP ratio and bring out a status
paper detailing the road map for this within six months.

You have budgeted Rs 40,000 crore from disinvestment for the coming
fiscal. How confident are you of meeting this target, given the market
Pranab Mukherjee, Finance Minister conditions?

We keep an eye on the market, and will take decisions accordingly. I
am very consistent in my disinvestment policy. I have done it very
quietly and the money raised will be used in creating capital assets.
The idea is to bring public participation in these companies as it not
only unlocks the value for all parties—the government, the company and
its shareholders—but also improves corporate governance. I had pointed
out in my budget speech how the listing of five PSUs increased their
value by 3.8 times.

Will you consider strategic sale if market response remains subdued?

There is no question of strategic sale. I am very clear about this.
The government will retain 51% equity. The methodology will remain the
same as the idea to bring about people ownership in these companies
and improve their functioning.

Will the railway minister agree to service tax on railway freight?

It was there earlier, but I lifted it for a few months last year. So
this is not anything new that I have imposed. In a multi-party
democracy, divergence of views are bound to be there. Moreover, all
essential commodities are exempted, so it will not lead to increase in
transport costs of essential commodities.

You have provided very little towards oil subsidy. Is that a way of
forcing deregulation on the sector?

I have said in one paragraph of my speech that the Kirit Parikh
committee report is available now and is under consideration. My
colleague (petroleum minister Murli Deora) will take an appropriate
decision on the recommendations. So I am not making any provision
right now but one should not read too much into it. Since a decision
will be taken, it will either be accepted or not accepted. But a
decision will be taken. If the decision (to continue with subsidy) is
taken, the necessary provisions will have to be made. It’s as simple
as that.

Does the decision not to raise the service tax rate and bring the
cenvat rate to that level mean we could have a central GST rate of
10%?

No, no, it is not that. I have raised excise duty to 10% and service
tax is at 10%. Some people might read this as a signal that perhaps we
are approaching GST and that this may be the rate. But that will have
to be decided in consultation with states. There must be a consensus,
a convergence of views among states. What will be the rate, I cannot
unilaterally say. The concept is that as we move towards GST, we
should have the same rate of taxation for both services and goods. You
can say we have taken one step towards GST by aligning tax rates of
goods and services. The rate will be decided only after consultations
with states.

You have indicated that the Direct Taxes Code could be introduced from
next fiscal, but will the legislation be in place by then? Pranab
Mukherjee, Finance Minister

We will introduce the legislation sometime in the monsoon session of
Parliament. Based on the discussions we had with all the stakeholders,
I want to prepare a draft and place it for public comments once again
before I introduce it. However, this time it would be done for a
shorter period because once I introduce it in Parliament it will go to
the Standing Committee that will also invite view of stakeholders. But
since the process of consultation and preparation of the draft
legislation will take some time, it will be difficult to bring the
legislation in the budget session.

There is this impression that the new low-cost pension scheme is for
every one?

It is for every one in the unorganised sector but the condition is
that the subscriber will have to deposit Rs 1,000-12,000. Please note
that the scheme is not available to people in the organised sector.

http://economictimes.indiatimes.com/articleshow/5629606.cms

A boost for R&D

3 Mar 2010, 0428 hrs IST, ET Bureau

The finance minister’s Budget proposal to enhance the weighted tax
deduction on expenditure incurred for in-house research and
development (R&D) from 150% to 200% makes eminent sense. India’s R&D
spending has dropped below 1% of GDP, and we need fiscal incentives to
boost innovation and growth. Major economies routinely set aside about
3% of GDP, often more, for the purpose. Research shows that the bulk
of growth derives from productivity improvements and attendant
efficiency gains, not from factor inputs.

Hence the need to shore up R&D. Last year’s Budget extended the scope
for weighted deduction of 150% on expenditure incurred on in-house R&D
to all manufacturing businesses, save for a small negative list. The
practice till recently had been to restrict the deductions to only a
few sectors like pharma and auto. Such selectivity is surely akin to
licensing and obsolete. The latest move would incentivise R&D
expenditure right across the board in manufactures, beyond the toptier
corporates. Various studies suggest that routine, incremental
innovations done in-house have large spillovers and societal gains. On
the flip side, the proactive policy is open to abuse — passing off
questionable expenses as R&D — but better corporate governance
standards should put paid to the practice. Besides, in an increasingly
competitive buyers’ market in most sectors, creatively accounting for
R&D would hardly pay.

The Budget also proposes to enhance the weighted deduction on payments
made to national laboratories, research associations, colleges,
universities and other institutions for scientific research, from 125%
to 175%. This is welcome. Additionally, what’s proposed is that
payments made to approved research associations engaged in social
science or statistical research would be allowed a weighted deduction
of 125%. We need to move to a system in which weighted tax deduction
is also available for R&D in the high-growth services sector as well.
End tax exemptions, but give them the tax breaks that other sectors
get.

http://economictimes.indiatimes.com/Opinion/A-boost-for-RD/articleshow/5635427.cms

Budget 2010 needs Pranabda's balancing act

9 Feb 2010, 0728 hrs IST, Tina Edwin, ET Bureau

Finance minister Pranab Mukherjee will need to do some tightrope
walking when he presents Budget 2010 on the 26th. On one hand, he has
to ensure that the country returns to the path of fiscal consolidation
and, on the other, that economic recovery is not stymied. On the
whole, macroeconomic data and corporate results make a compelling case
for a gradual rollback of some of the tax cuts announced starting
December 2008 amid global recession, and the exercise could begin
partial restoration of the across-the-board excise duty cuts. The
estimates of the Central Statistical Organisation (CSO) that the
economy may expand by 7.2% in the current fiscal year further
strengthens the case for withdrawal of the tax cuts. But complicating
the decision-making is the lack of hard evidence that growth can be
sustained even after the withdrawal of tax cuts.

While many economists are convinced that it is time to begin gradual
withdrawal of the stimulus package in the process to return to fiscal
consolidation, some others, including the country’s chief statistician
Pronab Sen, have sounded a note of caution. Dr Sen feels that the
government should wait until May-end before deciding to withdraw some
of the tax cuts, as a clearer picture on demand side would be known
only by then. The revised numbers of GDP growth for the current fiscal
year would be released May-end . Most data, such as the index for
industrial production, currently available pertain to the supply
side.

If indeed, demand was driven primarily by the stimulus, then its
withdrawal would without doubt have consequences . Demand for many
goods, particularly those that are price sensitive, may contract
quickly if taxes on them rise. That would not help either industry or
the government. Also, the impact of disappointing monsoon on demand
may be experienced with a lag, perhaps in the demand in the current
quarter and the next.

Yet, there are several other sectors where demand would not be
affected with a small increase in duties or prices. That should then
make a convincing case for selectively increasing rate of duties on
some goods. The trouble with that approach is that it would seem like
reversal of years of tax reforms — reducing the number of slabs of tax
rates. The finance minister would need to take a considered view,
especially now that the Centre seems inclined towards a single rate
for the goods and services tax (GST).

But the government must increase its tax revenues if it wants to keep
up spending on social sector programmes as well as in creating
infrastructure, while keeping the fiscal deficit under check.
Disinvestment proceeds would help bring in more revenues, and so would
auction of 3G spectrum , thereby reducing the need to borrow for
spending on these projects. Increasing tax revenues is important if
the Centre intends to accept the recommendation of the Thirteenth
Finance Commission (TFC) for transferring higher share of taxes to
states from its collections. Devolution of taxes to the states
deteriorated in the current fiscal year as Centre’s own collection of
taxes remained below target.

There was a small impact in the last fiscal too as indirect tax
collections plunged following the cut in tax rates.With states heavily
dependent on central transfers to run their budgets, the Centre has to
ensure states do not suffer for the third consecutive year and that
they do not stray from the path of fiscal consolidation.

It is argued that the fisc will anyway look better next year, even if
the government were to adopt a standstill approach on fiscal stimulus.
This is because one-time expenditure such as the Pay Commission
arrears will not recur next year. Perhaps programmes such as National
Rural Employment Guarantee Scheme may not need the support that it did
this year if the monsoons are good and activities such as construction
continue to improve. Improvement in the economic environment would
anyway improve tax buoyancy. And that’s something the TFC too has bet
on, even though it is understood to have been fairly conservative in
its estimates of nominal growth — a difficult first year (2010-11 )
but growth gaining momentum by the fourth year (2013-14 ). However, a
standstill policy would raise doubts about the Centre’s seriousness to
rein in fiscal profligacy. So act it must, to keep fiscal deficit at
moderate level — of less than 5%.

http://economictimes.indiatimes.com/opinion/columnists/tina-edwin/Budget-2010-needs-Pranabdas-balancing-act/articleshow/5551167.cms

Not quite as good as it looks, Pranabda

27 Feb 2010, 0307 hrs IST, Mythili Bhusnurmath, ET Bureau

On the face of it, Pranab Mukherjee’s first full Budget in the UPA
government is an improvement over his July 2009 Budget. The main macro
number,fiscal deficit (FD)/GDP ratio, is a tad below the Budget
estimate (BE) of 6.8%. Even better, it is slated to come down to 5.5%
by March 2010.

Add to that the FM’s apparent willingness to move away from the smoke-
and-mirrors practice of the past, and present more transparent
accounts, widen personal income-tax slabs, set a more ambitious target
for disinvestment, hold out the prospect of additional banking
licences to private players and make a beginning in the direction of
legal reform, and it would appear that the stock market is not the
only one with reason to cheer.

On the flip side, there is the small (2%) roll back of the reduction
in central excise duties allowed last year as part of the stimulus
package, expansion of the service tax net to cover more services,
increase in central excise duty on petrol and diesel and on non-
smoking tobacco, and some unwanted tinkering with tax rates on a host
of items.

But none of this takes away from the general sense of Budget 2010
being a workman-like, no-nonsense Budget; one that will set the
economy back on the track of growth along with fiscal consolidation.
Or so it seems.

Until you look a little closer at the assumptions underlying the
Budget, particularly fiscal consolidation. To begin with, the
improvement in fiscal health reflected in the lower FD/GDP ratio
conceals the worsening in the quality of the FD, not only in the
revised estimates (RE) for 2009-10 but also in the BE for 2010-11
compared to 2008-09.

Thus, the revenue deficit/fiscal deficit ratio (RD/FD), which shows
how much of the borrowing is going to finance current consumption
(rather than investment), has increased from just 41% in 2007-08 to
79% in 2009-10 (RE), and is to go down only marginally to 73% in
2010-11. What this means is that every Rs 100 the government borrows
will have to be serviced from whatever it earns by investing Rs 27.
The balance Rs 73 would be spent on consumption and will not earn
anything. This is a nigh impossible task that means the government
will have to borrow more and more just to keep its head above water.

Second, the improvement in the FD/GDP ratio is premised on a sharper-
than-warranted increase in net revenue and a lower-than-warranted
increase in expenditure, especially non-Plan expenditure. Net tax
revenue to the Centre grew only 5% in the current year, according to
revised estimates for 2009-10. Yet, Budget 2010 projects a far more
robust growth of 15%. On the expenditure side, though non-Plan
expenditure grew 16% over actuals in 2008-09, it is expected to grow
by a far more modest (unrealistic?) 4% in the next fiscal year.

Last but not least, unless inflation comes to the government’s rescue,
the GDP number for 2010-11 is likely to be an over-estimate. The
reason is third-quarter GDP numbers released by the CSO on Friday show
third-quarter growth at just 6%, which means the economy must register
growth of about 8.8% in the fourth quarter if we are to live up to the
CSO’s advance estimate of 7.2% for the year.

This looks a trifle far fetched at the moment, so the final GDP number
for 2011 may be somewhat lower; in which case we may end up with an FD/
GDP ratio of more than 5.5%, and the much-celebrated improvement in
fiscal health will turn out to be no more than wishful thinking. In
course of time, markets will wake up to that realisation. But till
then, it is party time.

http://economictimes.indiatimes.com/opinion/columnists/mythili-bhusnurmath/Not-quite-as-good-as-it-looks-Pranabda/articleshow/5622304.cms

Union Budget 2010: 6 out of 10 to Budget, says Swaminathan Aiyer

26 Feb 2010, 1313 hrs IST, ET Now

Swaminathan Aiyer, economist, in a chat with ET Now talks about the
Budget.

The idea that Pranab Mukherjee is on a responsible fiscal policy path
has greatly enthused foreign investors? I think that is the main
reason why you saw the stock market shoot up. How are the stock
markets looking?

Yeah, all idea that had the question is what does he felt to do, okay
(1:00) the radical Budget it dubs the reform proposals it hardly
anything. On financial sector reform there was idea on will he
increase the insurance FDI limit to 49%? He said nothing.

There has been talk about trying to reduce the public sector share in
PSU banks but nothing about increase in the voting share of foreign
investors in banks. There was a proposal that service tax should be
extended to the railways, he has said that he is showing some
memorandum on that. But I doubt very much whether railways will be on
that, otherwise he would have mentioned it.

He has avoided giving any specific sums of money for spending on
implementing the Right to Education Act or Food Security Act. He just
said we will pull it up for discussion and instead of doing something
about the woeful lack of justice and financial sector reform. There
are new commissions to go into financial sector reform and judicial
reform. So there are various areas he could have done much more and he
has not done much more. So it’s a middle of the road Budget. My marks
would be 6 out of 10.

http://economictimes.indiatimes.com/articleshow/5619285.cms

Budget 2010: Moving back to multiple, arbitrary rates

27 Feb 2010, 0133 hrs IST, TK Arun, ET Bureau

Unifying the rate of value-added tax on goods and services at 10% is a
welcome piece of reform. So is widening the base of service tax — now,
promotion of a wildly commercial venture like the IPL will attract
service tax. But Mr Pranab Mukherjee has killed the spirit of
simplification and uniformity that has been guiding the path of tax
reform.

The Budget speech is replete with echoes of the bad old days when
industrialists lobbied the government and its ministers, in the run-up
to the Budget, to get individually tailored duty regimes for their
respective sectors. Concessional rates of import duty, exemption from
service tax, lower rates of excise duty — these enemies of tax
rationalisation run amok in Budget 2010-11.

Low, uniform rates of duty constitute reform. Concessional rates that
vary from year to year spell patronage and arbitrariness. From the
time Yashwant Sinha began the process of slashing the number of tax
rates in 1998, till last year, steady convergence to a steadily lower
rate has been the rule with indirect taxes. That has given way to a
rash of commodity and sector-specific duties in the new Budget. This
needs to be reversed.

http://economictimes.indiatimes.com/opinion/columnists/t-k-arun/Budget-2010-Moving-back-to-multiple-arbitrary-rates/articleshow/5622177.cms

Don't overdo fiscal consolidation

18 Feb 2010, 0427 hrs IST, T T RAM MOHAN , ET Bureau

Finance minister Pranab Mukherjee defied the economic advice given to
him when he chose to peg the fiscal deficit at 6.8% of GDP in his last
budget. He reckoned that a massive stimulus was the need of the hour
and that consolidation could be addressed once the economy was back on
its high growth path. His critics thought he had erred on the side of
excess.

Mr Mukherjee is being proved right. His critics are busy revising
their growth forecasts upwards with each passing quarter. The CSO’s
advance estimate for growth for 2009-10 is 7.2%. The FM forecasts
growth of 8%. Since GDP growth figures in recent years have tended to
be revised upwards, there is every chance that growth will end up
close to the FM’s forecast of 8%.

Any acceleration in growth does wonders for fiscal consolidation. A
basic premise in discussions on fiscal consolidation is that a high
level of deficit is an impediment to growth. This is not borne out by
our experience in the past decade.

We began the decade with forbidding levels of fiscal deficit and
public debt. Then came the boom years, 2004-08 , that helped lower
deficit and debt levels. There has been a setback in the past two
years following the global crisis. With growth picking up again, the
issue is not whether consolidation will happen. It is: what level of
fiscal consolidation is desirable in the short-run and in the long-
run ?

The short-run prospects are promising . For 2009-10 , the FM had
assumed real growth of around 6.5%. We know that actual growth will be
higher — say, 7.5-8 %. The fiscal deficit in April-November 2009-10
was 76% of the budget estimate. In the remaining months, strong
industrial revival should boost tax revenues. Some of the expenditure
can always be held back. For 2009-10 , the FM should, therefore, be
able to report a fiscal deficit lower than the estimate of 6.8% — say,
6.6%.

In 2010-11 , a number of favourable factors will kick in. First, the
growth rate should be higher and this will translate into higher tax
revenues. Secondly, there is greater commitment to disinvestment .
Thirdly, some portions of the stimulus to spending will automatically
be withdrawn, namely, the farm loan waiver and the Sixth Pay
Commission arrears. Fourthly, we can expect some of the cuts in excise
duty and service tax effected last year to be reversed.

The absence of the farm loan waiver and Sixth Pay Commission arrears
by themselves should shave 0.7% off GDP in 2010-11 . Thus, the fiscal
deficit should decline to 5.9% without taking into account the three
other factors mentioned above. The FM should be able to meet the
general clamour to lower the fiscal deficit to around 5.5% of GDP in
2010-1 without having to sweat too much.

It would be unwise to attempt any withdrawal of the stimulus beyond
that. As the RBI’s latest macroeconomic review points out, some of the
recovery in growth is on account of the Pay Commission effect. In the
second quarter, GDP grew by 7.9%. Take away the Pay Commission effect
and the growth rate is 6.5%. Much of the stimulus, which amounted to
3.5% of GDP last year, needs to be retained for now.

t is the long-run fiscal outlook that worries most commentators. They
would like the FM to indicate how, and how quickly, we will return to
the
FRBM target of 3% of GDP for the Centre. Here again , there are
favourable factors. An acceleration in growth to 9% will contribute
towards consolidation. So will the introduction of the goods and
services tax, which is expected to boost tax revenues.

BUT the pressures on spending are relentless . Experts believe that we
can drastically prune subsidies with a stroke of the pen and increase
allocations for the social sector and public investment. If the
experience of two decades of reform is anything to go by, this is
sheer delusion. The idea that subsidies should be targeted only at
those below the poverty line does not have popular support. National
Rural Employment Guarantee Scheme (NREGS) is seen as socially and
politically valuable and is here to stay. Defence expenditure can be
expected to escalate sharply as the race with China intensifies.

Governments everywhere are getting bigger, not smaller. A recent
article in the Economist points out that since 2000, government
spending as a proportion of GDP has risen in the UK, US, France,
Canada and Germany. In the UK, government spending has shot up from
around 37% to over 50% of GDP, thanks to increased spending on health
care and education . In the US, government spending has risen to over
40% of GDP. Social security and medicare have been key drivers.

India’s public spending (Centre plus states) of 28% of GDP looks tame
in comparison . Our public services — in health, education,
irrigation, roads, power, etc — are woefully inadequate. Public
spending on these items is bound to rise, no matter that private
involvement goes up. We cannot escape the general trend towards an
increase in the government expenditure /GDP ratio. Government will
have to spend more. It lacks the ability to prune subsidies
drastically.

Something has to give. It has to be the present FRBM target of 3% of
GDP for the Centre. The target needs to be revised upwards.

There is no need to be alarmed at the suggestion. The FRBM targets
were set keeping in mind the Eleventh Finance Commission
recommendation that public debt/GDP ratio be brought down to 60%. This
ratio was the norm set under the Maastricht Treaty for the European
Union where growth rates averaged below 3% even before the financial
crisis. The targets were set at a time when the Indian economy was
growing at 6-7 %.

Now that we are on to a growth trajectory of 8-9 %, we can afford to
set the fiscal deficit/GDP target at a higher level. We could have a
variant of the golden rule for fiscal policy whereby government
borrowing is permitted only for investment. The limit for the fiscal
deficit could be set higher than 3%, with separate sub-limits for
current expenditure and investment.

Fiscal consolidation is required. But, we must be careful not to
overdo it, whether in the short-run on in the longrun . In the short-
run , it must not come in the way of the economy getting back to its
high growth path. In the long run, it must not come at the expense of
badlyneeded expenditure on the social sector or expenditure that is
growth-inducing.

http://economictimes.indiatimes.com/opinion/columnists/t-t-ram-mohan/Dont-overdo-fiscal-consolidation-/articleshow/5586075.cms

[bademiyansubhanallah]

Stuck in neutral – what Japan’s rebalancing can teach us
March 2nd, 2010 by Michael Pettis |
Filed under Asian development model, History.

After such a long entry last week I thought I would spare my readers
and do something much briefer. A few days ago I read a good article
(“Stuck on Neutral”) about Japan in the August 18 issue of the
Economist. You can find the article on the Economist website if you
are a premium subscriber, but if not, it has been partly reprinted
elsewhere.

It may seem strange to be reading an August article in March, but in
fact I often find myself a year or more behind in my reading. This
may seem a little perverse, but it does let me see what the smartest
people were thinking at the time while knowing what subsequently
happened. Among other things this makes it clear how often informed
consensus gets bogged down in the minutiae of everyday events while
trying to understand the bigger picture.

In the case of this particular article, however, what triggered my
interest is that it was about Japan’s post-1989 rebalancing, and among
other things discusses why, in spite of every attempt, Japan has not
been able supposedly to rebalance the economy and achieve any real
growth during the two lost decades after 1990. Private consumption
never took off to drive economic growth.

Many of these reasons for low consumption we have heard before, and no
doubt will hear again, but I am not sure how meaningful they are.
According to the article, the Japanese don’t take enough holidays,
they are aging, exporters squirrel away profits to replace households
as a source of savings, small companies are too inefficient,
government supports big business, the Japanese don’t like to borrow,
house prices are too high, and so on. Maybe these really are the
causes of the failure for the surge in consumption, but many sound
like variations on accounting identities, and as such they are as
likely to be consequences as causes of low growth.

But what interested me is that in spite of the fact that Japan’s
economy didn’t grow, and contrary to the article’s claim, some serious
rebalancing actually did take place, at least as I understand it.
Japanese gross national savings declined from around 35% of GDP in
1990 to around 23% last year. The household savings rate dropped too,
from around 10% in the 1990s to around 2%. Neither declined in a
straight line, but decline they undoubtedly did.

Household consumption, according to the article, nonetheless failed to
grow meaningfully – in the past two decades it only grew by 1-2%
annually – and this is much lower, presumably, than consumption growth
in the 1980s.

But it was nonetheless higher than GDP growth, and that is exactly the
point: consumption growth may have been low, but it exceeded GDP
growth. Rebalancing in the context of Japan (and China) does not mean
that consumption growth must surge. It just means that consumption
must grow faster than the economy so as to become a bigger share of
GDP and a bigger driver of total growth. Put another way, it means
that the savings rate must decline. If this is what actually
happened, then in fact Japan did partly rebalance.

But, mysteriously, in spite of the fact that Japan may have
experienced real rebalancing and a real growth in the relative share
of household consumption, the Japanese economy stagnated during the
past two decades. If you had predicted in 1990 that Japanese
household and national savings would have declined so sharply as a
share of GDP, and that consumption would have risen, you probably also
would have predicted that Japan, after a couple of tough years, would
resume rapid growth (or at least growth more in line with other rich
economies) as surging private consumption pulled Japanese growth
forward and away from its over-reliance on net exports.

But you would have been wrong on two counts. First, Japan did not
grow very quickly at all. It stagnated as consumption growth actually
declined. Second, its reliance on net exports did not decline. The
current account surplus remained high as a share of GDP.

Why didn’t Japan grow more quickly? One reason may be obvious from
the very fact that the current account surplus did not decline.
Although Japan certainly rebalanced by some measures, its current
account surplus dropped from its peak of 4.2% of GDP in 1986 to 1.5%
at its trough in 1996, only to turn around and surge, eventually to
reach 4.8% in 2007, dropping to 3.1% in 2008 on the back of the
collapse in international trade (and albeit on a much smaller economy
as a share of global GDP than in 1990).

Since the current account surplus is another name for the excess of
savings over investment, obviously this means that national investment
declined as sharply as did national savings. The article helpfully
provides us with the numbers for both in an accompanying graph, and
this confirms that investment indeed dropped, from a peak of around
32-3% in 1990 to around 22% last year.

With investment such an important part of Japanese growth prior to the
bursting of the bubble, the fact that it declined so dramatically
seems to have had a huge impact on Japan’s subsequent lack of growth.
So although in some important ways Japan “rebalanced”, for two decades
it was nonetheless unable to grow even with a still-very-high and
rising trade surplus, largely because investment declined sharply.

I am not an expert on Japan by any means, even though in the past two
years I have been giving myself a crash course on recent Japanese
economic history, but my Asian-development-model story suggests at
least one explanation of what happened. After many years of excess
investment driving growth, Japan’s rebalancing process, which occurred
after corporate, bank and government debt levels prevented the
investment party from continuing, locked the country into many years
of slow growth because it had to grind through years of debt-fueled
overinvestment.

In fact Japanese investment jumped in the last two years of the 1980s,
after the 1987 stock market crash in the US should have spelled the
end of rapid Japanese export-led growth, from an already-high 28% to
nearly 33% three years later. In other words Tokyo seems to have
responded to the collapse in the US by increasing its already-high
level of investment to counteract the impact on the trade surplus.
This is what happened in China too, after the 2007-08 banking crisis
in the US. This jump in investment seems to have kept Japanese growth
going solidly for another two years after the current account surplus
began its steep nine-year decline.

But growth in investment wasn’t maintained. After 1990, when
investment growth could no longer keep up, perhaps because Japanese
corporate, banking and government debt levels were becoming a serious
constraint, the Japanese economy began a long, slow, painful decline.

The government tried to continue subsidizing growth over the
subsequent decades by keeping both wage growth and interest rates low,
not to mention maintaining the undervalued currency, as we know. This
unfortunately may have slowed the growth of both household income and
household consumption, while maintaining the high trade surplus. This
also may explain why the drop in household savings was partly matched
by the rise in corporate savings – households continued seeing
transfers of income to the corporate sector.

But ultimately in spite of maintaining some of the old trade-related
policies that kept manufacturing growth so strong for so long, there
was nothing Tokyo could do to combat the effects of the decline in
investment. Had they allowed a more rapid rebalancing via higher
wages, interest rates and the currency in the first two or three
years, perhaps they would have had a tougher time early in the 1990s,
and a lot more liquidations, but ultimately they might have pulled out
of the slump a lot sooner because they would have transferred income
to households more rapidly (although of course had they done this too
aggressively, unemployment would have soared and consumption
collapsed).

So where am I going with all this? I am not completely sure, and no
doubt I am oversimplifying the Japanese story. Certainly I am not
smart enough to figure out all the inner workings of Japan’s economy.
Just trying to keep the accounting identities in line and, making sure
that everything that is supposed to balance actually does balance, is
tough enough.

But this macro approach might have some benefit in that it shows how
the overall system can constrain the micro-developments that we all
hope for. At the macro level, in other words, it doesn’t matter what
individual policies we take to boost consumption if these polices
don’t in the aggregate represent a real transfer of income to the
household sector, as they did not in Japan. Rebalancing must occur,
but as an accounting-identify matter it can occur both through good
ways (a surge in consumption) and bad ways (a drop in growth).

In Japan it occurred the latter way. Without a serious attempt to
redistribute income more rapidly back to households, Japan rebalanced,
but not via a surge in consumption. Since it could not maintain
investment levels, on which the economy was too dependent, and in fact
increasingly dependent after 1987, it rebalanced via a sharp slowdown
in growth. Either way achieves rebalancing – which only means that
consumption has to grow as a share of GDP – but of course the former
is much better than the latter.

Japan’s experience suggests one of the risks China faces. It is easy
to talk about rebalancing as a solution to the underlying problem
China faces, but as the Economist article points out, rebalancing can
be “tricky,” and it does not lead automatically to growth – that
depends to a significant extent on how quickly consumption grows, and
can take many years before that happens.

Will China rebalance? Of course it will. It is not a question of if
but rather of how. The same was true of Japan. No economy the size
of China’s can be so heavily dependent on exports to absorb its excess
production, especially once unemployment in the rich countries reaches
significant levels. And no large economy can keep investment rates so
high – and the allocation process so constrained by governance issues
– for very long without running into the problem of capital
misallocation. But there are many ways rebalancing can occur.

Chinese household consumption will undoubtedly rise as a share of
Chinese GDP over the next decade or two, but the process nonetheless
can be disappointing for growth. It depends on lots of other moving
parts, most importantly perhaps the change in investment and the speed
with which income is transferred to households. And the change in
investment might depend on debt capacity constraints and the extent of
earlier overinvestment.

Author

Michael Pettis is a professor at Peking University’s Guanghua School
of Management, where he specializes in Chinese financial markets, and
a Senior Associate at the Carnegie Endowment for International Peace.

http://mpettis.com/2010/03/stuck-in-neutral-%E2%80%93-what-japan%E2%80%99s-rebalancing-can-teach-us/

BLANKLEY: Placing our faith in economic oraclesRate this story

One of the sadder categories in the history of human misfortunes is
the list of those things that are obvious, but wrong. By definition,
if something is obvious, most people agree with it, and thus, it is
likely to win the day - but lose the verdict of history. The Earth is
flat - obviously. The sun rotates around the Earth - obviously. What
we need is a financial systemic-risk regulator who can spot an
impending systemic financial risk - and stop it. Obviously?

Unfortunately, save for a few Republican senators and outside experts,
it is obvious to most of official Washington that, as Sen. Christopher
J. Dodd's Banking Committee gets ready to mark up the financial
regulation bill, only the form that a financial systemic-risk
regulator should take is seriously in dispute.

What could be more obvious than the lamentable fact that the economic
crisis occurred because our regulatory mechanisms failed in 2007-08 to
spot the impending financial crash? And that the failure occurred
because no one was looking at the entire financial system - only
individual pieces of it? If some regulatory body had been looking at
the entire system, the danger could have been spotted and corrected.
So, obviously we need a systemic-risk regulator.

But what do we mean by systemic? All American banks? All American
financial transactions? All economic activity in America? No, in a
globalized economy, the system in question is the entirety of global
financial activity - and all other economic activity that might affect
financial decisions. In other words, the system is the entire global
economy. My, my, that is a lot even for a building full of Ivy League
economists to fully comprehend. If they could, they would be in
business making trillions of dollars.

For instance, Iceland had a systemic crisis last year because some
loan officers in Florida and elsewhere authorized loans to unqualified
borrowers, and then thousands of such loans were bundled together by
Wall Street investment banks and sold as reliable investments to banks
all over the world - thus starting a process that undermined Icelandic
banks.

The next systemic financial crisis might happen because the Chinese
Communist Party decides - for geopolitical rather than financial
reasons - to order the immediate sale of all China's U.S. Treasury
notes. Or perhaps it will be caused by Britain getting into - and
losing - a war with Argentina over oil in the Falkland Islands that
results in the collapse of the British pound, which reverberates
around the financial world.

Or, to be more prosaic, the next systemic failure may result from a
failure to recognize that what looked like a healthy increase in the
value of information technology stocks, or real estate, or green
technology stocks was really a bubble - which burst.

Or perhaps the next systemic failure will result from American banks
being too cautious in their loan policies, resulting in a slow-motion
collapse of small business - which usually creates about two-thirds of
all new jobs - thus causing so many bankruptcies and skyrocketing
unemployment that most American banks fail also.

Or perhaps hedge funds will be so closely regulated that their
investments yield less than 8 percent - resulting in their primary
clients - pension funds - not being able to deliver the full,
guaranteed value of pensions to 50 million retired people. The
resulting national panic might cause a systemic crisis of confidence
in our economic system, followed by riots and economic collapse.

How likely is it that the 300 statisticians and economists working for
the new systemic-risk regulator would catch any of these - or an
infinite number of other - possible systemic risks? Well, you might
say, we wouldn't be worse off than we are now - so it's worth the
effort.

But the purpose of the proposed systemic-risk regulator is not only to
spot the impending systemic risk - but to intervene to prevent it from
happening. Consider the power such a regulator would have. Consider
that the existence of such a regulator would increase moral hazard -
as it would be assumed that if the systemic regulator isn't warning of
danger, market players would be more likely to assume risk is low. And
consider the consequences of using such power mistakenly.

For example, let's say the regulator spots what he believes is a
dangerous national real estate bubble. He acts quickly to snuff it out
by raising interest rates or requiring minimum 40 percent down
payments or some other intervention. What was a booming economy with 3
percent unemployment turns into a hard recession with 8 percent to 10
percent unemployment.

But later it is determined that it was not a bubble, but rather the
beginning of what would have been a steady, healthy increase in value.
Imagine if such a regulator had existed in 1955 and snuffed out the
great post-World War II expansion that made America a prosperous
middle-class nation of homeowners in suburbia rather than poorer
renters in the city.

It is not given to the smartest people in the world the capacity to
see the future, to discern with sufficient precision the details of
the moment that cause the critical consequences in the future.

But it certainly is the lamentable history of man that we have the
power to screw things up all the time. Remember the vaunted Japanese
industrial policy of the 1970s that was going to permit Japan to
shrewdly dominate the economic world over us hapless free-market
countries with no governmental power to identify the industries of
tomorrow?

In the end, the call for a systemic-risk regulator is yet another
futile expression of faith in the power of government to outthink the
markets. It is another foolish bet on bureaucrats and politicians in a
tightly regulated economy being more likely to bring prosperity than
free businessmen, investors and consumers in a free market. It is the
biggest sucker bet in history: a bet on tyranny over liberty.

Tony Blankley is the author of "American Grit: What It Will Take to
Survive and Win in the 21st Century" (Regnery, 2009) and vice
president of the Edelman public relations firm in Washington.

genwags

What needs to be examined in the financial crisis is Mr George Soros'
involvement and the need for Senator 0bama to have a crisis to solve
for election in 2008 once the issue of the Iraq war went away due to
our victory. The melt down was in their hands.

Lepantzeus

Gentle Readers, There is no need for a systemic -risk regulator, as
there was, and is, no systemic risk outside of government marketplace
intervention. What happened was this: In Sept 2008, the Treasury
observed $500 billion being taken out of money-market funds. They
reacted by freezing the markets. This was a mistake. Markets require
liquidity or their securities lose their value. Stocks and Bonds have
greater value as if someone needs money Monday morning, they can have
it by Monday afternoon. They may have to sell at a loss, but they can
liquidate their securities efficiently. The $500 billion taken out of
the markets was less than 5% of the total market capitalization. In
1987 the markets lost 25% of their value in 1 day, and recovered
without any such intervention. Without the Sept. 2008 intervention,
the markets would have recovered on their own. Furthermore, the $500
billion wasn't being taken out of the markets and buried in peoples
backyards, it was being placed into safer, low-risk, FDIC insured
accounts in Fed. Res. member banks. Investors were simply showing a
preference for lower-risk, lower-return accounts over high-risk, high-
return investments. That money, in Banks, would have been available to
capitalize loans to small businesses and individuals. The stricter
lending standards at the Banks would have stopped the abusive ( NINJA
Loans, for example ) loan practices which had destabilized the
economy. The money would have gone to well qualified borrowers and the
economy would have recovered on its own very quickly.

Lepantzeus

The Sept. 2008 intervention prevented the efficient flow of capital
from high-risk investments into Banks, preventing an efficient
economic recovery, and also reduced the market value of securities by
calling their liquidity into question. Then, the TARP program, which
was supposed to be used to purchase ' toxic ' mortgage backed
securities failed because, as it turned out, nobody wanted to sell
those ' toxic ' securities. They really aren't ' toxic '. Sure, if
someone bought a mortgage backed Bond for $10,000, and it is now worth
only $8,000, the $2000 loss is a disappointment, but that is common in
the securities business. Stocks and Bonds go up and down all the time.
They still have value, and the ability to liquidate them efficiently
in the marketplace enhances that value. So, TARP money has been used
for bailouts: AIG, GM, CHRYSLER, THE GSEs ( FannieMae) and private,
non-bank financial institutions on Wall Street. Tens of billions of
the AIG bailout went to sophisticated investors ( a minimum income of
$250,000 yr and minimum $1,000,000 to invest is the SEC definition of
a sophisticated investor ) from Europe and outside the USA. These
people weren't even Americans. They could have put their money into
safe, FDIC insured accounts in American banks, but they chose high-
yield, high-risk investments, which then lost money. TARP money was
also used for a ' capital injection ' into major US Banks which they
neither needed nor wanted. Most of that money has already been paid
back, with interest, so the Treasury has earned a substantive profit
on the capital injection. Those repaid funds and profits were supposed
to go to reducing the Debt incurred for the TARP program, but the
Pelosi Congress and Obama Administration have simply spent that repaid
money. The capital injection turned into a raid by the Treasury on
banks, taking tens of billions in profits from the banks which reduced
the banks capital and ability to make loans to the productive economy,
thereby prolonging this recession.

Lepantzeus

So, we've had TARP, auto bailouts for auto companys which went
bankrupt anyway, bailouts for rich non-Americans, and repeated
interventions in the economy following the Sept. 2008 market freeze
which started this whole mess, and the most prolonged economic
recession in 50 years, the direct result of government interventions
preventing the economy from making the adjustments required for
recovery. All coupled to irresponsible government spending. We don't
need another government agency intervening in the economy. The
systemic risk is the Federal Government! Just stop the bailouts! Let
the economy recover! Establish a prudent fiscal policy! There would
have been fewer job losses at GM & Chrysler if they had been allowed
to go bankrupt ( fewer dealerships lost ), and had the Wall Street
firms been allowed to fail their assets would have been taken over by
prudent firms, and we would be in recovery now. AIG should have been
split into its core insurance business, which was sound, and its
credit default swap business, which was not sound, so the
policyholders would be protected. A bankruptcy court would have done
that - protecting the secured creditors. If we had let the GSEs
( FannieMae ) go broke, capital going to the GSEs would have flowed to
Banks whose stricter loan criteria would have prevented the bad
mortgage loans from happening in the first place. The systemic risk we
face right now is the repeated, ill-considered, politically motivated
government interventions. There never was any other systemic risk. The
government is the systemic risk. That should stop. We don't need this
new agency, we're better off without it. Kindest Regards to all, I am,
John Lepant Brighton Colorado

movetotheright

Any 2 year old would have been able to spot the problem prior to our
economic failure. In this case they let it happen. To say anything
else is to say that Bernanke and Geithner were deaf, dumb and blind.
The fact that the SEC was spoon fed on Madoff and did nothing just
goes to show that either they were ALL stupid or they didn't care.
There is not one government agency that does its job the way it should
be done. NOT ONE! Now you think that a new regulatory agency will do
the trick. YOU AR E STUPID AND IT'S ALREADY TOO LATE. WE'RE HEADED
DOWN THE DRAIN AS WE SPEAK. EVERY ECONOMIC NUMBER THAT IS RELEASED BY
THE WHITE HOUSE IS A BIG LIE. WE ARE BANKRUPT BUT WE WON'T FIND OUT
THE TRUTH UNTIL AFTER THE NOVEMBER ELECTIONS. UNTIL THEN, WE ARE BEING
TREATED LIKE MUSHROOMS, KEPT IN THE DARK AND FED A LOT OF BULLS_ _ _T.

More Commentary Stories

CROWLEY: The truth about the deficit commission
http://www.washingtontimes.com/news/2010/mar/03/the-truth-about-the-deficit-commission/

DARLING: Bunning's $10 billion bean ball
http://www.washingtontimes.com/news/2010/mar/03/bunnings-10-billion-bean-ball/

BIRNBAUM: Betting the ranch on a longshot
http://www.washingtontimes.com/news/2010/mar/02/betting-the-ranch-on-a-longshot/

THOMSON: A troubling anti-West tilt persists
http://www.washingtontimes.com/news/2010/mar/03/a-troubling-anti-west-tilt-persists/

http://www.washingtontimes.com/news/2010/mar/02/placing-our-faith-in-economic-oracles/comments/

http://www.washingtontimes.com/news/2010/mar/02/placing-our-faith-in-economic-oracles/

The Riskiness of Putting Trust in the Best and the Brightest
by Don Boudreaux on March 3, 2010

The Washington Times’s Tony Blankley makes a strong case against Uncle
Sam’s proposed “systemic-risk regulator.” Here are his concluding,
and I think key, paragraphs:

But the purpose of the proposed systemic-risk regulator is not only to
spot the impending systemic risk – but to intervene to prevent it from
happening. Consider the power such a regulator would have. Consider
that the existence of such a regulator would increase moral hazard –
as it would be assumed that if the systemic regulator isn’t warning of
danger, market players would be more likely to assume risk is low. And
consider the consequences of using such power mistakenly.

For example, let’s say the regulator spots what he believes is a
dangerous national real estate bubble. He acts quickly to snuff it out
by raising interest rates or requiring minimum 40 percent down
payments or some other intervention. What was a booming economy with 3
percent unemployment turns into a hard recession with 8 percent to 10
percent unemployment.

But later it is determined that it was not a bubble, but rather the
beginning of what would have been a steady, healthy increase in value.
Imagine if such a regulator had existed in 1955 and snuffed out the
great post-World War II expansion that made America a prosperous
middle-class nation of homeowners in suburbia rather than poorer
renters in the city.

It is not given to the smartest people in the world the capacity to
see the future, to discern with sufficient precision the details of
the moment that cause the critical consequences in the future.

But it certainly is the lamentable history of man that we have the
power to screw things up all the time. Remember the vaunted Japanese
industrial policy of the 1970s that was going to permit Japan to
shrewdly dominate the economic world over us hapless free-market
countries with no governmental power to identify the industries of
tomorrow?

In the end, the call for a systemic-risk regulator is yet another
futile expression of faith in the power of government to outthink the
markets. It is another foolish bet on bureaucrats and politicians in a
tightly regulated economy being more likely to bring prosperity than
free businessmen, investors and consumers in a free market. It is the
biggest sucker bet in history: a bet on tyranny over liberty.

http://cafehayek.com/2010/03/the-riskiness-of-putting-trust-in-the-best-and-the-brightest.html

The Skimmer
Mitt Romney's No Apology
By Alex Altman / Washington Wednesday, Mar. 03, 2010

Robert Giroux / Getty

Many of us caught our last glimpse of Mitt Romney in the winter of
2008, when his presidential campaign was sputtering to a close, dogged
by the perception that the former Massachusetts governor was a shape-
shifting candidate with a focus-grouped platform. Since then, as
potential 2012 primary rivals like Sarah Palin and Mike Huckabee took
Fox News gigs and stayed in the public eye, Romney has quietly receded
from the spotlight. But his new book, No Apology: The Case for
American Greatness, leaves little doubt that he's spent the time away
rebooting his message in preparation for an Oval Office bid. In No
Apology, which hit stores March 2 and dovetails with a two-month
publicity blitz, the former Massachusetts governor drops the social
conservative shtick, preferring to focus on his managerial bona fides
and the Obama Administration's missteps.

The book's title is an allusion to Obama's American Apology Tour,
Romney's catch-all phrase for the president's habit of copping to
perceived (or actual) U.S. shortcomings. "Never before in American
history has its president gone before so many foreign audiences to
apologize for so many American misdeeds, both real and imagined," he
writes. "There are anti-American fires burning all across the globe;
President Obama's words are like kindling to them." It's tempting to
dismiss the section on foreign policy as an attempt to see how many
different formulations Romney can use to profess his belief in
American exceptionalism. But the theme is at the heart of the contrast
Romney draws between himself and the president: while his
prescriptions are designed to preserve American supremacy, Obama
espouses American equivalence. "If the president accepts that America
is in an irreversible state of decline relative to the world, it may
well come to pass under his stewardship," Romney warns.

It's a dangerous perspective, Romney argues, at a time when China's
clout is growing, Russia is resurgent and the U.S. remains mired in a
grinding war with Islamic extremists. "The truth is that we are at war
with a formidable enemy and that nations like Russia and China are
intent on neutralizing our military lead," Romney writes in support of
maintaining healthy defense budgets. "We must pay a large price to
maintain our freedoms, and if we do not pay enough in dollars, we may
be forced to pay the price in blood." He also charges — somewhat
incongruously — that "it is long past time for America to strengthen
and effectively deploy our soft power," which is, of course, partly
what Obama is trying to do by toning down the Bush Administration's
rhetoric.

The Harvard MBA and venture capitalist is sharper when it comes to the
economy, a topic squarely in his wheelhouse. The best way for
government to stimulate the economy, he argues, is to promote a
favorable climate for innovation and then get out of its way. But he's
not an absolutist when it comes to government meddling in the markets.
Though he denounces the bailout of Detroit carmakers, Romney is a
backer of TARP, though he couches his position with a caveat that
protects his right flank. "Secretary Paulson's TARP prevented a
systemic collapse of the national financial system," he writes.
"Secretary Geithner's TARP became an opaque, heavy-handed, expensive
slush fund. It should be shut down."

His support of Wall Street — and his statement that the rise of
populism is an understandable but "worrisome" response to a sagging
economy — is telling. Unlike Palin, whose book Going Rogue was an
anecdote-laced grand tour of her household, Romney has penned a sober,
substantive tome that traces the decline of the Ottoman Empire and
includes graphs of housing prices. With voters consumed with their
checkbooks, he ramps up the wonkishness, offering an Index of Leading
Leading Indicators and closing the book with a 64-point agenda on
issues ranging from tort reform and the construction of nuclear power
plants to hiking teacher pay and appointing strict constitutionalists
to the bench. No Apology is Romney's attempt to position himself as
the business-savvy candidate economic conservatives can coalesce
behind, which isn't a bad tactic. Still, he's now given his opponents,
both known and still unknown, a peek at his campaign playbook. When
you're likely to meet your rivals down the road, that can be a risky
move.

More Related

Why Evangelicals May Turn to Romney
http://www.time.com/time/nation/article/0,8599,1670621,00.html?iid=sphere-inline-sidebar
The ’I Hate Romney’ Club
http://www.time.com/time/nation/article/0,8599,1709507,00.html?iid=sphere-inline-sidebar
Why Romney’s Product Launch Failed
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Top 10 Political Memoirs
Sarah Palin's new memoir is hardly the first to stir controversy

Story All Best and Worst Lists

1. Ulysses S. GrantNEXT 1 of 10

Personal Memoirs of Ulysses S. Grant — 1885

Completed just five days before succumbing to throat cancer, the
former general's memoirs were the first by a President to achieve
widespread commercial success, helped in no small part by public
interest in his race against the clock to get them finished before his
death. Published by Mark Twain, the writing shows few signs of having
been done in haste; Grant gives thoughtful treatment to the Civil War
and a thorough retelling of such pivotal events as receiving
Confederate general Robert E. Lee's surrender at Appomattox. He also
understood that people want to read the exciting stuff: Grant devotes
the majority of his account to his time as a general, spending little
time dwelling on his term as president.

http://www.time.com/time/specials/packages/article/0,28804,1939871_1939864,00.html

2. Richard A. Clarke

Against All Enemies: Inside America's War on Terror — 2004

A year and two days after the U.S. invaded Iraq, Americans were
treated to a literary shock-and-awe campaign of sorts by George W.
Bush's former counterterrorism adviser. Richard Clarke's 304-page
memoir included detailed and damning accounts of the Bush
Administration's response to 9/11 — including allegations that Bush
ignored warnings of an attack and had planned to invade Iraq all
along. In one passage, Clarke recounts Bush's eagerness to connect
9/11 to Saddam Hussein, writing that after he told the president that
Al-Qaeda was responsible for destroying the Twin Towers, Bush
responded by saying, "I know, I know... but see if Saddam was
involved. Just look. I want to know any shred."

Released just two days before Clarke delivered testimony to the 9/11
commission, the book soared to No. 1 on Amazon's best-seller list —
thanks in large part to the Bush Administration's outraged response,
which only served to fuel more coverage and curiosity. Even before
Clarke appeared on 60 Minutes to promote his insider account, White
House Communications Director Dan Bartlett launched a preemptive media
blitz that included a four-page rebuttal distributed to all Capitol
Hill reporters. But Clarke's credentials made him a difficult target:
he'd served under three previous Presidents: Ronald Reagan, George
H.W. Bush and Bill Clinton. Clarke's memoir will likely get another
boost in 2010, when the film version, directed by Robert Redford, is
scheduled to hit theaters.

http://www.time.com/time/specials/packages/article/0,28804,1939871_1939864_1939865,00.html

3. Dean Acheson

Present at the Creation — 1969

Dean Acheson took the helm of the U.S. State Department during one of
the most frenetic times in history, serving as Secretary of State from
the end of World War II in 1949 through 1953. The period saw the birth
of the United States as a world power, the simultaneous rise of the
Soviet Union and the creation of Israel as an independent state.
Acheson's memoir, Present at the Creation, chronicles his experiences
during these pivotal moments in 20th-Century American foreign policy —
a policy he himself helped shape.

http://www.time.com/time/specials/packages/article/0,28804,1939871_1939864_1939842,00.html

4. James Buchanan

Mr. Buchanan's Administration on the Eve of the Rebellion — 1866

While James Buchanan may have largely botched the run-up to the Civil
War, he still has one thing going for him: authorship of the the first
memoir by a U.S. Commander in Chief. The book, Mr. Buchanan's
Administration on the Eve of the Rebellion, is largely devoted to
defending his actions as President. Buchanan waited after the war's
conclusion to publish his account, saying he didn't want the memoir to
interfere with Lincoln's leadership during the war. But Buchanan,
unsurprisingly, paints himself as a constant voice against the war,
striving at every turn to warn others of the danger of secession
before being ultimately done in by the inaction of a partisan
Congress. Buchanan said history would be his judge, and indeed it was,
just not in the way he hoped. Buchanan's inaction in the face of the
South's rebellion puts him high on many historians' lists of the all-
time worst presidents.

http://www.time.com/time/specials/packages/article/0,28804,1939871_1939864_1939821,00.html

5. Barack Obama

Dreams from My Father — 1995

Dreams from My Father is not strictly a political memoir: Obama wrote
it after he had become the first black president of the Harvard Law
Review but before his political career began. But in shaping his
personal narrative — the story of the skinny kid with the funny name
that would become the mainstay of thousands of stump speeches — Dreams
from My Father laid the groundwork for his meteoric rise to the
highest office in the land. In 2008, candidate Obama told the New York
Times he had not written the book with political results in mind, but
he would not be surprised if some people had joined his campaign
"because they feel they know me through my books."(His second, far
wonkier treatise, The Audacity of Hope, was published in 2006.) Dreams
also won praise for remarkable candor and genuine literary merit from
a variety of eminent readers, including Nobel laureate Toni Morrison:
the book is "very, very compelling," she said, adding that Obama
writes "so well. Really well, with really nice big, strong, artful
sentences."

http://www.time.com/time/specials/packages/article/0,28804,1939871_1939864_1939845,00.html

6. Dwight Eisenhower

At Ease: Stories I Tell To Friends — 1967

Published two years before his death, Eisenhower's At Ease provides a
remarkably unvarnished look at his transformation from "a rawboned,
gawky Kansas boy from the farm country" into a soldier and a leader.
Told largely through colorful anecdotes, the book is livelier and more
informal than his other memoirs, Crusade in Europe and Waging Peace.
The result, as the New York Times wrote the year it was published, is
"to flesh out and give life to the image of one of the most durable
popular heroes of our time."

http://www.time.com/time/specials/packages/article/0,28804,1939871_1939864_1939858,00.html

7. Harry McPherson

A Political Education: A Washington Memoir — 1972

As political counsel and chief speech writer for President Lyndon
Baines Johnson, Harry McPherson was part of a presidential inner
circle that endured the J.F.K. assassination, the Vietnam War and the
tumult of the civil rights era. Needless to say, when McPherson's
memoir was first published in 1972, there was plenty to say and much
to learn about L.B.J.'s time in office. McPherson delivered: his
depiction offered not just a clear window on the administration but a
precise picture of life in Washington and the U.S. as Johnson spiraled
into disfavor. "Vietnam," writes McPherson, "became a second
consciousness ... One thought of friends, and Vietnam; raising a
family, and Vietnam; investing in the market, writing a letter,
visiting a university, watching television, and Vietnam. Like an acid,
it was eating into everything." Still thought of as an essential look
into the Beltway and the mind of a president, The Washington Monthly
in 1990 called it a book "whose congressional vignettes have never
been surpassed and probably never will be."

http://www.time.com/time/specials/packages/article/0,28804,1939871_1939864_1939815,00.html

8. George H.W. Bush

Streeter Lecka / Getty

All the Best, George Bush: My Life in Letters and Other Writings —
1999

In this collection of letters beginning in 1942 when he had just
finished high school, the first President Bush tells his story through
missives penned to family, friends and world leaders (Deng Xiaoping,
King Hussein and Mikhail Gorbachev are all pen pals). Publisher's
Weekly called it an "intriguing picture" into the former president's
"personal character." That's exactly what he seemed to want to get
across, considering he told Larry King in an interview soon after its
publication that he didn't miss decision-making at all. "I'm 75 years
old," he said, "and I don't care about sitting at the head table
anymore."

http://www.time.com/time/specials/packages/article/0,28804,1939871_1939864_1939853,00.html

9. John McCain

Joshua Roberts / Reuters / Corbis

Correction Appended: Nov. 19, 2009

Faith of Our Fathers — 1999

Before his first presidential run in 2000, John McCain often told
friends, "I never want to be a professional P.O.W." But he sealed his
reputation as a war hero in 1999 with the publication of his first
memoir, which recounts the five and a half years he spent as a
prisoner of war in North Vietnam's infamous Hanoi Hilton and honors
his family's impressive military tradition (both his father and his
grandfather had been four-star admirals in the Navy). The book,
derided by critics as a transparent attempt to improve his chances for
higher office, spent more than six months on the New York Times Best
Seller list and later became a made-for-TV movie. Still, McCain's
reluctance to let his experience during the Vietnam war define him
shines through in the very book that arguably did just that. "My
public profile is inextricably linked to my P.O.W. experiences,"
McCain writes in Faith of Our Fathers. "Obviously, such recognition
has benefited my political career, and I am grateful for that. But I
have tried to make what use I can of Vietnam and not let the memories
of war encumber the rest of my life's progress. Neither have I been
content to accept that my time in Vietnam would stand as the ultimate
experience of my life." He has since co-written four other volumes
with longtime aide Mark Salter.

The original version of this story incorrectly stated that Faith of
Our Fathers spent two months on the New York Times Best-Seller List.

http://www.time.com/time/specials/packages/article/0,28804,1939871_1939864_1939880,00.html

10. George Stephanopoulos

Scott Olson / Getty

All Too Human: A Political Education — 1999

It's easy to forget about George Stephanopoulos' first career. Before
taking the host chair on the ABC wonkfest This Week, Stephanopoulos
worked the other side of the desk as a Democratic political operative,
helping Bill Clinton win the presidency in 1992. The political
wunderkind stayed on at the White House through Clinton's 1996 re-
election and wrote about the experience three years later in All Too
Human: A Political Education. The book's 456 pages detail the deep
stress the job placed on the harried staffer while offering an
alternately sympathetic and critical portrait of the President,
praising his idealism while blasting Clinton's "stupid, selfish and
self-destructive" behavior during the Monica Lewinsky affair.
Stephanopoulos faced accusations of disloyalty for releasing the tell-
all while Clinton was still in office, though any hard feelings appear
to be soothed: Clinton and his wife, Hillary — the sitting U.S.
Secretary of State — now count among the ex-staffer's Sunday morning
TV guests.

http://www.time.com/time/specials/packages/article/0,28804,1939871_1939864_1939886,00.html

[chhotemianinshallah]

Bloomberg

Japan’s Kan Tackles Sales Tax ‘Taboo’ That Obama Won’t Touch
March 03, 2010, 11:53 AM EST

By Toru Fujioka and Kyoko Shimodoi

March 4 (Bloomberg) -- Finance Minister Naoto Kan’s readiness to
debate Japan’s first sales-tax increase since 1997 signals the risk of
a fiscal crisis may be weighing heavier with policy makers than
dangers to economic growth.

A government tax panel convenes in coming weeks to review changes and
hear recommendations of a private-sector board, after Kan last month
urged discussing the sales levy. He had previously focused on spending
cuts, and Prime Minister Yukio Hatoyama pledged not to alter the 5
percent tax for four years.

The shift underscores how Japan is seeking to avoid any association
with the crisis in Greece, which has a smaller debt burden. Lifting
taxes on consumers is politically risky -- the Obama administration
isn’t considering such a levy in the U.S. even as two former central
bank chiefs endorsed the concept -- and the last time Japan did so, it
helped cause a recession.

“Japan’s fiscal situation is reaching a very dangerous point,” said
Seiji Shiraishi, chief economist at HSBC Securities Japan Ltd. in
Tokyo. “They have to start talking about the sales tax even though the
topic has been taboo and provokes traumatic memories among
politicians.”

Consumption taxes offer the simplest way of raising revenue in
economies where more than half of gross domestic product comes from
spending. India’s government boosted excise taxes in its budget
proposal last week and New Zealand is considering an increase in its
tax.

Kan’s ‘Handstand’

When assuming the post on Jan. 7, Kan indicated he wouldn’t raise
taxes until cutting spending to the point where wasteful outlays
couldn’t be found even when “doing a handstand.” He changed gears a
month later as Standard and Poor’s threatened to cut Japan’s AA
sovereign rating and Greece’s public finances deteriorated.

Kan’s deputy, Naoki Minezaki, said discussion about sovereign debt at
a Group of Seven meeting of finance ministers in Canada last month
made his boss realize the importance of mapping a plan to contain the
nation’s public debt.

The Finance Ministry’s debt projections and S&P’s outlook cut also
propelled Kan to spur debate on taxes, according to two finance
ministry officials who spoke on condition of anonymity.

“I have a feeling that he senses we don’t have much time,” Minezaki
told reporters on Feb. 15. Public debt is projected to swell to a
record 973.2 trillion yen by next March, and the Finance Ministry
anticipates it will get more cash from bond sales than tax revenue for
the first time in 63 years in the fiscal year ending this month.

Record U.S. Gap

In the U.S., which will see a projected record budget deficit of $1.6
trillion yen this year, the Obama administration isn’t considering a
consumption tax.

“It’s the only thing that raises revenue in significant quantities
without significantly impacting on the economy,” former Federal
Reserve Chairman Alan Greenspan said in an August interview on ABC
television. Paul Volcker, Greenspan’s predecessor, also endorsed some
tax on consumption and House Speaker Nancy Pelosi and Senate Budget
Committee Chairman Kent Conrad both have supported considering a VAT.

Even so, Peter Orszag, head of the White House Office of Management
and Budget, said in a November interview with Bloomberg Television
there’s no “serious policy discussion” of a VAT. The White House
position hasn’t changed, an administration official said on condition
of anonymity this week.

Share of Revenue

In Japan, the consumption tax accounts for a quarter of total revenue.
A one percentage point boost would secure about 2.5 trillion yen,
according to government estimates.

Hatoyama’s administration also needs to come up with 12.6 trillion yen
next fiscal year to fund election pledges including childcare handouts
and farmer subsidies.

Japan’s debt to GDP ratio is estimated to rise to twice the size of
the economy this year, compared with Greece’s 123 percent, according
to the Organization for Economic Cooperation and Development.

A deteriorating fiscal situation hasn’t spurred an increase in Japan’s
benchmark bond yields yet, with 10-year securities yielding 1.3
percent -- the lowest among G-7 nations because of the economy’s
deflation. Bank of Japan Governor Masaaki Shirakawa said yesterday
that investor trust in fiscal and monetary policy has also helped keep
yields low so far.

“Japan is worse than Greece if you only look at figures,” said Takeshi
Minami, an analyst at Norinchukin Research Institute Ltd. in Tokyo.
“No one knows when yields will start to rise because of concerns about
the debt.”

Hashimoto’s Folly

Japan’s sales tax was introduced in 1989 and raised to 5 percent in
1997. The increase pushed the nation into a 20-month recession and
caused then Prime Minister Ryutaro Hashimoto’s Liberal Democratic
Party to lose a majority in the lower house of parliament for the
first time.

The nation’s sales tax is the lowest among the 30 Organization for
Economic Cooperation and Development members, except the U.S. -- which
has no levy at the national level, although some of its states do.

“The government will continue to lose money every year unless they
change the tax system and cut expenditures,” said Junko Nishioka,
chief economist at RBS Securities Japan Ltd. in Tokyo.

--Editors: Lily Nonomiya, Russell Ward

-0- Mar/03/2010 15:01 GMT

To contact the reporters on this story: Toru Fujioka in Tokyo at
tfuj...@bloomberg.net; Kyoko Shimodoi in Tokyo at +81-3-3201-3142
kshi...@bloomberg.net

To contact the editor responsible for this story: Chris Anstey at
can...@bloomberg.net

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Bloomberg

U.S. Economy: Services Expand More Than Anticipated (Update1)
March 03, 2010, 2:47 PM EST

By Bob Willis

March 3 (Bloomberg) -- Service industries in the U.S. accelerated in
February more than anticipated, indicating the economic expansion may
soon create jobs following the worst employment slump in the post-
World War II era.

The factory rebound that helped the economy emerge from the recession
is starting to filter to other industries, giving a boost to companies
such as Macy’s Inc. Stocks, which initially climbed as another report
showed job losses cooled in February, later trimmed gains after the
Federal Reserve said loan demand was “weak” and labor markets “soft.”

“We’re starting to see a broadening of the economic recovery,” said
Richard DeKaser, chief economist at Woodley Park Research in
Washington, whose forecast of 52.9 was the highest in the Bloomberg
survey. The data “are encouraging, to say the least.”

The Standard & Poor’s 500 Index was little changed at 1,118.85 at 2:43
p.m. in New York after the central bank called the improvement in
economic activity this year “modest,” according to its Beige Book
business survey. The 10-year Treasury note fell, pushing the yield up
to 3.63 percent from 3.61 percent late yesterday.

Economists forecast the ISM index to rise to 51, according to the
median estimate in the Bloomberg survey. Estimates ranged from 48.5 to
52.9.

ADP Estimate

Companies cut an estimated 20,000 jobs in February, in line with
forecasts and the smallest drop in two years, data from ADP Employer
Services also showed today. The decrease reflected reductions at
construction companies as manufacturers and service providers added to
payrolls.

“This report really is pretty encouraging,” Joel Prakken, chairman of
Macroeconomic Advisers LLC. in St. Louis, said in a news conference.
He said job gains should come in the next month or two. Macroeconomic
Advisers produces the report with ADP.

A separate report from the job placement firm Challenger, Gray &
Christmas Inc. showed employers in February announced the fewest job
cuts in more than three years. Planned firings fell 77 percent last
month from a year earlier, the Chicago-based firm said today.

Weather Influence

“In the ADP data, weather doesn’t matter much at all,” said Prakken.
The Labor Department’s figures are based on whether an employee worked
during the week that included the 12th of the month, which may have
been affected by the storms, he said, and any influence will be
reversed this month. ADP figures, which include only private
employment, count anyone on the payroll as working.

The Tempe, Arizona-based ISM’s employment measure rose to the highest
level since April 2008, signaling the recovery may be closer to
creating the jobs needed to fuel consumer spending, which accounts for
about 70 percent of the economy.

The supply managers’ gauges for orders and business activity, which
corresponds to factory production, also climbed.

“It looks like we are starting to gain some traction here,” Anthony
Nieves, chairman of the ISM’s services survey, said in a news
conference.

Industry Breakdown

The report showed nine industries, including information technology,
arts, transportation and retailing, expanded last month.

The lack of jobs may be one reason some merchants are forecasting the
improvement in sales this year will pale in comparison to the 2009
drop.

Atlanta-based Home Depot Inc., the largest U.S. home- improvement
retailer, last month projected comparable-store sales will climb 2.5
percent in 2010 after dropping 6.6 percent last year. Cincinnati-based
Macy’s said sales at established stores will grow by as much as 2
percent after slumping 5.3 percent in 2009.

“Business feels better, there is no question about it,” Macy’s
Chairman and Chief Executive Officer Terry J. Lundgren said on a Feb.
23 conference call. “We still have high unemployment, and I still see
tight credit on consumers.”

The ISM services index has lagged behind the group’s manufacturing
gauge, which registered a reading of 56.5 in February, the seventh
consecutive month of expansion. Factories account for 12 percent of
the economy.

--With assistance from Cotten Timberlake in Washington and Chris
Burritt in Charlotte, North Carolina. Editors: Vince Golle, Carlos
Torres

To contact the reporter on this story: Bob Willis in Washington at
bwi...@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz
at cwel...@bloomberg.net

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A Japanese lesson for David Cameron

As the island nation confronts its post-boom problems, the fate of
Japan's new ruling party may interest the Tories

Simon Tisdall guardian.co.uk,
Wednesday 3 March 2010 14.30 GMT

Yukio Hatoyama and the Democratic Party of Japan's honeymoon period is
over. Photograph: Itsuo Inouye/AP

Japanese people are fond of noting the similarities between their
country and the United Kingdom. Both occupy islands situated on the
edge of a continental landmass with which relations are sometimes
awkward. Both are constitutional monarchies with parliamentary
systems. Both peoples, they say, set great store by traditions, good
manners, well-kept gardens, and tea.

The comparison does not usually stretch to party politics. But in the
week that David Cameron launched an election campaign with the slogan
Vote for Change, the parallels become harder to ignore. Japan's prime
minister, Yukio Hatoyama, won a landslide victory last August with a
similar mantra demanding "regime change". His subsequent performance
in office makes sober reading for Britain's Tories and those who may
vote for them.

Having successfully demonised the incumbent Liberal Democratic Party
(LDP) government for presiding over decades of waste, incompetence and
corruption, Hatoyama's triumphant Democratic Party of Japan quickly
ran into sleaze scandals of its own. DPJ secretary general and chief
electoral strategist Ichiro Ozawa became enmeshed in a political
funding investigation after three close associates were arrested for
alleged falsification of records.

Claims of financial irregularities involving other party figures have
since come to light. And Hatoyama himself has not emerged unscathed
after questions were raised about a previously undisclosed 900m yen
inheritance from his 87-year-old mother.

Like Cameron, the prime minister comes from a privileged background,
and is seen by many Japanese as a bit of a toff. That would not have
mattered if he had showed he was different from his predecessors, a
Tokyo political commentator said. "With the economy depressed, people
are suffering hard times and they cannot accept money politics. They
get angry, like with the MPs' expenses in Britain ... Hatoyama
promised change, and it turned out to be more of the same."

Criticism of the centre-left DPJ extends to its handling of the
economy, where deflation, falling tax revenues, and government debt
amounting to almost 200% of GDP are intensifying a sense of British-
style national decline. The days of the postwar Japanese economic
miracle are long gone. Symbolically, and gallingly, China will
overtake Japan this year as the world's second biggest economy.

In an indicator of problems the Tories may face if they take power in
Britain, the new government's promises to enact budget reforms,
reprioritise public spending, introduce child benefits and extend free
schooling remain unfulfilled and possibly unaffordable. On top of all
that, a controversial shift is looming over immigration policy.

Until now, self-consciously homogenous Japan has imposed strict
limitations on any foreign influx. But an ageing population and a
shrinking workforce means the country needs additional labour.
Hatoyama has privately told officials to prepare for Japan's "third
opening" to the world. The first came during the late 19th-century's
Meiji Restoration, when Japan industrialised. The second came after
the war in 1945. Now, says Hatoyama, a third social revolution is on
the way.

The DPJ's defenders say the party is genuine in its desire to put
people first and break the grip of Japan's powerful bureaucrats on
public policy. "We really need to have a change in this country. Of
course it's going to take time, after 50 years of the LDP. Of course
they have made mistakes. We have to give them a chance," a sympathetic
senior civil servant said.

But domestic mis-steps combined with the prospect of a humiliating
national climbdown – or a damaging confrontation – in a row with the
US over the relocation of a military base in Okinawa have taken their
toll on the new government's public standing. Six months into office,
its approval ratings have slumped to about 40% amid speculation that
coalition partners may peel away and Hatoyama may be forced to resign.
"The problem is they are still campaigning, not governing," a
university analyst said. "This is immature politics."

As has often been the case in Britain in similar circumstances, the
DPJ has one notable consolation. Even as it struggles to make its
mark, its vanquished opponents, forced into unaccustomed opposition,
are at each other's throats. Yoichi Masuzoe, the LDP's most popular
leader, warned this week that he might form a breakaway party. The
public now viewed the LDP as the "lousy dumb party", he said, and if
it did not quickly reform itself, it might never regain power.

Cameron will hope this is the post-election fate that awaits Gordon
Brown's Labour, and vice versa. As a political crunch looms ahead of
upper house polls in July, Japan's new ruling party is in trouble. But
its opponents are even worse off.

http://www.guardian.co.uk/world/2010/mar/03/david-cameron-britain-japan-politics#start-of-comments

Economic Report
March 3, 2010, 11:06 a.m. EST

Who owns Web content? Us or them?

WASHINGTON (MarketWatch) -- The services sectors of the U.S. economy
grew at the fastest pace in more than two years in February, according
to a survey of companies released Wednesday by the Institute for
Supply Management.

The ISM non-manufacturing index rose to 53% in February from 50.5% in
January, marking the best reading since December 2007.

"The U.S. economy is recovering ... in fits and starts," wrote
Jennifer Lee, senior economist for BMO Capital Markets.

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investigations, Rep. Charles Rangel has said he is stepping aside from
his post as Chairman of the House Ways and Means Committee. Washington
Bureau Chief John Bussey comments on the political climate surrounding
Rep. Rangel and what the move means for the Obama administration.

The report compiled by the Tempe, Ariz.-based trade group was
consistent with a "sluggish but positive growth path," wrote Mike
Englund, chief economist for Action Economics.

Other economists weren't as impressed.

"Although the bulls will see this as a broadening out of the recovery,
I am still focused on the jobs data due out on later this week," wrote
Steven Ricchiuto, chief economist for Mizuho Securities USA.

Readings over 50% in the ISM survey indicate that more firms said
business was getting better than said it was worsening. Economists
surveyed by MarketWatch had been looking for the index to rise to 51%.
Read our complete economic calendar.

The ISM non-manufacturing index had been in a narrow range between 48%
and 51% since August, a sign of an economy that's struggling to pull
out of recession.

In February, nine of 18 industries were growing, led by information,
entertainment and transportation.

The business activity index also rose, reaching 54.8% in February from
52.5% in January.

The new orders index improved slightly, to 55% in February from 54.7%
in January.

The employment index increased to 48.6% in February from 44.6% in
January.

The prices paid index fell to 60.4% from 61.2%.

In a separate release on the nation's economy reported Wednesday, the
ADP employment report showed private-sector jobs fell by 20,000 in
February, the slowest job loss in two years. See full story on the
latest in private-sector employment.

Because of the way it's put together, the extreme snowstorms of the
first half February didn't have much impact on the ADP report, but
they will on Friday's nonfarm payrolls report from the Bureau of Labor
Statistics.

Rex Nutting is Washington bureau chief of MarketWatch.

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Bloomberg

Asian Stocks Increase on Greece Optimism; Pound Strengthens
March 03, 2010, 3:04 AM EST

By Rocky Swift and Akiko Ikeda

March 3 (Bloomberg) -- Asian stocks rose, erasing the benchmark
index’s loss this year, on speculation new austerity measures in
Greece will allay concerns of a default. The pound strengthened for
the first time in seven days.

The MSCI Asia Pacific Index climbed 0.5 percent to 120.60 at 5 p.m. in
Tokyo, bringing its return in 2010 to 0.2 percent. The Stoxx Europe
600 fell 0.2 percent. while Standard & Poor’s 500 futures were little
changed. The pound gained on speculation a slump in Prudential Plc
shares will hamper its bid for American International Group Inc.’s
Asian unit, easing concern about U.K. capital outflows.

Greek Prime Minister George Papandreou will today announce as much as
4.8 billion euros ($6.5 billion) in extra deficit cuts, including
higher taxes and steeper reductions in public workers’ bonuses, said a
person familiar with the matter, who declined to be identified because
the details aren’t yet public.

“Greece has been a source of anxiety,” said Hiroshi Morikawa, a
strategist in Tokyo at MU Investments Co., which manages $14 billion.
“If the government measures are not what investors expect, concerns on
Greece issues will reignite and shares will plunge.”

Australia’s S&P/ASX 200 Index rose 0.7 percent, leading all Asian
benchmarks as the government said the economy expanded at the fastest
pace in almost two years in the fourth quarter. National Australia
Bank Ltd. climbed 2.3 percent to A$26.20. Wesfarmers Ltd., Australia’s
second-biggest retailer, gained 1.5 percent to A$32.57.

Commodity Suppliers

Shares of raw material suppliers advanced the most of the 10 industry
group on the MSCI Asia Pacific index on speculation the global
recovery will boost metals demand.

Fortescue Metals Group Ltd., Australia’s third-biggest iron-ore
producer, jumped 3.2 percent to A$4.85. Rio Tinto Ltd., the world’s
third-largest mining company, gained 2.4 percent to A$73.58.
Mitsubishi Corp., a Japanese trading house that gets about 40 percent
of sales from commodities, increased 1.8 percent to 2,289 yen in
Tokyo.

The London Metal Exchange Index of six metals including copper and
zinc climbed 1.5 percent yesterday, a third day of gains. Crude oil
for April delivery rose 1.3 percent to settle at $79.68 a barrel in
New York. Gold futures rose 1.7 percent to $1,137.40 an ounce.

Asahi Glass Co., Asia’s largest glassmaker, gained 4.3 percent to 917
yen. The company plans to invest NT$42 billion ($1.3 billion) in
Taiwan over the next three years to meet growing demand for glass from
AU Optronics Corp. and Chi Mei Optoelectronics Corp., the island’s
government said.

Pound Strengthens

The pound climbed against 15 of its 16 major counterparts as
Prudential shares tumbled almost 20 percent in two days after
Britain’s largest insurer said it will buy AIA Group Ltd. for $35.5

billion in cash and stock.

“There seems to be worries over Prudential’s deal, which could be
causing buying back of the pound,” said Toshihiko Sakai, head of
trading for currencies and financial products in Tokyo at Mitsubishi
UFJ Trust & Banking Corp., a unit of Japan’s largest banking group.

Concern that Greece may fail to rein in the European Union’s widest
budget deficit and sovereign risk will spread to other nations in the
euro-zone has roiled global markets, sending the MSCI World Index down
3.6 percent from a 15-month high on Jan. 15, on a closing basis.
Standard & Poor’s and Moody’s Investors Service, which cut Greece’s
sovereign credit rating in December, said they may reduce its ratings
further should the nation fail to implement a deficit-reduction
program.

Greece Budget

“As long as Greece presents a solid plan to rebuild its budget,
organizations such as the EU, IMF and World Bank should be able to
rescue the nation,” said Hiroshi Watanabe, an economist at the Daiwa
Institute of Research in Tokyo. “Meanwhile, the economic recovery is
picking up fast in developing nations, thanks to fiscal measures. As
sovereign issues ease, that trend should continue, supporting stocks.”

The cost of protecting bonds in Asia from default fell, according to
traders of credit-default swaps. The Markit iTraxx Asia index of 50
investment-grade borrowers outside Japan fell 1.5 basis points to 107
basis points, according to Citigroup Inc. The Markit iTraxx Japan
index dropped 1 basis point to 136, Morgan Stanley prices show. The
Markit iTraxx Australia index added 1 basis point to 90.5, according
to Citigroup Inc.

The dollar traded at $1.3624 per euro as of 7:11 a.m. in London from
$1.3615 in New York yesterday, when it rose to $1.3436, the strongest
since May 18. The greenback was at 88.93 yen from 88.85 yen after
earlier declining to 88.48, the lowest since Dec. 14. The pound rose
0.3 percent to $1.5010.

Fed Rates

Interest-rate futures on the Chicago Board of Trade yesterday showed a
39 percent chance the Fed will keep its target lending rate at between
zero and 0.25 percent by its November meeting, compared with 30
percent odds a week earlier.

When asked whether interest rates would rise, Fisher said in an
interview with PBS Television’s Nightly Business Report, “I don’t
think that’s going to happen for some time. I’m not willing to wager
on that because it depends on whether or not this economy keeps going
forward.”

“With a recovery in the jobs market in the U.S. remaining weak, the
Fed can’t start raising its federal fund rate immediately,” said
Takeshi Makita, senior economist in Tokyo at Japan Research Institute
Ltd., a unit of Japan’s third-largest banking group, Sumitomo Mitsui
Financial Group Inc. “This view will continue to weigh on the dollar.”

Oil, Copper

Crude oil traded near $80 a barrel in New York after rising on a
possible resolution to Greece’s budget problems and a decline in
distillate supplies in the U.S., the world’s biggest energy consumer.

Oil was little changed at $79.66 a barrel after gaining 1.3 percent
yesterday after the American Petroleum Institute said stockpiles of
distillate fuel, a category that includes heating oil and diesel,
dropped 4.07 million barrels last week, signaling rising fuel demand.

“Markets are becoming a little more optimistic about the international
economic outlook,” said David Moore, a commodity strategist at
Commonwealth Bank of Australia Ltd. in Sydney.

Copper for three-month delivery dropped 1.2 percent to $7,405 a metric
ton, declining for the first time in four days, after Codelco, the
world’s largest miner of the metal, said it returned to full output
after a magnitude 8.8 earthquake on Feb. 27 knocked out power to two
mines. Aluminum fell 0.7 percent to $2,153 a ton.

--With assistance by Ben Sharples in Melbourne, Bob Chen in Hong Kong,
Yasuhiko Seki, Ron Harui and Yoshiaki Nohara in Tokyo. Editors:
Patrick Chu, Rocky Swift

To contact the reporters for this story: Rocky Swift in Tokyo at
rsw...@bloomberg.net; Akiko Ikeda in Tokyo at iak...@bloomberg.net.

To contact the editor responsible for this story: Patrick Chu in Tokyo
at pa...@bloomberg.net

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According to Fed's Dudley, the U.S. Economy Is Becoming Healthy
Posted Feb 19th 2010 11:30AM by Mark Fightmaster

According to William Dudley, the president of the New York Federal
Reserve Bank, the U.S. economy is becoming healthy. Dudley did caution
that it is too early to say we are out of the woods.

The New York Fed president stated that the recovery is "looking
sustainable," adding that the capital markets (with the exception of
certain securitization markets) "are now generally open for business."
Dudley added, "We currently expect that the economy will keep
expanding, but at a somewhat slower growth rate than during the second
half of 2009 as the temporary boost from the inventory cycle fades and
the effects of the stimulus bill gradually weaken."

In Dudley's prepared remarks (that are to be presented to the Center
for the New Economy 2010 Economic Conference in Puerto Rico), he did
not address the Fed's decision to raise the discount rate to 0.75%
from 0.5%. This surprise decision came late last night, and some
experts suggest that it may signal that the Fed is getting close to a
decision to clamp down on monetary policy. Dudley did state that the
Fed continues "to take the actions required to promote maximum
sustainable growth in the U.S. economy."

I am glad that Dudley came out and stated the same thing that we have
been hearing from the government since the Obama administration took
over. The economy is okay, high jobless rates are a concern, and big
banks are in better position than smaller banks -- what? Yes, Dudley
believes that the ability of big banks to raise capital puts them in a
stronger position than smaller banks. Dudley believes that smaller
banks with large commercial real estate exposure are under pressure.
Really. This is not ground-breaking information. Neither is the
revelation that households and smaller businesses are still having
trouble accessing credit.

We will not come out of this economic crisis until the jobless
situation is under control. We need more Americans working. More
workers means more money, more money that can be spent at businesses,
which could eventually help turn the economy around. I know that I am
oversimplifying the situation, but I do think that our current
situation isn't going to get better until the talking stops and the
job creation begins.

http://www.bloggingstocks.com/2010/02/19/according-to-feds-dudley-the-u-s-economy-is-becoming-healthy/

Mar 4, 2010

A Volcker rule for the Fed
By Hossein Askari and Noureddine Krichene

Since United States Federal Reserve chairman Ben Bernanke started
talking about a Fed exit strategy to unwind its intrusive role in the
ongoing financial crisis, he has been expanding the Fed’s balance
sheet through a number of schemes.

These include an outright monetization of the US fiscal deficits,
pushing the Fed’s holding of government securities from US$474 billion
in February 2009 to $777 billion in February 2010; increasing its
holdings of long-term mortgage backed securities (MBS) from $6 billion
in February 2009 to $1,025 billion in February 2010; and the purchase
of federal agency securities rising from $24 billion in February 2009
to $166 billion in 2010.

By buying MBS, Bernanke has acquired the assets that have

ruined the US financial system, and in the process he has bailed out
the banks and transferred the credit risk to the Fed’s balance sheet.
As a result, a large number of congressmen have demanded that the
accounts of the Fed be audited. Bernanke and his supporters considered
that such audit would undermine Fed’s independence, although the
extent of its future losses from such purchases remains unknown.

Bernanke has himself called his policy aggressive or unorthodox. He
realized that pushing the federal funds rate to near zero bound had
failed to reinvigorate lending. Consequently, he decided to buy the
toxic MBS of banks that had impaired bank balance sheets, so that they
might resume their lending. Through such a monumental MBS purchase
program, Bernanke wanted to prevent a downward adjustment in housing
prices and at the same time enable banks to clean their balance sheets
and acquire the needed liquidity to resume their lending.

Many leading banks have announced record profits in spite of a
faltering economy and their direct bailout by the government. Yes,
this has made banks very profitable, as they were able to unload
assets at values that may have exceeded market values. But always
remember, there is no free lunch. This has all been on the backs of
the American taxpayer.

Bernanke’s policies can be best characterized as distortionary. During
2002-2004, he was a party to forcing interest rates to the lowest
levels in the post-war period. Consequently, unchecked monetary
expansion led to the worst economic and financial crisis of the post-
war period. The fiscal cost of the crisis has been translated into
record fiscal deficits of about 10-13% of gross domestic product (GDP)
in 2009-2010; unemployment rose to 10%; and real incomes of workers
and pensioners fell significantly.

Bernanke simply blamed the crisis on regulators, and through his
unprecedented bank bailouts and purchases of MBS, he made the large
banks profitable in spite of the fact that the same banks would have
simply disappeared without government bailouts.

The direct purchase of toxic assets has distorted market mechanisms
and has made insolvent banks become highly profitable, pushing up the
price of their traded shares. A central bank is not supposed to buy
toxic assets from banks and keep them on its balance sheet. A central
bank buys only short-term government issues or rediscounts prime paper
for short periods. Through its monetization of bank losses, the
central bank inflicts a quasi-fiscal cost on the government,
undermines banking legislation and social equity principles, distorts
the market mechanism, increases moral hazard, and prevents an orderly
resolution to unwind the impaired assets of banks.

Bernanke’s reasoning has been that monetary policy with near-zero
interest rate was too restrictive during a financial crisis. He has
adopted the position that such unorthodox monetary policy could be
aggressively pursued as long as inflation was not pronounced. At that
time, Bernanke would start tightening monetary policy. If he plans to
fight inflation, why should he create it in the first place? And which
inflation would Bernanke fight anyway? That is the big dilemma.

Bernanke has always considered core inflation as the relevant measure,
that is, a measure excluding food, energy, and asset prices. In his
recent testimony to the US Congress on February 24, 2010, Bernanke
maintained "that inflation will be subdued for some time. ... In
addition, according to most measures, longer-term inflation
expectations have remained relatively stable".

Hence, according to Bernanke, inflation was subdued even though during
2009 gas prices rose by 55% and most food prices rose by over 25%. In
every testimony during his tenure as chairman of the Fed, Bernanke has
always believed that inflation was subdued. It would seem that he was
not aware of the damage caused by inflation to the economy.

Housing price inflation, although irrelevant for Bernanke’s Fed, has
pushed housing prices, property taxes, and rents far beyond average
incomes. The outcome was mortgage defaults, foreclosures, banking
collapse, bailouts, and the Bernanke purchase of $1,025 billion of
toxic MBS. Still more uncertainties loom ahead as implications of
forgotten housing inflation are still unfolding. Similarly, Bernanke
ignored energy and food price inflation.

Although the Fed could instantaneously, or electronically, buy over $1
trillion of MBS, banks are not as "instantaneous" as the Fed. They
could not instantaneously push through the economy the money for their
MBS sales. Would-be borrowers could not get this money as
instantaneously as the Fed wished; and the economy could not grow as
instantaneously as Bernanke wanted. Instead, banks had accumulated
$1.2 trillion of excess reserves at the Fed in February 2010 compared
with less than $2 billion prior to September 2008.

With the credit-to-GDP ratio at 350%, a meltdown of subprime loans,
the corporate default rate at its highest, and the number of problem
banks exceeding 700, it would be hard to see how banks could inject
instantaneously and profitably huge amounts of liquidity into the
economy. If these excess reserves were released to the economy, they
would have created financial disorder.

Fortunately, banks discovered, albeit belatedly and at a high cost,
that they were not in business to shovel free and instantaneous money
created by the Fed to consumers. They had learned a lesson. During
2002-2007, their financial position deteriorated significantly, and
some reputable long-established banks even disappeared altogether. So
the Fed decided to circumvent banks and directly buy consumer loans
from finance companies. Hence, besides transferring mortgage risk to
the Fed’s balance sheet, the Fed added the risk of subprime consumer
loans to the Fed’s balance sheet.

