"I am glad, fellow-citizens, that your nation is so young. Seventy-six years, though a good old age for a man, is but a mere speck in the life of a nation. Three score years and ten is the allotted time for individual men; but nations number their years by thousands. According to this fact, you are, even now, only in the beginning of your national career, still lingering in the period of childhood. I repeat, I am glad this is so. There is hope in the thought, and hope is much needed, under the dark clouds which lower above the horizon. The eye of the reformer is met with angry flashes, portending disastrous times; but his heart may well beat lighter at the thought that America is young, and that she is still in the impressible stage of her existence. May he not hope that high lessons of wisdom, of justice and of truth, will yet give direction to her destiny? Were the nation older, the patriot's heart might be sadder, and the reformer's brow heavier. Its future might be shrouded in gloom, and the hope of its prophets go out in sorrow. There is consolation in the thought that America is young. -- Great streams are not easily turned from channels, worn deep in the course of ages. They may sometimes rise in quiet and stately majesty, and inundate the land, refreshing and fertilizing the earth with their mysterious properties. They may also rise in wrath and fury, and bear away, on their angry waves, the accumulated wealth of years of toil and hardship. They, however, gradually flow back to the same old channel, and flow on as serenely as ever. But, while the river may not be turned aside, it may dry up, and leave nothing behind but the withered branch, and the unsightly rock, to howl in the abyss-sweeping wind, the sad tale of departed glory. As with rivers so with nations...
"We have to do with the past only as we can make it useful to the present and to the future. To all inspiring motives, to noble deeds which can be gained from the past, we are welcome. But now is the time, the important time. Your fathers have lived, died, and have done their work, and have done much of it well. You live and must die, and you must do your work. You have no right to enjoy a child's share in the labor of your fathers, unless your children are to be blest by your labors. You have no right to wear out and waste the hard-earned fame of your fathers to cover your indolence...
"'The arm of the Lord is not shortened,' and the doom of slavery is certain. I, therefore, leave off where I began, with hope. While drawing encouragement from 'the Declaration of Independence,' the great principles it contains, and the genius of American Institutions, my spirit is also cheered by the obvious tendencies of the age. Nations do not now stand in the same relation to each other that they did ages ago. No nation can now shut itself up from the surrounding world and trot round in the same old path of its fathers without interference. The time was when such could be done. Long established customs of hurtful character could formerly fence themselves in, and do their evil work with social impunity. Knowledge was then confined and enjoyed by the privileged few, and the multitude walked on in mental darkness. But a change has now come over the affairs of mankind. Walled cities and empires have become unfashionable. The arm of commerce has borne away the gates of the strong city. Intelligence is penetrating the darkest corners of the globe. It makes its pathway over and under the sea, as well as on the earth. Wind, steam, and lightning are its chartered agents. Oceans no longer divide, but link nations together. From Boston to London is now a holiday excursion. Space is comparatively annihilated. -- Thoughts expressed on one side of the Atlantic are distinctly heard on the other.
"The far off and almost fabulous Pacific rolls in grandeur at our feet. The Celestial Empire, the mystery of ages, is being solved. The fiat of the Almighty, 'Let there be Light,' has not yet spent its force. No abuse, no outrage whether in taste, sport or avarice, can now hide itself from the all-pervading light. The iron shoe, and crippled foot of China must be seen in contrast with nature. Africa must rise and put on her yet unwoven garment. 'Ethiopia shall stretch out her hand unto God.'"
Frederick Douglass, "The Meaning of July Fourth for the Negro," July 5, 1852
Wednesday, November 5, 2008
Tuesday, November 4, 2008
Roundup: November 4
Markets
The Treasury is considering buying stakes in a wider range of non-bank financial companies, the WSJ reports, perhaps including GE Capital and CIT. The much-ballyhooed reverse auctions for "illiquid" assets look likely never to happen, with the TARP set to buy distressed assets directly from financials, making it clear that the talk of moral hazard and of avoiding transfer payments that surrounded the push to enact the TARP was so much hot air. Treasury expects to have to borrow $550bn to fund its operations in Q4.
