大象传媒

Does this mean the investor view "We've sucked the advanced economies dry, let's move on and leech this new emerging lot"?

Thank you for an interesting piece that leads to at least two questions. The first, 鈥淲hat is the source of all the money flooding into Poland and Indonesia. The second, 鈥淲hat are the comparative terms of government debt in the advanced and the emerging economies?鈥� If the answer to the first is the money that has been extracted from the international banking system by the sale of dud assets is now re-emerging after a decent interval, then, added to seigniorage, we may expect inflation and interest rates to rise. If terms of debt payment for developed economies are long, ten years or more while that emerging economies is short, then it appears developed economies may not be in need of further borrowing while emerging economies are.If these are correct answers, it would seem the developed economies are not in too bad a shape and the emerging economies are in a dangerous situation if they fall prey to the money lenders.

The IMF are no fools. They've understood that investing in someone who makes cars is better than investing in someone who prints money.

"Put it another way: we are all emerging markets now. And not in a good way."

I put it another way:

Every nation for itself!

And as an aside graphs, charts of past performance are solely that.
Of past performance.

"Like many a developing country government before them, their focus will have to be on avoiding further crises, fixing the financial systems and preserving the capacity to borrow on international markets."

Since minimum efforts have been made toward "fixing the financial systems", the future seems to have a repeat of the past.
Cheap labor attacks business investments.
The aging of populations along with the cut backs in government services and the need for higher taxes will create a generational conflicts. The fundamental structure of banking and financial services needs a change as the current ability to extort from governments and crash economies places everyone at risk. Any system that has those who loan the money paying interest to the borrower can not survive for long.

The value of your investments can go down as well as up ... and no where is this more true than in emerging markets. Anyone remember the 1990s defaults in Russia, Argentina and South East Asia? Perhaps there is a correlation between recessions in advanced countries leading investors to search out higher returns in the emerging markets with the resulting flood of cash destabilising them?

capital controls? Sounds like economic planning and active management of the economy and this from the IMF - things must be going to get bad!

These figures are hardly surprising now that the developing World is developing. The fact is that growth, particularly percentage growth will be far easier to achieve in a devloping/new market than in a developed/mature market.

Logically, investment looking for the best return will gravitate towards the developing markets.

It is equally clear that, mathematically, the developig World will take an increased share of trade etc: which will be used to demonstrate our decline.

Truth is this need not be a decline. People looking for a safe investment might continue to invest in the developed World: and we could conmtinue to retain our absolute -though not our relative position. The problem is that post-crisis such investments look less secure and our absolute position is far from guaranteed.

Stephanie,

Thought-provoking and to a degree right, IMHO.

However, the problem with emerging countries is not stable economies - after all cheap labour and natural resources won't disappear overnight - but it's stable politics. This can be lost in an afternoon.

Take Ecuador. Till now a very stable S. American economy with a big interest in conservation and tourism (Galapagous). So stable that my child's school planned a visit there 2 weeks away. Then there's a coup attempt and ongoing uncertainty.

Uncertainty means less income whichever way you cast it.

Although we may well bump along the bottom for the next few years to a decade there isn't a level playing field and many investors will not foresee that there are significant risks in many emerging economies which do not always show on performance graphs.

Clear rules on property ownership, the rule of law, the willingness of the state to leave business to trade, these are not insignificant issues as many investors in overseas markets have found to their cost. Am I alone in thinking that if there is a continued significant capital movement towards these markets it could all end in tears for many investors.

I can go with the IMF recommending avoiding further crises and fixing financial systems (I think they mean mending and not Fixing) but preserving the capacity to borrow on international markets, why ?

Why do we have to borrow (at interest) on the international markets in the first place ?

If the chancellor has big plans and requires 拢5tn over 25 years the market may say that it is very risky and charge 10%, the chancellor may then rethink his plans, if he suggests he needs 拢3tn over 25 years the markets may say that is less risky and charge 5%.
If the chancellor thinks the second option is affordable then there is nothing stopping him have the Bank of England create the 拢3tn and lend it to the government at 0%.
Where the money comes from does not matter, only that the ability to repay is assessed as likely (the money is destroyed as the debt is repaid so no risk of inflation there)

As Stephanie pointed out in May last year, all money is fungible it doesn't matter where you borrow it from as long as it is repaid.

Singing Rule Britannia as the waves crash in.

"Put it another way: we are all emerging markets now. And not in a good way." Interesting verb usage, Stephanie, as in we are "emerging" from 500 years of imperialist and capitalist wealth into a period of prospective decline. So Capitalism has exhausted its potential for development in the economies which were first to embrace it, and can only lead us into a "race to the bottom" as welfare systems are junked, real wages fall, social wages are revoked and capital assets (houses, land etc) and even necessities of life (wheat, maize) are priced out of the range of most people.

We can either follow the Capitalist path, as advocated by some posters to this blog, into increasingly steep decline, or find within the debris the building blocks of the new economic paradigm. Personally I believe that this lies in the co-operative movement. Ownership by consumers, workers and tenants of their purchasing, employment and housing is already a better deal as even the Tories have recognised. A friend of mine works in a worker co-operative which used to employ idealists willing to work for less than the median wage for ideological reasons. Now they are the best payers in the Yorkshite town in which they are based, indeed they probably pay near to or above the national median wage, and the wage rate is the same for all workers. They do this by not wasting money on "managers" who can't manage and "entrepreneurs" who can't undertake. Talking to my colleagues I think that the trickle is about to become a torrent. We will learn co-operate, or we will die economically.