The Fed's actions in August 2007 to re-inflate the economy and inject
massive liquidity merely further damaged the economy. While the likes
of economist Joseph Stiglitz and investor George Soros have attributed
the financial crisis to the Fed's distortionary policies in 2001-2004,
Bernanke has continued to deny any responsibility.

In August 2007, the Fed should have recognized the consequences of its
past mistakes, which allowed unchecked credit expansion, the free fall
of the US dollar, and virulent housing speculation. It should have
accepted the view that housing and asset bubbles could not burst
without unavoidable consequences for the banking system and the
economy. The Fed could have instead followed a restrictive monetary
stance allowing interest rates to be market-determined, housing prices
to adjust, and banks to assess risks.

Such a policy would have avoided the commodity inflation that followed
August 2007. The economy might not have experienced such a deep
recession; and the recession could have been less protracted as prices
would have adjusted faster, real supply would have been enhanced, and
with monetary stability and greater impact on real supply, the economy
could have made a faster recovery. The US economy has been, and is in
need of more savings and investment, and not more consumption.

The Fed's monetary mismanagement during the past decade has undone two-
decade of economic prosperity and has spread financial disorder not
only in the US, but also in Europe and even further afield. It has
pushed US public debt to almost $15 trillion, penalizing future
generations. While it is a fact that a central bank can create money
instantaneously and at zero cost, the long-term effects of this are
invariably ruinous. Bernanke's announcement on February 24, 2010, that
interest rates will be kept at near-zero rate for a long period again
boosted markets. Free money from the Fed will continue to sustain
speculation in equities, commodities, and currencies and redistribute
free wealth to financial institutions such hedge funds, equity funds
and banks, or Wall Street, at the expense of workers, or main street.

It may still take some time for the Fed to realize that near-zero
interest rates can only prolong distortions in the economy and may not
be conducive to economic growth and employment creation. As in the
recent past, it may only set the foundation for another financial
crisis. The Fed appears to have lost control of monetary policy and
has little choice at this juncture except to keep interest rates
depressed and print money without limit to avoid further pressure on
fiscal deficits emanating from higher interest rates. With US debt
expanding to $15 trillion, a substantial rise in interest rates can
only exacerbate fiscal deficits.

Caught between President Barack Obama's unorthodox fiscal expansion
and Bernanke's unorthodox monetary policy, the US economy may yet be
stalled in a period of prolonged stagnation and inflation. There are
uncertainties on how the US will cope with record fiscal deficits -
through inflationary tax or through higher tax rates. Either
alternative would impede economic growth.

Moreover, distortions from unorthodox monetary policies could damage
savings, capital accumulation, and economic growth. Fiscal and
monetary expansion has created excessive demand, as reflected by
external current account deficits and high inflation in essential
commodities. Producers are hardly motivated to expand real supply when
the cost of storing commodities and obtaining working capital becomes
negligible; they have the ability to maximize their profits through
higher prices. They will curtail real supplies and hike prices.

They know that higher prices will always be accommodated by the
central bank through greater monetary injection. Consumers, facing
constantly higher prices for subsistence products such as energy and
food, will reduce their real food intake and forgo spending on non-
essentials. Such cuts in real spending will depress many sectors for
which demand is highly income elastic.
Despite Bernanke's views that inflation has been subdued, American
consumers have suffered dramatic cuts in essential products due to a
manifold increase in food prices, and the number of people that
receive food relief (in the form of Food Stamps) soared to nearly 40
million in 2009. The combination of rising prices, falling real
supplies, and falling real demand will keep the economy in a prolonged
period of stagflation until the government decides to restrain
monetary policy.

In sum, near zero interest rates may make loans unusually cheap;
however, they have pushed gold prices past $1,100 an ounce, oil prices
beyond $80 per barrel, and food prices up and up. In contrast,
relatively stable monetary policy kept oil prices at $18 a barrel and
gold prices at $260 an ounce for about two decades.

Social unrest has started in Europe with strikes taking place in a
number of countries. Workers have realized that they have lost
significant purchasing power and cannot put the same amount of food on
the table for their children. If social unrest and labor strikes
spread in the US, as in the 1970s, then unemployment could become
unmanageable and recovery could be disrupted even further.

In the late 1970s and early 1980s, then Federal Reserve chairman Paul
Volcker was able to restore long-term monetary stability that brought
two-decades of economic growth. Volcker has recently proposed
regulation to prevent proprietary trading by banking institutions as a
way to enhance credit intermediation by banks. In other words, banks
would have to hold their assets in the form of loans and bonds and not
in form of equities or commodities.

It appears that a rule that restores orthodox and safe money policy by
the Fed would help financial stability and economic growth far better
than a rule that restricts the composition of banks' portfolios. With
near-zero interest rates, banks are more enticed into speculation in
commodities and equities. In an environment characterized by
overleveraged corporations, households, and governments, high rates of
default, and rates of interest rate that are kept artificially low by
the central bank, banks have little opportunity for safe and
profitable lending. They seek profits in trading activities in order
to remain in business.

In short, it would appear that the Fed may need a modified Volker rule
even more than the commercial banks.

Hossein Askari is professor of international business and
international affairs at George Washington University. Noureddine
Krichene is an economist with a PhD from UCLA.

(Copyright 2010 Asia Times Online (Holdings) Ltd. All rights
reserved.

http://www.atimes.com/atimes/Global_Economy/LC04Dj02.html

Posted: March 3, 2010
Toyota's woes jumble market
Ford, GM, Chrysler all post gains in Feb. sales
BY BRENT SNAVELY
FREE PRESS BUSINESS WRITER

Toyota's recall troubles are leading to a historic shakeout in the
U.S. auto market that has Ford rising to the top, and is allowing
General Motors and Chrysler to make some gains following their
bankruptcies.

Sales of Toyota cars and trucks, following the automaker's recall
woes, fell 8.7% in February and are now down 12.4% for the year.

That led the Japanese automaker to announce new incentives on Tuesday.

The decline has had other automakers scrambling to snap up their
customers, and some -- such as Ford, Nissan, Honda and Hyundai -- are
doing better than others.

The shakeout was most evident in the midsize car segment.

Sales of the Camry, which was the No. 1-selling car in the U.S. in
2009, fell 19.8%. The longtime best-selling car fell to fifth place in
February.

Sales of the Honda Accord jumped 25.3%, landing the car in the No. 1
spot.

And sales of the Ford Fusion surged 116.5%, putting the Fusion in
third place and in spitting distance of the Camry's No. 2 spot for the
year.

More signs of rebound
Overall, U.S. consumers purchased 13% more new cars and trucks in
February.

While that suggests the economy is on the mend, the increase was less
than expected as snowstorms and Toyota's recall troubles slowed down
the industry's recovery.

"We really believe the gradual economic recovery in the U.S. remains
on track," said Mike DiGiovanni, GM's executive director of market
analysis.

The seasonally adjusted annual rate, or SAAR, for February was 10.38
million vehicles. That's down from 10.78 million in January and is the
lowest industry selling rate since September.

The SAAR indicates what sales would total for the whole year if demand
remained constant over 12 months, adjusting for seasonal factors. It's
an easy reference to compare how the market is performing month to
month.

"There was a lot going on this month, including some pretty bad
weather," said Ford sales analyst George Pipas. "It is difficult to
get a clear reading on what the real industry sales rate is."

DiGiovanni said sales probably would have been 5% higher without
snowstorms that dumped more than 40 inches of snow in some
Northeastern cities.

Toyota a touchy subject
GM and Ford were reluctant to talk much about the sales they gained
from Toyota as the Japanese automaker struggled to contain the damage
caused by its recall of more than 8 million vehicles.

"We got our fair share of Toyota sales," DiGiovanni said.

Sales increased 12.2% for GM but they increased even more, 32%, for
GM's four core U.S. brands, Chevrolet, Cadillac, Buick and GMC.

Much of the increase was because of demand for new crossovers such as
the Chevrolet Equinox, which jumped 133%, and the Cadillac SRX, which
saw sales more than quadruple.

But Ford was the big winner for the month with a 43.4% sales gain that
was more than three times as strong as the industry's increase.

When asked about how much it benefited from Toyota's troubles, Ken
Czubay, Ford's vice president of U.S. marketing sales, would only say
vehicles such as the Ford Fusion and Mercury Milan, which are cross-
shopped by Toyota customers, were among Ford's top performers.

Ford is 'pumped'
Ford also outsold GM for the first time since 1998.

In all, Ford outsold GM by 429 cars and trucks.

Ford beat GM's monthly sales tally in 1998 and in 1970; both times, GM
was battling a UAW strike.

"Ford is pumped," said Jim Seavitt, owner of Village Ford in Dearborn,
who was at the Geneva Motor Show mingling with top Ford executives.
"The mood is great."

While Ford's sales were boosted by a 74% surge in sales to commercial
fleet customers, the automaker still posted an impressive 28% retail
sales gain.

"Ford invested heavily in the product lineup several years ago and it
is now paying off," said Jesse Toprak, vice president of industry
trends for TrueCar.com.

Chrysler posts a gain
In February, Chrysler reported its first monthly sales increase since
December 2007.

Chrysler sold 0.5% more vehicles in February than a year ago.

Sales of four car models surged more than 50%, including Chrysler
Sebring, up 118%; Dodge Avenger, up 78%; Chrysler 300, up 62%, and
Dodge Charger, up 55%.

Contact BRENT SNAVELY: 313-222-6512 or bsna...@freepress.com. Staff
writer Greg Gardner contributed to this report.

http://www.freep.com/apps/pbcs.dll/article?AID=/20100303/BUSINESS01/3030352/1322/Toyotas-woes-jumble-market&template=fullarticle

Mar 03, 2010

"The Net Fiscal Expenditure Stimulus in the US 2008-2009"

Why has the response to fiscal stimulus been so hard to detect?
Perhaps because, on net, there wasn't much stimulus. According to this
research by Joshua Aizenman and Gurnain Kaur Pasricha, the federal
stimulus filled holes created in state and local budgets, and that was
helpful -- I don't think the article does enough to point out what
would have happened if the federal government had not offset these
cuts. But how much did the stimulus do over and above simply simply
offsetting the negative effects of cuts at the state and local
government levels? Apparently, not much:

The net fiscal expenditure stimulus in the US 2008-2009: Less than
what you might think, by Joshua Aizenman and Gurnain Kaur Pasricha,
Vox EU: Bailout packages have dominated political debate in the US and
elsewhere. The global financial crisis led to a massive bailout of the
US financial system and significant fiscal stimulus efforts by the US
federal government to offset the resulting severe economic downturn.
The sheer size of the federal commitments, at a time when the
unemployment reached two digit figures, has led observers to question
the efficacy of fiscal policy. Moreover, questions were raised with
respect to the size of the fiscal multiplier in the US, as well as
about possible adverse effects of higher future debt overhang (see de
Resende et al. 2010, Barro and Redlick 2009, Spilimbergo et al. 2009
and the references therein).

Given that the counterfactual of the performance of the US economy in
the absence of the fiscal stimulus is hard to ascertain, one may thus
question its effectiveness, and hence the logic of continuing it.
Before taking a position on these vexing issues, it is vital to
ascertain the net size of the fiscal expenditure stimulus of the real
sector. This issue is of key importance in a federal system like the
US, where the fifty states are restrained from borrowing in
recessions, and frequently refrain from raising taxes at times of
collapsing tax bases. While stabilising the financial system is useful
in preventing bank runs, deepening credit constraints facing key
sectors like local government expenditures imply that financial
bailouts would not prevent, in the short-run, a sizable contraction of
aggregate demand.

In order to address these issues, in recent research (Aizenman and
Pasricha 2010) we analyse the patterns of fiscal expenditure of the
federal government, the state and the local governments, and the
consolidated fiscal expenditure. We distinguish between the “pure
fiscal expenditure” and the published total expenditure. The “pure
fiscal expenditure” or simply, fiscal expenditure of the textbook
variety is defined as the sum of government consumption and government
gross investment whereas the published total expenditure equals this
pure fiscal expenditure plus transfers. Excluding transfer payments
(i.e. transfers to financial sector and automatic stabilisers like
higher unemployment benefits that were a consequence of the higher
unemployment levels) allows us to consider the impact of the
discretionary fiscal stimulus.1 That is, “pure fiscal expenditure” is
the government expenditure relevant for computing the Keynesian fiscal
multiplier. While a large literature defines countercyclical fiscal
policy as one with positive correlation between fiscal surplus and
output, we focus on actual government spending. We agree with
Kaminsky, Reinhart and Vegh (2004) that one needs to focus on
government instruments to smooth business cycles, not on outcomes like
fiscal deficit, that are endogenous. For example, the government may
be raising tax rates in the recession and cutting expenditure, yet
running a fiscal deficit because the tax base is smaller.

Figure 1a reports the seasonally adjusted patterns of the pure fiscal
expenditure in the US between 1995 and 2009, at three levels: (a)
consolidated, (b) federal, and (c) state and local (all data are from
Bureau of Economic Analysis (BEA) website). Figure 1b plots the real
expenditures relative to their respective values in the third quarter
of 2008. The Figures reveal that during the crisis, state and local
fiscal expenditures dropped from $1547 billion in real terms in 2008Q3
to $1545.5 billion in 2009Q3 while the federal fiscal expenditures
rose from $991.6 billion to $1043.3 billion over the same period. The
consolidated fiscal expenditures therefore increased by a mere $48.9
billion in real terms between 2008Q3 and 2009Q3. Moreover, all the
three series fell before rising – as the economy was in a tailspin in
the first quarter of 2009, both federal and state fiscal expenditures
were falling with it.

Figure 1a. “Pure” fiscal expenditures (consumption + gross investment)
(Billions of 2005 US dollars, seasonally adjusted)

Figure 1b. Pure fiscal expenditures (2008Q3 = 100)

Figure 2 plots the fiscal expenditures plus transfers for each level
of government. During the crisis, from 2008Q3 to 2009Q4, state and
local fiscal expenditures plus transfers rose by $20.43 billion. The
federal fiscal expenditures plus transfers increased by $415.39
billion, resulting in a net increase of the consolidated expenditure
plus transfers.

Figure 2a. Total expenditures (Pure fiscal expenditures + transfers)
(Billions of 2005 US dollars, seasonally adjusted)

Figure 2b. Total expenditures (pure fiscal expenditures + transfers)
(2008Q3 = 100)

In order to better understand the actual magnitude of the fiscal
stimulus, we proceed by focusing on the patterns of the three
(consolidated, federal, and state and local) fiscal expenditure time
series relative to GDP. Considering policy lags, fiscal expenditure
today may reflect decisions undertaken a period ago, based on GDP at
that time. Figure 3 reports the three fiscal expenditure time series,
normalised by four-quarter lagged GDP (Each chart reports the actual
time series, the predicted series of one-step-ahead forecasts using
the appropriate ARIMA structure, and the 95% confidence interval
around the predicted value). It reveals that the consolidated fiscal
expenditure was well within the confidence interval of prediction for
the entire time period between 2006Q1 and 2009Q3. This was largely
because even as federal expenditures were rising, state and local
government expenditures went into freefall, stabilising only after
2009Q1. In fact, for all of 2008, state and local fiscal expenditures
were significantly below what could be predicted using historical
data. The figures clearly reveal that the fiscal expenditure stimulus
did not expand the consolidated fiscal expenditure above the predicted
level.

Figure 3. Pure fiscal expenditures/lagged GDP; 1995-2009

In Figure 4, we examine the actual and predicted values of fiscal
expenditures plus transfers, along with the confidence intervals
around one-step-ahead predictions. While the consolidated fiscal
expenditure plus transfers was outside the confidence interval in two
of the last five quarters, it exceeded the upper bound by at most 0.6
percentage points, and fell back within the confidence interval in
2009Q3. Thus, even taking into account the transfers to the financial
sector and the automatic stabilisers built into the system, the
federal stimulus did not expand the consolidated fiscal expenditure
significantly above the predicted level. Even this limited impact may
now be over.

Figure 4. (Pure fiscal expenditures+ transfers)/lagged GDP; 2006-2009.

Obstacles for net stimulus

The case for net stimulus in the US is debatable. On the one hand, if
the US is already in a robust recovery, as is presumed by more
optimistic observers, then net fiscal stimulus may be redundant, and
could lead to inflationary pressures down the road. On the other hand,
double digit unemployment, and uncertainty regarding the strength of
the recovery, may suggest the need for a second US federal fiscal
stimulus package. Independently of this debate, understanding the
reasons for the lack of greater net fiscal expenditure stimulus in the
aftermath of the deepest recession of the last fifty years is
essential. One explanation is provided by the moral hazard concerns
associated with common pool challenges of a fiscal union. Another
explanation for the lack of a larger stimulus is that the present
trajectory of the US public debt/GDP, in the absence of concrete plans
for fiscal consolidation, is a cause for concern.

The limits on state borrowings in a federal union may be rationalised
by the concern that the absence of such limits may induce competitive
borrowing by states, with the expectation that the federal government
will bail them out if necessary.2 This is an important concern in a
highly centralised federal union, where most of the tax revenue is
“owned” by the federal government (von Hagen and Eichengreen 1996).
There is also concern that transferring federal resources to states
with deeper tax revenue shortfalls would “reward” states that were
less prudent, and penalise states that have developed a more stable
tax base and accumulated precautionary reserves.

While valid, these considerations need not prevent a deeper federal
stimulus in the unique circumstances of an unanticipated, deep crisis
propagated by financial factors beyond the control of each state.
However, moral hazard concerns call for designing the federal fiscal
stimulus in ways that would not reward states for their past fiscal
mistakes. We suggest two schemes that would mitigate moral hazard. One
scheme would involve channelling funds to states on a per-capita
basis, so that each state gets an allocation proportionate to its
population, as long as the state government is committed to spending
these funds and not using them to repay past debts. One may expect
that the equitable per capita treatment of this scheme would
facilitate greater support for the net fiscal expenditure stimulus by
the Congress. Under this scheme, the federal government borrows for
the states, in a way that equalises the borrowing per-capita,
independently of the quality of the domestic public finance mechanism
of each state. Another scheme would involve making the allocation to
each state proportional to the federal tax revenue from that state, on
average during the few years prior to the crisis.

Another concern restraining public support for greater federal
stimulus may be the long run implications of a net stimulus, i.e. the
resulting increase in future debt overhang. Observers noted that even
before the crisis, the public debt trajectory was unsustainable, and
fiscal reform was needed (Auerbach and Gale 2009). Recognising the
gravity of the recession induced by the financial crisis may call for
coupling any federal fiscal stimulus with outlining a credible medium-
term plan for fiscal consolidation. In fact, independent of the fiscal
stimulus triggered by the great recession, concerns about the future
path of the public debt/GDP remain a serious policy challenge for the
US.

To summarise, so far, the federal fiscal expenditure stimulus has
mostly compensated for the negative state and local stimulus
associated with the collapsing tax revenue and the limited borrowing
capacity of the states. While this is a significant accomplishment,
the net effect is that the consolidated fiscal expenditure stimulus is
small relative to the sharp fall in private aggregate demand.
Consumption plus gross investment expenditures of all levels of the US
government were only $47.6 billion higher in 2009 than in 2008 whereas
total expenditures (which include transfers) were $330 billion higher.
Thus, the fiscal expenditure stimulus did not manage to provide a
viable cushion for the negative stimulus associated with private
sector’s declining demand. This observation is pertinent in explaining
the anaemic reaction of the overall US economy to the alleged “big
federal fiscal stimulus”.

References

Aizenman, Joshua and Gurnain Kaur Pasricha (2010), “On the ease of
overstating the fiscal stimulus in the US, 2008-9”, NBER Working paper
15784.
http://www.nber.org/papers/w15784
Auerbach, Alan and William Gale (2009), “An update on the economic and
fiscal crises: 2009 and beyond”, Brookings Papers, October.
http://www.brookings.edu/papers/2009/06_fiscal_crisis_gale.aspx
Barro, Robert and Charles Redlick (2009), “Design and effectiveness of
fiscal stimulus programmes”, VoxEU.org, 30 October.
http://www.voxeu.org/index.php?q=node/4144
De Resende, Carlos, René Lalonde, and Stephen Snudden (2010), “The
power of many: assessing the economic impact of the global fiscal
stimulus”, Bank of Canada Discussion Paper No. 2010-1.
http://www.bankofcanada.ca/en/res/dp/2010/dp10-1.pdf
Kaminsky, Garciela, Carmen Reinhart and Carlos Vegh (2004), “When it
rains, it pours: procyclical capital flows and macroeconomic
policies”, NBER Macroeconomics Annual, Mark Gertler and Kenneth Rogoff
(eds.), Cambridge, MA: MIT Press.
http://www.nber.org/papers/w10780
von Hagen, Jürgen and Barry Eichengreen (1996), “Federalism, fiscal
restraints, and European Monetary Union”, The American Economic
Review, 86(2):134-138.
http://www.jstor.org/pss/2118110?cookieSet=1
Spilimbergo, Antonio, Steve Symansky, and Martin Schindler (2009),
“Fiscal multipliers”, IMF Staff Position Note, SPN/09/11.
http://imf.org/external/pubs/ft/spn/2009/spn0911.pdf
The Economist (2010), “Greece and the euro”, 18 February.
http://www.economist.com/opinion/displaystory.cfm?story_id=15545924

1 This observation does not negate the possible benefit of stabilising
the financial system by means of federal bailouts. Yet, liquidity
transfers to financial institutions do not amount to a net fiscal
stimulus that increases the fiscal expenditures in ways that
compensate for the impact of borrowing constraints on state and local
governments.

2 Examples for gaming a Federal Union by means of “competitive
borrowing” include Argentina, where there have been frequent federal
bailouts of provincial governments, leading ultimately to higher
inflation, and to the ultimate financial meltdown of the early 2000s.
See also the recent concerns regarding the euro zone’s rescue plan for
Greece (The Economist, Feb 18th 2010, Greece and the euro).

Posted by Mark Thoma on Wednesday, March 3, 2010 at 02:51 AM

http://economistsview.typepad.com/economistsview/2010/03/the-net-fiscal-expenditure-stimulus-in-the-us-20082009.html

[chhotemianinshallah]

Page last updated at 07:01 GMT, Wednesday, 3 March 2010

Australian economy ends 2009 with strong growth

The strength of Australia's mining sector helped it to avoid
recession
Australia's economy grew strongly in the final three months of 2009,
capping a year in which it was the only major economy to avoid
recession.

The nation grew 0.9% from the July-to-October quarter, its biggest
expansion since March 2008, the government's statistics bureau said.

Australia's growth was "the envy of the developed world," Treasurer
Wayne Swan said.

For the whole of 2009, Australia's economy expanded 2.7%.

By contrast, the economies of the UK, Germany and Japan shrank 5% in
2009, and the US contracted by 2.4%.

In the fourth quarter of 2009, Australia said machinery and equipment
spending surged almost 11% from the previous three months.

It avoided the worst of the slump due to huge government spending and
massive Chinese demand for its commodities.

Stimulus spending

Since the end of 2008, the government has introduced a number of multi-
billion dollar stimulus packages, including increased infrastructure
spending and cash handouts to most Australians to lift consumer
spending.

Australia's economy only contracted in the final three months of
2008.

It therefore avoided recession, which is generally defined as two
consecutive quarters of negative growth.

This week, the central bank has raised interest rates, for the fourth
time since October, to 4% from 3.75% to cool its growing economy.

Australia was also the first developed nation to raise interest rates
- from 50-year lows - as the economic crisis eased.

http://news.bbc.co.uk/2/hi/business/8546717.stm

Toyota chief vs. the US, two cultures face off

The testimony of the president of Toyota before a congressional
committee highlights the differences in corporate cultures. In Japan,
the head of a corporation is expected to ensure harmony among
employees and boost morale rather than be an economic expert.

Wednesday, March 03, 2010By Asia News

Tokyo – The hard grilling of Toyota president Akio Toyoda, 53, by a US
House congressional committee (pictured) on 24 February shows how
different the corporate cultures of Japan and the United States are.
Yoshi Inaba, chairman and CEO of Toyota Motor Sales, U.S.A., and Ray
LaHood, US Transport secretary, also appeared before the committee to
answer questions about the safety of Toyota cars, recently raised by a
series of accidents caused by flaws affecting breaks, gas pedals and
electronic fuel pumps. In recent weeks, Toyota was forced to recall
8.5 million cars because of these and other problems. In a committee
room, crowded with reporters, photographers and people from around the
world, congressmen asked about how much the company’s top management
knew about these problems, whether they concealed them or failed to
inform Toyota customers of what was at risk.

Since 1998, Toyota has been the world’s biggest automaker, employing
hundreds of thousands of people in Japan and around the world. In
article in Washington Post, Mississippi Governor Haley Barbour said,
“When I announced three years ago that Toyota would open a U.S.
vehicle assembly plant in Blue Springs, Miss., I said Toyota was the
world's premier automobile manufacturer. I still believe that.” In the
same piece, the governor noted that the Japanese company had
operations in ten American states, with some 200,000 employees.
However, because of serious problems with some cars and resulting
deadly accidents, the company was forced to recall millions of cars
and the government had to act.

Two tragic examples

Two women told the members of the congressional committee their
stories. One spoke to the committee; the other stood silent, letting
the facts speak for themselves.

Rhonda Smith, 65, a social worker from Tennessee, said that in 2006
she was driving her car, a Toyota Lexus, when it suddenly surged. She
slammed on the emergency brake and put the car in reverse, but it
continued to speed down the freeway. “I prayed for God to help me.”,
she said, trying to hold back tears.

After travelling six miles (ten kilometres), Smith said, the car began
to slow, by itself, and by the time it reached 33 mph (53 kph), she
was able to pull over and turn the engine off.

“Shame on you Toyota for being so greedy,” she told at Toyoda and
Inaba, looking straight at them. “Shame on you NHTSA for not doing
your job!” she added, looking at Secretary Ray Lahood.

After her narrow escape, she informed both Toyota and the NHTSA
(National Highway Traffic Safety Administration) of her mishap, to no
avail.

A grandmother from San Francisco, Ms Fe Lastrella, was also present,
but she did not speak. That was unnecessary. Everyone had heard from
media about the horrible accident of 28 August 2009 that wiped out her
family. On that day, 45-year-old Mark Saylor, a California public
servant, was driving a rented Toyota Lexus. He was on holiday and
taking his wife Cleofe, their 13-year-old daughter Mahala, and 38-year-
old brother-in-law Christ Lastrella, on a trip. High speed (160 km)
was blamed for their deadly accident. “Hold on! Pray!” Mr Saylor was
heard saying before the recording of the 911 call from Chris’ mobile
phone ended. The car went off the road and into the bank of a dry
riverbed. The floor mat had trapped the gas pedal. No one survived.

Speaking to reporters, Ms Lastrella said, “I'm here to speak for my
four children and for the safety of the consumers through the world.”
I “don't want another family to suffer like we are suffering.”

Akio Toyoda, the unlucky “prince”

Toyota’s president was able to appease the members on the
congressional committee by showing contrition and exhibiting a
cooperative attitude. He repeatedly apologises for the large recall
and extended his condolences to Saylor family. “I will do everything
in my power to ensure that such a tragedy never happens again,” he
said.

Even the harshest critics were mollified by the president’s
explanations and during his testimony they avoided any aggressive
behaviour since Toyota admitted its guilt and acknowledged that it
sped up production at the expense of safety. Toyoda pledged his
company would go back to its old philosophy, which is to give absolute
priority to consumer needs and safety.

Akio Toyoda’s appointment on 23 June last year was received with
enthusiasm by the Toyota family. As the grandson of the company’s
founder, he was greeted like a “prince”. At a time when the company
was still expanding, a spirit of harmony prevailed within. However,
just six months later, the carmaker had to face its greatest crisis in
70 years of existence.

No one relished the idea of appearing before the US Congress. At the
beginning, it was thought that Inaba could do the job. However, a
request by the chairman of the congressional committee convinced the
head of Toyota to appear “voluntarily”.

On his arrival in Washington on 20 February, he refused all interviews
to concentrate on his testimony before Congress, trying to understand
how US culture worked. He won . . . for the time being.

A culture of harmony

Ms Smith’s traumatic experience explains her emotional outburst but
does not justify her harsh moral judgement. Cultural differences
rather an ethics matter more in this issue. A Western corporate leader
operates according to different cultural principles compared to his
Japanese counterpart.

In Japan, harmony is the highest value. Company executives are rarely
management professionals but act like cheerleaders for the rank-and-
file. “In a Japanese company, the top man isn't the one calling the
shots. He is looked up to as a symbol, a bit like the emperor,” says
Toyoaki Nishida, professor of business at Chubu University. Even
though the company president wields no power, it would be wrong to
consider him powerless. Like the emperor, who is seen as the father
of the nation, top executives are psychologically perceived as the
head of the company-as-family.

Parissa Haghirian, associate professor of International Management at
Sophia (Catholic) University in Tokyo, said that Japanese companies
are group-oriented, and generally don't look to one person to steer
the whole, unlike the West, where executives are hired for ideas and
leadership. Japanese top executives are team leaders who harmonise
everyone's views to avoid conflict and create consensus.

In Japanese, this is called ‘nemawashi’, which translates as ‘laying
the groundwork around the roots’ (behind the scenes) before planting
the tree. Neglecting nemawashi is considered a foolish and sure way to
walk into failure.

Although it is bureaucratic and time-consuming, but once a decision is
made, everyone is on the same page, and action proceeds quickly
without infighting.

This culture enabled Toyota to expand and reach its levels of
efficiency. When Kiichiro Toyoda, Akio’s grandfather, set up the
Toyota Motor Company in 1950, he called it Toyota (slight alteration
of the family name) not to honour his family, but rather as a way to
see its customers as part of the family with the right to be treated
as such.

At a press conference, Toyoda said he was ready to go back to the
principles of the "Toyota Way", and to pay more attention to customer
needs than sales figures.

The irony is that in an international economy, loyalty to Japanese
culture calls for dialogue with other cultures, that of the West for
instance, more specifically that of the United States. The two
cultures are not opposed to one another, but are instead
complementary.

Symbolically, Japan’s culture stood alongside Mr Toyoda as he spoke in
the congressional hearing. His testimony appears to have been a
success. Indeed, at the end he said that his company would operate in
the United States in accordance with American cultural values.

http://www.speroforum.com/site/article.asp?idCategory=33&idsub=128&id=28285&t=JAPAN+%96+UNITED+STATES+++Toyota+chief+vs.+the+US%2C+two+cultures+face+off

Dangerous Thoughts
Deaf To America
Dan Gerstein, 03.03.10, 12:01 AM EST
Why Democrats have lost the public's trust.

As I listened to the same tone-deaf talking points from the
congressional Democrats at the White House health care summit last
week, I was reminded of the classic excuse politicians use about their
comments being taken out of context. In this case, and many others,
the Democrats are suffering from the exact opposite problem--their
arguments and actions are not taking in the context of the times.
Indeed, over the past 14 months they have continually been trying to
jam a square political peg into a round historical hole. The result
has been a disastrous fit with the public mood and a deepening
credibility gap.

This failure to factor can be traced back to the watershed vote on the
stimulus bill, the Democrats' single big accomplishment in the Obama
era. The Democrats considered the $787 billion recovery package not
just an essential step for saving the economy from depression, but
also a first strike in White House's "big bang" strategy. It would, by
their way of thinking, build political momentum for a range of other
major Obama agenda items like climate change. But for much of the
public, the poorly conceived and marketed stimulus plan was the last
straw in the unsettling explosion of government and debt that began
with the bipartisan bailout bonanza in the waning days of the Bush
administration.

Ever since that dividing line was crossed, the Democrats have seemed
to be operating in a hermetically sealed political vacuum, impervious
to the public's changing post-crash priorities and diminishing
tolerance for big government solutions. The complex, sector-remaking
cap-and-trade bill is a perfect example. That plan may have been a
tough but closeable sell in a stable economy, given the short-term
sacrifices we would have to make to secure the long-term rewards. But
it was a dead letter in a near-depressed economy with a mistrustful
electorate prone to believe the most damning attacks about higher
taxes and lost jobs. Yet the Democrats plowed ahead with a bill in the
House and only stopped when Senate moderates bolted.

That was nothing, though, compared to the multi-pronged Democratic
disconnect on health care. It was clear early on that the public
wanted the president and Congress to focus on the economy, especially
after the evidence mounted that the stimulus, whatever its disaster-
preventing benefits, was not going to spur job growth any time soon.
Yet the Democrats went ahead and devoted most of the last year to
health care reform, which only reinforced the growing perception that
Washington was still as arrogant and unresponsive as ever and that the
Democrats, like their predecessors, were still out for themselves and
their political aims.

Once that die was cast, it was obvious that the public's top priority
was reducing costs, and they had a right to expect that's what
Washington would try to do since that's how Obama sold his agenda. Yet
the Democrats on the Hill crafted a contradictory trillion-dollar
bill--it called for cutting costs by increasing spending--that was
largely seen as being about expanding coverage. And after all the
recent federal intrusions into the economy, the frustrated middle was
plainly skeptical about the federal government's ability to re-
engineer one-sixth of the American economy. Yet the Democrats came
forward with an incredibly intricate scheme that even they could not
explain.

The Republicans would like us to believe that this is just liberalism
run amok and that's why the public is rejecting the majority's agenda.
There is some truth to that, but it's far too simplistic an
explanation. If you look at the polling over the last several years,
especially on health care, you would see the problem is more temporal
than ideological. The backbone elements of Obama's health care reform
plan tested well in 2008, and many of them continue to do so--in
isolation. Even in late spring of last year, before the protests and
death panel hysteria, the public was fairly open to the public option.
But then events--and the Democrats' stubbornness and incompetence--
intervened.

Read All Comments (9)Post a CommentTo be specific: As the year went
on, and federal spending piled on, concerns about deficits heightened.
With even the modestly successful Cash for Clunkers program running
out of money, confidence in the Democrats' ability to deliver on their
sweeping reform promises plummeted. Following a series of sweetheart
deals for special interests and self-interested politicians to curry
favor, faith in the legitimacy of the process and the integrity of the
bill eroded. The more the Democrats wrote off these reasonable warning
signs as nothing but Republican fear-mongering, the more they drove
off the frustrated middle. Now most polls show only 35% to 40% of
Americans support the president's plan.

The full extent of the Democrats' contextual confusion was laid bare
at last Thursday's health care summit. Despite all the accumulated
evidence that the Democrats were pushing the wrong bill at the wrong
time, as well as the president's best efforts to reposition the
debate, Obama's congressional allies stuck to their unyielding and
ineffective script. Led by Pelosi, they repeated their same
unpersuasive arguments for universal coverage, recycled the same
hollow CBO numbers as a crutch and too often resorted to the same
partisan defenses in responding to what sounded like substantive
Republican criticisms. Obama at least made an effort to swim against
the tide, explaining why universal coverage was not just affordable
but necessary to bend the cost curve. The others seemed content--or
just resigned--to go down with the ship.

Those hell-or-high-water Democrats are banking on the context to
change again once they pass their bill. Their theory is that once the
program benefits kick in, the political benefits will soon do the
same. Public support will grow over time, the system will become as
ingrained and untouchable as Medicare and Medicaid, and this year's
election liability will gradually become a campaign asset. It might be
a plausible argument--if this were any other year, if health care were
the only issue dragging down the Democrats' credibility, if the anti-
government Tea Party movement had not gotten such traction, and of
course, if the bill ends up working reasonably well.

This is perhaps the greatest example of the Democrats' enveloping
myopia. They may reflexively put issues in silos, but average
Americans don't. Most voters are impressionistic, especially
independents and moderates of both parties. They look at the whole of
what you have done and the how of what you have done. If Democrats ram
through an unpopular trillion-dollar health care bill in this climate,
with Congress' approval rating at 15%, they may well cement their
image as the worst of Washington and sever their claim on the public's
trust for years to come. Even if ObamaCare delivers over time--and if
it avoids the substantial premium increases that the Massachusetts
universal care system has produced--it most likely will be too little
too late.

Again, consider the context. Trust in government--which has been
trending substantially downward since the crash of 2008--is in tipping-
point territory right now. A recent New York Times poll showed that
70% of Americans are angry or dissatisfied with how Washington is
handling the people's business; 80% said that members of Congress are
more interested in pandering to special interest groups than in
serving the needs of people who elected them; and 81% said members of
Congress across the board deserve to be thrown out. A new CNN poll out
this week goes a step further and shows that 56% of Americans now
think the federal government poses a threat to their rights, with even
37% of Democrats sharing that view.

Those numbers beg the question: Would the Democrats actually be better
off if their comprehensive health care bill does not pass? I tend to
think so, though as I argued last week, the best course for Democrats
would be to skip the all-or-nothing trap and pass a center-out bill
that contains the 80% of insurance reforms on which both sides already
agree. But that's a moot point: The Democrats are going for broke (in
more ways than one). The more salient question is when will the
Democrats start connecting the dots--and recognize that the American
people are not going to accept a government that is not willing to
heed their doubts.

Dan Gerstein, a political communications consultant and commentator
based in New York, is the founder and president of Gotham
Ghostwriters. He formerly served as communications director to Sen.
Joe Lieberman, I-Conn., and as a senior adviser on his vice-
presidential and presidential campaigns. He writes a weekly column for
Forbes.

http://rate.forbes.com/comments/CommentServlet?op=cpage&sourcename=story&StoryURI=2010/03/02/health-care-summit-democrats-popularity-opinions-columnists-dan-gerstein.html

http://www.forbes.com/2010/03/02/health-care-summit-democrats-popularity-opinions-columnists-dan-gerstein.html?boxes=opinionschannellighttop

Lisa Twaronite's This Week in Japan

March 3, 2010, 12:01 a.m. EST · Recommend (1) · Post:

Japan's fiscal quandary

TOKYO (MarketWatch) -- As Japan's fiscal woes deepen, the government
is caught between the proverbial rock and the hard place: It needs to
do something to lighten its debt burden, but it also needs to make
sure its steps don't end up choking companies or the economic recovery
at large.

Japan's government debt is more than twice the size of its gross
domestic product -- the highest debt-to-GDP ratio in the developed
world. On Tuesday, Japan's lower house of parliament approved a record
92.3 trillion-yen ($1 trillion) budget for the fiscal year that begins
April 1, to be financed with a record 44.3 trillion yen in new bonds.

Standard & Poor's said the same day that the Japanese government's
fiscal flexibility remains "hamstrung by already bloated fiscal
deficits and debt outstanding, while the Bank of Japan appears
hesitant to take further measures, such as inflation targeting or
increasing the liquidity supply." Citing similar reasons, the ratings
agency downgraded its outlook on the country's sovereign-debt rating
in January.

To be sure, Japan isn't on the verge of becoming the Greece of Asia --
over 90% of its outstanding government debt is held by domestic
investors, which certainly takes some of the edge off the urgency.

While "the long-term need for Japan to address its fiscal deficits is
real," Bank of Tokyo-Mitsubishi UFJ strategist Naomi Fink said in a
recent note to clients, "this simply means that the government must
decrease its balance sheet while the private sector must assume more
risk, instead of continuously hoarding cash and funneling money
abroad."

Prime Minister Yukio Hatoyama has pledged to come up with a fiscal
plan in June. The government-appointed team under the Tax Commission
began looking into reforming Japan's tax system last month and is
expected to come up with proposals by May.

Data released Monday by the Finance Ministry showed general-account
tax revenue fell 9% in January from the same month a year earlier, to
3.241 trillion yen. Tax revenues for the coming fiscal year are
projected to fall to 37.4 trillion yen, their lowest level since
fiscal 1984 -- and options for raising them appear limited.

The ruling Democratic Party of Japan has pledged not to raise Japan's
consumption tax -- currently at 5% -- until 2013. Although Japanese
Finance Minister Naoto Kan said last month he would be open to
debating sales-tax reform, raising the tax earlier would certainly be
politically unpopular.

The current government's campaign platform also called for reducing
the corporate tax rate for small and medium-sized businesses, to 11%
from 18%. But the government didn't take a position on the rate for
big companies, which now pay about 30%.

Last month, Hatoyama even said his government might consider taxing
companies' internal reserves -- which critics immediately said would
only prompt companies to put those funds to work outside Japan.

In a coincidence that could be a future trend in the making, Astellas
Pharma Inc. /quotes/comstock/!4503 (JP:4503 3,250, -25.00, -0.76%) /
quotes/comstock/11i!alpmf (ALPMF 37.35, +0.65, +1.77%) made headlines
this week for a going after an overseas takeover target. It launched a
hostile bid on Monday for OSI Pharmaceuticals /quotes/comstock/15*!
osip/quotes/nls/osip (OSIP 57.00, +0.36, +0.64%) valued at about $3.5
billion in a move aimed at further expanding into the U.S. oncology
market. See full story on Astellas' bid for OSI.

More debt
Meanwhile, one government official stepped up his calls this week on
the BOJ to directly lend the government money -- which Japan's public
finance law only permits with parliament's special permission. The BOJ
currently does buy government securities indirectly, via investors, as
part of its liquidity-boosting steps.

Japan's outspoken banking minister Shizuka Kamei repeated Tuesday his
call for the central bank to underwrite government bonds, so that the
government could issue more debt to support the economy.

"It would not be strange" for the BOJ to take such steps, Kamei said
at a regular press conference, according to Nikkei.

He added that budget shortfalls could affect the ability of the
government to implement fiscal policy in the future "unless the BOJ
deploys its financial resources."

The government and the central bank should "work as two wheels of one
cart" for the nation's economy, Kamei also said.

Indeed, keeping those wheels rolling in the same direction is a
necessary first step.

But at the same time, the government needs to be asking what the
economy is doing in its hell-bound debt cart in the first place.

Lisa Twaronite is MarketWatch's Tokyo bureau chief.

This Week in Japan

Feb. 24, 2010 Japan is more than a 'contrarian' story
http://www.marketwatch.com/story/japan-is-more-than-a-contrarian-story-2010-02-24
Feb. 17, 2010 Will Bank of Japan target prices?
http://www.marketwatch.com/story/will-bank-of-japan-target-prices-2010-02-17
Feb. 10, 2010 Tokyo investors focus on Toyota hearings
http://www.marketwatch.com/story/tokyo-investors-focus-on-toyota-hearings-2010-02-10
Feb. 3, 2010 Japan's fourth-quarter GDP will improve
http://www.marketwatch.com/story/japans-fourth-quarter-gdp-will-improve-2010-02-03
Jan. 27, 2010 Some investors see a different Japan
http://www.marketwatch.com/story/some-investors-see-a-different-japan-2010-01-27

Comments (10)

Check out the Community Commons
surfgeezer 15 hours ago-1 Vote (0 Up / 1 Dn)

The real quandry is if they don't use their debt to buy ours the Yen
will rise against dollar and yuan and exporters will be hurt. Expect
them to maybe start pressuring China to gt rid of the peg as that is a
big export market for them also.

Ron-Paul-supporter 15 hours ago+3 Votes (3 Up / 0 Dn)

Japan, the UK, Greece, Spain, Itally, Ireland, Argentina, Venezuela,
California, Illinois, New Jersey, New York, A slew of
municipalities.....the list goes on and on.

Irresponsible politicians will be feeling the heat this year like
never before. It won't be fun. I will be interesting.

AmericanPatriot 14 hours ago+2 Votes (2 Up / 0 Dn)

The real message to all of these countries, states, and
municipalities:

CUT THE STUPID WASTEFUL SPENDING OF BORROWED MONEY.

EM 15 hours ago+5 Votes (5 Up / 0 Dn)

Japan needs to bury Keynes and his absurd economic philosophy for
good. And they need to stop listening to the idiotic economists from
the US Treasury, academia and NGO's also.

I'm not sure how your math adds up, but a $1 trillion budget on the
back of about $450 billion in tax revenue is insane and unsustainable.
How much longer is Japan going to keep these nonsensical policies in
place? Another 20 years? When the national debt hits 300% of GDP?
400%?

Because of the low external funding levels for the debt and low
interest rates, they may be able to keep this ponzi scheme going for
longer than I believe, but their day of reckoning is coming and there
is no escape from it, just as their is none for the United States and
the United Kingdom. And no amount of financial engineering by the BOJ
is going to change that. Those governors are no more a "wizard behind
the curtain" than the fool we have here known as Bernanke who lives in
his own academic wonderland.

doomstar 13 hours ago+4 Votes (4 Up / 0 Dn)

Japan's day of reckoning might come sooner than expected given their
aging population cashing in--- which should cramp their govt's
spendthrift ways!

Freefall 14 hours ago+1 Vote (2 Up / 1 Dn)

At least Japanese can service their debt by themselves while we have
to rely on benevolence of foreigners. At a rate this admin is spending
money, we might reach on par with Japanese debt to GDP ratio within
few years.

AmericanPatriot 14 hours ago+4 Votes (4 Up / 0 Dn)

Japan is in FAR WORSE SHAPE THAN GREECE measured by its 200%
government debt to GDP ratio and the amount of debt is vastly larger.
As a result of profligate, irresponsible, and outright stupid fiscal
policies over the past two decades Japan has sunk into the economic
abyss and is now entering its third decade of malaise. In the interim,
its debts have ballooned, its stock market has crashed 80% from 38,000
to around 10,000, the personal savings rate has dropped to near zero,
Japan's export engine has sputtered, and it has guaranteed more of the
same to come - except it will be much worse.

Japan urgently needs to get its economic house in order by writing off
bad debt, cutting spending drastically, and getting out of the endless
stage of denial it has been stuck in since 1989.

doomstar 13 hours ago+4 Votes (5 Up / 1 Dn)

Japan's delaying (for years) of bad debt write-off trick has been
copied in the US with mark to mark, japan is the poster child for Ben
& co

gluesch 7 hours ago+1 Vote (1 Up / 0 Dn)

Their problem is easy to solve. The population is aging, they have no
kids, when they die the government will inherit the money. Shazzam the
debt is wiped out.

bdzeiler 3 hours ago+1 Vote (1 Up / 0 Dn)

Japan is a good lesson for what happens to a debt-bubble economy that
bursts... and what happens when fiscal/monetary policy is fruitlessly
applied for 20 years. Japan is where the US is going in the next 10
years. The only difference is that Japan is a country of net savers,
and the debt is mostly domestic. In the US, the situation is quite the
opposite, and thus much more precarious 10 years from now.

Meanwhile, all our crooked crony politicians will do is dole out pork
for their special interests and take campaign finance bribes from
their lobbyists. Anything to sustain the corrupt system for themselves
as long as possible.

http://www.marketwatch.com/story/japan-budget-highlights-fiscal-quandary-2010-03-03?reflink=MW_news_stmp

[chhotemianinshallah]

Reeling with the punches

Interview: The Insiders
Posted By SHARON ASCHAIEK, QMI AGENCY
Posted 2 hours ago

When a giant like Toyota hitsa road block, the impact resonates across
the land.

The multiple recalls by the world's biggest--and conventionally
considered the most safe and reliable--car company of about 8.5
million vehicles since November for issues such as brake problems,
sticking gas pedals and faulty floormats has s left countless people
car-less and raised questions about Toyota's credibility.

On Feb. 9, Toyota recalled 437,000 of its 2010 models of Prius--3,330
of which are owned by Canadians--Lexus HS 250hs and Sai (sold only in
Japan) due to brake system issues.

At the same time, it recalled 7,300 of its 2010 Camrys to investigate
a possible problem with its power steering hose and brake tube.

On Jan. 21, thecompany recalled eight different makes for possibly
faulty accelerator pedals--a move that affected 2.3 million vehicles
inCanada and the U.S.

"We're now at nine, 10 models mod els affected--where does it stop?
It's easier sier to count the ones not recalled," says autoanalyst
Erich Merkle. "The extent of the recalls is much more pervasive than
anything I've seen in automotive history."

What astounds Merkle, a Grand Rapids, Michigan-based industry expert,
more than the number of recalls and vehicles involved is thecompany's
handling--or mishandling--of theincidents.

Indeed, Toyota has been attracting heat for not addressing addressing
these problems sooner. The U.S. National Highway Traffic Safety
Administration (NHTSA) is now investigating Toyota, , and indicated it
received complaints about acceleration problems in the company's
vehicles as early as 2003.

Meanwhile, the U.S. Department of Transportation is formally looking
intothe brak braking system ofth thePrius, and the U. S. government's
House Committee on Oversight and Government Refo Reform is holding
Toyota hearings on Feb. 24--the first of three congressional hearings
to review all the Japanese automaker's recalls.

"At this point it's pretty disastrous. Customers start to question
whether Toyota knows what the problems are, and if it's being less
than truthful," Merkle says.

"It needs to get it all out there. We can't come back to this again in
two or three months."

Merkle has been actively observing the auto industry for 10 years,
and he has an acute ability for connecting the dots between forces in
the broader economy and occurrences in automotive history to current
and impending trends in the autobusiness. Unemployment numbers, new
home construction activity, , oil prices, retail sales numbers and
stockmarket activity into his in-depth analyses all figure of things
such as which cars will most jive with consumers, how U.S. vehicle
sales will unfold during the year, and how market share will splitup
between auto automakers.

His strong trackrecord of industry predictions on economics and the
auto industry, which are chronicled in his weekly newsletter, l The
Autoconomy Letter, makes Merkle an in-demand expert who regularly
speaks at a industry conferences and special events. Merkle also
frequently shares his insights in print, TV and radio interviews.
Perhaps the only time Merkle has been seriously caught off guard by
industry happenings was during the global economic downturn. While he
predicted in early 2007 that a slowdown in the U. S. housing industry
would impact automotive, he wasn't prepared for such a dramatic
decline that would include drastically lower carsales of numbers and
the bankruptcies bothGM andChrysler.

"The severity of it was far worse than anyone would have ever
expected, including me," he says.

While the industry has been rebounding, Merkle says GM and Chrysler
need tos eriously rev up their game. However, he's optimistic about
the prospects of Ford, which was won heaps of safety and quality
awards for many of its vehicles.

Similarly, Merkle is confident that Toyota, with its considerable
resources, has good odds of making a comeback.

"If one company can withstand it financially and in terms of sheer
size, it would have to be Toyota," Toyota he says. "If it were a
smaller business like Mitsubishi, it would be gone. But Toyota has a
lot to give before it's completely banished."

Article ID# 2476301

http://www.thepeterboroughexaminer.com/ArticleDisplay.aspx?e=2476301

REFILE-PREVIEW-Japan Q4 GDP seen +1.0pct q/q,+4.1 pct annualised
Thu Mar 4, 2010 5:32am EST
(Corrects third bullet point to add comparison period and
initial GDP estimate)

By Akiko Takeda

TOKYO, March 4 (Reuters) - The Japanese economy likely grew
slightly less in October-December than the government's initial
estimate due to a slower recovery in capital spending, a Reuters
poll of economists showed on Thursday. Gross domestic product (GDP)
for the fourth quarter likely
rose 1.0 pct, down from a preliminary 1.1 percent, based on the
median estimate of economists polled after the Ministry of
Finance said the fall in Japanese companies' spending on plant
and equipment slowed in that quarter. On an annualised basis, the
median forecast of 23 economists
polled is for a revised 4.1 percent expansion in the economy,
dwon from 4.6 percent in preliminary data released on Feb 15. The data
may provide little comfort to the government,
though, which faces waning public support due to political
funding scandals before upper house elections expected in July.
"Capital spending has been disappointingly slow to recover.
Companies will remain cautious at least until the end of this
financial year (in March)," said Takumi Tsunoda, senior economist
at Shinkin Central Bank. Economists expect capital spending to be
revised down to a
rise of 0.3 percent from a preliminary estimate of 1.0 percent,
which was first rise in seven quarters. In the MOF survey published on
Thursday, capital spending for
companies of all categories fell 17.3 percent in October-December
from a year earlier, slower than a 24.8 percent annual decline in
July-September. [JPBUSX=ECI] Japan pulled out of recession in April-
June, helped by a
rebound in exports and industrial output as well as a rise in
consumption on the back of the government's stimulus package. But
economists expect growth to slow early this year, as the
boost from the government's stimulus package will peter out. "We
expect the economy to hit a soft patch in the early half
of this year. Because wages are not growing, consumption will not
grow. The economy won't have an engine," said Tsunoda of Shinkin
Asset. Following are economists' forecasts for the revised
October-December GDP data:
----------------------------------------------------------------
OCT-DEC CAPEX INVENTORY GDP
GDP CONTRIB ANNUALISED
----------------------------------------------------------------
median 0.3 0.1 1.0 4.1
high 1.3 0.3 1.2 4.9
low -1.1 -0.2 0.7 3.0
----------------------------------------------------------------
BNP Paribas 0.3 -0.2 0.7 3.0
Mitsubishi Research -0.4 0.0 0.9 3.5
Deutsche Securities -0.9 n/a 0.9 3.6
Credit Agricole CIB 0.3 0.0 0.9 3.8
Japan Research -0.1 0.0 0.9 3.8
Nomura Securities 0.9 -0.1 0.9 3.8
RBS -0.2 0.1 1.0 3.9
Itochu Corp. 0.6 0.0 1.0 3.9
Citigroup -1.1 0.2 1.0 3.9
Barclays Capital 0.1 0.1 1.0 4.0
JP Morgan -0.3 0.1 1.0 4.1
Daiwa SB Investments 0.3 0.0 1.0 4.1
Shinkin Central Bank -0.2 0.1 1.0 4.1
Meiji Yasuda Life Insurance 0.2 0.1 1.0 4.2
Mitsubishi UFJ Sec -0.3 0.2 1.0 4.2
NLI Research 1.3 -0.1 1.1 4.3
Daiwa Research 0.5 0.1 1.1 4.4
Informa Global Markets 0.5 0.1 1.1 4.4
Norinchukin Research 0.6 0.1 1.1 4.4
Monex 0.7 0.1 1.1 4.5
Daiichi Life Research 0.7 0.1 1.1 4.5
Nikko Cordial Securities 0.6 0.2 1.2 4.8
Sumitomo Mitsui AM 0.7 0.3 1.2 4.9
----------------------------------------------------------------
(Writing by Hideyuki Sano; Editing by Hugh Lawson)

Currencies

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WRAPUP 2-BOJ's Noda rebuffs govt, says no policy changes
Mar 3, 2010 http://www.reuters.com/article/idUSTOE62303U20100304?loomia_ow=t0:s0:a49:g43:r1:c0.333333:b31320228:z0
Moody's- Greece must carry out plan perfectly
Mar 3, 2010 http://www.reuters.com/article/idUSLAD00511020100304?loomia_ow=t0:s0:a49:g43:r2:c0.333333:b31320228:z0
TEXT-Bank of England holds rates, no change on QE
http://www.reuters.com/article/idUSLAC00566120100304?loomia_ow=t0:s0:a49:g43:r3:c0.333333:b31320228:z0

http://www.reuters.com/article/idUSTOE62303520100304?type=marketsNews

Edition:U.S.

JGB futures climb as stocks fall; curve steepens
Thu Mar 4, 2010 2:50am EST

By Rika Otsuka

TOKYO, March 4 (Reuters) - Japanese government bond futures climbed on
Thursday towards a two-month peak, helped by a fall in stocks and as
investors added government debt to their portfolios before the new
financial year starts on April 1.

Shorter-dated notes, more sensitive to the outlook for monetary
policy, gained as some players bought them on the view that the Bank
of Japan will eventually ease policy further to support the economy
amid government pressure to act more against deflation.

The five-year/20-year yield spread almost matched its widest in a
decade as the five-year yield fell to a two-month low.

But there has been no major change in most market participants'
expectations on the future path of monetary policy, analysts said.
Most players see the BOJ further relaxing policy if stocks plunge or
the yen surges enough to threaten the economic recovery.

BOJ policy board member Tadao Noda on Thursday rebuffed government
pressure for fresh action, ruling out increasing the bank's bond
buying and calling on the government to do its part to fix Japan's
tattered finances. [ID:nTOE62303U]

"Noda's comments give an impression that the BOJ does not want to
raise market expectations for a possible increase in JGB buying by the
central bank," said Takafumi Yamawaki, an interest rate strategist at
BNP Paribas Securities.

Underlying demand for JGBs is strong as some 10 trillion yen ($113
billion) of JGBs are set to mature later this month, prompting
investors to replace them.

"Investors are actively hunting bargains," said Hidenori Suezawa,
chief strategist at Nikko Cordial Securities. "They are trying to
boost their JGB holdings."

But analysts said buying from investors was not yet strong enough to
push the benchmark 10-year yield below its current tight range.

Many players remained on the sidelines on Thursday, awaiting Friday's
U.S. employment data to see how strong the U.S. recovery really is.

Weak numbers would reinforce expectations that U.S. interest rates
will stay very low for a while, prompting Japanese investors to pick
up the pace of bond buying, analysts said.

March JGB futures rose 0.23 point to 140.01 2JGBv1, near a two-month
high of 140.05 struck last week.

The 10-year yield was unchanged on the day at 1.330 percent
JP10YTN=JBTC.

The benchmark bond yield has been trapped in a 1.290-1.380 percent
range since the start of the year.

Expectations for easier monetary policy have allowed the 10-year yield
to slip to a two-month low of 1.290 percent.

At the same time, lingering supply jitters have capped JGB gains.
Investors speculate Prime Minister Yukio Hatoyama's administration may
spend more to stimulate the economy before a midyear upper house
election, worrying investors about how the government would finance
such spending.

The two-year yield slipped 0.5 basis point to 0.150 percent
JP2YTN=JBTC.

The five-year yield fell 1.5 basis points to 0.480 percent JP5YTN=JBTC
after sliding as low as 0.475 percent, its lowest since late December.

The 20-year yield rose 1 basis point to 2.140 percent JP20YTN=JBTC.

The five-year/20-year yield spread stood at 166 basis points, edging
towards 167 basis points reached last month, its steepest in a decade
according to historical data on Reuters EcoWin.

The Nikkei share average fell 1.1 percent on a stronger yen. [.T]
($1=88.44 Yen) (Editing by Chris Gallagher)

Bonds

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Q+A-What's expected in Japan Post privatisation plan?
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Japan MOF Noda: mkts know Japan debt unlike Greece
Mar 3, 2010 http://www.reuters.com/article/idUSTKF10687620100304?loomia_ow=t0:s0:a49:g43:r3:c0.200000:b31317776:z0

Jobless claims up, regional manufacturing dips
Jan 21, 2010 http://www.reuters.com/article/idUSN1416882220100121?loomia_ow=t0:s0:a49:g43:r4:c0.200000:b31317776:z0

Euro 3-mth Libor dips, dollar edges up
http://www.reuters.com/article/idUSEAP00004920100302?loomia_ow=t0:s0:a49:g43:r5:c0.200000:b31317776:z0

http://www.reuters.com/article/idUSTOE62305K20100304

for the sake of argumentA war-free economy is possible
By Christine Jones Dylan Penner | March 4, 2010

Federal budgets are about priorities. The numbers in this week's
budget will underscore the Harper government's prioritization of
corporate profits and war. Canadian military spending is now the
highest it has been since World War II. Canada is one of the top 15
military spenders in the world and the sixth largest of NATO's 28
member countries.

The Canada First Defence Strategy, launched by Harper in 2008,
outlines how he will have Canada spend up to half a trillion dollars
on weapons and other aspects of the military. The 20-year, $490
billion plan aims to increase annual military spending from $18
billion in 2008, to more than $30 billion annually by 2028. This works
out to about $13,000 per Canadian. Peter Mackay confirmed last year in
a speech to the Ottawa arms trade show CANSEC that at least $60
billion of these funds are earmarked for military corporations.

Spending this significant should be clearly outlined in the federal
budget so it can be subject to parliamentary scrutiny, debate and
confidence votes. However, despite these historic spending plans, the
360-page 2009 federal budget contained not one mention of the words
military or weapons.

Added to the government's stonewalling of investigations into the
Afghan detainee scandal, this is even more troubling. Will we see this
same lack of transparency and accountability in the 2010 budget?
There's a good chance of that, considering Harper started the year by
dissolving Parliament so as not to have to answer to questions about
his government's alleged complicity in torture.

Governmental accountability is key to democracy -- and key to an
honest budget process. Accountability is key to ensuring that the
government spends on the needs of the citizens -- and not on political
or ideological whim.

In fact, demilitarizing the economy creates more jobs and more
effectively addresses social needs. Just last year,Jane's Defence
Weekly -- one of the world's leading military affairs publications --
wrote that a "sure-fire way to advance deeper into recession is ...
spend even more on the Department of Defense." Jane's noted that
increased military spending "will not generate new jobs" and "would be
a money surge for Lockheed Martin, but not a jobs engine." In the
context of the recession, redirecting military spending has become an
economic imperative. Yet the Harper government is doing the opposite
-- while trying to conceal it.

The Center for Defense Information in Washington notes that $1 billion
(U.S.) would create 19,795 jobs in public transit or 17,687 jobs in
education (131 and 107 per cent more than the same amount of defence
spending, respectively). The CDI points out that "if employment is the
aim, it makes more sense to cut defence spending and use the money in
programs that do it better... the same amount of money spent elsewhere
would generate more jobs, often better ones, and it would do it
faster."
As the Canadian Centre for Policy Alternatives has pointed out, Canada
could surpass Germany to become the second largest provider of
international aid in the world, if we increased our foreign aid --
which would by definition increase human security -- on the same scale
as Harper's military spending.

And what better time than now, in the lead-up to the G8/G20 in Canada,
to redirect military spending toward priorities like building a strong
green economy that serves the needs of Canadians rather than military
contractors and Harper's political ideology.

If the G8, G20, and the Harper government spent even a fraction of the
amount spent on weapons and war on human needs and the environment,
they would actually be doing more for security than is claimed as an
objective of the war in Afghanistan. By credible accounts, the war is
not improving security either for Canadians or Afghans.

Instead, Prime Minister Harper is risking further economic hardships
for all of us with his undemocratic stealth war stimulus, while
abdicating responsibility to people and the planet.

Labour and environmental groups have been calling for a just
transition to a green economy based on climate justice that would
provide the necessary training to workers and create meaningful green
jobs. Peace and anti-war groups have been demanding a conversion of
military production facilities to peaceful purposes.

It's time to unite these two visions. It is time for a just conversion
to a war-free economy based on green jobs and social justice. It is
time to recognize that bringing the troops home is not only the right
thing to do for the Afghan people, but the right thing to do for the
Canadian economy. It is time to set a new economic path away from war
and toward peace.

We have no illusions that the Harper government will share this
economic vision. And so it is up to the rest of us to make it a
reality.

Christine Jones is co-chair of the Canadian Peace Alliance. Dylan
Penner is founder of Operation Objection, a pan-Canadian campaign to
counter military recruitment and an organizer with ACT for the Earth.
This article appeared in The Toronto Star on March 2, 2010.

http://rabble.ca/news/2010/03/war-free-economy-possible

Sorry, We're Not Weimar Or Zimbabwe, And Gold Is Never Going To Be A
Currency Again

The Pragmatic Capitalist | Mar. 4, 2010, 6:28 AM | 542 | 7

(This guest post originally appeared at the author's blog)

Gold is hotter than ever. You can’t turn on the TV these days without
seeing a gold commercial. Several well known hedge fund managers
have leveraged up positions in gold while John Paulson even went so
far as to start his own gold hedge fund. As an asset class gold has
outperformed just about everything over the last 10 year period. It’s
been an impressive run. But is it all justified? Bear with me for a
bit while I take a long-term macro look at gold as an asset class….

After having experienced deflation through much of 2008 and the
beginning of 2009 the economy began to reflate as the Fed’s printing
press (or button pressing if you prefer) went to work. Asset prices
began to stabilize and bank balance sheets were suddenly flush with
cash as the Fed provided liquidity like it was going out of style.
The inflationistas immediately began crying wolf. All of this extra
cash was certain to cause inflation. And that meant one thing: buy
gold and short dollars. Right?

All was not what it seemed, however. Underneath the surface, there
was no real reflation – only continuing signs of deflation or at best,
very benign inflation. Asset prices surged as money flowed out of low
risk assets (for which investors were no longer rewarded) and into
high risk assets. This herding of the Federal Reserve has given many
the impression that the economy is “recovering”. But underneath the
surface lies the continuing problem of double D’s (and not the good
kind) – debt and de-leveraging. While asset prices have improved the
liability side of the ledger remains in tatters in the U.S. economy
and around the world. De-leveraging continues and demand for more
credit remains subdued. Yet, the price of gold rallied. I believe a
large portion of the move is based on the misconception of gold as an
asset class.

When analyzing the price of gold it’s important to understand that
gold prices do not move like most other commodities. It has certain
built-in unquantifiable characteristics that drive price. The price
of gold is actually a function of four things: 1) its replacement
potential for the U.S. dollar; 2) the future rate of inflation, 3)
Sentiment – generally fear based and 4) true supply and demand. Let’s
take a look at each.

Nouriel Roubini recently quoted Keynes in describing gold as a
“barbarous relic”. While I can’t entirely agree with that opinion I
think there is a certain level of truth there. Let me elaborate.
There is a certain premium built into the price of gold because it is
viewed as a currency – currently an alternative to the dollar. It has
served as a reliable currency for thousands of years and continues to
be seen as an alternative to fiat currencies. Going forward, I think
this is a dying belief which has led to considerable confusion in the
current economic environment.

The fact of the matter is, the fiat currency system is here to stay
(or at least some form of it). The odds of reverting back to a purely
gold based system is next to zero in my opinion. The truth is, the
gold standard as a currency system is a barbarous relic. It is a
currency system that worked well in the old world economy, but simply
does not have the flexibility to meet the demands of the growing
global economy. The global economy has become too complex and too
intertwined to be constrained by the gold standard. The fiat currency
system is a product of economic evolution and the growing demands and
strains of international trade. Famous examples of the break-down of
the gold standard and its inflexibility to meet trade demands include
the UK in 1931 and the U.S. government’s destruction of the gold
linked currency system under the Bretton Woods agreement.

Gold investors generally make the false argument that the gold
standard somehow stabilizes prices (as if the price of gold is stable)
or will restrain governments from excess spending, but the truth is,
under sound stewardship, the fiat currency system provides all the
benefits of the gold standard and all the flexibility that the gold
standard didn’t contribute. In addition, the gold standard had a
tendency to cause severe strains on countries due to trade imbalances
and the inability to provide flexibility to countries with trade
deficits. The argument that inflation, instability, corruption and
mal-investment cannot occur under the gold standard is historically
false.

If we were to alter our currency system it is most likely that we
would move to a currency basket of some form, a global currency or
move to a commodity basket – of which gold would likely be a
component. Realistically, however, the odds of moving back to the
gold standard (or even a commodity basket) are next to nothing.
Nonetheless, gold investors remain hopeful of a currency collapse and
a rewinding of our economic evolution. Don’t count on it. The
current monetary system provides sovereign issuers of currency with a
powerful monopoly over their currency and they are unlikely to
relinquish this power into the hands of gold producers or an
international currency (or bank) any time soon.

The popular idea of hyperinflation is one of the primary arguments in
favor of gold. Of course, as we’ve already discussed, this is
inherently flawed because the likelihood of reverting back to a gold
based monetary system is virtually nil so anyone hiding gold bars
under their bed is unlikely to find themselves trading them back and
forth at the local Wal-Mart any time soon. Regardless, speculation,
corruption and mal-investment will occur in any currency system that
allows such things to persist. If these inefficiencies are allowed to
persist they can lead to inflation and economic ruin. The favorite
arguments used by inflationistas are the Weimar Republic and Zimbabwe,
however, any true historian understands that the United States is not
even remotely comparable to these corrupt and inefficient economies.
The comparisons are completely and entirely debunked by Bill Mitchell
at Billy Blog. This is not to imply that inflation cannot occur in
the modern currency system, but under sound stewardship the fiat
currency system is no more potentially destructive than a gold
standard (where sound stewardship remains a necessity).

Of course, there is nothing in a gold standard that keeps a country
from becoming a poor steward of the currency. In fact, the
restrictions of the gold standard have resulted in more government
defaults than any flexible exchange rate fiat currency. The argument
that 99% of all fiat currencies have failed is simply an outright
falsehood. Fiat currencies restricted by the gold standard or pegged
to another currency have failed repeatedly. That is not the system in
which we reside today. It’s important to understand that the currency
system in which we reside is vastly different from the pre-Nixon Shock
currency system in which currencies did not freely float and
currencies were convertible. As I described last week, a sovereign
issuer of currency with no foreign denominated debt cannot go bankrupt
in a floating exchange rate system unless it effectively decides to.
Inflation is another story altogether, but we’ll touch on this
further.

Most of the hyperinflationists or gold investors I know are worried
that the Fed’s printing press (or button pressing if you will) will
ultimately result in inflation. This is not entirely correct. As I
have previously explained, when you pour an iced tea packet into a
pitcher of water you don’t automatically get iced tea. You have to
stir it in. Our banking system is much the same. There is no demand
for credit as of now and therefore there is no expansion in the amount
of actual money in the system. Because the private sector is busy
repairing their balance sheets aggregate demand remains historically
low. Therefore, the hyperinflation argument remains bunk. The latest
readings on wage inflation, demand for credit, etc all point to
continued de-leveraging and low demand for credit, and in our banking
system that means inflation is not yet a concern. For all his faults,
even Bernanke would not be ignorant enough to leave rates at 0% when
there are signs of inflation. Mr. Bernanke is actually acting as a
relatively good steward of the currency now (we’ll see how long that
lasts – I am not banking on it).* For a more detailed explanation of
the deflationary risks please see here.

In terms of sentiment there is an inherent premium built into gold
because it is viewed as a safehaven currency. This opinion is
generally sold to the public by investors who genuinely believe the
world is going to end or that the modern economic system will
ultimately fail as the dollar crumbles. These people genuinely
believe that the entire global economy will collapse one day and we
will all be sitting around trading our gold bars back and forth. This
is pure and simple fear mongering. This is not to imply that the U.S.
dollar can’t fail or that the fiat currency system will always exist
in its current form, but the idea of reverting back to a time when we
carry gold in our pockets in order to purchase goods is simply
ludicrous. “Barbarous” as some might call it. The truth of the
matter is that the fiat currency system is simply an evolutionary step
in our economic progress. Those who latch onto the days of the gold
standard simply don’t understand how fiat currency works in the
current floating exchange rate system. If you want to believe the
global economy will one day collapse that is just fine, but should
that scenario actually pan out the last of your concerns will be which
local market is accepting gold in exchange for food. The man with the
most lead will be the man with the most food in that scenario.

Where gold does contain real value is as an actual commodity. I don’t
believe that gold has no intrinsic value as many gold haters believe.
I believe it has intrinsic value in the same way that diamonds have
intrinsic value. I just don’t believe gold should have any intrinsic
value as a currency. None. From a purely supply and demand
perspective the gold market actually looks fairly constructive.
Nouriel Roubini pointed to several reasons why gold is not necessarily
a bad investment:

“the global supply of gold—both existing and newly produced—is
limited, and demand is rising faster than supply over the medium term.
The recovery of the global economy has started a revival of retail
gold demand especially in India. Central banks looking to diversify
their portfolios account for further demand—see for instance, the
recent increase in gold holdings by emerging market central banks.
Most of the increase in demand comes from private investors using gold
as a hedge against low probability tail risks of high inflation and
another near depression caused by a double dip recession. Inflation
risk and the risk of a double-dip are both low, suggesting lower gold
prices, but increasingly investors want to hedge against such risks
early on. And given the inelastic supply of gold, it only takes a
small shift in the portfolios of central banks and private investors
to boost increase the price of gold significantly.”

Passport Capital recently laid out the bull case as well:

Demand in India and China is surging and demographic and wealth trends
should bolster prices.

Demand from central banks has undergone an important shift in recent
years in response to the credit crisis.

Mined supply peaked in 2001.

The ability of above-ground gold stocks to satisfy demand is
undergoing structural change, and markets may be overestimating their
ability to satisfy an increase in demand at current prices.

One might conclude that I think gold is a terrible investment after
reading this. That couldn’t be farther from the truth. I simply
believe gold is a misunderstood asset (particularly as an alternative
to the dollar). I know that the overwhelming majority of investors
see value in gold and therefore it is ignorant to ignore its potential
as an asset. The modern fiat currency system is still largely
misunderstood and very young. It will take time for investors to
learn to trust it and fully understand its benefits.

Of course, these misconceptions are likely to persist for years if not
decades and ignoring the beliefs of a huge amount of the investment
world is no different than the fundamental analyst who ignores the
millions of chartists in the world. The belief is there therefore the
price action is there. I believe there are good reasons to hold gold
in ones portfolio, but those reasons should be purely based on the
underlying laws of supply and demand at work as they pertain to gold’s
value as a commodity. The idea that we will one day revert back to
the gold standard is simply not pragmatic in my opinion. If I were a
betting man (and I am) and if I had to bet my lead on it I would bet
that the idea of gold as a currency will be almost entirely extinct in
500 years. But that doesn’t necessarily mean the price of gold won’t
be much much higher.

In conclusion, I continue to fail to grasp the rationale for gold as a
safehaven in this environment. As we learned in 2008 the true
safehaven in the modern floating exchange rate fiat currency world is
actually the reserve currency. With little to no inflation the
inflation hedge argument remains bunk. As for sentiment and the
collapse of the modern economy, well, I don’t think gold will be the
thing you really want to own in that world. It is not gold we will
all be clamoring for, but lead and God save you if you don’t have
something to load that lead into because those gold bricks are mighty
hard to throw at someone….

*It’s important that I enter one caveat here. As regular readers
know, I believe the current print and spend policy will do little to
fix the long-term structural problems in the real economy. The real
problem in the U.S. economy is that we remain in a stranglehold by a
banking sector that is too large, too powerful, unproductive and
poorly allocates capital. The problem with Bernanke & Cos. plan is
not that they are necessarily being poor stewards of the currency, but
rather that they continue to allow bankers to allocate capital in an
entirely unregulated manner. This should not be fixed via currency
restructuring or even austerity necessarily, but through harsh
regulation and permanent downsizing of the banks. But MUCH more on
this in a later article….

http://www.businessinsider.com/sorry-were-not-weimar-or-zimbabwe-and-gold-is-never-going-to-be-a-currency-again-2010-3

JP MORGAN: IGNORE ALL THE BAD NEWS COMING
4 March 2010 by TPC

Analyst’s at JP Morgan are telling equity investors to ignore the bad
news coming in the next month as most of it is likely due to the bad
weather across the United States. They are encouraging investors to
maintain belief in their recently renewed bullish stance (see here) on
the equity markets and not overreact to the downside:

“The next month’s worth of economic data will be full of weather and
lunar new year distortions. This will create a lot of confusion, but
should also persuade investors not to overreact to data noise. We
fully agree, and choose to stay with our medium-term strategy of
overweighting equities, commodities, and credit, and trading bonds
from the short side. Positions changes should be based more on
intrinsic value, taking assets from more nervous market participants,
than on short-term market direction.”

Due to the coming likelihood of downside surprises in economic data JP
Morgan is taking a longer-term outlook when it comes to the equity
markets. They remain overweight equities, commodities and credit.

■Fixed income: Take advantage of the rally to reset shorts in US 2s.
Sell Agencies against Treasuries.

■Equities: Stay long, focusing on small caps and cyclical sectors.
Euro area underperformance is unlikely to be reversed.

■Credit: Overweight HY loans versus bonds in CDS indices as their
spread is cheap versus the much better recovery rate on loans.

■FX: There is a near-term bias for EUR to reach the low $1.30’s.

■Commodities: We turn medium-term bullish on oil. WTI is expected to
rise to US$90 by year-end.

Source: JP Morgan

http://pragcap.com/jp-morgan-ignore-all-the-bad-news-coming

[chhotemianinshallah]

EVENING READING
3 March 2010 by TPC 0

■Deny, default or deleverage - back9

Wednesday, March 3, 2010
Deny, Default or Deleverage: The Drag of Government Debt $TLT

Dominos and Default

A default was the proximate risk for Greece, where politics makes
fiscal austerity a challenge (Greece has failed to deliver on EU
budget targets for many years), and where technical default through
inflationary money printing isn’t an option due to euro membership. In
terms of near term default risks, the domino theory has historical
precedent. After all, defaults tend to cluster, as was seen in both
Latin America in the early 1980s and Eastern Europe in the 1990s. And
while Greece is a tiny economy, Thailand isn’t exactly huge, and its
Baht plunge marked the start of a larger Asian crisis in the late
1990s.

The threat of contagion in Europe though is still low, both due to
political considerations on the part of the EU as a whole, and the
wide fiscal performance gap between Greece and some of the other so
called “PIIGS” economies (Chart 4). While Greece could plausibly reach
for the default parachute if domestic politics prevents the
implementation of deep spending cuts or tax hikes (as
well as increased enforcement), that isn’t yet a serious risk
elsewhere in the eurozone. Across the channel, or across the Atlantic,
deficits aren’t far from Greek levels in both the US and the UK. But
debt-to-GDP levels are still below where Canada’s stood in the 1990s,
and the debt is owed in domestic currency. There are cases of domestic
currency debt restructurings that amounted to
technical defaults, most recently in Jamaica. But that’s not a
realistic scenario for major economies over the next few years.

http://intelfin.blogspot.com/2010/03/deny-default-or-deleverage-drag-of.html

■MUST READ: Betting on the blind side - Michael Lewis via VF

Excerpt

Betting on the Blind Side

Michael Burry always saw the world differently—due, he believed, to
the childhood loss of one eye. So when the 32-year-old investor
spotted the huge bubble in the subprime-mortgage bond market, in 2004,
then created a way to bet against it, he wasn’t surprised that no one
understood what he was doing. In an excerpt from his new book, The Big
Short, the author charts Burry’s oddball maneuvers, his almost comical
dealings with Goldman Sachs and other banks as the market collapsed,
and the true reason for his visionary obsession.
By Michael Lewis•
Photograph by Jonas Fredwall Karlsson
April 2010

Dr. Michael Burry in his home office, in Silicon Valley. “My nature is
not to have friends,” Burry concluded years ago. “I’m happy in my own
head.”
Excerpted from The Big Short: Inside the Doomsday Machine, by Michael
Lewis, to be published this month by W. W. Norton; © 2010 by the
author.

In early 2004 a 32-year-old stock-market investor and hedge-fund
manager, Michael Burry, immersed himself for the first time in the
bond market. He learned all he could about how money got borrowed and
lent in America. He didn’t talk to anyone about what became his new
obsession; he just sat alone in his office, in San Jose, California,
and read books and articles and financial filings. He wanted to know,
especially, how subprime-mortgage bonds worked. A giant number of
individual loans got piled up into a tower. The top floors got their
money back first and so got the highest ratings from Moody’s and S&P,
and the lowest interest rate. The low floors got their money back
last, suffered the first losses, and got the lowest ratings from
Moody’s and S&P. Because they were taking on more risk, the investors
in the bottom floors received a higher rate of interest than investors
in the top floors. Investors who bought mortgage bonds had to decide
in which floor of the tower they wanted to invest, but Michael Burry
wasn’t thinking about buying mortgage bonds. He was wondering how he
might short, or bet against, subprime-mortgage bonds.

Every mortgage bond came with its own mind-numbingly tedious 130-page
prospectus. If you read the fine print, you saw that each bond was its
own little corporation. Burry spent the end of 2004 and early 2005
scanning hundreds and actually reading dozens of the prospectuses,
certain he was the only one apart from the lawyers who drafted them to
do so—even though you could get them all for $100 a year from

10kWizard.com.

The subprime-mortgage market had a special talent for obscuring what
needed to be clarified. A bond backed entirely by subprime mortgages,
for example, wasn’t called a subprime-mortgage bond. It was called an
“A.B.S.,” or “asset-backed security.” If you asked Deutsche Bank
exactly what assets secured an asset-backed security, you’d be handed
lists of more acronyms—R.M.B.S., hels, helocs, Alt-A—along with
categories of credit you did not know existed (“midprime”). R.M.B.S.
stood for “residential-mortgage-backed security.” hel stood for “home-
equity loan.” heloc stood for “home-equity line of credit.” Alt-A was
just what they called crappy subprime-mortgage loans for which they
hadn’t even bothered to acquire the proper documents—to, say, verify
the borrower’s income. All of this could more clearly be called
“subprime loans,” but the bond market wasn’t clear. “Midprime” was a
kind of triumph of language over truth. Some crafty bond-market person
had gazed upon the subprime-mortgage sprawl, as an ambitious real-
estate developer might gaze upon Oakland, and found an opportunity to
rebrand some of the turf. Inside Oakland there was a neighborhood,
masquerading as an entirely separate town, called “Rockridge.” Simply
by refusing to be called “Oakland,” “Rockridge” enjoyed higher
property values. Inside the subprime-mortgage market there was now a
similar neighborhood known as “midprime.”

But as early as 2004, if you looked at the numbers, you could clearly
see the decline in lending standards. In Burry’s view, standards had
not just fallen but hit bottom. The bottom even had a name: the
interest-only negative-amortizing adjustable-rate subprime mortgage.
You, the homebuyer, actually were given the option of paying nothing
at all, and rolling whatever interest you owed the bank into a higher
principal balance. It wasn’t hard to see what sort of person might
like to have such a loan: one with no income. What Burry couldn’t
understand was why a person who lent money would want to extend such a
loan. “What you want to watch are the lenders, not the borrowers,” he
said. “The borrowers will always be willing to take a great deal for
themselves. It’s up to the lenders to show restraint, and when they
lose it, watch out.” By 2003 he knew that the borrowers had already
lost it. By early 2005 he saw that lenders had, too.

A lot of hedge-fund managers spent time chitchatting with their
investors and treated their quarterly letters to them as a formality.
Burry disliked talking to people face-to-face and thought of these
letters as the single most important thing he did to let his investors
know what he was up to. In his quarterly letters he coined a phrase to
describe what he thought was happening: “the extension of credit by
instrument.” That is, a lot of people couldn’t actually afford to pay
their mortgages the old-fashioned way, and so the lenders were
dreaming up new financial instruments to justify handing them new
money. “It was a clear sign that lenders had lost it, constantly
degrading their own standards to grow loan volumes,” Burry said. He
could see why they were doing this: they didn’t keep the loans but
sold them to Goldman Sachs and Morgan Stanley and Wells Fargo and the
rest, which packaged them into bonds and sold them off. The end buyers
of subprime-mortgage bonds, he assumed, were just “dumb money.” He’d
study up on them, too, but later.

He now had a tactical investment problem. The various floors, or
tranches, of subprime-mortgage bonds all had one thing in common: the
bonds were impossible to sell short. To sell a stock or bond short,
you needed to borrow it, and these tranches of mortgage bonds were
tiny and impossible to find. You could buy them or not buy them, but
you couldn’t bet explicitly against them; the market for subprime
mortgages simply had no place for people in it who took a dim view of
them. You might know with certainty that the entire subprime-mortgage-
bond market was doomed, but you could do nothing about it. You
couldn’t short houses. You could short the stocks of homebuilding
companies—Pulte Homes, say, or Toll Brothers—but that was expensive,
indirect, and dangerous. Stock prices could rise for a lot longer than
Burry could stay solvent.

A couple of years earlier, he’d discovered credit-default swaps. A
credit-default swap was confusing mainly because it wasn’t really a
swap at all. It was an insurance policy, typically on a corporate
bond, with periodic premium payments and a fixed term. For instance,
you might pay $200,000 a year to buy a 10-year credit-default swap on
$100 million in General Electric bonds. The most you could lose was $2
million: $200,000 a year for 10 years. The most you could make was
$100 million, if General Electric defaulted on its debt anytime in the
next 10 years and bondholders recovered nothing. It was a zero-sum
bet: if you made $100 million, the guy who had sold you the credit-
default swap lost $100 million. It was also an asymmetric bet, like
laying down money on a number in roulette. The most you could lose
were the chips you put on the table, but if your number came up, you
made 30, 40, even 50 times your money. “Credit-default swaps remedied
the problem of open-ended risk for me,” said Burry. “If I bought a
credit-default swap, my downside was defined and certain, and the
upside was many multiples of it.”

He was already in the market for corporate credit-default swaps. In
2004 he began to buy insurance on companies he thought might suffer in
a real-estate downturn: mortgage lenders, mortgage insurers, and so
on. This wasn’t entirely satisfying. A real-estate-market meltdown
might cause these companies to lose money; there was no guarantee that
they would actually go bankrupt. He wanted a more direct tool for
betting against subprime-mortgage lending. On March 19, 2005, alone in
his office with the door closed and the shades pulled down, reading an
abstruse textbook on credit derivatives, Michael Burry got an idea:
credit-default swaps on subprime-mortgage bonds.

The idea hit him as he read a book about the evolution of the U.S.
bond market and the creation, in the mid-1990s, at J. P. Morgan, of
the first corporate credit-default swaps. He came to a passage
explaining why banks felt they needed credit-default swaps at all. It
wasn’t immediately obvious—after all, the best way to avoid the risk
of General Electric’s defaulting on its debt was not to lend to
General Electric in the first place. In the beginning, credit-default
swaps had been a tool for hedging: some bank had loaned more than they
wanted to to General Electric because G.E. had asked for it, and they
feared alienating a long-standing client; another bank changed its
mind about the wisdom of lending to G.E. at all. Very quickly,
however, the new derivatives became tools for speculation: a lot of
people wanted to make bets on the likelihood of G.E.’s defaulting. It
struck Burry: Wall Street is bound to do the same thing with subprime-
mortgage bonds, too. Given what was happening in the real-estate market
—and given what subprime-mortgage lenders were doing—a lot of smart
people eventually were going to want to make side bets on subprime-
mortgage bonds. And the only way to do it would be to buy a credit-
default swap.