Libor continues to ease. The Reserve Bank of Australia cut benchmark interest rates by 50bp, to 5.25%. Brazil's Itaú will buy Unibanco in an all-stock deal to create Latin America's new largest bank, with $260bn in assets. The ECB has come out in favor of a European central clearinghouse for CDS. HSBC said it was unlikely to pass on the full benefit of an anticipated cut in UK interest rates (the BOE meets tomorrow and Thursday) to consumers, while Abbey, a UK mortgage lener, has increased rates by 50bp in advance of the cut. Financial disintermediation -- but not because of illiquidity or funding pressures. France has threatened to seize banks if they do not expand credit to business.
US light vehicle sales numbers came in yesterday -- auto sales fell 31.9% in October YoY, with sales at GM down more than 45% YoY. EconomPic has a cute visualization.
The Chinese government has been giving out back pay to workers from failed companies, as the global recession threatens to derail China's growth. Nouriel Roubini points out the risk of a "hard landing" in China if growth slows. China's minister of public security, Meng Jianzhu, has warned that police must avoid inflaming protests and riots as the number of "mass incidents" grows. Time's China blog highlights the threat unemployment poses to the government.
Willem Buiter argues that fiscal stimulus in the US and UK will have the unintended consequence of boosting the rest of the world's aggregate demand - but will do little for the domestic economy in either country. Instead, countries like China, Germany, and the Gulf states could use fiscal stimulus to mitigate the business cycle globally. But we look set for "too little in the aggregate and too much in the wrong places."
Time has a few grim anecdotes from the Russian economic crisis.
Derivative Dribble runs a piece on CDS, saying the insurance model is the wrong way to understand the swaps market (and might explain why monoline insurers did so poorly when they tried to participate).
World
The US presidential election is today. The NYT carries an interactive graphic of the geographical distribution of each candidate's fundraising. An NYT editorial looks at the last-minute regulatory changes President Bush is trying to push through. He seems to want to do as much damage as possible in these last days. The Boston Globe calls for the next president to make a statement by immediately closing Guantanamo. (The WSJ runs a shameful apologia for our secret prisons.) There is chatter New Jersey Governor John Corzine (ex-Goldman) would be Obama's treasury secretary.
Taiwan and China have signed a series of unprecedented high level agreements on issues like direct flights, postal service, and food safety -- a major step towards wider normalization of relations between the mainland and the country it still officially views as a breakaway province.
Francois Grignon and Fabienne Hara write in the European WSJ on the state of affairs in the Democratic Republic of the Congo and the failure of Kinshasa and Kigali to live up to their obligations under existing accords.
President Zardari has complained to the US and General Petraeus about drone strikes in the tribal areas around the Afghan border. Destabilizing the Pakistani government in a time of national crisis is likely to cause grave and lasting damage to the position of the US in Afghanistan. Le Monde Diplomatique is less than hopeful for the future of this Pakistani government, confronted on all sides with vast problems. The US should do its part to develop a democratic ally in the Afghan war, not to destabilize it.
Botswana's Ian Khama is calling for Zimbabwe's presidential election to be rerun as allegations surface that the power-sharing document was altered. Morgan Tsvangirai says he will attend the SADC summit in SA this weekend even if he does not receive a new passport. The RBZ has introduced new banknotes as promised (ZWD100k, ZWD500k, and ZWD1mn=$6), the 24th new note issue this year. (Inflation in the country is almost impossible to measure.) Zimbabwe sold 4 tons of stockpiled ivory yesterday for $450k.
The U.S. may accept some of the proposed edits to the Status of Forces Agreement for Iraq, after reports yesterday that the U.S. would seek a UN mandate to remain if the SOFA was unacceptable.
Sixty refugees from the Horn of Africa were found dead on a beach in Yemen after being thrown overboard by smugglers.
SADC observers say that the disputed elections in Zambia were credible and transparent.
The Treasury is considering buying stakes in a wider range of non-bank financial companies, the WSJ reports, perhaps including GE Capital and CIT. The much-ballyhooed reverse auctions for "illiquid" assets look likely never to happen, with the TARP set to buy distressed assets directly from financials, making it clear that the talk of moral hazard and of avoiding transfer payments that surrounded the push to enact the TARP was so much hot air. Treasury expects to have to borrow $550bn to fund its operations in Q4.