The danger is that the emerging economies may already be ahead of us. In Argentina the successful "f谩bricas recuperadas" and in Brazil the organic management techniques of Ricardo Semler at SemCo are worrying (or optimistic) indicators that the emerging economies may not so much "emerge" as take a quantum leap forward in the way that capitalist techniques gained their early adopters a quantum leap over feudalism. We shall see.

This can't be right - the British economy is the envy of the world due to the fantastic banking system we have; the city of London leads the world. It must be true, the banks have said so.

Yes - a BRIC in the investor current wall.

Here below is a report from one of these much vaunted economic growth countries. No wonder investors flock. You can't really take any compliment given to this lot seriously. Perhaps if fruit pack in the supermarket said 'These may have been picked by slaves' perceptions may change.

'Since 2002, the Brazilian government has been fighting to end slavery. The official Agencia Brasil says they recently found two farms where workers were being held in slave-like conditions.

These workers were not registered and had no access to clean drinking water or safety equipment. The government says they will be compensated.

44 workers were rescued from a cane plantation in Rio de Janeiro state and 51 were freed from a strawberry farm in Minas Gerais state.

Over 5000 slaves were rescued in 2008, but Joao Pedro Stedile, a top official at the Movement of Landless Workers (MST) believes there are four or five times more than that number that still work in bad conditions.'



In case this link does not meet the somewhat variable mod standards who have been known to block EU official website links here is a 大象传媒 one.

/news/world-latin-america-11274877

Goodness from 2002 they have been fighting slavery.

Given time, and not that much of it, these so called economic star performers will be in trouble. Economists have very short memory spans it seems. Not long ago they were lauding the 'Tiger' economies and then the 'Celtic Tiger' economy of Ireland. Unless any economy is built on sustainable and equitable practices then trouble will result. But if you are only looking a year or two ahead to grab profit opportunistically then so what.

BTW here is a link to Greek slaves (2008), presumably EU slaves are a bit up the pecking order than BRIC slaves.

It looks to me that slavery precedes economic problems. Maybe these economies are unsustainable when slavery is removed. However investors flock. Perhaps therefore there is a link between some inherent economic instability, some abuse of workers, and some profit taking investors.

Perhaps some investors even seek to encourage instability such as Soros' actions on Black Wednesday. Soros incidentally is listed as a currency speculator and philanthropist. Is this an oxymoron.

When there is a level playing field I will be impressed with 'growth'. In fact when consumers seriously question the ethics of supply from some of these countries I will be more impressed. Quite why we are disembowelling our economy to import stuff from countries with these sort of problems and then flying the stuff in using fossil fuels causing pollution is beyond me.

Import packaging statement recommendations -

May involve slavery
May support exploitation by investors
Carbon footprint implications
Possibly damaging to the domestic economy

Regards

Not Buzz Windrip

Hip, hip for Washington. The Chinese have been bleeding the US economy by running an undervalued yuan. Washington asked Beijing to revalue: deaf Chinese. So now the US is now devaluing the dollar. Hip, hip for London. We watched, took note, and are now following the dollar down. Boo, boo for the euro, which is having to take the pain. The Irish, Spaniards and Greeks will suffer the most. But the euro's core economies will weather the storm. The rich will get richer ...

If we are all emerging markets now will someone from the IMF come here and destroy our economy as they have done in so many emerging market countries?

The UK has lost any protection it once had and sterling is just liability to British business trying to trade around the globe.

We are lucky though as we can still join the Euro and insulate ourselves from the worst of currency instability.

Look at it like this is a country exports and imports a lot from other countries in other currencies there is a an increased risk of adverse economic consequences from engaging in that trade verses trading at home in the home market where there is no currency instability risk. WE have the opportunity to insulate our business from this risk to the tune of some 70% of our external trade. How do we do this? By joining the Euro as 70% of our trade is with Europe. By joining we will gain a tenfold bigger 'home market' in a single currency. This will protect our business and trade - and a bi-product prevent our 'wonderful' bankers from stealing our hard earned money when trading with Europe. Or does everyone want the help the bankers at the expense of everyone else? That is what you are doing, make no mistake, in arguing against the Euro in Britain.

(I am sorry for all the Anti-Europeans but the Euro will not fold - Sterling will! We must get rid of Sterling and join the Euro NOW.)

Stephanie,

have you checked-out the latest from the "oil drum" - particularly the article on "Work, Exergy, the economy, money and wealth"?

Link here:

From reading that I went on to the "question everything" blog and then took up further reading on "sapient form of governance".

I would be interested to hear others views on these subjects - whether they can be "debunked" and whether it's possible to perform transition to such (pref. without a revolution in the traditional sense of the word) and whether much of the movement of investment into the "emerging" markets is more to do with the return/flow of money into the net energy/resource providers (since much of the emerging economies are made up of those countries that provide much of the raw materials on which are consumerist societies in the developed world are based).

JFH - once you have surrendered your sovereignty you will never get it back. All fiat currencies are unstable so we would just be leaping from the frying pan to the fire.

The reason there is no hope of a referendum on the issue is that the people can see through the lies and would vote no. The global elites want it so I would not be surprised if we went in without consultation.