Continued (page 2 of 8)

The credit-default swap would solve the single biggest problem with
Mike Burry’s big idea: timing. The subprime-mortgage loans being made
in early 2005 were, he felt, almost certain to go bad. But, as their
interest rates were set artificially low and didn’t reset for two
years, it would be two years before that happened. Subprime mortgages
almost always bore floating interest rates, but most of them came with
a fixed, two-year “teaser” rate. A mortgage created in early 2005
might have a two-year “fixed” rate of 6 percent that, in 2007, would
jump to 11 percent and provoke a wave of defaults. The faint ticking
sound of these loans would grow louder with time, until eventually a
lot of people would suspect, as he suspected, that they were bombs.
Once that happened, no one would be willing to sell insurance on
subprime-mortgage bonds. He needed to lay his chips on the table now
and wait for the casino to wake up and change the odds of the game. A
credit-default swap on a 30-year subprime-mortgage bond was a bet
designed to last for 30 years, in theory. He figured that it would
take only three to pay off.

The only problem was that there was no such thing as a credit-default
swap on a subprime-mortgage bond, not that he could see. He’d need to
prod the big Wall Street firms to create them. But which firms? If he
was right and the housing market crashed, these firms in the middle of
the market were sure to lose a lot of money. There was no point buying
insurance from a bank that went out of business the minute the
insurance became valuable. He didn’t even bother calling Bear Stearns
and Lehman Brothers, as they were more exposed to the mortgage-bond
market than the other firms. Goldman Sachs, Morgan Stanley, Deutsche
Bank, Bank of America, UBS, Merrill Lynch, and Citigroup were, to his
mind, the most likely to survive a crash. He called them all. Five of
them had no idea what he was talking about; two came back and said
that, while the market didn’t exist, it might one day. Inside of three
years, credit-default swaps on subprime-mortgage bonds would become a
trillion-dollar market and precipitate hundreds of billions of losses
inside big Wall Street firms. Yet, when Michael Burry pestered the
firms in the beginning of 2005, only Deutsche Bank and Goldman Sachs
had any real interest in continuing the conversation. No one on Wall
Street, as far as he could tell, saw what he was seeing.

He sensed that he was different from other people before he understood
why. Before he was two years old he was diagnosed with a rare form of
cancer, and the operation to remove the tumor had cost him his left
eye. A boy with one eye sees the world differently from everyone else,
but it didn’t take long for Mike Burry to see his literal distinction
in more figurative terms. Grown-ups were forever insisting that he
should look other people in the eye, especially when he was talking to
them. “It took all my energy to look someone in the eye,” he said. “If
I am looking at you, that’s the one time I know I won’t be listening
to you.” His left eye didn’t line up with whomever he was trying to
talk to; when he was in social situations, trying to make chitchat,
the person to whom he was speaking would steadily drift left. “I don’t
really know how to stop it,” he said, “so people just keep moving left
until they’re standing way to my left, and I’m trying not to turn my
head anymore. I end up facing right and looking left with my good eye,
through my nose.”

His glass eye, he assumed, was the reason that face-to-face
interaction with other people almost always ended badly for him. He
found it maddeningly difficult to read people’s nonverbal signals, and
their verbal signals he often took more literally than they meant
them. When trying his best, he was often at his worst. “My compliments
tended not to come out right,” he said. “I learned early that if you
compliment somebody it’ll come out wrong. For your size, you look
good. That’s a really nice dress: it looks homemade.” The glass eye
became his private explanation for why he hadn’t really fit in with
groups. The eye oozed and wept and required constant attention. It
wasn’t the sort of thing other kids ever allowed him to be unself-
conscious about. They called him cross-eyed, even though he wasn’t.
Every year they begged him to pop his eye out of its socket—but when
he complied, it became infected and disgusting and a cause of further
ostracism.

In his glass eye he found the explanation for other traits peculiar to
himself. His obsession with fairness, for example. When he noticed
that pro basketball stars were far less likely to be called for
traveling than lesser players, he didn’t just holler at the refs. He
stopped watching basketball altogether; the injustice of it killed his
interest in the sport. Even though he was ferociously competitive,
well built, physically brave, and a good athlete, he didn’t care for
team sports. The eye helped to explain this, as most team sports were
ball sports, and a boy with poor depth perception and limited
peripheral vision couldn’t very well play ball sports. He tried hard
at the less ball-centric positions in football, but his eye popped out
if he hit someone too hard. He preferred swimming, as it required
virtually no social interaction. No teammates. No ambiguity. You just
swam your time and you won or you lost.

After a while even he ceased to find it surprising that he spent most
of his time alone. By his late 20s he thought of himself as the sort
of person who didn’t have friends. He’d gone through Santa Teresa High
School, in San Jose, U.C.L.A., and Vanderbilt University School of
Medicine, and created not a single lasting bond. What friendships he
did have were formed and nurtured in writing, by e mail; the two
people he considered to be true friends he had known for a combined 20
years but had met in person a grand total of eight times. “My nature
is not to have friends,” he said. “I’m happy in my own head.” Somehow
he’d married twice. His first wife was a woman of Korean descent who
wound up living in a different city (“She often complained that I
appeared to like the idea of a relationship more than living the
actual relationship”) and his second, to whom he was still married,
was a Vietnamese-American woman he’d met on Match.com. In his
Match.com profile, he described himself frankly as “a medical resident
with only one eye, an awkward social manner, and $145,000 in student
loans.” His obsession with personal honesty was a cousin to his
obsession with fairness.

Obsessiveness—that was another trait he came to think of as peculiar
to himself. His mind had no temperate zone: he was either possessed by
a subject or not interested in it at all. There was an obvious
downside to this quality—he had more trouble than most faking interest
in other people’s concerns and hobbies, for instance—but an upside,
too. Even as a small child he had a fantastic ability to focus and
learn, with or without teachers. When it synched with his interests,
school came easy for him—so easy that, as an undergraduate at
U.C.L.A., he could flip back and forth between English and economics
and pick up enough pre-medical training on the side to get himself
admitted to the best medical schools in the country. He attributed his
unusual powers of concentration to his lack of interest in human
interaction, and his lack of interest in human interaction … well, he
was able to argue that basically everything that happened was caused,
one way or the other, by his fake left eye.

This ability to work and to focus set him apart even from other
medical students. In 1998, as a resident in neurology at Stanford
Hospital, he mentioned to his superiors that, between 14-hour hospital
shifts, he had stayed up two nights in a row taking apart and putting
back together his personal computer in an attempt to make it run
faster. His superiors sent him to a psychiatrist, who diagnosed Mike
Burry as bipolar. He knew instantly he’d been misdiagnosed: how could
you be bipolar if you were never depressed? Or, rather, if you were
depressed only while doing your rounds and pretending to be interested
in practicing, as opposed to studying, medicine? He’d become a doctor
not because he enjoyed medicine but because he didn’t find medical
school terribly difficult. The actual practice of medicine, on the
other hand, either bored or disgusted him. Of his first brush with
gross anatomy: “one scene with people carrying legs over their
shoulders to the sink to wash out the feces just turned my stomach,
and I was done.” Of his feeling about the patients: “I wanted to help
people—but not really.”

Continued (page 3 of 8)

He was genuinely interested in computers, not for their own sake but
for their service to a lifelong obsession: the inner workings of the
stock market. Ever since grade school, when his father had shown him
the stock tables at the back of the newspaper and told him that the
stock market was a crooked place and never to be trusted, let alone
invested in, the subject had fascinated him. Even as a kid he had
wanted to impose logic on this world of numbers. He began to read
about the market as a hobby. Pretty quickly he saw that there was no
logic at all in the charts and graphs and waves and the endless
chatter of many self-advertised market pros. Then along came the dot-
com bubble and suddenly the entire stock market made no sense at all.
“The late 90s almost forced me to identify myself as a value investor,
because I thought what everybody else was doing was insane,” he said.
Formalized as an approach to financial markets during the Great
Depression by Benjamin Graham, “value investing” required a tireless
search for companies so unfashionable or misunderstood that they could
be bought for less than their liquidation value. In its simplest form,
value investing was a formula, but it had morphed into other things—
one of them was whatever Warren Buffett, Benjamin Graham’s student and
the most famous value investor, happened to be doing with his money.

Burry did not think investing could be reduced to a formula or learned
from any one role model. The more he studied Buffett, the less he
thought Buffett could be copied. Indeed, the lesson of Buffett was: To
succeed in a spectacular fashion you had to be spectacularly unusual.
“If you are going to be a great investor, you have to fit the style to
who you are,” Burry said. “At one point I recognized that Warren
Buffett, though he had every advantage in learning from Ben Graham,
did not copy Ben Graham, but rather set out on his own path, and ran
money his way, by his own rules.… I also immediately internalized the
idea that no school could teach someone how to be a great investor. If
it were true, it’d be the most popular school in the world, with an
impossibly high tuition. So it must not be true.”

Investing was something you had to learn how to do on your own, in
your own peculiar way. Burry had no real money to invest, but he
nevertheless dragged his obsession along with him through high school,
college, and medical school. He’d reached Stanford Hospital without
ever taking a class in finance or accounting, let alone working for
any Wall Street firm. He had maybe $40,000 in cash, against $145,000
in student loans. He had spent the previous four years working medical-
student hours. Nevertheless, he had found time to make himself a
financial expert of sorts. “Time is a variable continuum,” he wrote to
one of his e-mail friends one Sunday morning in 1999: “An afternoon
can fly by or it can take 5 hours. Like you probably do, I
productively fill the gaps that most people leave as dead time. My
drive to be productive probably cost me my first marriage and a few
days ago almost cost me my fiancée. Before I went to college the
military had this ‘we do more before 9am than most people do all day’
and I used to think I do more than the military. As you know there are
some select people that just find a drive in certain activities that
supersedes everything else.” Thinking himself different, he didn’t
find what happened to him when he collided with Wall Street nearly as
bizarre as it was.

Late one night in November 1996, while on a cardiology rotation at
Saint Thomas Hospital, in Nashville, Tennessee, he logged on to a
hospital computer and went to a message board called techstocks.com.
There he created a thread called “value investing.” Having read
everything there was to read about investing, he decided to learn a
bit more about “investing in the real world.” A mania for Internet
stocks gripped the market. A site for the Silicon Valley investor,
circa 1996, was not a natural home for a sober-minded value investor.
Still, many came, all with opinions. A few people grumbled about the
very idea of a doctor having anything useful to say about investments,
but over time he came to dominate the discussion. Dr. Mike Burry—as he
always signed himself—sensed that other people on the thread were
taking his advice and making money with it.

Once he figured out he had nothing more to learn from the crowd on his
thread, he quit it to create what later would be called a blog but at
the time was just a weird form of communication. He was working 16-
hour shifts at the hospital, confining his blogging mainly to the
hours between midnight and three in the morning. On his blog he posted
his stock-market trades and his arguments for making the trades.
People found him. As a money manager at a big Philadelphia value fund
said, “The first thing I wondered was: When is he doing this? The guy
was a medical intern. I only saw the nonmedical part of his day, and
it was simply awesome. He’s showing people his trades. And people are
following it in real time. He’s doing value investing—in the middle of
the dot-com bubble. He’s buying value stocks, which is what we’re
doing. But we’re losing money. We’re losing clients. All of a sudden
he goes on this tear. He’s up 50 percent. It’s uncanny. He’s uncanny.
And we’re not the only ones watching it.”

Mike Burry couldn’t see exactly who was following his financial moves,
but he could tell which domains they came from. In the beginning his
readers came from EarthLink and AOL. Just random individuals. Pretty
soon, however, they weren’t. People were coming to his site from
mutual funds like Fidelity and big Wall Street investment banks like
Morgan Stanley. One day he lit into Vanguard’s index funds and almost
instantly received a cease-and-desist letter from Vanguard’s
attorneys. Burry suspected that serious investors might even be acting
on his blog posts, but he had no clear idea who they might be. “The
market found him,” says the Philadelphia mutual-fund manager. “He was
recognizing patterns no one else was seeing.”

By the time Burry moved to Stanford Hospital, in 1998, to take up his
residency in neurology, the work he had done between midnight and
three in the morning had made him a minor but meaningful hub in the
land of value investing. By this time the craze for Internet stocks
was completely out of control and had infected the Stanford University
medical community. “The residents in particular, and some of the
faculty, were captivated by the dot-com bubble,” said Burry. “A decent
minority of them were buying and discussing everything—Polycom, Corel,
Razorfish, Pets.com, TibCo, Microsoft, Dell, Intel are the ones I
specifically remember, but areyoukiddingme.com was how my brain
filtered a lot of it I would just keep my mouth shut, because I didn’t
want anybody there knowing what I was doing on the side. I felt I
could get in big trouble if the doctors there saw I wasn’t 110 percent
committed to medicine.”

People who worry about seeming sufficiently committed to medicine
probably aren’t sufficiently committed to medicine. The deeper he got
into his medical career, the more Burry felt constrained by his
problems with other people in the flesh. He had briefly tried to hide
in pathology, where the people had the decency to be dead, but that
didn’t work. (“Dead people, dead parts. More dead people, more dead
parts. I thought, I want something more cerebral.”)

He’d moved back to San Jose, buried his father, remarried, and been
misdiagnosed as bipolar when he shut down his Web site and announced
he was quitting neurology to become a money manager. The chairman of
the Stanford department of neurology thought he’d lost his mind and
told him to take a year to think it over, but he’d already thought it
over. “I found it fascinating and seemingly true,” he said, “that if I
could run a portfolio well, then I could achieve success in life, and
that it wouldn’t matter what kind of person I was perceived to be,
even though I felt I was a good person deep down.” His $40,000 in
assets against $145,000 in student loans posed the question of exactly
what portfolio he would run. His father had died after another
misdiagnosis: a doctor had failed to spot the cancer on an X-ray, and
the family had received a small settlement. The father disapproved of
the stock market, but the payout from his death funded his son into
it. His mother was able to kick in $20,000 from her settlement, his
three brothers kicked in $10,000 each of theirs. With that, Dr.
Michael Burry opened Scion Capital. (As a teen he’d loved the book The
Scions of Shannara.) He created a grandiose memo to lure people not
related to him by blood. “The minimum net worth for investors should
be $15 million,” it said, which was interesting, as it excluded not
only himself but basically everyone he’d ever known.

Continued (page 4 of 8)

As he scrambled to find office space, buy furniture, and open a
brokerage account, he received a pair of surprising phone calls. The
first came from a big investment fund in New York City, Gotham
Capital. Gotham was founded by a value-investment guru named Joel
Greenblatt. Burry had read Greenblatt’s book You Can Be a Stock Market
Genius. (“I hated the title but liked the book.”) Greenblatt’s people
told him that they had been making money off his ideas for some time
and wanted to continue to do so—might Mike Burry consider allowing
Gotham to invest in his fund? “Joel Greenblatt himself called,” said
Burry, “and said, ‘I’ve been waiting for you to leave medicine.’”
Gotham flew Burry and his wife to New York—and it was the first time
Michael Burry had flown to New York or flown first-class—and put him
up in a suite at the Intercontinental Hotel.

On his way to his meeting with Greenblatt, Burry was racked with the
anxiety that always plagued him before face-to-face encounters with
people. He took some comfort in the fact that the Gotham people seemed
to have read so much of what he had written. “If you read what I wrote
first, and then meet me, the meeting goes fine,” he said. “People who
meet me who haven’t read what I wrote—it almost never goes well. Even
in high school it was like that—even with teachers.” He was a walking
blind taste test: you had to decide if you approved of him before you
laid eyes on him. In this case he was at a serious disadvantage, as he
had no clue how big-time money managers dressed. “He calls me the day
before the meeting,” says one of his e-mail friends, himself a
professional money manager. “And he asks, ‘What should I wear?’ He
didn’t own a tie. He had one blue sports coat, for funerals.” This was
another quirk of Mike Burry’s. In writing, he presented himself
formally, even a bit stuffily, but he dressed for the beach. Walking
to Gotham’s office, he panicked and ducked into a Tie Rack and bought
a tie. He arrived at the big New York money-management firm as
formally attired as he had ever been in his entire life to find its
partners in T-shirts and sweatpants. The exchange went something like
this: “We’d like to give you a million dollars.” “Excuse me?” “We want
to buy a quarter of your new hedge fund. For a million dollars.” “You
do?” “Yes. We’re offering a million dollars.” “After tax!”

Somehow Burry had it in his mind that one day he wanted to be worth a
million dollars, after tax. At any rate, he’d just blurted that last
bit out before he fully understood what they were after. And they gave
it to him! At that moment, on the basis of what he’d written on his
blog, he went from being an indebted medical resident with a net worth
of minus $105,000 to a millionaire with a few outstanding loans. Burry
didn’t know it, but it was the first time Joel Greenblatt had done
such a thing. “He was just obviously this brilliant guy, and there
aren’t that many of them,” says Greenblatt.

Shortly after that odd encounter, he had a call from the insurance
holding company White Mountain. White Mountain was run by Jack Byrne,
a member of Warren Buffett’s inner circle, and they had spoken to
Gotham Capital. “We didn’t know you were selling part of your firm,”
they said—and Burry explained that he hadn’t realized it either until
a few days earlier, when someone offered a million dollars, after tax,
for it. It turned out that White Mountain, too, had been watching
Michael Burry closely. “What intrigued us more than anything was that
he was a neurology resident,” says Kip Oberting, then at White
Mountain. “When the hell was he doing this?” From White Mountain he
extracted $600,000 for another piece of his fund, plus a promise to
send him $10 million to invest. “And yes,” said Oberting, “he was the
only person we found on the Internet and cold-called and gave him
money.”

In Dr. Mike Burry’s first year in business, he grappled briefly with
the social dimension of running money. “Generally you don’t raise any
money unless you have a good meeting with people,” he said, “and
generally I don’t want to be around people. And people who are with me
generally figure that out.” When he spoke to people in the flesh, he
could never tell what had put them off, his message or his person.
Buffett had had trouble with people, too, in his youth. He’d used a
Dale Carnegie course to learn how to interact more profitably with his
fellow human beings. Mike Burry came of age in a different money
culture. The Internet had displaced Dale Carnegie. He didn’t need to
meet people. He could explain himself online and wait for investors to
find him. He could write up his elaborate thoughts and wait for people
to read them and wire him their money to handle. “Buffett was too
popular for me,” said Burry. “I won’t ever be a kindly grandfather
figure.”

This method of attracting funds suited Mike Burry. More to the point,
it worked. He’d started Scion Capital with a bit more than a million
dollars—the money from his mother and brothers and his own million,
after tax. Right from the start, Scion Capital was madly, almost
comically successful. In his first full year, 2001, the S&P 500 fell
11.88 percent. Scion was up 55 percent. The next year, the S&P 500
fell again, by 22.1 percent, and yet Scion was up again: 16 percent.
The next year, 2003, the stock market finally turned around and rose
28.69 percent, but Mike Burry beat it again—his investments rose by 50
percent. By the end of 2004, Mike Burry was managing $600 million and
turning money away. “If he’d run his fund to maximize the amount he
had under management, he’d have been running many, many billions of
dollars,” says a New York hedge-fund manager who watched Burry’s
performance with growing incredulity. “He designed Scion so it was bad
for business but good for investing.”

Thus when Mike Burry went into business he disapproved of the typical
hedge-fund manager’s deal. Taking 2 percent of assets off the top, as
most did, meant the hedge-fund manager got paid simply for amassing
vast amounts of other people’s money. Scion Capital charged investors
only its actual expenses—which typically ran well below 1 percent of
the assets. To make the first nickel for himself, he had to make
investors’ money grow. “Think about the genesis of Scion,” says one of
his early investors. “The guy has no money and he chooses to forgo a
fee that any other hedge fund takes for granted. It was unheard of.”

By the middle of 2005, over a period in which the broad stock-market
index had fallen by 6.84 percent, Burry’s fund was up 242 percent, and
he was turning away investors. To his swelling audience, it didn’t
seem to matter whether the stock market rose or fell; Mike Burry found
places to invest money shrewdly. He used no leverage and avoided
shorting stocks. He was doing nothing more promising than buying
common stocks and nothing more complicated than sitting in a room
reading financial statements. Scion Capital’s decision-making
apparatus consisted of one guy in a room, with the door closed and the
shades down, poring over publicly available information and data on 10-
K Wizard. He went looking for court rulings, deal completions, and
government regulatory changes—anything that might change the value of
a company.

As often as not, he turned up what he called “ick” investments. In
October 2001 he explained the concept in his letter to investors: “Ick
investing means taking a special analytical interest in stocks that
inspire a first reaction of ‘ick.’” A court had accepted a plea from a
software company called the Avanti Corporation. Avanti had been
accused of stealing from a competitor the software code that was the
whole foundation of Avanti’s business. The company had $100 million in
cash in the bank, was still generating $100 million a year in free
cash flow—and had a market value of only $250 million! Michael Burry
started digging; by the time he was done, he knew more about the
Avanti Corporation than any man on earth. He was able to see that even
if the executives went to jail (as five of them did) and the fines
were paid (as they were), Avanti would be worth a lot more than the
market then assumed. To make money on Avanti’s stock, however, he’d
probably have to stomach short-term losses, as investors puked up
shares in horrified response to negative publicity.

Continued (page 5 of 8)

“That was a classic Mike Burry trade,” says one of his investors. “It
goes up by 10 times, but first it goes down by half.” This isn’t the
sort of ride most investors enjoy, but it was, Burry thought, the
essence of value investing. His job was to disagree loudly with
popular sentiment. He couldn’t do this if he was at the mercy of very
short-term market moves, and so he didn’t give his investors the
ability to remove their money on short notice, as most hedge funds
did. If you gave Scion your money to invest, you were stuck for at
least a year.

Investing well was all about being paid the right price for risk.
Increasingly, Burry felt that he wasn’t. The problem wasn’t confined
to individual stocks. The Internet bubble had burst, and yet house
prices in San Jose, the bubble’s epicenter, were still rising. He
investigated the stocks of homebuilders and then the stocks of
companies that insured home mortgages, like PMI. To one of his friends—
a big-time East Coast professional investor—he wrote in May 2003 that
the real-estate bubble was being driven ever higher by the irrational
behavior of mortgage lenders who were extending easy credit. “You just
have to watch for the level at which even nearly unlimited or
unprecedented credit can no longer drive the [housing] market higher,”
he wrote. “I am extremely bearish, and feel the consequences could
very easily be a 50% drop in residential real estate in the U.S.…A
large portion of current [housing] demand at current prices would
disappear if only people became convinced that prices weren’t rising.
The collateral damage is likely to be orders of magnitude worse than
anyone now considers.”

On May 19, 2005, Mike Burry did his first subprime-mortgage deals. He
bought $60 million of credit-default swaps from Deutsche Bank—$10
million each on six different bonds. “The reference securities,” these
were called. You didn’t buy insurance on the entire subprime-mortgage-
bond market but on a particular bond, and Burry had devoted himself to
finding exactly the right ones to bet against. He likely became the
only investor to do the sort of old-fashioned bank credit analysis on
the home loans that should have been done before they were made. He
was the opposite of an old-fashioned banker, however. He was looking
not for the best loans to make but the worst loans—so that he could
bet against them. He analyzed the relative importance of the loan-to-
value ratios of the home loans, of second liens on the homes, of the
location of the homes, of the absence of loan documentation and proof
of income of the borrower, and a dozen or so other factors to
determine the likelihood that a home loan made in America circa 2005
would go bad. Then he went looking for the bonds backed by the worst
of the loans.

It surprised him that Deutsche Bank didn’t seem to care which bonds he
picked to bet against. From their point of view, so far as he could
tell, all subprime-mortgage bonds were the same. The price of
insurance was driven not by any independent analysis but by the
ratings placed on the bond by Moody’s and Standard & Poor’s. If he
wanted to buy insurance on the supposedly riskless triple-A-rated
tranche, he might pay 20 basis points (0.20 percent); on the riskier,
A-rated tranches, he might pay 50 basis points (0.50 percent); and on
the even less safe, triple-B-rated tranches, 200 basis points—that is,
2 percent. (A basis point is one-hundredth of one percentage point.)
The triple-B-rated tranches—the ones that would be worth zero if the
underlying mortgage pool experienced a loss of just 7 percent—were
what he was after. He felt this to be a very conservative bet, which
he was able, through analysis, to turn into even more of a sure thing.
Anyone who even glanced at the prospectuses could see that there were
many critical differences between one triple-B bond and the next—the
percentage of interest-only loans contained in their underlying pool
of mortgages, for example. He set out to cherry-pick the absolute
worst ones and was a bit worried that the investment banks would catch
on to just how much he knew about specific mortgage bonds, and adjust
their prices.

Once again they shocked and delighted him: Goldman Sachs e-mailed him
a great long list of crappy mortgage bonds to choose from. “This was
shocking to me, actually,” he says. “They were all priced according to
the lowest rating from one of the big-three ratings agencies.” He
could pick from the list without alerting them to the depth of his
knowledge. It was as if you could buy flood insurance on the house in
the valley for the same price as flood insurance on the house on the
mountaintop.

The market made no sense, but that didn’t stop other Wall Street firms
from jumping into it, in part because Mike Burry was pestering them.
For weeks he hounded Bank of America until they agreed to sell him $5
million in credit-default swaps. Twenty minutes after they sent their
e-mail confirming the trade, they received another back from Burry:
“So can we do another?” In a few weeks Mike Burry bought several
hundred million dollars in credit-default swaps from half a dozen
banks, in chunks of $5 million. None of the sellers appeared to care
very much which bonds they were insuring. He found one mortgage pool
that was 100 percent floating-rate negative-amortizing mortgages—where
the borrowers could choose the option of not paying any interest at
all and simply accumulate a bigger and bigger debt until, presumably,
they defaulted on it. Goldman Sachs not only sold him insurance on the
pool but sent him a little note congratulating him on being the first
person, on Wall Street or off, ever to buy insurance on that
particular item. “I’m educating the experts here,” Burry crowed in an
e-mail.

He wasn’t wasting a lot of time worrying about why these supposedly
shrewd investment bankers were willing to sell him insurance so
cheaply. He was worried that others would catch on and the opportunity
would vanish. “I would play dumb quite a bit,” he said, “making it
seem to them like I don’t really know what I’m doing. ‘How do you do
this again?’ ‘Oh, where can I find that information?’ or ‘Really?’—
when they tell me something really obvious.” It was one of the fringe
benefits of living for so many years essentially alienated from the
world around him: he could easily believe that he was right and the
world was wrong.

The more Wall Street firms jumped into the new business, the easier it
became for him to place his bets. For the first few months, he was
able to short, at most, $10 million at a time. Then, in late June
2005, he had a call from someone at Goldman Sachs asking him if he’d
like to increase his trade size to $100 million a pop. “What needs to
be remembered here,” he wrote the next day, after he’d done it, “is
that this is $100 million. That’s an insane amount of money. And it
just gets thrown around like it’s three digits instead of nine.”

By the end of July he owned credit-default swaps on $750 million in
subprime-mortgage bonds and was privately bragging about it. “I
believe no other hedge fund on the planet has this sort of investment,
nowhere near to this degree, relative to the size of the portfolio,”
he wrote to one of his investors, who had caught wind that his hedge-
fund manager had some newfangled strategy. Now he couldn’t help but
wonder who exactly was on the other side of his trades—what madman
would be selling him so much insurance on bonds he had handpicked to
explode? The credit-default swap was a zero-sum game. If Mike Burry
made $100 million when the subprime-mortgage bonds he had handpicked
defaulted, someone else must have lost $100 million. Goldman Sachs
made it clear that the ultimate seller wasn’t Goldman Sachs. Goldman
Sachs was simply standing between insurance buyer and insurance seller
and taking a cut.

The willingness of whoever this person was to sell him such vast
amounts of cheap insurance gave Mike Burry another idea: to start a
fund that did nothing but buy insurance on subprime-mortgage bonds. In
a $600 million fund that was meant to be picking stocks, his bet was
already gargantuan, but if he could raise the money explicitly for
this new purpose, he could do many billions more. In August he wrote a
proposal for a fund he called Milton’s Opus and sent it out to his
investors. (“The first question was always ‘What’s Milton’s Opus?’”
He’d say, “Paradise Lost,” but that usually just raised another
question.) Most of them still had no idea that their champion stock
picker had become so diverted by these esoteric insurance contracts
called credit-default swaps. Many wanted nothing to do with it; a few
wondered if this meant that he was already doing this sort of thing
with their money.

Continued (page 6 of 8)

Instead of raising more money to buy credit-default swaps on subprime-
mortgage bonds, he wound up making it more difficult to keep the ones
he already owned. His investors were happy to let him pick stocks on
their behalf, but they almost universally doubted his ability to
foresee big macro-economic trends. And they certainly didn’t see why
he should have any special insight into the multi-trillion-dollar
subprime-mortgage-bond market. Milton’s Opus died a quick death.

In October 2005, in his letter to investors, Burry finally came
completely clean and let them know that they owned at least a billion
dollars in credit-default swaps on subprime-mortgage bonds. “Sometimes
markets err big time,” he wrote. “Markets erred when they gave America
Online the currency to buy Time Warner. They erred when they bet
against George Soros and for the British pound. And they are erring
right now by continuing to float along as if the most significant
credit bubble history has ever seen does not exist. Opportunities are
rare, and large opportunities on which one can put nearly unlimited
capital to work at tremendous potential returns are even more rare.
Selectively shorting the most problematic mortgage-backed securities
in history today amounts to just such an opportunity.”

In the second quarter of 2005, credit-card delinquencies hit an all-
time high—even though house prices had boomed. That is, even with this
asset to borrow against, Americans were struggling more than ever to
meet their obligations. The Federal Reserve had raised interest rates,
but mortgage rates were still effectively falling—because Wall Street
was finding ever more clever ways to enable people to borrow money.
Burry now had more than a billion-dollar bet on the table and couldn’t
grow it much more unless he attracted a lot more money. So he just
laid it out for his investors: the U.S. mortgage-bond market was huge,
bigger than the market for U.S. Treasury notes and bonds. The entire
economy was premised on its stability, and its stability in turn
depended on house prices continuing to rise. “It is ludicrous to
believe that asset bubbles can only be recognized in hindsight,” he
wrote. “There are specific identifiers that are entirely recognizable
during the bubble’s inflation. One hallmark of mania is the rapid rise
in the incidence and complexity of fraud.… The FBI reports mortgage-
related fraud is up fivefold since 2000.” Bad behavior was no longer
on the fringes of an otherwise sound economy; it was its central
feature. “The salient point about the modern vintage of housing-
related fraud is its integral place within our nation’s institutions,”
he added.

When his investors learned that their money manager had actually put
their money directly where his mouth had long been, they were not
exactly pleased. As one investor put it, “Mike’s the best stock picker
anyone knows. And he’s doing … what?” Some were upset that a guy they
had hired to pick stocks had gone off to pick rotten mortgage bonds
instead; some wondered, if credit-default swaps were such a great
deal, why Goldman Sachs would be selling them; some questioned the
wisdom of trying to call the top of a 70-year housing cycle; some
didn’t really understand exactly what a credit-default swap was, or
how it worked. “It has been my experience that apocalyptic forecasts
on the U.S. financial markets are rarely realized within limited
horizons,” one investor wrote to Burry. “There have been legitimate
apocalyptic cases to be made on U.S. financial markets during most of
my career. They usually have not been realized.” Burry replied that
while it was true that he foresaw Armageddon, he wasn’t betting on it.
That was the beauty of credit-default swaps: they enabled him to make
a fortune if just a tiny fraction of these dubious pools of mortgages
went bad.

Inadvertently, he’d opened up a debate with his own investors, which
he counted among his least favorite activities. “I hated discussing
ideas with investors,” he said, “because I then become a Defender of
the Idea, and that influences your thought process.” Once you became
an idea’s defender, you had a harder time changing your mind about it.
He had no choice: among the people who gave him money there was pretty
obviously a built-in skepticism of so-called macro thinking. “I have
heard that White Mountain would rather I stick to my knitting,” he
wrote, testily, to his original backer, “though it is not clear to me
that White Mountain has historically understood what my knitting
really is.” No one seemed able to see what was so plain to him: these
credit-default swaps were all part of his global search for value. “I
don’t take breaks in my search for value,” he wrote to White Mountain.
“There is no golf or other hobby to distract me. Seeing value is what
I do.”

When he’d started Scion, he told potential investors that, because he
was in the business of making unfashionable bets, they should evaluate
him over the long term—say, five years. Now he was being evaluated
moment to moment. “Early on, people invested in me because of my
letters,” he said. “And then, somehow, after they invested, they
stopped reading them.” His fantastic success attracted lots of new
investors, but they were less interested in the spirit of his
enterprise than in how much money he could make them quickly. Every
quarter, he told them how much he’d made or lost from his stock picks.
Now he had to explain that they had to subtract from that number these
& subprime-mortgage-bond insurance premiums. One of his New York
investors called and said ominously, “You know, a lot of people are
talking about withdrawing funds from you.” As their funds were
contractually stuck inside Scion Capital for some time, the investors’
only recourse was to send him disturbed-sounding e-mails asking him to
justify his new strategy. “People get hung up on the difference
between +5% and -5% for a couple of years,” Burry replied to one
investor who had protested the new strategy. “When the real issue is:
over 10 years who does 10% or better annually? And I firmly believe
that to achieve that advantage on an annual basis, I have to be able
to look out past the next couple of years.… I have to be steadfast in
the face of popular discontent if that’s what the fundamentals tell
me.” In the five years since he had started, the S&P 500, against
which he was measured, was down 6.84 percent. In the same period, he
reminded his investors, Scion Capital was up 242 percent. He assumed
he’d earned the rope to hang himself. He assumed wrong. “I’m building
breathtaking sand castles,” he wrote, “but nothing stops the tide from
coming and coming and coming.”

Oddly, as Mike Burry’s investors grew restive, his Wall Street
counterparties took a new and envious interest in what he was up to.
In late October 2005, a subprime trader at Goldman Sachs called to ask
him why he was buying credit-default swaps on such very specific
tranches of subprime-mortgage bonds. The trader let it slip that a
number of hedge funds had been calling Goldman to ask “how to do the
short housing trade that Scion is doing.” Among those asking about it
were people Burry had solicited for Milton’s Opus—people who had
initially expressed great interest. “These people by and large did not
know anything about how to do the trade and expected Goldman to help
them replicate it,” Burry wrote in an e-mail to his C.F.O. “My
suspicion is Goldman helped them, though they deny it.” If nothing
else, he now understood why he couldn’t raise money for Milton’s Opus.
“If I describe it enough it sounds compelling, and people think they
can do it for themselves,” he wrote to an e-mail confidant. “If I
don’t describe it enough, it sounds scary and binary and I can’t raise
the capital.” He had no talent for selling.

Now the subprime-mortgage-bond market appeared to be unraveling. Out
of the blue, on November 4, Burry had an e-mail from the head subprime
guy at Deutsche Bank, a fellow named Greg Lippmann. As it happened,
Deutsche Bank had broken off relations with Mike Burry back in June,
after Burry had been, in Deutsche Bank’s view, overly aggressive in
his demands for collateral. Now this guy calls and says he’d like to
buy back the original six credit-default swaps Scion had bought in
May. As the $60 million represented a tiny slice of Burry’s portfolio,
and as he didn’t want any more to do with Deutsche Bank than Deutsche
Bank wanted to do with him, he sold them back, at a profit. Greg
Lippmann wrote back hastily and ungrammatically, “Would you like to
give us some other bonds that we can tell you what we will pay you.”

Continued (page 7 of 8)

Greg Lippmann of Deutsche Bank wanted to buy his billion dollars in
credit-default swaps! “Thank you for the look Greg,” Burry replied.
“We’re good for now.” He signed off, thinking, How strange. I haven’t
dealt with Deutsche Bank in five months. How does Greg Lippmann even
know I own this giant pile of credit-default swaps?

Three days later he heard from Goldman Sachs. His saleswoman, Veronica
Grinstein, called him on her cell phone instead of from the office
phone. (Wall Street firms now recorded all calls made from their
trading desks.) “I’d like a special favor,” she asked. She, too,
wanted to buy some of his credit-default swaps. “Management is
concerned,” she said. They thought the traders had sold all this
insurance without having any place they could go to buy it back. Could
Mike Burry sell them $25 million of the stuff, at really generous
prices, on the subprime-mortgage bonds of his choosing? Just to
placate Goldman management, you understand. Hanging up, he pinged Bank
of America, on a hunch, to see if they would sell him more. They
wouldn’t. They, too, were looking to buy. Next came Morgan Stanley—
again out of the blue. He hadn’t done much business with Morgan
Stanley, but evidently Morgan Stanley, too, wanted to buy whatever he
had. He didn’t know exactly why all these banks were suddenly so keen
to buy insurance on subprime-mortgage bonds, but there was one obvious
reason: the loans suddenly were going bad at an alarming rate. Back in
May, Mike Burry was betting on his theory of human behavior: the loans
were structured to go bad. Now, in November, they were actually going
bad.

The next morning, Burry opened The Wall Street Journal to find an
article explaining how alarming numbers of adjustable-rate mortgage
holders were falling behind on their payments, in their first nine
months, at rates never before seen. Lower-middle-class America was
tapped out. There was even a little chart to show readers who didn’t
have time to read the article. He thought, The cat’s out of the bag.
The world’s about to change. Lenders will raise their standards;
rating agencies will take a closer look; and no dealers in their right
mind will sell insurance on subprime-mortgage bonds at anything like
the prices they’ve been selling it. “I’m thinking the lightbulb is
going to pop on and some smart credit officer is going to say, ‘Get
out of these trades,’” he said. Most Wall Street traders were about to
lose a lot of money—with perhaps one exception. Mike Burry had just
received another e-mail, from one of his own investors, that suggested
that Deutsche Bank might have been influenced by his one-eyed view of
the financial markets: “Greg Lippmann, the head [subprime-mortgage]
trader at Deutsche Bank[,] was in here the other day,” it read. “He
told us that he was short 1 billion dollars of this stuff and was
going to make ‘oceans’ of money (or something to that effect.) His
exuberance was a little scary.”

By February 2007, subprime loans were defaulting in record numbers,
financial institutions were less steady every day, and no one but Mike
Burry seemed to recall what he’d said and done. He had told his
investors that they might need to be patient—that the bet might not
pay off until the mortgages issued in 2005 reached the end of their
teaser-rate period. They had not been patient. Many of his investors
mistrusted him, and he in turn felt betrayed by them. At the beginning
he had imagined the end, but none of the parts in between. “I guess I
wanted to just go to sleep and wake up in 2007,” he said. To keep his
bets against subprime-mortgage bonds, he’d been forced to fire half
his small staff, and dump billions of dollars’ worth of bets he had
made against the companies most closely associated with the subprime-
mortgage market. He was now more isolated than he’d ever been. The
only thing that had changed was his explanation for it.

Not long before, his wife had dragged him to the office of a Stanford
psychologist. A pre-school teacher had noted certain worrying
behaviors in their four-year-old son, Nicholas, and suggested he
needed testing. Nicholas didn’t sleep when the other kids slept. He
drifted off when the teacher talked at any length. His mind seemed
“very active.” Michael Burry had to resist his urge to take offense.
He was, after all, a doctor, and he suspected that the teacher was
trying to tell them that he had failed to diagnose attention-deficit
disorder in his own son. “I had worked in an A.D.H.D. clinic during my
residency and had strong feelings that this was overdiagnosed,” he
said. “That it was a ‘savior’ diagnosis for too many kids whose
parents wanted a medical reason to drug their children, or to explain
their kids’ bad behavior.” He suspected his son was a bit different
from the other kids, but different in a good way. “He asked a ton of
questions,” said Burry. “I had encouraged that, because I always had a
ton of questions as a kid, and I was frustrated when I was told to be
quiet.” Now he watched his son more carefully and noted that the
little boy, while smart, had problems with other people. “When he did
try to interact, even though he didn’t do anything mean to the other
kids, he’d somehow tick them off.” He came home and told his wife,
“Don’t worry about it! He’s fine!”

His wife stared at him and asked, “How would you know?”

To which Dr. Michael Burry replied, “Because he’s just like me! That’s
how I was.”

Their son’s application to several kindergartens met with quick
rejections, unaccompanied by explanations. Pressed, one of the schools
told Burry that his son suffered from inadequate gross and fine motor
skills. “He had apparently scored very low on tests involving art and
scissor use,” said Burry. “Big deal, I thought. I still draw like a
four-year-old, and I hate art.” To silence his wife, however, he
agreed to have their son tested. “It would just prove he’s a smart
kid, an ‘absentminded genius.’”

Instead, the tests administered by a child psychologist proved that
their child had Asperger’s syndrome. A classic case, she said, and
recommended that he be pulled from the mainstream and sent to a
special school. And Dr. Michael Burry was dumbstruck: he recalled
Asperger’s from med school, but vaguely. His wife now handed him the
stack of books she had accumulated on autism and related disorders. On
top were The Complete Guide to Asperger’s Syndrome, by a clinical
psychologist named Tony Attwood, and Attwood’s Asperger’s Syndrome: A
Guide for Parents and Professionals.

“Marked impairment in the use of multiple non-verbal behaviors such as
eye-to-eye gaze … ” Check. “Failure to develop peer relationships … ”
Check. “A lack of spontaneous seeking to share enjoyment, interests,
or achievements with other people … ” Check. “Difficulty reading the
social/emotional messages in someone’s eyes … ” Check. “A faulty
emotion regulation or control mechanism for expressing anger … ”
Check. “One of the reasons why computers are so appealing is not only
that you do not have to talk or socialize with them, but that they are
logical, consistent and not prone to moods. Thus they are an ideal
interest for the person with Asperger’s Syndrome … ” Check. “Many
people have a hobby.… The difference between the normal range and the
eccentricity observed in Asperger’s Syndrome is that these pursuits
are often solitary, idiosyncratic and dominate the person’s time and
conversation.” Check … Check …Check.

After a few pages, Michael Burry realized that he was no longer
reading about his son but about himself. “How many people can pick up
a book and find an instruction manual for their life?” he said. “I
hated reading a book telling me who I was. I thought I was different,
but this was saying I was the same as other people. My wife and I were
a typical Asperger’s couple, and we had an Asperger’s son.” His glass
eye no longer explained anything; the wonder is that it ever had. How
did a glass eye explain, in a competitive swimmer, a pathological fear
of deep water—the terror of not knowing what lurked beneath him? How
did it explain a childhood passion for washing money? He’d take dollar
bills and wash them, dry them off with a towel, press them between the
pages of books, and then stack books on top of those books—all so he
might have money that looked “new.” “All of a sudden I’ve become this
caricature,” said Burry. “I’ve always been able to study up on
something and ace something really fast. I thought it was all
something special about me. Now it’s like ‘Oh, a lot of Asperger’s
people can do that.’ Now I was explained by a disorder.”

He resisted the news. He had a gift for finding and analyzing
information on the subjects that interested him intensely. He always
had been intensely interested in himself. Now, at the age of 35, he’d
been handed this new piece of information about himself—and his first
reaction to it was to wish he hadn’t been given it. “My first thought
was that a lot of people must have this and don’t know it,” he said.
“And I wondered, Is this really a good thing for me to know at this
point? Why is it good for me to know this about myself?”

He went and found his own psychologist to help him sort out the effect
of his syndrome on his wife and children. His work life, however,
remained uninformed by the new information. He didn’t alter the way he
made investment decisions, for instance, or the way he communicated
with his investors. He didn’t let his investors know of his disorder.
“I didn’t feel it was a material fact that had to be disclosed,” he
said. “It wasn’t a change. I wasn’t diagnosed with something new. It’s
something I’d always had.” On the other hand, it explained an awful
lot about what he did for a living, and how he did it: his obsessive
acquisition of hard facts, his insistence on logic, his ability to
plow quickly through reams of tedious financial statements. People
with Asperger’s couldn’t control what they were interested in. It was
a stroke of luck that his special interest was financial markets and
not, say, collecting lawn-mower catalogues. When he thought of it that
way, he realized that complex modern financial markets were as good as
designed to reward a person with Asperger’s who took an interest in
them. “Only someone who has Asperger’s would read a subprime-mortgage-
bond prospectus,” he said.

I the spring of 2007, something changed—though at first it was hard to
see what it was. On June 14, the pair of subprime-mortgage-bond hedge
funds effectively owned by Bear Stearns were in freefall. In the
ensuing two weeks, the publicly traded index of triple-B-rated
subprime-mortgage bonds fell by nearly 20 percent. Just then Goldman
Sachs appeared to Burry to be experiencing a nervous breakdown. His
biggest positions were with Goldman, and Goldman was newly unable, or
unwilling, to determine the value of those positions, and so could not
say how much collateral should be shifted back and forth. On Friday,
June 15, Burry’s Goldman Sachs saleswoman, Veronica Grinstein,
vanished. He called and e-mailed her, but she didn’t respond until
late the following Monday—to tell him that she was “out for the day.”

“This is a recurrent theme whenever the market moves our way,” wrote
Burry. “People get sick, people are off for unspecified reasons.”

On June 20, Grinstein finally returned to tell him that Goldman Sachs
had experienced “systems failure.”

That was funny, Burry replied, because Morgan Stanley had said more or
less the same thing. And his salesman at Bank of America claimed
they’d had a “power outage.”

“I viewed these ‘systems problems’ as excuses for buying time to sort
out a mess behind the scenes,” he said. The Goldman saleswoman made a
weak effort to claim that, even as the index of subprime-mortgage
bonds collapsed, the market for insuring them hadn’t budged. But she
did it from her cell phone, rather than the office line. (Grinstein
didn’t respond to e-mail and phone requests for comment.)

They were caving. All of them. At the end of every month, for nearly
two years, Burry had watched Wall Street traders mark his positions
against him. That is, at the end of every month his bets against
subprime bonds were mysteriously less valuable. The end of every month
also happened to be when Wall Street traders sent their profit-and-
loss statements to their managers and risk managers. On June 29, Burry
received a note from his Morgan Stanley salesman, Art Ringness, saying
that Morgan Stanley now wanted to make sure that “the marks are fair.”
The next day, Goldman followed suit. It was the first time in two
years that Goldman Sachs had not moved the trade against him at the
end of the month. “That was the first time they moved our marks
accurately,” he notes, “because they were getting in on the trade
themselves.” The market was finally accepting the diagnosis of its own
disorder.

It was precisely the moment he had told his investors, back in the
summer of 2005, that they only needed to wait for. Crappy mortgages
worth nearly $400 billion were resetting from their teaser rates to
new, higher rates. By the end of July his marks were moving rapidly in
his favor—and he was reading about the genius of people like John
Paulson, who had come to the trade a year after he had. The Bloomberg
News service ran an article about the few people who appeared to have
seen the catastrophe coming. Only one worked as a bond trader inside a
big Wall Street firm: a formerly obscure asset-backed-bond trader at
Deutsche Bank named Greg Lippmann. The investor most conspicuously
absent from the Bloomberg News article—one who had made $100 million
for himself and $725 million for his investors—sat alone in his
office, in Cupertino, California. By June 30, 2008, any investor who
had stuck with Scion Capital from its beginning, on November 1, 2000,
had a gain, after fees and expenses, of 489.34 percent. (The gross
gain of the fund had been 726 percent.) Over the same period the S&P
500 returned just a bit more than 2 percent.

Michael Burry clipped the Bloomberg article and e-mailed it around the
office with a note: “Lippmann is the guy that essentially took my idea
and ran with it. To his credit.” His own investors, whose money he was
doubling and more, said little. There came no apologies, and no
gratitude. “Nobody came back and said, ‘Yeah, you were right,’” he
said. “It was very quiet. It was extremely quiet.”

http://www.vanityfair.com/business/features/2010/04/wall-street-excerpt-201004

http://pragcap.com/evening-reading-88

[chhotemianinshallah]

Commentary

7 Reasons the Bulls to Run in March
By Jon Markman 03/03/10 - 06:23 AM EST

Stock quotes in this article: SII , SLB

With all the talk about debt, deficits and value destruction in the
news lately, I figured you could stand to hear something positive for
a change. So with thanks to the analysts at ISI Group in New York,
here are some strengths in the U.S. and global economy to put into
your mix of thoughts:

7. The Recovery Is Just Getting Started: The past nine economic
expansions have lasted 62 months on average. We are probably now in
only the eighth month of the current expansion. (An expansion starts
when a recession ends.) 6. We Have Years of Growth Ahead: The last
expansion, from late 2002 to mid-2007, was 73 months, or slightly
longer than average. Other recent expansions included 120 months
(1991-2000); 1983-1990 (92 months); 1980-81 (12 months); 1975-1979 (58
months); 1971-1973 (36 months); 1961-1969 (106 months). So you can
see, most are multiyear affairs.

5. Yes, the Labor Market Is Improving: Unemployment may be stagnant,
but on a trailing 12-month average basis, it is improving quite a bit,
which is how investors tend to see it. (The one-month snapshots are
deceiving). As the labor market improves, retail sales are turning up,
and as retail sales turn up, the labor market has improved. That's
another one of those virtuous cycles.

To help make sure you are in the stocks that are rising in this
environment, following are my top five stocks for March.

Layoff announcements have declined to a new low. Again, as the labor
market has improved, oil prices have increased, helping to explain the
sharp +89% annualized increase in the rig count and last week's
purchase of Smith International(SII Quote) by Schlumberger(SLB Quote).
As the rig count has risen, layoffs in the oil patch have diminished.
That's another virtuous cycle.

4. Exports Up Even on a Strong Dollar: U.S. goods exports are up 36%
annualized in the last six months. Exports to emerging-market
countries, which account for more than half of U.S. exports, have
surged at a 42% annualized rate, led by Mexico and China. Exports to
developed countries are up 31% annualized, led by Canada and the
United Kingdom. And this is all with the dollar trading strongly
compared to the euro and other currencies. Naturally, a lot of those
exports reflect the global swing higher in inventory after huge
drawdowns in 2009, but they are also powering big recoveries in other
countries besides the U.S., with Russia, Mexico and Korea seeing among
the most prominent rise in exports, at +79%, 55% and 40%,
respectively.

3. China Is Still Red Hot: Although the Chinese stock markets remain
under pressure due to a tightening of money, ISI's survey of Chinese
sales rose last month to the highest level in a year and a half. Last
week saw a surge in Chinese vehicle sales and purchases of U.S.
goods.

2. China Is Not the Only Booming Region: While the global recovery
from the 2008-09 wipeout is solid, some countries are posting much
better results than others as successful sets of actions are
differentiating themselves. This is called an "asynchronous" recovery
by economists. The best real GDP reports in the fourth quarter came
from China, +9.9%; Indonesia, +5.9%; U.S., +5.7%; Japan, +4.6%;
Philippines, +3.8%; France, +1.9%. Among the worst: Latvia, -8.9%;
Greece, -3.9%; Czech Republic, -3.1%; Spain, -0.7%. 1. Attitudes Are
Improving: Optimism is spreading, which is important as confidence is
a huge part of spending by both countries and individuals. USA Today
reported last week that nearly two-thirds of Americans call their
outlook for the United States over the next 20 years optimistic, and
more than six in 10 say today's youth will have a better life than
their parents. Meanwhile, the Business Council reported that top U.S.
executives say their companies are aggressively planning to grow,
according to a Reuters story. And Business Week reported that U.S.
executives are boosting earnings estimates at their fastest pace since
2002.

I love listing this news, as it helps to explain why investors retain
their resilience. But I would be remiss if I did not also point out
that so far bank loan officers don't seem to share in the positive
vibe. Declining bank loans in the U.S. and flat lending in Europe help
explain why money growth is sluggish in both regions, according to ISI
analysis. Weak money growth will pose a big problem for economic
activity, as companies and individuals simply must have more access to
reasonable amounts of credit -- not crazy amounts, just what used to
be considered normal -- to grow.

The strange and unexplained element in all this is that short-term
interest rates have never been essentially zero for the biggest
borrowers as they are now. And when I say never, I mean going back to
at least the 1700s, according to analysts at Grant's Interest Rate
Observer. Pessimists could say that if you can't get an unbelievably
strong recovery when rates are at zero, then how are you going to get
even a modest recovery when rates begin to rise, as they are now.
We'll leave that very good question for another day.

For now we'll just conclude that growth is robust enough to support at
least a modest recovery over the next year, and that well-run
companies facing global demand should continue to attract investors'
interest enough to keep the market chugging forward.

Expectations for that growth will be uneven and exasperating at times,
as in the last month, which means our eyes should remain on the
horizon rather than at our feet. That's what makes this a very tricky
period in which to be successful as an investor, as gains will come in
spurts and will be interspersed with some harrowing declines. Stay
positive and focused, and roll with the punches.

4 Comments

ekaneti

This overly optimistic piece is very light on any real analysis. Even
Brian Westbury (AKA Mr Sunshine) provides hard data to support his V
shaped recovery scenarios.

1. Consumption is 70% of GDP: Problem from WW2 up until the late 1990s
C= 62-65% of GDP. G has grown from 20% to 25% of GDP in just two
years. That doesnt leave much room for Investment (I). A nation that
consumes and spends at the govt level and neglects business I will not
have a long run levle of growth that will be very high

2. Since 1997 all consumption growth has come from consumers borrowing
against rising asset values. That isnt happening any more. To make
matters worse, the savings rate fell to 3% in Feb from 4% in Sep and
7% in May 2009. Where is future consumption going to come from?

3. Debt at the household level has fallen back only to mid 2007
levels. It needs to fall back to 2001 levels in order to have a
lasting recovery.

4. Budget deficit. The author poop poops the deficit but it is 10% of
GDP. Like I mentioned above households are saving only 3% and foreign
borrowing (trade deficit) is about 4%. That isnt enough to cover the
federal budget deficit. The shortfall is being made up by banks buying
treasuries and the Fed conducting OMOs. The Treasury is now totally
dependent on the Fed and banks buying treasuries rather than lending
to businesses.

5. The author maker 0% interest rates seem like a good thing. They
ARENT. What 0% rates will do is completely distort risk taking and
will result in a massive misallocation of capital. Kinda like ultra-
low rates in 2002-06 did for housing. Only this time it is worse.

Even Brian Westbury (AKA Mr Sunshine) says this recovery wont be long
lasting and will likely be inflationary. What we are seeing now is a
cyclical recovery based on artificial stimulus and cheap money. It
isnt sustainable. Structurally, the US economy is in worse shape that
it has ever been as the beginning of an economic expansion.

By ekaneti on 3/3/10 5:42 PM | Neutral

dkdshie

i know the news would like you to believe the stock market will crash
forever but it wont, alot of bad news already baked into the market
and the market has been dropping for three + years already. we are
generally on an upward trend until people really start believing it,
then we will be at the top By dkdshie on 3/3/10 2:09 PM | -2 Votes

jakebarnes

I wish you were right, I also wish I could fly.
For each "upbeat" item you list there is a proviso or a caveat
included. Just the wall of worry or a real tidal wave about to crush
investors? By jakebarnes on 3/3/10 1:29 PM | + 1 Vote

screwedincal

Another person ignoring the debt of cities, states and countries! Oh,
must be in the STOCK MARKET! Lets keep goosing the goose! By
screwedincal on 3/3/10 12:27 PM | + 2 Votes

http://www.thestreet.com/story/10693712/1/7-reasons-the-bulls-to-run-in-march.html?kval=dontmiss

UP AND DOWN WALL STREET | WEDNESDAY, MARCH 3, 2010 The Case for Bonds
By RANDALL W. FORSYTH

Despite a spate of bad press recently, bonds aren't as risky as their
critics make them out to be.

BONDS HAVE BEEN GETTING worse press than Toyota recently. You can't
pick up a financial publication these days that doesn't ominously warn
of rising interest rates and how they will decimate the fixed-income
investments to which individual investors have been flocking.

"The Big Bond Bubble" is spied in last month's Smart Money magazine
(which, like Barrons.com, is published by Dow Jones, a unit of News
Corp.) "Investors have bought bonds like they've been going out of
style. But things could turn ugly fast," the monthly contends.

Similarly, Smart Money columnist James B. Stewart similarly warns
investors to "Prepare Your Portfolio for Higher Rates," which
"typically ravage the value of fixed-income assets like bonds."

And Monday's Wall Street Journal quotes a money manager that "bonds
could be among the worst-performing investments this year."

But a few bond pros beg to differ.

Rising interest rates remain a forecast and not a certainty. Even if
the Federal Reserve begins to push up its short-term policy rates
from, that doesn't necessarily translate into significantly higher
yields -- and therefore lower prices -- for intermediate- and long-
term bonds.

The bear case for bonds would appear to be obvious. The Fed at some
point will raise its target rate for overnight federal funds from the
current rock-bottom range of 0-0.25%. Even though the central bank has
said it intends to keep the fed-funds target at very low levels "for
an extended period" -- which would extend well into the second half of
the year -- some increase eventually is inevitable. Indeed,
maintaining a near-zero policy rate already risks a rise in inflation.

Moreover, the Fed is due to wind down its purchases of $1.25 trillion
in mortgage-backed securities issued by federal agencies Fannie Mae
(FNM) and Freddie Mac (FRE) along with buys of $175 billion of direct
agency obligations. Meantime, the massive federal deficit means the
Treasury will be spewing out trillions of dollars of bills, notes and
bonds annually for as far as the eye can see. The quantity of state
and local debt is going up while its quality is deteriorating because
of their well-advertised fiscal problems. And while corporations'
balance sheets are in good shape, their bonds' margin of safety have
shriveled as yields have plunged.

Robert Kessler, who heads the eponymously named Kessler Investment
Advisors of Denver, takes issue with the assertion that big budget
deficits will raise interest rates or that inflation poses a clear and
present threat. Big budget deficits have been empirically associated
with falling bond yields, as during early 1980s.

Indeed, the quarter-century downtrend in the Treasury 10-year yield
remains intact, he continues. Despite the reversal in this benchmark
yield last year, from a low of 2% at the depths of the credit panic to
nearly 4%, a chart shows the downward sloping channel stretching back
to 1985 has not been violated. Moreover, since inflation and interest
rates historically don't bottom until two years or more after the end
of a recession, still lower lows are possible, Kessler concludes.

Even if the Fed were to raise the funds rate, bond-market veteran
James Kochan of Wells Fargo points out that does not necessarily
translate into an equivalent increase in bond yields.

In the past 30 years, there were six instances of Fed tightenings, and
in five of them, the yield curve was quite steep; that is, the graph
of interest rates of increasing maturities had sharply upward slope.
In those cases, the funds rate was increased by 100% (in other words,
doubled), while the yield on the two-year Treasury note was 40%.

For the 10- and 30-year maturities, the yield increased averaged only
8% and 5%, respectively. In three of the cycles -- 1987, 1999 and 2004
-- the 30-year bond yield remained essentially unchanged.

On an absolute basis, Kochan continues, the current yield curve with a
450 basis-point (4.5 percentage point) difference between the three-
month bill and 30-year bond yield. But with short-term rates pinned
nearly at zero, the long bond yields 45 times as much as the bill, a
far cry from 1992, when the bond yielded 2.5 times as much as the
bill. As a result, he contends, the yield curve should flatten at
least as much as in past cycles.

If the two-year note yield were to rise to 3%, from 0.8% currently,
the 10- and 30-year yields might rise 50 and 25 basis points,
respectively, to 4.1% and 4.8%. Over a two-year time frame, the total
return of the two-year note would be 1%, 2.75% for the five-year note,
4% for the 10-year note and 5.75% for the long bond, Kochan estimates.

"To be sure, there is no guarantee that this Fed tightening cycle will
mimic the previous cycles, but history strongly suggests that
investors who now hold only 'safe' positions in cash substitutes will
earn far less over the next year or two than those who own the longer
maturities or funds in both the taxable and municipal markets," says
Kochan.

While the very steep yield curve already incorporates expectations of
higher interest rates, investors needing both current income and
stability of principal face a tradeoff between the two. No longer can
a retiree or a small school or church endowment count on 4% or 5% on a
certificate of deposit to meet those dual goals. Now, to cite Will
Rogers' aphorism, they have to choose between return on capital and
return of capital.

Highly rated funds that juggle those two, often-conflicting goals
include Sit U.S. Government Securities (SNGVX), which carries
Morningstar's highest, four-star rating. The fund has a 4.19% yield
from a portfolio of mainly agency MBS with a duration under two years.
Translation: it has low credit and interest-rate risk. RidgeWorth
Intermediate Bond (SAMIX), which gets four stars from Morningstar, has
lower risk than its peers with high returns.

Investors who sit in cash may think they're passively sitting on the
sidelines. But, as Kessler points out, accepting nil returns on cash
equivalents actually is an active decision to forego current returns
in favor of higher yields and lower bond prices in the future. Given
the near-zero short-term rates and the steep yield curve, the
opportunity cost is steep.

.Comments: randall...@barrons.com

http://online.barrons.com/article/SB126756452820554659.html?mod=BOL_hpp_dc

Greece - From Hard Money to Fool's GoldAxel Merk, March 2, 2010

When Greece invented the Olympic Games in 776 BC, the top prize was an
olive wreath, not gold. And in those days, Greece sought out the top
runners, rather than compete for a discipline not approved by the
International Olympic Committee (IOC): governmental financial
engineering.

If we only brought the original Olympic spirit back, maybe we could
solve the world’s challenges. During the ancient Games, Olympic Truce
stopped wars to allow safe travel for athletes. Not long after
inventing the Olympic Games, Greece was the world’s first country to
establish democracy in 508 BC. Not long thereafter, after a series of
finds, precious metals spread throughout Greece in the 5th century BC.
The following centuries represented an era of price stability and
resulting prosperity, not seen before, not since: after. Athens
managed to gain universal acceptance of their silver coins, by taking
every precaution to maintain their integrity: “Even in times of tragic
national disaster, when the treasury was empty and Attica occupied by
an enemy, Athens refused to debase this silver coinage. As a
consequence, the Athenian owl became current in all markets and an
article for export. It remained a most acceptable currency throughout
the Mediterranean for 600 years.” 1Indeed, our firm’s logo is inspired
by the ancient Athenian owl.

While ancient Greece may have had sound money, the “good old days” had
their share of challenges. Athens, just like any modern city, also
spent too much. Stoically, Athens refused to take on debt; direct
taxes were not an option as they were considered servile; however,
Athens imposed a capital levy to fill its coffers. While it was more
common to accumulate treasures as war chests, Greek states outside of
Athens frequently borrowed money, albeit they had a reputation for
being rather arbitrary with creditors. States often relied on wealthy
individuals as guarantors (“foreloaners”) to lower their cost of
borrowing. Some Greek states became creative financial engineers to
raise money, one of them promising 10% interest in perpetuity on loans
from citizens (the first perpetuities).

Let’s fast forward to this century. Like most countries, Greece spent
a great deal of money before and throughout the financial crisis.
Governments have started to realize that financing all this debt costs
money – and they are shocked. Stronger countries, like the U.S., are
borrowing trillions in the market this year, crowding out access to
credit for smaller countries. As of this writing, the U.S. government
pays 3.64% to borrow money for 10 years; in the eurozone, Germany
3.11%; France 3.40%; Spain 3.90%; Italy 4.03%; Greece 6.64%.

Merk Insights provide the Merk Perspective on currencies, global
imbalances, the trade deficit, the socio-economic impact of the U.S.
administration's policies and more.

Read past Merk Insights

Let’s take a step back to understand the dynamics playing out in how
countries cope with the rising debt burden; it should become apparent
that Greece is not the only country striving for gold in financial
engineering. Countries have different constraints on how to spend
money, but the common theme throughout the world – and throughout
history – is that it is far easier to ratchet up than to rein in
spending:

•Keeping spending in check in the U.S. is as difficult as anywhere:
the “pay-as-you-go” rules in place when Robert Rubin was Treasury
Secretary under Clinton were thrown out the window when they were no
longer convenient. The rule stipulated that new spending programs may
only be put in place when other spending programs are cancelled or new
revenue sources created. The recently re-introduced pay-go rule only
has PR appeal, but no substance. More importantly, the U.S. budget has
become increasingly inflexible, as the discretionary portion of the
budget has shrank to just 12% of the total government’s budget these
days. As far as creative accounting is concerned, the U.S. is a clear
leader in creating off balance sheet vehicles. The government
sponsored entities (GSEs) Fannie Mae and Freddie Mac, both put into
‘conservatorship’ in the summer of 2008 were well known off balance
sheet vehicles where government debt is shielded from the public; only
after extensive negotiations with the General Accounting Office (GAO)
was the GSE debt formally added to the national deficit.

The most powerful off-balance sheet vehicle is the Federal Reserve;
when the Fed “prints” money, it does not show up as new debt; in Fed
talk, the “resources of the Federal Reserve” are employed to provide
support to the markets. As a percentage of pre-crisis levels, the
U.S., U.K and Sweden were the leaders in printing money. Note that the
European Central Bank did not make it to the winner’s podium in this
contest, but was relatively restrained.

•When faced with a logjam in parliament and an inability to print
money, states become creative. California with its dysfunctional
budgeting process (a two thirds majority is needed to pass the budget)
has in the past issued IOUs; those expecting tax refunds are easy
targets for such maneuvers.

In the current budget negotiations, California is getting even more
creative: governor Schwarzenegger has proposed to replace the sales
tax on gasoline with an excise tax. The reason? Sales tax revenue
flows into California’s General Fund and is subject to minimum
spending requirements on education (52-55 percent of California’s
General Fund is spent on education); by reclassifying the tax, cuts in
education could be implemented without violating state laws. However,
unlike most creative accounting, this maneuver is designed to reduce
rather than expand government spending.

•In the eurozone, member countries have committed themselves, amongst
others, to run budget deficits no larger then 3% of the respective
Gross Domestic Product (GDP); and if they can’t achieve that goal, the
countries need to produce a plan showing the path they intend to take
to return to this level in due course. While the U.S. faces an
unsustainable 11% deficit this year, the eurozone’s deficit is closer
to 6% (Greece’s deficit is about 12%). Germany just announced it had a
3.3% deficit last year.

While everyone has been beating up on Greece, other European countries
– large and small - have also engaged in rather creative accounting.
The most obvious one may be the many privatizations we saw a decade
ago. The sale of government property is counted as revenue and
qualifies to meet the eurozone budget criteria. Of course, these sales
are one off events, but nevertheless, they helped to fill big holes in
government budgets.

Greece is a special case, if only because any published statistics are
highly unreliable (for example, Greece ‘forgot’ to include billions of
debt owed by government owned hospitals in its statistics). Well
publicized by now are Greece’s swap arrangements with a dozen
investment banks; these arrangements allowed Greece to postpone
recognizing expenditures. Goldman Sachs has since said these swap
agreements had only negligible impact on Greece’s deficit statistics;
if they were so insignificant, one has to wonder why Goldman Sachs
alone has been paid hundreds of millions to set up the swaps.

Like California, Greece cannot print its own money; California is
stuck with the U.S. dollar; Greece is stuck with the euro. Except that
Greek officials wouldn’t take no for an answer and found a loophole to
print their own money anyway. To understand what happened, here’s a
crash course on how to print money. In the U.S., it’s quite simple:
the Federal Reserve buys a security – anything, really, – from a bank
and gives them cash in return. That cash is an entry on the balance
sheet of the Fed and the bank – voila, that’s it, money has been
‘virtually’ printed. Often these purchases are not permanent in
nature, but constitute short-term financing operations where cash is
provided by the central bank overnight (these days for longer periods
as well).

The “anything” has to be qualified: the Fed is not in the business of
taking on credit risk. As a result, the Fed traditionally has bought
only government bonds; the credit crisis has watered down the
definition of what the Fed may buy, but it remains committed to the
principle.

In Europe, there is no central government that issues its own debt.
When the European Central Bank (ECB) hands out cash, it is in return
for qualifying collateral. Traditionally, government bonds of eurozone
governments have been accepted. As a result, when the Greek government
would issue debt, a bank that bought the debt could exchange it for
cash. For Greece, this mechanism proved too tempting. While Greece
can’t directly print its own money, it could coerce a local bank to
buy its bonds; this bank can then deposit the bonds with the ECB in
return for a ‘pre-approved’ loan. The overall setup is more complex
and involved – you guessed it – Goldman Sachs and the National Bank of
Greece (NBG), a Greek private bank, were instrumental in the process.
In a complex series of arrangements, a special purpose subsidiary of
NBG, Titlos, facilitated access to €5.1 billion for Greece.

Axel Merk's book, Sustainable Wealth: Achieve Financial Security in a
Volatile World of Debt and Consumption is available now.

While everyone seems to have been calling for the end of the eurozone,
we have been far more optimistic than most. The reason is that while
everyone seems to be cheating left and right, that’s certainly not a
European, but a global characteristic. At least Europe has a process
to encourage fiscal restraint – in the U.S., the federal government
seems only bound by populist support or backlash.

In the eurozone, it is far more difficult to spend or print money than
in the U.S.; as a result, we expect economic growth in the eurozone to
lag, but the currency to be far stronger. Will Greece default? We
don’t have a crystal ball either, but do know that a country is
different from an investment bank: investment banks evaporate;
countries bleed. Greece will never become the poster child of the
European Union, but we believe Greece will ultimately be seen for what
it is: a country comprising 2% of eurozone GDP. That’s because, in our
assessment, in case of Greek default, the ECB would provide unlimited
liquidity to the banking system to avoid a spillover effect. We have
already seen the emergency measures of the ECB in effect and, in our
view, they work to keep institutions afloat. We also know that other
European countries will do everything in their power to prevent any
spillover effect; Germany would, in our assessment, singlehandedly
bail out Greece for the sake of preserving peace. However, don’t
forget Greece hasn’t even asked for a bailout at this stage. That’s
because political reform at home would be impossible to implement if a
bailout were lined up.

Greece must be held accountable

That leads us to the one suggestion Greece has made: Greece would like
to receive “political support” to lower the country’s cost of
borrowing; basically, they would like a guarantee by other European
countries for their debt. While some sort of guarantee may ultimately
be provided to help Greece, we caution that countries should be
extremely careful here: in our view, the higher cost of borrowing for
Greece reflects the fact that the markets have stepped in where policy
makers have failed.

For too many years, countries with irresponsible fiscal policies
enjoyed too low interest rates. It should be apparent by now that
governments will find ways to bend the rules to spend money. Just as
it is impossible in the U.S. to create a watchdog that will prevent
the next crisis, it is impossible to successfully implement a
regulatory mechanism that forces governments to play by the rules. The
only mechanism that works is a market based one: the higher cost of
borrowing for Greece reflects their lack of fiscal discipline.
Germany, in contrast, enjoys a lower cost of borrowing than the U.S.
these days because of credible austerity measures.

White Paper
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asset class.

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Greece’s audacious maneuver to print its own money – fools’ gold - by
abusing the ECB funding mechanism shows that we must rely on the
markets to help where ethics break down. Note that the ECB was
familiar with the scheme Greece had devised; we can only imagine that
the ECB accepted it because it too believed markets would ultimately
price Greece’s debt and provide the appropriate answer. At the same
time, it is now imperative that the ECB stick by its word to only
accept Greece’s debt as collateral if its credit rating remains
adequate. Greece must be held accountable for its actions. Conversely,
it is not helpful for government officials of other eurozone countries
to try to micro-manage Greece’s fiscal policy. Let Greece manage its
own affairs in context of its obligations as directed by the European
Commission, but let them pay its price for any mismanagement through a
higher cost of borrowing. There are risk friendly investors in the
markets that will be willing to extend loans to Greece – at the right
price. Money managers from the world’s largest institutions are
calling for a bailout – of course they are: they own Greek debt and
would like European taxpayers to make their holdings appreciate in
value.

However, the best incentive for governments to get their house in
order is to have the market reward them with a lower cost of
borrowing. In practice, the world is not black and white. Let’s
monitor how Greece’s Olympic ambitions play out. While not without
risks, we believe the current environment may be a unique buying
opportunity for the euro. Throughout the financial crisis, policy
makers responded with spending and printing money. As growth is
sputtering, we believe the floodgates of cheap money are likely to
remain wide open for a considerable period. In that context, the Fed
has proved far more “efficient” than the ECB in printing money. In
that process, we believe, the U.S. dollar will sooner rather than
later resume its downward trend.

We manage the Merk Absolute Return Currency Fund, the Merk Asian
Currency Fund, and the Merk Hard Currency Fund; transparent no-load
currency mutual funds that do not typically employ leverage. To learn
more about the Funds, please visit www.merkfunds.com.

Axel Merk
Manager of the Merk Hard, Asian and Absolute Return Currency Funds,
www.merkfunds.com

Axel Merk wrote the book on Sustainable Wealth; peak inside or order
your copy today.

Axel Merk, President & CIO of Merk Investments, LLC, is an expert on
hard money, macro trends and international investing. He is considered
an authority on currencies.

The Merk Absolute Return Currency Fund seeks to generate positive
absolute returns by investing in currencies. The Fund is a pure-play
on currencies, aiming to profit regardless of the direction of the
U.S. dollar or traditional asset classes.

The Merk Asian Currency Fund seeks to profit from a rise in Asian
currencies versus the U.S. dollar. The Fund typically invests in a
basket of Asian currencies that may include, but are not limited to,
the currencies of China, Hong Kong, Japan, India, Indonesia, Malaysia,
the Philippines, Singapore, South Korea, Taiwan and Thailand.

The Merk Hard Currency Fund seeks to profit from a rise in hard
currencies versus the U.S. dollar. Hard currencies are currencies
backed by sound monetary policy; sound monetary policy focuses on
price stability.

The Funds may be appropriate for you if you are pursuing a long-term
goal with a currency component to your portfolio; are willing to
tolerate the risks associated with investments in foreign currencies;
or are looking for a way to potentially mitigate downside risk in or
profit from a secular bear market. For more information on the Funds
and to download a prospectus, please visit www.merkfunds.com.

Investors should consider the investment objectives, risks and charges
and expenses of the Merk Funds carefully before investing. This and
other information is in the prospectus, a copy of which may be
obtained by visiting the Funds' website at www.merkfunds.com or
calling 866-MERK FUND. Please read the prospectus carefully before you
invest.

The Funds primarily invest in foreign currencies and as such, changes
in currency exchange rates will affect the value of what the Funds own
and the price of the Funds' shares. Investing in foreign instruments
bears a greater risk than investing in domestic instruments for
reasons such as volatility of currency exchange rates and, in some
cases, limited geographic focus, political and economic instability,
and relatively illiquid markets. The Funds are subject to interest
rate risk which is the risk that debt securities in the Funds'
portfolio will decline in value because of increases in market
interest rates. The Funds may also invest in derivative securities
which can be volatile and involve various types and degrees of risk.
As a non-diversified fund, the Merk Hard Currency Fund will be subject
to more investment risk and potential for volatility than a
diversified fund because its portfolio may, at times, focus on a
limited number of issuers. For a more complete discussion of these and
other Fund risks please refer to the Funds' prospectuses.

This report was prepared by Merk Investments LLC, and reflects the
current opinion of the authors. It is based upon sources and data
believed to be accurate and reliable. Opinions and forward-looking
statements expressed are subject to change without notice. This
information does not constitute investment advice. Foreside Fund
Services, LLC, distributor.

1Homer & Sylla, A History of Interest Rates, 1996, p. 35

http://www.merkfunds.com/merk-perspective/insights/2010-03-02.html

[chhotemianinshallah]

MARKET WRAP – STOCKS FINISH MARGINALLY HIGHER

3 March 2010 by TPC

Stocks closed a bit higher again today as the markets cheered some
better than expected news on jobs. Fears over a dramatic decline in
February payrolls have been alleviated by positive readings from the
ISM report and the ADP employment report. Investors are likely to
look past the number regardless of the result. A weak figure will be
blamed on the weather.

The market closed well off its highs for the day as investors sell
into strength. This is now the second day running where we have seen
a morning rally evaporate. The 7% move off the recent lows has been
remarkable in many ways. The Russell 2,000 has notched 15 positive
days in the last 18 while the VIX has now fallen an incredible 15 of
the last 16 days. That’s a 94% success rate for those keeping track.
Volume was meager once again as the volume at the NYSE came in well
below 1 billion shares. Breadth was only marginally positive.

From Daily Futures:

U.S. Economy

The Institute of Supply Managements’ index of U.S. services increased
from 50.5 to 53.0 in February, stronger than expected and the highest
since December of 2007. The June 2011 eurodollars were down .01 at
98.51.

ADP Employer Services said that the economy lost 20,000 jobs in
February. They also revised January’s figures from a loss of 22,000 to
a loss of 60,000. The U.S. Labor Department will release its monthly
assessment on Friday morning.

The Mortgage Bankers Association said that its index of mortgage
applications was up 14.6% last week while the fixed rate on a 30-year
mortgage averaged 4.95%.

The March U.S. dollar index dropped .555 to 80.020 while anxieties
eased over Greece’s debt problems. Most commodities ended higher.

This afternoon, the Federal Reserve’s Beige Book said that nine of the
twelve Districts showed modest improvement. They also noted that “loan
demand remained weak across the country.”

Grains and Cotton

July wheat finished up 11.75 cents at $5.285, helped by today’s weaker
U.S. dollar. Also, May cotton closed up 1.12 at 82.97.

Livestock

According to Dow Jones Newswires, a USDA official said that Russia is
very close to allowing pork to be shipped in from the U.S. Under the
new rules, exporters will have to prove that their pork does not
contain the antibiotics that Russia has banned. June hogs closed up .
92 at a new contract high of 82.30.

May feeder cattle ended up .0037 at a new contract high of $1.0567,
helped by today’s positive economic news, but tempered by the higher
corn price.

Lumber

Statistics Canada said that lumber production by sawmills totaled
3.436 million cubic meters in December, down almost 1% from a year
ago. May lumber closed up $6.50 at $274.00.

Cocoa

The International Cocoa Organization said that it expects world
production of cocoa to fall short of consumption by 18,000 tons in
2009-2010. May cocoa ended down $6 at $2,823.

Energies

The U.S. Department of Energy (DOE) said that crude oil supplies were
up 4.1 million barrels last week to 341.6 million barrels. Supplies of
gasoline were up 700,000 barrels and heating oil supplies were down
400,000 barrels. May crude oil closed up $1.20 at $81.26, the best
close in six weeks.

The DOE also said that refinery use increased from 81.2% to 81.9% of
capacity last week. Over the past four weeks, gasoline demand was up .
1% from a year ago and distillate demand was down 4.8% from a year
ago.

Currencies

Australia’s Statistics Bureau said that real GDP was up .9% in the
fourth quarter of 2009 and up 2.7% from a year ago, better than
expected and the best quarterly growth in over two years. Australia
was the only major economy to avoid a recession in 2009. The March
Australian dollar finished up .13 at 90.40.

Greece’s government gave its approval to a combination of tax
increases and spending cuts that will reduce its deficit and possibly,
bring in some aid from Europe (see article). The March euro closed up
a penny at $1.3700.

A composite index of manufacturing and services in the Euro zone was
unchanged at 53.7 in February, a sign of steady expansion.

An index of services in the U.K. increased from 54.5 to 58.4 in
February, better than expected.

http://pragcap.com/market-wrap-stocks-finish-marginally-higher

ROSENBERG: THE MARKET LOOKS TOPPY

3 March 2010 by TPC

David Rosenberg isn’t going down without a fight. The staunch bear
believes the market is looking “toppy” and is displaying many of the
characteristics of the 2007 market highs. In a strategy note this
morning, he notes the declining rate of change in the S&P 500:

“The S&P 500 has basically been hovering around the 1,100 threshold
since October 15, getting as low as 1,042 and as high as 1,150 in what
can only be described as a tight 10% band. (As an aside, the 13 week
rate of change for the S&P 500 has swung to negative territory.) It
has split the time above and below the line almost perfectly evenly as
well (52% above, 48% below). We can understand the emotions involved
in such a prolonged sideways band — a down move to 1,080 triggers
calls for a correction, while moves up back to 1,120 prompts calls for
a new high coming around the corner.”

He says today’s market is very similar to 2007 when we hovered near
the highs for several months before tipping over. He claims the
economic data supports a market top here:

“In a secular bull market, a six-month trading range can be viewed as
a pause that refreshes. But in a secular bear market, it more than
likely reflects a classic topping formation, as was the case in the
spring and summer of 2007 when the S&P 500 also flirted with the 1,500
mark for as long a period as it has hovered around the 1,100 threshold
since last fall. Keep in mind that similar to 2007, we are starting to
see some fraying around the edges in the latest set of economic data
releases — jobless claims, housing starts and sales, core goods orders
and shipments, construction, ISM and consumer confidence.”

Source: Gluskin Sheff

http://pragcap.com/rosenberg-the-market-looks-toppy

The best of TPC

JOBS DATA BOOSTS THE MARKET

3 March 2010 by TPC

Positive jobs data is setting the table for an upside surprise for
Friday’s non-farm payrolls report. Investors have been conditioned to
believe that the jobs data will be horrendous primarily due to the
Winter storms, but this morning’s data has investors thinking it might
not be so bad.

The ADP jobs report showed a 20K decline in payrolls for February.
Weather had a smaller impact than expected. Meanwhile, the Challenger
Job-Cut Report showed that employers are laying off fewer employees.
The layoff count fell to 42K which was the lowest level since 2006
when the job market was quite healthy. Both reports imply that
companies are gearing up to begin hiring again.

The ISM non-manufacturing report reflected much of the sentiment seen
in the ISM manufacturing report. The headline figure came in better
than expected at 53 versus expectations of 51. New orders rose to 55,
employment jumped to 48.6 (from 44.6). Comments were a bit mixed:

■“Conditions for our business have substantially improved over the
last three months.” (Information)

■“We are proceeding with caution based upon the current market
conditions.” (Public Administration)

■“Business activity about the same as last month. Perhaps a slight
increase in new orders for material and services — nothing
major.” (Utilities)

■“The overall unemployment and the net effect of housing [instability]
continue to affect our business.” (Retail Trade)

■“Business is okay. Customers are doing a lot of price
shopping.” (Agriculture, Forestry, Fishing & Hunting)

More on this topic

Market Rallies Despite Disappointing ISM (Daily US Stock Market
Fundamenta..., 3/2/10) http://sharemarketcomments.blogspot.com/2010/03/market-rallies-despite-disappointing.html
Rosenberg: End Of Bear Rally (Short-Term Trading, 2/5/10)
http://short-termtrading.blogspot.com/2010/02/rosenberg-end-of-bear-rally.html
Empire State Index Surprises (Daily US Stock Market Fundamenta...,
2/17/10) http://sharemarketcomments.blogspot.com/2010/02/empire-state-index-surprises.html
Revisions to nonfarm payrolls (The Mess That Greenspan Made, 2/5/10)
http://themessthatgreenspanmade.blogspot.com/2010/02/revisions-to-nonfarm-payrolls.html

3 Comments »

Mike said:
FWIW, someone familiar with unemployment related reports (can’t
remember who it was) was on CNBC this morning saying that the ADP
report is such that it wouldn’t accurately reflect the effect of the
recent snows whereas the upcoming report should. IIRC, the explanation
was that ADP reflects people who are on the payroll list and people
usually aren’t taken off the payroll just because of a storm (they
just don’t go to work and get paid). The person went on to say that
the upcoming report should, as past reports did, reflect a significant
extra drop because of the snow storms but that drop would be made up
in the future (creating a future upside surprise).

.# 3 March 2010 at 10:46 AM

Joe said:
Still losing 400,000+ jobs a week. Spin it anyway you want, it doesnt
matter.
Blah, Blah, Blah, heard it all before.. When job losses STOP, meaning
ZERO jobs lost, that is what would be a positive.
ZZZZZZZZZZZZZZZZZZZZZ, wake me when that happens, otherwise your just
wasting our time with this bs.

.# 3 March 2010 at 1:48 PM

Hao said:

If you actually read the ADP report, it claims that their own figures
are not significantly distorted by the snow. However, it did expect
the weather to “depress the BLS estimate of the monthly change in
employment for February, but boost it for March.”

http://pragcap.com/jobs-data-boosts-the-market

Obama reasserts Volcker rule, Senate bill seen

Posted 2010/03/04 at 5:17 am EST

WASHINGTON, Mar. 4, 2010 (Reuters) — The Obama administration
reasserted its commitment to banning proprietary trading by banks with
draft legislative language on Wednesday, despite signs that Congress
is unlikely to adopt such a rule.

U.S. President Barack Obama looks on during his speech about
healthcare reform in the East Room of the White House in Washington
March 3, 2010. REUTERS/Kevin Lamarque

The rule would apply to banks, with limits slapped on large, non-bank
financial firms, as well. In addition, banks would be barred from
sponsoring or investing in hedge funds and private equity funds, under
the administration's language.