Libor continues to ease. The Reserve Bank of Australia cut benchmark interest rates by 50bp, to 5.25%. Brazil's Itaú will buy Unibanco in an all-stock deal to create Latin America's new largest bank, with $260bn in assets. The ECB has come out in favor of a European central clearinghouse for CDS. HSBC said it was unlikely to pass on the full benefit of an anticipated cut in UK interest rates (the BOE meets tomorrow and Thursday) to consumers, while Abbey, a UK mortgage lener, has increased rates by 50bp in advance of the cut. Financial disintermediation -- but not because of illiquidity or funding pressures. France has threatened to seize banks if they do not expand credit to business.
US light vehicle sales numbers came in yesterday -- auto sales fell 31.9% in October YoY, with sales at GM down more than 45% YoY. EconomPic has a cute visualization.
The Chinese government has been giving out back pay to workers from failed companies, as the global recession threatens to derail China's growth. Nouriel Roubini points out the risk of a "hard landing" in China if growth slows. China's minister of public security, Meng Jianzhu, has warned that police must avoid inflaming protests and riots as the number of "mass incidents" grows. Time's China blog highlights the threat unemployment poses to the government.
Willem Buiter argues that fiscal stimulus in the US and UK will have the unintended consequence of boosting the rest of the world's aggregate demand - but will do little for the domestic economy in either country. Instead, countries like China, Germany, and the Gulf states could use fiscal stimulus to mitigate the business cycle globally. But we look set for "too little in the aggregate and too much in the wrong places."
Time has a few grim anecdotes from the Russian economic crisis.
Derivative Dribble runs a piece on CDS, saying the insurance model is the wrong way to understand the swaps market (and might explain why monoline insurers did so poorly when they tried to participate).
World
The US presidential election is today. The NYT carries an interactive graphic of the geographical distribution of each candidate's fundraising. An NYT editorial looks at the last-minute regulatory changes President Bush is trying to push through. He seems to want to do as much damage as possible in these last days. The Boston Globe calls for the next president to make a statement by immediately closing Guantanamo. (The WSJ runs a shameful apologia for our secret prisons.) There is chatter New Jersey Governor John Corzine (ex-Goldman) would be Obama's treasury secretary.
Taiwan and China have signed a series of unprecedented high level agreements on issues like direct flights, postal service, and food safety -- a major step towards wider normalization of relations between the mainland and the country it still officially views as a breakaway province.
Francois Grignon and Fabienne Hara write in the European WSJ on the state of affairs in the Democratic Republic of the Congo and the failure of Kinshasa and Kigali to live up to their obligations under existing accords.
President Zardari has complained to the US and General Petraeus about drone strikes in the tribal areas around the Afghan border. Destabilizing the Pakistani government in a time of national crisis is likely to cause grave and lasting damage to the position of the US in Afghanistan. Le Monde Diplomatique is less than hopeful for the future of this Pakistani government, confronted on all sides with vast problems. The US should do its part to develop a democratic ally in the Afghan war, not to destabilize it.
Botswana's Ian Khama is calling for Zimbabwe's presidential election to be rerun as allegations surface that the power-sharing document was altered. Morgan Tsvangirai says he will attend the SADC summit in SA this weekend even if he does not receive a new passport. The RBZ has introduced new banknotes as promised (ZWD100k, ZWD500k, and ZWD1mn=$6), the 24th new note issue this year. (Inflation in the country is almost impossible to measure.) Zimbabwe sold 4 tons of stockpiled ivory yesterday for $450k.
The U.S. may accept some of the proposed edits to the Status of Forces Agreement for Iraq, after reports yesterday that the U.S. would seek a UN mandate to remain if the SOFA was unacceptable.
Sixty refugees from the Horn of Africa were found dead on a beach in Yemen after being thrown overboard by smugglers.
SADC observers say that the disputed elections in Zambia were credible and transparent.