#17
(I am sorry for all the Anti-Europeans but the Euro will not fold - Sterling will! We must get rid of Sterling and join the Euro NOW.)

====================================================================

Amen.

Euro (1.14 to 拢1) has appreciated 7% versus Sterling in last 6 weeks.

Not bad for 'dead currency walking'.

Trouble is the anti- Europeans are so blinded by their dislike for the Euro they are incapable of taking a balanced view and frankly look foolish.

Membership is a given within 5 years.

Natty thanks for the link to yet another individual who thinks that markets don't work and have to be planned, that for some to be rich many have to be poor, that profit is bad - all layered in a grand scheme linked to the environment. Zeitgeist anyone?

However you want to dress it up socialism is based on slavery and violence. That is why people will never willingly accept it. That is why you need you revolution.

Good luck.

Most of the wealth in "advanced" countries is sitting in the economically unproductive silos otherwise known as houses.

If you consider the average amount payed in rent/mortgage and the average electricity bill - and then imagine swapping those two values around - you get a situation with the same outgoings but that enables massive upgrading of our infrastructure (and solving CO2 problems too).

Why would the eurozone want the UK elephant to join the ship? It's bad enough having the PIIGS problems. The UK would pull the whole edifice down.

#19
The reason there is no hope of a referendum on the issue is that the people can see through the lies and would vote no. The global elites want it so I would not be surprised if we went in without consultation

===================================================================

There probably will be a referendum and after a proper informed debate the British people will vote yes.

Nothing to do with 'global elites' or other conspiracy theories - just facts and economic logic. A currency that serves a huge market of 200 million people has more advantages than disadvantages especially as it is driven by one of the most consistently successful economies on the planet (no, not the UK).

No one disputes that the Euro project has some 'rough edges' but isn't it time the UK stepped up to the plate and became part of the solution rather than a problematic bystander.

#19. truths33k3r wrote:

"once you have surrendered your sovereignty you will never get it back."

What absolute erroneous rubbish. Your notion of 'sovereignty' dates back to notions of the long dead and gone British Empire and is a complete red herring and worse still a hugely damaging red herring - pure unadulterated nineteenth century mercantilist economic garbage.

Your really would shoot your country in the head, wouldn't you, to retain some total illusion of independent nineteenth century imperial sovereignty - idiotic?

Your are, I strongly, suspect right to assert that the Tories and Liberals will take us into the Euro, and without a referendum. The basic practical work was done by a committee of the Bank of England a decade ago (I have all the papers) all that is necessary is a brief secret negotiation setting a date and the year for the coins and notes to be circulated and the cash dispensers and machines modified (a much less difficult task now than 10 years ago as most are changeable over at the flip of a switch) - provided our friends will let us join.

This might shed some light on the emerging markets investment conundrum:




"..Part of the rationale comes a view that Latin American deals will increasingly happen in local currencies, instead of in dollar-based transactions...."

Wonder if that is a part-admission that devaluing one's currency through QE, QEII, etc (esp. when it's the main currency against which most others are traded, or have to be converted to trade) means they're worried that the dollar will eventually loose that (world) status??


"....The moves are likely to continue from Morgan Stanley and other banks, as emerging economies grow without some of the regulation stemming from the banking crisis in developed markets..."

Ah, now we get to the heart of it - emerging markets won't/don't have the regulations so it's perceived as a way of circumnavigating the system??


Backed-up by this report:



And, the news just keeps getting better by the minute...



Anyone else think we're all definately stuffed and need a massive/complete regime change on a scale not seen in modern times, yet? If not, why not?

#17 JFH

I think the premise might possibly work if globalisation can continuue in its current guise. I, however, do not believe that it's sustainable for very long and the types of transactions and trades that would potentially benefit from a single currency just won't be around for very long (in the region of 5-20 years, depending on which reports you wish to take as being an accurate position of net energy flows to support a global infrastructure to move people and their "stuff" around).

My own position is that we're so close to a potential societal collapse because we won't (en masse) accept that our standards of living need to fall back to a truly sustainable level, globalisation should die-off in favour of providing a (local) society in which we feel safe and suitably rewarded for the effort we put in, etc that we need a truly fundamental shift in our thinking at both personal and governmental levels that we have "no hope". Moving to this currency or that currency is not going to solve the problems we (and our children) face, imo.

If you're right and live only long enough not to see the longer term implications then great. My fear, at 39, is that I'm going to see a very nasty shift in our society and in ways that would make even my grandparents (now dead and who lived through WW1/WWII) shudder.

To you and all - good luck.

Oh! come off it!! Obviously I have not read the IMF report but I can almost guarantee that it concentrates upon capital flows and not really upon the economic and social wealth of developed and emerging economies. It therefore is in itslef an unbalanced and misleading report.

It will however retain the appearance of validity for as long as the citizens and governments of the predominantly Western hemisphere nations allow the shrinking number of vested interests to persue self-interest to the detriment of the national economies.

#21. At 10:44pm on 05 Oct 2010, truths33k3r wrote:
Natty thanks for the link to yet another individual who thinks that markets don't work and have to be planned, that for some to be rich many have to be poor, that profit is bad - all layered in a grand scheme linked to the environment. Zeitgeist anyone?

However you want to dress it up socialism is based on slavery and violence. That is why people will never willingly accept it. That is why you need you revolution.