While key details were left up to regulators, the language showed the
White House is determined to push ahead with a rule it first proposed
in January, as the U.S. Senate inched its way toward acting on new
financial reform legislation.

Authored chiefly by White House economic adviser Paul Volcker, the
rule arrived late in a reform debate that has raged for months since
the severe 2008-2009 financial crisis tipped the U.S. economy into a
deep recession.

President Barack Obama in mid-2009 proposed a comprehensive package of
reforms aimed at preventing another crisis. Most of them were embraced
in a bill approved in December by the House of Representatives, but
the Volcker rule was not in the mix.

Amid ferocious lobbying by banks and Wall Street firms opposed to
reforms, Republicans have pushed the Senate toward a narrower,
compromise bill that looks likely to exclude the Volcker rule and
other key Obama proposals.

SHELBY OPEN ON WATCHDOG IN FED-SOURCES

In a potential breakthrough on Capitol Hill, sources said a senior
Republican is open to making a new government watchdog for financial
consumers a division of the Federal Reserve.

Senator Richard Shelby was said to be willing to explore the so-called
"Fed option" being promoted by Dodd as a possible compromise on the
watchdog first proposed last year by Obama.

The sources said Shelby was proposing the idea along with giving less
independence to the consumer watchdog.

For weeks now, the watchdog has been an obstacle to cutting a
bipartisan deal in the Senate on financial reform, one of the White
House's highest domestic policy priorities.

December's House bill included an independent consumer watchdog
agency, as Obama proposed, but Republicans oppose this and their
greater clout in the Senate has been decisive.

Even if Dodd and Shelby, the banking committee's top Republican, agree
to a bill in which the watchdog is relegated to a Fed division, that
aspect of the bill could face intense opposition on the Senate floor
from senior Democrats.

Treasury Secretary Timothy Geithner said on Wednesday he would not
accept reforms that failed to protect financial consumers. But his
remarks at a meeting with consumer groups, perhaps in a significant
omission, did not specifically say the watchdog must be a stand-alone
agency.

TOP DEMS HIT PUTTING WATCHDOG IN FED

Senior Democrats in Congress on Tuesday sharply criticized the idea of
putting the watchdog -- designed to shield Americans from abusive
mortgages, deceptive credit cards and other dodgy financial products
-- inside the Fed.

Representative Barney Frank, chief architect of reform in the House,
told Reuters he "thought it was a joke" when he learned about the
approach being eyed in the Senate.

Frank said on Wednesday, however, that he "could, if necessary,"
support putting the watchdog in the Treasury Department, an earlier
Dodd proposal rejected by Republicans.

Billionaire financier George Soros said in New York on Wednesday that
a consumer protection agency is urgently needed, but he called putting
it in the Fed "absolutely unacceptable.

Dodd and Republican Senator Bob Corker, a first-term banking committee
member, on Wednesday were near a final deal on revised legislation,
with Shelby involved in the talks, according to sources familiar with
the talks.

Lobbying groups for large banks sent a letter to lawmakers on
Wednesday saying that the Fed should retain its role as the supervisor

of large bank holding companies, such as Citigroup and Bank of

America.

Despite sharp criticism leveled at the U.S. central bank over its
failures as a bank supervisor before the crisis, the approach backed
by the lobbyists also will likely be included in the Dodd bill, said
lawmakers, aides and lobbyists.

They said another component of the deal calls for forming a "hybrid
resolution fund" for financing the dismantling of large financial
firms that get into trouble.

Some money for the fund would be fronted by large firms, held by the
Federal Deposit Insurance Corp, and invested in Treasury securities
that banks could keep on their balance sheets, with insurance
companies partly exempt, they said.

(Reporting by Kevin Drawbaugh and Karey Wutkowski)

(Additional reporting by Rachelle Younglai and Caren Bohan)

Copyright Reuters 2008.

http://www.newsdaily.com/stories/tre62311a-us-financial-regulation/

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1 Local Warehouse Asia- Japan Contemporary 1945 to Present
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New Emerging Japanese Economy: Opportunity and Strategy for World
Business
by Panos Mourdoukoutas

ISBN13: 9780324207125
ISBN10: 0324207123
Condition: Standard
Dustjacket: Standard
All Product Details

Only 1 left in stock at $5.95!

Synopses & Reviews

Publisher Comments:

Historically one of the most closed economies in the developed world,
Japan ? still reigning as the third largest national economy ? has
undergone a major cultural shift, resulting in a new economy where
competition and deregulation are king. As Japan regains footing as a
world economic power, companies that want to cash in on its emerging
opportunities must first understand them. In his newest book, widely
respected economist and experienced sinologist Panos Mourdoukoutas
offers invaluable insight into the rise of the old Japanese economy
and its domestic and international effects, the subsequent rapid
decline and its toll, as well as the current economic outlook. As
signs point to Japan?s economic recovery, this book emphasizes the
importance of it. Explaining how recovery will benefit the Japanese
people and Japan?s trading partners worldwide, it fully explores the
new opportunities and challenges for management.

Book News Annotation:

A Greek economist with one foot in academia and the other in business,
Mourdoukoutas reports conclusions from his study of the Japanese
economy since the late 1980s. Over the years he has become less
impressed with the economic growth, electronic gadgets, and management
system, and more impressed with the rise of living standards closer to
those of other industrialized countries. The shift from producer
prosperity to consumer prosperity, he says, is being driven by
competition, deregulation, and corporate and industry restructuring.
Annotation �2005 Book News, Inc., Portland, OR (booknews.com)

Synopsis:

Japan's economy is a global powerhouse. Find out what we can learn
from them in THE NEW EMERGING JAPANESE ECONOMY: OPPORTUNITY AND
STRATEGY FOR WORLD BUSINESS. The textbook examines Japan's Old
Economy, the impact of Japan's New Economy, and the latest strategies
that assist foreign companies in taking advantage of Japan's New
Economy and includes built in study tools.

Synopsis:

The book is in three parts. The first part is a discussion of Japan's
Old Economy, the institutions and policies that contributed to the
country's phenomenal success, the frictions they caused with her
citizens and trade partners; and the contribution of these frictions
to the rise of the New Economy. The second part is a discussion of how
Japan's New Economy has benefited world business; and the current
trends and opportunities. The third part is a discussion of a strategy
that assists foreign companies to take advantage of Japan's New
Economy.

About the Author

Panos Mourdoukoutas is a tenured Professor of Economics at Long Island
University in New York. He has written or co-written 10 previous
books. Dr. Mourdoukoutas teaching experience includes courses in
entrepreneurship, international business strategy, financial markets
and institutions, investment theory and business forecasting,
comparative economic systems, and related courses on Japan, China, and
the economics of Southeast Asia.

Table of Contents

1. Introduction I. THE FADING OLD ECONOMY 2. Economic Dualism 3.
Government Activism 4. Economic Frictions 5. The Bubble and its Burst
II. THE EMERGING NEW ECONOMY 6. Competition and Deregulation 7.
Corporate Restructuring 8. Opportunities for Foreign Business III.
STRATEGIES FOR FOREIGN BUSINESS 9. Adapt to the Japanese Business
Conditions 10. Develop New Products 11. Promote Products Aggressively
12. Summary and Conclusions

Product Details

ISBN:9780324207125
Subtitle:Opportunity and Strategy for World Business
Author:Mourdoukoutas, Panos
Publisher:South Western Educational Publishing
Subject:Consumption (economics)
Subject:Corporations, foreign
Subject:International - General
Subject:International - Economics
Subject:Economics - General
Subject:International
Subject:Business; Economics; International Business
Subject:Japan Economic conditions 1989-
Subject:Japan Economic policy 1989-
Copyright:2005
Publication Date:October 2005
Binding:Hardcover
Grade Level:Professional and scholarly
Language:English
Illustrations:Y
Pages:256
Dimensions:9.32x6.16x.98 in. 1.24 lbs.

http://www.powells.com/cgi-bin/biblio?inkey=17-9780324207125-0

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Japanese two-year-olds are indulged, dependent, and undisciplined
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[bademiyansubhanallah]

China tightens belt but keeps eye on social rifts

By Simon Rabinovitch
and Zhou Xin
Posted 2010/03/05 at 3:03 am EST

BEIJING, Mar. 5, 2010 (Reuters) — China will seek to heal social rifts
and spur home-driven growth with more public welfare and rural
spending even as the government tightens its belt after a burst of
feverish spending, Premier Wen Jiabao said on Friday.

China's President Hu Jintao (2nd L) and Premier Wen Jiabao (2nd R)
attend the preparatory meeting for the National People's Congress
(NPC) at the Great Hall of the People in Beijing March 4, 2010.
REUTERS/China Daily

Wen told the country's parliament that China's economy faced a clouded
international outlook in 2010 and would stick to a steady policy
course this year, shifting tack if needed to counter the lingering
impact of the global credit crunch.

China would maintain an appropriately easy monetary stance and an
active fiscal policy, he added, showing no sign of a break from
current settings.

"We must not interpret the economic turnaround as a fundamental
improvement in the economic situation," Wen said in his annual "State
of the Union"-style report to the National People's Congress.

Financial markets showed little reaction to the widely anticipated
message. Despite the lack of change in any of the key wording,
analysts noted that Wen's increased emphasis on controlling inflation
showed the government was trying to mop up excess cash in the economy
after last year's extraordinary credit boom.

He also signaled continued caution toward the yuan, reiterating
standard language that Beijing would seek to keep the currency steady
as it has done since the financial crisis struck in mid-2008, to the
chagrin of its trade partners.

Speaking to the nearly 3,000 legislative delegates gathered in the
cavernous Great Hall of the People, Wen unveiled increases in spending
for China's poorer citizens and 700-million strong farming population
that outstripped the planned rise in military outlays.

Still, the projected growth in welfare and agriculture spending was
much slower than in 2009 when the financial crisis was raging.

SLOWER SPENDING, LENDING

China wants to slow spending and bank lending after pumping out cash
to counter the global downturn, but Wen said improvements in social
welfare, healthcare and rural services were needed to secure the
nation's economic health and the ruling Communist Party's hold over an
increasingly fractured society.

China escaped the worst of the global slump by ramping up credit,
slashing interest rates and launching a 4 trillion yuan ($585 billion)
infrastructure program in late 2008.

The economy grew 8.7 percent last year as a result, by far the fastest
pace of any major country, but Wen played down the achievement.

More domestically-driven growth, fueled by consumers increasingly
confident about their health, incomes and welfare protection, was
needed to keep the world's third-biggest economy growing at a solid
pace, he said.

"There are insufficient internal drivers of economic growth," he
added, reading aloud the 36-page report in a practiced, steady voice,
occasionally pausing for effect and applause.

Wen said China was targeting 8 percent growth in gross domestic
product -- the goal it traditionally sets every year -- and an
inflation rate of about 3 percent, a relatively low number given the
build-up of price pressures.

"Beijing wants to send a clear message to the local governments that
the policy focus for this year has already been shifting away from
supporting growth at all costs to balancing the need to maintain
steady growth while managing inflation," Qu Hongbin, chief China
economist at HSBC, said in a note.

GROWING DOUBTS

Wen announced increases of 8.8 percent on social spending and 12.8
percent on rural outlays -- more than the rise of 7.5 percent in the
military budget -- to narrow the yawning wealth gap that economists
blame for dampening domestic consumption.

China's parliament is a Communist Party-run spectacle that affirms
policy, rather than making or challenging it.

But the gathering offers an opportunity for the leadership to sell
their policies, which face growing doubts from wealthier taxpayers and
from local officials who see little wrong with the country's
traditional recipe of industrial growth.

"We will continue to give preference to agriculture, farmers and rural
areas, and to improving people's well-being and developing social
programs," said Wen, whose second and final five-year term running the
Chinese government ends in 2013.

Wen has staked much of his legacy on spreading wealth to those left
behind by China's booming economy, especially rural citizens, but
income disparities have grown wider on his watch, a worry for leaders
bent on maintaining social peace.

Reflecting the conservatism of China's financial planners, the budget
deficit will again be kept below 3 percent of national income, Wen
said. The U.S. deficit, by contrast, will hit 10.6 percent of gross
domestic product this year, according to White House projections.

Last year China's deficit was just 2.2 percent of GDP despite massive
government spending on infrastructure and job creation.

To the dismay of Washington and Brussels, China has frozen the yuan's
exchange rate at around 6.83 per dollar since mid-2008 to help its
exporters stay competitive.

Many economists think China will resume yuan appreciation in the
coming months as inflation climbs. It would have been unrealistic to
expect Wen to flag any such move, said Tom Orlik, a Stone & McCarthy
analyst in Beijing.

"If you send the signal to the markets that you are going to
appreciate the yuan, then you are going to attract hot money inflows,
so signaling does not make any sense," he said.

(Additional reporting by Eadie Chen and Ben Blanchard; Writing by Alan
Wheatley and Chris Buckley; Editing by Ken Wills and Tomasz Janowski)

Copyright Reuters 2008

http://www.newsdaily.com/stories/tre62405q-us-china/

China parliament examines growth, living standards
By Chris Buckley
Posted 2010/03/03 at 8:22 am EST

BEIJING, Mar. 3, 2010 (Reuters) — The Chinese leadership's efforts to
engineer a trouble-free succession and push both economic growth and
improved living standards in coming years move to the national
parliament from Friday.

China's President Hu Jintao (second row, 3rd R), Premier Wen Jiabao
(second row 2nd L) and other delegates sing national anthem during the
opening ceremony of the Chinese People's Political Consultative
Conference (CPPCC) at the Great Hall of the People in Beijing March 3,
2010. REUTERS/Jason Lee

The annual full session of the National People's Congress (NPC) will
open with a report by Premier Wen Jiabao, who with President Hu Jintao
is entering the last stretch of a second five-year term steering the
world's third-biggest economy. They are due to make way to a new
generation of leaders from 2012.

Wen's speech in the Great Hall of the People will be as cautious as
the Communist Party-controlled parliament, whose 3,000-odd delegates -
officials, executives and workers and farmers -- are chosen and
trained to keep their criticisms muted.

Yet Wen's report and the 10 or so days of discussions will also
address strains worrying China, including fast-rising property prices,
income inequality and a skewing of loans and investment to projects
favored by local governments.

The attention and the backstage lobbying will give Hu and Wen, and a
younger generation of aspiring leaders, chances to put their stamp on
policy and consolidate influence, said Zheng Yongnian, director of the
East Asian Institute in Singapore.

"This year and next year are going to be very important for succession
politics and the two meetings are part of that," Zheng said, referring
to the NPC and the Chinese People's Political Consultative Conference,
an advisory body meeting alongside the parliament.

"The NPC is not that powerful, but it allows people to see what the
agenda is and who is setting that agenda," Zheng said. "Who controls
the policy agenda will enjoy a political advantage when it comes to
succession issues."

"YOU CAN'T GET AWAY FROM GROWTH"

Attention will fall on Vice President Xi Jinping and Vice Premier Li
Keqiang, the favored successors to Hu and Wen respectively.

Li is leading efforts to improve health care and food safety and his
influence could be boosted by extra attention to - and possible
spending on - those issues.

Provincial leaders hoping for a spot in the next central leadership
could also court attention.

They include Bo Xilai, Party chief of Chongqing, who has orchestrated
publicity by cracking down on mafia-like gangs in the southwest city,
and Wang Yang, Party chief of the booming southern province of
Guangdong. Both have cast themselves as forward-looking leaders with a
popular touch.

Hu and Wen will also be looking to secure their influence by pushing
improvements to welfare, health care and schooling, especially for
China's 700 million-strong farming population.

"The key is that to fund these plans to improve public welfare you
need to keep increasing government revenues, and that requires
continued fast economic growth," said Mao Shoulong of the Renmin
University in Beijing.

"You can't get away from the need for growth."

The parliament may discuss proposals for spending and policy goals in
the next government five-year development plan from 2011.

Since 2003, Hu and Wen have vowed to transform China's economic model,
easing dependence on heavy industry and exports to focus on grassroots
growth and welfare.

"By ensuring those policy priorities are in the five-year plan, they
can consolidate their influence beyond retirement," said Zheng, the
Singapore-based researcher.

Their results have fallen short of ambitions. Many sectors and
officials are committed to a recipe of industrial expansion they
believe has worked and helped China escape a serious slowdown in the
global economic downturn.

"It is very difficult to get change out of a political system that
seems to be succeeding so brilliantly on its own terms," Barry
Naughton of the University of California, San Diego, wrote recently
for the China Leadership Monitor website.

Wen made a plea for his more populist plans last weekend, sympathizing
with complaints about income disparities, rising housing prices,
graduate unemployment, poor health care and registration rules
hindering movement to and between cities.

"I'll spare nothing in exerting myself on my duties until I die," he
told an online question-and-answer session. "When a society's wealth
is concentrated in the hands of a few, then it is certainly unjust,
and that society will be unstable."

State media reports have indicated that all those issues will receive
attention at the session.

But the parliament affirms rather than makes policy, which is left to
elite Party circles. Delegates suggest tweaks to settled decisions and
China watchers expect few big changes to broad economic policy,
currency management or spending priorities.

"We expect no change in the official macro policy stance, but expect
some expenditure shift in the next budget", Tao Wang, an economist
with UBS in Beijing, wrote in a report.

"We expect an increase in budgetary spending on 'livelihood' items,
including cheap rentals, subsidies to the lower-income population, and
social safety net." (Editing by Benjamin Kang Lim and Ron Popeski)

Copyright Reuters 2008.

http://www.newsdaily.com/stories/tre62219l-us-china-parliament/

Bloomberg

BlackRock’s Doll Says China Stocks Aren’t a Bubble (Update1)
March 05, 2010, 2:05 AM EST

(Adds Wen’s inflation, growth targets in 11th paragraph.)

March 5 (Bloomberg) -- China’s stocks aren’t a bubble and will gain by
the end of the year as the government takes measures to prevent the
economy from overheating, said Bob Doll, BlackRock Inc.’s chief
investment officer for global equities.

“I wouldn’t characterize China stocks as a bubble,” Doll, who helps
oversee about $3.35 trillion at New York-based BlackRock, said in a
telephone interview. “There will be gains predicated on a slowdown in
growth being successful and this will be completed before not too
long.”

Last year’s rally in Chinese stocks and property prices have prompted
analysts including former Morgan Stanley economist Andy Xie to call
the nation’s asset markets a bubble that will burst once the
government curbs credit. The government has raised lenders’ reserve
requirements twice this year to cool an economy that grew 10.7 percent
in the fourth quarter, the fastest pace since 2007, partly because of
record bank lending.

Harvard University Professor Kenneth Rogoff said Feb. 23 that a debt-
fueled bubble in China may trigger a regional recession within a
decade, while hedge-fund manager James Chanos predicted a slump after
excessive property investment. The Shanghai index trades at 31.9 times
reported earnings, compared with 17.98 for the Standard & Poor’s 500
Index and 21.9 for the MSCI Asia ex-Japan index, Bloomberg data shows.

“China’s biggest concern is how it engineers a slowdown, how it deals
with imbalances between classes, how it provides jobs and the
tightening to ward off inflation,” Doll, 55, said. “Inflation is
certainly a risk.”

‘Prominent Problems’

Premier Wen Jiabao warned today of “latent risk” in China’s banks and
promised to crack down on property speculation. The government also
pledged to raise health and social security outlays by more than 8
percent in 2010 and expand pensions, efforts that may help rebalance
the economy toward consumer spending and away from investment and
exports.

“The domestic economy still faces some prominent problems,” Wen, 67,
said in a speech in Beijing to the National People’s Congress, similar
to the U.S. State of the Union address.

The Shanghai Composite Index added 0.3 percent to close at 3,031.07.
The gauge has dropped 7.5 percent this year, the fifth-worst performer
globally according to Bloomberg data, on concern the government will
raise borrowing costs for the first time since December 2007 and
restraint in lending will slow economic expansion. The benchmark
measure jumped 80 percent last year, fueled by a 4 trillion yuan ($586
billion) stimulus package and record lending.

Inflation Target

“Our view is we would not be surprised if there are more rate
increases but we need to see more data,” Doll said.

The nation’s consumer prices probably rose 2.6 percent last month,
compared with 1.5 percent in January, because of the Lunar New Year
celebration on Feb. 14, according to the median estimate from a
Bloomberg survey of 11 economists. Another survey conducted last month
predicts interest rates will be increased by the end of June.

Wen affirmed targets today of 3 percent inflation, 8 percent growth
and a “basically stable” currency. Meeting the inflation goal will be
“a major challenge,” requiring higher rates and a stronger currency,
said Brian Jackson, an emerging markets strategist at Royal Bank of
Canada in Hong Kong.

Doll said China’s stocks are in for some “sloppiness” in the short
term and he has an underweight on the nation’s property stocks.

“China is an emerging economy and it’s going to be bumpy,” Doll said.
“It’s not going to be a straight line.”

BlackRock is the world’s biggest money manager.

-- Allen Wan. Editors: Richard Frost, Linus Chua

To contact the editor responsible for this story: Linus Chua at
lc...@bloomberg.net;

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HK, China stocks up; Li & Fung hits high on US hopes
Fri Mar 5, 2010 12:51am EST
By Donny Kwok and Claire Zhang

HONG KONG/SHANGHAI, March 5 (Reuters) - Hong Kong shares rose at
midday on Friday with exporter Li & Fung (0494.HK) leading gains on
hopes of a recovery in the U.S. economy, while Premier Wen Jiabao
reaffirmed China's monetary and fiscal policies which aided a recovery
in Chinese banks and lifted China stocks.

Consumer goods exporter Li & Fung, which in January forged a sourcing
agreement with Wal-Mart (WMT.N), surged 4.2 percent on Friday to an
all-time high of HK$40 on hopes that it will benefit from a recovery
in the U.S. economy after better-than-expected retails sales which
pointed to a stablisation in the economy.

"There are not many options available in the market for Li & Fung
types of businesses. Anticipation that it will benefit from a recovery
in the U.S. fuelled demand for the stock," said Alex Wong, a director
at Ample Finance Group.

Chinese banks recovered from a sell-off in the previous session, after
China reaffirmed its loose monetary policy.

China will stick to an appropriately easy monetary stance and a
proactive fiscal policy as it seeks to counter the lingering impact of
the international credit crunch, Premier Wen Jiabao said on Friday.
[ID:nTOE62308M]

China's second-largest lender China Construction Bank (0939.HK) was up
0.50 percent at HK$5.99 by the lunch break.

Top lender ICBC (1398.HK) (601398.SS) was up 0.35 percent at HK$5.77
after rising 1.4 percent in the early session. ICBC said on Friday
that it was not facing pressure to raise new capital, even as many of
its peers announced fundraising plans to bolster their balance sheets.
[ID:nBJB003710]

The benchmark Hang Seng Index .HSI had trimmed gains and advanced 0.87
percent or 178.52 points to 20,754.30 at midday, poised to snap three
straight sessions of losses. The China Enterprises Index .HSCE of top
locally listed mainland Chinese stocks was up 0.72 percent at
11,860.09.

Brokers said investors switching away from disappointed index
heavyweights such as China Mobile (0941.HK) slowed the rise with
shares of the China mobile carrier edging down 0.07 percent to HK
$72.80 at midday. The stock fell 2.4 percent on Thursday after news
that it was in talks to buy a stake in Shanghai Pudong Development
Bank (600000.SS). [ID:nTOE62207B]

"It's hard to regain investors' confidence in the short run. As a fund
manager (point of view), I would delete the stock," Wong said.

Turnover fell to HK$32.75 billion ($4.2 billion) against midday
Thursday's HK$34.35 billion.

PetroChina (0857.HK) rose 2.7 percent to HK$9.01 after its Chairman
Jiang Jiemin said the company expected profit to improve this year
compared with 2009. [ID:nTOE624034]

Selling pressure on Hong Kong Exchanges & Clearing (HKEx) (0388.HK)
remained after the world's second-largest exchange operator by market
value posted lower-than-expected quarterly earnings. [ID:nTOE620077].
The stocks, which fell 2.03 percent on Thursday, lost a further 0.54
percent by the lunch break.

SHANGHAI UP AFTER MONETARY POLICY

China's key stock index edged up 0.07 percent on Friday, with
brokerages boosted by news of an imminent start to stock index futures
trade, while the index stabilised after Premier Wen Jiabao reaffirmed
China's monetary and fiscal policies.

The Shanghai Composite Index .SSEC ended the morning at 3,025.530
points, regaining its footing after a 2.38 percent fall on Thursday,
its biggest one-day fall in five weeks spurred in part by worries over
the possibility of more policy tightening.

"We need to continue to implement a proactive fiscal policy and
moderately easy monetary policy," Wen said in his government work
report delivered on Friday at the annual session of the National
People's Congress, China's parliament. [ID:nTOE62308M] [ID:nTOE6230AE]

Losing Shanghai stocks outnumbered gainers by 438 to 421, while
turnover dropped to 58 billion yuan ($8.5 billion) from Thursday
morning's 74 billion yuan.

"The tone of Wen's speech is generally in line with expectations,"
said Chen Huiqin, senior analyst at Huatai Securities in Nanjing.

"Investors should not be optimistic about a strong rebound given
lingering worries over more share supplies and liquidity."

The brokerage sector was strong, following news of the imminent start
of stock index futures trade and other reforms that will bring new
business opportunities.

Haitong Securities (600837.SS) rose 1.80 percent to 16.97 yuan while
Everbright Securities (601788.SS) advanced 3.69 percent to 27.25 yuan
and CITIC Securities (600030.SS) was up 1.99 percent at 27.16 yuan.

China's top securities regulator said the long-awaited launch of stock
index futures trade was likely in mid-April and a planned pilot
programme for margin trading and short selling of shares would start
before that. [ID:nTOE6230AC]

The index is heading for a 0.9 percent fall for the week, with last
week's 1.12 percent gain not seen supported by improvements in
fundamentals such as the balance of share supply and demand, with
regulators continuing to approve a steady stream of share offerings to
the market, traders said.

The market has also been pressured by policy moves to tighten
liquidity, including two increases in banks' reserve requirements
since the beginning of the year.

They added that the market was expected to remain in a narrow range in
the short term but was likely to test a key psychological support
level at 3,000 points.

FAW Car (000800.SZ), a subsidiary of major Chinese automaker FAW
Group, jumped 5.53 percent to 23.29 yuan after saying its net profit
rose 49.8 percent last year to 1.6 billion yuan.

The property sector was soft, with China Vanke (000002.SZ), the
country's largest listed property developer, falling 0.53 percent to
9.34 yuan after saying its turnover from housing sales in February
fell 35.4 percent on year to 2.51 billion yuan.

http://www.reuters.com/article/idUSTOE62404320100305

Movie review: Last Train Home rides China's economic tiger at New Year
By Katherine Monk, Canwest News Service
March 4, 2010

Chinese citizens on the move in Last Train Home.Photograph by:
Handout, FilesLast Train Home

A documentary by Lixin Fan

VANCOUVER — Moving through Chinese society like a large paper dragon
on parade, economic fortune is not only dividing huge swaths of the
population between rich and poor, it’s also changing the way Chinese
see themselves in relation to both traditional values and the western
world.

It’s a complicated, taboo-laden, and culturally spicy noodle of a
situation to twirl with your mental chopsticks, but Lixin Fan does an
elegant job of grabbing the hydra-headed beast by the throat in his
feature documentary debut, Last Train Home.

A former TV news professional for Chinese state television, Fan
decided to take a close-up look at changing Chinese society through a
very specific portal: the annual migration of 130 million people
during New Year celebrations.

Forget Mecca. This is the largest annual human migration in the world,
as factory workers leave city centres to return to their ancestral
villages and reconnect with family.

It’s a brilliant place to start for a few reasons, and prime among
them are the images. Fan’s camera captures the frenetic chaos at train
stations as hordes of people cram the platforms hoping to get a seat
in oversold coaches.

The density of people as they scurry, laden with luggage, through the
frame makes the reality of living in China undeniable. This is a place
where people are so numerous and so apparently disposable, that
finding personal identity and ego among the millions of other souls is
a sizable challenge.

At times, the sea of people seem to move more like amoebae under a
microscope than any sentient mass of humanity, and using a scientist’s
empirical process, Fan sorts through the specimens by finding ideal
examples, and getting even closer.

The central focus in Last Train Home becomes the Zhang family. A
typical clan from a small, agrarian village, the Zhang parents left
their children for factory work, in the hopes they’d be able to
provide their offspring with opportunities for improvement.

When their eldest daughter decides to turn her back on the family’s
larger plan, and drop out of school to seek work in a factory for
herself, there’s a crisis of epic proportions.

The moment is captured in all its uncomfortable drama as the father
strikes his daughter in the face, and she — somewhat surprisingly —
fights back like a feral bobcat.

One is never sure just how much the camera’s presence has influenced
or inspired the participants in this verite exploration, but it
doesn’t really matter if the whole movie is contrived, acted, or even
scripted.

The reel derives a sense of authenticity from the way it’s made. The
camera becomes our window to a whole other world, where we’re given
the luxury of simply watching life unfold without overt commentary or
an articulated point of view.

You can’t really tell what Fan is thinking, as he maps the rifts and
crevasses in a monolithic culture. There is no palpable agenda working
here, and that releases the film from any obligation other than to
entertain and enlighten the viewer.

The entertainment factor comes through the pictures of the
metamorphosing Chinese landscape, as well as the soap-opera family
dynamics, but the enlightenment is something the viewer has to create
for herself.

Is economic success the be-all and end-all for a society, or is there
something more to the human experience beneath the emotional
permafrost of cold, hard cash?

The East is just beginning to become fluent in the financial language
of the West, and, as we watch them grapple with a way of life we’re
already far too familiar with, we can see the human effects of a
market economy in a whole new way because, in China, everything is
magnified by scale.

Fan keeps the film open-ended, which only makes the experience richer
for those willing to do a little work, but in the end, this feels like
a small piece of a much larger puzzle.

It can’t give us the big picture, but through great detail and
editorial positioning, Last Train Home takes us on a ride that’s at
once exotic, terrifying and eerily prophetic of what lies ahead.

km...@canwest.com

© Copyright (c) The Vancouver Sun

http://www.vancouversun.com/entertainment/Movie+review+Last+Train+Home+rides+China+economic+tiger+Year/2642354/story.html

http://www.fnarena.com/index2.cfm?type=dsp_newsitem&n=270701D6-E1DC-14DE-1FA20EBBEF4561F7

Entrepreneur says bubble fears are misplaced
By Jamil Anderlini in Beijing

Published: March 5 2010 02:00 | Last updated: March 5 2010 02:00

Growing international fears about looming economic collapse in China
are misplaced, and any bubbles in the economy are limited and will be
easily managed, according to one of the country's richest and most
influential entrepreneurs.

"China's economy is still growing rapidly so the risks are manageable
and the overall situation is relatively healthy," said Liu Yonghao , a
former pig farmer who founded one of the country's largest private
conglomerates and is the largest shareholder of Minsheng Bank, China's
first and largest privately owned bank.

"While there may be some bubbles, the situation is different in
different industries," Mr Liu told the Financial Times yesterday.
"[Bubbles] may exist but they are not especially serious."

He rejected recent comparisons between China and Dubai's real estate
markets made by commentators such as James Chanos, the hedge fund
manager. Kenneth Rogoff, former research director at the International
Monetary Fund, and Marc Faber, an independent analyst , famous for
predicting the Asian financial crisis, have also sounded the alarm.

Mr Liu said most of China was not experiencing a property bubble.
"That kind of talk is just plain wrong. Dubai doesn't have any
industry, manufacturing or agricultural industries. It only has real
estate and tourism, and relies on massive [external] borrowing," he
said. "China doesn't borrow money from anyone else. It lends money to
others, like the US."

Michael Geoghegan, chief executive of HSBC, this week told the FT he
was also sceptical about the risk of a property bubble. "I believe
these fears are overblown as many property purchases have involved a
large cash payment," he said.

Observers say global sentiment towards China's economy and asset
markets has turned from exuberance a few months ago to alarm over the
potential fallout from last year's credit expansion.

In response to the global financial crisis, Beijing ordered local
governments to speed up infrastructure investment and told state-owned
banks to relax lending criteria to revive growth.

The result was a doubling in the value of new loans issued last year
to Rmb9,600bn, an unprecedented expansion of credit that has led many
analysts to warn of potential inflation , asset bubbles, wasteful
investment and a huge future crop of bad loans in the banking system.

Mr Liu conceded future bad loans were likely as a result of profligate
lending, but said China's banks were healthier than they had ever
been, and that the government had acted appropriately.

"When we throw a punch, it should be heavy, fast and well-timed," he
said.

Mr Liu's scepticism about a looming collapse in the Chinese economy is
widely shared.

"Even someone like me who has been worrying the most over the last few
years about China's balance sheet believes the concerns are being
overdone in international commentary at the moment," said Michael
Pettis, a professor of finance at Peking university and a specialist
in the history of financial crises.

"China has some very important structural problems . . but I think
we'll see a grinding slowdown in growth over several years rather than
outright collapse."

Copyright The Financial Times Limited 2010

http://www.ft.com/cms/s/0/8a931708-27f6-11df-9598-00144feabdc0.html

MARCH 5, 2010, 5:34 A.M. ET.China Says Economy Still Needs
By TERENCE POON, AARON BACK And J.R. WU

BEIJING -- China's government Friday pledged to keep prices stable
this year as it tries to rein in lending and manage consequences of a
massive stimulus program, but said it will continue to support the
economy.

As widely expected, Chinese Premier Wen Jiabao reaffirmed China's
growth target will remain at 8%. China has been seeking annual
economic growth of 8% since 2005; it set a 7% target for 2004.

The government, which last year was determined to revive the economy
amid the global financial crisis, this year is shifting toward
tackling challenges such as surging housing prices and potential bad
debt. Gross domestic product expanded 8.7% last year, helped by a
credit boom and government investments.

"Latent risks in the banking and public finance sectors are
increasing," said Mr. Wen in prepared remarks, adding the government
will curb "the precipitous rise of housing prices in some cities."

China, the world's third-largest economy, has already begun to
restrain credit growth as the economy has rebounded. Despite such
changes in policy, Mr. Wen reiterated in his annual report at the
opening of the National People's Congress that the government will
continue its "active" fiscal policy and "moderately loose" monetary
policy. It will also maintain the "basic stability" of the yuan
exchange rate, he said.

Mr. Wen cautioned that "there is insufficient internal impetus driving
economic growth," and reiterated the government needs to "consolidate
the momentum of the economic turnaround," while restructuring the
economy. Beijing wants to rely more on consumption and services to
drive growth, and encourage Chinese companies to make more advanced
goods.

"Individual countries face difficult choices in phasing out their
stimulus policies; larger fluctuations may occur in the prices of
major commodities and exchange rates among the major currencies; trade
protectionism is clearly reasserting itself," he said.

But the policy wording still gives Beijing room to scale back
stimulus; the central bank has twice ordered banks to keep a bigger
portion of deposits on reserve this year to curb loan growth, without
changing the monetary policy stance. Mr. Wen added: "We need to manage
inflation expectations well and keep the overall level of prices
stable."

Royal Bank of Canada economist Brian Jackson wrote in a note that Mr.
Wen's comments "seem designed to give himself the rhetorical room to
adjust policy as and when he sees fit. His speech seems consistent
both with keeping policy unchanged for now but also with making some
gradual adjustments in the months ahead."

China will aim for around 7.5 trillion yuan (around $1.1 trillion)
worth of new local-currency loans this year, lower than the record
9.59 trillion yuan worth of new loans banks extended last year. It
will also seek to slow growth in broad money supply, or M2, to around
17% this year from nearly 28% in 2009.

The consumer price index, the country's key inflation gauge, is
targeted to rise around 3% this year, Mr. Wen said, after falling 0.7%
last year

The government has grown concerned about potential risks to public
finances from local governments, which aren't allowed to raise debt.
Many, however, set up special investment vehicles that borrowed from
banks, helping to drive the economy's recovery. But such forms of
financing don't show up in the government's balance sheets and
concerns have grown that such debt could turn bad, hurting banks and
straining the central government's finances.

"We will strengthen the fiscal management system at and below the
provincial level, set up a mechanism to ensure basic funding for
county governments and carry forward reforms that place county
finances directly under the management of provincial governments,"
said Mr. Wen.

The Ministry of Finance will issue 200 billion yuan worth of bonds on
behalf of local governments, continuing a similar program as last
year.

China's economic planning agency, the National Development and Reform
Commission, said Friday it is aiming to expand fixed-asset investment
this year by 20% while curbing excess and obsolete capacity in certain
sectors, continuing Beijing's recent policy goals.

The growth target would represent a marked slowdown from nationwide
FAI growth of 30.1% last year, which was boosted by the government's
stimulus program.

Still, Mr. Wen said the government plans to run a fiscal deficit of
1.05 trillion yuan this year, or 2.8% of GDP. The budget suggests
continued fiscal stimulus this year given earlier data showed the 2009
deficit at 2.2% of GDP, though the finance ministry said last year's
deficit was higher, at 950 billion yuan, because of an accounting
move.

"The fiscal deficit in 2010 still needs to be of an appropriate size.
At the same time, in order to promote the sustainable development of
public finances, actively prevent fiscal risk, and leave some leeway
to gradually reduce the deficit in future years, we must keep the
deficit under 3% of GDP," said the Ministry of Finance.

The central government plans to invest more to support the development
of new technologies this year than last year, in line with its goal of
restructuring the economy. But it is budgeting a slight slowdown in
public spending on health care, social security and education this
year, and keeping the share of social spending in its total spending
broadly unchanged from last year.

Economists say China could encourage its people to spend more money by
improving education, health care and social security.

-- Liu Li and Patricia Jiayi Ho contributed to this article

http://online.wsj.com/article/SB10001424052748704187204575102271716152464.html?mod=googlenews_wsj

Overseas media focus on China's development plans
English.news.cn 2010-03-04 23:10:10

BEIJING, March 4 (Xinhua) -- Overseas media have widely reported
China's measures to maintain social and economic development, after
the annual session of the National Committee of the Chinese People's
Political Consultative Conference (CPPCC) opened Wednesday.

The session outlined plans to keep the steady and fast development of
economy, narrow the gap between city and country, and adjust income
distribution pattern.

The AP said that CPPCC National Committee Chairman Jia Qinglin said in
a work report "2010 is a crucial year for China to respond to the
impact of the global financial crisis and maintain steady and rapid
economic development."

The annual session of China's legislature, the National People's
Congress (NPC), which opens Friday, was expected to "give a full
airing to hot-button issues such as soaring real estate prices in many
Chinese cities," it said.

The Chinese government, which released a budget and work plan for the
year, was expected to boost spending on education, pensions and
medical care, continuing a push begun in the past decade to strengthen
a tattered social safety net, it said.

The annual plenary sessions of the NPC and the CPPCC National
Committee are known as China's "two sessions."

The AFP said China opened its annual parliamentary season Wednesday
with a call from the Chinese leadership to keep up economic growth,
maintain social stability and tackle a yawning urban-rural income gap.

The two gatherings were the Chinese leadership's chance to showcase
its efforts to tackle the key challenges facing the country, and
economic concerns looked set to top that list, it said.

Online, The Wall Street Journal Asia Edition said in an article the
NPC's annual session would kick off Friday and this year's theme
"naturally" was the economy.

In a talk with China's netizens last week, Premier Wen Jiabao said
"while it is the government's responsibility to expand the 'pie' of
national wealth, it is the government's conscience to distribute it in
an adequate manner," the article said.

The Yonhap news agency said the Chinese government was speeding up its
economic transformation after the global financial crisis because it
realised it could not overcome future crises with its current economic
structure dominated by cheap exports. China should keep a balanced
development of service sectors and agriculture, and nurture the
domestic market, it said. Economic transformation would be one of the
hot topics of this year's NPC, it said.

Yonhap said, although the Chinese economy was gradually recovering,
China faced some serious problems, such as the widening urban-rural
gap.

China recently focused on migrant workers, eyeing the new generation
of migrant workers born in the 1990s, and would discuss the making of
the medium- and long-term layout for migrant workers.

The Wall Street Journal said, while the 2009 NPC was obsessed with
attaining an 8 percent growth rate, the priority for this year's
session was to ensure a more equitable distribution of national
income.

A commentary on the website of Singapore's Lianhe Zaobao said that,
from the perspective of China's economic development, it was in
accordance with the needs of expanding China's consumption and
transforming its economic growth mode for the country to gradually
annul the dualistic structure between city and countryside, promote
urbanization, scrap social welfare policies that discriminated against
farmers, and ensure farmers' equal rights with urban dwellers.

One of the major reasons for the long-term inequality between city and
countryside was China didn't have a big enough "pie" to ensure the
fair distribution of interests, it said.

Canada's leading public policy magazine Policy Options said in a
commentary that the Chinese leadership was paying more and more
attention to the demands of the poor in remote regions.

From the list of the central government's financial expenditures, it
could be found that the government would heavily invest on
infrastructure development and maintenance, medical reforms, poverty
reduction and education, it said.

Editor: yan

http://news.xinhuanet.com/english2010/china/2010-03/04/c_13197553.htm

China economy faces 'crucial' year: Wen
By Marianne Barriaux (AFP) – 9 hours ago

BEIJING — China's government Friday predicted another year of rapid
expansion while vowing to tame inflation and curb runaway loan growth
to forestall a risky bubble in the world's third-largest economy.

In his annual address to open parliament, Premier Wen Jiabao also
pledged to help ensure the benefits of growth are shared more
equitably among China's 1.3 billion people, in a sign of concern over
a widening wealth gap and its potential to spark unrest.

Wen said China would target eight percent economic growth in 2010,
which he called a "crucial year" in the battle against the global
slowdown.

"This year the main targets we have set for economic and social
development are increasing GDP by approximately eight percent... (and)
holding the rise in consumer prices to around three percent," Wen told
lawmakers.

With the world downturn exposing the volatility of foreign trade, the
agenda for the National People's Congress will be topped by Beijing's
efforts to retool the economy away from its long reliance on cheap
exports.

"This is a crucial year for continuing to deal with the global
financial crisis, maintaining steady and rapid economic development
and accelerating the transformation of the pattern of economic
development," Wen said.

He offered a fresh pledge to boost domestic consumption as a means to
diversify the economy, and vowed to maintain a "proactive fiscal
policy". China launched a 586-billion-dollar stimulus package in 2008.
Related article: Need to rein in property prices: Wen

Wen said China would keep the value of the yuan "basically stable" in
2010, a stance sure to rile the country's key Western trading
partners, which say the currency is kept low to boost exports.

China annually sees thousands of protests -- often violent -- by those
who have missed out on the nation's economic boom, and Wen promised to
expand the social security umbrella.

"We will not only make the pie of social wealth bigger by developing
the economy, but also distribute it well on the basis of a rational
income distribution system," he said.

As such, he promised to reform rules that restrict social welfare
services to people who relocate from their hometowns -- a residency
system known as the "hukou" that is a key grip of China's 230 million
migrant workers.

"We will carry out reform of the household registration system and
relax requirements for household registration in towns and small and
medium-sized cities," he said.

China expects to run up a budget deficit of 1.05 trillion yuan (154
billion dollars), up 10 percent from last year, Wen said, as it
maintains the hefty stimulus plan and upgrades social security.

He also acknowledged government concern over a flood of lending that
has caused inflation fears to spike, saying authorities would slash
new bank loans by about a fifth in 2010 to 7.5 trillion yuan.

The NPC has no real legislative power but meets to rubber-stamp the
decisions of the Communist Party elite in an annual ritual aimed at
putting a veneer of democracy on China's rigid political system.

On the eve of the congress opening, China unveiled the smallest
increase in its military budget for at least 10 years and vowed that
its rapid military modernisation posed no threat to other countries.
Related article: China to keep modernising the military

As is customary during major political events in China, security has
been tightened in the capital to prevent disruption.

Extra police have been deployed and a force of more than 700,000
including civilian volunteers are helping to keep public order,
according to official media reports that dubbed the effort a "great
moat" of security around Beijing. Related article: Corruption battle a
'high priority'

There are up to 3,000 NPC delegates, including many from troubled
minority regions like Tibet and Xinjiang. Related article: Plans to
develop Xinjiang, Tibet

Copyright © 2010 AFP. All rights reserved

Chinese Premier Wen Jiabao delivers his annual work report to the
National People's Congress

http://www.google.com/hostednews/afp/article/ALeqM5jbIhprRfExoT-Wx9EeA_EpDE1Ejg

THE PLOT THICKENS IN THE LABOR MARKET
March 4, 2010

THE CHINA SYNDROME

Big deficits and rising mountains of public debt. Is it a nightmare?
No, it’s the fiscal profile du jour of these United States. Or is it
both? In any case, assuming Congress keeps current laws and policies
intact, the federal budget deficit, as a share of the economy, is on
track for fiscal 2010 to be the second highest since World War Two,
the CBO projects.

“Under current laws and policies, CBO’s projections show that level
climbing to 67 percent by 2020,” the government’s budget watchdog
reports. “As a result, interest payments on the debt are poised to
skyrocket; the government’s spending on net interest will triple
between 2010 and 2020, increasing from $207 billion to $723 billion.”
What’s the solution? Everyone knows what’s required, although the
details of implementation will be messy, which in Washington means
politics, in massive super-sized doses.

Here’s the set-up, once more by way of CBO: “To keep federal deficits
and debt from reaching levels that would substantially harm the
economy, lawmakers would have to significantly increase revenues,
decrease projected spending, or enact some combination of the two.”

Meanwhile, Democratic leader Steny Hoyer in the House of
Representatives earlier this week dropped some clues about how the
majority is thinking on such matters. “"It seems to me that the only
solution that can win the support of both parties is a balanced
approach: one that cuts some spending and raises some revenue while
avoiding extremes in either direction," he said via Reuters. Easy to
say, tough to do, especiall in a mid-term election year.

Spending cuts and taxes on one side vs. rising deficits and the
potential blowback for the bond market on the other. Red ink beyond a
certain level will go over with the fixed-income set like a lead
balloon. But for the moment, all’s calm with bond yields. The
benchmark 10-year Treasury yield remains in the 3.6% range, or more or
less unchanged this year. Can it last in the face of some ugly
choices? The basic alternatives: Raise taxes, cut spending, both, or
risk letting the federal deficit surge into uncharted and potential
destabilizing territory for the economy and the markets.

As problematic as all this is, it’s even worse in the current economic
climate for the simple reason that the outlook for growth is modest,
at best. Meanwhile, the demand is exploding for spending on a range of
fronts, from Medicare and Social Security to the war on terror to
fighting the recession to the pet project du jour. The toxic
combination of high spending and low growth threatens to complicate an
already sour political atmosphere in Washington. You think you've got
gridlock now? Brother, you haven't seen anything yet. History suggests
as much. As the book The Presidency and Economic Policy reminds, “When
revenues grow at a slower rate than the rate of increase for federal
spending, the resulting deficits make it more difficult for
politicians to divide up the fiscal pie among competing programs, let
alone promise the voters new benefits.”

How does all this factor into the relationship with America’s two
largest creditors? Japan and China together hold about 12% of U.S.
Treasuries outstanding, according to economist Michael Cosgrove.
Writing in an op-ed piece today for Investor’s Business Daily, he
advises:

The Chinese can lecture the administration about excessive federal
outlays, but nothing would be more effective than dumping Treasuries,
even for a short time. Such action would panic investors, and as a
result the administration may well agree to constrain spending to
placate the Chinese.

No one wants havoc in the capital markets, but the Chinese can do U.S.
taxpayers a major favor by dumping Treasuries just as soon as the
Chinese can buy their put options on U.S. equities. U.S. equities will
quickly recover their lost ground and much more if the administration
would agree to constrain federal outlays. Excessive federal spending
and regulatory involvement in the economy are holding back equity
gains.

The sooner the Chinese dump Treasuries, the better. It is a message
that all members of Congress, as well as the Obama administration,
need to hear. The Chinese needed to take such action during the Bush
years, but that is water under the bridge.

The Chinese can see how the Japanese ruined their economy by growing
public debt outstanding to over 225% of GDP in 2010 from 68% in 1991,
according to IMF data. The U.S. outstanding public debt to GDP ratio
was also 68% in 1991. In 2008 it was 70%. At the end of this year it
will be about 94%.

The current Congress and administration seem intent on repeating the
mistakes of Japan that in the end will also ruin the U.S. economy.

In fact, the latest numbers show that China’s appetite for Treasuries
retreated a bit in December. “"In the current climate, China's move to
reduce its U.S. government debt creates a large propensity for
misunderstanding," said Shi Lei, an analyst with the Bank of China's
Global Financial Markets Department via MarketWatch.com. "Even though
China didn't buy [bonds]," Shi said, "there were still many other
countries willing to purchase U.S. Treasury securities."

If that’s supposed to soothe tortured political souls in Washington,
it’s not doing the trick for Eric Anderson, author of China Restored:
The Middle Kingdom Looks to 2020 and Beyond. Writing yesterday for The
Huffington Post, he explains:

Contrary to popular opinion, Beijing could sell that debt with few
long-term consequences for China's economy...and likely her political
reputation. Such a move would cost you and I a fortune the next time
we considered shopping for a car or a house...and would further expand
an already outrageous national debt. Controversy can breed confusion,
but in this case it should simply generate consternation...in every
American household and at 1600 Pennsylvania Avenue.

http://www.capitalspectator.com/archives/2010/03/the_china_syndr.html

China Thinks The U.S. Economy Has Bottomed And Is Buying Real Estate
Using Goldman And BlackRock To Mute Criticism

Vincent Fernando | Mar. 4, 2010, 10:09 AM

While bullish on its own prospects, China is bullish on those of
America as well.

The government has started to heavily invest in America, yet in a
fashion more savvy than that of Japan in the 1980s.

China isn't buying trophy properties that might incite anger from the
American public. They're also using local American partners, in order
to provide even further political cover.

LA Times:

The largest Chinese investments in the U.S. have come from state-owned
firms, primarily a $300-billion fund known as China Investment Corp.
It initially targeted well-known financial companies, spending
billions to buy stakes in private equity giant Blackstone Group and
investment bank Morgan Stanley.

But after getting burned by the financial crisis that emerged in 2008,
the sovereign wealth fund has been shifting to real estate. Its
investments in the last year have included hundreds of millions of
dollars in real estate-related funds managed by Oaktree Capital of Los
Angeles, Goldman Sachs Group Inc. and BlackRock Inc.

The move into real estate appeared to be motivated by bargain prices.
"In the past year, the U.S. real estate market seemed to have hit
bottom and signs of recovery were obvious," said Mei Xinyu, a
researcher at the Ministry of Commerce in Beijing.

...

Chinese companies have learned that allying with partners tends to
draw less attention, said Wenran Jiang, a China expert at the
University of Alberta who has studied Chinese investments around the
globe.

When multiple parties are involved in a deal, he said, the Chinese
buyer's stake gets diluted. "So you can't report that the Chinese are
taking over."

http://www.businessinsider.com/the-chinese-government-is-pouring-into-us-real-estate-using-partners-to-mute-criticism-2010-3

Eye on China
China’s Military Spending Slows
Thursday, March 4th, 2010

Interesting reports out of China on projected defense spending: only a
7.5 percent increase, the smallest in two decades, according to
Chinese officials. The NYT reports that Chinese budget documents peg
2010 defense spending at $78 billion, an increase of $5.4 billion over
last year’s defense budget.

Now, there has always been much debate over the veracity of Chinese
defense spending claims and various sources put the annual amounts
considerably higher than Beijing’s official figures. That same NYT
article says this year is the first time in 21 years that the rate of
defense spending has fallen below double digits. Spending had risen an
average of 12.9 percent annually from 1996 to 2008.

China is investing mightily in its own domestic stimulus package that
has so far gotten the country through the recent economic turmoil in
amazingly good shape. China’s economy grew at around 10 percent last
year. Like most centrally planned economies, when the Chinese want to
stimulate demand they do it through massive infrastructure projects,
the colossal Three Gorges Dam on the Yangtze River being a good
example.

China is spending billions on its high speed rail network, highways,
airports, housing, etc. All of which is to say that the slowed rate of
defense spending increase, may be a one-​​off phenomenon.

– Greg

Posted in Eye on China, Uncategorized
Underway at Last!
Thursday, May 14th, 2009

“China’s carrier has gone to sea” was the headline of one Asian
newspaper. The event — the story implied — marked the long-​​awaited
operational debut of the former Soviet aircraft carrier Varyag. In
reality, the ship got underway with harbor tugs providing the power,
moving the ship from a pier in the port of Dalian to a nearby dry
dock, a “voyage” of about two miles.

As of this writing, no major work on the ship has been observed since
she arrived at Dalian in northeastern China on 3 March 2002. The ship
was painted a few years ago, but little other effort has gone into the
unfinished giant despite periodic press claims that the carrier was
being “clandestinely” completed.

While the ship was being towed to the dry dock on 27 April the Varyag
was extensively photographed. Those photos reveal much about the ship:
She rode high in the water and, with the lack of “patches” on her
flight deck, it is obvious that engines had not been installed in the
ship. Her flight deck lacks arresting cables and operational markings,
and her island structure is void of the aerials, electronic domes, and
radar antennas that inundate aircraft carriers.

The question is: Why has the Varyag moved into a dry dock. A number of
reasons are possible for her brief voyage and dry docking. These
include:

(1) Completing the carrier — which was laid down at the Nikolayev
South shipyard as the Soviet Riga in the Ukraine in 1985. This would
involve the complex task of installing engines and other machinery
(assuming that they are now available), auxiliary equipment, messing
and berthing facilities, radars and other electronic equipment, etc.

(2) Carrying out general maintenance on the hulk, including cleaning
her underwater hull, and taking other measures to simply preserve the
Varyag until a definite decision is made concerning her eventual fate.

(3) Permitting naval architects and others to examine the ship’s
underwater hull, possibly to assist in efforts to design and construct
an indigenous Chinese aircraft carrier.

There can be no question but the Chinese Navy’s leadership wants to
acquire aircraft carriers, primarily to provide air cover for naval
operations in the South China Sea, an area of great interest to China
because of offshore oil activities. In long-​​range planning, the
Chinese may also be considering their increasing political and
economic interests in Africa and South America. However, despite
periodic press reports — some saying that the first Chinese carrier
will be completed this year — there is still no publicly available
evidence that construction of such ships has begun in China. Indeed,
even commercial satellites would have detected such efforts.

Chinese shipyards, which are producing advanced missile destroyers and
nuclear-​​propelled submarines as well as large merchant ships, can
certainly build a large aircraft carrier. Completion of the ship —
which would take probably four years or more from the start of
construction — would have to be followed by a lengthy working up
period, with extensive ship and then aircraft trials and
qualifications. Thus, with at least a year from the decision to build
such a ship until actual construction would start because of the need
to order components and materials, if that decision were made today
the first Chinese carrier could be ready in about six or seven years.

– Norman Polmar

Posted in Eye on China
Chinese Navy Requires Supercruising Fighter
Tuesday, April 28th, 2009

This article first appeared in Aviation Week & Space Technology.

A supercruising combat aircraft is a high priority of the Chinese
navy, the country’s top admiral says in a revealing official interview
that gives strong clues of perceived shortcomings and future
directions for the maritime force.

Adm. Wu Shengli also says China must step up work on precision
missiles that can overcome enemy defenses, and the nation should move
faster in developing large combat surface ships — probably meaning the
aircraft carrier program that looks increasingly imminent.

Wu’s demand for supercruise — supersonic flight without afterburner —
hints that such performance will be available from the next Chinese
fighter, sometimes called the J-​​XX.

“One possibility is that the J-​​XX is being designed for supercruise
and that Wu is trying to build support for a naval version of the
aircraft,” says Richard Bitzinger, a senior fellow at the S.
Rajaratnam School of International Studies in Singapore.

The design of the J-​​XX is unknown. It could be a new aircraft or
quite possibly a development of the J-​​10, a fighter now entering
service.

The J-10’s configuration is similar to that of the Eurofighter
Typhoon, which the manufacturer says can supercruise at Mach 1.5,
although it is likely to be somewhat slower with a useful external
load.

For the Chinese navy, one advantage of supercruising would be the
ability to cover a large defensive area in less time — quite useful if
the imagined target is a U.S. carrier group at long range.

Importantly, Wu lists a supercruising fighter among a series of
technological demands that all look quite achievable for the Chinese
navy over the next decade or so, suggesting that he does not regard
such flight performance as a pie in the sky.

“Sophisticated equipment is the key material basis for winning a
regional naval war,” says the admiral, evidently referring to the
possibility of a confrontation in the Taiwan Strait. “We must
accelerate and promote steps to work on key weapons.

Read the rest of this story, check out Turkey’s new AW149, see a
Russian fighter go down and read about the Poseidon’s first flight
from our friends at Aviation Week, exclusively on Military​.com.

– Christian

Posted in Eye on China
ChiCom Carrier Killer
Wednesday, April 1st, 2009

This is not the first time we’ve covered this issue…

From the US Naval Institute:

With tensions already rising due to the Chinese navy becoming more
aggressive in asserting its territorial claims in the South China Sea,
the U.S. Navy seems to have yet another reason to be deeply concerned.

After years of conjecture, details have begun to emerge of a “kill
weapon” developed by the Chinese to target and destroy U.S. aircraft
carriers.

First posted on a Chinese blog viewed as credible by military analysts
and then translated by the naval affairs blog Information
Dissemination, a recent report provides a description of an anti-​​
ship ballistic missile (ASBM) that can strike carriers and other U.S.
vessels at a range of 2000km.

The range of the modified Dong Feng 21 missile is significant in that
it covers the areas that are likely hot zones for future
confrontations between U.S. and Chinese surface forces.

The size of the missile enables it to carry a warhead big enough to
inflict significant damage on a large vessel, providing the Chinese
the capability of destroying a U.S. supercarrier in one strike.

Because the missile employs a complex guidance system, low radar
signature and a maneuverability that makes its flight path
unpredictable, the odds that it can evade tracking systems to reach
its target are increased. It is estimated that the missile can travel
at mach 10 and reach its maximum range of 2000km in less than 12
minutes.

Read the rest of this story on Military​.com…

– Christian

Posted in Eye on China
Cross-​​Strait Situation Changing
Wednesday, January 21st, 2009

In offices in the Pentagon and the State Department, China-​​Taiwan
experts are scrutinizing the latest reports from the Far East of the
changing relationship between China — officially the People’s Republic
of China — and Taiwan, the offshore island “state.” For more than a
half century the United States has anticipated a possible Chinese
assault on Taiwan. But the situation is changing rapidly.

Taiwan became the Republic of China after 1949. Communist armies had
overrun most of China and the surviving Nationalist troops, led by
Chang Kai-​​shek, fled to the island, then known by its Japanese name
of Formosa.

There followed several decades of intense animosity between the “two
Chinas.” Initially, there was concern in the West that the Nationalist
armies, rested and rearmed, could invade the mainland, some 100 miles
away. Subsequently, there was concern for several decades that Chinese
armies would cross the Taiwan Strait to invade Taiwan.

During the latter period the United States gave considerable military
assistance to Taiwan in anticipation of a Chinese assault across the
strait. And, U.S. war plans called for defending Taiwan against such
an invasion, although the difficulties of such an amphibious operation
should have been obvious to all parties.

Indeed, China did not build a massive amphibious fleet or a large
airborne assault force. Further, China’s marines — currently two
brigades in strength — are assigned to the South Sea Fleet rather than
to the East Sea Fleet, which faces the Taiwan Strait. While detailed
data are not publicly available, it appears that the East Sea Fleet is
the smallest of China’s three fleets.

While strong words are still voiced by some leaders of both China and
Taiwan, there has been a remarkable rapprochement between the two
entities during the past few years. There is now direct postal
service, commercial air transport, and, most recently, shipping
between China and Taiwan. Also, Taiwan businessmen are investing in
China.

And, in early January the China News Agency announced that
representatives of China and Taiwan were are expected to meet after
the Chinese New Year holidays to hammer out the technical details of
several agreements to be signed during the third round of high-​​
level, cross-​​Taiwan Strait talks. According to Straits Exchange
Foundation Chairman Chiang Pin-​​kung, the new set of agreements will
address issues such as cooperation on financial supervision and
regulation, prevention of double taxation, intellectual property
rights protection, and cooperation on combating crime.

Posted in Eye on China
Gi Zhou Examines the New PLA Corps
Monday, August 25th, 2008

It appears that the structure of the PLA’s New Heavy Corps will be
similar to the British 1 Corps in Northern Germany during the Cold
War. The PLA Corps will be structured around brigades and I believe
the Corps itself will contain a heavy artillery group, a ground
manoeuvre group, an aviation group and a battlefield support group
which would include bridging, electronic warfare and logistics.

An early version of the corps envisioned a total of 500 Model 96 or
Model 99 main battle tanks in two armoured and two mechanised
brigades; 586 ZDB-​​97 tracked infantry fighting vehicles (IFVs), 126
155mm PLZ-​​45 self-​​propelled guns; 96 120mm turreted self-​​
propelled mortars; 36 Type 89 30 tube 122mm and 27 300mm 12 tube A-​​
100 multiple rocket launchers; 12 DF-​​15D tactical missiles and 48
attack, 18 multipurpose and 60 transport helicopters and around 2,000
other types of vehicles.

This was clearly outside what the PLA is currently able to afford with
armored brigades now have three armoured battalions for a total of 99
main battle tanks, one mechanised infantry battalion, one artillery
battalion with 18 self-​​propelled guns and one air defence battalion
of 18 AAA guns. Each armoured battalion will have three armoured
companies, each of three platoons with each company having 11 main
battle tanks; three in each platoon and two headquarters vehicles.
There are no tanks at the battalion or brigade headquarters. This is a
total of 33 main battle tanks.

The new mechanized infantry brigade is to have four mechanised
infantry battalions, one armoured battalion, one fire support
battalion, one engineer battalion and one communication battalion.
Each mechanized infantry battalion has three mechanized infantry
companies, each of three platoons with each company having 13 infantry
fighting vehicles; four in each platoon and one headquarters vehicle.
A complete brigade contains approximately 4,000 soldiers.

Posted in Eye on China
New PLA Armor and Mech. Infantry Brigade Structures
Tuesday, July 29th, 2008

The Soviet Operational Manoeuvre Group in 1986 was looking at creating
a ‘Shock Division’ of three regiments, with each regiment containing
two tank and two mechanised infantry battalions. Armoured divisions
are too unwieldy in complex terrain and an armoured battle group
(battalion sized) is easier to control and execute its mission.

The Peoples Liberation Army, following on from their experience with
the Operational Manoeuvre Group, can now deploy the new mechanised
infantry division and using modular forces have created a composite
cavalry brigade for use in complex terrain.

Utilising the deep operation theory, they can employ am air mechanised
and/​or fast wheeled force as a ‘lance’ followed up by the mobile
force (tank heavy) to exploit the breach in an enemys defences
followed by a holding force (heavy mechanised), that is the dozer
blade.

An article in the 1/​2008 issue of Tanke Zhuangjia Cheliang (Tank and
Armoured Vehicle) is titled ‘News From Overseas– Chinese Built Many
Light Type Mechanised Units.’ The article was written to correct the
mistakes that appear in non-​​Chinese media about the structure and
equipment of these new light mechanised units.

The mechanised infantry brigade has four mechanised infantry
battalions, one armoured battalion, one fire support battalion, one
engineer battalion and one communication battalion. Each mechanised
infantry battalion has three mechanised infantry companies, each of
three platoons with each company having 13 infantry fighting vehicles;
four in each platoon and one headquarters vehicle.

Each armoured brigade has four armoured battalions for a total of 132
main battle tanks, one mechanised infantry battalion, one artillery
battalion with 18 self-​​propelled guns and one air defence battalion
of 18 AAA guns. Each armoured battalion has three armoured companies,
each of three platoons with each company having 11 main battle tanks;
three in each platoon and two headquarters vehicles. A complete
brigade contains 4,000 soldiers.

Posted in Eye on China
A Grab Bag of New Chinese Weapons
Friday, July 25th, 2008

[Editor’s Note: Our good friend Martin Andrew, who publishes an
investigative blaster chronicling Chinese military development called
the Gi Zhou Newsletter, has some interesting tidbits for us this week.
And please note, the picture at left is an earlier Type 89 self-​​
propelled gun.]

New 122mm Self-​​Propelled Gun

In 1966, Luo Ruiqing, the PLA’s then chief-​​of-​​staff criticised the
defence industry because it was concentrating on R&D rather than on
production. He was accused in the official Report of Luo’s Mistakes
that, ‘he still frantically attacked our national defence scientific
research work as going from data to data, from design to design,
without completing anything’. Luo believed China was in imminent war
with the United States, and advocated Soviet assistance. His criticism
of the Chinese defence industry could well have applied into the 1990s
as well as today with too many designs that achieve little.

A new 122mm self-​​propelled gun has been shown in the online version
of PLA Daily. Titled ‘Artillery troops enhance combat effectiveness
with new equipment’, it shows a battery of these guns. The vehicle
uses the chassis from the new ZBD97 infantry fighting vehicle with a
turret, most probably a modified version of the one used on the Model
89 122mm self-​​propelled gun.

WZ731 Tracked Scout Vehicle

Identified as a xinxihua zhanchang (Informationalised battlefield)
system, the WZ731 tracked scout developed from the ZSD89 hull with a
low profile turret mounting two armoured sights, one with a laser
rangefinder and CCD daylight sight and the other a thermal imager. The
WZ731 had a crew of up to six including a three man scout team. It was
6.62m long, 2.626m wide and 1.88m high at the hull and 2.556m at the
top of the armoured sights. The combat weight was only 8.1t which gave
it a maximum road speed of 80.5 km/​hr.

Posted in Eye on China
China Close to Anti-​​Ship BM
Tuesday, June 24th, 2008

I didn’t really understand it until I noticed the seriousness in the
source’s eyes. I hadn’t given it much thought recently, what with all
the other stuff going on around us … MRAP, Air Force shakeup, body
armor, tanker — you name it.

But when the far-​​ranging discussion we were having came around to
the subject of aircraft carriers, this guy said (and I paraphrase)
“you think carriers are irrelevant in a contested environment now,
just wait til someone gets an anti-​​ship ballistic missile
capability. That’ll be a game-​​changer.“

To me, this seemed implausible. Shooting a ballistic missile at a
moving ship?

“Did you see the ASAT test? That was 10-​​times more difficult,” he
replied. “And they’re a lot closer than anyone thinks.“

He wouldn’t tell me the country that’s so close to getting this
capability, but it’s not hard to guess which one it is.

From the 2008 Chinese Military Power report:

China is developing an anti-​​ship ballistic missile (ASBM) based on a
variant of the CSS-​​5 medium-​​range ballistic missile (MRBM) as a
component of its anti-​​access strategy. The missile has a range in
excess of 1,500 km and, when incorporated into a sophisticated command
and control system, is a key component of Chinas anti-​​access
strategy to provide the PLA the capability to attack ships at sea,
including aircraft carriers, from great distances.

That’s subtle — not a whole lot there. But my guy tells me this
country that he would not mention could plausibly demonstrate that
capability “very soon.“

According to our friends at Globalsecurity​.org:

Work is believed to be ongoing to provide this missile with a
sophisticated terminal guidance system. According to some reports the
Mod 2 version of the CSS-​​5 will be comparable to the US Pershing II
IRBM, employ advanced radar guidance to achieve extremely high
accuracy.

Posted in Eye on China
Who’s Afraid of the Big, Bad Dragon?
Sunday, January 13th, 2008

DT editor emeritus Noah Shachtman send us a heads up on a cool post at
his current gig, The Danger Room. Here’s an excerpt:

For years, the American armed forces have worried about an attack on
US satellites; this could be how it begins. The United States military
has become increasingly dependent on space. It uses photo-​​
reconnaissance satellites to observe potential adversaries, GPS
satellites to guide munitions with pin-​​point accuracy,
communications satellites to handle the flow of information into and
out of a theater of operations, and early warning satellites to detect
and track enemy missile launches to name just a few of the better
known applications. Because of this increasing dependence, many
analysts have worried that the US is most vulnerable to asymmetric
attacks against its space assets; in their view US satellites are
sitting ducks without any sort of defense and their destruction would
cripple the US military. Chinas test of a sophisticated anti-​​
satellite (ASAT) weapon a year ago, Friday — 11 January 2007, when it
shot down its own obsolete weather satellite — has only increased
these concerns. But is this true? Could a countryeven a powerful
country like China that has demonstrated a very sophisticated, if
nascent, ability to shoot down satellites at all altitudesinflict
anything close to a knock-​​out blow against the US in space? And if
it was anything less than a knock-​​out, how seriously would it affect
US war fighting capabilities?

So is China a valid space threat or not? Read Noah’s three part
series, starting with Part I here.

– Ward

http://defensetech.org/category/eye-on-china/

PLAYBOOK: Watch Out For This Indicator If China Tightens Lending
Tonight
PrintJoe Weisenthal | Mar. 4, 2010, 12:40 PM | 1,006 | 2
Tags: China, Stock Market, Economy, Interest Rates
As you know tomorrow could be a big day from China, as regulators
might announce further loan tightening.

Past tightening events jolted global markets.

Everyone will be focused on the Shanghai Composite. But as Waverly
Advisors notes, you shoud also watch the short-term SHIBOR (their
equivalent of the LIBOR), which is a reasonable proxy for margin debt.
More loosely it's an indicator of so-called "hot money" that finds its
way into the stock market.

Last year, when this spiked, the market tanked soon thereafter. In
February, when China hiked rates, there was no tank. But now we're
coming off last night's big fall, so the jitters are real this time.
If China hikes, and SHIBOR spikes, we could get a real selling
stampede.

Battle stations!

Image: Waverly Advisors

http://www.businessinsider.com/playbook-watch-out-for-this-indicator-if-china-tightens-lending-tonight-2010-3

MARCH 4, 2010, 7:44 A.M. ET.
2nd UPDATE: CIC: Unclear Global Trend To Make 2010 A Tough Year

BEIJING (Dow Jones)--China&apos;s $300 billion sovereign wealth fund
on Thursday said this year will be a more difficult year for the fund
to make investments because the global economic trend lacks clarity.

China Investment Corp. Executive Vice President Jesse Wang said said
the global economy this year will be challenging because of swings in
foreign exchange movements and the unclear direction of resource
prices.

"Unlike in the past years when the situation (amid the global crisis)
had been very difficult but the trend had been clear, this year the
trend is unclear," Wang said on the sidelines of the annual session of
the Chinese People&apos;s Political Consultative Conference, an
advisory body to the government.

Wang said, for instance, it has become much harder to predict where
global energy and resources prices may head this year, unlike last
year, when a recovery from the financial crisis drove asset prices
up.

Wang also made CIC&apos;s first official comment on speculation that
China would help bail out Greece, noting that the onus on such
bailouts should come from the European Union, rather than institutions
such as CIC.

CIC&apos;s main mission is to have sound financial returns. "Aiding
Greece looks like a policy goal...If the EU is unwilling to help, how
can you expect others to act as a white knight and save Greece," he
said.

He said the debt crisis that four European countries - Portugal,
Italy, Greece, and Spain - are facing may not be as serious as some
people have speculated. "Perhaps the market has exaggerated the
problems. We need to monitor the situation," he said.

In January, news agencies reported that China may buy a large amount
of Greek debt. The Greek finance ministry subsequently denied that it
had reached a deal to sell Greek bonds or state-linked assets, such as
Greece&apos;s largest bank, to Chinese investors, or that it had
mandated any investment bank to negotiate a sale on its behalf.

Wang said CIC has little exposure to the debt crisis related to the
European nations. Instead, CIC focuses more on other risks, such as
the impact foreign exchange swings are having on its global
investments, he said.

He said as a passive financial investor that doesn&apos;t seek
management control in any entities it invests in, CIC recorded
"relatively good" investment returns last year. He said a recent
Caijing Magazine report that CIC&apos;s overseas investment net profit
for last year was $7 billion wasn&apos;t accurate enough, but
wouldn&apos;t elaborate beyond saying its annual report to be released
later would have more details. He didn&apos;t say when the report will
be published.

This year, he said, CIC would have to be more "flexible" adding
investment will be "highly diversified, balanced, and looking for
undervalued assets". It won&apos;t be concentrated on any single
industries, such as resources or the financial sector, nor would it
focus on a single region, such as Africa, he said.

Still, CIC announced over US$8.15 billion worth of acquisitions last
year, with lots of them in the resource space, including a 15.8% stake
buy in AES Corp. for US$1.58 billion, the US$1.5 billion investment in
a 17.2% of Teck Resources in June and the US$856 million purchase of a
15% stake in Singapore-listed Noble Group Ltd. in September.

Citing political risks as well as concerns about an immature legal
system in Africa, Wang said CIC has been treading carefully in the
continent, although it had set up investment funds along with other
unspecified institutions.

CIC, a sovereign fund that manages a portion of China&apos;s foreign-
exchange reserve, isn&apos;t allowed to invest directly in China, one
of the fastest growing emerging economies, he said.

However, CIC has taken account of "China factors" while making
investments, he said. For example, he said, CIC has invested a lot in
Australia, whose economy is closely linked to the Chinese demand for
its rich resources.

"If China&apos;s economy hadn&apos;t grown so strongly,
Australia&apos;s economy wouldn&apos;t have been able to grow so
fast," he said.

Wang said he didn&apos;t know whether CIC would, as speculated in the
market, receive another $200 billion cash injection from Beijing.
Whether or not such an investment happens, CIC will continue to adjust
its asset allocation strategy, Wang said.

"We invested most of our funds in 2009, but now we need to rebalance
and adjust the portfolio and manage it," he said.

-Victoria Ruan contributed to this article, Dow Jones Newswires; 8621
6120-1200; ros...@dowjones.com

http://online.wsj.com/article/BT-CO-20100304-707131.html?mod=WSJ_World_MIDDLEHeadlinesEurope

Will China's Economy Collapse?
Posted by Michael Schuman
Thursday, March 4, 2010 at 7:56 am

Investors have recently focused on some of the problems potentially
facing the Chinese economy, and they're getting worried. The concerns
are that China might be facing a destabilizing property price bubble
and rising bad loans at its banks due to last year's recession-busting
credit boom. I've offered a word of caution myself.

The message from Jing Ulrich, chairman of China equities and
commodities at JPMorgan, however, is: China won't collapse.

In a note to investors, Ulrich tried to debunk concerns about a
possible China crisis. Here's what she said:

The worst-case fears concerning China's property market are based upon
a layer of truth and we ourselves have highlighted the untenable
nature of price increases in some big Chinese cities…However, there
are crucial differences between China's real estate markets and those
of the U.S. (and indeed Dubai), which require that we view the
apparent building bubble through the lens of China's unique
circumstances.

The Chinese housing market is less risky than that of the U.S., she
contends, since Chinese tend to have less debt and more savings than
their American counterparts. Nor does the financial sector suffer with
the type of subprime excesses witnessed in the U.S. Ulrich continues:

We share many of the concerns about flawed incentives and overheating
in the Chinese property market – but even if property prices were to
undergo a correction, this would not trigger the type of economic and
financial devastation that might arise in an over-leveraged economy.

She is also not so concerned about the potential problem of large
debts at China's local governments, which have been built up by
investments in infrastructure projects.

Chinese bank loans for public sector investment projects carry
implicit or explicit sovereign guarantees, and are thus almost akin to
a bond issuance for a public works project… Looking ahead, while
certain local administrations might struggle to service debt, the
magnitude of public sector debt risks do not appear as severe as some
have suggested.

She concludes:

While we agree that certain vulnerable areas of the economy deserve
closer monitoring, we find little support for the skeptics' views of
an imminent crisis.

I agree that China is unlikely to face some kind of monstrous meltdown
anytime soon. At the same time, I find the whole argument that China
is “different” than other countries a bit hard to swallow. The
mathematics of economics is the same in every part of the world. If
Chinese are investing in property based on the idea that prices will
continue to surge, and they don't, many might find themselves
underwater. If local governments struggle to pay their debts, someone
else has to, and the solution could be akin to a bank bailout by the
central government. Perhaps such developments (if they ever happen)
won't spark a major crisis, but they do have a cost, and they could
dampen investor sentiment, both at home and abroad, and that's not
good for the Chinese economy.

Comments (6)

1I was in China recently and outside the main cities, a lot of the
building is based on North American style condo towers. They are
razing old fashioned cinder block two story houses and putting up
glass clad apartment blocks with marble hallways.

Thats a hell of a leap in the quality of housing (arguably) and one
which I struggled to fathom as being affordable for those whose houses
were going under the bulldozer.

The issue may not be that they are building too much, rather that they
are building too expensive for the market to be supported by buyers
rather than speculators.

However, if the Yuan revalues by 20%, who cares if your apartment
block in Nanjing is half empty for 2 years? i suspect a lot of foreign
money is underpinning the market on that rationale.
ladyhamilton1
March 4, 2010
at 8:34 am

2in short: yes, China will collapse: There will be much more hardship
soon with a looming Chinese collapse bigger than the Soviet Union's.
And your insights are just once more corroborating my findings, I
believe.
crisismaven
March 4, 2010
at 10:49 am

Reply 3/sigh
I would always agree 110% that China's economy will collapse, exactly
in 5 days 4 hours and 41 minutes, if anyone brings it up.
Why do people want to argue about this?
busuan
March 4, 2010
at 2:01 pm

4Both the analyses of Michael and Jing were pertinent. The element of
fear for imminent collapse has been there for some time, but the good
thing is the authorities know what happens and display deep concerns.

The current CPPCC in Beijing appears to be very determined in
addressing and tackling the possible property price bubble burst and
the problem of bad loans via effective multi-prong approaches.

Rest assured, China will continue to stand firm and tall, and its
economy would stay healthy.
tanboontee
March 4, 2010
at 9:28 pm

5tanboomtee:
Those 'effective multi-prong approaches" would be what exactly? We
need to know because we need them in USA.
timothydillian
March 5, 2010
at 12:52 am

6australia is more likely a bublle...china just has a few hot spots
geaugaillumina…
March 5, 2010
at 3:33 am

http://curiouscapitalist.blogs.time.com/2010/03/04/will-china%E2%80%99s-economy-collapse/

March 4, 2010 China: Economy Update

•China to have world's largest high-speed railway network
http://business.globaltimes.cn/china-economy/2010-03/509761.html

•China can manage inflation: PBC vice governor
http://business.globaltimes.cn/china-economy/2010-03/509732.html

•US may take China to WTO over Google saga
http://business.globaltimes.cn/china-economy/2010-03/509710.html

•Henan rolls out coal industry reform
http://business.globaltimes.cn/china-economy/2010-03/509565.html

•Housing prices top agenda at sessions
http://business.globaltimes.cn/china-economy/2010-03/509640.html

•Environmental tax
http://business.globaltimes.cn/china-economy/2010-03/509576.html

•Basically steady yuan
http://business.globaltimes.cn/china-economy/2010-03/509575.html

•US imposes tariffs on China-imported salts, coated paper
http://business.globaltimes.cn/china-economy/2010-03/509389.html

•Chinese govt to reign in provincial debts
http://business.globaltimes.cn/china-economy/2010-03/509290.html

•CPPCC member urges open market for natural gas
http://business.globaltimes.cn/china-economy/2010-03/509235.html

http://sinobusinessnews24-7.posterous.com/china-economy-update-14

[Sid Harth]

Japan: the fallen angelDespite the veneer of prosperity on the streets
of Tokyo, Japan's slow-motion financial crisis looks set to get worse

Kenneth Rogoff guardian.co.uk,
Friday 5 March 2010 08.00 GMT

The bustle of Toyko's business district masks the stagnation of the
Japanese economy. Photograph: Getty

If you listen to American, European, or even Chinese leaders, Japan is
the economic future no one wants. In selling massive stimulus packages
and bank bailouts, western leaders told their people: "We must do this
or we will end up like Japan, mired in recession and deflation for a
decade or more."

Chinese leaders love pointing to Japan as the prime reason not to
allow any significant appreciation of their conspicuously undervalued
currency. "Western leaders forced Japan to let its currency rise in
the second half of the 1980s and look at the disaster that followed."

Yes, nobody wants to be Japan, the fallen angel that went from one of
the fastest-growing economies in the world for more than three decades
to one that has slowed to a crawl for the last 18 years. No one wants
to live with the trauma of the deflation (falling prices) that Japan
has repeatedly experienced. No one wants to navigate the precarious
government-debt dynamic that Japan faces, with debt levels far above
100% of GDP (even if one factors in the Japanese government's vast
holdings of foreign-exchange reserves). No one wants to go from being
a world-beater to a poster child for economic stagnation.

And yet visitors to Tokyo today see prosperity everywhere. The shops
and office buildings are bustling with activity. Restaurants are
packed with people, dressed in better clothing that one typically sees
in New York or Paris. After all, even after nearly two decades of
"recession", per-capita income in Japan is more than £27,000 (at
market exchange rates). Japan is still the third-largest economy in
the world after the United States and China. Its unemployment rate
remained low during most of its "lost decade", and, although it has
shot up more recently, it is still only 5%.

So what gives? First, things look a lot grimmer when one gets two
hours outside of Tokyo to places such as Hokkaido. These poorer
outlying regions are hugely dependent on public-works projects for
employment. As the government's fiscal position has steadily weakened,
the jobs have become far scarcer. True, there are beautifully paved
roads all around, but they go nowhere. Old people have retreated to
villages, many growing their own food, their children having long
abandoned them for the cities.

Even in Tokyo, the air of normalcy is misleading. Two decades ago,
Japanese workers could expect to receive massive year-end bonuses,
typically amounting to one-third of their salary or more. Now these
have gradually shrunk to nothing. True, thanks to falling prices, the
purchasing power of workers' remaining income has held up, but it is
still down by more than 10%. There is far more job insecurity than
ever before as firms increasingly offer temporary jobs in place of
once-treasured "lifetime employment".

Although hardly in crisis (yet), Japan's fiscal situation grows more
alarming by the day. Until now, the government has been able to
finance its vast debts locally, despite paying paltry interest rates
even on longer-term borrowings. Remarkably, Japanese savers soak up
some 95% of their government's debt. Perhaps burned by the way stock
prices and real estate collapsed when the 1980s bubble burst, savers
would rather go for what they view as safe bonds, especially as gently
falling prices make the returns go farther than would be the case in a
more normal inflation environment.

Unfortunately, as well as Japan has held up until now, it still faces
profound challenges. First and foremost, there is its ever-falling
labour supply, owing to extraordinarily low birth rates and deep-
seated resistance to foreign immigration. The country also needs to
find ways to enhance the productivity of those workers it does have.

Inefficiency in agriculture, retail and government are legendary. Even
at Japan's world-beating export firms, reluctance to confront the
ingrained interests of the old-boy network has made it difficult to
prune less profitable product lines – and the workers who make them.

As the population ages and shrinks, more people will retire and start
selling those government bonds that they are now lapping up. At some
point, Japan will face its own Greek tragedy as the market charges
sharply higher interest rates.

The government will be forced to consider raising revenues sharply.
The best guess is that Japan will raise its VAT, now only 5%, far
below European levels. But is it plausible to raise taxes in the face
of such sustained low growth?

Investors who have bet against Japan in the past have been badly
burned, grossly underestimating the Japanese people's remarkable
flexibility and resilience. But the fiscal road ahead looks
increasingly perilous, with political consensus fraying badly in
recent years.

In the end, are foreign leaders right to scare their people with tales
of Japan? Certainly, the hyperbole is overblown; the Chinese,
especially, should be so lucky. But neither should apologists for
deficits point to Japan as reason to be calm about outsized stimulus
packages. Japan's ability to trudge on in the face of huge adversity
is admirable, but the risks of crisis ahead are surely greater than
bond markets seem to recognise.

Copyright: Project Syndicate, 2010

http://www.guardian.co.uk/commentisfree/2010/mar/05/japan-economic-crisis#start-of-comments

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[bademiyansubhanallah]

The Associated Press March 5, 2010, 2:53AM ET

TOKYO

Japanese stocks jumped Friday, buoyed by a report that the country's
central bank was considering taking further monetary easing steps to
shore up a recovery in the world's second-biggest economy.

The benchmark Nikkei 225 stock index surged 223.24 points, or 2.2
percent, to 10,368.96. For the week, the key index gained 2.4 percent.
The broader Topix index gained 1.5 percent to 897.64.

"Investors welcomed the report. It means that the Bank of Japan could
again take action to support the economy," said Kazuhiro Takahashi,
equity strategist at Daiwa SMBC Securities Co. Ltd.

In December, the bank eased monetary policy by offering 10 trillion
yen ($112 billion) in short-term loans to commercial banks to boost
liquidity.

Japan's top business daily Nikkei said Friday the nation's central
bank will start discussing further monetary easing measures at its
next policy board meeting on March 16-17.

"Investors were speculating that further easing could help the yen
weaken," Takahashi said. A softening yen helps Japanese exporters as
it boosts the value of their repatriated profits, and makes their
goods more competitive by price abroad.

Exports are a silver lining for Japan's economy, which emerged last
year from its worst recession since World War II but remains

threatened by deflation, a strong yen and sluggish domestic demand.