Readings: Petty (1)
Qu. 14. Why hath Money been raised, or retrencht, or imbased by many wise States, and so often?
Answ. When any State doth these things, they are like Bankrupt Merchants, who Compound for their Debts by paying 16s 12s or 10s in the pound; Or forcing their Creditors to take off their Goods at much above the Market rates. And the same State might as well have paid but 3/4 of what they ow'd, as to retrench their Money in General to 3/4 of the known weight and fineness. And these practices have been compassed by Bankers and Cashiers, for oblique Considerations, from the Favourites of such Princes and States.
William Petty, Quantulumcunque concerning Money (1682)
Answ. When any State doth these things, they are like Bankrupt Merchants, who Compound for their Debts by paying 16s 12s or 10s in the pound; Or forcing their Creditors to take off their Goods at much above the Market rates. And the same State might as well have paid but 3/4 of what they ow'd, as to retrench their Money in General to 3/4 of the known weight and fineness. And these practices have been compassed by Bankers and Cashiers, for oblique Considerations, from the Favourites of such Princes and States.
William Petty, Quantulumcunque concerning Money (1682)
Monday, November 3, 2008
Simple Sustainability:
Did you know?
Wikipedia has a glossary of climate change terms. It's not perfect as a glossary, and some of the articles lack depth, but, on the whole, Wikipedia's climate change entries are very good, with many of them maintained by active climate scientists.
Glossary
Wikipedia has a glossary of climate change terms. It's not perfect as a glossary, and some of the articles lack depth, but, on the whole, Wikipedia's climate change entries are very good, with many of them maintained by active climate scientists.
Glossary
Roundup: November 3
Markets
The Reserve Bank of India cut interest rates 50bp at the weekend, to 7.5%. The Bank of England meets Wednesday and Thursday and the European Central Bank meets Thursday. Libor continues to fall, to its lowest level since the failure of Lehman Brothers. Counterparty risk, in other words, is no longer the problem; the problem is slowing real demand and debt deflation. The ISM manufacturing survey read sharply lower for October, with US factory activity at its lowest since 1982. The IEA says that U.S. oil demand has fallen by 2 million bpd. And the Fed's survey of senior loan officers shows both supply of and demand for new lending falling, with banks tightening standards on credit cards and other consumer loans, on mortgages, commercial real estate, and on commercial & industrial lending. Citigroup lost $1.4bn in Q3 on credit card securitization and said losses on credit cards may rise "well into 2009." Circuit City confirmed its plans to shut 155 stores and aggressively renegotiate existing leases; Mervyns confirmed its plans to shutter its remaining stores.
China's manufacturing index was at a record low in October (the survey began in July 2005). Calculated Risk looks at the possible consequences of Chinese fiscal stimulus for US interest rates. The LA Times runs a piece on owners deserting their factories in China. IEEE Spectrum is saying we may be at the beginning of a long-term shift of R&D spending towards lower cost countries.
The WTO will meet with major banks on November 12 to consider solutions to the failing market in letters of credit and trade finance.
Treasury has rejected GM's request for $10bn in financing to help its merger with Chrysler go through, reports the NYT, and the Bush Administration will instead try to speed up the $25bn in loans ostensibly intended to help the automakers develop fuel-efficient vehicles. In broader bailout news, thousands of smaller banks and financial firms have applied for aid from the Treasury.
Portugal is to nationalize Banco Português de Negócios and make EUR4bn available to recapitalize Portuguese banks in the form of preference shares. Commerzbank will get a EUR8.2bn credit line from the German government; Erste Bank will take EUR2.7bn from Austria. The South Korean government is proposing a $11bn fiscal stimulus plan. Gordon Brown is expecting Saudi Arabia to help shore up the IMF's reserves as it bails out nations in financial trouble.
Willem Buiter warns against liquidity provision at any cost -- now is the time to agonize over moral hazard and create the right incentives for the next credit cycle. FT Alphaville highlights a presentation from Nomura on "balance sheet recessions" with a very useful flowchart of how a "stag-deflation" like the Japanese lost decade unfolds.