Good luck.
-----------------

Hope I have read this right....


If I understand your post correctly, you believe the post links to socialistic thinking? If so, how? I don't read it that way at all - in fact, none of the current "parties" profers anything near, as I understand it, either a grasp of our current problems and/or a possible solution, socialist or otherwise?? If you can show I am wrong, then please do.

I'd also point out that whilst I'd enjoy a "revolution" in thinking and seeing a more integrated and sustainable society, I have absolutely no wish to see "revolution" in the more accepted sense of the word (destruction/confiscation of property and life by the strong against the weak in a violent manner). I'd prefer we do things in a slightly more mananged and civilised way. Is this not a goal worthy?

Based on current events and likely projected trends I think it's more likely we'll see continuing decline over a number of years toward a society that accepts that "killing the neighbours to stay alive" becomes the accepted norm. You don't agree - why and what evidence would you profer to suggest an outcome otherwise?

Do you support a more "darwinian" view that only the strong survive from a financial/economic point of view - and if so, how do you see our society panning-out over the longer term when masses of people don't accept that level of decline (or, do you think that we lots of people go hungry, etc there are no repercussions for those, usually few, that don't)? And, how do you personally advocate not becomming one of the "hungry" and ensuring you economic success for the remainder of your years?

I ought to write a book called "Fakenomics." This is a pile of manure. The IMF is the same IMF that told us three years ago that there wasn't going to be a recession in 2008. So much for credibility. The only reason these charlatons stay in business is that people have short memories.

Money isn't "pouring" anywhere. It is part of the same process where people in the "developed" countries exploit the world's cheapest labor in places where there are no laws to restrain them. They can pollute the air, water, soil, cheat, waste energy, pay slave wages, steal land, and nobody can do anything about it because the alternative for these poor expoloited "workers" if they don't have those terrible jobs is to beg, sift through garbage, or eat grass.

Quite an interesting analysis from Ms Flanders. But I am afraid it is atypical of Western economists' fondness for naval gazing as her data source came from the IMF, an organisation with a penchant for looking down on others. Don't blame me for my disdain, IMF by its own constitutional and institutional nature must always take the condescending positions.

What IMF failed to understand is the entrepreneurial initiatives taken by the 'emerging' locals ,both firms and individuals, to improve their lot with minimal governmental behest. The buoyant commodities market of the recent years provided the impetus for exploiting dormant lands and migrations of underemployed rural labour to the newly developing areas. And in the wake of these exploitations, infrastructure requirements such as houses, roads, electricity, water, telephony etc are being build with mainly private sector capital and some local government assistance. All these contribute to a vibrant internal and domestic demand.

Flanders' concern of 鈥渕anaging excessive capital inflows鈥� is not an exaggeration, as local private sector funding needs can be more than met with local capital. The next area of funding needs will be major public sector investments under the jurisdiction of the central governments. Take the case of Indonesia where major upgrading of highways, airports, sea ports, electricity generation etc can only be done with the co-ordination and control of the central government.

In USA and developed Europe, recent major governmental financing benefited only the finance industry. Where the main lesson learned is defiance of market forces and defending the value of somebody's assets of collateral. Little or no distinction from the giving subsidies to their farming sector. Unlike Flanders' 鈥渨e are all emerging markets now鈥�, I think you are all mainly 'false and fixed' markets.

The nice thing is that is when Britain finally hits rock bottom and stays there ... many of the job stealing immigrants, trouble makers, 'middle men' economy wrecking retailers/importers and financial parasites will leave the UK and go permanently overseas and one day ... the UK population will fall and Britain will be a green and pleasant land again.

Real optimism!

I agree with the posts that argue that we should join the Euro (for the reasons stated): but not with those that reckon we will join.

The current mantra is that being out of the Euro gives us greater flexibility (even the LibDems are saying this) which is shorthand for "devaluation means that we don't have to face the tough choices". It continues that as the 拢 falls our exports will become more competitive and we will see an export led recovery. This is a theoretical construct, and it may be true in theory. that I just can't see the effect being big enough to make any practical difference. Even if we still made enough competitive, exportable stuff there's not much sign of demand for it elsewhere in the World.

So we watch the 拢 decline (slowly or catastrophically, who knows?) while inflation erodes the debt mountain.

If we want to join the Euro at this point we need to satisfy the criteria, namely:

Inflation no more than 1.5% above the three best performing Members
Government deficit no more than 3% of GDP
Government debt no more than 60% of GDP
Two years in the exchange rate mechanism without devaluation
Long term interest rates no more than 2 points above the same three Members

Ha!

Now of course, these rule can be waived or bent - but what incentive is there for our "friends" to waive them?

A more likely scenario is that we become an increasingly disengaged member of the European Union - and that by the next election, after five years of continuous decline, parties are arguing that if only we were not in it they would be free to turn things around. In those circumstances, what are the bets on UKIP, or even worse the BNP, picking up share at the expense of the tories?

NATTY_1, I like and agree with the thrust of your posts. Have you considered that where we have gone wrong in recent decades is a focus on growth rather than prosperity?

I believe we have allowed our population to get way ahead of sustainability and with having so many people we have created a situation where there are not enough real jobs for people to do, so we have had to invent non-jobs that could only be sustained by very cheap and readily available non-renewable resources, primarily oil.