Takahashi said Japan's market also rallied on optimism over the U.S.
February jobs report, which is due on Friday. The monthly job report
is considered to be the most important reading on the U.S. economy
because a lasting recovery won't be possible without more jobs being
created.

Among blue chips, Toyota Motor Corp. rose 0.6 percent to 3,395 yen.

Honda Motor Co. increased 1.0 percent to 3,110 yen. Sony Corp. jumped
3.4 percent to 3,205 yen.

In currencies, the dollar edged up to 89.37 yen in Tokyo Friday
afternoon from 89.13 yen in New York late Thursday. The euro was
little changed at $1.3582.

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Toyota and the End of Japan

Nicky Loh / Reuters-Landov
Mechanics fix Toyota vehicles at a service center in Taiwan
By Devin Stewart | NEWSWEEK
Published Mar 5, 2010
From the magazine issue dated Mar 15, 2010

Japan was morbidly fascinated by the spectacle of Toyota president
Akio Toyoda apologizing to the U.S. Congress for the deadly defects
that led to the recall of 10 million of its cars worldwide. The
appearance of the "de facto captain of this nation's manufacturing
industry," as Japan's largest newspaper referred to Toyoda, seemed to
symbolize a new bottom for a nation in decline. Once feared and
admired in the West, Japan has stumbled for decades through a series
of lackluster leaders and dashed hopes of revival. This year, Japan
will be overtaken by China as the world's second-largest economy.
Through it all, though, Japan could cling to one vestige of its former
prestige: Toyota—the global gold standard for manufacturing quality.

And now this. Toyota is getting lampooned all over the world in
cartoons about runaway cars. Japan's reputation for manufacturing
excellence, nurtured for half a century, is now in question. Shielded
by the U.S. defense umbrella after World War II, Japan focused its
energy and money on building up only one aspect of national power:
quality manufacturing. A foreign policy commensurate with Japan's
economic strength was subordinated to industrial policies aimed at
creating the world's best export factories. No matter how quickly
Chinese and South Korean rivals grew, Japan could argue that its key
competitive advantage was the quality of its brands. "Toyota was a
symbol of recovery during our long recession," says Ryo Sahashi, a
public-policy expert at the University of Tokyo. Now Toyota's trouble
"has damaged confidence in Japanese business models and the economy at
a time when China is surpassing us."

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While Detroit downshifts, Beijing has pushed its auto industry into
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Royal Gorge
There was some sign of slippage even before the Toyota recalls. Many
other top Japanese manufacturing brands lost their made-in-Japan
luster, says Michael J. Smitka, an economist who specializes in the
Japanese auto sector. Sanyo is gone, its pieces sold off in a
restructuring. Toshiba and Fujitsu also are reorganizing. Sony is as
much a Hollywood hitmaker as a Japanese manufacturer, and Mitsubishi
Motors, Mazda, and Nissan have all had tie-ups with foreign companies
through the years. In the early part of the last decade, particularly
under the maverick administration of celebrity prime minister
Junichiro Koizumi, Japan made fleeting attempts to promote itself as
the land of the new new thing: nano-this, bio-that. Nothing stuck.
There is still no Japanese Google.

So Toyota remained special, the largest and virtually the last
remaining face of Japanese manufacturing and trading prowess. With
$263 billion in sales last year it remains Japan's biggest company by
far and the world's largest auto manufacturer. But the recall has now
exposed problems there, too. Like many Japanese companies, even global
ones, it has suffered from an insularity and parochialism, and a
hierarchical structure that discouraged innovation or input from
others. Robert Dujarric of Temple University–Japan says that most of
the core management team is Japanese, and the company's suppliers are
part of Toyota's vertical structure, limiting contact with outsiders.
The public-relations response has been plagued by Japanese cultural
tendencies to dodge controversy and conflict, even to the point of
denying glaringly dangerous problems, like sticking accelerating
pedals.

In many ways, Toyota is symptomatic of a nation that has lost its way.
According to a 2008 Pew survey, Japanese were more dissatisfied with
the direction of their country than almost any other nation, including
Pakistan and Russia. As a result, the Japanese electorate in August
2009 threw out the old guard Liberal Democratic Party after a half
century of nearly unbroken rule. The new government, led by Prime
Minister Yukio Hatoyama, promised change—a "revolution," even.
Hatoyama talked about Japan taking a larger role in the world, but it
was telling that his first big international splash was on a local
issue: urging the U.S. to shrink its military base on Okinawa. In his
first six months, Hatoyama's approval ratings have plummeted from 75
percent to 37 percent. An Ipsos/Reuters poll in February showed that
just 14 percent of Japanese were confident that their country is
headed in the right direction, the lowest level of confidence in any
of the 23 countries surveyed. For many, the Toyota debacle suggested a
further step in the wrong direction. "Toyota represents Japan all over
the world in terms of Japanese culture and Japanese economy," says
Masayoshi Arai, a special adviser to Japan's Ministry of Economy,
Trade and Industry. "We are proud of Toyota, so this story has damaged
our pride."

Toyota's fall from grace caps a 20-year economic malaise that is
infecting the popular culture, manifesting itself in a preference for
staying home, avoiding risk, and removing oneself from the
hierarchical system. A generation of people in their 30s and 40s—the
prime working and family-raising years—are said to be unwilling to
take any risk, no matter how small. Sugomori (nesting) people spend
their days seeking bargains online. With wages declining, soshoku-kei
danshi (grass-eating men) avoid going out or trying to find a career
for themselves. According to some surveys, this generation has
reported preferences for avoiding cars, motorcycles, and even spicy
food. Entrepreneurship is seen as an unpromising career prospect.
Estimates of the number of hikikomori (shut-ins who have given up on
social life) have risen. Japanese psychologist Tamaki Saito, the
foremost authority on the trend, speculated in 1998 that the number of
such Japanese could be 1 million; last month authorities said it may
be as high as 3.6 million. The country's suicide rate—more than 30,000
per year for 12 years—is double that of the United States and second
only to Russia among the G8 nations, and getting worse.

This all has dire economic effects. Low birth rates and out-migration
patterns mean the country's population is predicted to fall from 127
million to 95 million by 2050, creating unparalleled demographic
pressures. A shrinking, bargain-hunting, risk-averse population
translates into a deflationary spiral, low wage growth, and decreased
tax revenues. Japan's debt is now more than twice GDP, by far the
highest rate of any industrialized nation. In a March piece entitled
"Japan's Slow-Motion Crisis," Kenneth Rogoff, the former chief
economist at the International Monetary Fund, wrote that Japan was "a
poster child for economic stagnation," noting its "legendary"
inefficiencies in agriculture, retail, and government. His conclusion:
Japan's fiscal situation grows more alarming by the day. The stock
market stands at a quarter of its 1989 high, and now Toyota's stock
has fallen 20 percent since the recalls began.

The optimistic view is that Toyota's travails will spur Japan,
finally, to become less insular and more open to new ideas. Initially,
many in Japan denied the problem, called the controversy an American
overreaction, and concocted conspiracy theories about the U.S.
government or unions sabotaging Toyota cars to boost sales of the
government-supported General Motors. Now, however, the Hatoyama
administration is moving to push change on Toyota in ways its business-
friendly predecessors in the LDP never would have, says Jeff Kingston,
a professor of Asian studies at Temple University–Japan. Transport
Minister Seiji Maehara has "not missed a chance to berate Toyota,"
accusing it of failing to listen to customer complaints, says
Kingston. The mainstream media have also taken off the gloves, he
notes, with some of the biggest newspapers saying that Toyota has
embarrassed Japan in the world, and that Toyota must regain the trust
of its customers.

The less rosy scenario is that Japan will respond to this humiliation
by retreating deeper into its shell. Since Koizumi's term ended in
September 2006, three prime ministers have had to step down within a
year. The elite now understands the problems Japan faces, but the
cultural shift required to confront them may just be too great, says
Edward Lincoln, a New York University Japan scholar. Rather than, for
example, competing with China for the leadership role in Asia, it is
quite likely that the Japanese will cede that ground while feeling
sorry for themselves, says Lincoln. In other words, Japan will
continue to give up, fade away, and blame its limitations on
demographics and the changing international balance of power. In this
bleak view, the Japanese will return to their mantra of shoganai
(nothing can be done). Indeed, it seems that Japan's long decline may
not be accelerating, but the prevailing sentiment is that nothing can
be done to apply the brakes.

Stewart is Program Director and Senior Fellow at the Carnegie Council
for Ethics in International Affairs.

© 2010

So Long, Salad Days

Just two years ago, Russia's energy reserves made it seem like a
rising superpower—and a Western bogeyman that could do anything it
wanted. That was then.

PHOTOS
Steel and Rust
An industrial city in southern Russia feels the pinch of a declining
global economy

By Owen Matthews | Newsweek Web Exclusive
Feb 24, 2010

Five years ago, when oil prices were climbing steadily and economists
were stoking fears about peak oil and gas, it seemed that major energy
producers like Russia were holding all the cards. Then-president
Vladimir Putin spoke of his country as an "energy superpower" and used
energy supplies as a blunt instrument of Kremlin foreign policy. Gas
cutoffs to Ukraine caused panic in Europe, while Western energy
companies fell over each other to get a slice of Russia's oil and gas
fields.

SUBSCRIBE Click Here to subscribe to NEWSWEEK and save up to 88% >>
But all that is over. Today, the super-giant Shtockmann natural-gas
field under the Arctic sea—Russia's only big hydrocarbon discovery
since Soviet times—has just been mothballed due to the towering cost
of extracting the undersea gas. At the same time, worldwide demand for
Russia's gas has plummeted. And meanwhile, the government has
punctured investor confidence by pressuring BP, one of the few major
foreign investors left in Russia's energy sector, to hand over a giant
Siberian gas field to a government-owned rival. It's time for Moscow
to kiss goodbye those dreams of energy hegemony.

One problem is that the recession has eviscerated European demand for
Russian natural gas (consumption dipped by 7 percent in 2009). Another
is that demand in the United States for imported natural gas has
fallen off too. Thanks to shale gas and other unconventional sources
like tar sands, the U.S. is now close to self-sufficient in natural
gas. It's a nightmare for Shtockmann, where the business plan hinged
on freezing the product into liquified natural gas, or LNG, for export
to the United States.

That made the Shtockmann field, with reserves of 3.7 trillion cubic
meters, seem less like the strategic future of Russian natural gas and
more like an M&M that fell behind the couch—tasty, but not strictly
necessary and very hard to reach. The $20 billion cost of extracting
the deep-buried gas in the harsh conditions of the Arctic has proved
prohibitive for Gazprom and its minority partners, Total of France and
Statoil of Norway.

That's a problem for Gazprom, which was the main cudgel of Putin's
foreign policy just four years ago, when he played one European
country against another in their eagerness to lay Gazprom pipelines
across their territory. Now the European market seems oversupplied.
More worrying still, Gazprom's traditional suppliers (gas fields in
the Central Asian nations of Turkmenistan and Kazakhstan) have begun
opening their own direct pipelines to China, where gas consumption has
a future. And though Gazprom still controls about 17 percent of the
world's proven natural-gas reserves, many of its existing fields are
beginning to run dry. Getting at the remainder—for instance at the
Bovanenkovo field in the remote Yamal Peninsula in Siberia—will need
massive investment of cash and know-how. Who wants to sink in that
kind of money with no guarantee of returns?

That's why the latest attack on BP is so strange—and so dumb. A time
of falling demand, unstable energy prices, and investor nervousness
about emerging markets might seem like a bad moment to crack down on
one of the few large foreign investors in Russia's energy sector. But
that hasn't stopped Russia's Natural Environment Inspectorate, or
RosPrirodNadzor, from threatening to throw BP off the giant Kovykta
gas field in Eastern Siberia. The official reason for the threat is
alleged environmental infractions—the same reasons cited by the
Russian state when Royal Dutch Shell was persuaded to sell Gazprom its
stake in an oilfield in Sakhalin two years ago for below market value.
But the real reason seems to be that the state oil company Rosneft has
its eye on BP's field.

This is hardly the first time Russia's government has shaken down BP—
or other investors. In 2007 the Russian Natural Resources Ministry
threatened to tear up the Kovykta contract because of alleged
violations of the exploration timetable. Then, the predator was
Gazprom, which wanted Kovykta for a knockdown price and was also at
the time hustling to get a slice of a BP gas project in Trinidad and
Tobago. That deal stalled on legal wrangling and was ultimately sunk
by the 2008 economic crisis, which reduced Gazprom's voracious
appetite for expansion. But now, it seems, Rosneft is taking up where
Gazprom left off—and in the process reminding investors in all sectors
of the dangers of doing business in Russia. The difference is, of
course, that in 2007 energy prices were rising and plentiful
investment money was wandering the world, desperately seeking high
returns whatever the risk. Today, the opposite is true. "It is not
just a big gas field at stake here. It is about the country's entire
investment climate," says Valery Nesterov, an oil and gas analyst from
Troika Dialog brokerage. "Russia has to attract foreigners to develop
Yamal and offshore fields."

Russia remains the largest exporter of oil and gas in the world—bigger
even than Saudi Arabia. But unlike the Gulf nations, Russia is fast
pumping its existing wells of both oil and gas dry. To tap its reserves
—and to maintain Russia's status as an "energy superpower"—Russia
needs to stop ripping off its investors just because a demand falloff
has hurt its bottom line. Gas consumption will come back. But Russia's
superpower aspirations won't also rise if Russia has alienated its
partners. Without them, its new reserves—like the Shtockmann field—
will remain buried in the ground.

© 2010

http://www.newsweek.com/id/234060?obref=obinsite

The Marmot's Hole

Korea… in Blog Format

A Tale of Two Islands: Tsushima and Hashima
by Robert Koehler on March 5, 2010

in Japan, Korean History

As Kushibo notes:

If you have been deluded into believing it is only whacky Koreans that
have a stick up their arse about Japan, and not the other way around,
look again. Japanese nationalists frequently talk up the danger of
zainichi Korean restaurants in their midst — especially those
associated with “pro-North” organizations because they provide
something of a lifeline to their relatives in the DPRK — but this
occasionally extends to tourists, especially those on Tsushima.

As evidence, Kushibo points to this stinker in the Japan Times:
“Tsushima’s S. Koreans: guests or guerrillas?“

In 2008, 72,349 South Koreans visited the island, thanks to the won’s
strength against the yen, before falling to 45,266 in 2009 due to the
global economic crisis and the won’s subsequent sharp fall.

Even though these visitors contributed an estimated ¥2.1 billion to
the local economy and generated 260 jobs on an island struggling with
depopulation, word that a plot next to a Maritime Self-Defense Force
facility is occupied by a lodge that houses mostly South Korean
fishermen has irked local residents and conservative politicians.

“Although the MSDF says the presence of the lodge does not present any
problem with its activities, we feel as if we are being kept under
surveillance” by the South Koreans, said Masayoshi Matsui, who heads
the local chapter of the Japan Conference, a group of conservatives.

Kept under surveillance!

Sorry.

Anyway, to readers of the Marmot’s Hole, the Korean invasion of
Tsushima is old news.

What isn’t old news, though, is this story (Korean) by Jeon Eun-ok on
Japan’s Hashima — perhaps better known as Gunkanjima, or “Battleship
Island” — which the Japanese are trying to registers, along with other
modern industrial heritage sites in Kyushu and Yamaguchi — as a UNESCO
World Heritage Site. Jeon’s piece looks at the history of Korean
laborers on the island and takes the city of Nagasaki to task for its
failure to tell the whole story about the island, a complaint heard
elsewhere. When you read something like this, of course, you can see
where the complaints might be coming from:

What could have been written in the inscription that would cause
someone to act in such a hostile manner bearing a grudge? The original
text consisted of two paragraphs. The first said that those honored
had made great contributions to the development of the Japanese
economy and the promotion of the local community, but that they were
unable to deal with the flow of the times and had lowered the curtain
on a glittering history lasting over a century. It is the second
paragraph that clearly shows Mitsubishi‘s understanding of conscripted
labor. The somewhat lengthy paragraph reads as follows.

“We long for the days in which many workers and their families,
including people who came from China and the Korean Peninsula,
transcended race and nationality to share one heart in tending the
flame of coal mining and sharing joy and sorrow together, and we pray
for the eternal rest of those who lost their lives during their work
or perished on this land by erecting this monument to comfort all
their souls.”

When the contents of the inscription became known, ethnic Koreans who
had endured harsh treatment at the site during the Japanese Empire
were unable to conceal their anger. There was nothing written to
indicate that Korean and Chinese workers had been brought there
against their will. The people who were brought to the Ghost Islands
endured harsh labor, beatings, and punishments, and a number of them
died in accidents or from malnutrition. Japanese civic groups
protested, charging that expressions such as “sharing joy and sorrow”
flew in the face of historical fact, but the company refused to modify
the inscription, claiming that it had already passed through prior
discussions with the local headquarters of the Korean Residents Union
in Japan (Mindan) and the General Association of Korean Residents in
Japan (Chongryon). It was in the midst of this controversy that the
destruction of the inscription took place.

Easy AdSense by Unreal
VN:F [1.8.3_1051]

{ 5 comments…

1 cm March 5, 2010 at 4:29 pm
Japan has never really acknowledged their historical role with their
forced laborers. So nothing new there too.

What I find more interesting are the Japanese not being able to accept
Kim Yuna’s gold medal win. I wish they just get over it. It’s becoming
really annoying.

UN:F [1.8.3_1051]

hoju_saram March 5, 2010 at 4:49 pm
Jeon Eun-ok makes a fair point. But I don’t quite understand what the
Japanese civic groups were getting at when they say that,

“sharing joy and sorrow” flew in the face of historical fact

Are they agreeing with the Koreans, i.e., that the story of the
indentured workers should be told truthfully?

Another point — why on earth would anybody – Japanese or otherwise –
consult the General Association of Korean Residents in Japan
(Chongryon) on anything? They openly bankroll the the Kim regime
(using capitalist-funded Yen) and wonder why they’re discriminated
against. The Aquariums of Pyongyang gives you a good idea of exactly
how insidious 총련 is.

Interestingly, when I went to the DPRK I took this picture – of young
people dancing under a 총련 banner.

Struck me as odd at the time – maybe they were visiting from Japan on
a sort of homeland tour? From what I’ve read, it seems that 총련 does
this occasionally.

Anyway, interesting post :p

UN:F [1.8.3_1051]
Rating: 0 (from 0 votes). 3 silver surfer March 5, 2010 at 5:10 pm
Jeezus!

To drag people to work as slave labourers in your mines, kick them and
beat them, and work them to death…and then to have the balls to write
this sugary pablum on the memorial! They should take that memorial and
shove it you know where.

UN:F [1.8.3_1051]

March 5, 2010 at 9:53 pm

For all his strengths and his generally useful perspective as a Korea-
watcher and blogger, Kushibo too often does readers a disservice by
finding or creating equivalence between what are arguably MAINSTREAM
Korean nationalist views and actions, and decidedly FRINGE behavior
across the Sea of Japan. (He also committed the false equivalence
error with Western press coverage of Ohno’s Korean troubles in
Vancouver and its Korean media equivalent.) I’m not saying Tsushima/
Taemado here is a mainstream issue in South Korea, but Dokdo/Takeshima
is one in a way that it simply is not in Japan — even though Korea
actually has possession and control of the islets in question there.

So on Tsushima, the Kyodo report in the Japan Times dutifully finds
some far-right figures to utter anti-Korean paranoid crap, but also
includes for the reader the actual reality of the situation, which is
vigorous local efforts to promote tourism from Korea:

“Tsushima officials take a more sanguine view. They continue to
promote the island as a tourist destination to South Koreans, hoping
to raise the number of visitors to 100,000.

Kenichiro Motoishi, head of the city’s tourism and industry promotion
office, pointed out that the central government has tried to support
the economy of remote islands to maintain the country’s territorial
integrity since the 19th century, but has failed to do so because of
its weak financial base.

“If (tourists) spend money here, we don’t care if they are Japanese or
South Koreans,” Motoishi said.

“We cannot overlook transactions concerning national sovereignty, but
otherwise they are welcome. What’s the difference between the Korean
property purchase and the Japanese acquisition of Rockefeller Center?”
Motoishi said, referring to the outcry in the United States over the
purchase of the landmark building in New York in the late 1980s by
Japanese real estate developer Mitsubishi Estate Co.

About a dozen South Korean veterans demonstrated in front of City Hall
in July 2008 to claim territorial rights over the island, but such
people are rare, he said.”

If the ownership/tourist nationalities on Tsushima were reversed,
would Yonhap include such comments, if they could find a Korean
official willing to utter them?

UN:F [1.8.3_1051]
Rating: 0 (from 10 votes). 5 babotaengi March 6, 2010 at 11:24 am
“If the ownership/tourist nationalities on Tsushima were reversed,
would Yonhap include such comments, if they could find a Korean
official willing to utter them?”

You don’t understand Korean mind.

http://www.rjkoehler.com/2010/03/05/a-tale-of-two-islands-tsushima-and-hashima/

Economy 101: Hiring index nears turning point
By CHRISTOPHER S. RUGABER (AP) – 10 hours ago

WASHINGTON — An index that measures the breadth of hiring among
private industries is nearing a turning point that could signal
consistent job gains.

The index is part of the government's monthly employment report. Its
rise is evidence that the job market is headed in the right direction
— though at a painfully slow pace.

The Labor Department's report Friday said the jobless rate was
unchanged last month at 9.7 percent, as employers cut 36,000 jobs.

By calculating an index, the department also estimated how widespread
hiring is across 269 separate private industries. A reading of 50 in
the index would mean an equal number of industries are hiring and
firing. A reading above 50 means more are adding jobs; below 50 means
more are cutting.

The index reached 48 in February, up from 44.2 the previous month. A
year ago, as corporations slashed jobs in the depths of the recession,
it was 17.1. It fell to 16.5 in March 2009, the lowest point since the
index began in 1991.

That "suggests we are right on the cusp of jobs growth," Stuart Green,
a global economist at HSBC Securities, wrote in a research note.

Here, by the numbers, are some more details in the employment report.

___

UNEMPLOYMENT BOTTOMING OUT?

9.7 percent: Unemployment rate in February and January

10 percent: Unemployment rate in December and November

10.1 percent: Unemployment rate in October

9.8 percent: Unemployment rate in September

___

THE JOBLESS OLYMPICS: LATEST UNEMPLOYMENT RATES

4.8 percent: South Korea

4.9 percent: Japan

7.8 percent: United Kingdom

8.7 percent: Germany

9.7 percent: United States

18.8 percent: Spain

___

STILL LOOKING

40.9 percent: Proportion of unemployed out of work six months or
longer, down from last month's record of 41.2 percent

29.7 weeks: Average length of unemployment in February, also down from
last month's record of 30.2

6.1 million: Number of people jobless for six months or longer, also
below last month's record of 6.3 million. It's the first drop in this
figure since Nov. 2008

1.3 million: Number unemployed for that long in December 2007, when
the recession began

___

WHERE THE JOBS ARE

47,500: The number of temporary jobs added in February

12,000: Jobs added in hospitals, nursing and other health care sectors

7,000: Jobs added by building materials and garden supply stores

1,000: Jobs added in manufacturing

8,000: Jobs added in computer services

9,400: Jobs in arts, entertainment and recreation

___

WHERE THEY'RE NOT

-64,000: Job losses in construction

-18,000: Job losses in government at all levels

-10,000: Job losses in financial services

-4,300: Job losses in trucking

___

UNDEREMPLOYED

8.8 million: Number of part-time workers who would have preferred full-
time work last month

2.5 million: People without jobs who want to work but have stopped
looking

16.8 percent: "Underemployment" rate in February if you include the
above two categories

17.4 percent: Underemployment rate in October, the highest on records
dating to 1994

___

FEBRUARY UNEMPLOYMENT RATE BY GROUP

11.6 percent: Female heads of households

8.4 percent: Asians

8.8 percent: Whites

12.4 percent: Hispanics

15.8 percent: Blacks

Copyright © 2010 The Associated Press. All rights reserved.

http://www.google.com/hostednews/ap/article/ALeqM5hm-9T4ctiK7e9Bzf59YqvLAoei6AD9E8O0FO1

Posted on Friday, 03.05.10
Employers shed jobs in February, but upward trend continues
By KEVIN G. HALL
McClatchy Newspapers

WASHINGTON -- The nation's unemployment rate held steady at 9.7
percent in February and employers shed another 36,000 jobs, new
government data showed Friday, signs that the U.S. economy is
recovering slowly from the deep recession.

The Obama administration had hoped that job numbers from the Labor
Department would show net gains for February, but the record snows in
the Northeast and bad winter weather in much of the rest of the
country may have affected the picture, especially in construction,
which lost 64,000 jobs in February.

While the headline number remained slightly negative, the report had
some positive signs. Manufacturers added jobs for the second straight
month, albeit not that many, around 1,000. More comforting was the
services sector, which added 42,000, and professional and business
services employment, which increased by 51,000 jobs.

In addition to the losses in the hard-hit construction sector, jobs
tied to goods production were down by 60,000 and government hiring was
down 18,000.

"The good news is that businesses are no longer laying off workers;
the bad news is that they are still not hiring. The job market is
flat," said Mark Zandi, the chief economist for forecaster Moody's
Economy.com in West Chester, Pa. "This is progress compared to the
massive job losses of a year ago, but it isn't enough progress to
conclude that the economy is off and running."

Statisticians at the Bureau of Labor Statistics also revised their
December numbers to reflect that 109,000 jobs were lost that month,
not the 150,000 that the BLS first reported. For January, however,
they revised in the other direction, saying that 26,000 jobs were
lost, not the 20,000 initially reported.

Many economists had expected the unemployment rate to tick back up as
workers who'd given up searching for jobs began trying again. That
view is coming into question because the jobless rate held steady
again.

"Many had expected that some of January's 0.3 percentage point decline
would prove to be a transitory drop. That it was maintained for a
second month makes it more likely that it was a genuine decline, not
statistical noise," Christina Romer, the head of the White House
Council of Economic Advisers, said in a statement. "The number of
workers unemployed for more than 26 weeks fell by 180,000, the first
decline in over a year."

There was other evidence that employers are slowly moving to boost
their hiring. Data gleaned from surveys of U.S households showed that
308,000 more Americans reported that they were employed in February,
compared with a month earlier. Likewise, the number of people who
reported themselves as not in the labor market fell by 167,000 last
month when compared with January.

However, as is the case with the offsetting gains and losses in
different sectors of the economy, some of what households reported
cast doubt on whether a firm recovery has taken hold. For example, the
number of people who reported that they're working part time for
economic reasons rose by 475,000 last month, while those who said
they're working part time because of slack business conditions
increased by 312,000.

"The report today shows a labor market with no momentum, though the
snowstorm's impact creates some uncertainty. The good news is the
unemployment rate is not returning to the 10.1 percent level of
October," said Larry Mishel, the president of the Economic Policy
Institute, a liberal economic-policy research group. "The bad news is
that employment is not growing, and even a generous interpretation of
the snow's impact suggests the underlying trend is insufficient to be
driving down unemployment in the near future. Also disappointing is
that wage growth remains minimal."

Mishel's last point underscores why Democrats in Congress are trying
to give temporary tax breaks to employers who boost their workers'
wages. If wages remain flat and recovery uncertain, consumers are
unlikely to boost spending, and spending is needed to spark a chain
reaction that sets the rusty gears of the U.S. economic engine into a
drive mode.

FEBRUARY BY THE NUMBERS

-Construction, down 64,000.

-Goods production, down 60,000.

-Government, down 18,000.

-Transportation, warehousing, down 12,000

-Retail, unchanged.

-Manufacturing, up 1,000.

-Leisure and hospitality, up 7,000.

-Health care, up 12,100.

-Services, up 42,000.

-Professional, business services, up 51,000.

http://www.miamiherald.com/2010/03/05/1514480/employers-shed-jobs-in-february.html

February's Mixed Jobs Picture: More Losses, Steady Unemployment Rate
By JOSEPH LAZZARO
Posted 9:40 AM 03/05/10 Economy
Comments: 596

Americans will have to wait at least another month to hear
unambiguously good news regarding job growth in the U.S. In February,
the world's largest economy lost 36,000 more jobs, the U.S. Labor
Department announced Friday. However, the unemployment rate was
unchanged at 9.7%. And both figures are better than most experts had
been expecting. A Bloomberg News economists survey had forecast a loss
of 50,000 jobs in the month and the unemployment rate to rise to 9.8%
from January's 9.7%.

The revisions made to the previous two months also created a muddy
picture of just how the trend is developing. The Labor Department now
says the economy lost a revised 26,000 in January and 109,000 in
December, compared to its previously released losses of 20,000 and
150,000, respectively.

In addition, the Labor Department's other, separate unemployment
gauge, which includes workers who can find only part-time work and
discouraged workers, rose to 16.8% in February from 16.5% in January.
All told since the recession started in December 2007, the economy has
now lost more than 8.5 million jobs.

Ups and Downs in Hiring

The February report did have a few clearly bright spots. Temporary
jobs, which usually signal a new hiring phase, increased by 42,000 in
February. Since July, the temporary-job category has added 299,000
jobs. The U.S. government also added 15,000 temporary U.S. Census
workers. Manufacturing added 1,000 jobs -- the sector's second
straight gain. Retail employment was unchanged.

On the downside, information technology shed 18,000 jobs, and
construction lost 64,000.

Also, average hourly earnings rose 3 cents to $18.93 in February. The
average workweek fell to 33.8 hours in February from 33.9 hours in
January.

No Guarantees

Investors should keep in mind that the Labor Department's monthly job
total is subject to revisions as more information comes in. These
revisions are sometimes as large as 100,000 jobs. Also, one month's
job gain wouldn't guarantee that losses won't resume: Some estimates
assign a roughly 20% probability of the U.S. economy slipping back
into recession in 2010. Still, the job trend over the past year points
to an improving -- however slowly -- U.S. job market in 2010.

Also, don't expect the U.S. Federal Reserve to change monetary policy
after a month of solid job gains is finally reported. Fed governors
have repeatedly indicated that would need to see more than one good
monthly report would to convince them the job market is recovering.

Joseph LazzaroView all Articles »
Economics and Markets WriterJoseph Lazzaro is the former managing
editor of financial news web sites WallStreetEurope.com/
WallStreetItalia.com, based in New York. Prior to graduate training in
U.S. public policy and international economics, Lazzaro also served as
a copy editor and staff writer for The Hartford (Connecticut) Courant.

COMMENTS ( 596 )

http://www.dailyfinance.com/story/februarys-mixed-jobs-picture-more-losses-steady-unemployment/19384682/

How Paul Krugman Failed To Learn The Lessons Of Japan
PrintWilliam L. Anderson | Mar. 5, 2010, 1:10 PM | 962 | 7
Tags: Japan, Paul Krugman

(This post previously appeared at Mises.org)

One of my pet peeves with Paul Krugman is his constant rewriting of
history, a rewriting that just happens to coincide with left-wing
political talking points. For example, we hear that the Great
Depression occurred because Herbert Hoover was a staunch believer in
laissez-faire and took the advice of Treasury Secretary Andrew Mellon,
who called for liquidation of bad assets to "purge" the economy of
whatever was "rotten" in the system.

However, even a cursory reading of the history demonstrates that
Hoover openly rejected Mellon's advice and tried stimulus after
stimulus, only to see the economy crumble. (Krugman's response is
always the same: Hoover tried "too little, too late." So, whenever any
so-called stimulus does not work, the standard Krugman-Keynesian
response is that the stimulus was "too small.")

Thus, he takes issue with a paper by Alberto F. Alesina and Silvia
Ardagna in which the authors claim that tax cuts, as opposed to
increases in government spending, provide a better "stimulus" for a
moribund economy.

Of course, the issue at hand ultimately is not "stimulus" at all; it
is the presence of malinvestments, which must be liquidated in order
for the economy to recover.

Krugman, however, goes on to criticize the paper on two points:

1.the presence of a "liquidity trap" in which monetary expansion by
the central bank can no longer "stimulate" anything, and
2.the record of Japan's expansionary policy during its decade-long
recession of the 1990s. Let me begin with the "liquidity trap"
arguments.
Murray Rothbard, in his classic America's Great Depression, devastates
the Keynesian "liquidity trap":

The Keynesians are here misled by their superficial treatment of the
interest rate as simply the price of loan contracts. The crucial
interest rate, as we have indicated, is the natural rate — the "profit
spread" on the market. Since loans are simply a form of investment,
the rate on loans is but a pale reflection of the natural rate.

Keep in mind that Keynesians hold that "real rates" don't mean much,
just as Keynes advocated inflation to cut real wages as a means to
increase employment. His response was to declare that workers are only
interested "in their money wage." History tells us something
different, does it not?

On the Japanese recession, Krugman differs with Alesina and Ardagna on
the timing and forcefulness of the government's "stimulus" actions:

They use a statistical method to identify fiscal expansions — trying
to identify large changes in the structural balance. But how well does
that technique work? When I want to think about Japan, I go to the
work of Adam Posen, who tells me that Japan's only really serious
stimulus plan came in 1995. So I turn to the appendix table in Alesina/
Ardagna, and find that 1995 isn't there — whereas 2005 and 2007, which
I've never heard of as stimulus years, are.

However, as Doug French recently wrote, the Japanese government took a
number of spending and interest-rate-cutting actions during the 1990s,
none of which worked.

True to form, Krugman claimed several years ago that had Japan's
government not engaged in such actions, the Japanese economy would
have fallen into depression — this is another of the "Heads I win,
tails you lose" propositions we often see from Krugman.

nterestingly, Krugman has always approached the Japanese recession as
having come from Japan's high savings rate or simply out of nowhere.
French, however, notes that Japan had a huge and unsustainable boom
that turned into a stock and real-estate bubble, which in turn popped:

For a brief moment in 1990, the Japanese stock market was bigger than
the US market. The Nikkei-225 reached a peak of 38,916 in December of
1989 with a price-earnings ratio of around 80 times. At the bubble's
height, the capitalized value of the Tokyo Stock Exchange stood at 42
percent of the entire world's stock-market value and Japanese real
estate accounted for half the value of all land on earth, while only
representing less than 3 percent of the total area. In 1989 all of
Japan's real estate was valued at US$24 trillion which was four times
the value of all real estate in the United States, despite Japan
having just half the population and 60 percent of US GDP.

Bubbles, as we have seen, result from deliberate "expansionary"
policies by government authorities, yet Krugman always seems to treat
them as being solely the products of private enterprise. It never
occurs to him that the policies of high leverage and of gambling on
inflated asset values would not happen systematically if government
were not acting behind the scenes. Instead, he tells us that the only
thing that can rescue a financial system is a new round of government
regulations.

http://www.businessinsider.com/how-paul-krugman-failed-to-learn-the-lessons-of-japan-2010-3

A look at global economic developments
By The Associated Press 03/05/10 at 2:22 PM

A look at economic developments and activity in major stock markets
around the world Friday:

___

BEIJING — China’s Premier Wen Jiabao promised strong growth this year
and said the government will combat inflation and risks to banks to
keep the rebound in the world’s third-largest economy on track.

In an annual report to China’s legislature, Wen announced a growth
target of 8 percent. He said stimulus spending and easy credit will
continue because the basis of renewed global growth is still weak.

China’s premier also said that more needs to be done to create jobs,
strengthen social welfare and boost development in restive regions
such as Tibet.

Beijing will keep its currency “basically stable,” Wen said, giving no
sign whether it might ease exchange-rate controls that Washington and
other trading partners say keep China’s yuan undervalued, swelling its
trade surplus.

___

ATHENS, Greece — The Greek parliament approved new spending cuts and
taxes aimed at defusing the country’s debt crisis, while protesters
opposed to the measures fought with police outside.

Greece’s financial troubles have shaken the European Union and its
shared euro currency, whose rules were supposed to prevent governments
from running up too much debt.

Riot police used tear gas and baton charges to disperse rioters who
chased the ceremonial guards in 19th-century kilts and tasseled
garters away from the Tomb of the Unknown Soldier outside the
parliament, while a top trade union leader was roughed up by left-wing
protesters.

It was the biggest outburst of violence since Greece’s debt crisis
escalated late last year. Police say they arrested five people, and
seven officers were injured.

___

BERLIN — German Chancellor Angela Merkel said Greece has not made any
request for financial support and she called for an end to market
speculation that the indebted country will default.

Her comments echoed previous remarks made this week amid market and
media speculation that the European Union may be preparing some sort
of bailout aimed at helping Greece cope with its economic woes.

___

LUXEMBOURG — The head of the group of eurozone finance ministers says
the Greek debt crisis is an issue for the euro area and he doesn’t
support deeper involvement by the International Monetary Fund.

Meanwhile, Belgium’s prime minister is advocating the creation of a so-
called European Debt Agency to oversee and effectively integrate
government debt across the 16-nation eurozone.

In an article published by the Financial Times Deutschland, Yves
Leterme wrote that the agency — answerable to eurozone finance
ministers — could take on existing debt certificates and issue new
ones.

___

European shares rose. The FTSE 100 index of leading British shares
closed up 1.3 percent, Germany’s DAX rose 1.4 percent and the CAC-40
in France ended 2.1 percent higher.

Meanwhile, in Asia, speculation that Japan was mulling extra measures
to shore up its recovery added to the upbeat mood. According to a
media report, the Bank of Japan might ease monetary policies to keep
money flowing through the economy as soon as this month.

Japan’s Nikkei 225 stock average jumped 2.2 percent, Hong Kong’s
market rose 1 percent, Shanghai’s market gained 0.3 percent, South
Korea’s Kospi was up 1 percent and markets in Taiwan and Singapore
rose.

___

OSLO — Norway’s vast fund for oil wealth posted a 25.6 percent return
on investment for 2009 — its best ever — as international markets
recovered from the global financial crunch, the central bank said.

___

REYKJAVIK, Iceland — Iceland is bracing for a public backlash against
the use of taxpayer money to pay its international debts — the latest
stumbling block in the tiny island’s difficult struggle out of a deep
recession.

___

PARIS — French President Nicolas Sarkozy summoned bank leaders to his
Elysee palace to order them to boost lending to the economy and
smaller companies.

France has also been setting the rules over how banks operating in
France award bonuses, justifying the intervention by saying it pumped
billions of euros in state aid into banks at the height of the global
financial crisis.

___

BERLIN — Government data shows German industrial orders surged by 4.3
percent on the month in January as demand increased for big-ticket
goods.

Separately, Germany says its greenhouse gas emissions dropped by 8.4
percent last year due to a drop in industrial activity amid the
economic crisis.

___

SINGAPORE — Singapore said it expects tourist arrivals to surge as
much as 29 percent this year as two new casino-resorts lure visitors
to the Southeast Asian city-state.

___

BERLIN — Germany will borrow less than originally planned this year
because the economy is picking up and spending for unemployment is
lower than expected, lawmakers said.

http://dailycaller.com/2010/03/05/a-look-at-global-economic-developments-15/

Japan to pour US$ 2.5M to uplift lives of poor people of Quezon
province
March 5, 2010 11:14 pm
By Mediatrix P. Cristobal

MANILA, March 5 –Japan vows to provide US$ 2.5 million to finance a
project designed to uplift the lives of poor people in Quezon
province.

The new project, launched by the United Nation's International Labor
Organization (ILO) and the Food and Agriculture Organization (FAO)
will help fishermen, farmers and workers in Bondoc Peninsula in Quezon
province who were affected by conflict and natural disasters.

The project, called Inter-agency Programme to Nurture Peace, Security
and Decent Work, through Local Development in Conflict Areas of the
Philippines (Bondoc Peninsula), will address extreme poverty and
inequality as the root causes of social unrest and armed conflict in
Bondoc Peninsula, where natural disasters have affected many people.

"People cannot get themselves out of poverty without decent work. It
is even harder for people living in conflict-affected areas with
limited access to livelihood, health care, education and other
economic resources," said Linda Wirth, director of the ILO Subregional
Office in Manila.

Breaking this vicious cycle by bringing stakeholders to work together
for local development is crucial to reduce the number of working poor,
cope better with climate change and address the root causes of
conflict," she said.

Eighty per cent of the population in the region depends on farming and
fishing activities earning not more than US$ 1 a day.

Fishers, farmers and workers in the informal economy are priority
groups among the disadvantaged populations identified. Through the
project, women and men, including young people, will benefit from
assistance to improve agricultural production and fisheries.

Funded by the government of Japan, through the United Nations Trust
Fund for Human Security, the project aims at promoting decent work for
the disadvantaged through local economic development.

The project will complement the national government's peace building
and agrarian reform efforts.

"Quezon province is essentially an agricultural economy. Restoring,
rehabilitating and further improving farming and fishing activities in
the affected communities are prerequisites for a lasting peace and
long term economic development in the province. We are strongly
committed to support the peace process," said Kazuyuki Tsurumi, FAO
Representative in the Philippines.

The project, in partnership with the Office of the Presidential
Adviser on the Peace Process (OPAPP), will also provide alternative
livelihood and entrepreneurial skills development and strengthen
community-based disaster risk management.

Furthermore, women and children from four priority municipalities,
namely Mulanay, San Narciso, Unisan and Catanauan in Bondoc Peninsula,
will benefit from improved maternity and child care programmes of
their respective local governments. The project will be implemented
over a three-year period starting in March 2010. (PNA)RMA/MPC

http://balita.ph/2010/03/05/japan-to-pour-us-2-5m-to-uplift-lives-of-poor-people-of-quezon-province/

The Baseline Scenario

What happened to the global economy and what we can do about it
Uncontrolled Lending to Consumers Spawned the Financial Crisis
with 30 comments

This guest post was contributed by Norman I. Silber, a Professor of
Law at Hofstra Law School, and Jeff Sovern , a Professor of Law at St.
John’s University. They were principal drafters of a statement signed
by more than eighty-five professors who teach in fields related to
banking and consumer law, supporting H. 3126, which would create an
independent Consumer Financial Protection Agency. Some of the
research on which this essay is based is drawn from an article by
Professor Sovern.

Did under-regulated lending to consumers play a big part in
destabilizing the financial system? Many knowledgeable people say yes,
but Professor Todd Zywicki disagrees. (“Complex Loans Didn’t Cause the
Financial Crisis,” Wall Street Journal, February 19, 2010). He claims
that the present troubles resulted from the “rational behavior of
borrowers and lenders responding to misaligned incentives, not fraud
or borrower stupidity.”

Professor Zywicki’s argument enjoys, at least, the modest virtue of
technical accuracy, because many objectionable misleading sales
practices and agreements that lenders used were, and continue to be,
unfortunately, quite legal. Lending practices may have been regularly
misleading and confusing and reckless-but fraudulent? Well, no,
usually not unlawful by the remarkably low standards of the day. But
that in itself is an argument for saying consumer protection laws
failed.

Professor Zywicki’s case for denying that better consumer protection
rules would have mattered quickly becomes technical and rather
disingenuous, hinging as it does on the difference between denying
that there were inadequate restraints on imprudent lending, on the one
hand, and insisting that there were definitely “misaligned
incentives,” on the other. If the lassitude of the government
agencies who were responsible for financial consumer protection is not
to blame, then who was responsible for all the euphemistic
“misaligning”? Zywicki manages to blame the financial crisis on
“extraordinarily foolish loans” that created incentives for borrowers
to borrow unwisely, but absolves the regulators who could have
prevented those foolish loans from being made.

Zywicki’s research leads him to conclude that the onset of the
foreclosure crisis “was [initially] a problem of adjustable-rate
mortgages, whether prime or subprime.” It might have been useful if
he recalled that even if true, it was still the case that inadequate
disclosure of the implications of potentially exploding adjustable-
rate mortgages was a matter of serious concern to consumer groups. In
the second phase, he says, “falling home prices provided incentives
for owners . . . to walk away from their houses.” It might have been
useful to recall that if the carrying cost of mortgages had been more
closely supervised as a matter of consumer protection, the problems
would not likely have been as severe.

And so the broad claim that the financial crisis has nothing to do
with fraud or consumer protection dissolves in the face of the facts:
the crisis can be attributed to failures of consumer protection,
including those that enabled lenders to make the loans Zywicki
decries. Consider the following examples of consumer protection
failures:

First, lenders made loans that virtually invited default. Thus,
Countrywide’s manual approved the making of loans that left consumers
as little as $550 a month to live on, or $1,000 for a family of four.
And lenders qualified borrowers for loans based on a temporary low
teaser rate even though they knew that borrowers would not be able to
make the higher payments required when the teaser rate expired. Of
course, when loans became unaffordable, lenders could anticipate that
borrowers would refinance, triggering a new round of fees for lenders-
but they gave too little attention to the possibility that the loans
could not be refinanced. Consumer protection laws failed to prevent
this disaster-in-the-making.

Second, the Federal Reserve’s disclosure rules made it impossible for
adjustable rate mortgage borrowers-and 80% of the subprime loans were
adjustable–to understand the risks they faced. Since the eighties, the
Fed has mandated that the disclosures for such loans state figures for
monthly payments that are simply wrong. That may have led consumers
to believe their loans would be more affordable than they were. One
of us recently presided over a survey of mortgage brokers that
revealed that many borrowers spent little time reviewing those
disclosures and never changed what they did because of them-something
that ironically makes sense when the disclosures are misleading.
Better consumer protection laws would have enabled borrowers to know
when they risked getting in over their heads.

A third consumer protection failure connects to Zywicki’s claim that
borrowers “rationally switched to adjustable-rate mortgage when their
prices fell relative to fixed-rate mortgages.” The problem is that
many adjustable-rate borrowers did not realize that their loans were
adjustable. Thus, a study of borrowers in certain Chicago zip codes
found that “the overwhelming majority” of those who received
adjustable-rate loans had thought their loans were for fixed rates.
The authors explained that “In every case where borrowers were
surprised to be told they were receiving an adjustable rate loan, the
Loan Originator had told the borrower that the rate was ‘fixed’ but
neglected to mention that the terms for which the rate was ‘fixed’ was
limited to 12 to 36 months.” It was not until 2008 that the Fed
reined in this practice.

These problems could have been forestalled by an agency focused on
consumer protection. Why weren’t they? We believe that Zywicki is
right to focus on incentives but wrong to ignore the incentives faced
by regulators themselves. The economic crisis was caused in part by
incentives built into our consumer regulatory structure that encourage
regulators not to protect consumers. A CFPA would have different
incentives.

For example, in 1994 Congress gave the Federal Reserve the power to
bar unfair or deceptive mortgage loan practices and abusive lending
practices in connection with mortgage refinancing-powers that would
have enabled the Fed to prevent the foolish loans Zywicki complains
about, and the practices described above. Yet the Fed did not use
that power until 2008, long after the subprime loans had tanked. And
it was only last summer that the Fed proposed to change its misleading
adjustable-rate mortgage disclosures. Perhaps the reason lies in the
fact that the Fed is primarily an agency devoted to monetary policy,
where consumer protection is reportedly seen as a backwater. The
leaders of the Fed are chosen not because of their expertise in
consumer protection, but because of their mastery of economic policy.
Thus, the Fed’s incentive is to focus on monetary policy. An agency
with protecting consumers as its sole mission would surely not have
waited almost twenty years to act while lenders provided borrowers
with false and useless disclosures.

A second problem with the current structure of consumer protection
regulators stems from the fact that because lenders have some power
to choose which agency will regulate them, agencies have an incentive
to go easy on consumer protection regulation to avoid chasing lenders
to other agencies. For example, four days after the Connecticut
Banking Commissioner examined one Connecticut lender, the lender
notified the Commissioner that it was becoming a subsidiary of a
national bank, thereby excusing it from compliance with Connecticut
banking law. The incentive to retain lenders to regulate is
especially strong for regulators, like the OCC, that depend on fees
provided by their lenders to finance their operations. That may
explain why the OCC took the position that state anti-predatory
lending laws did not apply to the lenders within its jurisdiction-laws
which might have prevented some of the lending that led to the
subprime crisis. But if lenders could not choose their regulator,
regulators would lose the incentive to compete to protect lenders from
consumer protection laws.

Zywicki is right that we need “simplified and streamlined regulation.”
The problem is that the existing structure, with consumer protection
split among an alphabet soup of agencies, such as the OCC, OTS, NCUA,
FDIC, HUD, FTC, and, of course, the Fed, among others, is not likely
to produce simplified and streamlined anything. We share Professor
Zywicki’s concern that the Truth In Lending Act needs pruning, for
example.

The best way to attain simplified and streamlined regulation is to
simplify and streamline the agencies that produce it-by reducing them
to one. Doing so would concentrate consumer protection expertise in
one place and enable accountability. And, we assert, if it had been
done a few years ago, the financial crisis might have been averted.

http://baselinescenario.com/2010/03/05/uncontrolled-lending-to-consumers-spawned-the-financial-crisis/

Payrolls fall 36,000; jobless rate steady at 9.7%
By Greg Robb, MarketWatch

WASHINGTON (MarketWatch) -- In an encouraging sign for the economy,
U.S. consumers increased their debt in January for the first time in a
year, just the latest hint that household demand may be on an
upswing.

TODAY'S TOP MARKET STORIES

S&P 500 (1 YEAR)

1,2001,00080060010AJAO

Although the economy has picked up steam lately, many economists don't
believe it will be on a sustainable path unless consumers restart
their spending.

Total seasonally adjusted consumer credit, a measure of total debt
taken on by individuals, increased in January $4.96 billion, or at a
2.4% annual rate, to $2.46 trillion, the Federal Reserve reported
Friday.

Economists surveyed by MarketWatch expected consumer credit to decline
by $6 billion in January.

That marks the first increase in consumer debt since January 2009 and
the biggest since July 2008.

Another positive sign came earlier this week when data showed that
U.S. chain store sales posted a very strong 3.7% comparable-store gain
in February, the strongest reading since November 2007.

After the financial crisis deepened in the fall of 2008, the economy
fell into recession and consumers stopped spending. As a result, debt
levels have declined.

Upbeat on jobs numbersTig Gilliam, North America chief for temporary
staffing company Adecco, says growth in temporary jobs is good news
for the U.S. economy.
On a year-on-year basis, consumer credit is down 4.2%.

The increase in January was led by non-revolving debt, such as auto
loans, personal loans and student loans, which rose $6.62 billion or
5%.

Credit-card debt fell $1.67 billion, or 2.4%, to $864.4 billion.
That's a record 16th straight monthly drop in credit-card debt.

Not all economists were forecasting a decline.

Ed McKelvey, an economist at Goldman Sachs, said it was hard to square
the recent reasonable strength in consumer spending with weakness in
income without thinking outstanding credit would start to rise.

"Either that or we need to check for counterfeiting," he wrote in a
note to clients.

Greg Robb is a senior reporter for MarketWatch in Washington.

Add Comment › · Recommend (1) · Post: Alert Email Print ShareMore
Economic Report
March 5, 2010 Payrolls fall 36,000; jobless rate steady at 9.7%
http://www.marketwatch.com/story/payrolls-fall-36000-jobless-rate-steady-at-97-2010-03-05

March 4, 2010 Pending home sales fall in January, NAR reports
http://www.marketwatch.com/story/pending-home-sales-fall-in-january-nar-reports-2010-03-04

March 4, 2010 Productivity revised higher in second half of 2009
http://www.marketwatch.com/story/productivity-revised-higher-in-2nd-half-of-2009-2010-03-04-83100

March 4, 2010 Jobless claims fall 29,000 to 469,000
http://www.marketwatch.com/story/jobless-claims-fall-29000-to-469000-2010-03-04

March 3, 2010 Australia January trade deficit narrows

http://www.marketwatch.com/story/australia-january-trade-deficit-narrows-2010-03-03

Comments (45)

R32 4 hours ago+1 Vote (1 Up / 0 Dn)

Man, the Titanic has hit the iceberg and is taking on water!

Bankers, Lobbyists and CONgress to the life boats.

The rest of you can put on these life jackets.

johnc19 2 hours ago0 Votes

Enjoy the salt bath too ...Reply Link Track Replies Report Abuse EM 3
hours ago0 Votes Request sent"In an encouraging sign for the
economy, U.S. consumers increased their debt in January for the first
time in a year, just the latest hint that household demand may be on
an upswing. "

No, that is not an "encouraging" sign for the economy except to
clueless conventional economists. The typical American consumer is
either broke, has too much debt or both. Only in Bizarro World where
these people apparently live is it "beneficial" for a society with too
much debt to borrow even more.

"Another positive sign came earlier this week when data showed that
U.S. chain store sales posted a very strong 3.7% comparable-store gain
in February, the strongest reading since November 2007. "

Before anyone believes this number, go read the analysis of this data
on the blogger Mish's web site. Apparently, it excludes the impact of
stores that have closed nand in the last year, there have been a lot
of them.

"The increase in January was led by non-revolving debt, such as auto
loans, personal loans and student loans, which rose $6.62 billion or
5%. "

Just wait until those students graduate and cannot get a job to pay
their loans back. There should be plenty of them. And given the
ridiculous cost of formal schooling, that should not be
surprising.Reply Link Track Replies Report Abuse johnc19 2 hours ago0
Votes Request sent"Bizarro World," that's my home town!Reply Link
Track Replies Report Abuse johnc19 2 hours ago0 Votes Request
sent"Great news?" Debt is increasing? What planet is this?Reply Link
Track Replies Report Abuse Goth 1 hour ago0 Votes Request sentDon't
be so quick to rebuke the "good news". In addition, we are printing
more money, we have opened more nail salons at the greatest rate in
our nation's history, and more individuals in this country are paying
no taxes as they are not counted and will be not be counted, at least
by name in the census (their may be counted in aggregate estimated
number, but not their legal status).

Time to celebrate and buy more service oriented stocks in the "new
normal".

http://www.marketwatch.com/story/consumer-credit-rises-for-first-time-in-a-year-2010-03-05?reflink=MW_news_stmp

US State Department: 2010 International Narcotics Control Strategy
Report
The International Narcotics Control Strategy Report (INCSR) is an
annual report by the Department of State to Congress prepared in
accordance with the Foreign Assistance Act. It describes the efforts
of key countries to attack all aspects of the international drug trade
in Calendar Year 2009. Volume I (PDF) covers drug and chemical control
activities, and beginning on page 488, there is a profile on the DPRK:

North Korea

I. Summary

There is insufficient evidence to say with certainty that state-
sponsored trafficking by the Democratic People’s Republic of Korea
(DPRK or North Korea) has stopped entirely in 2009. Nonetheless, the
paucity of public reports of drug trafficking with a direct DPRK
connection suggests strongly that such high-profile drug trafficking
has either ceased, or has been reduced very sharply. Trafficking of
methamphetamine along the DPRK-China border continues. There are
indications that international drug traffickers can purchase
methamphetamine in kilogram quantities in some of the major towns on
the Chinese side of the DPRK-China border. Other criminality involving
DPRK territory, such as counterfeit cigarette smuggling and
counterfeiting/passing of U.S. currency (supernotes), continues.

II. Status of Country

No confirmed instances of large-scale drug trafficking involving the
DPRK state or its nationals were reported in 2009. This is the seventh
consecutive year that there were no known instances of large-scale
methamphetamine or heroin trafficking to either Japan or Taiwan with
direct DPRK state institution involvement. From the mid- 1990s through
to 2002/2003, numerous instances of narcotics trafficking involving
DPRK persons and important state assets, such as sea-going vessels and
military patrol boats, were recorded in Taiwan and Japan.

Press reporting suggests that methamphetamine trafficking along the
DPRK-China border continues. These reports detail the activities of
organized criminal groups arranging methamphetamine shipments to
destinations in Asia from the major towns near the DPRK-China border
(e.g., Dandong, Yanji).

III. Country Actions Against Drugs in 2009

Law Enforcement Efforts. The source of relatively small quantities of
methamphetamine seized elsewhere in Asia can occasionally be traced
back to the China-DPRK border area. Local press reports in Asia
describe apprehensions of traffickers smuggling methamphetamine and
indicate that arrangements to purchase that methamphetamine were made
in towns near the China-DPRK border. These reports suggest that
trafficking of methamphetamine continues along the China-DPRK border
and they raise the question of whether or not local DPRK officials
might be aware or even complicit in the drug trade. There is no clear
evidence of a central role for DPRK state institutions in selling
methamphetamine or organizing the trafficking of methamphetamine.
Evidence of direct DPRK state involvement in drug trafficking to

Taiwan and Japan emerged regularly in the past.

Reports of non-narcotics related acts of criminality in the DPRK
suggest that DPRK tolerance of criminal behavior may exist on a
larger, organized scale, even if no large-scale narcotics trafficking
incidents involving the state itself have come to light. Press,
industry, and law enforcement reports of DPRK links to large-scale
counterfeit cigarette trafficking in the North Korean Export
Processing Zone at Rajiin (or Najin) continue. It is unclear the
extent to which DPRK authorities are complicit in this illegal
activity, although it is likely that they are aware of it, given the
relatively high-profile media reports. In addition, counterfeit $100
U.S. notes called “supernotes” (because they are so difficult to
detect), continue to turn up in various countries, including in the
United States. There are reports, for example, of supernote seizures
in San Francisco and a very large supernote seizure in Pusan, South
Korea during 2008 and 2009. Supernotes are uniquely associated with
the DPRK, but it is not clear if recent seizures are notes which have
been circulating for some time, or if they are recently-counterfeited
new notes.

Agreements and Treaties. The DPRK is a party to the 1988 United
Nations (UN) Drug Convention, the 1961 UN Single Convention as amended
by the 1972 Protocol, and the 1971 UN Convention on Psychotropic
Substances.

Cultivation/Production. For many years, it has been alleged that
poppies are cultivated in the DPRK, with the opium converted into
heroin and then trafficked by state organs for profit. However, it has
not been possible to confirm such illicit cultivation, and there has
not been a heroin trafficking incident with a DPRK connection for many
years. There are also several known factories in the DPRK that could
produce very pure heroin and methamphetamine drugs, and there have
been cases of large-scale smuggling of pure methamphetamine drugs from
the DPRK to Japan and Taiwan as recently as 2002.

IV. U.S. Initiatives and Programs

The Department of State has no evidence to support a clear finding
that DPRK state narco-trafficking has either stopped or is continuing.
The absence of any seizures linked directly to DPRK state
institutions, especially after a period in which seizures of very
large quantities of drugs regularly occurred, does suggest
considerably less state trafficking, and perhaps a complete end to it.

On the other hand, press reports of continuing seizures of
methamphetamine in Asia, which can be traced back to an apparent DPRK
source, suggest continuing manufacture and sale of DPRK
methamphetamine to criminal traffickers. Large-scale trafficking of
counterfeit cigarettes from the DPRK territory also continues and
suggests that enforcement against notorious organized criminality in
the DPRK is lax.

It is likely that the North Korean government has sponsored narcotics
trafficking and other criminal activities in the past. The Department
of State has insufficient information to confirm that the DPRK-state
is no longer involved in manufacture and trafficking of illicit drugs,
but if such activity persists, it is certainly on a much smaller
scale.

This entry was posted on Thursday, March 4th, 2010 at 4:47 pm

http://www.nkeconwatch.com/2010/03/04/us-state-department-2010-international-narcotics-control-strategy-report/

Beige books discovers improvement under snow

By Greg Robb, MarketWatch

WASHINGTON (MarketWatch) -- The U.S. economy is on the mend but it's
too early yet to pop champagne corks, said William Dudley, the
president of the New York Federal Reserve Bank, on Friday.

Dudley forecast continued moderate growth in the economy, with
inflationary pressures staying contained.

News Hub: Fed Raises Discount RateThe Fed raised the rate it charges
banks for emergency loans by a quarter percentage point. WSJ's Justin
Lahart breaks down what it means in an interview with Simon
Constable.
The recovery is looking sustainable, but is likely to be at a slower
pace than the 4% growth rate seen in gross domestic product over the
past two quarters, Dudley said.

The temporary boost from the inventory cycle and the effects of
Washington's economic stimulus will gradually fade, Dudley said in a
speech to a business group in San Juan, P.R.

Dudley said capital markets -- except for certain securitization
segments -- "are now generally open for business."

"The biggest U.S. banks have been able to raise equity capital to put
themselves in a stronger position," he said.

In an answer to a question from the audience, Dudley said the Fed's
decision late Thursday to hike the discount rate to 0.75%, up from
0.5% previously, was related to this improvement. Banks no longer need
this emergency source of cheap funding the way they did during the
depths of the financial crisis, the official said.

The discount rate increase "is not at all a signal of any imminent
tightening" in monetary policy, and the Fed's commitment to keep rates
very low for an extended period "is still very much in place," Dudley
said, according to Dow Jones Newswires.

Reuters

William Dudley, president of the Federal Reserve Bank of New York.

The timing of the rate hike came as a surprise even though Fed
chairman Ben Bernanke had drawn attention to the likely move recently.
Overnight, the discount-rate hike increased speculation that the Fed
is nearing a decision to tighten monetary policy. See full story.

Although he didn't say so specifically, Dudley suggested that he
believes the recession ended last summer.

He said that it now appears the U.S. downturn in GDP, which began in
the fourth quarter of 2007, "lasted about a year and a half."

"Peak to trough, output fell about 4%, less than half they typical
decline seen in past financial crises," Dudley noted.

Greg Robb is a senior reporter for MarketWatch in Washington.

More The Fed

March 4, 2010 Beige books discovers improvement under snow
http://www.marketwatch.com/story/beige-book-discovers-improvement-under-snow-2010-03-03

March 3, 2010 FOMC's March meeting on rates could prove unruly
http://www.marketwatch.com/story/fomcs-march-meeting-on-rates-could-prove-unruly-2010-03-03

March 1, 2010 Kohn to step down as No. 2 at the Fed
http://www.marketwatch.com/story/kohn-to-step-down-as-no-2-at-the-fed-2010-03-01

Feb. 26, 2010 Some Fed officials worried about new powers
http://www.marketwatch.com/story/some-fed-officials-worried-about-new-powers-2010-02-26

Feb. 26, 2010 Financial conditions may be recovery drag: study
http://www.marketwatch.com/story/financial-conditions-may-be-recovery-drag-study-2010-02-26

Comments (41)

hopefulathome 14 days ago+2 Votes (3 Up / 1 Dn)

The irony of the Obama criticism is that some of it is coming from the
lower 60%. This is the population that gets the majority of benefit
from proposals of this administration. They only have to have enough
patience to give it the time it takes to turn a big ship around. The
top 40%, and particularly the top 10% have somehow managed to foment a
rage among that middle and lower classes that will in the end be
further destructive to it. The fact that the screaming has become
louder at the top is a secondary indicator that things are beginning
to turn around. They fear that the reality of the turnaround will
become clear to the lower 60% before the top brackets can capture
those offices in Washington again and they will not have to share some
of the wealth.Reply Link Track Replies Report Abuse thefarm1961 14
days ago+1 Vote (1 Up / 0 Dn) Request sentloved your post.

rowdy 14 days ago+2 Votes (3 Up / 1 Dn)

Im in the transportation business. I have friends in the
transportation business. And we all tend to ship different
commodities.

This week was a SLOW week for all of us.

Its really very basic. No freight shipped = no economy, more or
less.Reply Link Track Replies Report Abuse OldYeller 13 days ago+1
Vote (1 Up / 0 Dn) Request sentI made the remark in 2005 that since
states like Ohio, IL, Mich and a good sized group of others had not
really recovered that they would drag down all other states via
financial contagion.

Today we have 36 states nearing complete insolvency laying off
teachers, school staffs, firemen, cops and even disbanding small
police forces and UN-incorporating towns and villages for a lack of
money and in every case good paying jobs continue to suffer.

From business layoffs and foreclosures we get less tax revenue and
from less tax revenue we get less services from all Governmental
Agencies on state and local levels and these losses will cause even
more losses.

Funny that no one wants to even recognize these things.Reply Link
Track Replies Report Abuse StockTrader1 13 days ago0 Votes Request
sentEconomy is on sugar high due to borrowed money! Economy is NOT on
the mend. Recovery is borrowed from the future. Nothing has been
fixed. Debt is the problem and we still have excessive debt.

This is a deflationary crash. When the money supply deflates, current
prices cannot be sustained. Money supply is deflating and will deflate
more. The bubble is the money supply:

http://www.tradingstocks.net/html/inflation_deflation_credit_bub.html

After bank credit inflation, there is no way to avoid deflation. It is
hard to turn the boat around. Even though FED makes credit available,
credit deflates because:

1. Banks do not want to lend because they are afraid they may not get
their money back.

2. Borrowers do not want to borrow because they think they may not be
able to pay it back.

It is deflationary spiral. Buckle up. We are going down. Here is what
else is deflationary in 2010:

http://www.tradingstocks.net/html/2010_stock_market_forecast.html

harryshabooby 12 days ago0 Votes

I wonder when the response to the situation will be legislation to
force the banks to lend. Maybe they will eliminate the middle man and
start sending people cheques directly. Sort of like welfare for
everyone. Anything but lettting a deflation happen.Reply Link Track
Replies Report Abuse iewgnem 11 days ago0 Votes Request sentChina is
shifting its visible treasury purchases from short term zero interest
to ten year 3% interest bills, now you can either look at it as China
having more confidence in US economic recovery and long term outlook,
or you can look at it as a way to @#$%&! the US should Obama and
whoever replaces him in 3 years not be able to make more than 3%
return on the loan. The "economy on the mend" better mend soon because
you are paying interest everyday it does not.

[chhotemianinshallah]

Rasmussen: 57% think ObamaCare will damage economy
posted at 12:52 pm on March 9, 2010 by Ed Morrissey

The White House promised a “hard pivot” to jobs and the economy almost
three months ago, attempting to put the ObamaCare debate on the back
burner after the holidays. They had belatedly discovered that the
electorate was much more concerned about the economic plunge than in
retooling a health-care system that works for most Americans now.
Instead of the hard pivot, Democrats have doubled down on ObamaCare —
and the latest Rasmussen survey shows that a strong majority believe
it to be the wrong direction on both issues:

Fifty-seven percent (57%) of voters say the health care reform plan
now working its way through Congress will hurt the U.S. economy.
A new Rasmussen Reports national telephone survey finds that just 25%
think the plan will help the economy. But only seven percent (7%) say
it will have no impact. Twelve percent (12%) aren’t sure.

Two-out-of-three voters (66%) also believe the health care plan
proposed by President Obama and congressional Democrats is likely to
increase the federal deficit. That’s up six points from late November
and comparable to findings just after the contentious August
congressional recess. Ten percent (10%) say the plan is more likely to
reduce the deficit and 14% say it will have no impact on the deficit.

Underlying this concern is a lack of trust in the government numbers.
Eighty-one percent (81%) believe it is at least somewhat likely that
the health care reform plan will cost more than official estimates.
That number includes 66% who say it is very likely that the official
projections understate the true cost of the plan.
Only a plurality of Democrats believe that the bill will help the
economy (43%), while 89% of Republicans and 61% of independents think
it will damage it.
Politically, the Democrats have the worst of all worlds. Not only do
they look out of touch for spending all of their efforts on a plan
that is deeply unpopular with voters, they now are seen as actively
damaging the economy. The deficit spending alone would be enough to
send voters heading for the exits, but the increased costs are even
worse. Seventy-eight percent of all respondents believe that middle-
class tax increases will come as a result of ObamaCare, with almost
two-thirds (65%) believing that to be “very likely.” Fifty-eight
percent of Democrats expect middle-class tax increases, which shows
how effective Obama has been in selling this plan.
What’s the biggest problem with ObamaCare? Majorities of all
political affiliations agree: the cost. Hardly anyone believes the
cost estimates. When asked whether the bill would exceed its cost
estimates, 93% of Republicans, 70% of Democrats, and 80% of
independents thought it at least somewhat likely — with 88% of
Republicans and 73% of independents calling it “very likely.” Only
20% of Democrats thought it unlikely. Again, this looks like a big
failure of the Obama administration’s efforts to sell the package as a
cost containment program.
Democrats now face the prospect of using arcane parliamentary tricks
to pass a bill that has minimal support, one that most voters believe
will damage the economy, cost more than advertised, and prompt
sweeping tax increases, all while ignoring the issues of a damaged
economy while attempting to make it worse. If they think that’s a
winning strategy for the midterms, they need new leadership — and
after the electoral disaster coming, they’ll probably be forced to get
it.

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Comments

and lo, the Democrat party wandered aimlessly in the desert for 40
election years.

TN Mom on March 9, 2010 at 4:13 PM

Great pic!

mikeyboss on March 9, 2010 at 4:18 PM

From the rich being able to buy our representatives and lead our
culture by the nose, yes.

Dark-Star on March 9, 2010 at 4:00 PM
Boo hoo, the rich can do things that I can’t, therefore we have to
give govt control over everything so that the rich can be punished.

I’m still trying to figure out why you actually believe that everyone
who has more than you are is evil.

Is it because you are such a failure in life, that you can’t bear to
accept responsibility?

Lord knows, your given your demonstrated intellectual powers, it’s
hard to imagine you’ve ever been able to handle a job that doesn’t
involve the phrase “would you like fries with that”.

MarkTheGreat on March 9, 2010 at 4:25 PM

and lead our culture by the nose, yes.
Ohh, and people pay more attention to the rich than they do you. I bet
that stings.

MarkTheGreat on March 9, 2010 at 4:26 PM

They won’t get new leadership, because Pelosi will be the only one
left in the House after November.

joe_doufu on March 9, 2010 at 5:03 PM

If you believe the 57% figure, then you’ll love the fictitious 9%
unemployment.
This administration is so inaccurate they couldn’t hit the side of a
barn with a tennis racket.

Cybergeezer on March 9, 2010 at 5:23 PM

I’m waiting for Congress to offer shares of stock in the new Health
Care Industry they want to create.
Think China will buy any?

Cybergeezer on March 9, 2010 at 5:25 PM

This HealthScare legislation is another omnibus spending bill that
lets Congress spend like drunken sailors with unlimited credit cards.
Obama has already signed an omnibus spending bill last year, and he
can’t wait to sign another one.

Cybergeezer on March 9, 2010 at 5:30 PM

If we just get enough fed-up conservative-types to move to Costa Rica
we could remake that country into what the U.S. should be. The U.S. is
going to be a once-great nation in record time and I, for one, don’t
feel like being taxed to death as it goes through its all too rapid
fall.

Fatal on March 9, 2010 at 5:31 PM

Adding a new entitlement? revenue neutral? Look at the prescription
drug benefit enacted by President Bush. In less than 10 years the
unfunded liabilities of this new entitlement are nearly 19 trillion
(18.7 and climbing).

Congress:
Look at the debt clock. Health care reform, yes. ObamaCare, NO.

Angry Dumbo on March 9, 2010 at 6:50 PM

Democrats now face the prospect of using arcane parliamentary tricks
to pass a bill that has minimal support, one that most voters believe
will damage the economy, cost more than advertised, and prompt
sweeping tax increases, all while ignoring the issues of a damaged
economy while attempting to make it worse. If they think that’s a
winning strategy for the midterms, they need new leadership — and
after the electoral disaster coming, they’ll probably be forced to get
it.
This isn’t about winning in 2010.
It isn’t about the leadership.

This is about having the most left leaning leadership in Washington
since the early 30’s taking an opportunity to screw the country that
they thought they would never have!

We have a Marxist president who has already says he’d content with one
term if, BY HIS DEFINITION, he was a good president.

We have a Marxist wax statue House Speaker who comes from a district
where the majority probably feel Congress isn’t taking over enough of
the private sector on the way to their communist utopia.

We have an old, doesn’t-care-if-he’s-reelected Senate Leader who
thinks this is the culmination of his life’s work and that of his dead
friend Teddy!

These three jokers are betting that if they can get this passed,
rammed through, crammed down America’s throat, that in the future the
party can run on “Save Healthcare! Keep those filthy Republican hands
off of it!” “Oh, that evil Republican wants to repeal healthcare and
kill millions by taking away their coverage!”

Unfortunately, the chaos that’s going to ensue, sooner if they pass
healthcare, after we reach banana republic status in the next year,
could lead to numerous conclusions. It may be best if it leads to two
or more countries if this is the government we’re stuck with.

PastorJon on March 9, 2010 at 8:02 PM

Fifty-eight percent of Democrats expect middle-class tax increases,
which shows how effective Obama has been in selling this plan.
Whadda ya know! The Dems are as dumb as the Repubs.

Herb on March 9, 2010 at 8:36

http://hotair.com/archives/2010/03/09/rasmussen-57-think-obamacare-will-damage-economy/

NYC’s New Suicide Sculptures (metaphor for economic reality)

Posted by barrypopik (Profile)

Wednesday, March 10th at 5:24AM EST

No Comments
New York is full of brilliant ideas these days. Let’s look first at
the suicide sculpture metaphor, then the economic reality.

From Wednesday’s New York Times:

Statues Seem Ready to Leap, but Police Say They Won’t
By MICHAEL S. SCHMIDT
Published: March 9, 2010
They stand about six feet tall and look like naked human beings. Over
the next few days, 27 of them will be scattered across rooftops and
ledges of buildings in Midtown Manhattan — including the Empire State
Building — as part of a public art exhibition.

About the same time that the first figure was placed atop a four-story
building at 25th Street and Fifth Avenue on Tuesday, the Police
Department issued a statement reassuring New Yorkers that the figures
are not despondent people on the verge of leaping to their deaths.

Police officials said they were trying to prevent an overwhelming
number of emergency calls from concerned pedestrians or office
workers. Nevertheless, they said that all emergency calls about a
potential suicide would be taken seriously — even those from places
where one of the figures is located.

“We are going to respond no matter what because there could be a
jumper at the spot,” said Paul J. Browne, the department’s chief
spokesman.

The figures, which are anatomically correct, are modeled after the
body of the artist Antony Gormley, who created the exhibition, which
is being presented by the Madison Square Park Conservancy.

Gormley did the same thing in London in 2007.

Is anyone surprised that lots of people would call 911? Does anyone
think that clogging the 911 line is a good idea? In a nanny state
government that forbids toy guns, why is this OK? How much did this
guy earn for this “art”?

Stupidity all around, but that’s not surprising for New York.

Moving on to suicidal economic news, the New York Times loves the
proposed soda tax:

Editorial
Healthy Solution: Taxing Sodas
Published: March 8, 2010
Seldom does one idea help fix two important problems, but a proposal
to tax sugary soft drinks in New York State is just that sort of 2-
for-1 solution. The penny-per-ounce tax on sodas and other sweetened
drinks is a way to raise desperately needed money for the city and
state in a bad economy. It also could help lower obesity rates, which
have soared in recent years.

The Legislature in Albany should adopt this tax quickly.

Increasing New York taxes to support outrageously generous public
union pensions — bless your hearts, New York Times and Mayor
Bloomberg.

What is the other solution to New York’s fiscal crisis? Billions in
increased borrowing, of course:

Paterson’s No. 2 Sets Broad Plan on New York Fiscal Crisis
By DANNY HAKIM
Published: March 9, 2010
ALBANY — New York could borrow billions of dollars to address its
urgent budget shortfall and a financial review board would be
established to impose new discipline on future spending under a five-
year financial rescue plan that Lt. Gov. Richard Ravitch will present
Wednesday.
(…)
Mr. Ravitch, who was asked by Gov. David A. Paterson to draw up the
blueprint, is seeking to curb the runaway spending that has helped
plunge New York into fiscal crisis. Despite the recession and talk of
fiscal austerity, state spending this year soared by 10 percent over
the previous year’s budget.

Keep on spending!

The state faces a $9 billion shortfall for the fiscal year that begins
April 1 and a $15 billion gap for the following year.

The plan, which requires legislative approval, seeks to address New
York’s immediate cash needs by permitting the state to sell bonds to
help cover operating expenses.

Keep on borrowing! Does anyone want to buy a bond from a bankrupt
state run by David Paterson?

If the Madison Square Park Conservancy wants to add some art, why not
ditch the suicide sculptures and have a replica of the Diana sculpture
that once graced Madison Square Garden? The Roman goddess Diana was an
emblem of chastity.

Suicide sculpture — an urban metaphor for these times? Why not move
them from Madison Square down to Wall Street?

http://www.redstate.com/barrypopik/2010/03/10/nycs-new-suicide-sculptures-metaphor-for-economic-reality/

Economists trim 2011 U.S. growth forecast
Posted 2010/03/10 at 12:40 am EST

WASHINGTON, Mar. 10, 2010 (Reuters) — U.S. economists raised their
forecast for economic growth in 2010 in March, the third straight
monthly rise, while trimming their growth forecast for 2011, according
to a survey released on Wednesday.

Economists surveyed earlier this month in the Blue Chip Economic
Indicators newsletter said the economy is expected to grow by 3.0
percent in 2011, which is 0.1 percentage point lower than estimates
made a month ago.

But economists raised their 2010 growth forecast for the third
consecutive month to 3.1 percent, up 0.1 percentage point from
February.

Still, the economists predicted the recovery would be mild given the
depth of the recession.

The consensus also expects inventories to continue adding to GDP over
the next several quarters but see the size of those contributions
become increasingly smaller.

"By Q1 2011, the contribution to GDP from business inventories is
expected to become trivial," the survey said.

The panelists said they also expect "a slower and less powerful than
is typical improvement in labor market conditions that will cap gains
in disposable personal income and personal consumption expenditures."

The panelists expressed concern that severe winter weather crimped
economic activity in February and that upcoming monthly data on
production, retail sales, housing starts and home sales could fall
short of earlier consensus expectations.

However, they also pointed out any weather-induced softness should be
recovered in the March data.

(Reporting by Nancy Waitz, Editing by Chizu Nomiyama)

Copyright Reuters 2008.

http://www.newsdaily.com/stories/tre6290q0-us-usa-economy-bluechip/

US Chamber of Commerce getting into the game.

I almost titled this "US Chamber of Commerce starts recognizing its
class interests," but that kind of language bugs people on the Right,
for some reason.
Posted by Moe Lane (Profile)

Tuesday, March 9th at 11:48AM EST

5 Comments

Say hello to the US Chamber of Commerce. Or don’t; they’re coming to
sit down at the table any which way.

The U.S. Chamber of Commerce is building a large-scale grass-roots
political operation that has begun to rival those of the major
political parties, funded by record-setting amounts of money raised
from corporations and wealthy individuals.

[snip]

The new grass-roots program, the brainchild of chamber political
director Bill Miller, is concentrating on 22 states. Among them are
Colorado, where incumbent Democratic Sen. Michael Bennet is
vulnerable; Arkansas, where Democratic Sen. Blanche Lincoln faces an
uphill reelection battle; and Ohio, where the chamber sees
opportunities in numerous House races and an open Senate seat.

The network, called Friends of the U.S. Chamber, has been used to
generate more than a million letters and e-mails to members of
Congress, 700,000 of them in opposition to the Democratic healthcare
plan. That is an increase from 40,000 congressional contacts generated
in 2008.

The article goes on to note that the CoC’s grassroots planning
recently got a big boost from the recent Citizens’ United case, as
well as that this organization is increasingly publicly acknowledging
that ‘pro-business growth’ means ‘pro-Republican.’ And why would that
be? Probably because of Democratic assaults like this one:

A Democratic aide says a new provision in the health care bill will
require businesses to count part-time workers when calculating
penalties for failing to provide coverage.

Via Hot Air, and that particular sudden addition to the health care
bill should have the same effect on small business growth as would,
say, a load of buckshot to the face. Remember, folks: the current
ruling party of this country is largely led by people who have never
worked for a living in their lives - and by God, does it show
sometimes! Keep this in mind when opening your checkbooks, because
the business community certainly plans to…

Moe Lane

5 Comments

*HOW* can they do this? How is it Constitutional?
yoyo Tuesday, March 9th at 12:16PM EST

Isn’t the Senate Bill ALREADY voted for? How can they insert an
amendment into a bill that is already passed?

Wouldnt the inclusion of this amendment (or any other) require that
the whole she-bang go back to the Senate for another up/down vote? Or
at the very least, allow the Senate to Amend this to Death - FINALLY?

Without coming back to the Senate, the Bill would be unconstitutional,
yes?

Just Checking. Dan, can you help me out here? Rule check, please!

Si Vis Pacem Para Bellum
‘If you seek peace, prepare for war!’

The ‘yoyo’ replaced my cigarettes January 22, 2006….

http://www.twitter.com/rs_yoyo

That's what "reconcilliation" is all about.
The_Gadfly Tuesday, March 9th at 12:25PM EST

See, this is a cost cutting measure. Without it, they won’t have
enough money to cover the bills, so the reconcilliation rules apply,
and they only need 51 votes for that.

No, I don’t really believe that either, but you can better a year’s
salary that’s how they’ll sell it. Assuming of course you can find
someone dumb enough to take the wager.

We’ve been called racists enough now that it shouldn’t bother us any
more.

-AChance, http://www.redstate.com/moe_lane/2009/11/03/what-men-may-do-we-have-done/#comment-24463

If NY23 was a beat down for Conservatives, what do you call what
happened to Progressives in NJ and VA?

inspired by ColdWarrior,
http://www.redstate.com/hooah_mac/2009/11/04/ny-23-the-agony-of-defeat-not-so-much/#comment-156

"Cost Cutting?" Really? Smells of "Policy" to me.
yoyo Tuesday, March 9th at 12:33PM EST

But, I *do* have a head cold, so my sniffer may be broken.

OR, more likely, it just stinks.

I say they should start reconcilling the bill with the Constitution
and go forward from there.

But, I AM a little bit “old fashioned.” *Tradition and Patriotism* and
all that.

Si Vis Pacem Para Bellum
‘If you seek peace, prepare for war!’

Pukin’ Dogs - The Fighting 143
Sans Reproache

The ‘yoyo’ replaced my cigarettes January 22, 2006….

http://www.twitter.com/rs_yoyo

George Washington
hickorystick Tuesday, March 9th at 1:32PM EST

led the Rebellion, because England was infringing upon his interests.
George Washington wasn’t that political a guy. He did maintain his
‘interest’ very sharply. He was one of the wealthiest Colonials, and
he was constantly irritated with England imposing laws and
restrictions impinging on his ‘interest’. He chose his wife, Mary, not
for her looks, but because she had a lot of land. I get so frustrated
with politics because most of the time, especially media time, is
spent talking about nebulous things which we have no power or control
over. We would do well to frame every bill in terms of how it affects
‘interests’. You cannot walk into court and ask for something, unless
you can prove an ‘interest’ or ’standing’. We should do the same in
our political fights, sticking to our right to maintain property. That
is what we fought over in the revolution. Remember, we didn’t bother
to write a Constitution till some years after we had won the war. The
form of government that came most naturally after the victory, was a
Continental Congress. This form left most issues to the states, where
property could best be protected. If we want to effectively fight this
Redistibutor-in-Chief, We better start focusing on our own interest
and that of our states.

Wow...
tdpwells Tuesday, March 9th at 3:09PM EST

So let’s see, that’s most employees at fast food restaurants, grocery
stores, convenience stores, corner pharmacy stores like CVS and
Walgreens, etc etc etc…

Unemployment ought to be at a healthy 30% by the time they’re done.
Nice.

I do not believe that the power and duty of the General
Government ought to be extended to the relief of individual
suffering which is in no manner properly related to the
public service or benefit…to the end that the lesson should
be constantly enforced that though the people support the
Government, the Government should not support the people.
Grover Cleveland (16 February 1887)

http://www.redstate.com/moe_lane/2010/03/09/us-chamber-of-commerce-getting-into-the-game/

Bloomberg

Siegel Says U.S. Recovery Certain, Euro Region Faces Splinter
March 10, 2010, 5:39 AM EST
By Le-Min Lim

March 10 (Bloomberg) -- Jeremy Siegel, a finance professor at the
University of Pennsylvania’s Wharton School, says the worst is over
for the U.S. economy and the Federal Reserve may raise interest rates
by year’s end to cool growth.

Spending by companies on equipment and plants will outpace private
consumption as the main growth driver this year, he said in an
interview in Hong Kong. The jobless rate, at 9.7 percent last month,
will fall below 9 percent by the end of 2010, he said. That may force
the Fed to tighten policy and full-year economic growth may reach 4
percent, he said.

The Fed “will feel comfortable raising the rates as long as the
situation continues to improve, as I believe it will,” said Siegel, in
an interview in Hong Kong. Siegel, 64, is an adviser to U.S.-based
WisdomTree Investments Inc., which had $6.7 billion of assets under
management as of the end of last year.

The Fed and the Treasury are trying to withdraw the emergency measures
introduced during the financial crisis without triggering a relapse in
the economy. Fed Chairman Ben S. Bernanke said Feb. 24 the U.S. is in
a “nascent” recovery that still requires keeping interest rates near
zero “for an extended period” to spur demand once stimulus wanes.

In Europe, the European Central Bank will have little alternative
other than to keep interest rates low as euro region members such as
Greece struggle to convince investors they will cut soaring budget
deficits, he said. Its benchmark rate is currently at a record low of
1 percent.

Exports

The euro is making the exports of nations such as Spain and Greece so
uncompetitive that they may start talks as early as next year to leave
the 16-nation bloc, he said. That departure would be “painful and
difficult and drag down the region for a few years,” he said. One
weakness of the currency union is that it lacks a proper and orderly
exit strategy for members that can’t keep up, Siegel said.