Now that these resources are becoming more scarce and expensive to extract we are seeing ever more pressures on efficiency (less employed per unit of output) whilst at the same time having more mouths to feed and people to find jobs for.

These are simple fundamentally opposing pressures and I feel that no amount of clever economic theory and alchemy can do more than postpone rather than prevent the inevitable reduction in prosperity that will result from having too many people on the planet.

We have now reached a crunch decade as far as our exploitation of the planet yielding better standards of living is concerned. We will continue to erode the purchasing power of our money for sure by policies such as QE and rediculously low interest rates, and not debating and legislating for long term sustainable populations and development of alternative energy sources and farming techniques.

I am in favour of joining the Euro for economic reasons, but the Euro is not an economic project - it is a political one.

JFH and other pro Euro posters,

I feel the logic and facts backing your arguments are sound and speak for themselves. However, I am less in agreement with your assertion that the "wise" British public would vote in favour of joining after an informed debate.

It is too easy a short term option currently to avoid the financial discipline required to succeed inside the Euro (without cheating as the PIIGS have been doing). The average person in Britain does not have the logical conditioning and pragmatic long term outlook of the average German. We are much more a seat of the pants improvising kind of nation. Until we grow up and learn to logically apply our intelligence to overcome our urges and compulsions we will never be comfortable bed fellows in the German dominated Eurozone, and consequently never be as successful at a national level as them I'm afraid.

I hope we can realise that this is exactly what we need to become and apply ourselves to achieving the pragmatic logic of the post war Germans. Perhaps we need the reality check of a serious loss or two as a nation like they had to learn to use our intellect rather than our instincts and apply cool logic, research and planning to guide our course as a nation.

34. At 08:29am on 06 Oct 2010, Sage_of_Cromerarrh

It is not even about sustainability and other factors, the UKs plight is very simple - it has been running at a loss for the last 30 years even as GDP/turnover has increased.

And as any business knows: Turnover is vanity - profit is sanity.

Whistling Neil,

I think the last thirty years is being too generous a timescale for error. We have been in relative economic decline for at least a hundred years and arguably on some measures since about 1870. Our inventiveness lead the industrial revolution but we have not been wise enough to plan and use our intellect to build upon and sustain these breakthroughs achieved. We have remained short term and consumptive in our outlook and not thought through the long term consequences of most of our decisions and actions.

# 38 Sage of Cromerarrh

Relative decline is inevitable unless we plan to keep the rest of the World in poverty. In fact, relative decline is only decline if you measure your well-being by reference to that of others.

You are absolutely right, however, that had we invested the wealth/surplus generated by the industrial revolution and the Empire more wisely - ie in production rather than consumption - then we would not be in the mess that we are in.

ps Its also worth noting that at least some of the decline, and some of the misdirected investment, can be attributed to the cost fo fighting two World wars.

35. At 08:38am on 06 Oct 2010, GPWC wrote:
'I am in favour of joining the Euro for economic reasons, but the Euro is not an economic project - it is a political one'

If its not an economic project, why does it need one central bank controlling the money supply?

Right now, Ireland is being brought to its knees by the ECB, a bank located in a different country, whose operating officers were not elected by the people of Ireland.

When a Government gives up its right to 'own' and 'control' its own central bank, it gives up its right to govern.

Stephanie - When will you get it?

We're in a depression

All that money printing did nothing but make the situation worse.

Here's some classic depression talk.

"UK car sales fell for the third consecutive month in September, although the rate of decline was less severe than in August"

...ok, so that's an improvement?

"Sales last month were down 8.9% from September 2009, said the Society of Motor Manufacturers and Traders (SMMT). This follows August's 17.5% fall."

This is classic 1930's talk - the car sales are falling (quite obvious when you accept the 'rise' in sales last year was entirely due to Government subsidy) and they won't stop - but 'the rate of decline is slowing' - great.
A near 20% fall YOY is now merely a near 10% in sales - whoopeee. This is exactly what happened in the 30's, Governments and media kidding themselves about a recovery which doesn't exist.

I'm glad the IMF have finally caught up - what a shame they're over a year late! I suspect they knew this was always going to happen - but just like the rest off the clowns involved in this charade - you have to keep face and put a smile on it - because it's all about confidence y'know.

What absolute gibberish - total guff - created by clowns and perpetuated by lazy media hacks. I said we're going into a depression - but nobody listened - it's illogical to think that half the world can 'trade it's way out of depression' when the only people left in the market are all third world countries we've already stolen the wealth from years ago!

...and yet you all (well most people) believed it - hook line and stinker.

/news/business-11482295

Absolutely clueless - anyone who didn't see this coming is already doomed as the next 'shock' is going to blow you off your feet.

34. At 08:29am on 06 Oct 2010, Sage_of_Cromerarrh wrote:

......
We have now reached a crunch decade as far as our exploitation of the planet yielding better standards of living is concerned. We will continue to erode the purchasing power of our money for sure by policies such as QE and rediculously low interest rates, and not debating and legislating for long term sustainable populations and development of alternative energy sources and farming techniques.


----------

Agree with much of what you say.

It does make me wonder what the "get out" clause is when many in the "markets" are expecting a spike in oil prices in 2011/2012 (and it's already headed-up to around $85 a barrel when the "accepted" resistance-levels are in the $70-80 range and that's "now", let alone then) and QE, etc programs are deflating the value of our currency against the value of the goods which "drive" so much of the economic activity??

Is the current spike in pricing actually the result of the degrading of currencies? Or, with enconomies like China, et al now wading-in for much of the available resource that is pushing-up prices?

And, if we continue with actions like QEII do we not then devalue our currencies further, causing the "cost" of the resources we need to drive our economy up further still and, therefore, set-up a feedback loop which then kills-off any thought of so-called econonmic "recovery"??

Seems like we're all in a zero-sum game of downward spiral and no way out - esp. if we all continue with current trends and the "accepted" wisdom applied so far.

Various posts re euro

A country that feels under attack looks inward not outward. The Euro will therefore look less rather than more attractive while the public feels under attack.

30 MarcusAureliusII

Thank you. Why can nobody see this. These countries are on par with the wild west with cowboys. Obviously some types profit in this environment just like the hotshots who killed thousands of buffalo a day for their skins until only 89 were left did rather well at the time earning more than the US president as an income. Its all about regulation and there is precious little in some of these countries. We have all seen - very recently - what happens with an absence of regulation with the credit crunch - some people win and most lose. You just cannot compare the two economic types the IMF is attempting to.

regards

Not Buzz Windrip

40 Dempster:

'Right now, Ireland is being brought to its knees by the ECB, a bank located in a different country, whose operating officers were not elected by the people of Ireland.'

No. Ireland has been brought to its knees by Ireland. Most of these problems are self inflicted whichever western country you look at. Too many Honest Johns.

'Pinocchio is once again led astray by Honest John and Gideon, who convince him to go to Pleasure Island. On his way he befriends Lampwick, a misbehaved and destructive boy. Soon Pinocchio and the other boys begin to enjoy gambling, smoking, getting drunk and destroying Pleasure Island, much to Jiminy's dismay. Then Jiminy discovers the island has a curse that transforms boys who "make jackasses of themselves" into real donkeys.

ROFL.

Regards Not Buzz Windrip

Have a nice day.

There is 2 solutions

1. We can follow "John from Hendon" idea where we reduce salaries to the third world levels and compete toe to toe. Although this by definition will involve the dissolution of the NHS, defence and all welfare programmes .

2. We follow Germany's line and produce items the rest of the world want. I am not necessarily stating manufacturing, I would suggest finance would be a better bet. Quality not quantity.

The first solution is easy,it takes no skill , finance or intelligence.

The second option is difficult requiring all the abilities that our nation can muster. I know it's going to sound old fashioned , but we need a period of nation building where everyone in the UK, especially the CEO of our major companies who see themselves as "International businesses".

I tend to agree with some of the earlier comments that the IMF is prone to navel gazing.After all it has been plain to pretty well everyone that emerging markets have been doing better than more established ones.We have not moved from 2003 to now without anyone spotting that!

However there has been a more interesting proposal from the IMF which I am surprised has not got a mention. According to notayesmanseconomics blog.

"South Korea has proposed a 鈥済lobal stabilisation mechanism鈥� or GSM that would allow the IMF to offer unlimited credit without conditions to several countries at once."

There are a lot of implications from this.

I guess it is human nature to want to compare things using one simple number to measure even complex multifacted concepts or things that are not easy to compare. It is especially misleading when the numbers don't mean quite the same thing in different contexts, important other information is left out, or the numbers simply are not the best ones to choose. In cars it used to be horsepower but a 500 horsepower engine to tow a house trailer isn't the same animal as one to power a sports car or an airplane. And a 5 100 watt home theater receier amplifiers isn't the same as 5 100 watt public address sysetm amplifiers. We used to use GNP as the most common measure of the size of an economy but with globalizatin it is GDP. NNP would be better, GNI is much better. So is GNI per capita.

I rent a factory building from someone and hire some of his family members to work in it for me. I manufacture $400,000 worth of product in that factory which I sell. That's their GDP because it was made in their factory. But they keep only $50,000, that's their GNI. I get to take $350,000, that's my GNI. Multiply that by ten million and that is China's situation. By comparison in that analogy the US manufactures $1.5 million of which it keeps about $1.3 million. But in the "China factory analogy" that family has 13 members, most of whom can only perform menial work. The US analogy family has only 3 members. A European analogy also produces $1.5 million but it has 5 members and they are often fighting among themselves. Comparing the US to the EU to the developing countries is a lot more complex then fakonomists would have us believe with a few simple numbers. The BRIC countries are by and large still very poor compared to the developed world, much of their growth they don't get to keep, and they have many problems the fakonomists don't talk about which portend that these growth rates will be unsustainable. China's future in particular seems very ominous to me. If they demand more or don't do what they are told, the factory owners can pick up and move shop somewhere else very quickly and there is nothing they can do about it. Meanwhile they are using their savings to buy up fuel, food, and other things they desperately need for which the world's supply in some cases simply won't be enough to satisfy everyone including them.

Is the problem not really a result of poor exchange rate management?

The only rational reason for an investor from overseas to be wary of buying UK public debt is that it is denominated in Sterling. There is no risk of default, because the UK government owns the BoE, which can create any amount of Sterling.

There is supposed to be a free currency market, which in theory should adjust exchange rates levels in response to balance of payments surpluses and deficits. It would be dangerous to leave such a critical matter to be regulated by the irrational fears and greed of international investors. But the market is far from free. Many countries, particularly China, deliberately manipulate the exchange rates of their currency downwards, or while others, like the UK before the crunch, use high interest rates to attract funds in order to avoid the politically dangerous alternative of allowing their currency to devalue.