“They should have signed prenups before they got married to the euro,”
said Siegel, referring to agreements that outline the terms of a
divorce.

A U.S. recovery and uncertainty in the eurozone mean the dollar will
remain a “viable” asset, said Siegel.

Later this year, China may start a managed appreciation of the yuan,
Siegel said. China wants to revert to export-driven economic growth,
so is more likely to try a staggered revaluation than a major, one-
time adjustment, he said.

--Editors: Dirk Beveridge, John Fraher

To contact the reporter on this story: Le-Min Lim in Hong Kong at
lm...@bloomberg.net.

To contact the editor responsible for this story: Mark Beech at
mbe...@bloomberg.net.

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High Conviction: Short the Yen
by: Alexander Tepper March 10, 2010

Alexander Tepper is Chief Economist at TKNG Capital, a global macro
hedge fund based in New York. Previously, Mr. Tepper was a senior
economic policy aide to U.S. Senator Frank Lautenberg. He also has
experience at Oliver, Wyman & Company advising Fortune 500 financial
institutions on risk management and as an investment banking Associate
at Credit Suisse. He has a masters degree in Economics from Oxford
University, and a BA in Physics from Princeton University.

We recently had the opportunity to ask Alexander about the single
highest conviction position he currently holds in his fund.

What is your highest conviction position in your fund right now - long
or short?

We are short Japanese yen against the US Dollar. We have implemented
the trade by selling out-of-the-money calls to buy out-of-the-money
puts and taking in premium.

Why did you use options to structure the trade?

Call options on the yen are significantly more expensive than put
options. This “skew,” as it’s known, exists because the Japanese
investment community tends to be short yen, making it susceptible to
sharp rises during bouts of risk aversion.

Investors hedge this exposure by buying out-of-the-money yen calls.
But given the sharp adjustment that has already occurred in the crisis
and a government whose proclivities are far from fiscally
conservative, we view the risks as less asymmetric than implied by the
skew.

Structuring this trade with options is akin to playing with dice
loaded in our favor.

Tell us a bit about Japan right now, and why you're short its
currency.

Japan has traditionally been an export-oriented economy, but that’s
going to change as the population continues to age and retire. These
older citizens, who have saved their whole lives and are no longer
producing anything, will be a natural source of demand, first for
domestic Japanese goods and then for imports. A shrinking labor force
will mean other nations will need to pick up the slack in production.
Already, the savings rate in Japan has fallen into the low single-
digits and it should fall further.

Japan is also in serious fiscal trouble. Its net debt is more than
100% of GDP, and gross debt is nearing 200% of GDP. The Japanese
government and central bank do not seem particularly concerned. It is
only Japan’s strong balance of payments position, and a willful
suspension of disbelief by the markets, that differentiates it from
countries like Greece. But those, too, should ebb over time.

So why will the yen fall?

First, as the Japanese retire, the supply shock to the economy will
result in continuing declines in competitiveness. The yen will need to
fall to restore balance.

Second, less income and more retirees will mean that Japan will need
to fund more of its government’s borrowing from abroad. Making this
attractive will mean a lower exchange rate, higher interest rate, or
(most likely) both.

Third, the government’s fiscal position is the worst in the developed
world. The scale of the adjustments that are necessary to stabilize
the budget deficit would be unprecedented in a large developed nation,
requiring deep cuts to pensions, double-digit tax increases, and
severe spending restraint elsewhere. If sovereign worries persist,
Japan and its currency are obvious targets for speculators.

Finally, we think consumers in the US and UK are undergoing a lasting
shift in psychology that will cause them to save a larger share of
their incomes going forward. Over the long-term, the savings rate
needs to average around 10% in order for Americans to secure a
reasonable retirement. When Americans save more, they buy less,
especially imports. This lack of demand for imports means a stronger
dollar against US trading partners like Japan.

All this is on the assumption that the global economy will limp along
for a while. But if instead we have a return to robust growth that
looks broadly like the pre-crisis economy, the yen should weaken
towards 2007 levels as markets become more and more comfortable with
risk and interest rates rise in the rest of the developed world.

There are a lot of ways to win with this trade.

What would you say the current broad sentiment is on the yen?

The market has tended to view the yen as part of the “risk-on/risk-
off” trade, where the yen rises with worries about the global economy.
Japan’s fiscal issues are well-known, but the market has generally not
priced them, with yields on 10-year Japanese bonds below 1.5%.
Japanese CDS spreads, however, have doubled since late summer.

More broadly, the markets have believed that correction of global
imbalances requires a weaker dollar to encourage Americans and Asians
to change their consumption behavior. We think the financial crisis
and experience of house price declines will be the driving force that
restrains Americans’ profligacy, while Asians will consume more. The
result will be a stronger dollar.

Does Japanese economic policy play a role in your position?

The Japanese government has made fairly clear that it does not intend
to tolerate a markedly stronger yen because it hurts their exporters.
It also seems neither inclined nor able to do anything about the
fiscal situation in the near future.

What catalysts do you see that could move the currency, and the trade
in your favor?

The eurozone’s sovereign risk worries will soon resolve themselves one
way or another. When they do, Japan could easily become a target.

As economic data continue to strengthen over the next few months, a
return to normalcy will mean a weaker yen.

We are also prepared for a more gradual adjustment as markets adopt
our demographic view.

What could go wrong with this trade?

In the near term, Japanese companies repatriating income around the
fiscal year-end in March could potentially lead to a rise in the
currency. A sharp rise in risk aversion could have a similar effect.
We have been careful to choose the strike prices on our options to
minimize the damage if such a spike does occur.

Beyond that, deflation in Japan means that in a perfect economic
world, the yen would appreciate over time. There is also the risk that
the pundits over the past several years prove right and we see
fundamental weakening of the dollar with respect to all Asian
currencies.

Finally, if China were to revalue its currency, as many believe it
will, that could create space for the Japanese authorities also to
allow some appreciation. Again, however, we believe our options are
sufficiently out of the money to limit our downside in such a
scenario.

Thanks, Alexander.

Disclosure: TKNG Capital is short the Yen against the Dollar.

If you are a fund manager and interested in doing an interview with us
on your highest conviction stock holding, please email Rebecca
Barnett.
About the author: Alexander Tepper Alexander Tepper is Chief
Economist at TKNG Capital, a global macro hedge fund based in New
York. Previously, Mr. Tepper was a senior economic policy aide to U.S.
Senator Frank Lautenberg. He also has experience at Oliver, Wyman &
Company advising Fortune 500 financial institutions on risk... More

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The Coolpix L11 is clearly designed more for the frugal than the
fancy. The 6-megapixel camera sports a 37.5mm-to-112.5mm-equi... 3x
zoom lens and a relatively small 2.4-inch LCD screen. While its
hardware hardly impresses, however, the camera offers some
surprisingly useful features. The L11 includes Nikon's In-Camera Red-
Eye Fix and Face-Priority AF. In-Camera Red-Eye Fix supplements the
camera's red-eye reduction flash mode with a processing system that
removes red-eye after the photo is taken. Face-Priority AF detects and
tracks faces in photos, and adjusts focus to stay on those faces,
instead of just the closest subject. Both features come standard on
most Nikon Coolpix cameras, but are still handy for casual shooting.
www-nikon.com Mar 10 0

Carlos Lam is a deputy prosecuting attorney in a mid-sized county in a
midwestern state. An adherent in the Austrian School of economics, he
believes that to truly prosper as the republic envisioned by the
Founding Fathers, we must return to principles of sound money and
limited government. He... More Latest StockTalkWent long Canadian Oil
Sands Trust (COSWF.PK) as a way to hedge oil/gasoline price increases
& to diversify away from the USDSep 11, 2009Latest articles &
Instablog posts1.'Cash for Clunkers' Incentivizes Americans to Take On
More Debt2."Cash for Clunkers" Passes House: The Debt Merchants
Continue Their Efforts3.Will the Chrysler Deal Be Delayed?

Shorting the Yen could be an interesting play. Already the Japanese
savings rate has crashed from its lofty position to under 4%, so the
Japanese government will not be able to count on domestic savings to
finance its debt indefinitely.
Mar 10 06:25 AM

John Thomas graduated with a bachelor’s degree in biochemistry with
honors and a minor in mathematics from the University of California at
Los Angeles (U.C.L.A.) in 1974. He moved to Tokyo, Japan where he was
employed by a medium-sized Japanese securities house. Thomas became
fluent in... More Company: The Mad Hedge Fund Trader bvgf I’m hearing
from my buddies in Japan that while things are already quite bad in
that enchanting country, they are about to get a whole lot worse, and
that it is time to start scaling into a major short in the yen.
Australia and China have already raised interest rates, to be followed
by the US, and eventually Europe. With its economy enfeebled, the
prospects of Japan raising rates substantially is close to nil,
meaning the yield spread between the yen and other currencies is about
to widen big time. That will generate hundreds of billions of dollars
worth of yen selling as hedge funds rush to pile on a giant carry
trade. Until now, the government has been able to finance ballooning
budget deficits caused by two lost decades, but those days are coming
to an end. Japan is quite literally running out of savers. The savings
rate has dropped from 20% during my time there, to a spendthrift 3%,
because real falling standards of living leave a lot less money for
the piggy bank. The national debt has rocketed to 190% of GDP, and
100% when you net out government agencies buying each other’s
securities. Japan has the world’s worst demographic outlook. Unfunded
pension liabilities are exploding. Other than once great cars and
video games, what does Japan really have to offer the world these
days, but a carry currency? Until now, the government has been able to
cover up these problems with tatami mats, because almost all of the
debt it issued has been sold to domestic institutions. Now that this
pool is drying up, there is nowhere else to go but foreign investors.
With Greece and the rest of the PIIGS at the forefront, and awareness
of sovereign risks heightening, this is going to be a much more
discerning lot to deal with. You could dip your toe in the water here
around ¥88.40. In a perfect world you could sell it as it double tops
at the 85 level. My initial downside target is ¥105, and after that
¥120. If you’re not set up to trade in the futures or the interbank
market like the big hedge funds, then take a look at the leveraged
short yen ETF, the (YCS). This is a home run if you can get in at the
right price.
Mar 10

http://seekingalpha.com/article/192864-high-conviction-short-the-yen

Fresh Trade Winds?
Wednesday, 10 March 2010 02:19
0 Comments and 4 Reactions
Investor's Business Daily
Editorial
Investor's Business Daily
Editorial

http://epaper.investors.com

Economy: U.S. Trade Representative Ron Kirk came out swinging
Wednesday, warning Congress that it’s time to pass free trade. Is
something happening here? Is the Obama administration finally getting
serious about jobs?

After a year of inaction, Kirk told Democrats in remarks to the Senate
Finance Committee that passage of free-trade pacts must be “a
priority.”

Free trade “will stimulate export-driven growth and help the United
States meet the president’s goal to double U.S. exports in five
years,” he said, adding that 2 million jobs would be created.

That kind of talk from a leading Democrat directed at the
protectionists in his own party is a new — and welcome — development.

Over the last year, Obama administration officials have occasionally
talked up the benefits of free trade, but only with conservatives and
business groups, who already know about it.

Now some are spending political capital to push it.

Confronting a Congress that is holding up the creation of jobs doesn’t
come a moment too soon. U.S. joblessness stands at 9.7% and Europe is
grabbing U.S. markets abroad.

Congressional protectionists talk of free trade passage in terms of
years; their campaign financiers in Big Labor, such as the AFL-CIO,
say “never.”

Kirk rebuked that stance in his speech, telling labor it had a voice
but “not a veto” on trade and hinted that President Obama would put
the pacts through without them. He also gave labor leaders a deadline
to make demands on free-trade deals like the one with Colombia instead
of constantly moving the goal posts.

One shot.

It doesn’t come a moment too soon. Congress’ failure to enact the free-
trade pacts in front of them is costing the U.S. nearly 600,000 jobs,
according to a 2009 study by the U.S. Chamber of Commerce. Contrary to
protectionist myth, free trade costs no net jobs in the U.S. economy
at all, as Fed chief Ben Bernanke noted in a 2007 speech citing years
of data. “Trade allows us to enjoy both a more productive economy and
higher living standards,” he said. Unemployment is killing the U.S.
economy and sinking the Obama presidency. Time is running out to open
markets that could help repair it. Just this week, Europe signed a
free-trade deal with Colombia and Peru and breezily announced it would
have a pact with fast-growing India ready by October.

U.S. international credibility right now is zero, given that
alreadynegotiated trade pacts with Colombia, Panama and South Korea
have languished in Congress for more than three years.

Who’d want to negotiate something new and have it put in congressional
limbo? That’s why the Obama administration’s proposed U.S. Trans-
Pacific Partnership to open new markets in Brunei, Australia, New
Zealand and Vietnam is going nowhere.

“This delay in implementing hurts U.S. credibility around the world —
not just economically, but geopolitically as well,” said Sen. Charles
Grassley, R-Iowa, at the Kirk hearing. Hello? Anyone out there? The
U.S. is losing ground in world markets and doing it at the cost of our
own citizens’ jobs. It’s exactly what U.S. labor unions such as the
Teamsters, United Steelworkers, United Autoworkers and various public
employee unions want.

And right now, like it or not, they rule Congress. It’s ironic,
because many lobbyists believe free trade can pass both congressional
Houses if the bills are put to a vote. Past presidents, including
Democrat Bill Clinton and Republican George W. Bush, knew that’s what
it took to get pacts through Congress. Both threw their all into
getting big treaties — like 1993’s North American Free Trade Agreement
and 2005’s Central American Free Trade Agreement — passed in Congress,
acts that took on people who would stop them to charge up the U.S.
economy. There’s still no sign of Obama out there working the Hill.
But Kirk’s statements, no doubt authorized by the president, may be
the beginning of a turnaround on trade.

http://epaper.investors.com/Olive/ODE/IBD/LandingPage/LandingPage.aspx?href=SUJELzIwMTAvMDMvMDU.&pageno=MTA.&entity=QXIwMTAwNA..&view=ZW50aXR5

http://www.truthabouttrade.org/news/latest-news/15680-fresh-trade-winds

A new finger on the pulse of economy

A new index co-developed by Ceridian uses diesel fuel sales to track
U.S. economic growth.

By NEAL ST. ANTHONY, Star Tribune
Last update: March 9, 2010 - 9:03 PM

Want to know which way the economy is headed? Find out how much diesel
fuel is being burned by the nation's over-the-road truckers.

That's the theory behind a new economic index developed by Bloomington-
based Ceridian Corp., a provider of electronic payments services, and
UCLA's Anderson School of Management.

Called the Pulse of Commerce Index, the survey, to be released
Wednesday, shows the U.S. economy was essentially flat over the first
two months of the year, with a snowbound February decline of 0.7
percent in output offsetting the modest January gain of 0.6 percent.

"February was disappointing, but the geographic pattern underlying the
index suggests this was due in large part to extreme snowfalls during
the month," said Edward Leamer, director of UCLA's Anderson Forecast
and chief economist for the Ceridian-UCLA Pulse of Commerce Index
(PCI). "We still need much stronger growth in the PCI to get Americans
back to work. To sustain at least a 4 percent GDP number for the first
quarter [on an annualized basis], the March PCI has to be ... over 1
percent growth. That number will be very important."

The new index is designed to get the jump on the Federal Reserve's
report on industrial production report for February, which comes out
next week.

The PCI uses real-time diesel fuel consumption data from over-the-road
truckers, which is tracked by Ceridian, a longtime payment services
provider to the trucking industry. The index is built by analyzing
Ceridian's electronic card payment data, which captures the location
and volume of diesel fuel being purchased. This provides a detailed
picture of the movement of products across the United States.

In an interview Tuesday, Leamer said that once the bad weather is
taken into account, February's numbers suggest that there is an
underlying power to industrial demand and he expects that a catch-up
surge in goods moved in March will indicate that the economy is
growing at about a 3 percent annualized rate during the first quarter.

"To be optimistic about jobs, we'll need at least that," Leamer said.
"In the fourth quarter, we had 5.9 percent growth, but 3.9 percent was
just inventory replacement. That leaves 2 percent. We need more than
that. And March will tell the quarter."

Leamer said the Ceridian diesel-consumption data, collected from about
7,000 service stations around the country, constitutes a
representative sample and provides a "real data, not surveys" about
the movement of goods, which is a manifestation of industrial
production and shipments.

The flow of commerce

"We're monitoring the flow of commerce at truck stops, and the
arteries for the commercial system are the interstate highways
carrying the products," he said. "It amplifies the swings in GDP and
also tells us early where the economy is going."

Industrial production only accounts for about one-third of the U.S.
economy. It is more volatile than the service sector, which fluctuates
less during economic cycles.

All economic eyes are on month-to-month changes in industrial output,
which is a guide to business spending, credit expansion and demand for
goods in the aftermath of the 2008-09 recession that has given way to
a fairly tepid economic recovery. Most labor economists believe that
the economy won't start adding jobs significantly unless industrial
output starts growing at a 3 to 5 percent annualized clip.

Back testing of the Ceridian-UCLA Pulse of Commerce Index indicates
that it is a reliable indicator of industrial output. For example, the
index rose in areas unaffected by February's snows, including 2.7
percent in the Upper Midwest and 2.1 percent in the Pacific region.

"Goods have to be transported for the economy to grow, so when
snowstorms bog down that flow, it is reflected in our index and in the
overall U.S. economy," said Craig Manson, senior vice president and
index analyst for Ceridian.

A new finger on the pulse of economy...
Wait! The economy has a pulse?

posted by DrZoidberg on Mar 9, 10 at 11:55 pm |

http://www.startribune.com/business/87180717.html?elr=KArks:DCiU1OiP:DiiUiD3aPc:_Yyc:aUU

Posted: Wed, Mar 10 2010. 9:00 AM IST
International News

US, Europe eye free-trade pacts with rising Asia

The talks will follow the launch of negotiations on a free-trade
agreement between Singapore and the European Union, which is also keen
on expanding trade ties with Southeast Asia
AFP

Singapore: The United States, fearful of being sidelined as China and
other fast-growing Asian economies speed up their integration, is
banking on a new trade pact to shore up its Pacific influence.

Talks opening Monday in Melbourne will focus on a proposed Trans-
Pacific Partnership agreement linking the US market with Australia,
Brunei, Chile, New Zealand, Peru, Singapore and Vietnam.

Officials hope the TPP will form the nucleus of a wider Asia-Pacific
trade zone that would eventually rope in China, Japan and South Korea
as well as key Southeast Asian nations.

The talks will follow the launch of negotiations on a free-trade
agreement between Singapore and the European Union, which is also keen
on expanding trade ties with Southeast Asia.

The United States and Europe have been shut out of a growing web of
Asia-centric trade pacts spurred by the region’s 1997 financial crisis
and by a lack of progress in the Doha round of global trade talks,
analysts said.

While the United States is “unquestionably” a Pacific power, it “lacks
a comprehensive Asia strategy”, said Ernest Bower, a Southeast Asia
expert at the Center for Strategic and International Studies (CSIS) in
Washington.

“The lack of consistent US focus in the region has enabled the
ascendance of Chinese power,” Bower said, adding that it could slowly
undermine US business interests and eventually degrade US security
capabilities.

The new trade attention from the West comes as Asian countries lead
the rest of the world in recovering from the global economic downturn.

“That the US and the EU are knocking on Asia’s doors is a recognition
that the centre of economic power is shifting, or has shifted, to our
region,” an Asian diplomat closely involved in trade issues told AFP.

“They know very well that ignoring Asia will be at their own peril.
China is already a major trade partner for many Asian countries and is
leading efforts toward regional economic integration,” he said on
condition of anonymity.

Deputy US trade representative Demetrios Marantis warned that
Washington “faces the daunting prospect of getting locked out” by Asia-
specific trade pacts.

A study by the US-based Peterson Institute for International Economics
showed that discriminatory policies under an East Asia free trade zone
could cost the US economy at least 25 billion dollars of annual
exports and lead to the loss of “about 200,000 high-paying jobs”.

The United States has free-trade accords with Australia and Singapore
and has also negotiated a trade pact with South Korea, but this has
yet to be implemented due to fierce disputes over cars and beef.

China has been more aggressive in wooing regional partners.

An agreement between China and the Association of Southeast Asian
Nations (ASEAN) covering nearly two billion consumers went into effect
this year, creating the world’s biggest free-trade area in terms of
population.

There are also efforts to form a larger, all-Asian free-trade zone
spanning China, Japan, South Korea and the 10 ASEAN states.

C. Fred Bergsten and Jeffrey Schott of the Peterson Institute hailed
Washington’s decision to join the trans-Pacific talks in Australia.

“Deepening US engagement with countries in the Asia-Pacific region is
crucial for the advancement of both US economic and foreign policy
interests,” Bergsten and Schott said in a recent paper.

“Within the next few years, it is likely that the East Asian countries
will deepen their economic ties and conclude both a regional trade
agreement and a monetary agreement,” the authors said.

Such a bloc would “draw a line” in the middle of the Pacific Ocean by
discriminating against US exporters and investors, and excluding the
United States from major regional economic and security forums, they
said.

Marantis acknowledged that overcoming crisis-hit Americans’ opposition
to free-trade agreements is a key challenge.

Surveys suggest that only about one in 10 Americans think that trade
pacts create jobs, while more than half believe the accords lead to
job losses at home, he said.

http://www.livemint.com/2010/03/10090029/US-Europe-eye-freetrade-pact.html

[bademiyansubhanallah]

Economy the focus as China political session ends
By CHARLES HUTZLER (AP) – 3 hours ago

BEIJING — China vowed Sunday to remain alert to any renewed signs of
economic crisis, but said it will hold the line against critics urging
an appreciation of its currency and will not seek an aggressive
leading role in world affairs.

Premier Wen Jiabao also repeated China's stance that a recent dip in
relations with the United States was entirely the fault of Washington
for allowing the Dalai Lama to visit the U.S. and approving the sale
of arms to Taiwan.

"The responsibility does not lie with the Chinese side, but the United
States," Wen said. "We hope the U.S. will face the issue squarely ...
so as to restore and improve China-U.S. relations."

Speaking just after the country's annual legislative session ended
with the approval of a budget that extends job-creation and welfare
programs to deal with a rapidly expanding rich-poor gap, Wen said
China had to be wary of a "double dip" recession this year as it seeks
to balance growth, economic structural adjustments and inflation
expectations.

Wen said China "must have firm confidence" in dealing with any
economic problems.

"The only way out and hope when facing difficulties lie in our own
efforts," he said during a televised news conference lasting more than
two hours.

China, the world's third-largest economy, escaped the worst of the
global financial crisis by ordering $1.4 trillion in bank lending and
government stimulus.

Although economic growth bounced back to 10.7 percent in the final
quarter of 2009, authorities say the global outlook is still
uncertain, amid worries that the torrent of lending is adding to
inflation and fueling a dangerous bubble in stock and real estate
prices.

When asked if China would play a bigger role in international affairs,
Wen said China is still a developing country and is focused on
improving living standards across the country.

Wen said the government will reform its controversial exchange rate
controls but will keep its currency "basically stable." He gave no
indication when Beijing might allow its yuan to rise against the U.S.
dollar — a move sought by Washington and other trading partners.

Critics say the yuan — also known as the renminbi — is kept
undervalued, giving China's exporters an unfair price advantage and
swelling its trade surplus. China has allowed a roughly 20 percent
rise in the currency's value against the dollar since 2005, but re-
imposed tight control after the global financial crisis hit.

Beijing has more than $800 billion of its foreign reserves invested in
U.S. Treasury securities, and Wen said the value of the U.S. dollar
was a "big concern." He said he wanted to see the United States "take
concrete steps to reassure investors," but gave no details of what
Beijing wanted done.

Wen promised to increase imports to promote trade and appealed to
other nations to oppose what he said was rising global protectionism.
He complained that some countries were trying to boost exports by
weakening their currencies, but did not name any.

The budget passed by the congress called for a 10 percent rise in
spending to fuel the economic recovery, with more money for low-cost
housing, pensions, and other social programs for the country's 1.3
billion people.

The priorities extend Wen and President Hu Jintao's yearslong efforts
to spread the benefits of economic growth more broadly across a
rapidly changing society. This year, inflation is a looming challenge,
with housing prices soaring and worrying rises in food prices that
consume as much as 40 percent of household incomes.

Wen said inflation is a serious concern, along with endemic corruption
and a yawning gap between rich and poor that leaves millions of
migrant workers and farmers without basic government aid.

"These are enough to affect social stability, and even (affect) the
consolidation of state power," he said.

Wen also said he was snubbed at last year's Copenhagen climate change
conference and fired back at critics who accuse China of arrogance.

China was blamed by some for undermining efforts to reach a binding
agreement at the December conference and Wen was criticized for
skipping a meeting of top leaders attended by President Barack Obama.

However, Wen said he was never formally notified of the event and sent
Vice Foreign Minister He Yafei to register a protest. Wen said no
explanation had been given about the failure to issue a formal
invitation.

"So far no one has given us any explanation about this and it still is
a mystery," he said.

There were no surprises in the way the nearly 3,000 delegates voted
during the legislature's final day. The government work report passed
with 97.5 percent of the vote. Delegates made their usual faint
display of displeasure over crime and corruption, with negative votes
and abstentions counting for 21 percent of the vote on the reports
from the Supreme People's Court and national prosecutor's office.

Following nearly two weeks of meetings, delegates also passed an
amendment to the election law to improve representation for rural
areas. Previously, rural delegates represented four times as many
people as their urban counterparts, but the amendment erases the
distinction, an acknowledgment of the need to buttress the interests
of the dwindling farming population.

National and local legislatures in China generally adopt decisions
made behind closed doors by Communist Party leaders, while the bulk of
the congress' legislative work is handled by its standing committee.
Delegates, who include hundreds of army officers, themselves are
carefully vetted by Communist Party officials and selected in a
perfunctory election by lower-level committees.

This year's session — the most public event the authoritarian
government holds — had the usual heavy police presence in Beijing,
with dozens of political dissidents and human rights activists
reportedly harassed or detained.

At least two people who attempted to approach to the hulking Great
Hall of the People where the body met on Sunday were dragged away by
police.

It was not known what grievances the two had, but they tried to
attract the attention of reporters as they left Wen's news conference.

Copyright © 2010 The Associated Press. All rights reserved.

Paramilitary police officers march on the final day of the National
People's Congress as it snows outside the Great Hall of the People in
Beijing, China, Sunday, March 14, 2010. (AP Photo/Vincent Thian)

http://www.google.com/hostednews/ap/article/ALeqM5jGQDE0Z2LbFGRirzDQTs81WGjXlAD9EE7RT80

Wish to visit Taiwan still very strong: Premier Wen11:31, March 14,
2010

Chinese Premier Wen Jiabao smiles during a press conference after the
closing meeting of the Third Session of the 11th National People's
Congress (NPC) at the Great Hall of the People in Beijing, capital of
China, March 14, 2010. (Xinhua/Xing Guangli)

Chinese Premier Wen Jiabao said here Sunday that his wish to visit
Taiwan remains "very strong."

Wen told a press conference after the closing of the annual session of
the National People's Congress (NPC), the country's top legislature,
that signing the Economic Cooperation Framework Agreement (ECFA) is a
complex process but problems will be resolved.

He said the mainland will let Taiwan people benefit more from the ECFA
through tariff concession.

Source: Xinhua

Related:

Premier Wen says he is staunch supporter of free trade
http://english.people.com.cn/90001/90776/90785/6918875.html
Premier Wen says Chinese yuan "not undervalued"
http://english.people.com.cn/90001/90776/90785/6918834.html
Premier: China to continue to work with other countries to tackle
climate change
http://english.people.com.cn/90001/90776/90785/6918826.html
Stable growth, structural adjustment, inflation management essential
for China to

Related Reading

Chinese yuan appreciates 14.5% in real term when world economy is
worst hit
http://english.cpc.people.com.cn/66102/6918900.html
Premier reiterates China's stance on yuan exchange rate
http://english.cpc.people.com.cn/66102/6918898.html
Premier Wen says he is staunch supporter of free trade
http://english.people.com.cn/90001/90776/90785/6918875.html
FLASH: WEN HOPES U.S., EUROPE TO RECOGNIZE CHINA'S MARKET ECONOMY
STATUS, LIFT BAN ON HI-TECH EXPORTS
http://english.people.com.cn/90001/90776/90785/6918871.html
FLASH: PREMIER WEN SAYS TRADE PROTECTIONISM WORSENS AMID WORLD
ECONOMIC SLUMP
http://english.people.com.cn/90001/90776/90785/6918867.html
Premier Wen foresees bumpy road ahead for China's development
http://english.cpc.people.com.cn/66102/6918859.html
China's parliament approves work reports of supreme court,
procuratorate
http://english.cpc.people.com.cn/66102/6918857.html
China's parliament approves work report of its standing committee
http://english.cpc.people.com.cn/66102/6918856.html
China's top legislature ends annual session
http://english.cpc.people.com.cn/66102/6918853.html
China's parliament adopts amendment to Electoral Law

Major headlines

Let grass-roots deputies make more speeches
http://english.cpc.people.com.cn/66102/6915422.html
How to improve China's soft power?
http://english.cpc.people.com.cn/66102/6916662.html
Chinese leaders join discussions on legislative report
http://english.cpc.people.com.cn/66102/6915283.html
China's top legislature to enhance inquiries, interrogation of cabinet
officials
http://english.cpc.people.com.cn/66102/6915351.html
China mulls legislation of officials' personal asset declaration:
lawmaker
http://english.cpc.people.com.cn/66102/6915308.html
Collective decision-making eclipses rowdy democracy
http://english.cpc.people.com.cn/66102/6908730.html

http://english.people.com.cn/90001/90776/90785/6918901.html

China promises steps to boost imports
Associated Press
2010-03-14 10:16 AM

China's premier is promising to increase its imports to promote global
trade and appealed to other nations to oppose rising protectionism.
Premier Wen Jiabao made the comments Sunday following the close of
China's annual legislative session. He says other governments should
be alarmed at what he said was the rise of global protectionist
barriers despite pledges not to obstruct trade.

Wen promises to take measures to increase China's imports and says
Beijing will pursue equilibrium in its balance of international
payments.

More Business Stories

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China PM defends assertive trade, foreign policy 　 2010-03-14
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China: World might face `double dip' recession 　 2010-03-14
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Premier: China's yuan to remain `basically stable' 　 2010-03-14
http://www.etaiwannews.com/etn/news_content.php?id=1202903&lang=eng_news&cate_img=35.jpg&cate_rss=news_Business

US looks to Shanghai Expo to help ease distrust 　 2010-03-14
http://www.etaiwannews.com/etn/news_content.php?id=1202814&lang=eng_news&cate_img=35.jpg&cate_rss=news_Business

FAA directs airlines to check tail flap of 737s 　 2010-03-14
http://www.etaiwannews.com/etn/news_content.php?id=1202813&lang=eng_news&cate_img=35.jpg&cate_rss=news_Business

Venezuela obtains K-8 military planes from China 　 2010-03-14

http://www.etaiwannews.com/etn/news_content.php?id=1202749&lang=eng_news&cate_img=35.jpg&cate_rss=news_Business

http://www.etaiwannews.com/etn/news_content.php?id=1202910&lang=eng_news&cate_img=35.jpg&cate_rss=news_Business

Bloomberg

China Higher-Than-Expected CPI Hasn’t Altered Policy (Update1)
March 14, 2010, 12:39 AM EST

(Adds Wen’s comments in 4th, 8th, 9th paragraphs.)

March 14 (Bloomberg) -- China’s higher-than-expected inflation data
hasn’t altered the central bank’s policy plans, bank Governor Zhou
Xiaochuan said today.

The central bank’s interest rate stance is mainly based on the outlook
for inflation and changes in the overall economy rather than published
numbers, Zhou told reporters at a session of parliamentary meetings
held in Beijing. He didn’t elaborate on details of his policy plans.

Consumer prices jumped 2.7 percent in February from a year earlier,
exports surged 46 percent and industrial output gained the most in
more than five years, government data showed in the past week.
Economists from Goldman Sachs Group Inc, Deutsche Bank AG and JPMorgan
Chase & Co. said the risks of overheating are building in the world’s
third-largest economy and the central bank should raise interest rates
as early as this month.

It’s “extremely difficult” to balance growth, inflation management and
the need to reform economic models, Premier Wen Jiabao said at a news
conference today. Inflation, income disparity and corruption combined
could cause social unrest and political instability, Wen added.

Economic data, including inflation, “are a bit higher than our
forecasts, but not much higher, and we can still act according to our
plans,” Zhou said. “Raising rates is connected to inflation figures,
but from the central bank’s perspective, it’s not mainly based on data
that have already come out.”

Inflation Rate

February’s inflation rate was in part caused by spending during the
Lunar New Year holiday, and the year-on-year rate may slow this month,
Ma Jiantang, head of the National Bureau of Statistics told reporters
at the same meeting today. “It’s still hopeful” that the government
can achieve its target to contain inflation to around 3 percent in
2010, Ma added.

Zhou reiterated today that monetary policy must be “preemptive.” In
drafting policies, “we need data forecast in advance, because monetary
policy has a fairly long lag -- it takes a time lag of a few months or
even one year for money supply to work into the economy,” Zhou said.

Policy makers “must practice utmost prudence and also exercise
flexibility” in managing the economy this year, Wen said today at the
end of the parliamentary meetings. To maintain “appropriate and
sufficient liquidity,” to keep interest rates at “reasonable” levels
and to effectively manage inflation expectations are key objectives of
monetary policies, Wen added.

Policy Stance

While reaffirming a “moderately loose” monetary policy stance for 2010
to avoid any “setback” to the economic rebound, Wen said policies will
be kept flexible “should circumstances change.” It is “essential” that
the timing of any policy moves is appropriate, Wen added.

Policies to tackle the financial crisis will end “sooner or later,”
Zhou said on March 6, adding that policy makers will be cautious on
the timing. The central bank has asked lenders to set aside more money
as reserves twice this year and aimed for lower loan growth of 7.5
trillion yuan in 2010.

Bank loans slowed to 700 billion yuan last month, after lending surged
in January more than the previous three months combined, central bank
data showed. Growth of the broadest measure of money supply, or M2,
slowed for a third month to 25.5 percent in February from a 29.6
percent gain in November, the quickest pace in more than a decade,
government data show.

--Li Yanping, Zhang Dingmin. Editors: Malcolm Scott, Mike Millard.

To contact the editor responsible for this story: Chris Anstey at
can...@bloomberg.net

More From Businessweek

China Inflation May Exceed 5% by Year-End, Credit Suisse Says
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China Power Usage Rises 10.54% in Feb, Ndrc Says
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Taiwan to Benefit From Mainland Trade Pact, China Premier Says
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Chile’s Economy Expands at Fastest Pace in 16 Months (Update3)
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Wen Rebuffs Yuan Calls, Is ‘Worried’ About Dollar (Update1)
http://www.businessweek.com/news/2010-03-14/china-s-wen-rebuffs-yuan-calls-is-still-worried-about-dollar.html

http://www.businessweek.com/news/2010-03-14/china-s-higher-than-expect-cpi-hasn-t-altered-policy-zhou-says.html

MARCH 13, 2010, 11:04 P.M. ET.CHINA NPC: Wen: If Economic Recovery
Falters, Costs Will Be Very Great

BEIJING (Dow Jones)--China Premier Wen Jiabao said Sunday that if the
economic recovery falters the costs will be very great.

The timing of when to act and when to hold off on changing policy is
essential, Wen said, adding it is very hard to strike a balance on
China&apos;s policy goals.

He restated that China will stick to an active fiscal policy and
moderately loose monetary policy. He said China will keep interest
rates at a reasonable level, maintain reasonable and adequate
liquidity, and properly manage inflation expectations.

He said China will put its focus on boosting development in rural
areas because that is key for the economy.

Wen said agriculture is key to growth this year and in managing
inflation expectations.

He said the issues of inflation, the rural-urban income gap, and
corruption may affect the stability of political power in China.

Wen made his remarks at a news conference following the end of
China&apos;s 10-day session of the National People&apos;s Congress,
China&apos;s legislature.

-Liu Li and Aaron Back contributed to this article, Dow Jones
Newswires; (8610) 8400-7711; li....@dowjones.com

http://online.wsj.com/article/BT-CO-20100313-701110.html?mod=WSJ_latestheadlines

How free markets sank the US economy: Joseph Stiglitz
14 Mar 2010, 1411 hrs IST, REUTERS

NEW YORK: Two years ago, a poisonous brew of bad economics, lax
regulation, and egregious behaviour boiled over, scalding the
financial system and pitching the United States into its steepest
downturn since the Great Depression.

The antidotes to the crisis, concocted by many of the players who
stirred the original toxic brew, have pulled the U.S. economy back
from the brink.

But those remedies won't prevent future crises, Joseph Stiglitz,
winner of the 2001 Nobel Prize for Economics, writes in "Freefall:
America, Free Markets, and the Sinking of the World Economy" (Norton,
$27.95).

In contrast to the regulations that emerged from the Great Depression,
which promoted growth and stability, the response to this crisis has
led to a less-competitive financial system dominated by banks that are
too big to fail, he writes.

Stiglitz, former chief economist at The World Bank and now a professor
at Columbia University in New York, focuses on banks' failure to
assess and manage risk, especially when risk is disguised by complex
financial instruments. Such "modern alchemy" transformed risky sub-
prime mortgages into A-rated products dubbed safe enough to be held by
pension funds, he says.

America's financial markets also failed to allocate capital
productively, he says. "At their peak in 2007, the bloated financial
sector absorbed 41 percent of profits in the corporate sector,"
Stiglitz writes.

To add insult to injury, some of those profits were spent influencing
Congress to make certain the government would not regulate risky
derivatives or curb predatory lending.

Finally, flawed incentive structures fostered corruption, encouraging
deceptive accounting that would lead to higher stock prices and higher
bonuses for Wall Street managers.

By 2008, the nation's economy was in a freefall and the United States,
a country that purported to revile socialism, had to socialize the
risks banks had taken and intervene in markets in unprecedented ways,
Stiglitz writes.

But where does that leave the financial system and, more importantly,
the U.S. economy?

"It's very likely we will have a very slow recovery, I hope not as
protracted as the Japanese did, but no one thought in 1990 that they
would have one that long either," Stiglitz said in a recent
conversation with Reuters.

Japan is viewed as having lost a decade of growth during the 1990s
before the economy bounced back in 2004-06.

Stiglitz said one difference between Japan and the United States is
that Japan has zero labour force growth, while the United States has a
1 percent labour force growth rate.

Thus, if U.S. jobs grow at a 1 percent pace, "it's as bad as Japan's
growing at zero percent," he said.

Other differences exist between Japan and the United States, some of
which argue for a quicker comeback for the United States and others
than point to a slower one, Stiglitz said.

For one thing, while Japan could export its way out of its slowdown,
the United States cannot because European growth is also slow.

For another, Japan began its recession with a high savings rate and
that enabled it to expand by decreasing savings and increasing
consumption.

"The United States is in the opposite situation, having begun with a
savings rate of zero," Stiglitz said. "Thus, the likelihood that our
savings
rate is going to go up is very high and rising savings can contribute
significantly to a prolonged slowdown."

The healthcare situation in the United States, with its issues of
equity and access, also has implications for U.S. growth, Stiglitz
told Reuters. Health affects productivity, and the cost of healthcare
affects competitiveness, he said.

"To make things worse, we have made the fundamental mistake of linking
the provision of healthcare to employment, creating strong
interactions between deficiencies in the health care system and
problems in the labor market," he said.

The solution to that problem would be to move to a single payer system
that recognizes health as a social cost, not an employment cost,
Stiglitz said.

"Providing low-skilled workers who earn minimum wage with health
insurance almost doubles the cost of employing them so the adverse
affects of the current system are most marked on the low-wage part of
the labour force," he said.

But the biggest risk to the economic recovery is the "very, very
strong political risk" posed by those who argue for deficit reduction,
he said.

"President Obama is trying to walk a very fine line on that issue now,
saying he will cut the deficit over the long run and stimulate the
economy over the short run," he said. "But the myopia of the deficit
hawks won't let them buy into that."

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PM upbeat on economy
Published: 14/03/2010 at 12:22 PM
Online news: Breakingnews

Thailand's economy is steadily recovering as indicated by higher
employment, Prime Minister Abhisit Vejjajiva said on Sunday.

"The Thai economy is clearly in a sustainable recovery after the Board
of Investment last week revealed that foreign firms in the country
have hired more employees in comparison to last year," Mr Abhisit
said.

Despite foreign investors' concern about the suspension of industrial
projects at the Map Ta Phut industrial estate, the premier said,
Thailand was able to draw in more investments from other countries
including Japan in the first two months of 2010 when compared to the
same period of the previous year.

Less corruption in state agencies as shown in studies was another
indication of a recovering economy, he said.

"The current political uncertainty in the country will have a short-
term effect on the economy.

"But if the government can manage the problem, the international
community will be able to see progress in the country's democratic
system," the prime minister said.

http://www.bangkokpost.com/business/economics/171465/pm-economy-is-recovering-well

03-14-2010 15:49

China’s Bad Bet Against America

By Joseph S. Nye, Jr.

CAMBRIDGE ― Chinese-American relations are, once again, in a
downswing. China objected to President Barack Obama's receiving the
Dalai Lama in the White House, as well as to the administration's arms
sales to Taiwan.

There was ample precedent for both American decisions, but some
Chinese leaders expected Obama to be more sensitive to what China sees
as its ``core interests" in national unity.

Things were not supposed to turn out this way. A year ago, the Obama
administration made major efforts to reach out to China.

Secretary of State Hillary Clinton referred to ``being in the same
boat," and that China and the United States would ``rise and fall
together."

Treasury Secretary Timothy Geithner said he spent more time consulting
his Chinese counterparts than those in any other country. Some
observers even referred to a U.S.-Chinese ``G2" that would manage the
world economy.

The G2 idea was always foolish. Europe has a larger economy than both
the U.S. and China, and Japan's economy is currently about the same
size as China's.

Their participation in the solution of global problems will be
essential. Nonetheless, growing U.S.-Chinese cooperation within the
G20 last year was a positive sign of bilateral as well as multilateral
cooperation.

Whatever the concerns regarding the recent events related to the Dalai
Lama and Taiwan, it is important to note that the deterioration in
U.S.-Chinese relations began beforehand.

Many American congressmen, for example, complain that American jobs
are being destroyed by China's intervention in currency markets to
maintain an artificially low value for the yuan.

A second issue was China's decision not to cooperate at the United
Nations conference on global climate change in Copenhagen last
December.

Not only did China resist measures that had been under negotiation for
the preceding year, but Prime Minister Wen Jiabao's decision to send a
low-level official to meet with and point a finger at Obama was
downright insulting.

China behaved similarly when the five permanent members of the U.N.
Security Council (plus Germany) met to discuss sanctions against Iran
for violations of its obligations to the International Atomic Energy
Agency. Again, China sent a low-ranking official.

What happened to those promising early signs of cooperation? Two
reasons for the change in Chinese behavior ― seemingly inconsistent at
first glance, but in fact perhaps mutually reinforcing ― seem
possible.

First, a political transition is expected in 2012, and, in a period of
rising nationalism, no Chinese leader wants to look softer than his
rivals. This helps to explain the recent crackdowns in Tibet and
Xingjian, as well as the detention of human rights lawyers.

In addition, China may be approaching an economic transition. Some
Chinese argue that anything less than 8 percent growth would be
inadequate to ensure sufficient job creation and fend off social
instability.

But, as America's savings rate begins to rise, China's export-led
growth model, which has promoted employment in China at the cost of
global trade imbalances, may no longer be possible.

If China responds to entreaties to revalue the yuan, it may need to
look tough on other issues to appease nationalist sentiment.

The second cause of China's recent behavior could be hubris and
overconfidence. China is justly proud of its success in emerging from
the world recession with a high rate of economic growth. It blames the
U.S. for producing the recession, and now holds some $2 trillion in
foreign-exchange reserves.

Many Chinese believe that this represents a shift in the global
balance of power, and that China should be less deferential to other
countries, including the U.S. Certain Chinese scholars are now writing
about the decline of the U.S., with one identifying the year 2000 as
the peak of American power.

This overconfidence in foreign policy, combined with insecurity in
domestic affairs, may combine to explain the change in Chinese
behavior in the latter part of 2009. If so, China is making a serious
miscalculation.

First, the U.S. is not in decline. Americans and others have been
predicting decline regularly over the years: after the Soviets
launched Sputnik in 1957; again when Nixon closed the gold window in
1971; and when the American rust-belt economy seemed to be overtaken
by Japanese manufacturers in the 1980s.

But when one looks at the underlying strength of the American economy,
it is not surprising that the World Economic Forum ranks the U.S.
second (just behind Switzerland) among the most competitive, while
China ranks some 30 places below.

Second, the fact that China holds so many dollars is not a true source
of power, because the interdependence in the economic relationship is
symmetrical.

True, if China dumped its dollars on world markets, it could bring the
American economy to its knees, but in doing so it would bring itself
to its ankles.

China would not only lose the value of its dollar reserves, but would
suffer major unemployment. When interdependence is balanced, it does
not constitute a source of power.

Third, despite Chinese complaints, the dollar is likely to remain the
major global reserve currency, owing to the depth and breadth of
America's capital markets, which China cannot match without making the
yuan fully convertible and reforming its banking system.

Finally, China has miscalculated by violating the wisdom of Deng
Xiaoping, who advised that China should proceed cautiously and ``keep
its light under a basket."

As a senior Asian statesman told me recently, Deng would never have
made this mistake. If Deng were in charge today, he would lead China
back to the cooperative relations with the U.S. that marked early
2009.

Joseph S. Nye, Jr., a former assistant U.S. secretary of defense, is a
professor at Harvard and author of ``The Powers to Lead." For more
stories information, visit Project Syndicate (www.project-
syndicate.org). For a podcast of this commentary in English, please
use this link:

http://media.blubrry.com/ps/media.libsyn.com/media/ps/nye80.mp3.

http://www.koreatimes.co.kr/www/news/opinon/2010/03/137_62316.html

Salesman in chief

Sunday, March 14, 2010

PRESIDENT OBAMA wants to double U.S. exports between now and 2015, and
it's a worthy goal. It won't be easy: Exports fell from $1.8 trillion
in 2008 to $1.5 trillion in 2009, due to the global recession. But, as
the president suggested in a speech Thursday, a big boost in sales of
U.S. goods and services abroad would support 2 million American jobs.
And some of his ideas could help that happen: an additional $2 billion
in Export-Import Bank credit; streamlining the review process for
sensitive technology exports; high-level support from the President's
Export Council.

Still, we're impressed by the contrast between the president's
ambitious goal and the modest means by which he proposed to meet it.
All the world's other major economic powers -- Germany, Japan, China
-- are attempting to export themselves back to prosperity, too. That
means that the United States will have to go well beyond merely
trimming red tape and offering more generous subsidies. It needs to
open new markets for its goods and make its economy more competitive.

On the first point, Mr. Obama has proposed a new Trans-Pacific
Partnership with Asian economies but has unfortunately continued to
send mixed signals on three already-negotiated free-trade agreements
-- with South Korea, Colombia and Panama -- that could boost exports
immediately. Then there is the impact of the law that Mr. Obama signed
last year that ended access to the United States for Mexican trucks.
In response, Mexico slapped tariffs on a range of U.S. farm and
factory products.

As for increasing U.S. competitiveness, there is only so much than can
be accomplished through the improvements in education and
infrastructure that Mr. Obama, quite correctly, supports. More
fundamental progress requires correcting the deep imbalances in trade
and capital flows between the high-consumption United States and high-
saving Asia. China's undervalued currency, still pegged to the dollar,
not only contributes to the U.S. trade deficit with that country but
makes American goods less competitive with China's in other markets
around the world.

The president recognizes this but has limited leverage on China. Many
in Congress want the administration to declare China a currency
manipulator and slap it with sanctions. That could backfire if China,
which believes that Japan destroyed its economy by bowing to U.S.
currency demands in the 1980s, finds effective ways to retaliate.
Correcting China's currency policy, alas, is probably a long-term
effort that the United States can most effectively wage in concert
with other trading nations that are also damaged by Chinese
mercantilism. In the meantime, the best thing that the United States
could do for its international competitiveness would be to cut its own
immense long-term fiscal deficits. Unlike China's exchange rate, that
is something over which Americans have complete control.

http://www.washingtonpost.com/wp-dyn/content/article/2010/03/13/AR2010031302048.html

HIGHLIGHTS-China's Premier Wen says will keep yuan stable
Sat Mar 13, 2010 11:42pm EST

Mon, Mar 1 2010BEIJING, March 14 (Reuters) - Chinese Premier Wen
Jiabao spoke to reporters at a news conference to mark the end of
China's annual parliament meeting.

Following are highlights of the premier's comments:

ON THE YUAN

"First, I think the Chinese yuan is not undervalued...

"Since the outbreak of the global financial crisis, our efforts to
keep a stable yuan made an important contribution to global
recovery...

"We oppose the practice of mutual recriminations. External pressure is
not helpful for yuan exchange rate reform.

"China will stick to implementing a managed market-based and floating
exchange rate regime. We will keep the yuan basically stable at an
reasonable level."

ON THE WORLD ECONOMY

"The unemployment rates in some major economies have been hovering at
a high level, some countries have witnessed the outbreaks of sovereign
debt crises, there are still risks in the financial sector and public
finance, prices of bulk commodities on international markets and
exchange rates of major currencies are not yet stable.

"As a result of inflation expectations, some countries are facing
difficulties making the right policy decisions. All these may cause
setbacks in the course of mounting a recovery in the global economy
and may even lead to a double dip."

ON CHINA'S RECOVERY

"It is true that the Chinese economy has stabilised and is turning for
the better, but I should also point out that there has not been a
fundamental improvement in the operations of many Chinese businesses
that are still reliant on the stimulus to stay afloat.

"We will maintain continuity and stability in our policies. We will
continue to pursue an active fiscal policy and appropriately loose
monetary policy so as to consolidate the hard won, good momentum in
the stabilisation and turnaround in the Chinese economy. Should we
encounter setbacks in our efforts to this end, much is at stake, and
the cost will be too high.

ON CHINA'S U.S. INVESTMENTS

"Our requirements (in investing reserves) are first: safe; second:
liquid; and third, rising in value.

"We are very concerned about the lack of stability in the U.S. dollar.
If I said I was worried last year, I must say I am still worried this
year.

"We cannot afford any misstep, no matter how slight, in our
investments. U.S. debt is guaranteed by the U.S. government, so I hope
that the United States will take concrete steps to reassure
international investors."

ON U.S.-CHINA TIES

The China-U.S. relationship got off to a good start after Obama took
office, however, in the last few weeks and months, it has allowed the
Dalai Lama to visit and sold weapons to Taiwan, which violated China's
territorial integrity and sovereignty. The responsibility for causing
a serious disruption to China-U.S. ties does not lie with the Chinese
side but with the U.S.

"With mutual trust, the two countries can both forge ahead, yet with
mutual suspicion we will both fall behind. It is always better to have
dialogue than confrontation, cooperation than containment, and a
partner than a rival. This is the right approach to adopt in pushing
forward China-U.S. relations.

ON TRADE

"Overall U.S. exports dropped 17 percent last year, but exports to
China were only down 2.2 percent. Therefore, we can see that China is
already an export market for neighboring countries like Japan, South
Korea, as well as Europe."

"Regarding trade disputes, we maintain that we should stick to
consultations.

"I can understand some countries' desire to raise exports, but what I
don't understand is depreciating one's own currency and attempting to
pressure others to appreciate, for the purpose of increasing exports.
In my view that is protectionism.

"The global economic crisis, protectionism hasn't been reduced but has
gotten worse, which should alarm all countries.

"We will diligently try to promote basic equilibrium in our
international balance of payments.... The most important thing now is
to advance the Doha round of trade talks.

"China's total trade is high, but 50 percent is processing trade, and
60 percent of China's exports are made by foreign enterprises or joint
ventures. If you restrict trade with China, you are hurting your own
countries' firms."

ON MONETARY POLICY

"With regard to monetary policy, it is important for us to maintain
appropriate and sufficient money supply, keep interest rates at a
reasonable level and manage inflationary expectations."

ON FOREIGN INVESTORS

In a question about the environment for foreign investment, Wen did
not directly comment on Google, which has threatened to pull out of
China following a hacking attack if it cannot offer an uncensored
Chinese-language search engine. He also did not comment directly on
Rio Tinto, which has four employees facing trial in Shanghai on
charges of accepting bribes.

"China welcomes foreign companies to lawfully enter China... I hope
that foreign firms will build more research and development centers in
China, and in that way raise the efficiency and quality of foreign
capital used here.

"We will institutionalize arrangements to level the playing field for
foreign companies operating in China, and to ensure national treatment
to foreign companies in China.

"If there are some shortcomings, I still don't have enough contact
with foreign companies in China. In the next three years, I hope to
increase interaction with foreign firms so that you will understand
Chinese policies better and we can get your feedback."

ON AGRICULTURE

"Agriculture is the lifeline of the entire economy, and good
agricultural development is essential in whether we will be able to
succeed in maintaining fast yet steady economic growth, and managing
inflationary expectations this year.

"In this sense, agriculture is a decisive factor."

ON FOREIGN POLICY

"China is firmly committed to peaceful development. Its development
will not affect any other country.

"The biggest source of concern for China is whether there will be
stability and security in the external environment. In order to
promote development at home, it's vital to have a stable and peaceful
international environment."

ON TRADE AGREEMENT WITH TAIWAN

"The agreement should be negotiated with three principles in mind --
equal consultations, mutual benefit and win-win progress, and
accommodation of each others' concerns.

"Negotiations are complex, but differences between brothers cannot
sever blood ties. Problems can always be solved."

ON DOMESTIC STABILITY

"I have said that if there is inflation, plus unfair income
distribution and corruption, that could be strong enough to affect
social stability."

http://www.reuters.com/article/idUSTOE62D00620100314?type=usDollarRpt

Real Estate Business in Japan can be Enlivening, Challenging and
Rewarding

Japan is an archipelago in the Pacific, separated from the eastern
coastline of Asia by the Sea of Japan. The country’s four main islands
are Honshu, Kyushu, Shikoku and Hokkaido. It is the largest and most
varied economy in Asia. The people are courteous, hardworking, and
diligent. They are especially known for their warmth and hospitality.

The real estate business is fast recovering from a decade old slump
that cut down the value of properties by about 75 percent. Rental
income rates in the country are still higher than borrowing costs and
interest rates will most certainly increase. The real estate business
in Japan is showing clear signs of an emerging recovery from its
recent decline.

All real estate with a prospective to generate outside income and/or
revenue for the owner of the real property can be called commercial
real estate. It includes many property types such as office buildings,
apartment units, retail properties, condominiums and even plain land.

Any property having the potential to generate revenue may be called
commercial real estate. Apart from the property types listed above,
capital gains and income by way of rent can also be acquired through
investment in niche properties. A career in this field is likely to
take hours of coursework and a satisfactory pass in one or more
licensing exams.

Investing in the country’s real estate is a bold move, one that is
extremely advantageous if carried out correctly. Anyone can acquire a
property on the island. Investors must keep in mind that it is
somewhat difficult to obtain a loan from a bank nowadays. Needless to
say, it is rather impossible for a foreigner without a proper visa and
a steady job to get a loan. However, if you are rich enough to buy
your property without having to avail a loan, then the problem is
solved.

Commercial properties yield a steady cash flow, especially when lease
contracts are made long-term. High income is expected throughout the
contract period. As a rule, tenants are responsible for the
maintenance of the property and they default less frequently on
payments.

How much income would you be able to generate from investing in a
property in Japan? That depends on the area in which you want to
invest your money. Tokyo is certainly the most expensive. Prices, as a
rule, decrease steadily as the distance to the capital center
increases. Old buildings are substantially cheaper than newly
constructed ones. Remote areas such as Hokkaido and Tohoku, or regions
such as Yamaguchi and Shimane can be especially cheap. In certain
areas, local governments offer land for free to those who are willing
to settle there for a number of years. Investors can easily get an
idea of prices by checking with country-wide search engines.

In the mid-80’s, the country’s real estate market was excessively
regulated and difficult to penetrate. Many factors have played in the
easing of those regulations and Japan has now become a more open
economy. Developments in technology and the Internet and internal
changes in the economy have opened the Japanese market in many
directions – telecommunication industry, medical equipments and
pharmaceuticals industry, energy production, information technology
industry, insurance industry, and financial services.

The striking 70 percent fall in the commercial real estate costs from
their height in the early 1990’s shows the extent to which a loan
supply imbalance can affect real economic activity. This loan supply
shock and its impact on construction activity in major commercial real
estate markets have affected the economy adversely.

Companies and investors that are keen on entering the market can
benefit by finding a reliable, well-reputed distributor or agent to
represent them in the market. It is also very important to develop
business contacts through regular personal visits. Japanese give a
high degree of importance to personal relationships. You need much
patience and repeated follow-up actions to clinch a real estate deal.
If you are a foreigner entering in commercial real estate in Japan, it
is a good idea to hire a professional interpreter, as many Japanese
businessmen and executives do not speak English.

March 13th, 2010

http://www.life-in-japan.info/?p=174

Dollar, Yen Weaken as Investors Seek Currencies Linked to Economic
Growth
By Inyoung Hwang

March 13 (Bloomberg) -- The dollar and yen fell versus all of their
major counterparts as concern eased Greece would default and European
and U.S. reports signaled the economic recovery is accelerating,
fueling appetite for riskier assets.

The euro touched a one-month high versus the greenback as stocks
gained for a second week. The yen fell against all 16 of its most-
traded peers as Japanese officials said the government is ready to
intervene to keep the currency from strengthening. Federal Reserve
policy makers are forecast to hold interest rates steady at a meeting
next week.

“The European problem was seen as a systemic risk problem,” said
Joseph Trevisani, chief market analyst at FX Solutions, a currency
brokerage in Ridgewood, New Jersey. “It’s become very clear they’re
going to pull Greece out of the fire. That’s benefited the bellwether
crosses directly.”

The dollar slid 1 percent to $1.3769 per euro in New York, from
$1.3626 on March 5. It touched $1.3796 yesterday, its weakest level
against the 16-nation currency since Feb. 11. The yen depreciated 1.4
percent to 124.69 per euro, from 123 a week ago. The greenback rose
0.3 percent to 90.56 yen, its second weekly gain, and reached 91.09
yen yesterday, its highest level since Feb. 23.

European Central Bank President Jean-Claude Trichet said yesterday in
an interview with Bloomberg Radio that Greece’s plan to cut the euro-
region’s largest budget deficit will win the backing of investors and
credit-rating companies. French President Nicolas Sarkozy said March 7
the region is ready to rescue Greece and “fulfill its commitments” if
necessary.

The Standard & Poor’s 500 Index advanced 1 percent for the week, and
the MSCI World Index, a measure of stocks in 23 developed markets,
gained 1.4 percent.

Swiss Franc

The Swiss franc appreciated against the euro, strengthening past 1.46
for the first time in more than a year even after the central bank
warned this week it would stem “an excessive appreciation.”

Canada’s currency approached C$1 versus its U.S. counterpart after
employment climbed in February for a second month, adding to
speculation policy makers are moving closer to raising the record-low
0.25 percent target lending rate. The currency touched C$1.0156, the
strongest level since July 2008.

European industrial output rose in January the most since August 1989,
a report showed yesterday. Output in the economy of the nations using
the euro jumped 1.7 percent from December, the European Union’s
statistics office in Luxembourg said.

Sales at U.S. retailers rose for a second month, advancing 0.3 percent
after a revised 0.1 percent gain in January, a Commerce Department
report showed. The median forecast in a Bloomberg News survey of
economists was for a 0.2 percent drop.

‘Risk-Positive’

“The data is certainly risk-positive,” said Alan Ruskin, head of
international currency strategy in North America at Royal Bank of
Scotland Group Plc in Stamford, Connecticut. “It speaks to the global
recovery.”

Asian currencies rallied as improving economic data and reduced
concern that Greece will default spurred demand for regional assets.
The Malaysian ringgit climbed 1.7 percent this week, the most since
Oct. 9, to 3.3070 per dollar. The South Korean won rose 1.1 percent to
1,128.20 against the greenback.

“Investors are looking at the growth performance of those Asian
currencies as a group, they are looking at policy moves that have
taken place in some countries, and the judgment is that there is still
potential for these currencies to move higher,” said Nick Bennenbroek,
head of currency strategy at Wells Fargo & Co. in New York.

Carry Trades

Rising stock markets spurred carry trades, in which investors buy
higher-yielding assets with amounts borrowed in nations with low
interest rates. The benchmark of zero to 0.25 percent in the U.S. and
0.1 percent in Japan have made the dollar and yen popular for funding
such transactions.

Japanese Finance Minister Naoto Kan said in parliament the government
is ready to intervene in the foreign-exchange market if yen movements
are abrupt. Central banks intervene by purchasing or selling
currencies to influence exchange rates.

The Bank of Japan is considering expanding loans to banks to extend
support to the economy, two central bank officials said on condition
of anonymity. Governor Masaaki Shirakawa meets with colleagues for a
policy session March 16-17, before the central bank’s unlimited
lending program expires.

U.S. Rate Bets

Traders increased bets the Fed will raise rates. Interest- rate
futures on the CME Group Inc. exchange yesterday showed a 48 percent
chance U.S. policy makers will raise the benchmark target rate for
overnight loans between banks by at least a quarter-percentage point
by September, compared with 43 percent odds a week earlier.

All of the 87 analysts in a Bloomberg News survey expect the central
bank to hold the rate at a record low range of zero to 0.25 percent on
March 16. Policy makers have pledged to keep it near zero for an
“extended period.”

The bank’s policy statement after the meeting “is the main concern for
all market participants,” said Hidetoshi Yanagihara, a senior currency
trader at Mizuho Corporate Bank in New York. “If the economic
assessment is better than the previous one, that might indicate they
will erase the ‘extended period’ terminology in the near future,”
Yanagihara said.

http://www.feedcry.com/archive/aid/610764?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+fulltext%2FBloomberg+%28Bloomberg%29

http://industry-news.org/2010/03/12/dollar-yen-weaken-as-investors-seek-currencies-linked-to-economic-growth/

The Cuban Economy: An Overview
March 14, 2010 by biotechconnection.com

The study of the economy of Cuba can be divided into four phases. The
first phase consists of the occupation of the island by the Spanish,
which led to the extinction of the aboriginals and the bringing of
African slaves to work on the sugar plantations. At this point of
time, Cuba provided for the highly profitable business of sugar
cultivation and its exports. Sugar industry was the crux of Cuba’s
economy and Cuba rose to become one of the largest producers of sugar
in the world.

The second phase pertains to the years following the wars of
independence against the Spanish and also the invasion of Cuba by the
US. It is marked by the sweeping powers of intervention obtained by
the US in 1902, with the Cuban economy being controlled by the growing
investment of the US citizens in the sugar plantations of Cuba. Now,
again, money and profits from the sugar plantation, sugar refineries
and subsidiary sugar products such as rum went to the many American
investors and a few Cuban elite. The other major industries also
included tourism, tobacco, transportation, mining and the
communication industry.

The third phase begins with the Cuban revolution and the beginning of
Fidel Castro’s rule in the year 1959. All plantations that were more
than 400 hectares became state owned and all industries including the
petroleum and the telephones became nationalized. This lead to the US
trade embargo towards Cuba. Cuba lost its traditional international
market. However, Cuba found a trade and political ally in the USSR
when the Cuban-sugar for Russian-oil package worked well. Cuba
reoriented itself to the Russian and pro-Russian market and did over
80% of its international trade with them. The next 30 years saw
tremendous improvement in health care, education and social welfare.
Cuba boasts of a 97% literacy rate and the life expectancy increased
to 76%. There was an egalitarian distribution of income and Cuba’s
income inequality index became the lowest in the world.

All was well until 1989 when it became clear to Cuba that sooner or
later Cuba would have to learn to do without any subsidies or trade
relations with the USSR and the eastern European countries. The fourth
phase begins here with the government dubbing it as the ‘Special
Period in Peacetime’. The economic reforms include:

(i) the opening and gearing up of tourism as an industry

(ii) diversification of the agricultural sector by producing fruits
and vegetables and rice along with live stock for local consumption
that include the visiting tourists.

(iii) production of more of citrus food and less of sugar

(iv) focusing on that sector of fisheries which sent its fleets to
nearby seas and exporting spiny lobsters to Japan

(v) State-owned lands have been converted to agricultural cooperatives
that are managed to a certain degree by the workers. Retail outlets at
a small scale have been allowed for the food market. In the field of
food production, allowing the sale of excess production (which is
above the state-fixed production quota) in the free market has brought
down black markets, in addition to enhancing production

(vi) Foreign investments in various industries such as tourism,
mining, telecommunication, construction and manufacturing sectors have
been allowed

(vii) Self employment has been legalized for around 150 occupations.

Investment into biotechnology and pharmaceuticals during the third
phase reaped returns when products of this industry were available for
export now at the fourth phase.

The other Cuban industries include cement, steel, agricultural
machinery and construction.

Fisheries, nickel and ore production, growing agricultural products
such as fruits, tobacco are some areas that have shown growth in the
export sector. Cuba now exports to European countries (50%), Canada
and Latin America (20%), and Asia (20%).

Spain, France, and United Kingdom have invested in the tobacco and
cigar production. Spain and Canada have invested in the exploration of
oil off the shores of Cuba. Mexico, Canada, Australia, South-Africa,
Netherlands, Brazil, and Chile are the other major countries that have
invested in the various industries of Cuba.

Cuba has entered into an agreement with Venezuela whereby thousands of
Cubans who are doctors, teachers and sports trainers, and engineers
would move in to Venezuela to assist their development program in
return for 53,000 barrels of oil per day being shipped to Cuba for the
next five years.

“Energy revolution” where apart form changing the entire system of
power generation and distribution, energy conservation is also aimed
at, has been in vogue in Cuba for the last two years. The quality of
life of the Cubans are improving with the volunteers of the government
replacing on a door-to-door campaign, the existing electric stoves and
lights with the ones that are more efficient and less energy
consuming. Energy efficient refrigerators and television sets have
been distributed and would be installed in all the thousands of
housing units that the government is building. Energy efficient buses
from China would soon be available for the Cuban public transport. It
is just a matter of some time when power generation would take place
at hundreds of units that are well synchronized, thus avoiding wastage
of power while distributing it through very long distances. Generation
of natural gas while exploring for oil at oil rigs is also
considered.

Cuba has also legalized the US dollars. Further, the Venezuelan inputs
for domestic oil production and upgradation of existing power stations
have raised the level of optimism. Cuba is also hoping to find oil off
its shores. Apart from the sugar industry and its related products,
there are various industries such as tourism (also called the lung of
the Cuban economy), fisheries, nickel and ore production, production
of tobacco, Cuban cigar, citrus fruits, pharmaceuticals, coffee,
besides basic manufacturing industries which have earned Cuba foreign
exchange. Cuba has learned to manage its post-USSR economic condition
and is steering towards a more prosperous economy.

Visit CubaChannel.com today for breaking news, regular news articles,
blog, videos, forums, and information about the land, people, history,
culture, government, political conditions, travel, business, and
economy of Cuba at

http://www.cubachannel.com

http://biotechconnection.com/?p=1110

Where do the negotiations for creating a comprehensive economic
partnership agreement (CEPA) with India stand currently? Does Japan
have the required political will to conclude the deal?

We began our EPA (Economic Partnership Agreement) or CEPA negotiations
in January 2007 and held 12 rounds of negotiations so far. We have
achieved major progress in the past negotiating rounds and are close
to successful conclusion of the agreement. Deepening bilateral
economic relations between India and Japan is an urgent issue and we
do have the strong will to conclude a mutually beneficial agreement.

What are the main stumbling blocks that could act as a deal breaker
between India and Japan for a broad-based CEPA?

We have talked on issues on which both sides are interested. Although
some of those issues still remain, we can reach a conclusion by making
our best efforts to resolve the issues.

India has put forward its main areas of interest in terms of greater
market access in services and pharmaceuticals sectors – what is
Japan’s position in this?
We are well aware of India’s interests in expanding access to Japanese
market in the field of services and pharmaceuticals. We are still
negotiating on these issues.
What is the deadline for concluding the talks for India-Japan CEPA and
do you think if this is achievable?

Our leaders agreed to accelerate our negotiation at the last summit
meeting in Delhi in December 2009, though they did not mention a clear
timeline to conclude the negotiation. We believe we will be able to
reach the conclusion by making efforts with each other to resolve the
remaining issues.

Last year, during the visit of Japanese Prime Minister Yukio Hatoyama,
both sides had issued a joint statement vowing to scale up bilateral
trade between India and Japan to $20 billion by 2010-2011 from $13
billion at present. Are both the countries as much engaged to reach
this target?

Economic exchanges between India and Japan remain rather small for our
economic scales and presence in the world economy so far. However, our
economic potential is so big, I feel the figure of $20 billion is not
too ambitious. We hope the conclusion of the CEPA would boost our
close economic partnership and contribute to expanding bilateral trade
between us significantly.

The next round of India-Japan negotiations for CEPA is scheduled to be
held in March 2010. Will the talks on CEPA be of topmost priority?

We are still in contact with each other to schedule the next round of
negotiations. In the last summit meeting in December 2009, Prime
Minister Hatoyama extended his invitation to Prime Minister Singh for
their next Annual Bilateral Summit in Japan in 2010. The actual date
will be decided through diplomatic channels. We are willing to utilise
every opportunity to narrow the gaps between both sides in the ongoing
negotiations.

What is the opinion of your industry and businesses in having a
partnership agreement with India?

Japanese industry have great interest in India not only as an
attractive market but also as an important manufacturing base because
of its huge population, high economic growth rates and the expansion
of the emerging middle class.
In 2008, India overtook China as the topmost destination for foreign
direct investment In Asia. This tendency will be accelerated when we
conclude the CEPA. Also, India is a big power which shares common
values with Japan such as democracy and market economy. India is an
important strategic partner for us to realize an “East Asian
Community” as well. We do hope the conclusion of EPA/CEPA would
contribute to economic development of East Asia as well as development
of our bilateral partnership.

What is the stand of the new government on the recent negotiations
going on at the World Trade Organisation (WTO) for a multilateral
trade deal? What are Japan’s main demands?

We have to conclude the Doha Round as soon as possible and strengthen
the multilateral trade system. The Doha Round includes negotiations on
the liberalisation of environmental goods and services. This will help
spread products and technologies that reduce the environmental load,
and is a vital part of combating climate change. We stress that
liberalising trade in energy efficient products is especially
effective in this regard.

The US has made it clear that it wants developing countries to offer
more in terms of greater market access and flexible tariffs than what
was promised in the December texts in the WTO negotiations. Do you
also support that position? Also, do you think the deadline of 2010 to
close the impending talks, is possible?
We support the idea that discussions should be based on the progress
already made. Leaders' commitment to conclude the round in 2010 is
crucial. We should seek it at every opportunity, as long as there is a
chance.

Yahoo.Com

Website Review by: umit

http://www.shvoong.com/business-management/management/1982206-yahoo-com/

[bademiyansubhanallah]

Book Review

Perry Anderson on the Specter of China
Posted on Mar 19, 2010
By Perry Anderson

The following review originally appeared in the London Review of
Books, whose website is www.lrb.co.uk, and is reposted with
permission.

These days Orientalism has a bad name. Edward Said depicted it as a
deadly mixture of fantasy and hostility brewed in the West about
societies and cultures of the East. He based his portrait on Anglo-
French writing about the Near East, where Islam and Christendom
battled with each other for centuries before the region fell to
Western imperialism in modern times. But the Far East was always
another matter. Too far away to be a military or religious threat to
Europe, it generated tales not of fear or loathing, but wonder. Marco
Polo’s reports of China, now judged mostly hearsay, fixed fabulous
images that lasted down to Columbus setting sail for the marvels of
Cathay. But when real information about the country arrived in the
17th and 18th centuries, European attitudes towards China tended to
remain an awed admiration, rather than fear or condescension. From
Bayle and Leibniz to Voltaire and Quesnay, philosophers hailed it as
an empire more civilised than Europe itself: not only richer and more
populous, but more tolerant and peaceful, a land where there were no
priests to practise persecution and offices of the state were filled
according to merit, not birth. Even those sceptical of the more
extravagant claims for the Middle Kingdom – Montesquieu or Adam Smith
– remained puzzled and impressed by its wealth and order.

A drastic change of opinion came in the 19th century, when Western
predators became increasingly aware of the relative military weakness
and economic backwardness of the Qing empire. China was certainly
teeming, but it was also primitive, cruel and superstitious. Respect
gave way to contempt, mingled with racist alarm – Sinomania capsizing
into Sinophobia. By the early 20th century, after eight foreign forces
had stormed their way to Pekin to crush the Boxer Uprising, the
‘yellow peril’ was being widely bandied about among press and
politicians, as writers like Jack London or J.H. Hobson conjured up a
future Chinese takeover of the world. Within another few decades, the
pendulum swung back, as Pearl Buck and Madame Chiang won popular
sympathy for China’s gallant struggle against Japan. After 1948, in a
further rapid reversal, Red China became the focus of still greater
fear and anxiety, a totalitarian nightmare more sinister even than
Russia. Today, the high-speed growth of the People’s Republic is
transforming Western attitudes once again, attracting excitement and
enthusiasm in business and media alike, with a wave of fashion and
fascination recalling the chinoiserie of rococo Europe. Sinophobia has
by no means disappeared. But another round of Sinomania is in the
making.

The title of Martin Jacques’s When China Rules the World belongs to
the scare literature of the first. But its function is little more
than a commercial come-on, designed to clear the purchased display-
table and the airport stall. The book itself is a sweeping
contribution to the second. Its message consists of two parts. The
first is the now well-known projection that – at present growth rates
– the Chinese economy will be the largest in the world, overtaking the
American, within about 15 years. With four times the population of the
US, China already has the biggest foreign reserves, is the leading
exporter, posts the most spectacular stock-market gains, and contains
the largest car market on earth. So massive is the transformation its
rise to economic supremacy will bring that – so Jacques – history can
henceforward simply be divided into BC and AC: Before China and After
China. This part of the argument is a straightforward quantitative
extrapolation. Jacques hammers the impending figures home, without
adding a great deal to what anyone with a certain economic literacy
would know already.

Beyond altering international league tables, what will China’s
emergence as an economic superpower signify? The second part of
Jacques’s message is not about size, but difference. China is not like
other nations, indeed is not really a nation-state at all. It is
something vaster and deeper, a ‘civilisation-state’, inheritor of the
oldest continuous history in the world, whose underlying cultural
unity and self-confidence are without equal. Long before the West, its
rulers created the first modern bureaucracy, imbued with a Confucian
outlook at once authoritarian and democratic, controlling domestic
subjects more by moral education than force, and organising adjacent
regions into a consensual tributary system. By absorbing feudal
aristocrats into impersonal state service, they freed market forces
from customary constraints to develop a commercial society of
unparalleled dynamism and sophistication. Only the accident of more
readily available coal at home, and ruthless colonial pillage of
resources overseas, allowed 19th-century Europe to overtake this great
proto-modern economy, as industrialised in its way as the West, and
much larger. But this Western predominance will prove a brief
interval. Today, China is returning once more to its historic position
as the dynamic centre of the global economy.

What are going to be the consequences for the rest of the world?
Traumatically for the United States, China will fairly soon replace it
as hegemon, not only in traditional areas of Chinese influence in East
and South-East Asia, but across former Third and First Worlds alike.
The soft power of its sporting prowess, its martial arts, its costly
painters, its multitudinous language, its ancient medicine, and not
least the delights of its cuisine, will spread China’s radiance far
and wide, as Hollywood, English and McDonald’s do America’s today.
Above all, its spectacular economic success will not only inspire
imitation wherever poor nations strive for betterment. It will reorder
the entire international system, by holding out the prospect, not of
democracy within nation-states, which the West vainly seeks to
promote, but of ‘democracy between nation-states’. For we are entering
a time in which the political and ideological conflicts that marked
the Cold War are giving way to an ‘overarching cultural contest’, in
which ‘alternative modernities’ will end the dominance of the West. In
that emancipation a distinctively Chinese modernity, rooted in the
Confucian values of devotion to the family and respect for the state,
will lead the way.

How should this construction be judged? Enthusiasm, however well-
meaning, is no substitute for discrimination. Chinese antiquity
stretches back to 1500 BCE or beyond. But this no more makes today’s
People’s Republic a special genus of ‘civilisation-state’ than
comparable claims for la civilisation française make one of the Third
or Fourth Republic. Talk of ‘civilisations’ is notoriously self-
serving, and delimitations of them arbitrary: Samuel Huntington
arrived, rather desperately, at eight or nine – including an African,
Latin American and Eastern Orthodox civilisation. Nothing is gained by
affixing this embellishment to the PRC. Like France in the 1930s or
1950s, contemporary China is an integrist nation-state, cast in an
imperial mould, if with a much longer past and on a much larger scale.
Nor are inflated claims for the age-old economic centrality or social
wisdom of pre-modern China much help in understanding the present or
future of the country. If, up through the Song, China was
technologically and commercially far in advance of Europe, by the end
of the Ming its science lagged well behind, and even at the height of
Qing prosperity in the 18th century, agrarian productivity and average
wage levels, let alone intellectual progress in a broader sense, were
nowhere near vanguard developments in Europe. Nor are idyllic images
of sage concern for the welfare of the masses much closer to the
realities of rule by successive dynasties, which in the words of one
of China’s finest historians, He Bingdi, were always ‘ornamentally
Confucian and functionally Legalist’ – repression wrapped in
moralising rhetoric.

It would be unfair to judge any of this side of When China Rules the
World, a popular work, by scholarly standards. None of it matters very
much to the main thrust of the book, where it serves only as
preliminary folklore to adjust readers in advance to the idea of pre-
eminence to come. China could perfectly well be about to dominate the
world without having nearly always represented the summit of universal
development in the past. More serious is the incoherence of the book’s
central message. For the most part, When China Rules the World is an
unabashed exercise in boosterism, hailing the PRC not only as the
paramount power of the future, but as the liberating ice-breaker that
will, in the book’s American subtitle, bring about ‘The End of the
Western World and the Birth of a New Global Order’. Sightings of this
sort seem to have become a late British speciality: Jacques’s version
is only a little less absurd than Why Europe Will Run the 21st Century
by Mark Leonard, a fellow seer of the Demos think tank Jacques helped
to found. But there is another side to When China Rules the World at
odds with its generally upbeat story. Internationally, China has
‘embraced multilateralism’, attracts its neighbours and partners by
‘soft power’, and promotes ‘democracy between nations’. Yet we also
need to be aware that ‘the Chinese regard themselves as superior to
the rest of the human race,’ inheriting a Middle Kingdom mentality
that has always been more or less racist, and traditions of tributary
statecraft that may have been conducive to stability, but were always
based on hierarchy and inequality. Might this heritage compromise the
fair prospect of a democratic inter-state system? Not necessarily,
since while ‘the Western world is over, the new world, at least for
the next century, will not be Chinese in the way that the previous one
was Western’. The book, in other words, disowns its own title,
confected purely to increase sales. China is not going to rule the
world. All that is happening is that ‘we are entering an era of
competing modernity’ in which China will ‘increasingly be in the
ascendant and eventually dominant’.

But the idea of a distinctively ‘Chinese modernity’ winning a global
competition for hegemony is no more coherent than that of high-speed
Chinese growth ushering in ‘democracy between nation-states’. Its role
in the book is to be understood in the light of the author’s cursus
vitae. Once the editor of the Communist Party of Great Britain’s
monthly, Marxism Today, after his party and journal gave up the ghost
in the early 1990s Jacques moved into mainstream journalism, shedding
the language, if not altogether the reflexes, of his past. The Cold
War over and the Soviet Union gone, the opposition between socialism
and capitalism was now a back number. How then should the open-door
policies of the PRC – its welcome to the world market – be related to
it? This is not a matter on which When China Rules the World cares to
dwell. Such questions belong to a vocabulary the book goes out of its
way to avoid. Over five hundred pages, the word ‘capitalism’ scarcely
ever appears. But there is still a global contest, in which the more
sympathetic side can nonetheless win. Simply, it is now between not
the outdated political and ideological categories of socialism and
capitalism, but alternative ‘modernities’, as so many different
cultural ways of being up to the minute. The function of this change
of lexicon is not hard to see. What it offers is the chance of a
consolation prize for the left. Capitalism may have won worldwide, so
why bother to go on talking about it? Instead, why not look ahead to
the welcome prospect of a non-Western variant of what is now our
common destiny overtopping all others, in a country where the ruling
party at least still describes itself as Communist?

Alas, there is a logical difficulty in this wistful hope, which is
insuperable. Alternative modernities, so conceived, are cultural, not
structural: they differentiate not social systems, but sets of values
– typically, a distinctive combination of morality and sensibility,
making up a certain national ‘style’ of life. But just because this is
what is most specific to any given culture, it is typically what is
least transferable to any other – that is, impossible to universalise.
Other recent works highlighting cultural differences in a post-
ideological world – Huntington’s Clash of Civilisations or Fukuyama’s
Trust come to mind – have grasped this intransitivity, making no
claims that any one complex could tend towards predominance over all
others, in the way that a modal economic order can. Moreover,
projections of a Chinese modernity that will eventually become
hegemonic not only forget the inherently self-limiting character of
any strongly defined national culture, they further ignore the
especially intense Chinese insistence, familiar to anyone who has been
in the country, on the uniqueness of China. Few contemporary cultures,
save perhaps Japan, are so self-consciously resistant to international
comparison, so convinced of the inimitability of their own forms and
traditions. In his way, Jacques is aware of this, at times even
exaggerating it as an inveterate sense of superiority close to racism,
of which there is less evidence than he assumes. But he fails to see
how thoroughly the cult of Zhonghuaxing – ‘Chineseness’ – undoes his
own imaginings of a future Han modernity spreading triumphantly, as a
universal attractor, across the globe.

The rise of the PRC as a great economic, political and military power
is a central fact of the age. But it gains no illumination from a
vacant notion of modernity, which remains as nebulous at the end of
When China Rules the World as it was at the beginning. It would not be
too unfair to say that what the book at bottom represents is a belated
meeting of Yesterday’s Marxism with Asian Values. For beyond a general
insistence on the ethical continuities of Confucianism, of which
Chinese Communism is viewed as a lineal heir, it says remarkably
little about contemporary Chinese society itself. A few cursory lines
noting that inequality has been growing, but the government is now
acting to redress it; a bit more on the shortage of natural resources
and environmental problems; a clipped paragraph on the Party; some
prudent reflections on trouble in the border regions; and a firm
assurance that the country is not ready for democracy, so it would be
best if the CCP could rule undisturbed for another 30 years: this is
more or less all the reader curious to learn about the actual social
landscape of the PRC could gather from it. Certainly there is nothing
to upset the authorities in Beijing, where reception should be
excellent. In 1935, the Webbs entitled their book on the USSR Soviet
Communism: A New Civilisation?, dropping the question mark in
subsequent editions. Today’s ‘civilisation-state’ has been approached
in something of the same spirit.

Serious understanding of contemporary China lies elsewhere. Two works
of outstanding scholarship, from opposite ends of the political and
intellectual spectrum, can be taken as current benchmarks. From the
liberal right, Yasheng Huang’s Capitalism with Chinese
Characteristics is a tour de force of empirical inquiry, conceptual
clarity and independence of mind. Anyone wanting to know what kind of
economy, and what sort of growth, can be found in the PRC should now
start here. Huang’s premises could not be more rigidly neoclassical:
sound development is delivered by private ownership, secure property
rights, financial liberalisation and the systemic deregulation of
economic transactions – and these alone. His conclusions, however, are
a clear illustration of the truth of Carlo Ginzburg’s observation that
a misguided ideology can be a precondition of original research, as
well – perhaps as often – as an obstacle to it. By meticulous scrutiny
of primary evidence, above all a huge mass of bank documentation
tracking loans and their recipients, rather than simply relying on
aggregated second-hand statistics, Huang has cut through the clouds of
obscurity and confusion that have tended to surround the performance
of the Chinese economy in the Reform Era which followed the passing of
Mao.

His central finding is that the apparently unbroken rates of high-
speed growth have rested on two quite different models of development.
In the 1980s, a general liberalisation of financial policy allowed
private businesses to flourish in the countryside, many under the
misleading sobriquet of ‘township and village enterprises’, as credits
flowed to peasant start-ups and rural poverty fell dramatically. Then
came the shock of 1989. Thereafter, the state abruptly changed course,
choking off credits to rural entrepreneurs, switching loan capital
instead into large, rebuilt state-owned enterprises and urban
infrastructures, and – not least – granting massive advantages to
foreign capital drawn to the big cities. The social consequences of
this change, Huang argues, were dramatic. Inequality – not only
between village and city-dwellers, but within the urban population
itself – soared, as labour’s share of GDP fell, while peasants lost
land, rural healthcare and schooling were dismantled, and illiteracy
in the countryside actually grew. In a blistering chapter on Shanghai,
the showcase of Chinese ‘hyper-modernity’, Huang demonstrates how
little average households in the city benefited from its glittering
towers and streamlined infrastructures. Amid a ‘forest of grand
theft’, officials, developers and foreign executives prospered while
private firms were stunted and ordinary families struggled to get by,
in ‘the world’s most successful Potemkin metropolis’. Nationwide, in
20 years, officialdom – raking in four successive, double-digit
increases in its salaries between 1998 and 2001 alone – has more than
doubled in size.