The result is that, in general, the currencies of the the developed countries are overvalued relative to those of the emerging countries, and the fear that this situation might suddenly change, is probably the reason why international investors in public debt are changing their preferences.

A fair and rational method for controlling exchange rates, using the crawling peg system proposed by Keynes many years ago, is probably the answer to this problem. But those who make big profits by speculating in the present casino system, have so much influence on governments, that change is most unlikely, even although exchange rate predictability would benefit world trade far more than the defective measures imposed by the World Trade Organisation.

More monetary stimulus will be pointless - the top-end-of-town has enough money to gamble with.

What's missing in this 'recovery' is aggregate demand - without it unemployment will not come down.

Solution:
We need to claw back the QE money by selling corporate bonds (reverse QE), and redirect this money into ongoing fiscal stimulus (I call it Fiscal QE). When we can claw back no more money, then the BoE simply creates new money!

How and when this is spent is key, so stimulus must only be spent into the economy when CPI is 'in the window' (below 3%), and when unemployment is above say 4%. It can be spent into the economy by giving quarterly Economic Stimulus Payments (ESP) to anyone entitled to Working/Pension Tax Credits. Further it can be targetted geographically in that only those living in areas where unemployment is above 3% receive the ESP payments.

The money spent is ex nihilo so will not increase government debt and will only need to be 2 or 3% of GDP, so devaluation will be insignificant.

38. At 09:23am on 06 Oct 2010, Sage_of_Cromerarrh wrote:
Whistling Neil,

I think the last thirty years is being too generous a timescale for error. We have been in relative economic decline for at least a hundred years and arguably on some measures since about 1870. Our inventiveness lead the industrial revolution but we have not been wise enough to plan and use our intellect to build upon and sustain these breakthroughs achieved. We have remained short term and consumptive in our outlook and not thought through the long term consequences of most of our decisions and actions.

==================================

I agree the decline of the British economy has been inevitable over a longer period though using the current account balance as a measure (which I had in mind) it was not until the 1980s that this actually went negative where it has remained ever since.

This is of course due to the lack of reinvestment of past profits in future profitability (here or abroad),instead as you say, decline has been inevitable and long term yet most people still have some strange notion that somehow the UK is a successful model for others to follow.

17. At 10:05pm on 05 Oct 2010, John_from_Hendon wrote:
20. At 10:42pm on 05 Oct 2010, Richard Dingle wrote:
Et all the pro Euro brigade.......

So we see the Eurozone in turmoil with the Euro staggering from brink to brink teetering at the edge. Will it fall off the cliff? Well if there is no change to membership then the answer has to be yes. The PIIGS are in too deep and will continue to drag down the remaining other member, most of whom are still struggling themselves.

So let us look at these members and asses how well positioned they are to continue to support the Euro experiment;
Austria - well positioned to look after themselves however running a deficit with debt currentley 68% of GDP and rising and unemployment still rising,
Belgium - Again self reliant but running a deficit with public debt running at 99% of GDP with unemployment at over 9% and still rising,
Cyprus - Public debt at 50% of GDP but defect has risen to 10% of GDP and unemployment at 5% however little room to maneuver,
Finland - Debt at 50% and running a significant deficit with unemployment at 9%, for the first time in living memory is now struggling with its own economy to increasing cost of commodities,
France - Public debt is currently 80% of GDP and rising with a deficit in the public purse, unemployment is over9% and still rising, major issues at home politically and can afford to offer little support, Germany - Contra to belief has a public debt of 77% of GDP with a deficit and unemployment at over 8% has little room now to offer significant finacail support with political support becoming more fragmented,
Greece - Public debt at over 150% of GDP and still rising with the deficit still well over that stated in 2009 with unemployment at over 10%,
Ireland - Public debt now over that of GDP with deficit running at 50% and unemployment at over 13%,
Italy - The quiet giant in terms of what may well come as a shock.... Debt at over 115% of GDP with a significant deficit and unemployment at 8% and rising,
Luxembourg - Can have little impact one way or the other - Low public debt but now running a deficit at 50% of income unemployment has risen significantly over the last two years and now stands at over 9%,
Malta - Unemployment at over 7% with debt of 60% of GDP and a deficit of 20% on revenue,
Netherlands - unemployment at 6% and a public debt of 60% of GDO with a significant deficit being run at present,
Portugal - Debt of 75% of GDP with a significant deficit with unemployment at over 10%,
Slovakia - low public debt at 40% of GDP but an unsustainable deficit now being run at over 30% of GDP and unemployment at 12%,
Slovenia - Unemployment running at over 15% and rising with a reasonable debt of 40% of GDP however the deficit is now standing at 25% of GDP,
Spain - Unemployment of 20% with debt at 70% of GDP but deficit now running at 50% of GDP.
(Figures as at Jan 2010 and a number of countries have seen their position worsen significantly over the last six months)

So I can see why you would want to jump into bed with the Euro. This experiment which is what it has always been referred to by economists throughout Europe is flawed. Yes it could survive and prosper with a much smaller membership however the EU appears to be determined on its enlargement drive and so if the current members don't bring it down the new ones certainly will. Although in my opinion I feel that the PIIGS have gone a step too far and so if they are not cut loose then they will be the beginning of the end for the Euro.

For the capitalist there is just one market - the world market.

The capitalist law of value means capital will go to where the biggest expected returns are.
But the problem is capital invested needs to be realised.
There is an accumulation problem (as Rosa Luxemburg made clear).
Also periodically known as demand-deficency by Keynesians.

The accumulation problem has been hidden in recent decades by Chinese peasants becoming wage labourers & by the printing of US dollars.
Of course, the two are linked: Chinese labour produces goods bought by money lent by the Chinese from previous sales in the form of their purchase of US government bonds.

But how much longer will capitalists purchase US government paper that will not only fall in value but may well become utterly worthless?

The Plaza accord of 1985 is often mentioned.
As a result of this appreciation of the yen, no only were Japanese holdings of US debt halved in value, but their economy was seriously damaged & they've yet to recover.

China won't be as compliant as Japan.

The whole world economy currently rests on the US dollar.
Watch as both developed & developing countries suffer as the US dollar collapses.

#40 @ Dempster

"When a Government gives up its right to 'own' and 'control' its own central bank, it gives up its right to govern".

Quite - I know. The Euro is primarily political because it aims to tie countries in to the single state project.

I can see economic advantage and cost saving with a single currency, but I'm not interested unless we can retain our independence. Different states using the same currency is not possible in the medium term. The Euro will either create a single state or fail.

#52. duvinrouge wrote:

"For the capitalist there is just one market - the world market."

Yes but... the dynamics of the system in times of increased instability favour a market that uses the same currency so that violent fluctuations in currency do not cripple trade. That is, it is by far the best thing to do to be part of a single currency as this protects your market from these crippling swings. This is why we need to rapidly join the Euro ASAP.

Presently 70% of our 'foreign' trade is with Europe and 30 % with the rest of the World. We could reduce the currency risk dramatically by joining the Euro and making European trade part of our home market. This will provide a necessary and dramatic level of protection for the UK economy. Where we are at present is the worst of both worlds and we are bound to suffer badly as a result, but we do not have to!

All very interesting. We should never had allowed ourselves to get indebted to what I call "gangster economies". These are economies which are run by governments who are unelected or elected in the same way the mafia elects a head of the family. We didn't allow it to happen with the Soviet Union, so why we allowed it to happen with certain other countries in the last 20 years I'll never know.

I have been to these countries, and all I can say is the terrible and extreme poverty that I witnessed made me look more than twice at all the glowing economic statistics that keep popping up all over the place.

But that is how gangsters work - either in the mafia or on a national level. They keep everyone who doesn't matter poor and those who do matter wealthy enough so they don't complain to loudly. And we owe these countries so much we have difficulty counting it - well done us.

The real lesson here is that western economies have made themselves completely uncompetitive in world markets. It is hardly a surprise that the more that Trade Unions extort from companies better pay, salaries and conditions for their members the more likely these members are to become redundant. The last 50 years is littered with examples of this happening. The phrase "you can't have your cake and eat it" comes to mind.

/news/business-11488501

"Chinese Premier Wen Jiabao has warned..."

"In a speech to top EU officials, Mr Wen said a big change in the value of the yuan could cause "social and economic turbulence" in China."

I think he's right. These emerging economies are extremely fragile. They depend heavily on export markets. They could easily be crushed, thrown into turmoil, social chaos. The hype in the Western media about them in general and China in particular is entirely unreal. It may make sensational news but it does not reflect the economic reality of the situation. There's been a lot of hype and distortion. Numbers don't lie if they are accurate but they don't tell you the truth unless you see ALL of them and understand what they mean. GDP is not an accurate indicator of a nation's wealth, nor of its income. It is just an indicator of activity on its territory. Absurd projections that China will overtake the US in 2042 are dismissed even by the Chinese government. In fact, not only is Japan's real economy much larger than China's, it is a much wealthier country with far more advanced technology. It is also one whose population is aging rapidly.

"If China saw social and economic turbulence, then it would be a disaster for the world."

Will it? I wonder. Ceratinly a disaster for the Communist Party in China. But after some dislocation, many companies disrupted in China will simpply set up shop somewhere else that's cheap.

An irresistable force has met with an immovable object. The force is the political demand for jobs in the west to make up for what was lost to China even if it means taking those jobs, companies, industries back through tarriffs, incentives to invest locally, and trade wars. The immovable force is the refusal of China to commit economic suicide by allowing its gains to be reversed through currency trading and other devices such as opening up its domestic market to outside financial products and services where the US excells. In this war, China hasn't got a prayer. The WTO has imposed free trade but it's not fair trade and it is not sustainable trade. When those of us in the developed nations no longer have the money to buy the products of the developing nations, they will collapse anyway. Besides, how much mass produced clothing and chaep consumer electronics can our houses hold? I'm drowning in mine already.

Development and underdevelopment are relative terms. The two key components of development,as a process of constant multidimensional change, are technical change and institutional change.The developing countries, rechristened as emerging market economies (in an era of globalisation)as well as developed countries have to make institutional adjustments in accordance with technical change to stay on the growth trajectory. When institutional adjustments lag behind technical changes in a developed economy,it faces similar problems as encountered by the present day emerging economies earlier.In a developed country becomes underdeveloped or developing at a higher level. Sometimes, it is more difficult to effect changes in a developed country because of accumulated rigidities than in a developing economy.