Cautiously, Huang expresses some optimism about the direction of the
current Hu-Wen government, as a correction of the worst excesses of
the Jiang-Zhu regime of the 1990s, while remarking that its reforms
may prove too late to redress the ruin of peasant enterprise, in
villages now often emptied by labour migration. But he ends by
contrasting the sky-high Gini coefficient of today’s PRC with the
relative equity that marked the high-speed growth in the rest of East
Asia – Japan, South Korea and Taiwan – and the far greater role in
China of foreign and state enterprises, and the lesser weight of the
domestic private sector, in the country’s growth model. One
consequence, he maintains, is that productivity gains have been
declining since the mid-1990s. For Huang, the lesson is
straightforward: efficiency and equity always depend on free markets,
which in China remain half-strangled. Capitalism there certainly is,
but a variety deformed by a corrupt and self-aggrandising state, which
in denying its people liberty to manage their own economic affairs has
failed to create reasonable conditions of fairness or welfare. The
prescription is simplistic, as a glance at the United States could
have told any scholar at MIT like Huang. Since the 1980s, financial
liberalisation and cast-iron property rights have not delivered much
social equity to Americans. But the indictment, set out with exemplary
care and lucidity, is unnegotiable. So too is the anger behind it, at
callousness and injustice. Not many economists would think to dedicate
their work, as Capitalism with Chinese Characteristics does, to a
couple of imprisoned villagers and an executed housewife.

Huang’s central concern is with the fate of rural China, where, as he
rightly insists, the majority of the population still lives and dies.
The fate of urban labour is the subject of Ching Kwan Lee’s Against
the Law. Studies of the working class anywhere in the world, once a
staple of history and sociology, have declined along with labour
movements as a political force; in recent years, perhaps only in
France has writing of real distinction appeared. Lee’s book, written
from a standpoint on the radical left, transforms this scene. Although
quite different in mode and scale, in power nothing like it has
appeared since E.P. Thompson’s Making of the English Working Class.
In fact, it could well have been called The Unmaking and Remaking of
the Chinese Working Class. The product of seven years’ research and
interview work on the ground, it is an ethnographic and analytic
masterpiece.

The book is a diptych, one part devoted to the rustbelt of Manchuria,
the other to the sunbelt of Guangdong. Its first half is a study of
the destruction of the proletariat that built China’s principal
industrial base after Liberation, as the great state-owned enterprises
of the north-east were scrapped or sold off, leaving their workers
jobless and often near-penniless, while officials and profiteers lined
their pockets with what was left of all they had created. By
coincidence, we have an unforgettable fresco of the wreckage of this
old working class and its universe in Wang Bing’s nine-hour
documentary West of the Tracks (2003), a landmark of world cinema in
this century and a fitting pendant to Against the Law, made in
Shenyang while Lee was conducting her research in the same city. The
second part of Lee’s book explores the emergence of a new working
class of young migrant labourers from the countryside, about half of
them women, without collective identity or political memory, in the
coastal export zones of the south-east. They have low-wage jobs, but
no security, toiling up to 70 or 80 hours a week in often atrocious
working conditions, with widespread exposure to abuse and injury.
Dereliction in the rustbelt, super-exploitation in the sunbelt: the
treatment of labour is pitiless in either zone.

How do workers react to it? In a system where they have no freedom of
industrial or political organisation, and the social contract that
once gave them a modest security and dignity in exchange for
subordination has been jettisoned, the law – however authoritarian –
becomes the only resource to which they can appeal. Any direct action
risking police repression, protests typically find their way to the
courts, in the hope that blatant violations of legality by employers
or local officials will find some redress there – and in the belief
that the central government, if it knew its laws were being broken,
would take action to see them enforced. Such popular faith in the good
intentions of the Party leadership might be seen as a Chinese version
of the traditional Russian belief in the tsar as ‘Little Father’,
unaware of the misdeeds of his bureaucrats and landlords. The central
authorities naturally foster the illusion that they are not
responsible for illegalities lower down, giving them leeway to step in
with last minute concessions when protests look like getting out of
hand.

In fact, as Lee makes clear, the law can only function as an effective
system of control and mystification if the courts do not invariably
act as rubber stamps for criminality or oppression. In general, that
is just how they do behave. But in a minority of cases, labour
disputes are decided – more often partially than wholly – in favour of
workers, keeping alive the belief that the law remains a protection
even where it is being brazenly flouted by those with state power
behind them. In ways reminiscent of the 18th-century England depicted
by Thompson in Whigs and Hunters, notions of ‘the rule of law’ become
a battleground, in which the anger of those below seeks to wrest
verdicts from the cynicism of those on high, as the only potential
weapons of the weak to hand. The reason regular failure in this
unequal contest does not lead to more explosive forms of protest, Lee
shows, is material rather than ideological. In the rustbelt, workers
dispossessed of everything else typically retain their own housing,
privatised to them at low prices, as a safety net. In the sunbelt,
migrant labourers still have rights to a plot of earth back in their
villages, where land has not yet been privatised, as a fall-back. For
all the wretchedness of their respective lots, neither is quite
destitute: each has something to lose.

The sobriety and realism of these conclusions diminishes nothing of
the tragedy of betrayed hopes and ruined lives that fills the pages of
Against the Law. Lee’s capture of the voices of those caught in the
relentless industrial mechanisms of the Reform Era, in one poignant
interview after another, is among the finest accomplishments of her
book. The stories are often heartbreaking, but the accents with which
they are told speak of courage, indignation, stoicism, even humour, as
much as bitterness, resignation or despair. Few sociological studies
have combined structural and existential, objective and subjective
truths so memorably as this one. Without taking stock of it, no sense
of contemporary China is clear-eyed. In the 19th century, Europe
looked to America as the future, if one still quite some way off. In
the 21st century, the West looks towards China in something of the
same way. So far, certainly, no Tocqueville of the East has appeared.
Is what he once achieved repeatable? There is plenty of time yet. But
it is unlikely that Democracy in America will find its successor,
wherever else it might, in any Modernity in China.

http://www.amazon.com/When-China-Rules-World-Western/dp/1594201854%3FSubscriptionId%3D1XWTFJ60BR6QZ1PW9FR2%26tag%3Dtruthdig-20%26linkCode%3Dxm2%26camp%3D2025%26creative%3D165953%26creativeASIN%3D1594201854

Capitalism with Chinese Characteristics: Entrepreneurship and the
State
By Yasheng Huang

Cambridge University Press, 366 pages
http://www.amazon.com/Capitalism-Chinese-Characteristics-Entrepreneurship-State/dp/0521898102%3FSubscriptionId%3D1XWTFJ60BR6QZ1PW9FR2%26tag%3Dtruthdig-20%26linkCode%3Dxm2%26camp%3D2025%26creative%3D165953%26creativeASIN%3D0521898102

Against the Law: Labor Protests in China’s Rustbelt and Sunbelt
By Ching Kwan Lee

University of California Press, 340 pages
http://www.amazon.com/Against-Law-Protests-Rustbelt-Sunbelt/dp/0520250974%3FSubscriptionId%3D1XWTFJ60BR6QZ1PW9FR2%26tag%3Dtruthdig-20%26linkCode%3Dxm2%26camp%3D2025%26creative%3D165953%26creativeASIN%3D0520250974

http://www.truthdig.com/arts_culture/item/perry_anderson_on_the_specter_of_china_20100319/

Free PDF Ebooks Files @AcrobatPlanet.Com ..Home

Submitted by wulan on Fri, 03/19/2010 - 06:31 Business & Economics

In the 12 years from 1978 to 1990, China‘s reform and opening up
achieved remarkable progress, with its GDP growing 9.0% annually and
trade volume growing at 15.4%. During this period, urban per capita
income grew 5.9% annually, but that of rural areas grew at a
spectacular rate of 9.9% annually (NBS, 2002 pp.17, 94,148). People‘s
living standards and incomes increased significantly and urban-rural
disparities fell.

The achievement of China‘s reform can be called a miracle in economic
history. However, in the late 1980s and early 1990s, international
economic research community did not understand much about China‘s
reform, and many economists were far from optimistic. Most economists
believed that a market economy should be based on private property, a
feature that the Chinese economy apparently lacked at that time.
China‘s state-owned enterprises (SOEs) were not privatized; a dual-
track resource allocation system was prevalent with state planning
still playing a very important role. They thought that although
China‘s economic transition was blessed with beneficial initial
conditions such as high proportions of cheap rural labor, low social
security subsidies, a large population of overseas Chinese, and a
relatively decentralized economy that helped to achieve some short-
term progress, the dual-track system would soon lead to efficiency
loss, rent-seeking, and institutionalized state-opportunism, which
constituted an inferior institutional arrangement. (Balcerowicz, 1994;
Woo, 1993; Sachs and Woo, 1994 and 1997; Qian and Xu, 1993.). Some
economists even claimed that China‘s transition would finally fail due
to incomplete reform (Murphy, Schleifer, and Vishny, 1992; Sachs, Woo,
and Yang, 2000).

At that time, most economists were optimistic about reform in the
Former Soviet Union and Eastern Europe (FSUEE hereafter) due to the
fact that these countries reformed their economies according to the
fundamental principles of neo-classical economics. The most
representative of these principles was the —shock therapy“ implemented
in Poland, the Czech Republic, and Russia, which consisted of three
main components: price liberalization, rapid privatization, and
macroeconomic stabilization by removing fiscal deficits. (Lipton and
Sachs, 1990; Blanchard, Dornbusch, Krugman, Layard, and Summers, 1991;
Boycko, Shleifer, and Vishiny, 1995.) These components are considered
the base of an efficient economic system in neoclassical economic
theory.

Economists recommending shock therapy also knew that it took time to
make the transition from one economic system to another and that it
was costly to cast aside previously vested interests. But they
optimistically assumed that the national economy would grow after six
months or a year following an initial downturn stemming from the
introduction of shock therapy (Brada and King, 1991; Kornai, 1990;
Lipton and Sachs, 1990; Wiles, 1995). According to their beliefs, the
FSUEE would overtake China through their reform, though the former
started their reforms much later, and China‘s difficulties would loom
larger due to inconsistencies inside the economic system brought about
by incomplete reforms.

Ten years have elapsed since the predictions of many renowned
economists were put forth in the early 1990s. Contrary to these
predictions, China‘s economy has grown in the past decade while those
countries that implemented the shock therapy experienced serious
inflation and economic decline. Russia‘s inflation reached 8414% in
1993, and that of Ukraine reached 10155%. In 1995, Russia‘s GDP was
only half of what it had been in 1990, and Ukraine‘s situation was
worse with a 60% decline during the same period. With significant
declines in per capita income and extreme exacerbation of income
disparities, all social indicators slid–male life expectancy in Russia
decreased from 64 years in 1990 to 58 in 1994 (Gregory and Stuart,
2001, p. 470). Overall, the countries that implemented shock therapy
experienced great difficulties in reform, in contrast to the
optimistic expectation of most economists. In eastern European
countries, Poland scored best in economic transition with only a 20%
decline in its GDP. Poland did not really implement reform based on
shock therapy, however. Although prices in Poland were liberalized,
most of its large SOEs have yet to be privatized (World Bank, 1996;
Dabrowski, 2001).

In the 1990s, the Chinese economy did suffer from a myriad of
problems. For example, the SOE reforms initiated in the early 1980s
have yet to be completed; inter-regional and urbanœrural disparities
have enlarged; and there are still many serious problems in financial
system awaiting solution. However, the national economy grew 10.1%
annually in the 1990s, 1.1% higher than that of the previous 12 years.
International trade grew also at a rate of 15.2% in the last decade
(NBS, 2002, pp. 17,94),. Moreover, people‘s living standards improved
rapidly, especially in urban areas. Economic development in China not
only promoted the welfare of the Chinese people, but also contributed
greatly to the world economy. During the Asian Financial Crisis, the
Chinese currency (RMB) did not depreciate, which played an important
role in Southeast Asian economies‘ quick recovery and growth.

Download
PDF Ebook Viability, Economic Transition and Reflections on Neo-
classical Economics

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March 19, 2010 1:52 PM
Is China Building the Next Bubble?
Posted by MoneyWatch.com

This post by Carla Fried originally appeared on CBS' MoneyWatch.com.

Will the next pop you hear be the sound of the China bubble bursting?
A few of the world's savvier financial minds think so.

Jim Chanos has made a fortune betting against investments he believes
are ripe for a fall. Among his most illustrious short trades was
pegging high-flying Enron as a disaster in waiting. Today the hedge
fund manager is taking aim at China. "Without a modicum of doubt we
have a credit-driven property bubble right now," Chanos recently
declared in a talk he gave at the London School of Economics. That was
a toned-down version of his quip to the New York Times that China is
"Dubai times 1,000 -- or worse," a comment the manager of the $6
billion Kynikos fund now half-heartedly describes as tongue-in-cheek.

http://www.nytimes.com/2010/01/08/business/global/08chanos.html

Chanos is adding his respected voice to a growing rumble that China's
economy is nearing 212°F. In a recent survey of investment pros who
subscribe to Bloomberg's news and data service, 62 percent said they
believed China is brewing a bubble. Also singing in the China bubble
chorus: Harvard economics professor Kenneth Rogoff, Gloom and Doom
report publisher Marc Faber, and, most recently, James Rickards, a
Virginia-based consultant who knows a thing or two about financial
calamity -- he was the general counsel for Long-Term Capital
Management. To be clear, the China bubble talk is mostly focused on
the country's real estate sector, where property sales jumped 76
percent in 2009 and prices in some markets have recently been rising 8
to 10 percent a month. But the fear is that a meltdown in the real
estate market could take down the rest of the Chinese economy with it,
as has happened in the U.S. and Japan. And with China expected to
account for about a third of global growth in 2010, the consequences
could well be global.

http://www.bloomberg.com/apps/news?pid=20601010&sid=aNZe4JWeV1aw

The Mother of All Stimulus Projects

The roots of the problem lie in China's aggressive response to the
financial crisis. To make up for reduced exports, the government
ramped up domestic spending and what ensued was the "mother of all
stimulus projects," says Nicholas Lardy, a senior fellow at the
Peterson Institute for International Economics. The roughly $575
billion in direct stimulus doled out by China's central government
represented 15 percent of its GDP. (Consider that if the U.S. stimulus
program had clocked in at 15 percent of GDP we would be debating the
merits of a $2 trillion program, not the $787 billion Congress settled
on.)

China's banks also followed the stimulus script, doling out $1.4
trillion in loans last year, a 30 percent increase from 2008. All that
liquidity did the job. According to China's official data (which are
notorious for their lack of transparency) the domestic economy
expanded 12.6 percent in 2009, offsetting a three percentage point
decline in GDP from exports. Overall, China's economy grew 8.7 percent
in 2009, up from 2008's anemic -- at least by China's standards -- GDP
growth of 6.8 percent.

However, much of the stimulus spending and lending has found its way
into real estate, creating ominous imbalances and the potential for
huge amounts of bad loans that the Chinese government would then have
to cover. Commercial developers who were all too happy to take the
stimulus money and build on spec are now often hard-pressed to find
tenants; entire office buildings and shopping malls stand empty in
many large cities that have attracted the most development. In the
residential market, the problem is flipped: too much demand and not
enough supply. Homes are the default investment choice for an
increasingly flush populace that has limited access to other
investment vehicles. And the prevailing sentiment is that if you don't
buy today you are going to be priced out of the market tomorrow.

In response to concerns that it's inflating a bubble in real estate,
the central government has begun taking steps to cool things off, but
to date it's more talk than action. Bank reserve requirements and a
key lending rate have been increased only slightly, and official 2010
lending targets, while lower than last year, will still surpass credit
outlays from 2008.

http://www.nytimes.com/2010/03/19/business/economy/19fed.html

Bubble Dynamics

A torrent of commercial development, a residential market convinced
that if you don't get in today you're toast, and a wan government
response to overheating ... Sound familiar? But there are several key
structural differences between our real estate mess and China's
situation, which suggest it is simplistic to assume China's bubble
must end in a U.S.-style meltdown.

1. Leverage is muted. About 25 percent of Chinese buy their homes
outright with cash. Among borrowers, a 50 percent down payment is
typical; you can't get a mortgage with less than 20 percent down and
if you are looking to buy a second (or third) property the down
payment is 40 percent. China also has yet to develop a HELOC market.
Lardy, of the PIIE, notes that China's household debt as a share of
household income runs about 40 percent. In 2007, U.S. household debt
to income was 130 percent. Nor has China fallen into the grasp of Wall
Street alchemists concocting toxic real estate derivatives.

2. It's not a blanket bubble. Beijing, Shenzhen, and Shanghai are
China's Florida, Nevada, and California: speculation and overbuilding
have clearly fed bubble valuations. But Nicholas Consonery, China
analyst at the Eurasia Group, a political risk consulting firm, says
there's still plenty of unmet demand in China's second-, third-, and
fourth-tier cities.

3. The ubiquitous demand argument. Consonery also articulates the most
oft-heard reason for why the bubble doesn't have to burst: China
actually needs more construction, not less, to accommodate the mass
migration of Chinese from their rural past to their urban future.

While China's real estate picture doesn't necessarily stack up as
Dubai times 1,000, or even the United States circa 2006, similarities
to Japan's property bubble could be more salient. Rather than a quick
burst, Japan is still working through a long slow deflation from its
epic property bubble that peaked in the late 1980s. Patrick Chovanec,
professor at Tsinghua University's School of Economics and Management
in Beijing, who has advised private equity funds on China investments,
says that's the danger facing China. "Never underestimate the ability
of the Chinese to brush things under the rug, rather than
acknowledging losses and poor investments," Chovanec cautions. "That
can create a long-term drag on the economy."

Koyo Ozeki, head of Pimco's Asian credit analysis team, acknowledges
the Japan corollary (his comparison of China, Japan, and U.S. real
estate bubbles is below), but he believes a crucial difference is that
China has the ability to grow its way out of trouble. His worst case
scenario is that there's a two- or three-year cooling off period for
property values, but not a meltdown. "I think that it [would be] a
'correction,' as opposed to a 'burst of a bubble' similar to those
seen in the developed countries, because of China's structural demand
for modern houses," says Ozeki.

Source: Pimco estimates

The 437,000 Renminbi Question

What does this mean for your portfolio? When you have sharp minds on
both sides of the argument that should be a tip that making a big bet
on either is probably unwise. Moreover, China presents a few extra
challenges. Despite its large footprint -- China is expected to take
over Japan as the second largest economy in 2010 -- keep in mind we're
still talking about an emerging market.

Volatility and surprises (both upside and downside) are the norm. Add
in the fact that China's financial system and data reporting aren't
exactly open source code and you have another layer of complexity. And
even the China bears are careful to point out that they have no clue
when the bubble will burst. "We are not calling for an impending
crash," Chanos reminded the LSE crowd. Rogoff, former chief economist
of the IMF and co-author of This Time is Different, which chronicles
the long history of global financial calamities, recently told
Business Week he believes the liquidity deluge in China will
eventually culminate in enough bad debt to cause China's economic
growth to slow to just 2 percent to 3 percent a year. But as for when,
well, Rogoff would only pin it down to some time in the next 10 years,
and added that the setback would be short-term, not a Japanese-style
slow bleed.

http://moneywatch.bnet.com/economic-news/video/whats-wrong-with-the-recovery/356913/?tag=contentMain;contentBody

http://www.businessweek.com/news/2010-02-24/rogoff-says-china-crisis-may-trigger-regional-slump-update1-.html

Given all that uncertainty, it seems wise to channel Pascal's Wager:
Acknowledge you might be wrong and adjust your portfolio accordingly.
In this instance, that's an argument for taking a look at what might
happen if in fact China's bubble blows so explosively that it sends
the economy into a severe downturn. Here's how your portfolio could be
affected:

http://moneywatch.bnet.com/economic-news/article/economic-outlook-could-things-go-too-well/353298/?tag=contentMain;contentBody

Stocks: China is the third largest economy behind the U.S. and Japan,
and it is expected to push its way to number two this year. The IMF
forecasts that China will grow 10 percent, more than double the
overall world rate. If the bubble does in fact burst, growth will slow
and we could be in for round two of a global recession. That's an
argument for being cautious with equities and making sure your
emergency cash fund stays stuffed.

U.S. Treasuries: China holds about 10 percent of outstanding Treasury
debt; it jockeys with Japan from month-to-month for the top spot among
foreign investors. If China's economy hit the skids, one theory is
that it might choose to sell off Treasuries to raise capital for
spending back home. But dumping Treasuries is far from an easy call
for China, as it would depress the value of its Treasury portfolio and
cause the renminbi to rise in value (and the dollar to fall), which is
not ideal for its exports. Questions about how China will handle its
cache of U.S. Treasuries will likely keep the bond market on edge.
That's just another risk factor to add to why Treasuries aren't
exactly the safest investment right now.
http://moneywatch.bnet.com/retirement-planning/blog/financial-independence/would-you-lend-to-tim-geithner-on-these-terms/745/?tag=content;col1

Emerging market funds and ETFs: These are the most obvious losers if
China falters. It's not just that China represents 17 percent of the
MSCI Emerging Market Index -- the single largest country weight -- but
that so many of the other emerging markets, especially those rich in
resources such as Brazil and Russia, need China to remain a hungry
consumer. Overweighting emerging markets seems especially dicey right
now, despite the sector's recent strong performance. But even beyond
the implications of a China bubble, it's also wise to understand that
the fastest-growing economies don't always produce the highest
investment returns.
http://moneywatch.bnet.com/investing/blog/wise-investing/growth-in-china-india-and-brazil-might-not-mean-great-investment-returns/1002/?tag=content;col1

Bubble or not, one thing is clear: China is teeing itself up for
plenty of volatility in the coming years. And it will affect the whole
world. "Even with the strong long-term fundamentals, any market that
has experienced such rapid growth creates its own fragility," says
investment banker Euan Rellie, senior managing director of Business
Development Asia LLC. "That makes it certain there will be declines
and corrections."

More on MoneyWatch:

China's Growth Threatened by Inflation, Or Is It Deflation?
http://moneywatch.bnet.com/investing/blog/against-grain/chinas-growth-threatened-by-inflation-or-is-it-deflation/481/?tag=contentMain;contentBody

Video: Why You Should Worry About China
http://moneywatch.bnet.com/economic-news/video/why-you-should-worry-about-china/385526/?tag=contentMain;contentBody

The China Boom: A Sure Thing NOT to Bet on in 2010
http://moneywatch.bnet.com/retirement-planning/blog/financial-independence/china-the-sure-thing-not-to-bet-on-in-2010/677/?tag=content;col1

Video: Why You Need Emerging Markets in Your Portfolio
http://moneywatch.bnet.com/investing/video/investors-why-you-need-china-and-brazil/388541/?tag=contentMain;contentBody

http://www.cbsnews.com/8301-503983_162-20000790-503983.html

China : Shifting Concentration Of Real Wealth
By: Indranil Sen Gupta Friday, March 19, 2010 9:56 AM

In my last column I discussed about the immense potentiality of china
towards creation of wealthy citizens. I have tried to depict the true
picture of the Chinese government, which helps to increase and develop
the citizens of china. It clearly points out those Chinese economic
policies are helping to reduce the gap of rich and poor. The proof of
the pudding is that China ranks No 2 on Forbes billionaires list.
Moreover 27 of them have made into the list for the first time and
that also at a point of time when the world economy is fighting
enormously with the recession nights.

I ended the report with a prelude to this topic where I will again try
my level best to bring forth the policy behind making Chinese citizen
and economy so surprising to the world economy. But before that we all
need to have a quick look towards the covered up journey of China.

If we look into the historic position of Chinese economy it will very
hard for any one to believe about the turn around been formalized in
to shape of today's Chinese economy.

• China's industries developed and grew from 1927 to 1931. Though
badly hit by the Great Depression from 1931 to 1935 and Japan's
occupation of Manchuria in 1931, industrial output recovered by 1936.

• By 1936, industrial output had recovered and surpassed its previous
peak in 1931 prior to the Great Depression's effects on China.

• This is best shown by the trends in Chinese GDP. In 1932, China's
GDP peaked at 28.8 billion, before falling to 21.3 billion by 1934 and
recovering to 23.7 billion by 1935.

• In 1978, China was to witness one of the most rapid periods of
change in her 5,000 year history.

• 30 years later, China had developed from an economically desolate
and ideological-driven country into an industrial powerhouse, rapidly
overtaking developed western nations in recession.

• In the 1990s, many state enterprises were privatized and private
individuals were allowed to create companies. In 1990, the Shanghai
Stock Exchange was reopened after Mao first closed it 41 years
earlier.

• It also established a series of "special economic zones" in which
foreigners could invest in China taking advantage of lower labor
costs.

This investment helped the Chinese economy boom. In addition, the
Chinese government established a series of joint ventures with foreign
capital to establish companies in industries hitherto unknown in
China.

• By 2001, China became a member of the World Trade Organization,
which has boosted its overall trade in exports/imports—estimated at
$851 billion in 2003—by an additional $170 billion a year.

• In 2006, an estimated $699.5 billion of foreign investment was
present in China. A great deal of this investment came from Chinese-
speaking regions such as Hong Kong and Taiwan, who was the first to
invest in China. Japanese and Western investment followed.

So now its well clear to my readers about the encapsulated journey of
today's Chinese economy from the era of 1930.But all these were in the
initial days were only plans or policies. How did they materialize is
the point to be analyzed.

They have been materialized due to one single factor that is the
education. Education not only in schools and college levels, but also
to create the huge untapped potentiality of skilled and semi skilled
education and educated mass of population. We all know that china
posses one of the largest population. The world at times used to
critics this huge mounting population of china. But china and its
government's decades after decade have converted their biggest weak
point in to their biggest strength. Today china enjoys the huge
potentiality of its consumers and consumption.

It have created the largest pool of skilled and semi skilled workers
and employees .What we say in corporate term Blue Collard Jobs. China
has used its cheap commodity resources to create world best products
and cheap products. Educations particularly in science field have
helped china to become the supreme power of technology. China have
created the world finest products through its massive and continuous
never ending technological innovations. It have created scientist and
researchers equivalent to the western world. All these have been
created on the wheel of proper and improvised education system
provided by Chinese governments.

We have discussed many times a about the Chinese economic growth
models and the huge reserves and its stock gold piles. But among all
these the real growth model is the development of education system in
china. Its real wealthy citizens are the ones who gets education and
take the future responsibility of Chinese economy. China is making a
shift of its wealth. Its busy in shaping up the fortune of the
citizens of china.

If china have become the No.2 in Forbes billionaires list it ca be
clearly declared without any second thought that China deserves to be
crowned with No.2

Very recently china is going to bring a change in the education
system.

• China plans to revamp its university admissions system, allowing
students to take subject-specific tests.

• Currently access to university is entirely dependent on the score
students gets on a two-day test on a wide range of subjects.

• A little more than 10.2 million students take the exam each year,
and only about 25% of them get in. The vast majority of those who
don't make the cut go straight into the work force. China is trying to
bring change into its education system so that the vast majority can
reap the benefits of education. Moreover this will also increase the
talent pool of Chinese new generation. More White Collard Jobs will be
created resulting free dependence of the economy.

The schools and colleges have been asked to develop and promote
create thinking minds within the students. This will enable the future
growth of china. Just imagine when many countries in the west are busy
to resolve the post war situation and busy in exercising images of
super power, China is creating and shaping its future. China is
thinking way ahead of another 30years from now. Where as many
countries in the west who are busy to come out of the bad sins
committed through speculative economic and business growth modules
adopted by them.

China is thinking to develop the nation where ideas will be sold and
other economies will buy them paying hefty amount Products will be
replaced by ideas. A time might come when the Chinese economy will
increase the taxation for selling only innovative ideas. It might
sound funny but juts imagine the growth model and the future strategy
adopted and being implemented by china towards developing its economy.

It can be said that China is SHIFTING CONCENTRATION OF WEALTH. Western
economies will become 2nd rank economies and China will come under
developed economies rank.

Today after so many years US and other economies have identified that
the real growth of any economy lies in the hands of education system.
It can created speculative gains and growth for shorter time frame but
if its looks within the thin line of economic growth the results are
beyond speculation. Today the US government is buying in shaping up
the education system. It asks its citizens to create scientist doctors
and researchers. Since it feels very well that the in the coming
decade other economies will take over the super power crown.

Today US have realized the mistakes it have committed and now bringing
radical changes in the education system to shape up the future. Very
recently US is emphasizing to improve students and teachers instead of
punishing under performing schools. US have 33% under performing
schools. Unfortunately the list is increasing each day without
rewinding back. US is also going spend four-billion dollar more on
education system.

At the end I would like to conclude the series with this note that all
these analysis of the education system was not to criticize but to
bring forth the true portrait being painted by the world and China
alone in the coming decades. We must understand the growth of any
economy never lies in numbers. It lies among all of us who are juts
like you reading this article. It is we who will bring the economic
growth GDP to 20% in the next 3 decades from now. Its not the business
profit figures or the fiscal balance which will bring this growth.
Education is the foundation of economic growth of any nation on this
planet.

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A Slow Boat From China
Posted: March 19, 2010 at 5:08 am

China said it will send an envoy to Washington to discuss the friction
between the two countries over the value of the yuan. It will not
matter. Too many members of Congress, CEOs of major exporters, and
union presidents who use China’s trade practices as a target for their
plans to save millions of jobs need to get the yuan’s value to “float”
in the free market. That should, they reason, give America the chance
to compete with China’s exports based on price.

America can increase exports by two times what they are now, as the
President says will happen. China’s economy will be damaged because
the cost of its manufactured goods will rise. The day when China’s GDP
catches America’s will be pushed well beyond the horizon.
China’s leaders are clearly in the midst of trying to fashion some
compromise. The Emperor has had no clothes for too long. China has
protected its currency in an unseemly way, at least economically. The
world’s most populous nation can act on its own, or have the other
major world powers label it a currency manipulator. That will probably
lead to a series of large tariffs against Chinese goods which could
knock down its export traffic enough to put its economy into a funk.

China still has more leverage than the developed nations. They cannot
run their economies without cheap Chinese goods. It would hurt
consumer spending and damage the already hobbled retail industry.
China cannot be replaced as the “low-cost” provider of imports. It
does not need to mention that fact. It is easier for China to say it
cannot re-value the yuan because the action would ruin China’s cost
advantage and push Chinese workers out of jobs.

China’s envoy may seem to come to Washington hat in hand. He may
suggest some modest compromises on the yuan’s value. He will, however,
say in private and not in public, that the US would not want to see
Walmart go out of business because it cannot make a profit on goods
made in America.

Douglas A. McIntyre

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March 19, 2010, 3:23 a.m. EDT
Currency stress tests indicate Beijing 'readying' yuan move

SocGen says one-off 5%-10% appreciation coming in April or May
By Chris Oliver, MarketWatch

HONG KONG (MarketWatch) -- Additional evidence that China is preparing
to allow its currency to appreciate is accumulating, with various
government bureaus reportedly conducting their own "stress tests" on
the effect a stronger currency would have on the nation's industry.

Chinese media reported earlier in the week that the Ministry of
Finance would send researchers to study the impact of currency gains
on exporters and processing manufacturers. Meanwhile, findings from a
similar study, conducted by the Ministry of Commerce, are due to be
released by April 27, according to a report Friday in China Business
News.

ViewPoints: China, the New Dominant Economy?

Managing Director of The Carlyle Group, David Rubenstein, predicts
that China will surpass the U.S. as the dominant economy by the year
2035, in a ViewPoints interview with Deputy Managing Editor Alan
Murray.

The Commerce Ministry is also readying a six-point study on measures
that would boost Chinese imports and foster more balanced foreign
trade, according to broker Société Générale.

"China is not abandoning plans for yuan appreciation/revaluation,
despite what many are interpreting as a political environment that is
growing hostile to such a development," wrote SocGen economist Glenn
Maguire in Hong Kong.

The developments, Maguire said, indicate China is preparing to shift
its policy stance in a manner that will be "more substantial" than a
mere gradual yuan appreciation.

Instead, SocGen is forecast a one-off revaluation of 5% to 10% in
either April or May.

"A move of this magnitude will negate the risk of the protectionist
card being played in the U.S. midterm elections," Maguire wrote.

However, Standard Chartered analysts said Friday markets were now
expecting a lower rate of annual yuan appreciation this week, likely
as a result of contradictory signals emanating from Beijing on its
currency.

The futures markets were pricing in 2.2% to 2.8% of annual yuan
appreciation against the dollar, down from the 3% rise indicated last
week.

Standard Chartered said it was advisable for companies that trade with
China to begin hedging currency risk.

State firms' profits up

In a related development Friday, the Finance Ministry said profit
among state-owned enterprises rose 89% in the first two months of the
year.

SocGen's Maguire said the finding was yet more evidence China's of a
coming move on the currency.

Profits were healthy, except among companies that would benefit from a
stronger yuan, Maguire said, adding that some state companies such as
power producers and steel makers would see input cost fall under a
revaluation scenario.

Steel mills in particular are likely to face price pressures, as major
iron-ore miners are seeking to raise prices significantly in this
year's contracts.

"The impressive increase in profits over the past year suggests a
greater ability of the Chinese industrial complex to withstand a yuan
appreciation than many analysts are crediting," Maguire said.

Chris Oliver is MarketWatch's Asia bureau chief, based in Hong Kong.

Comments (60)

Temporalist 6 hours ago+3 Votes (4 Up / 1 Dn)

Agreed Continent. The Chinese people will benefit from the increased
Yuan. They will start to buy their own goods and they will no longer
need to export as much.

This is just a red herring to distract people from the real problem
that most major countries around the world are broke and going more
broke; promising citizens more crazy entitlements and caving into
unions and labor forces while increasing debt and deficit spending to
all time highs.Reply Link Track Replies Report Abuse therosierside 3
hours ago+1 Vote (1 Up / 0 Dn) Request sentAgree and Disagree. China
on the whole cannot afford their own products, and export of the
manufacturing of goods is their primary resource. I say call their
bluff. When push comes to shove, pull. However, I do agree, this is a
'red herring'. The irony drips in your statement.

Go ahead threaten away on the rise of the yuan. Ha, it's funny though.
It's like the U.S.S.R. all over again, and China got a taste for
capitalism, and the wealth from manufacturing. Their people will riot
if this happens, and their government is more scared of their own
people than the US. Power to the people!

The U.S. and the U.K. can make out on this the most, if they team up,
and remember their roots. It's amazing though, how we can easily shoot
straight, but might shoot ourselves in the foot instead. Let's also
not forget our arabic AND israeli allies. Power to the people!Reply
Link Track Replies Report Abuse iewgnem 2 hours ago0 Votes Request
sentA strong currency will enable Chinese consumers to buy more, but
if the US is any indication, what they buy might not be their own
goods.Reply

1REAGAN 6 hours ago-1 Vote (4 Up / 5 Dn)

The dollar is in free fall. If China were to continue pegging the
yuan, the result would be catastrophic. China must float the yuan.
Maybe it will help Americans to see that hussein is ruining the
American economy.

heisamazing 5 hours ago+1 Vote (3 Up / 2 Dn)

Yeah, don't let facts get in the way of an opinion. The dollar is not
in a free fall.

See 2 year graph: http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=dxy&sid=0&o_symb=dxy&freq=1&time=9

Its obvious where your bias lies.

1REAGAN 5 hours ago+1 Vote (4 Up / 3 Dn)

The dollar lost 30% versus the euro in 2009. The Keynesian huessy
policies will continue to weaken the dollar. The dollar is in free
fall.

The pound is also weakening because of the Keynesian policies of the
"British Labour Party."

Countries who implement socialist, Keynesian policies will have
weakening currencies. Countries who move toward free enterprise will
have strengthening currencies.

tjbrew 5 hours ago-1 Vote (3 Up / 4 Dn)

With a screen name like "1REAGAN", it's not hard to see your bias.
Yes, Reagan, the originator of large fiscal deficits and Reagonomics,
the start of the vast transfer of wealth to a few elite with "trickle
down" economics. If we just cut corporate taxes to zero that would fix
everything!

And the guy you're call "hussein" who in your opinion is "ruining the
American economy" ... yeah, the guy before him left the economy in
such great shape it's really hard to see why it hasn't all been fixed
by now! Sheesh ...

LBX 6 hours ago-1 Vote (1 Up / 2 Dn) Req

The RMB is likely to be floated in April.

Once it is floated, it will immediately DROP about 3 to 5%.

AmeriWho 5 hours agoEven (2 Up / 2 Dn)
RMB?

aiiiyo 2 hours ago+1 Vote (1 Up / 0 Dn)
same as Yuan
bull 6 hours ago+3 Votes (5 Up / 2 Dn)

China will not let the Yuan move more than 5% vs. the dollar per year
- forget about anything else as it will kill their export machine and
their grander plans......They do not care about the well being of
their people......they are just cheap labor in the Govt's mind.....

NO-FOMC 2 hours ago0 Votes Request senttrue maybe 10 years ago, and
yes i know that for a fact...but the bottom line is which is the
better of two evils....@#$%&! your reserves away by buying worthless
US assets (treasury debt) or help your domestic economy?

China realizes they are soooo done with eating table scraps from the
floor ...

iewgnem 2 hours ago0 Votes

I think a lot of Americans right now will rather see their welbeing
improve from getting employed as "cheap labor" making things for
exports than being able to buy more stuff from abroad with
unemployment checks. But then the US government cares too much for its
own people to let that happen.

UPJONES 5 hours ago+3 Votes (4 Up / 1 Dn)

The profit of the enterprise working on export processing business is
razor thin, at just about 2-5%. They will file bankruptcy right after
a 5% appreciation, and millions of Dagong Mei/Zai (Hunting girl/boys)
will lose their jobs.

China is buying time to do three things:

1. Build its domestic consumer market by increasing incomes/salaries

2. Perfecting the social secuity networks-Pension, Medicare and
apartments(Mostly for homeless)

3. Industrial transformation from manufacturing to innovation and
value added (Look at the neo-energy, nano, Aero, and especially bullet
trains, very competitve given the gov incentives and lots of "Cheap
and Good" engineers)

LBX 5 hours ago-1 Vote (1 Up / 2 Dn)

Many of them are actually getting negative gross margins. not to
mention net.

rojt88 4 hours ago+2 Votes (2 Up / 0 Dn)
LBX

The differences between Chinese and American accounting is caused by
pay differentials between the two cultures. Historically and
culturally, even dating back centuries, Mandarin officials and Chinese
executive pay is always held low. Much of this is due to Confucian
ethics and morality that wealth is not an indicator of success in
life. This is much different from the western ideal. Chinese
traditionally always hide income while American flaunt it.

Chinese businesses whose bosses serve for decades, like Hong Kong's Li
and Tung dynasties, always hide profits and exaggerate losses vs the
Western fashion of hiding loses and boosting profits so that rotating
CEOs can get their annual bonuses.

I estimate that the Chinese have 10-15% of their assets in hidden
accounts...or US$500billion (for PRC, HK, Taiwan). A lot of Chinese
inflation has been due to the sudden repatriation of much of this
offshore moneys into China due to financial instability in the west.

In a recent Chinese survey of foreign funds pouring into China over
the past decade, Hong Kong ranked first, then some islands in the
Caribbean ranked second and third. USA and Europe were last on the
list.

NO-FOMC 4 hours ago+1 Vote (2 Up / 1 Dn)

Funny how at the start of the century and after depression, USA had
the same characteristics...so where would you see china in 20+ years?
and where would you see USA in 20 years? remember..the world was
pegged to dollar gold before nixon. So last 20 years, our growth was
real or inflated?

NO-FOMC 2 hours ago+1 Vote (1 Up / 0 Dn)

US is buying time to avoid three things:

1. Financing a ever growing trade and acct deficit by depreciating the
USD to avoid default

2. Insure our world dominance by going to war so we wont lose our
world reserve currency title

3. the failure to realize a over leverage and underfunded US economy
will not be sustainable

Bastiat 5 hours ago+2 Votes (4 Up / 2 Dn)

Obama wants to run China. He found out that he could't run the US so
now he wants to run China. Obama, your problem is the US$, not the
yuan. You kept Bernanke, now deal with the imbecile.

RayO 5 hours agoEven (1 Up / 1 Dn)

Look out Walmart here comes a big Wave.

iewgnem 34 minutes ago0 Votes Request sentWhat if they simply
increase prices to maintain their margins? Considering in some
industries China consists of >90% of global output, it will still cost
importers less to absorb the cost than to spend billions in new
capital investments and time for production to ramp up. At the same
time re-exporters will see their material prices come down which will
also help to balance their margins.

All the talk about higher exchange rate driving Chinese exporters out
of business are assuming they don't have the power to pass the cost to
consumers on the other side. I suspect part of the stress test is to
see just how much they can raise the costs without losing their
business.Reply Link Track Replies Report Abuse « « ‹ ‹

Temporalist 6 hours ago+3 Votes (4 Up / 1 Dn)

Agreed Continent. The Chinese people will benefit from the increased
Yuan. They will start to buy their own goods and they will no longer
need to export as much.

This is just a red herring to distract people from the real problem
that most major countries around the world are broke and going more
broke; promising citizens more crazy entitlements and caving into
unions and labor forces while increasing debt and deficit spending to
all time highs.

therosierside 3 hours ago+1 Vote (1 Up / 0 Dn)

Agree and Disagree. China on the whole cannot afford their own
products, and export of the manufacturing of goods is their primary
resource. I say call their bluff. When push comes to shove, pull.
However, I do agree, this is a 'red herring'. The irony drips in your
statement.

Go ahead threaten away on the rise of the yuan. Ha, it's funny though.
It's like the U.S.S.R. all over again, and China got a taste for
capitalism, and the wealth from manufacturing. Their people will riot
if this happens, and their government is more scared of their own
people than the US. Power to the people!

The U.S. and the U.K. can make out on this the most, if they team up,
and remember their roots. It's amazing though, how we can easily shoot
straight, but might shoot ourselves in the foot instead. Let's also
not forget our arabic AND israeli allies. Power to the people!

iewgnem 2 hours ago0 Votes

A strong currency will enable Chinese consumers to buy more, but if
the US is any indication, what they buy might not be their own goods.

1REAGAN 6 hours ago-1 Vote (4 Up / 5 Dn)

The dollar is in free fall. If China were to continue pegging the
yuan, the result would be catastrophic. China must float the yuan.
Maybe it will help Americans to see that hussein is ruining the
American economy.

heisamazing 5 hours ago+1 Vote (3 Up / 2 Dn)

Yeah, don't let facts get in the way of an opinion. The dollar is not
in a free fall.

See 2 year graph: http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=dxy&sid=0&o_symb=dxy&freq=1&time=9

Its obvious where your bias lies.

1REAGAN 5 hours ago+1 Vote (4 Up / 3 Dn)

The dollar lost 30% versus the euro in 2009. The Keynesian huessy
policies will continue to weaken the dollar. The dollar is in free
fall.

The pound is also weakening because of the Keynesian policies of the
"British Labour Party."

Countries who implement socialist, Keynesian policies will have
weakening currencies. Countries who move toward free enterprise will
have strengthening currencies.Link Report Abuse tjbrew 5 hours ago-1
Vote (3 Up / 4 Dn) Request sentWith a screen name like "1REAGAN",
it's not hard to see your bias. Yes, Reagan, the originator of large
fiscal deficits and Reagonomics, the start of the vast transfer of
wealth to a few elite with "trickle down" economics. If we just cut
corporate taxes to zero that would fix everything!
And the guy you're call "hussein" who in your opinion is "ruining the
American economy" ... yeah, the guy before him left the economy in
such great shape it's really hard to see why it hasn't all been fixed
by now! Sheesh ...

LBX 6 hours ago-1 Vote (1 Up / 2 Dn)

The RMB is likely to be floated in April.

Once it is floated, it will immediately DROP about 3 to 5%.

AmeriWho 5 hours ago

Even (2 Up / 2 Dn)

aiiiyo 2 hours ago+1

same as Yuan

bullrunisbull 6 hours ago+3

China will not let the Yuan move more than 5% vs. the dollar per year
- forget about anything else as it will kill their export machine and
their grander plans......They do not care about the well being of
their people......they are just cheap labor in the Govt's mind.....

NO-FOMC 2 hours ago

true maybe 10 years ago, and yes i know that for a fact...but the
bottom line is which is the better of two evils....@#$%&! your
reserves away by buying worthless US assets (treasury debt) or help
your domestic economy?

China realizes they are soooo done with eating table scraps from the
floor ...R

I think a lot of Americans right now will rather see their welbeing
improve from getting employed as "cheap labor" making things for
exports than being able to buy more stuff from abroad with
unemployment checks. But then the US government cares too much for its
own people to let that happen.

UPJONES 5 hours ago+3 Votes (4 Up / 1 Dn)

The profit of the enterprise working on export processing business is
razor thin, at just about 2-5%. They will file bankruptcy right after
a 5% appreciation, and millions of Dagong Mei/Zai (Hunting girl/boys)
will lose their jobs.

China is buying time to do three things:

1. Build its domestic consumer market by increasing incomes/salaries

2. Perfecting the social secuity networks-Pension, Medicare and
apartments(Mostly for homeless)

3. Industrial transformation from manufacturing to innovation and
value added (Look at the neo-energy, nano, Aero, and especially bullet
trains, very competitve given the gov incentives and lots of "Cheap
and Good" engineers)

LBX 5 hours ago-1 Vote (1 Up / 2 Dn)

Many of them are actually getting negative gross margins. not to
mention net.

rojt88 4 hours ago+2 Votes (2 Up / 0 Dn)

LBX

The differences between Chinese and American accounting is caused by
pay differentials between the two cultures. Historically and
culturally, even dating back centuries, Mandarin officials and Chinese
executive pay is always held low. Much of this is due to Confucian
ethics and morality that wealth is not an indicator of success in
life. This is much different from the western ideal. Chinese
traditionally always hide income while American flaunt it.

Chinese businesses whose bosses serve for decades, like Hong Kong's Li
and Tung dynasties, always hide profits and exaggerate losses vs the
Western fashion of hiding loses and boosting profits so that rotating
CEOs can get their annual bonuses.

I estimate that the Chinese have 10-15% of their assets in hidden
accounts...or US$500billion (for PRC, HK, Taiwan). A lot of Chinese
inflation has been due to the sudden repatriation of much of this
offshore moneys into China due to financial instability in the west.

In a recent Chinese survey of foreign funds pouring into China over
the past decade, Hong Kong ranked first, then some islands in the
Caribbean ranked second and third. USA and Europe were last on the
list.

NO-FOMC 4 hours ago+1 Vote (2 Up / 1 Dn)

Funny how at the start of the century and after depression, USA had
the same characteristics...so where would you see china in 20+ years?
and where would you see USA in 20 years? remember..the world was
pegged to dollar gold before nixon. So last 20 years, our growth was
real or inflated?

NO-FOMC 2 hours ago+1 Vote (1 Up / 0 Dn)

US is buying time to avoid three things:

1. Financing a ever growing trade and acct deficit by depreciating the
USD to avoid default

2. Insure our world dominance by going to war so we wont lose our
world reserve currency title

3. the failure to realize a over leverage and underfunded US economy
will not be sustainable

Bastiat 5 hours ago+2 Votes (4 Up / 2 Dn)

Obama wants to run China. He found out that he could't run the US so
now he wants to run China. Obama, your problem is the US$, not the
yuan. You kept Bernanke, now deal with the imbecile.

RayO 5 hours agoEven (1 Up / 1 Dn) Re

Look out Walmart here comes a big Wave.

iewgnem 34 minutes ago

What if they simply increase prices to maintain their margins?
Considering in some industries China consists of >90% of global
output, it will still cost importers less to absorb the cost than to
spend billions in new capital investments and time for production to
ramp up. At the same time re-exporters will see their material prices
come down which will also help to balance their margins.

All the talk about higher exchange rate driving Chinese exporters out
of business are assuming they don't have the power to pass the cost to
consumers on the other side. I suspect part of the stress test is to
see just how much they can raise the costs without losing their
business.Reply Link Track Replies Report Abuse

http://www.marketwatch.com/story/china-stress-tests-suggest-yuan-rise-coming-2010-03-19?reflink=MW_news_stmp

March 19, 2010, 3:31 p.m. EDT

U.S. stocks break win streak on jitters over Greece, India, oil

By Donna Kardos Yesalavich, MarketWatch

NEW YORK (MarketWatch) -- A retreat in energy stocks weighed on the
broader market Friday, with the Dow Jones Industrial Average stalling
in its attempt to set its longest winning streak in more than 13
years.

The energy sector was the weakest category in a broad-based sell-off
as oil prices retreated near $80 a barrel. Worries about key overseas
economies also weighed on the market, which some said was due for a
pause after a solid run lately.

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55637

The Dow Jones Industrial Average /quotes/comstock/10w!i:dji/delayed
(INDU 10,742, -37.41, -0.35%) fell 47 points, or 0.4%, to 10,731.93,
on pace to snap an eight-day winning streak, the first such run since
late August. A nine-day gain, if the Dow can manage a late-day
rebound, would represent the Dow's longest rally since November 1996.

A dive in energy prices fueled by an uptick in the dollar has made
that rosy outcome seem less likely as the session has played out. Oil
futures were recently off $1.75 at $80.45 a barrel after retreating
near $79 earlier in the session at the New York Mercantile Exchange.

The Standard & Poor's 500 Index /quotes/comstock/21z!i1:in\x (SPX
1,160, -5.92, -0.51%) , which slipped Thursday, recently was off 0.6%,
led by a 1.2% decline in its energy sector. Baker Hughes /quotes/
comstock/13*!bhi/quotes/nls/bhi (BHI 47.53, -1.84, -3.73%) slid 3.6%,
while Consol Energy /quotes/comstock/13*!cnx/quotes/nls/cnx (CNX
45.59, +0.04, +0.10%) and Massey Energy /quotes/comstock/13*!mee/
quotes/nls/mee (MEE 49.91, -1.74, -3.37%) were off more than 2% each.
Exxon Mobil /quotes/comstock/13*!xom/quotes/nls/xom (XOM 66.56, -0.48,
-0.72%) fell 1%, and Chevron /quotes/comstock/13*!cvx/quotes/nls/cvx
(CVX 74.17, -0.81, -1.08%) was down 0.6%.

"The commodities, like other risky assets, are taking a little bit of
a breather," said Russ Koesterich, managing director of BlackRock's
scientific active equity business. But he said it was encouraging that
both stocks and raw materials weren't declining even more.

"The market has had a big run-up, it's continuing to defy some of the
pessimists, and this happened on a bunch of factors," including benign
inflation readings and a decision by the Federal Reserve to keep its
rate target near zero, said Koesterich. "This is helping to keep a
floor under stocks."

Other central banks around the world, however, have become more wary
of inflation. On Friday, investors were spooked by the Reserve Bank of
India's move to increase its key lending rate to 5% and its borrowing
rate to 3.5%.

Uncertainty over possible financial aid for Greece also lingered,
hurting the euro. The U.S. dollar index /quotes/comstock/11j!i:dxy0
(DXY 80.75, +0.52, +0.65%) , which heavily weights the euro in a
basket of currencies versus the greenback, was recently up 0.6%. See
more in Currencies.

Indexes tracking higher-risk corners of the stock market fared worse
than the Dow and S&P. The Nasdaq Composite Index /quotes/comstock/10y!
i:comp (COMP 2,374, -16.87, -0.71%) was off 0.8%, while the Russell
2000 fell 1.2%.

Digits: Palm's Future in DoubtThe latest forecast and smart-phone
sales data from Palm is raising serious concerns about the company's
viability. Dow Jones Newswires' Roger Cheng joins Stacey Delo on
Digits to discuss. Plus, an unprecedented look at the finances behind
YouTube, the world's most successful video site, as well as the
growing number of vehicles offering a self-parking option.

The S&P's health-care sector was flat ahead of an expected weekend
vote on federal reforms.

"We've been significantly overweight in health care for many months
now with the expectation that when it passes -- good, bad or ugly --
that that certainty will allow the health-care stocks to breathe a
sigh of relief," said Harry Rady, chief executive and portfolio
manager of Rady Asset Management.

Among the sector's winners on Friday were UnitedHealth Group /quotes/
comstock/13*!unh/quotes/nls/unh (UNH 34.54, +0.15, +0.44%) and
WellPoint /quotes/comstock/13*!wlp/quotes/nls/wlp (WLP 65.19, +0.12,
+0.19%) , up more than 2% each. But Merck /quotes/comstock/13*!mrk/
quotes/nls/mrk (MRK 38.05, -0.01, -0.02%) slipped 1% after the Food
and Drug Administration warned about the increased risk of muscle
injury for patients taking an 80-milligram dose of its cholesterol
drug Zocor.

Among stocks to watch in other sectors, Boeing /quotes/comstock/13*!ba/
quotes/nls/ba (BA 71.34, +0.62, +0.87%) rose 0.9% after announcing
plans to increase production of its 777 and 747 aircraft earlier than
anticipated amid increasing demand. See more on Boeing.

Among stocks in focus, Palm /quotes/comstock/15*!palm/quotes/nls/palm
(PALM 4.02, +0.02, +0.44%) plunged 27%. The company reported a
narrower quarterly loss but warned of significantly lower revenue in
the current quarter amid disappointing sales of its latest
smartphones. Read more on Palm.

Trading volume was higher, with about 3.8 billion shares having
changed hands in New York Stock Exchange Composite volume recently,
compared with the recent full-day average of about 4.8 billion. The
increase came on so-called quadruple witching day, when contracts for
stock-index futures, stock-index options, stock options and single-
stock futures expire.

Treasury prices slipped. The 10-year note /quotes/comstock/31*!ust10y
(UST10Y 3.69, +0.01, +0.27%) fell 1/32 to yield 3.678%.

More Market Snapshot

March 18, 2010 U.S. stocks' uneven session extends Dow win streak
http://store.marketwatch.com/webapp/wcs/stores/servlet/PremiumNewsletters_CampaignTheTechnicalIndicator?dist=IYMLMSB1T
March 17, 2010 Dow win streak longest since August 2009
http://www.marketwatch.com/story/us-stocks-post-gains-in-early-trading-2010-03-17
March 16, 2010 U.S. stocks finish higher in cheering Fed
http://www.marketwatch.com/story/us-stocks-hold-near-flat-ahead-of-fed-2010-03-16
March 15, 2010 U.S. stocks make late-day rise, helped by Wal-Mart
http://www.marketwatch.com/story/us-stocks-mostly-lower-google-dips-wal-mart-up-2010-03-15
March 13, 2010 U.S. stock investors to use data as a road map
http://www.marketwatch.com/story/us-stock-investors-to-use-data-as-a-road-map-2010-03-13

http://www.marketwatch.com/story/us-stocks-open-higher-led-by-boeing-2010-03-19

[bademiyansubhanallah]

Sunday, March 21, 2010
China and U.S.: There Really Is NO Trade Imbalance

Click to enlarge.

Don Boudreaux picks a nit about "trade imbalances" with Jeremy
Warner, who writes an otherwise excellent article in the London
Telegraph about Paul Krugman's misguided suggestion of a 25% surcharge
tax on China's imports American consumers and U.S. companies who buy
goods from China for their low prices and great value:

"You write as if the alleged trade imbalances between the U.S. and
China are real. They are not. The Chinese sell Americans goods; we pay
with dollars; the Chinese then use many of these dollars to buy IOUs
issued by Uncle Sam. Although the result is a measured U.S. current-
account deficit with China, there’s no more any economically
meaningful “imbalance” in such a result than there would be if, say,
Texans lent a lot more of their dollars to Uncle Sam.

Talk of imbalances in trade diverts attention from the real problem:
Uncle Sam’s gargantuan debt. That fast-accumulating debt is a huge
problem. It is caused, though, not by trade with China but, rather, by
Washington’s lack of fiscal discipline. Unless you believe that
protectionism (and only protectionism) would induce Congress to be
more fiscally disciplined, you should avoid all talk of imbalances in
trade and instead talk of imbalances in political institutions that
encourage politicians to give disproportionate weight to the demands
of current voters and to ignore the resulting ill-consequences that
will curse future generations."

MP: The graph above illustrates Don's point that there is no "trade
imbalance" once all international transactions are accounted for:

1. In 2009, the U.S. imported more from China ($354 billion) than it
exported ($93 billion), resulting in a "trade deficit" of -$263
billion on our "current account" (data here).

But that is only part of the international trade story, since there
are also financial transactions that have to be accounted for, and
that deficit on the current account has to be offset somehow, since
all international trade has to balance (it's based on double-entry
bookkeeping).

2. The offsetting balance came from the $263 billion capital account
surplus in 2009, as a result of $263 billion of net capital inflow to
the U.S. from China to buy our Treasury bonds and other financial
assets.

3. The $263 billion capital account surplus exactly offsets the
current account deficit.

Bottom Line: As Don correctly points out, there really is NO trade
imbalance, when we account for: a) exports and imports of goods and
services, AND b) capital inflows/outflows. Stated differently, the
balance of payments is always ZERO. We buy more of China's goods than
they buy of ours, but then China buys more of our financial assets
(bonds and stocks) than we buy of theirs. So in the end, international
trade with China, is balanced, not imbalanced.

Posted @ 10:09 AM Post Link 23 Comments links to this post

23 Comments:

At 3/21/2010 11:10 AM, PeakTrader said...
Government has been successful shifting blame. Consequently, the
private sector is a failure, e.g. the Bush economy, health care, Wall
Street, etc.

The imbalance is government draining dollars from the private sector,
causing a recession, and then refusing to redirect enough dollars
where needed to employ idle resources. So, the U.S. economy has
underperformed over the past three years.

At 3/21/2010 11:20 AM, PeakTrader said...
It's ironic a communist government helped turned the U.S. into a
Marxist-socialist country.

At 3/21/2010 12:55 PM, Anonymous said...
Balance of payments is NOT trade balance.

If a 5-year old boy understands this, I wonder why makes you and your
friend Don not too.

At 3/21/2010 1:51 PM, Benny The Man said...
Well, if Uncle Sam wiped out that Red State Socialist Empire,
demilitarized like the Soviet Union did, and cut other federal
outlays, and then actually balanced the federal budget, then China
would have to buy something else from us other than federal IOUs--
probably our assets, such as our factories, land, and operating
companies.
I guess we would all be speaking Chinese already.

That damn Chinese written language looks effing impossible to learn.
Why can't the Spanish conquer us, or the French?

At 3/21/2010 2:07 PM, Anonymous said...
That damn Chinese written language looks effing impossible to learn.

One language at a time. First, you need to learn English.

At 3/21/2010 3:24 PM, sethstorm said...
I'd like to know how that balance gets restored with regards to
offshored jobs that don't really come back.

That country doesn't seem to be one that will be using robotics
anytime soon. They rely on a constant employer-friendly glut and
currency pegging to keep things the same.

At 3/21/2010 4:10 PM, Lyle said...
SethStorm, there have been stories suggesting that the chinese labor
pool is getting low. Note also that in 5 years the working age
percentage of the population in China starts decreasing. There is now
talk of more doing like where I buy my clothes making them in Pakistan
and other lower cost countries. China has to move up the food chain in
production, to survive just like Japan did. However compared to Japan
they did not get rich enough fast enough to avoid the aging population
problem. Ultimatly we may see clothes made in sub sahahan africa as
the last low cost labor location left.

At 3/21/2010 4:33 PM, PeakTrader said...
Seth, we could stop offshoring and produce the goods ourselves, e.g.
at twice the costs. Given there would be fewer goods to buy, we can
close half the shopping malls in the U.S.

At 3/21/2010 4:44 PM, sethstorm said...

Note also that in 5 years the working age percentage of the population
in China starts decreasing.

It's still a large enough glut to be felt in the US. No matter what
hell-hole you use, that always is the case.

China has to move up the food chain in production, to survive just
like Japan did.

The problem is that they show no sign in moving up. If they can
produce junk that's pegged to be cheaper than most other places, they
can suffer the few products that don't respond.

I'm not sure this would give rise to better conditions out the sake of
running out of people to kill or blacklist into subsistence.

Even Japan is showing signs of moving downward in quality. Yes,
downward.

There is now talk of more doing like where I buy my clothes making
them in Pakistan and other lower cost countries

Already a solid practice for decades. My issue is with limiting the
damage such that very few industries do get offshored.

At 3/21/2010 4:55 PM, sethstorm said...

Seth, we could stop offshoring and produce the goods ourselves, e.g.
at twice the costs. Given there would be fewer goods to buy, we can
close half the shopping malls in the U.S.

The question is would it be suffering more in variety or increasing
the quality of what does exist.

I draw the line when it's being sent to places just to get around US-
derived market forces(where quality usually is forgotten). Usually
this means some undeveloped country that perpetually undercuts US/
Western Europe.

At 3/21/2010 4:58 PM, gettingrational said...
Which foreign coutry holds the most U.S. Treasuries?

Is it China with its vast U.S. reserves because or its 58% share of
the U.S. trade deficit?

The biggest creditor is Japan.

BTW, conflating trade account and current account to counter inbalance
arguments is wrong -- the free exchange of goods and services is being
hijacked by mercantilism.

At 3/21/2010 4:59 PM, sethstorm said...
Further, I'd have no problem with killing the current iteration of it.
Perhaps it would start the discussion as to making a more US-citizen-
friendly form that isn't simply a "job & industry funnel to Third
World".

It's all fun and games until your industry gets attacked (doubly so if
you got out of manufacturing and into another one).

At 3/21/2010 5:07 PM, sethstorm said...

The biggest creditor is Japan.

The only signal that should be given by that is to turn the screws
harder on China.

At 3/21/2010 5:23 PM, PeakTrader said...
Seth, why stop or slow improvements in living standards and the
inevitable shifts into new industries? Moreover, there are quality
standards.

Of course, there could be better policies to deal with displaced
workers e.g. subsidizing college degrees in demand rather than all
college degrees.

At 3/21/2010 7:21 PM, OA said...
gettingrational said...
Which foreign coutry holds the most U.S. Treasuries?
...
The biggest creditor is Japan.

gettingrational, I just popped into the US Treasury website to check
if things changed. And the table has been revised significantly.

It seems like the prior Treasury table was incorrect as the figures
for China are now over $100 billion higher, all the way back to June
2009. It is disturbing that for nearly a year, the Treasury data has
been wrong, and that someone only seemed to notice once that flip
between Japan and China was widely reported.

There actually are two columns reported for June 2009. New 5/series
and Old 5/series. Then the new number carries on from that point.

http://www.ustreas.gov/tic/mfh.txt

At 3/21/2010 8:00 PM, sethstorm said...

Of course, there could be better policies to deal with displaced
workers, e.g. subsidizing college degrees in demand rather than all
college degrees.

Indeed. It is time enough to not presume that the displaced will
automatically transition (or can be with how things are now).

The current policy seems to be optimized for political uses that focus
on harming US citizens. It is too far optimized at destroying than
rebuilding and creating. Creation is just an unintended & selective
side effect.

Halting it would put the issues of fraud and dishonesty front and
center. It would ask if it's really worth using it as a weapon against
having to respond to the US market.

Another part of it would revisit the idea of what really needs a
degree, and what requires it out of liability/legal issues. A degree
is hardly the thing to use to save (or damn) someone (or their
profession).

At 3/21/2010 8:05 PM, gettingrational said...
OA, thank you for the correction to the treasuries report. My source
was the Bangkok Post. Our friends in Asia must be thinking the U.S.
has so much debt they can't keep up with it all -- so do I.

At 3/21/2010 9:13 PM, Frank said...
Of course ther is no trade imbalance with China, the Chinese buy all
the U.S made, televisions, computers, refrigerators, clothes, shoes,
cars, trucks, toys and countless other cheap plastic gadgets.

At 3/21/2010 9:37 PM, juandos said...
sethstorm apparently can't use google: "I'd like to know how that
balance gets restored with regards to offshored jobs that don't really
come back"...

Did YOU sethtsorm support politicos that pushed Sarbanes - Oxley?

Did YOU sethtsorm support politicos that pushed stronger and stronger
CAFE standards?

Did YOU sethtsorm support politicos that pushed harsher punishments
for industries that alledgedly flouted some asinine EPA standard?

Did YOU sethtsorm support politicos that pushed higher corporate tax
rates?

Did YOU sethtsorm support politicos that pushed ObamaCare?

Did YOU sethtsorm support politicos that foisted off the myth that
diversity training was useful?

A 'YES' to anyone of these questions means the odds of more jobs going
offshore is increasing...

At 3/21/2010 10:29 PM, sethstorm said...

A 'YES' to anyone of these questions means the odds of more jobs going
offshore is increasing...

Thank you for proving my point of it being used as a political weapon.
You could have made the case for the opposition and it still wouldn't
have mattered.

At 3/22/2010 4:18 AM, Ron H. said...
Anon @ 12:55

Trade balance is a PART of balance of payments. We buy cheap stuff
from China with dollars, China buys Treasury Bills from US with those
dollars. Balance=0

At 3/22/2010 10:12 AM, juandos said...
"Thank you for proving my point of it being used as a political
weapon"...

No sethstorm, I proved your inability to get a grip on reality...

All those things I mention impinge on the bottom line and the
resulting costs can't be continously foisted off onto the customer
since others will sell a product or service cheaper due to the fact
that they aren't burdened with these sorts of government overheads...

At 3/22/2010 11:51 AM, Mike Razim said...
Many are also claiming that the US manipulates its own currency. So is
the US being a hypocrite: http://bit.ly/aoI5nB Or do we have room to
talk?

About Me

Name:
Mark J. Perry
Location:
Washington, D.C., United States
Dr. Mark J. Perry is a professor of economics and finance in the
School of Management at the Flint campus of the University of
Michigan. Perry holds two graduate degrees in economics (M.A. and
Ph.D.) from George Mason University near Washington, D.C. In addition,
he holds an MBA degree in finance from the Curtis L. Carlson School of
Management at the University of Minnesota. Perry is currently on
sabbatical from the University of Michigan and is a visitor at The
American Enterprise Institute in Washington, D.C.

View my complete profile

Previous Posts

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Quotes of the Day: Libertarians
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http://mjperry.blogspot.com/2010/03/china-and-us-there-are-no-trade.html

Sunday, March 21st, 2010 at 6:16 am
First Moody’s, Now IMF Warns America on Economy
By Andrew Zarowny

First, it was Moody’s, warning the U.S. and other Western nations this
past week about having their bond ratings lowered. Their language was
harsh. “…require fiscal adjustments of a magnitude that, in some
cases, will test social cohesion.” Wow! They have also issued a
warning this week about a potential junk bond bubble. “An avalanche is
brewing in 2012 and beyond if companies don’t get out in front of
this.” By 2012, the U.S. government will need to borrow another $2
Trillion dollars AND refinance existing debt. Now, the International
Monetary Fund is warning about national debts for America and most of
the Western, industrialized nations, too.

You have to wonder just how many canaries must die first before you
exit the coal mine? Despite the warnings, America is now perched to
leap into a whole, new entitlement program, which will increase the
debt and restrict economic growth. Our politicians in Washington are
digging us into a ‘progressively’ deeper hole.

Speaking in China this weekend, IMF official, John Lipsky, told the
audience at the China Development forum that the United States, “a
higher public savings rate will be required to ensure long-term fiscal
sustainability.” How high and how long? He calculates an 8 point swing
over the next ten years will return us to the pre-crisis Debt/GDP
ratio of 60% by 2030. How do you spell AUSTERITY?

Yet, here we are today, facing the first in a wave of more of Obama’s
agenda, which will push government sending higher and further hamper
any growth in our GDP. Moody’s and the IMF are both warning us that we
cannot keep up this pace of government spending. We cannot even keep
up the pace of private equity borrowing! Yet, that is exactly what the
dummies in Washington and Wall Street are proposing to do. Obama
cannot even pick a winner for his brackets of the NCAA basketball
tournament, something he claims he’s an expert at! For all his
education (Harvard, Columbia, and THE prep school in Hawaii), Obama
has yet to demonstrate any rational thinking. America is being led
down a blind alley by an idiot! As I’ve said before, “…woe is us that
Edward George Ruddy died!”

http://www.rightpundits.com/?p=5890

How Much Does Poverty Cost?
by Kathryn Baer March 21, 2010 07:30 AM (PT)

.Commenter Jan Lightfootlane responds to my thoughts on permanent
supportive housing with a terrific question: Do we have research on
how much society would save if it ended poverty?

The closest I know are two major studies that look at how much child
poverty costs the U.S. economy. These are lifelong costs -- in other
words, what our society loses because so many poor children grow up in
poor households.

Eliminating child poverty wouldn't save these costs in the way that
permanent supportive housing has been found to save taxpayer dollars
on health care, imprisonment and so forth. But I think it's fair to
assume that society would gain the same amount if it made the right
investments to lift every child out of poverty. Hard to imagine how
this could be done without lifting parents out of poverty too.

Back in 1997, the Children's Defense Fund published a book entitled
Poverty Matters: The Cost of Child Poverty in America. It's available
only for purchase, alas. But we know from a more recent CDF paper that
the author put the cost at $130 billion in future economic input,
based on an estimated 12 million or so children.

A team of economists led by Harry Holzer took a deep dive into the
same issue in a report from the Center for American Progress issued in
early 2007, The Economic Costs of Poverty in the U.S.: The Subsequent
Effects of Children Growing Up Poor.

The team reviewed studies that estimated the average statistical
relationships between children growing up poor and their earnings,
tendency to commit serious crimes and quality of health in later life.
They also reviewed estimates of the per person costs of crime and poor
health. Then they aggregated the average costs per poor child across
the total number of children growing up poor. (Elegant methodology
but, like the rest of the report, not for the casual reader.)

At the end of the day, they concluded that child poverty costs the
U.S. about $500 billion a year, the equivalent of nearly 4 percent of
the GDP (the total market value of all the goods and services our
country produces). To see your state's share of the costs, check the
table in this report from the University of Washington's Human
Services Policy Center.

Measured as percents of GDP, the costs divided fairly equally between
reduced productivity and economic output (what the grown-up children
would have been likely to earn if their parents hadn't been poor),
higher crime costs and a combination of higher health care
expenditures and reduced value of health (lost quality and years of
life).

As the authors say, these costs understate the full amount our economy
loses due to poverty. They don't include the costs of poor adults who
weren't poor as children. Nor do they include other costs poverty
might impose -- environmental costs, for example, and "much of the
suffering of the poor themselves." Hard to put a dollar value on that.

When the authors crunched their numbers, about 17.4 percent of
children lived below the poverty line. By 2008 (the latest year for
which we have figures), the child poverty rate had increased to 19
percent.

Still, a potential gain of $500 billion a year isn't chump change. So
there's a good economic argument, as well as compelling social and
moral arguments, for investing significantly more than we do in anti-
poverty strategies that work. We don't know as much as we need to
about these. But we know more than enough to get started.

The Center for American Progress followed up on the Holzer team's
study by developing 12 recommendations for cutting poverty in half
within the next 10 years. It asked the Urban Institute to estimate the
impacts and costs of four of these:

•Increase the minimum wage to 50 percent of the average non-
supervisory wage (about what it was during much of the 1950's and
60's).

•Increase the Earned Income Tax Credit, extend it to 18 to 24-year-
olds who aren't full-time students and allow the exclusion of half the
earnings of the lower-income spouse.

•Make the Child Tax Credit fully refundable, rather than a capped 15
cents per dollar per child as it is now.

•Provide a child care subsidy to all families with incomes below 200
percent of the federal poverty line and, at the same time, make the
Child and Dependent Care Tax Credit larger and refundable.

The Urban Institute found that these four, hardly radical measures
would reduce poverty by nearly 26 percent in all and 46 percent for
children, at a net cost of $37.2 billion. CAP says the cost of
implementing all its recommendations would be about $90 billion.

Considering what we're losing due to child poverty today, that seems
like a good return on investment to me.

Thanks for asking, Jan. Hope this helps.

Photo credit: psd

Kathryn Baer

Kathryn is an independent consultant in policy research, analysis and
communications. In addition to for-fee assignments, she provides pro
bono communications services for the advocacy department of a local
nonprofit that serves homeless and other poor people and for
coalitions that work on similar issues. She also maintains her own
blog, Poverty and Policy.
Make a Difference & Spread the WordFacebook
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The Projects Get a Museum Comments (5)
Mar 21, 2010 @ 03:24PM PT
jan Lightfootlane
I am so delighted that someone answered me. I asked our local Maine
group, which is suppose to be the voice of the poor. But we have to
throw out an idea and wait until the leaders of the pack, make's it
their idea. They gave me all the financial, and other reasons, they
could not learn this information.

They have done wonderful things like introduced the "Parents for
Scholars" programs, and made it become real. That means TANF Mothers
and the few fathers can go back to school, to learn more and perhaps
have that reflected in a few more dollars in wages.

I am one of those who wants to remove near 100% of poverty. That means
changing attitudes. To do that we must show how erasing poverty will
improve the lives of the rich.

I will look up these sites and learn from them. This might not be
exactly What I am looking for But it IS a great place to start. Your,
writing this, might get others thinking on if they end human lack,
there could be more possibilities' for a better life. Not just a
better for the poor, but the affluent will have a better life. I can
not Thank you enough! You are one of my top 5 authors here at
Change.org.

I will express my thoughts on ending poverty which you wrote about,
when I stop dancing on the ceiling. Being heard, is an elixir of life.
Thanks again

Mar 22, 2010 @ 06:40AM PT
Kathryn Baer
Glad to be of help, Jan. Here are a couple of further thoughts.

The Parents for Scholars program sounds indeed like a wonderful thing.
Would it be possible for the program to track results-specifically,
the number of participants who find jobs (or better jobs) and the
amount they earn? The number who earn enough to "graduate" from TANF?
These figures would speak directly to costs. And they would be very
interesting to other organizations.

The Half in Ten Coalition was organized specifically to advocate for
strategies that will cut poverty in half in 10 years. It grew out of
the Center for American Progress work I wrote about. The coalition
hasn't thus far produced the kinds of figures you're looking for, but
their site is worth monitoring. It's at http://halfinten.org.

CLASP has just produced recommendations for the reauthorization of
TANF. It too calls for a comprehensive poverty-reduction strategy,
with TANF as one component. It wants the program to shift toward
outcome-based measures so that states would be responsible for how
well (or poorly) their programs alleviate poverty. If Congress adopts
this recommendation, we can look forward to much better figures on
impacts. CLASP specifically wants data on child well-being. Such data
can readily converted to cost/savings estimates. Would it be suitable
and feasible for your local Maine group get behind this
recommendation?

Mar 22, 2010 @ 08:43AM PT
jan Lightfootlane
I will ask them if they have any data the group does not meet until
the second thursday of April. My guess is the Maine Department of
Health & Human Services might have that information.

Must admit, I have not the time right off to read the data, but will
get to it. These Groups are not addressing the attitude changes which
is required to end poverty. The first Report does say Itys being
treated as a moral issue. But Poverty, is not being fully adressed on
morality alone.

My thinking is in the long run everyone saves by ending human lack. We
do not need Governmental gimmacks which serves 1/4 of the people with
1/3 of the need. We need what the son of god said when asked How much
do we give to the poor? Without missing a beat he said we give the
full need.

To me that means we pay the working poor the full need to cover the
basic's. To me that is the solution, directly from the bible. Its a
solution which is seldomly quoted, but it should be. Then it should
be placed into practice. Kathryn, If this wisdom was quoted, then
someone would want America forego Dawerism Economics of survivial of
the fittest, then to apply the Love economics.

Again thank you for answering with information I will read by this
week end.

Mar 22, 2010 @ 09:25AM PT
Desiree Michaels

Another example is the elephant left under the rug during the
discussiong surrounding health reform - costs to adults and their
families. If childless adults weren't forced into both disability AND
poverty to get medical assistance, imagine what they might be able to
contribute to their (OK, it's OUR since I am one) own incomes and to
society via things like taxes and what society would save via things
like Medicaid, foodstamps, etc. OTOH, think about what we ARE
unnecessarily spending because we DO force childless adults into both
disability AND poverty to get medical assistance - Medicaid, Medicare,
disabilty (in many forms), housing programs, costs to their families
(and sometimes friends too), costs to the tax base (and our numbers
include people who run the gamut from minimally trained and educated
to very well trained and educated - like I'm college educated and have
IT certs as are several friends on disability), etc. We're being
penny-wise and pound foolish.

Mar 22, 2010 @ 11:52AM PT
jan Lightfootlane
Yes Desiree They are a penny wise an a Euro Foolish. But we must
educate.

Mar 22, 2010 @ 12:20PM PT
Desiree Michaels
That we must, but it would help if those needing the education would
listen. It currently feels like having a conversation with a brick
wall.

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Fascism -- There is a point of no return
Meta-metaDepartment of All The Damn Gall
Sun, 03/21/2010 - 11:32am — jeffroby

It’s ironic that teabaggers are now raising the cry of American
Exceptionalism. The term has a long history, generally along the lines
of U.S. as a beacon of Democracy, young, free, blessed by God. The
Communist Party USA in the 1930’s re-defined the term to claim they
could achieve socialism peacefully, paving the way for their
accommodation with Roosevelt. The teabaggers are today re-defining it
again as America having the right to rule the world, unrestrained by
treaty, law or human decency. America uber alles, you might say.

They have the audacity to call Obama a fascist, even as a U.S. rep at
a teabagger rally proclaims in Huffington Post:

"Fill this city up, fill this city, jam this place full so that they
can't get in, they can't get out and they will have to capitulate to
the will of the American people," he said.

"So this is just like Prague under communist rule?" the Huffington
Post asked.

"Oh yeah, it is very, very close," King replied. "It is the
nationalization of our liberty and the federal government taking our
liberty over. So there are a lot of similarities there."

Earlier, King implored the crowd to bring the nation's capital to a
sort of paralysis. Warning, erroneously, that the health care bill
would fund abortion and fund care for 6.1 million illegal immigrants,
he demanded that concerned citizens "continue to rise up."

"I look back 20 years ago in the square in Prague... when tens of
thousands showed up there and they shook their keys peacefully and
they took over their country and they achieved their freedom back
again," he said. "If you can keep coming to this city, fill up the
congressional offices across the country but jam this city. If you can
get on your cell phones, get on your Blackberries and your email, and
ask people to keep coming to this town. Storm this city, fill up
Washington D.C., jam this capital so they can't move. And if tens of
thousands, hundreds of thousands of you show up, we will win. We will
defeat this bill and you will have your liberty back."

Harks back to the Nazi mobs that prowled the streets of Berlin and
Munich well before Hitler took power. They would bring on the very
thing they profess to decry. Yet the teabagger ranks can’t be
completely reduced to a cynical ploy.

The totalitarian provisions of the Patriot Act are restored at Obama’s
behest, and many teabaggers don’t like the Patriot Act. They’re smart
enough to know that throwing in the word “patriot” doesn’t give carte
blanche. The mandate in Obama’s healthcare bill is indeed an outrage
against individual liberty. Government does intrude more every day,
and who among us would say that this is a benign government. Some of
the complaints are beneficial or relatively trivial, such as anti-
smoking laws or forbidding holding a cell phone while driving. Others,
such as schools spying on their students through their laptops are
more ominous. The total computerization of society gives the
government awesome control to track us, take our bank accounts,
completely paralyze us -- if they so choose.

The government is out of control. Democracy is being rendered
meaningless. A handful of fat cats on Wall Street are bringing on
economic catastrophe. Clear explanations are defied. Meanings are
stood on their head. Things fall apart. Yes, the movement to fascism
must be stopped. Note that I say movement, not a static state of
affairs.

Terminal Crisis

Karl Marx was not a merry old soul. He developed a brilliant model of
capitalist society, much of which is considered liberal truism today.

To put it very crudely, there are capitalists and workers. For
capitalists to profit they have to underpay their workers (extraction
of surplus value in commie lingo). But in underpaying their workers,
they end up with a realization crisis, i.e., they realize there is not
enough money out there to buy their products. This produces a series
of ever-deepening economic crises.

At the same time, capitalism organizes and develops a concentrated
industrial working class (proletariat, as they used to say) which, in
response to these ever-deepening crises, will finally cast off their
chains in socialist revolution. Thus, revolution is seen as
inevitable. There are two major problems here. But this is, after all,
only a model.

Luxemburg

To the extent that Rosa Luxemburg is remembered, it is that she was a
Polish Jew who emigrated to Germany and married communist leader Karl
Liebknicht. They made a courageous but unsuccessful stand against
Germany going to war in 1914. Following the Bolshevik revolution, she
was sharply critical of Lenin’s authoritarianism. The end of World War
I brought on a revolution of sorts led by the Social Democrats. In
January 1919, German workers in Berlin rose up in what is known as the
Spartacist Uprising. It failed. At the behest of the Social Democratic
regime, police smashed in Rosa Luxemburg’s skull with their rifle
butts and threw her body into a canal where it remained frozen until
Spring.

Less known is that Rosa Luxemburg was also a brilliant economist. She
made two revisions to Marxist theory that are relevant here.

(1) Marx’s model was only a model. In reality, capitalism exists
alongside non-capitalist or pre-capitalist modes of production. It can
loot them either through theft by armed force or by imposing unequal
trade relations arising from capitalism’s greater efficiency. Thus
crisis is forestalled or softened. And a segment of the working class
can be bought off.

(2) Capitalist subjectivity is a factor. If they believe they can
continue to invest at a profit, they will continue to invest, even if
the foundation of that belief is false (CDO’s, derivatives, etc.).

In contrast to Marx’s socialist inevitability, Luxemburg put forth the
slogan of “socialism or barbarism.” If revolution failed, the means of
production could be so destroyed that there would be no foundation on
which socialism could be built. (Consider how the socialist
revolutions in Angola and Mozambique turned out.)

But this is just theory.

Fast forward to the 1930’s

Let’s first not focus on why Germany turned fascist but rather why the
U.S. didn’t.

Remember that democracy is the preferred capitalist mode. Yes, they
need to hold down or prevent unionism. Yes, they need to sometimes
stifle dissent to pursue their imperial wars of choice. Other feudal
holdovers like restrictions on abortion and religious fervor can be
useful. But capital thrives best under free trade, a flexible
political process, a mobile workforce freed of any ties that would
restrict it from being deployed -- or laid off -- at capital’s
convenience. An educated, healthy, moralized workforce is the most
productive workforce.

Fascism, on the other hand, is a relatively inefficient, self-
devouring system. Capitalism as a whole, the most powerful, the ones
with the most interest in the total system, at least, will only turn
to it in times of crisis. Of course, the 1930’s were a time of crisis.
Elements of the U.S., oh, let’s get all bolshie and call them the
ruling class, were definitely pro-Hitler. Southern populism had
varying strains, some distinctly progressive, others rabidly racist
and right-wing. The Ku Klux Klan had re-emerged, with a membership of
over 5 million in the 1920’s, with interests going far beyond its
original racial politics (but of course retaining them).

In opposition was a very powerful industrial union movement, with the
Communist Party anchoring it on the left, just as the Christian
Fundies anchored George Bush, and as the teabaggers do for the
Republicans today. And there was the matter of ruling class
subjectivity, per Luxemburg. The “enlightened” elements surrounding
Roosevelt saw prospects in a world in turmoil. The French and British
colonial empires were teetering.. The U.S. was militarily modest but
an economic powerhouse. It was Germany’s largest creditor. Empires in
Asia and Africa would be up for grabs. The U.S. came to terms with the
unions and the CP, and vice versa -- the whole New Deal thing. The
industrial unions were recognized and the country began to arm.

It made moves to cut off Japan’s oil supplies, and the U.S. was
actually spoiling for war in the Pacific.

It DID happen there

Germany was another matter. As is generally known, Germany was in
crisis, crushed by reparations to England and France, rampant
unemployment and inflation, massively indebted to the U.S., ostensibly
disarmed but still lacking the colonial empire that it had gone to war
to acquire in 1914. So the German rulers had turned to Hitler in 1933,
renounced reparations, crushed the unions, set a course to exterminate
the Jews, and launched wars of conquest to Germany’s east.

There are a couple of distortions in this popular impression:

(1) Germany had begun to re-arm well before 1933, and had already been
defaulting on its reparations under the tutelage of the U.S. Thus, in
many ways, Hitler was a continuation of standing German developments,
not a complete break.

(2) The whole picture has an aura of inevitability which is
dangerously misleading.

In Wages of Destruction, a fascinating study of the Nazi economy, Adam
Tooze writes:

In the 1920s, faced with an earlier American effort to reconstitute
the international order, Stresemann’s strategy had been to position
Germany as a key ally of the United States. By contrast, from 1932 the
governments of Franz von Papen, General Kurt von Schleicher and
finally Adolf Hitler adopted a contrary position. Rather than seeking
prosperity and security in multilateral arrangements guaranteed by the
power of the United States, they sought to secure unilateral German
advantage ...

If we are to avoid a depoliticized economic history of the Nazi
regime, we must always bear in mind that even in 1933 there were
alternatives to the economic strategy pursued by Hitler’s government.
And not only that these alternatives might well have brought greater
material benefits to the majority of the German population

In other words, Germany had a choice between becoming a junior partner
of the U.S. or embarking on a course of war. Fascism was a choice. We
will come back to this later.

Fast forward to today

This is a crisis we are in. No one pretends that manufacturing jobs
are coming back. Outsourcing is permanent. When you call the support
line, the Indian-accented voice on the other end is more confident,
more competent. No longer a joke. Jobs aren’t coming back. Jobs people
do have are lower-end. You need a B.A. to even apply for work as a
receptionist. Poverty is spreading. The safety net is collapsing. Tent
cities are becoming a normal part of the landscape, as are police
raids to tear them down. The only way there will be any recovery at
all is if recovery itself is redefined to mean a rising stock market
amid mass hunger, homelessness and despair. The Fed keeps pumping out
devalued cash, the international finance folks hold each other’s hands
over the abyss. This is all very bad, but this is not fascism.

Teabaggers march confident through the halls of Congress. Elected
officials call for the overthrow of their own government. Obama
reaffirms preventive detention and the worst tyrannies of the Bush
regime. Be named an enemy combatant and disappear forever. This is
also very bad, but this is not fascism.

We wage open war in Iraq and Afghanistan, and openly wage covert war
in Pakistan. We threaten war with Iran, and some threaten war with
Islam itself. This too is bad, but it is not fascism.

Abortion, while sort of legal, is inaccessible to millions of American
women. Healthcare is a disaster that the Democratic healthcare bill
will not salvage. Rape and domestic violence are on the rise. The
skill level of the American workforce is deteriorating. The social
fabric is unraveling. We have long surpassed the world of 1984 and
Network, as Escape from New York looms on the still-distant horizon.
This is bad, but it is not fascism.

Fascism is not a state of affairs. It doesn’t reduce to a checklist
extrapolated from the characteristics of Nazi Germany. It is a
process, it is a movement.

Obama the tactic of choice

Certainly a fascist movement is afoot. Teabaggers prowling Congress,
bussed from confrontation to confrontation with corporate dollars and
Fox News their wholly-owned subsidiary (or vice versa). Minutemen
“defend” our southern borders, national convention cities turned into
police states (they’re practicing up). Yet our rulers have not decided
to pull the fascist trigger. Obama -- funded by Wall Street and big
Pharma -- is their agent of choice. A Republican carrying out current
policies would engender resistance, if only out of Democratic Party
craven self-interest. As mentioned before, capitalism operates best
under democracy.

Repression and brute force are expensive and clumsy. Better to have
the consent of the governed. Thus domestically, Obama’s job is to co-
opt progressives into supporting his policies, or at least disarm
them. So far so good. Internationally, a go-it-alone approach to the
economic collapse would bring on speedy catastrophe. Maintaining the
current illusion of a functioning international economic system
requires a degree of cooperation and simple tact that a Republican
regime would be incapable of, and which the teabaggers -- with their
revival of American Exceptionalism -- explicitly reject.

Unfortunately, the current equilibrium cannot be maintained
indefinitely.

Back to Luxemburg

Recall that Rosa Luxemburg put forward two ways that capitalism could
postpone terminal collapse. First was by devouring pre-capitalist
modes of production. That process has by-and-large run its course.
Large swaths of the earth are now reduced to utter destitution, e.g.,
Africa. The rest have now become industrial powers of varying
strength, with emerging powerhouses India and China leaping forward as
they absorb the remnants of their peasant economies. China, India,
Russia and Brazil now constitute a viable power bloc resistant to U.S.
capital penetration. While weaker than the U.S., especially
militarily, they grow with a solid manufacturing base, while U.S.
industry rots behind its fortress walls.

It now lives based on the second factor -- capitalist subjectivity.
The ruling class either believes or hopes it can maintain itself by
continuing to pile paper wealth upon paper wealth through gimmicks
like derivatives, CDO’s, swaps, and outright bailouts, while imposing
austerity on everyone else. It may be a bad plan, but it’s a plan
nonetheless. It’s not a plan that can work indefinitely.

For unfortunately, the world is running out of oil

There is no way to predict when -- or even whether -- the ruling class
will decide that democracy no longer serves its interests. We can only
look at the forces in play and consider possibilities.

We like to think that our rulers are crazy, and in fact they are. But
there is usually some underlying logic behind their policies. Take our
wars in the Middle East. We are setting the Muslim world (to say
nothing about the rest of it) against us. We are bankrupting
ourselves. The teabaggers are quite certifiable, though not as much as
the politicians nurturing them.

But one underlying factor is what is known as Peak Oil. The supply is
running out. Tomorrow, no, next year might be the peak, or 5 years if
we keep digging hard enough, or longer, who knows? But it is running
out. And the China/Russia/India/Brazil bloc is making deals to get an
increasing cut of what’s left. If the U.S. tactic of choice is
confrontation, then confrontation it will be. In that case, however
stupid our current wars may seem, it might be downright handy to have
our armed forces hanging around the neighborhood ready to grab the oil
fields. Of course, that would mean short-term damage to world oil
supplies. In fact, the trigger for such a move (whatever anti-Muslim
pretext is cooked up) would probably emerge from some kind of crisis,
some major shocks to the economy.

This would have additional aftershocks to the U.S. economy, and not
good ones. Of course, the American people might want to resolve it
through heavy taxation on rich corporations. Or they might be crushed
politically as they have been under ObamaCare. Yes, the teabaggers are
as crazy as waltzing mice, but with the American economy -- no picture
of health -- taking more economic hits, it might be convenient for the
ruling class to have fascist mobs ready to crush any resistance in the
name of God and the American way.

Following this track along generally pessimistic lines, this is
actually the OPTIMISTIC scenario.

Consider what might be unleashed should there be a major terrorist
attack in the U.S., say a major bridge blown up, a chemical plant
exploded, assassinations (gee, that couldn’t happen here). Then it all
goes out the window. We saw how alleged progressives caved in to Bush
after 911. That would be Davy Crockett at the Alamo compared to what
would be unleashed now (sorry to lose you, Fess Parker).

Not saying this will happen. But you can’t say it’s not a distinct
possibility.

Point of no return

Either of the two scenarios could lead to a point of no return.
Assuming that the China/Russia/India/Brazil bloc could fend off
nuclear America gone berserk (not a sure thing), what would it mean if
the teabaggers were in control and Michelle Bachmann was president?
Palin as Minister of Defense? The U.S. has a hopelessly tattered
industrial base even now. Oh, I leave it to your imaginations.

Last week, in a comment, I was asked in good faith, “[W]hat is your
game plan? How would something like the [Full Court Press] morph into
that which could frustrate the social forces leading to fascism?”

How the hell should I know? The Full Court Press is envisioned as one
very small part of a movement that I hope emerges. If you ask a
general what her plan is for defeating the army on the opposing ridge,
and she didn’t know what army she had -- how many tanks, 100 troops, a
division, trained or untrained -- the question would be unanswerable.
The question above is even more difficult. And it’s a much tougher
question than it was in the 1930’s.

My favorite scene of the first Superman movie was where Lois Lane
falls off a wrecked helicopter, and Superman swoops down and catches
her. “I’ve got you!” he exclaims. “But who’s got you?” she answers. In
the 1930’s, there were anchors. The Soviet Union, whatever its ills,
was a bulwark against German fascism. The Soviet Union was an anchor
for communist parties throughout the world, including the U.S. The
CPUSA, whatever its ills, was an anchor for the trade movement. There
was an organized force that other progressives could cluster around,
even as some of those forces vocally despised the CPUSA and the Soviet
Union.

Additionally, when Germany launched its war of eastern conquest, there
was democratic America -- even more powerful.

But if fascism descends today, there are no anchors. The U.S. would be
cast as villain, and the Soviet Union is no more. There is now just an
unruly mob. Again off to the movies, this time the Tin Star. At the
end, Sheriff Tony Perkins (Henry Fonda behind him) stands down a
drunken lynch mob, then guns down its leader, and western democracy is
preserved (it was a western). Personally, I would like to identify
with Tony Perkins, but I fear that we progressives more closely
resemble the drunken mob. The mob had no cohesion, to every member it
was him staring down the barrels of Tony Perkins’ shotgun. And on that
basis, each one backed off and went back to the saloon, leaving the
villainous (in this case) leader dead in the dust.

Too historical for you? Then take the healthcare fiasco (please).
Robust public option, rah, rah, rah. Wiener caves. Grijalva caves.
Sanders caves. Kucinich caves. No one can trust anyone, each one backs
down. WE can’t trust any of them. Hope of stopping it rests with the
vile Stupak, for Chrissake. Whether it passes or not, they’ll head
back to the saloon muttering, “We’ll improve it, yeah, that’s it,
we’ll make it better next month. Or next year. Whenever.” And they and
we all know it’s a lie.

Patriot Act? That didn’t even get a squeak. Not from progressive
politicians. Barely from us. And that’s heavy shit.

There is no WE! Some people know me as a royal pain in the ass. Pushy.
People write heroic stuff about we must do this, and we should call
for that, and we must expose whatever. And I simply ask, “who is the
we?” and “through what organization?” And ... nothing. The question is
apparently unworthy of answer.

Perhaps there is an assumption that we is understood as all of us as
we now are, and that if we keep exposing the atrocity of the hour
(which we should certainly keep doing) and roaring our indignation
(indignation is good), then somehow WE will magically coalesce into a
coherent force? Or the masses will be sufficiently educated by our
plaints so that THEY will magically coalesce into a coherent force? Or
that there ARE good organizations who will be bulwarks against
fascism, even if their activity isn’t manifest at this moment?

Yes! There ARE good organizations out there who could be bulwarks
against fascism. But then it would seem the task is to specifically
identify them, debate whether they truly fill the bill, and discuss
HOW to unite them into a cohesive force.

And better yet, how they, as a cohesive force, will draw in the many
being destroyed at this very moment and make them part of that
cohesive force. The poor. Blacks and Latinos and Arab-Americans. Those
marginal to current-day progressivism. I can’t do it. I can call for
worker-peasant-soldier self-defense committees against fascism, but it
would be bullshit. Nor does this force have to have the label “anti-
fascist.” The unions in the 1930’s weren’t set up as anti-fascist
armies. They were set up as unions. They were a force against fascism
because it was in their interest, and because they were independently
organized.

Likewise, I’m not calling for explicitly anti-fascist organizations.
All I’m calling for is independent organizations. Whether working
within the Democratic Party or 3rd party, or non-electoral, the key is
being independent. The healthcare issue has turned out so badly, and
the jobs issue is going to turn out so badly, because there is no
independence, progressives are all hooked to the conveyor belt, the
key issue, it seems, is whether passing the healthcare bill will be
good for the Democratic Party or this or that politician’s career, and
its effect on real people is only a bloody shirt they drag out for the
cameras.

But there is a point of no return. Barbarism is a possibility. If you
don’t believe it, look out your window. Yet, remember what I said
about Germany. It had a choice of whether to choose fascism or not. So
while I project the very real possibilities of fascism, I by no means
consider it inevitable. This country also faces choices. In our case,
it looks something like whether the United States desperately tries to
maintain its position by brute force, or whether it is willing to
become an economic partner -- if not the ruling partner -- in a world
economy increasingly led by the China/Russia/India/Brazil bloc. That
is also a real possibility, though some will resist it to the death.

I refer at times to the ruling class, but one thing to note is that
the ruling class is no longer American. Wherever they were born, they
have long become detached from U.S. soil. They operate among the
countries of the entire world, see Empire by Hardt and Negri. From
their perspective, capitalism does not rise or fall according to the
well-being of the United States specifically. These are among the
people who have done the NAFTA deals and outsourced my job to the
Philippines. They have no inherent interest in the U.S. going fascist.
They would prefer, I guess, it go down with a whimper, keep selling
everyone else lots of wheat and beef at cheap prices.

We, the people

You ask what I recommend? Engage the “we” question, as squishy and
uncomfortable as that may be. Who are “we” and how do we both become
and create a larger organized force? Traditional trade unionism is
dead. What is an alternative? What is the critical mass with which the
blogosphere becomes a power projector rather than an angry mob? I can
make up stuff, but if no one follows it, so what?

There is a point of no return.

Nice perspective on the tea-partiers
By lambert on Sun, 03/21/2010 - 12:03pm
Let the pros take care of that; it's what they're paid to do. No
reason for us to do their work. Opportunity cost!

Excellent point on "independent."
"First they ignore you, then they ridicule you, then they fight you,
then you win." -- Mahatma Gandhi

you mention (I paraphrase)
By Rangoon78 on Sun, 03/21/2010 - 12:29pm
you mention (I paraphrase) Tea Party folks being budded around by
corporate dollar weilding Astroturfers; isn't that a lot like the
Obama permanent campaign highlighted by theri caucus goons:

http://www.correntewire.com/the_tx_caucu...

yes
By jeffroby on Sun, 03/21/2010 - 12:32pm
pseudo-masses. But it works.

If the system is broke, don't fix it!

Wow...
By mass on Sun, 03/21/2010 - 1:06pm
great post. Reminds me a little of Reich's Mad as Hell Party proposal
although this is much meatier.

"When a social movement adopts the compromises of legislators, it has
forgotten its role, which is to push and challenge the politicians,
not to fall in meekly behind them."--Howard Zinn

My opinion?
By CMike on Sun, 03/21/2010 - 1:14pm
This post is too long for this medium. That said, I enjoyed reading
it.

Given the misunderstanding of macroeconomics at the time and your
concession that "Germany was in crisis, crushed by reparations to
England and France ...," I'm not following your "Germany had begun to
re-arm well before 1933, and had already been defaulting on its
reparations under the tutelage of the U.S. [*]" and your "[Germany]
had a choice of whether to choose fascism or not" points. Whohad
exactly whatchoice in Germany before Hitler became Chancellor?

According to Wikipedia:

Chancellor Franz von Papen called another Reichstag election in
November [1932], hoping to find a way out of this impasse. The result
was the same, with the Nazis and the KPD [the Communist Party of
Germany] winning 50% of the vote between them and more than half the
seats, rendering this Reichstag no more workable than its predecessor.
But support for the Nazis had fallen to 33.1%, suggesting that the
Nazi surge had passed its peak – possibly because the worst of the
Depression had passed, possibly because some middle-class voters had
supported Hitler in July as a protest but had now drawn back from the
prospect of actually putting him into power.

The Nazis interpreted the result as a warning that they must seize
power before their moment passed. Had the other parties united, this
could have been prevented, but their shortsightedness made a united
front impossible. Papen, his successor Kurt von Schleicher, and the
nationalist press magnate Alfred Hugenberg spent December and January
in political intrigues which eventually persuaded President Hindenburg
that it was safe to appoint Hitler Reich Chancellor at the head of a
cabinet which included only a minority of Nazi ministers, which he did
on 30 January 1933.

By convention, it's BRIC not CRIB.

If you haven't seen it all ready, you might find this Q & Chomsky A of
some interest.

I too wince at its length
By jeffroby on Sun, 03/21/2010 - 2:34pm
Germany was on a course of re-armament, including battleship
construction, before 1933. Other moves were made to rebuild the
military under seemingly innocent guises, some based on the Freikorps,
others like adult boyscouts undergoing military training but not
carrying guns. France and Britain were reluctant to stop this, partly
out of fear, partly because a MODERATELY re-armed Germany was a
barrier between them and the Soviet Union.

There were various moratoriums on the reparations, I believe, by 1931.
There was a complex web of debt. Britain and France were also deeply
in debt to the United States. If Germany didn't pay, they couldn't
pay. There were variations of the U.S. forgiving the British/French
debt if they forgave the German reparations. Part of the deal was that
Germany would remain unarmed, with the U.S. providing its security
guarantee against the British and French, who were military stronger
than Germany even in 1939.

The U.S. did not do this because the U.S. was a beacon of freedom.
Germany was massively in straight-out debt to the U.S. Not
reparations. Just debt. The U.S. was not forgiving this. Germany's
choice was to agree to a subservient relationship with the U.S. or
cancel both reparations and U.S. debt payments. The former was viable
because, as you note, "the worst of the Depression had passed." That
it hadn't passed was largely because of the collapse of the payment
arrangements. Once Germany decided to cut loose, the drive to war was
on. Did Hitler make a difference in how it played out? Of course.

I'm aware that Nazi vote totals had declined slightly. But my point is
that were was a drive towards war that existed independently of the
Nazis. You quote, "it was safe to appoint Hitler Reich Chancellor."
Another interpretation might be that they had to strike while the iron
was hot or a non-Nazi government might not have given them their war.

If the system is broke, don't fix it!

thank you for writing this
By DCblogger on Sun, 03/21/2010 - 1:12pm
I have been thinking that we should abandon the Versailles metaphor
for Wiemar. Obama and the Dems have done nothing to prevent the slide
to fascism. Having seen the tea party in person in DC, I can tell you
they strike me very mujch as proto storm troopers.

the sad thing is that I think that Obama & Co think it is clever to
use the tea party as a foil to fool us into supporting corporate Dems.
Some people are fooled, but not enough, not nearly enough. Ian is
right. If you value your liberty, leave the US.

If, like most of us, that is not an option, well, just do the best you
can to not be part of what is to come.

Heartily agree that fascism isn't...
By tarheel-leftist85 on Sun, 03/21/2010 - 1:19pm
...a checklist, but i would suggest that it can be distilled into one
thing: corporatism, or the use of state power to extract wealth
(rents?) from the public and transfer said wealth to corporations.
Everything else on the checklist flows from this. Scapegoats and
identity politics are invoked to consume the public and displace
anger. Rabid reactions to creeping socialism reinforce the idea that
fascism is ideological--specifically, anti-socialist. And though we
have two "competing" legacy parties, there is the one neoliberal/
corporatist ideology--effectively making this a one-party state. So in
the sense that fascism is, or at least requires, corporatist
governance, we are living in a fascist state. I would also argue that
people are on solid ground when they call Obama a fascist, rather than
calling him or any of the Democrats socialist.

The problem with much of the tea party crowd is that they conflate two
antithetical ideologies with one another. Socialism would have meant
removing the parasite that is our current financial system and
nationalizing banks, or something like a North Dakota-like public bank
in every state; fascism would involve extracting tax dollars from the
public and transferring that wealth to private banks. Socialism would
have meant removing the parasite that BHIPs are through combinations
of nationalizing the pharmaceutical and insurance sectors or going
with an NHS-type program; fascism involves extracting rents from the
public that are then transferred to insurance, pharmaceutical,
hospital-system parasites. Socialism would involve a completely
publicly-operated national security and defense; fascism involves
extracting rents from the public and transferring that wealth to
companies that drive our "foreign" policy--including invasions and
occupations to open up markets and privatize sectors that once-
sovereign nations had agreed should be removed from the market.

I agree that independent movements are the way to go. I would caution
against using the Democratic Party as any sort of vehicle, however.
Because the corporatism has metastasized to every single member (I'm
afraid even the congresscritters that vote against the BHIP bailout),
good policy and good ideas will go to die in something as cancerous--
no matter how potent the treatments are administered. A non-partisan
independent movement would have the benefit of denying the public
signals, perhaps compelling citizens to look at candidate policies. It
would avoid the marketing strategies of both legacy parties. The two
legacy parties "competing" for market share or viability don't care
about majority status; rather, they care about maintaining the
perception of viability (that they could eventually assume the
majority). It's like taking a duopolistic market, where each company
sustains the other with the mutual goal of extracting as much wealth
from their customer base as they possibly can.

And it makes sense that there is no "we" in such a system. How are
people to unite to combat the corporatist duopoly? A third party, i
suspect, would result in a corporatist triopoly. This might even be
the case in places like the UK, where there is a multi-party system.
Instead of a two-party neoliberal/corporatist consensus, there is a
three-party neoliberal/corporatist consensus. A non-partisan alliance
with a common policy platform, i believe, would stress the system such
that one of two things happens: (1) over many iterations, the non-
partisan candidates begin to defeat members of legacy parties, with
each legacy party truly turning against one another to prevent the
viability of independent candidates/ideas, or (2) both legacy parties
unite with the mutual goal of preventing the viability of independent
candidates/ideas (at which point the public may begin to recognize the
common goals of the legacy parties and move en masse towards
independent candidates with the common platform (maybe the Justice
Platform, instead of a Justice Party?) and from a candidate/party-
centric politics towards a more policy-centric orientation.

More immediately, what can be done? Boycott all corporate news, move
your money out of the big six, and avoid the legacy parties like the
plague. The do's: teach-ins, general labor and consumption strikes,
civic disobedience, etc.

It's all about rents and rent-seeking.

Your analysis is spot-on, though ...
By jeffroby on Sun, 03/21/2010 - 2:40pm
When you say:

So in the sense that fascism is, or at least requires, corporatist
governance, we are living in a fascist state

The reason why I call fascism a movement rather than a state of
affairs is that the possible options you suggest indicate we have not
reached a point of no return. That's where I say, "fascism is here."

But I'm not going to quibble about labels. You understand the forces
in play. That's the important thing.

If the system is broke, don't fix it!

reperations
By DCblogger on Sun, 03/21/2010 - 2:46pm
I was struck by what you said about Hitler stopping payment on
reparations in 1933. What do you want to bet the Sarah Palin
repudiates the debt early in her administration? I know that that
would be anti-corporatist, but it would solve many of her problems.

except the debt is part of how the people are held down, and she would
want to maintain that.

Came across this yesterday: Witness says police overwhelmed
By jawbone on Sun, 03/21/2010 - 1:36pm
by Tea Partiers, quoting report by Brian Beutler at TPMDC:

Standing next to Lewis, emerging from a Democratic caucus meeting with
President Obama, Carson said people in the crowd yelled, "kill the
bill and then the N-word" several times, while he and Lewis were
exiting the Canon House office building.

"People have been just downright mean," Lewis added.

And that wasn’t an isolated incident. Early this afternoon, standing
outside a Democratic whip meeting in the Longworth House office
building, I watched Rep. Barney Frank (D-MA) make his way out the
door, en route to the neighboring Rayburn building. As he rounded the
corner toward the exit, wading through a huge crowd of tea partiers
and other health care protesters, an elderly white man screamed
"Barney, you faggot"–a line that caused dozens of his confederates to
erupt in laughter.

After that incident, Capitol police threatened to expel the protesters
from the building, but were outnumbered and quickly overwhelmed. Tea
party protesters equipped with high-end video cameras were summoned to
film the encounter and the officers ultimately relented.

Walmart hit by ginned up anger against immigrants, blacks:
By jawbone on Sun, 03/21/2010 - 1:47pm
In Turnersville, NJ (Gloucester County in southern NJ) Walmart, a
teenager got onto the PA system and announced blacks had to leave the
store.

The teenager has been arrested.

At a local Walmart here in Morris Plains, NJ, a notice was taped to
the inner entry doors saying that emails and text messages that
Walmart was arranging raids on illegal immigrants shopping there were
totally false. I didn't write down the exact wording, but I made the
connection.

Z
By DCblogger on Sun, 03/21/2010 - 1:54pm
four minutes into this clip from Z shows what the tea party is like.
notice the attacks on all political parties.

http://www.correntewire.com/fascism_there_point_no_return

AGENDAMARCH 22, 2010

Resolvinging Europe's Economic Dilemma Will Require More Than Sleight
of Hand By IRWIN STELZER..ArticleCommentsmore in Europe Home
».EmailPrintSave This ↓ More.

.U.S. President Harry S Truman, weary of hearing his economists
conclude "on the one hand, but then on the other hand," famously asked
for a one-armed economist. He's fortunate he never found one. For any
economist who feels certain about his reading of the economic tea
leaves, who sees no "other hand," is, to put it mildly, more than a
little overconfident.

All by way of excuse for this attempt to figure out just what is going
on in the European Union and euroland.

View Full Image

Associated Press

Luckily for U.S. President Harry Truman, he never found a one-armed
economist
.On the one hand, things are brighter than they were last year, when
the areas' economies were contracting at a rapid rate. No one is
expecting that dismal performance to be repeated this year or next.
But on the other, neither is anyone expecting anything like
satisfactory growth. The Economist Intelligence Unit is guessing that
growth will be at an annual rate of 1.0% and 1.1%, this year and in
2011, respectively.

The move out of recession is the result of an increase in exports. On
the one hand that's good news: Otherwise, the EU economies would
continue to shrink. But on the other hand, some of the increased
exports, especially those from Germany to other euro-zone countries,
are exacerbating serious imbalances. Germany's trade surplus with its
EU partners is causing serious problems, especially for the struggling
periphery countries.

"Germany's…trading partners cannot sustain deficits forever," notes
the Economist.

Germany's surplus is its EU partners' deficits, which they have to
finance by borrowing. And borrowing is precisely what Greece and
similarly situated countries need less of. Europe needs Germany to
base more of its growth on domestic demand, its consumers to start
spending and stop paying down debt, neither of which they show signs
of doing.

As Jefferies, the securities and investment-banking firm, points out
in its latest report, consumption in Germany comes to only 57% of
gross domestic product, compared with closer to 70% in the U.S. and
the U.K.

Then there is the news coming out of Berlin, Athens and Brussels.
Greece won't cut spending unless it is guaranteed that its euro-zone
partners will somehow enable it to borrow at lower interest rates.
Otherwise, argues Greek Prime Minister George Papandreou, the premium
the country now pays— more than three percentage points above what
Germany is charged— will eat up a good portion of the savings from his
austerity program.

But German Chancellor Angela Merkel, after dithering and trying to
find some way to avoid becoming the banker of last resort for
profligate, inefficient members of the euro zone, finally hit on an
alternative. She told Mr. Papandreou to take his troubles to the
International Monetary Fund, outraging her euro-zone partners who find
that a humiliating admission of their inability to manage their
currency without outside help.

As Mrs. Merkel's partners see it, Greece would be merely the first
domino to fall. Spain might well be next. Its socialist government is
having some second thoughts about the extent and speed at which it
should impose an austerity program, inflicting pain on public-sector
workers, or begin cleaning up the mess in its banking system. The
country's 44 small regional banks, or cajas, have some half of their
$1.8 trillion in assets tied up in property loans. Of those, somewhere
between $220 billion and $330 billion (estimates vary) are loans to
property developers, many of which are in no position to repay. The
government says one-third of the cajas are insolvent, and is hoping to
solve the problem by organizing mergers with healthy institutions, but
is running into opposition from regional politicians, who would much
prefer some sort of bailout. If the IMF rescue team heads to Europe it
might just as well visit Madrid as Athens, pain-averse Spanish
politicians might decide.

All of these problems have driven the euro down from its November peak
of around $1.50 to about $1.37. With the U.S. economy recovering at a
more rapid rate than Europe's, and with the Federal Reserve likely to
raise interest rates sooner than the European Central Bank, experts
are expecting the euro to continue to weaken against the dollar. On
the one hand, this is good news. Europe's exporters now find their
goods more competitive in world markets, even against those made in
China, which pegs its yuan to the strengthening dollar.

On the other hand, a weaker euro raises the price of imports,
especially those, like oil, that are denominated in dollars. That
increases the possibility that when the EU economies do start to
recover, inflationary pressures will force the European Central Bank
to tighten sooner than it might otherwise want to do. On the one hand,
that is good news: It would contain inflation. On the other hand, it's
bad news: It would slow the recovery.

All proof that Harry Truman was wishing for something that just
doesn't exist.

—Irwin Stelzer is a business adviser and director of economic-policy
studies at the Hudson Institute.

http://online.wsj.com/article/SB10001424052748704534904575132061301158560.html?mod=WSJ_hpp_RIGHTTopCarousel

Meirelles Says U.S.-China Imbalance Won’t Hurt Brazil (Update1)
By Jonathan J. Levin

March 21 (Bloomberg) -- Brazil’s Central Bank President Henrique
Meirelles said an imbalance between the U.S. dollar and Chinese yuan
would be resolved over time and is unlikely to hurt the Brazilian
economy.

“I’m expecting the imbalance between these two countries to be
resolved over time,” said Meirelles, speaking to reporters in Cancun,
Mexico, on the sidelines of the annual Inter-American Development
Bank’s annual meeting.

Meirelles said that Brazil would not be affected by a rebalancing of
the two currencies because its trade portfolio is diversified.

U.S. lawmakers are urging President Barack Obama to step up pressure
on China to allow the yuan to rise, accusing Beijing of keeping its
currency unfairly cheap to gain export advantage. The Treasury
Department is set to decide in April whether to label China as a
currency “manipulator.”

China has kept the yuan at 6.83 per dollar since July 2008 to shield
the exporters from the global recession. It allowed the currency to
appreciate 21 percent in the previous three years.

“Our economy is diversified and is growing now basically led by
domestic demand, which means that we are prepared to face these kinds
of scenarios,” Meirelles said.

Meirelles said the greatest foreign threat to the Brazilian economy is
increasing risk aversion caused by credit problems in some Europe
nations.

To contact the reporter on this story: Jonathan Levin in Cancun,
Mexico at jlev...@bloomberg.net

Last Updated: March 21, 2010 15:52 EDT

http://www.bloomberg.com/apps/news?pid=20601086&sid=ahy8AxoSk.g8

NZ Dollar Outlook: Speeding economy may limit dips
13:53 March 22, 2010Article 0 comments
Article – Businesswire

March 22 (BusinessWire) – The New Zealand dollar may be supported this
week by data expected to show the domestic economy grew at its fastest
pace in two years, limiting the currency’s dips below 70 U.S. cents.

NZ Dollar Outlook: Accelerating economy may limit dips in kiwi
By Paul McBeth

March 22 (BusinessWire) – The New Zealand dollar may be supported this
week by data expected to show the domestic economy grew at its fastest
pace in two years, limiting the currency’s dips below 70 U.S. cents.

Five of seven economists and strategists in a BusinessWire survey
predict dips below 70 U.S. cents will be limited. Three strategists
forecast the kiwi will trade in a range this week, while one is
picking it will edge lower, though won’t fall below 70 cents. Two
economists expect the kiwi will decline this week, and one predicts it
will gain.

GDP expanded 0.8% in the three months ended Dec. 31, its fastest pace
since the same quarter of 2007, according to a Reuters survey, with
forecasts ranging between 0.5% and 1.2%. The central bank forecast a
0.6% expansion for the period in its March monetary policy statement.
In June last year, New Zealand climbed out of its worst recession in
19 years, though the fourth quarter is expected to show the first
period of marked growth in what has been a tepid recovery.

“If the data comes in line with expectations, the kiwi probably won’t
do anything” this week with global pressures likely to weigh on risk
sentiment, said Ben Potter, research analyst at IG Markets in
Melbourne. “The kiwi will probably move back towards 70.50 U.S. cents
or 70 even – there’s pretty good support there.”

The kiwi sank to 70.61 U.S. cents from 71.16 cents on Friday in New
York as investors became wary about higher-yielding, or riskier,
assets after the Reserve Bank of India hiked both the reverse
repurchase rate and repurchase rate by 25 basis points to 3.5% and 5%
respectively.

Potter said the surprise hike, which came a month before a scheduled
monetary policy meeting, bolstered support for the greenback as
investors prepare for potential rate hikes in China, which will damp
demand for so-called commodity currencies such as the Australian and
New Zealand dollars.

Derek Rankin, director of Ranking Treasury Advisory Ltd., said the
kiwi would face downward pressure this week from the ongoing problems
coming out of Europe. Questions remain over the viability of an EU
bail-out for Greece after German Chancellor Angela Merkel told her
Parliament that the International Monetary Fund may be the only
solution to the Mediterranean nation’s debt woes.

“It’s deeply unpopular in Germany to bail out other nations,” Rankin
said. He predicts the kiwi will push down to about 69.50 U.S. cents.

The European Union will hold a summit at the end of this week, and
Bank of New Zealand currency strategist Danica Hampton expects this
will dominate global sentiment for riskier assets such as the New
Zealand dollar. Hampton predicts the kiwi will trade between 70 U.S.
cents and 71.50 cents this week, with dips below the 70 mark to
attractive for buyers.

Imre Speizer, markets strategist at Westpac Banking Corp., said the
greenback was finding a lot of support due to the ongoing concerns
about Europe, which in turn weighed on the kiwi against the U.S.
dollar.

Still, the weakness was underpinning support for the New Zealand
currency on the cross-rates against the euro and the pound, which he
predicts will hold above 52 euro cents and 47.50 pence this week.

The kiwi dropped to 52.22 euro cents from 52.33 cents on Friday in New
York, and edged up to 47.07 pence from 46.98 pence.

Other New Zealand data out this week is the current account on
Wednesday probably showed the balance of payments in the fourth
quarter shrank to $3.62 billion, or 1.9% of GDP, from $5.7 billion, or
3.1%, according to a Reuters survey. Meanwhile, data on Friday will
show the trade balance was a surplus of $480 million in February,
according to Reuters.

Tim Kelleher, vice president of institutional banking and markets at
Commonwealth Bank of Australia, said New Zealand’s stronger economic
data should undo any weakness in the kiwi from concerns in the Euro-
zone, and was the only strategist to pick the currency up on the week.
He predicts it will trade between 70 U.S. cents and 71.25 cents.

The kiwi dollar will probably gain on a trade-weighted basis this
week, according to three of seven strategists surveyed by
BusinessWire. The other four expect the trade-weighted index, or TWI,
a measure of the currency against the greenback, yen, euro, pound and
Australian dollar, will remain in recent ranges, though faces an
upward bias. The TWI sank to 65.47 from 65.71 on Friday in New York.
The kiwi dropped to 63.92 yen from 64.36 yen last week, and declined
to 77.30 Australian cents from 77.34 cents.

On the radar this week will be the U.K. budget out on Thursday, which
comes after the Bank of England’s Monetary Policy Committee member
Andrew Sentance said the U.K. could face a “double-dip recession” in
an interview on CNBC. Meanwhile, the Reserve Bank of Australia’s
Assistant Governor Philip Lowe and Governor Glenn Stevens will give
speeches on Thursday and Friday respectively.

(BusinesWire)

Content Sourced from scoop.co.nz
Original url http://www.scoop.co.nz/stories/BU1003/S00572.htm

http://business.scoop.co.nz/2010/03/22/nz-dollar-outlook-speeding-economy-may-limit-dips/

Will U.S. yuan calls make for a stubborn China?
Simon Rabinovitch
BEIJING
Mon Mar 22, 2010 4:20am EDT

BEIJING (Reuters) - Beijing's groans over U.S. demands to let the yuan
rise have been grand theater, but domestic currents favoring a
stronger currency are likely to prevail when Chinese leaders cool down
to plot policy.

China's denunciations of U.S. pressure have, combined with other
recent tension between the two powers, fostered the view that Beijing
will put stubborn resistance to foreign hectoring ahead of arguments
for yuan appreciation.

The core of this view is the assumption that the Communist Party and a
nationalist public would find it intolerable to appear to cave in to
external pressure.

But this image of a China boxed in by pride does not stand up to
scrutiny. In a country where maintaining economic strength is
sacrosanct policy, even prickliness over perceived U.S. bullying could
fade way.

Government advisers and analysts say Beijing still has plenty of
political space to implement currency appreciation if it decides that
a stronger yuan makes economic sense.

"If we didn't adjust the exchange rate just because of U.S. pressure,
that really would be manipulation. China is still moving toward market-
based reforms of its exchange rate, but is waiting for the economy to
improve," said Li Wei, head of the Americas division in the commerce
ministry's research unit.

"The main thing is that we will do it according to our own judgment."

Regardless of U.S. threats, Beijing is likely to resume appreciation
in the second half of this year when the global economy strengthens
and Chinese exporters indisputably find themselves on more solid
ground, Li said.

China has in effect re-pegged the yuan at about 6.83 to the dollar
since mid-2008 to shield its exporters from the financial crisis.

CURRENCY MANIPULATOR?

President Barack Obama's government is under pressure to call Beijing
a "currency manipulator" in a Treasury department report due on April
15.

The possible use of that designation, not invoked since 1994, has been
greeted with thunderous rebuttals from Chinese officials.

Yet for all the denunciations, Beijing may be able live with the ugly
label.

"Calling China a manipulator and passing some kind of punitive
legislation are different," said Tao Xie, an expert on Sino-U.S.
relations at Beijing Foreign Studies University. "A label does not
come with any punishment."

If China is deemed a currency manipulator, the U.S. Treasury must
quickly launch talks with Beijing, though no sanctions are required.

A newly introduced Senate bill would be tougher, demanding tariffs on
Chinese products if the yuan does not rise.

Beijing can be excused for feeling that it is has seen this movie
before. Lindsey Graham and Charles Schumer, the U.S. senators behind
the bill, crafted similar legislation in 2005. Their attempt fizzled
out when China launched gradual appreciation in July 2005.

The yuan climbed 21 percent over the next three years.

"The Chinese government may be thinking, 'Let's wait and see. The
storm will pass'," Tao said.

Commerce Minister Chen Deming hinted at the distinction between words
and actions in a speech on Sunday.

"If the U.S. Treasury gave an untrue reply for its own needs, we will
wait and see," he said. "If such a reply is followed by trade
sanctions, we will not do nothing."

PREPARING THE GROUND

There are signs that China is preparing the ground for a resumption of
yuan appreciation.

Since the re-pegging nearly 22 months ago, the rhetoric out of Beijing
has grown predictable: a stable yuan has helped the economy and the
global recovery.

In the last few weeks, this has started to change.

State newspapers have run a series of reports about officials visiting
export hubs to 'stress test' how firms would cope with appreciation.

And in his most important news conference of the year, Zhou Xiaochuan,
China's central bank governor, described the "special yuan policy" as
a temporary stimulus policy that would end "sooner or later."

It will probably be for President Hu Jintao and Premier Wen Jiabao to
decide whether to let the yuan rise again.

The official policy description -- keeping the yuan "basically stable
at a reasonable and balanced level" -- has been consistent since 2005,
leaving them with considerable discretion to resume mild appreciation,
said Victor Shih, a political scientist at Northwestern University in
Illinois.

"Things change very fast. If inflation does increase, arguments can
change. If exports do recover very quickly, arguments can change,"
Shih said.

"They can say, 'no, we are not doing it because some laowai
(foreigner) is telling us to do it. We are doing it for these other
reasons'."

Hence the relatively mild market jitters thus far.

While the war of words with the United States has made headlines,
forecasts of a pick-up in both exports and inflation still dominate
the outlook for the yuan.

The yuan fell to a five-week low in offshore forwards on Monday, but
the implied expectation of a 2.3 percent rise over the next 12 months
was still well within the range tracked since late last year.

(Editing by Chris Buckley & Jan Dahinten)

After reading this article, people also read:

WRAPUP 2-Chinese media launches new attack on Google
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Case for yuan appreciation strong but not iron-clad
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Google moves China search service to Hong Kong
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U.S. shares give world markets lift, euro bounces
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http://www.reuters.com/article/idUSTRE62L15A20100322

[Sid Harth]

Economic Snapshot for March 2010

Traders react on the floor of the New York Stock Exchange. Companies
are now sitting on cash, but they're going to need to spend it on
investments and people for the economy to recover.

SOURCE: AP/Richard Drew
By Christian E. Weller | March 23, 2010

The economy has grown again since the middle of 2009, in large part
because the economic stimulus—the American Recovery and Reinvestment
Act—helped to fill the hole in the private sector left by the
recession. Private sector economic activity is expanding and boosting
companies all across the country. Nonfinancial corporate profits have
handsomely risen since the end of 2008, corporations are sitting on
more cash than they have at any point in the past 45 years, and they
are beginning to spend this money. But they’re primarily using it to
pay dividends and buy back their own shares instead of making
investments and hiring.

Economic policy now must ensure stronger job growth and more business
investments. The focus first needs to be on personal income through
job creation and support for the unemployed. More income will mean
fewer foreclosures, credit card defaults, and bankruptcies, which in
turn will mean more consumer demand and lower credit costs that will
both boost business investment. Policy can then create a more
predictable investment climate, especially through health care and
energy reform. Prices for health insurance and energy will become more
predictable and thus more manageable, enticing more business
investments. Companies have the money to help the economy. Policy now
needs to create the right environment to boost private sector
employment and investment.

1. The U.S. economy has turned the corner. Gross domestic product grew
at an annual rate of 5.9 percent in the fourth quarter of 2009, the
largest gain since the third quarter of 2003. The Recovery Act
provided additional income to consumers and businesses, which led to
more business investments. Investment in inventory stockpiles and in
equipment, such as computers and software, explained more than three-
quarters, or 76.3 percent, of the fourth-quarter growth. The initial
policy intervention in the economy thus helped boost private business
spending at the end of 2009.

2. Job losses continue. The U.S. economy shed 36,000 jobs in February
2010. The economy has lost 8.4 million jobs since the recession began
in December 2007—60.8 percent of which were lost before the stimulus
was enacted in February 2009.

3. The rate of job loss has markedly slowed since the stimulus was
enacted. Job losses averaged 57,000 from December 2009 to February
2010, down from an average monthly job loss of 726,000 in the three
months before the stimulus was passed in February 2009.

4. Unemployment stays high among the most vulnerable. The unemployment
rate was 9.7 percent in February 2010. The African-American
unemployment rate that month stood at 15.8 percent, the Hispanic
unemployment rate at 12.4 percent, and the unemployment rate for
whites at 8.7 percent. Youth unemployment stood at a high 25.0
percent. And the unemployment rate for people without a high school
diploma stayed at 15.6 percent, compared to 10.5 percent for those
with a high school degree, and 5.0 percent for those with a college
degree.

5. The unemployed are out of a job for long periods. In February 2010,
6.1 million people had been looking for a job for 27 weeks or more.
The average length of unemployment that month was 29.7 weeks, and 40.9
percent of the unemployed were out of a job for 27 weeks or more. Long-
term unemployment is slightly down from its record in January 2010,
but still remains higher than during any other month.

6. Employer-provided benefits continue to disappear. The share of
private sector workers with a pension dropped from 50.3 percent in
2000 to 45.1 percent in 2007 and 43.6 percent in 2008, and the share
of people with employer-provided health insurance dropped from 64.2
percent in 2000 to 59.3 percent in 2007 and 58.5 percent in 2008.

7. Family incomes drop sharply in the recession. Median inflation-
adjusted family income fell by $1,860 to $50,303 (in 2008 dollars) in
2008 from 2007. This was the lowest family income since 1997. White
family income stood at $55,530, compared to African-American family
income, which was $34,218, or 61.6 percent of white income. Hispanic
family income was $37,913 in 2008, or 68.2 percent of white income.

8. Poverty continues to rise. The poverty rate stood at 13.2 percent
in 2008—its highest rate since 1997. The African-American poverty rate
was 24.6 percent, the Hispanic rate was 23.2 percent, and the white
rate was 8.6 percent in 2008. The poverty rate for children under the
age of 18 rose to 19.0 percent—also the highest level since 1997. More
than one-third of African-American children (34.7 percent) lived in
poverty in 2008, compared to 10.6 percent of white children and 30.6
percent of Hispanic children.

9. Family wealth begins to recover. Total family wealth increased by
$5.7 trillion, or 11.7 percent in 2009 dollars from March 2009—the
lowest point—to September 2009, largely as a result of higher stock
prices. Home values rose by only $585 in comparison, or 4.0 percent
during the same period. Household wealth was still $11.8 trillion
below the level of June 2007—the last peak of family wealth.

10. Corporate profits soar. Profits in the nonfinancial corporate
sector rose in inflation-adjusted terms by 64.4 percent before taxes
and 85.8 percent after taxes from December 2008 to September 2009.
This was the fastest four-quarter before-tax gain since the four
quarters that ended in December 2002 and the fastest after-tax gain
over four quarters on record. Corporate nonfinancial inflation-
adjusted profits in December 2009 were thus higher than at any point
before 2005, although they are still far from the peaks of the last
boom.

11. Companies build cash and spend money on shareholders. Liquid
assets, or cash, made up 6.8 percent of the total assets of
nonfinancial corporations in December 2009—the largest share since
December 1964. Nonfinancial corporations also spent all of their after-
tax profits (106.8 percent) on dividend payouts and share repurchases
in that quarter. Cash, dividend payouts, and share repurchases thus
took precedent over hiring and investments.

12. Home sales show a mixed picture. New home sales in December 2009
amounted to an annualized, seasonally adjusted rate of 309,000—6.1
percent lower than a year earlier. And median new home prices were 2.4
percent lower than a year earlier. In contrast, existing home sales
were 11.5 percent higher and existing home prices were unchanged from
a year earlier.

13. Debt levels remain high. Total household debt equaled 122.5
percent of after-tax income in the fourth quarter of 2009. This is
down from a record high of 130.1 percent in the first quarter of 2008,
but still higher than at any point before the third quarter of 2005.

14. Mortgage troubles stay high. One in seven mortgages is delinquent
or in foreclosure. The share of mortgages that were delinquent was 9.5
percent in the fourth quarter of 2009, and the share of mortgages that
were in foreclosure was 4.6 percent.

15. Families feel the pressure. Credit card defaults rose to 9.5
percent of all credit card debt by the fourth quarter of 2009—an
increase of 126.2 percent from the fourth quarter of 2007.

Download the snapshot (pdf)

To speak with our experts on this topic, please contact:

Print: Suzi Emmerling (foreign policy and security, energy, education,
immigration)
202.481.8224 or semme...@americanprogress.org

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202.741.6397 or elin...@americanprogress.org

Related Articles

Lack of Robust Job Creation Is a Worrisome Trend, by Heather Boushey
http://www.americanprogress.org/issues/2010/03/employment0310.html
Economic Snapshot for February 2010, by Christian E. Weller
http://www.americanprogress.org/issues/2010/02/econsnapshot0210.html
After Blame, Moving the Burden to Wall Street
http://www.americanprogress.org/issues/2010/02/wall_street_tax.html
Economy Gains Momentum with Stronger Business Growth, by Christian E.
Weller
http://www.americanprogress.org/issues/2010/01/gdp_numbers.html
The Foundations of Economic Recovery and Growth, by Michael Ettlinger,
Heather Boushey
http://www.americanprogress.org/issues/2010/01/sotu_economy.html

Also by Christian E. Weller

Short-Term Labor Solutions Can Help Persistent Poverty Among
Minorities, February 16, 2010
http://www.americanprogress.org/issues/2010/02/poverty_oped.html
Economy Gains Momentum with Stronger Business Growth, January 29,
2010
http://www.americanprogress.org/issues/2010/01/gdp_numbers.html

© Center for American Progress

http://www.americanprogress.org/issues/2010/03/econsnapshot0310.html

The Contrarian Trade of the Decade: the U.S. Dollar
Charles Hugh Smith

Just as a speculative thought experiment: perhaps the great contrarian
trade of this decade is cash/the U.S. dollar.

The majority of economic observers seem convinced that the dollar is
doomed, and not in some distant future. The basic reason for this
unanimity is the reasonableness of the basic thinking, which goes like
this:

The Federal Reserve and the U.S. Treasury are "printing money" and
flooding the economy with easy money and credit, and the result of
this debasement of the nation's currency will be rampant inflation.

In other words, if a nation greatly expands its money supply without
expanding its production of goods and services, then all that surplus
money ends up chasing scarce goods and services, and you get
inflation: the same sum of currency buys less and less goods and
services.

This is the goal of State policy, according to the standard line of
thinking: The only way the Federal Reserve and the Treasury can "save"
the debt-burdened U.S. economy is by creating high inflation, which
enables debtors to repay debt with "cheaper" dollars. Everyone who
owns debt or low-yield bonds will lose huge chunks of their assets,
but for no-asset debtors, inflation will be the cat's meow.

But perhaps this thinking is wrong on virtually every important count.

I am indebted to my tireless and insightful blogging colleague Mish
for an understanding of money supply: True Money Supply. Here is
Mish's chart of three ways to calculate money supply, and he argues
persuasively for TMS1 as being the most accurate:

While the Federal Reserve successfully goosed money supply in their
massive "quantitative easing" campaign, money supply is no longer
expanding at a fast clip.

The critical distinction between printing press and credit is rarely
discussed: is money literally being printed or is it credit-based? The
distinction has profound consequences. If a government prints stacks
of currency and then distributes the freshly conjured money via
helicopter drops (in the visually compelling imagery of Fed Chairman
Ben Bernanke's famous "helicopter drop" quip), then the money supply
has been expanded and distributed into the economy where it then leads
to inflation if the production of goods and services lags money
growth.

But if a government--for instance, the U.S. Treasury--prints bonds and
sells those bonds to raise cash to distribute in the economy, that is
not "printing money." The Treasury bonds are traded for cash presented
by purchasers; the money already exists and is simply being
transferred to the State for distribution into the economy.

If money is being created via the magic of fractional reserves (that
is, via bank credit), then it does not flow into the economy if those
banks do not lend it and if consumers do not borrow it. As Mish has
repeatedly observed, banks cannot be forced into lending nor consumers
into borrowing.

It seems the money "created" by the Federal Reserve and lent to
private banks at near-zero interest rates is simply sitting in the
banks as reserves to offset their continuing horrendous losses. As a
result, it is not flowing into the economy, and thus it cannot trigger
inflation.

In contrast, a State such as Zimbabwe does run its printing presses to
create money, and this explains why it suffers from hyper-inflation.

It can be argued that the billions of dollars the Fed orders into
existence and then trades for Treasury bonds (i.e. to buy T-Bills) is
in fact "freshly created money" that flows into the economy via
Federal deficit spending. True, but then the question becomes, do
these purchases of Treasuries add enough to the $13 trillion U.S.
economy to offset the reduction in credit as people and businesses
either pay down debt or write off uncollectable/bad debt?

According to the Wall Street Journal (Drought of Credit Hampers
Recovery), consumer credit outstanding has shrunk some $119 billion,
or 4.6%, from its peak in July 2008, to $2.46 trillion.

Add in the mortgages paid down, paid off or written down in excess of
new mortgages issued, corporate debt retired or written off, etc.
etc., and it seems the deleveraging that is underway in both consumer
and corporate balance sheets is reducing credit and money supply by
hundreds of billions of dollars.

The Fed purchasing $300 billion or even $500 billion in Treasury bonds
simply doesn't pump enough money into a deleveraging $13 trillion GDP-
economy to create inflation. It merely offsets some of the destruction
of credit going on at every level of the economy.

Thus you can have a central bank shoveling credit-created money into
private banks where it sits, never entering the economy at all. How
can that create inflation? Indeed, as has often been noted by Mish and
others, this is what has happened in Japan for the past two decades:
the central bank shovels money into private banks, who either engage
in "carry trade" activities (borrowing at near-zero interest and then
moving the money overseas to earn a decent yield elsewhere for easy
profits) or they stash the funds to offset their ongoing losses in
defaulted/impaired portfolios.

Those portfolios of impaired assets in Japanese, U.S. and European
banks--just how much are they worth in a transparent "marked to
market" setting? How many trillions of dollars in mortgage-backed
securities, household debt, corporate debt and defaulted/impaired
sovereign debt do these banks hold? If they had to sell those assets
in an open market, how much would they fetch? How big would the losses
be?

Nobody knows, but we can guess the losses are easily in the tens of
trillions of dollars. The accounts of banks keeping defaulted
mortgages on the books are legion; Japan has played the "waiting for
better asset prices" game for decades, and now U.S. banks are playing
the same game: accepting interest-only payments of a few hundred
dollars from homeowners as an accounting gimmick to keep the loan on
their books as "performing."

This artifice does nothing to clear the actual bad debt.

And how about all those impaired off-balance sheet liabilities?
Regulators are not only allowing financial institutions to continue
marking assets to fantasy, they are also allowing them to continue
holding assets off their legitimate balance sheets.

The ever-astute Karl Denninger of the Market Ticker blog has
relentlessly exposed these frauds and accounting tricks.

Since we live in a credit-based monetary system and economy, then
income and collateral are the foundations of credit/borrowing.
Unfortunately for those wishing for vast expansions of borrowing to
fuel inflation, real estate collateral is not just impaired, it has
fallen to historic lows. We can only wonder what this chart would look
like if all real estate was truly marked to market:

The point is that the collateral represented by the average U.S.
household's primary store of wealth--their home--is near-negligible.
Why? As noted above, houses are still being valued far above their
true market value, so any reduction in value comes straight off the
equity.

For example, a house valued at $300,000 on the bank's books justifies
the $270,000 mortgage being held at full value. The homeowner
supposedly has $30,000 in equity/ collateral. But if the house is
actually marked to market at $250,000, the owner's collateral vanishes
and the bank's "asset" (the mortgage) also declines in value.

Second, suddenly-prudent lenders won't lend more than up to about 75%
of loan-to-value (except for the Fantasyland 3%-down payment loans
backed by FHA, which are fast-defaulting). So much of the homeowner's
equity is untouchable. The only collateral which is available to
borrow against is that above 25%--perhaps 10% of the total vaulation
of all homes in the U.S.

And since some 33% of all homes in the U.S. are owned free and clear
(50 million mortgages, 25 million homes owned outright), then the
"owners equity" is largely in the hands of those without mortgages. We
might infer that anyone who resisted the temptations to use their
house as an ATM machine via a home equity line of credit (HELOC)
either does not want/need to borrow against their home or they are
unable to for other reasons (such as low income, poor credit, etc.).

Put all this together and we can deduce that those homeowners who
might desire to extract some equity from their homes via borrowing
have no collateral left to borrow against.

What about other collateral, such as income? As we all know,
functional unemployment/underemployment is around 17%. According to
the BEA, personal income has declined by over $200 billion from 2008
to 2009. (Subtract government transfers and the number is more like
$600 billion.)

The BEA table reveals that "Net increase in household liabilities" hit
$1.8 trillion in 2006 and $1.4 trillion in 2007, and then fell to $146
billion in 2008. Households are no longer borrowing (adding
liabilities). Meanwhile, savings jumped from $178 billion in 2007 to
$470 billion in 2009.

Mortgage debt rose by $1.1 trillion in 2005, $1 trillion in 2006, $686
billion in 2007--and then fell by $106 billion in 2008. No data is
available yet for 2009, but you can bet both mortgage debt and new
liabilities continued plummeting.

So household incomes have fallen, meaning there is less collateral for
new borrowing, and new liabilities and mortgages have both collapsed
from nearly $3 trillion in 2006 to $46 billion in 2008. Yes, from $3
trillion in new borrowing in 2006 to a total of $46 billion in 2008.

That is deleveraging, and adding $300 billion in money supply via
Federal Reserve buying of T-Bills is offsetting a meager 10% of that
decline in household credit.

Now that we've seen that housing and income collateral have fallen off
a cliff and are not recovering, and that households are deleveraging
($3 trillion they were borrowing in 2006 has fallen to a mere $46
billion--more or less statistical error or pocket change in a $13
trillion economy)--then we might ask if those who still have assets
would wish to leverage them into more borrowing/debt.

The vast majority (83%) of other financial assets are held by the top
10% households. here is a chart I reprinted recently in The Stock
Market As Propaganda(March 10, 2010).

Equities (stocks) currently represent about $11.4 trillion of the
total $33.3 trillion in financial assets. Business assets and real
estate make up the remaining $20 trillion in total assets. According
to the BEA, total household assets fell from $63.9 trillion in 2007 to
$52.9 trillion in 2008--a decline of $11 trillion.

The recent stock market rally and "recovery" in housing has caused a
blip up in total assets, which now appears to be rolling over.

Since the bottom 80% of U.S. households only hold 7% of financial
assets ($2.3 trillion spread amongst 105 million households), then
their ability to leverage their declining income and modest assets
into huge dollops of new debt is somewhere between low and zero.

Recall that households added $3 trillion in new borrowing in 2006
alone. So those heady bubble days of credit/money supply growth are
gone for good.

Since the top 10% households own $27 trillion in financial assets, we
might ask what need they would have for new debt.

We might also ask what might happen if nobody comes forward to buy
$1.5 trillion in new Treasury debt every year (money needed to fund
the Federal deficit of $1.5 trillion a year) at very low yields. I
outlined the high probability of this happening in The Trouble With
Bonds (March 18, 2010).

Interest rates will rise. Recall that the Fed does not set yields for
Treasury bonds; that is set by the bond market (supply and demand).
The only way for the Fed to influence the yield of T-Bills is to buy
them outright, as it has been doing heavily of late. Since every other
major nation is also selling bonds to fund deficits, then we can
anticipate some lively competition for investor's cash.

In the standard view that "governments just print money," then why
governments sell bonds is never explained. Why don't all governments
just print up money and spend that? Why go to all the trouble of
selling bonds to raise cash to fund deficits? It comes down to the
distinction between credit-based systems and currency-based systems.

Inflation is impossible in credit-based systems when credit is being
paid down/destroyed/ written off and banks are wary of lending/risk
and consumers refuse to (or cannot) borrow.

We might also ask what might happen to stocks, bonds and real estate
valuations if interest rates rise: they tank as I explained in What If
(Almost) All Assets Fall Together?(March 11, 2010).

As a side-effect, the meager assets of the bottom 90% of U.S.
households would fall, and the "smart money" might well decide selling
out before further declines occur is the wisest capital-preservation
strategy.

Since so much debt is dollar-denominated, then there will be demand
for dollars to pay down debt. That is the essence of deleveraging.

And since other assets will be falling as interest rates rise and risk
aversion returns with a terrible vengeance, then "cash will be King."
Dollars will rise in value, and the best and safest return on capital
will be money-market funds or short-term notes.

Rather than doom the dollar, these trends suggest the dollar could
rise in purchasing power and demand for years to come. I know this is
contrarian, but ponder the distinction between "printing money" and
selling bonds/attempting to expand credit in a credit-averse,
collateral-impaired system.

This might be one of the most important bits I write this decade. Or
then again, maybe not. Only time will tell. Before chastizing me for
rampant hyperbole--"most important story of the decade, bah"--please
consider The Most Important Chart of the Century. Now the chart is
extremely important, and I recommend reading this story, but the
century is a bit young to declare "the chart of the century." One
wonders what the "chart of the century" would have been in 1910, and
how prescient we would find it in hindsight.

Let's say this is one of the most important charts of the past 50
years, which is entirely supportable.

The charts simply shows that adding debt no longer adds to GDP. So
even if the Fed were able to force banks to lend to poor credit risks
and deleveraging borrowers lost their sanity and added to their
liabilities, then the economy still wouldn't grow/"recover." The
"reflating the credit bubble" game is over.

If you haven't visited the forum, here's a place to start. Click on
the link below and then select "new posts." You'll get to see what
other oftwominds.com readers and contributors are discussing/sharing.

Recent Articles by Charles Hugh Smith

The High Water Mark of a Broken System: U.S. "Healthcare"
http://www.benzinga.com/183389/the-high-water-mark-of-a-broken-system-u-s-healthcare

The Wisdom of Crowds: Americans Refusing To Buy Into the Rally
http://www.benzinga.com/182496/the-wisdom-of-crowds-americans-refusing-to-buy-into-the-rally

The Trouble With Bonds
http://www.benzinga.com/180625/the-trouble-with-bonds

Comparing Household Net Worth to Total Credit: U.S. Is Insolvent
http://www.benzinga.com/178161/comparing-household-net-worth-to-total-credit-u-s-is-insolvent

Posted on 03/22/10 at 11:22am by Charles Hugh Smith
by Charles Hugh Smith

http://www.benzinga.com/184769/market-news-%E2%80%93-johnson-johnson-nyse-jnj-bank-of-america-nyse-bac-citigroup-nyse-c

http://www.benzinga.com/184708/the-contrarian-trade-of-the-decade-the-u-s-dollar

Canada's GDP growth to top G7 in 2010
Last Updated: Monday, March 22, 2010 | 1:02 PM ET
Comments94Recommend31CBC News
Canada's economy should grow faster than western Europe, Japan and the
United States, according to a new forecast by the Quebec-based
Desjardins Group released Monday.

That is because the country's domestic economy is in better shape than
almost any other western industrialized nation, said economists.

"Its strong economy makes Canada a special case," said the report.

Decent demand for new products and services by Canadian consumers and
corporations in 2010 means that the country will not be overly reliant
on stagnant overseas markets for improved sales, Desjardins said.

Canada's retail sales helps boost overall economy. (CBC)
Desjardins' report estimates that world trade fell more than 20 per
cent in volume between mid-2008 and mid-2009 and has recovered by a
smaller amount since that time.

The financial institution now figures Canada's gross domestic product
(GDP) could grow by three per cent in 2010.

If correct, the country's economic expansion would surpass the
American growth rate of 2.7 per cent for the current year and outpace
the overall average of countries using the euro by nearly two full
percentage points.

Joining the herd
Desjardins is the latest in a growing list of economists and equity
strategists who see Canada as one of the best performers in terms of
economic growth and equity markets in 2010.

The financial group, for instance, believes the TSX index will jump by
11.5 per cent in 2010 and almost 10 per cent in 2011.

That relatively optimistic outlook — coming on the heels of a 2009
that saw the TSX bounce by 50 per cent — has been echoed by other
stock market experts.

"In spite of its significant outperformance in 2009, we still favour
the superior fundamentals of most Canadian equities, as well as the
Canadian dollar over that of the U.S.," according to a January
commentary by Gluskin Sheff, a major Toronto investment company.

Economic forecasts
Similarly, in recent weeks, a number of economists have produced
strong forecasts for economic growth for Canada.

The Bank of Montreal recently raised its forecast of first-quarter
Canadian GDP growth of 4.7 per cent, up from its earlier prediction of
the same period.

And the Royal Bank of Canada produced a March forecast that pegged the
country's economic expansion at 3.1 per cent for 2010.

Story comments (94)

http://www.cbc.ca/canada/story/2010/03/22/canada-economy-desjardins.html#ixzz0j0ewxHOM

Memo to U.S.: Only Fools Rush In
March 22, 2010 · By Sarah Anderson

If negotiators aren't careful, a U.S.-China investment treaty could
prove as explosive as currency manipulation or climate change.
This article originally appeared in the Guardian on 3/21/10.

U.S. diplomats are no doubt eager to find something – anything – on
which the Obama administration and China can agree. So perhaps it
should come as no surprise that they appear eager to make progress in
the seemingly sleepy arena of bilateral investment treaty (BIT)
negotiations.

It's true these deals haven't grabbed headlines in the past, but if US
officials aren't careful, this one could become as explosive as
current redhot issues with China, such as currency manipulation,
computer hacking, and climate change.

It was President Bush who launched the U.S.-China BIT negotiations.
Then last November, Presidents Barack Obama and Hu Jintao announced
they would "expedite" them. According to Inside US Trade,
undersecretary of state Robert Hormats said on 10 March that the
administration is very close to having model treaty text.

Similar to the investment chapters in US trade agreements, BITs give
foreign investors the right to bypass domestic courts and sue
governments in international arbitration tribunals.

The United States has been at limited risk of being the target of such
"investor-state" lawsuits because its 40 current treaty partners are
nearly all developing economies with little investment in the US
market. This lopsidedness has created a one-way street in favour of US
corporations operating abroad.

The China negotiations could change all that. Chinese investors have
ploughed billions into the US economy, particularly in the financial
industry. Under a treaty based on current models, these investors
would have standing to sue the US government over breaches of a long
list of host government obligations.

Of particular relevance to the China BIT is the obligation to provide
foreign investors "fair and equitable treatment." In some cases,
tribunals have interpreted these vague terms to mean that a government
must provide a stable and predictable regulatory environment. On this
basis, they have ordered governments to pay compensation to investors
who claimed that changes in regulations or tax policies had made their
investments less valuable.

At a time when our regulations have just failed to prevent the worst
financial crisis in nearly 80 years, predictability should not be a
top priority. And indeed, the Obama administration is pursuing reforms
that would have been quite unpredictable two years ago and which would
strike at least a short-term blow to some Chinese investments.

Take, for example, the nearly 10% stake in Morgan Stanley held by
China Investment Corporation (CIC), a sovereign wealth fund. Recently,
Goldman Sachs researchers estimated that proposed regulatory reforms
could reduce Morgan Stanley's annual earnings by 15%. President
Obama's plan for a Financial Crisis Responsibility Fee could cost the
firm $800m, they predict, while the proposed "Volcker rule" to
prohibit proprietary trading by banks could cost another $600m per
year.

Could Chinese investors use a bilateral investment treaty to undermine
such US financial reforms? Legal experts are divided. Some argue that
a provision in current US treaties gives sufficient protection against
claims related to financial stability measures. Others, such as
Professor Robert Stumberg, director of the Harrison Institute for
Public Law at Georgetown University, disagrees, pointing to language
in the same provision that arbitrators could interpret as a self-
cancelling loophole.

If the ambiguity isn't fixed, investors could file their claims before
a tribunal and let the commercial arbitrators decide. If the
government lost, they'd have two choices: repeal the reform or pay off
the foreign investors. Neither option would be a winner with the
American public.

Last year, I served on an advisory committee representing business
associations, labour unions, environmental groups, and other
investment experts which unanimously recommended that the
administration conduct a legal analysis of this matter. Nine of us
went further to call for a whole new approach to BITs, including the
replacement of the investor-state dispute mechanism with a government-
to-government one. It's our view that the current system simply gives
foreign investors – including US corporations operating abroad – way
too much power.

Negotiators need to keep in mind that BITs are like straitjackets,
with rules locked in for a minimum of 20 years. With US leaders
struggling to fix our broken financial system, this is no time to rush
into a deal we'll be stuck with for decades to come.

Featured in
The Guardian on March 21, 2010

http://www.ips-dc.org/articles/memo_to_us_only_fools_rush_in

The Fed's Dennis Lockhart Reveals The Three Ways The Greek Crisis
Could Hurt The US
Joe Weisenthal | Mar. 22, 2010, 7:03 PM

In a speech today, Atlanta Fed President Dennis Lockhart revealed
three ways the (surprisingly) still ongoing Greek crisis could hurt
the US:

I see three ways the Greek crisis might directly affect the U.S.
economy. First, adjustment across the EU to fiscal problems could
dampen euro area growth and constrain U.S. exports to that region. The
European Union as a whole is this nation's largest export market.
Second, related to this, safe haven currency flows from the euro into
dollar assets could cause appreciation of the dollar and hurt U.S.
export competitiveness. Third is the possibility that the Greek fiscal
crisis could lead to a broad shock to financial markets. This could
play out in the banking system or in the form of a general retreat
from sovereign debt.

Below is the full speech, in which he also talks about recovery
prospects and the muni debt situation. Good stuff:

This afternoon, I will give you an update on the U.S. economy and
comment on conditions in the global economy that affect this country.
I'll also offer views on the interplay between fiscal uncertainty here
and abroad and appropriate monetary policy to achieve both growth and
control of inflation.

The views that follow are mine alone and don't necessary reflect the
views of my colleagues on the Federal Open Market Committee (FOMC).

Current economic juncture

First, the national economy: I expect first quarter gross domestic
product (GDP) growth numbers will show the economy continues to
recover. The recovery began last summer and accelerated in the fourth
quarter. Fourth quarter growth was driven by what I believe was the
transitory phenomenon of slowing inventory liquidation. Most
forecasters expect the first quarter to clock in at a slower but quite
respectable pace of around 3 percent, and I agree with that view.

Underlying continued growth is a steady improvement in private
spending in the United States. Consumer spending is expanding
modestly.

Business spending on equipment and software is helping to offset
softer housing and commercial construction.

Here in southwest Florida, you are well aware of the challenges faced
in housing. In Naples, house prices have declined 64 percent from
their peak in the second quarter of 2006 and have yet to stabilize.

Nationally, home sales slowed late last year, and sales have eased
further so far this year. Continued stabilization of the housing sector
—especially house prices—is likely a precondition for sustained
economic recovery.

Although job cuts in the United States appear to have tapered off in
recent months, the share of jobless receiving extended unemployment
benefits has continued to grow. Last month's U.S. unemployment rate
remained very high at 9.7 percent.

Another gauge of the labor market is the percentage of people who,
along with the unemployed, have stopped looking for work—so-called
discouraged workers—as well as those who are working fewer hours than
they want. The combined unemployed and underemployed figure is about
17 percent of the workforce.

With job growth negative to flat, real incomes have stagnated. Total
personal income, including transfers from the government, has grown
modestly, but income from wages and salaries has declined from a year
ago.

To give a context for these domestic developments, let me comment on
the international environment in which our economy is evolving.
Overall, the outlook for the global economy continues to improve, and
international trade has rebounded sharply.

Emerging Asia is driving the global rebound, led by China and India.
China's economic growth has been especially strong, lifting global
demand for raw materials and capital goods. Latin America has
weathered this global crisis much better than previous downturns
thanks to stronger economic fundamentals. The region is further
benefiting from rising commodity prices.

Meanwhile, recoveries in key developed economies, which still account
for the largest share of our export market, have been much less
dynamic. Japan's economy has fallen back into deflation, and its
economic growth trajectory remains very uncertain. Europe's recovery
is fragile as concerns mount about Greece and other countries with
large fiscal burdens. I'll discuss this topic more in a moment.
Overall, despite the notable divergence in growth rates between
developed and emerging economies, the global economy is expected to
expand at a solid pace this year, continuing to provide support for
U.S. exporters.

Looking ahead, the central question for the United States is how
strong the recovery will be and how long it will take to reduce
unemployment.

Views about the economic outlook fall roughly into two narratives.
Scenario one is the familiar V-shaped, strong bounce back from severe
recession. In this scenario, growth exceeds the underlying long-term
potential of the economy, and unemployment declines at a steady pace.
Both consumer activity and business investment show growth. Exports
contribute measurably to GDP, reflecting growth of our principal
trading partners, particularly in Asia. The banking system
successfully navigates a troubled commercial real estate sector and
expands credit to both businesses and consumers, fueling a rather
strong recovery.

By contrast, the second scenario is a relatively modest recovery, with
slow reduction of unemployment. Various headwinds hold back GDP
growth. They include (1) a weak banking sector that is slow to expand
credit in part because of weak loan demand and commercial real estate
problems, (2) subdued consumer activity reflecting a more frugal
consumer mindset as well as restricted consumer credit, and (3)
extremely cautious business investment in both inventory and capital
goods.

Most forecasters see a future resembling the second narrative. My
forecast—and that of my staff at the Atlanta Fed—is close to the
second narrative. The recovery under way seems at this juncture to be
tentative and fragile.

Greece and fiscal uncertainty

My staff and I typically incorporate known, somewhat quantifiable
risks into our forecasts. I referred to these as headwinds. They are
factors we expect to be drags on growth. There are other plausible
emerging scenarios that are not factored into my formal outlook. I
monitor these for evidence that they're materializing—becoming real—
and need to be more formally considered. One such concern is what
might be called "fiscal uncertainty."

You've all been reading about Greece and the European Union's handling
of the Greek fiscal crisis. At the moment a nexus of fiscal
uncertainty is the situation playing out in Greece.

Last October, the government of Greece revised its 2009 fiscal deficit
sharply higher to more than 12 percent of GDP. Consequently, the ratio
of public debt to GDP was revised up by 17 percentage points this year
to 125 percent of GDP.

Investors around the world are concerned about Greece's deficit and
rising debt. Market pressures, along with European Monetary Union
mandates, have forced the government to present a credible plan to
tame its deficit. As of today, how this will play out is not clear.

It's worth considering whether this is just a distant development or
one with relevance to us here in the United States. What do fiscal
problems in Greece have to do with my economic outlook for the United
States?

I see three ways the Greek crisis might directly affect the U.S.
economy. First, adjustment across the EU to fiscal problems could
dampen euro area growth and constrain U.S. exports to that region. The
European Union as a whole is this nation's largest export market.
Second, related to this, safe haven currency flows from the euro into
dollar assets could cause appreciation of the dollar and hurt U.S.
export competitiveness. Third is the possibility that the Greek fiscal
crisis could lead to a broad shock to financial markets. This could
play out in the banking system or in the form of a general retreat
from sovereign debt.

At this point, these possibilities are not factored into my outlook in
any way. But developments around the Greek situation deserve rapt
attention.

We have our own set of fiscal uncertainties in this country—at all
levels of government. The National League of Cities projects that
municipal governments will face a shortfall of $56 billion to $83
billion from 2010 to 2012. Local governments in this country are
pressured by lower sales tax revenues and shrinking property tax
digests along with other demands.

On average, state-level governments began fiscal year 2010 with a
revenue-expenditure gap of 17 percent. Three states had expected
budget gaps in excess of 40 percent. Florida's budget gap going into
the current fiscal year (2010) was 23 percent.

Across the country, state governments have responded to these strains
by drawing down rainy day funds, raising taxes, cutting budgets, and
furloughing employees.

To date, some amount of spending cuts and tax increases at the state
level have been avoided thanks to the federal stimulus package, but
that infusion of money is temporary. It appears state budgets next
year will need to shrink considerably to get to balance.

I'm sure you're familiar generally with the situation at the federal
level. According to the Congressional Budget Office, under current law
federal budget deficits rose from an average of about 2.4 percent of
GDP in the period from 1970 to 2008 to 10 percent in 2009. No budget
path currently under consideration would keep the public debt from
growing relative to gross domestic product. Clearly, an ever-rising
debt-to-GDP ratio is unsustainable and a matter of great concern.

Government finances are severely strained at all levels. All of these
fiscal pressures represent another downside risk for the broad
economy. But I see a connection to inflation risk as well. Let me
explain.

The FOMC met last week. In that meeting the federal funds rate target
was kept at the "low as it can go" range of 0 to 25 basis points.
Also, the Committee, in its post-meeting statement, said that economic
conditions are "likely to warrant exceptionally low levels of the
federal funds rate for an extended period." This policy is obviously
very accommodative, and, in my opinion, is appropriate for a recovery
that is tentative and facing headwinds.

Policy dilemma forming

By congressional mandate, the Fed in conducting monetary policy must
balance support for economic growth and the associated goal of
bringing down unemployment with pursuit of price stability—low
inflation. In my view, the current accommodative stance of policy is
not inconsistent with the dual mandate as long as inflation
expectations remain well anchored.

In these times of fiscal uncertainty I am concerned about the
possibility of a monetary policy dilemma developing. If you, the
public, become convinced nothing will be done to restore the federal
fiscal balance, especially at the federal level, this skepticism may
be reflected in inflation expectations. You may come to believe that
the only plausible scenario is inflating our way out of the problem.

If such a situation begins to develop, the Fed will face a difficult
trade-off between continued support for the recovery and aggressive
action to reanchor inflation expectations.

For the time being, inflation expectations are holding steady, and
incoming data suggest price pressures are muted. It is hard for me to
summon much concern about inflation in the immediate future. Almost
all measures of core inflation show indications of disinflation. But
this pattern could shift. As a policymaker, I have to pay constant
attention.

Inflation expectations as critical factor for policy

In my view, the capacity to maintain interest rates at the level
appropriate to support the recovery depends critically on containment
of inflation expectations.

The Greek drama we're watching with such great interest should
heighten recognition of the urgent need here in the United States for
a credible path to fiscal sustainability. Rising public awareness of
the country's serious fiscal imbalances should serve as a call to
action.

The nation has successfully navigated such challenging circumstances
in the past and can do so again. With a credible fiscal plan, monetary
policy should be able to remain supportive of the recovery that I'm
confident will build in strength.

See Also:

The New Rift In Europe: France And Germany Increasingly At-Odds Over
Greece And EU As A Whole

http://www.businessinsider.com/the-new-rift-in-europe-france-and-germany-increasingly-at-odds-over-greece-and-eu-as-a-whole-2010-3

Greece Has A Completely Unrealistic Rescue Plan For Itself

http://www.businessinsider.com/greece-has-a-completely-unrealistic-rescue-plan-for-itself-2010-3

Get Real, Here's Why The UK Is NOTHING Like Greece

http://www.businessinsider.com/get-real-heres-why-the-uk-is-nothing-like-greece-2010-3

http://www.businessinsider.com/the-feds-dennis-lockhart-reveals-the-three-ways-the-greek-crisis-could-hurt-the-us-2010-3

Posted on Monday, March 22, 2010

By Nancy A. Youssef | McClatchy Newspapers

WASHINGTON — Beginning this fall, the Marine Corps will guarantee
nearly all Marines 14 months at home for every seven months they spend
in war zones, the first payoff for service members of the United
States' diminishing military presence in Iraq.

The Army hopes to make a similar change by the end of 2011,
guaranteeing soldiers two years at home for every year they're in war
zones.

The change is the first concrete sign that the stress on the U.S.
military caused by the years-long engagements in Iraq and Afghanistan
is beginning to ease.

The lack of time at home between repeated combat tours — what military
planners call "dwell time" — has been blamed for exacerbating a range
of woes, including higher rates of suicide, divorce and domestic
violence among returning troops and a record-high suicide rate in the
Army.

More time at home between combat tours also will allow the military to
address what commanders say is a huge backlog in training that's left
forces with little preparation for events that once were considered
routine. For example, many Marines, who are expected to move from sea
to land, have never been on a ship; instead, they've been on the
ground in Iraq and Afghanistan.

Also on the agenda: more cross-training in the use of different
armaments.

"We aren't trained in a full spectrum of operations," Adm. Michael
Mullen, the chairman of the Joint Chiefs of Staff, told troops
stationed in Saudi Arabia during a recent visit. Increasing time at
home, he said, "will allow us to train and more importantly to rest
and be with our families."

Mullen said in an interview with McClatchy that the drawdown in Iraq
was the biggest reason for the change. The military is planning to
have no more than 50,000 troops in Iraq by the end of this summer,
down from the current 97,000.

The price of the nation's eight years of warfare has been high for the
families of deployed troops. At the peak, when the military had
172,000 troops in Iraq, the Army gave troops only 12 months off for
every 15 months were deployed. Marines got seven months at home for
every seven months they spent in combat.

That meant in many cases that troops spent only a few weeks with their
families between deployments as they traveled again to train for the
next tour.

At many of the largest Marine and Army bases, so-called Family
Readiness programs grew to provide additional support for spouses and
counseling for children, who suffer from higher levels of depression
while parents are away.

Commanders hope that the additional time will ease some of those
pressures.

They're also debating what training should be reinstated and what's no
longer needed. They acknowledge that the need to prepare troops
constantly for service in Iraq and Afghanistan has left little time
for training in skills that aren't needed immediately.

For example, the Marine Corps estimates that of its roughly 202,000
troops, only about 15,400 in the last decade have trained regularly in
amphibious warfare, the kind of beach-landing assault for which the
Marines are famous.

For a force that the Pentagon says must be prepared for the "the
broadest range of operations — from homeland defense and defense
support to civil authorities, to deterrence and preparedness
missions," the limits on training have been risky.

"Not only do we have to fix equipment but modernize" the force, said
Brig. Gen. David H. Berger, the Marine Corps' director of operations.
"We haven't had the time to do that."

The Marines will institute the increase in home time this fall when a
major rotation of troops comes out of Afghanistan, where 19,000
Marines will be serving.

The Army's plan, which will go into effect sometime next year, would
increase time at home from the current 15 to 18 months to two years
for every combat tour. That might stretch to three years if the U.S.
is able to cut the number of troops it has in Afghanistan, said Gen.
George Casey, the chief of staff of the Army.

Berger said the only developments that could derail the planned
increase in time at home would be a need to increase the number of
Marines deployed to Afghanistan or the outbreak of another major
conflict.

"Once the war in Afghanistan is over," he said, the Marines would be
able to consider 21 months at home for every seven months in a war
zone.

http://www.mcclatchydc.com/2010/03/22/90847/as-us-winds-down-in-iraq-troops.html#ixzz0j0kv0Kvx

Health-care legislation's economic/business winners and losers
My colleague Chris Cillizza over at The Fix has done a good job
listing the political winners and losers from last night's House
passage of the new health-care legislation, which you can see by
clicking here.

Let's take a look at the economic and business-sector winners and
losers.

WINNERS:

The health insurance companies: It's pretty funny that President Obama
spent much of the debate over health-care legislation beating up on
health insurance companies and is now poised to sign a bill that drops
a big Christmas present on their doorstep. If there are 30 million
Americans without health insurance, and the new bill says they're
going to get health insurance, where will they get that health
insurance? That's right -- health insurance companies.

The stock markets (so far): Wall Street has shrugged off the
anticipated hangover of health-care legislation to stage a mild rally
today. Some worried that the markets would dive because of a new and
massive government intervention into the private sector, which the
health-care legislation represents. But markets appear to be treating
this legislation as the basest possible news: a shift of money into
the health-care sector. The markets evidently don't care, at least
initially, that the new money flowing into the health-care sector
comes from taxpayers or business-paid fines. They just care that 30
million new customers into the insurance and health-care systems could
mean more revenue for those businesses.

"That means more sales for Pfizer Inc., the world’s largest drugmaker;
UnitedHealth Group Inc., the largest health insurer; and a cluster of
companies led by Amerigroup Corp. that specialize in managing services
through Medicaid, a program that will grow in the remake,"
BusinessWeek writes.

Hospitals: “The deal is basically being made to reduce the cuts they
would get from the federal government with corresponding increases
they’d get from [greater] coverage,” says Jason DeSena Trennert,
managing partner at Strategas Research Partners, quoted here on
SmartMoney. It's like this: Everyone has to go to the hospital, even
people without insurance. When they get treated, hospitals don't make
money. When they get insurance and get treated, hospitals make money.
But here's a potential downside for hospitals: Under the new
legislation, Medicare reimbursement will be trimmed.

Big Pharma: Again, more insured people will buy more drugs, making
pharmaceutical companies' profits grow and their stock go up. Perhaps
the added money into the system will spur innovation at smaller pharma
companies.

LOSERS:

The interstate health insurance market: Conservatives want people to
be able to shop for health insurance the same way they shop for other
kinds of insurance. One way to do this is to allow people to shop for
health insurance across state lines, seeking the lowest price for the
package they want. In the new health-care legislation, people will be
able to shop for insurance, but only from exchanges in their own
states.

Employer-based health insurance (maybe): The U.S. is the only
industrialized nation I know of that so closely links health insurance
to employment. This system, put in place in the middle of the last
century, helps anchor people to their jobs and, effectively, their
geography -- a liability in today's more highly mobile workforce. In
the long view, this is probably a good thing, but in the short term,
it could create instability in the workforce as the de-linking
inevitably happens.

Managed health care: “Within the health insurance group ... the
Medicare advantage plans are the biggest losers within managed care,”
Ipsita Smolinski, president and health-care analyst at Capitol Street,
told CNBC.

Medical device makers: Someone has to pay for the health-care
legislation, which will cost at least $1 trillion, and part of the
burden will be borne by makers of medical devices, which will have to
pay a 2.3 percent excise tax on some devices beginning in 2013,
BusinessWeek reports.

What are some of the other winners and losers that I've forgotten to
include? Let me know via the comments below.

Follow me on Twitter at @theticker.

By Frank Ahrens | March 22, 2010; 2:08 PM ET

http://voices.washingtonpost.com/economy-watch/2010/03/economicbusiness_winners_and_l.html

Letters to the Editor

Letters: Health bill will wreck U.S. economy
By Letters to the Editor
March 23, 2010, 12:00AM

Health bill will wreck U.S. economy

This health care “reform” bill will reform nothing, except our
economy. The Republican editorial board suggests we should take what
we can get and go from there.

This is a very bad bill with fuzzy math; double counting savings, 10
years of taxes to pay for six years of benefits and extracting the
very costly “Doctor Fix” from the bill, to name a few.

Isn’t it better to get it right the first time with something so
important and massively expensive? Do you really believe that adding
30 million people to the health-care system, mostly subsidized by the
government, will somehow keeps costs down and lower the deficit?

If you do a little checking, countries that offer health care for all
do nothing but talk about trying to control costs and shorten waiting
times for treatment.

Here in Massachusetts everyone is already covered and the dirty little
secret is that health-care coverage is going to bankrupt our state. By
the way, even though everyone is covered, the poor still go to the
emergency room to be treated. Why? There are not enough doctors and
the wait to see one, if you can, is too long. Do you think it will get
better or worse with “reform”? We deserve better, but this isn’t it.
--RON BRADLEY
--Springfield

Inheritance tax drives people south

I always enjoy reading Barbara Bernard’s columns and her March 19
column was no exception.

Her column made me aware of a problem I honestly did not know existed.
I knew people spent the winters in Florida, but had not idea so many
Massachusetts residents were making Florida their permanent
residence.

The explanation of the inheritance tax made me realize why citizens of
Massachusetts are leaving, and at a very alarming rate. Why tax people
again and again? The fact that someone saves and pays taxes all their
lives shouldn’t penalize them again.

Here in Massachusetts after we are gone, our families get taxed again
on earnings that were already taxed. We aren’t called “Taxachusetts”
for nothing. Every time our state needs money, it doesn’t spend down,
it finds other ways to hit us in the pocketbook. I assure you I have
no interest in this tax other than it is outright unfair.
--ANN LeBLANC
--Holyoke

http://www.masslive.com/opinion/index.ssf/2010/03/letters_health_bill_will_wreck.html