Some credit card issuers are proposing forgiveness for 40% of credit card debt, in what may be a bid to evade tighter regulation after the new president takes office. We say regulate them till the cows come home: if a portfolio that can withstand 40% writeoffs doesn't define predatory lending, what does?
The always-trenchant Steven Davidoff looks at the canceled KKR "IPO" and the structure of the Treasury's recapitalization of US banks.
The Washington Post reviews the growing financial crisis in Argentina as President Kirchner tries to nationalize $25bn of pensions.
Russia claims its banks have enough liquidity to carry on settlement and the Bank of Russia is taking steps to ensure that aid to the banks is not converted into forex and moved out of the country's lending system. Net capital outflows for Russia were $26bn in September, and they have totaled $140bn since August, according to BNP Paribas. More Russian mining companies are cutting output and scaling back investment plans. Venezuela Analysis looks at alarmism over Venezuelan arms purchases from Russia and points out that they do not affect the balance of military power in South America substantially. Rather, they are evidence Russia is trying to extend its power base and Venezuela is rattling its sabers, as the pace of purchases is unsustainable, particularly with falling oil prices.
Mark Thoma looks at the recent rise in military spending contribution to US GDP and speaks the forbidden words: military Keynesianism. Econbrowser looks at the likely fiscal implications of the two candidates' budgets.
John Lanchester says the world of finance went "postmodern" before it went bust. And the New Yorker takes a wistful look at tombstones. (Not what you think.)
World
Zimbabwe is again considering redenominating the Zimbabwe dollar as it is forced to introduce more higher denomination banknotes. This Is Zimbabwe write on the fate of recently disappeared Zimbabweans as Zanu-PF "fan the fires of discontent." The Standard says Zimbabwe's government is obscuring the scale of an ongoing outbreak of cholera in suburbs of Harare where sewage flows in the streets. Meanwhile, illegal mining is poisoning the country's rivers. The only people unaffected by widespread famine are Zanu-PF leadership, who are planning to feast for days at the annual party Congress.
Paul Collier in the Guardian discusses why intervention in the Congo has failed to date. The UN has "placed a naive faith in the power of elections" to solve problems that require more intervention on the ground -- a mission to which a UN force is uniquely unsuited, because of the difficulty of integrating forces from different polities. It all sounds very familiar to anyone thinking about the CPA and the failure of the Maliki government.
John Virgoe argues in Saturday's Guardian that "megaphone moralizing is not a policy" and won't help the people of Burma, whose recovery from the effects of Cyclone Nargis can't wait on the distant prospect of political change.
Israeli security forces have warned that Jewish settlers could attempt to assassinate Israeli leaders who offer concessions on the West Bank or East Jerusalem.
The Lithuanian President has said that Russia is "humiliating" the EU with its failure to abide by the terms of the Georgian ceasefire agreement. Moves by the EU to defrost relations with Russia will only encourage Russia to make land grabs at will in the future. Edward Lucas says much the same in the Guardian.
Phillip Gourevitch looks at Sarah Palin's reaction to the Ted Stevens conviction. Harry Reid has declared that, even if Ted Stevens is elected tomorrow and fails to face jail time, he will be expelled from the Senate.
After this weekend's convention of dissenters from the African National Congress, ANC leader Jacob Zuma called the breakaway group "snakes." The breakaway faction has named itself the South African Democratic Congress.
The fourth part of Alex de Waal's "How Genocides End" series tries to sidestep the "endless and fruitless debate" over whether killings in Darfur are genocide proper and instead asks whether an actual ending to the pattern of killings is at hand.
Difficulties in negotiating an agreement with the Iraqi government for the ongoing presence of U.S. forces in Iraq has led the U.S. to explore getting an extended mandate from the UN.
Zambia's opposition is challenging last week's vote for president.
Russia Profile looks at the role of pipeline politics in the ongoing talks over Nagorno-Karabakh.
Science
Real Climate runs a FAQ on common climate models, addressing issues of vocabulary, methodology, and robustness. It's a wonderful resource for those interested in how models are actually run and how to talk about them.
Nature Geoscience publishes an article taking a stab at ranking different geo-engineering schemes, right after the Royal Society announced new research into the technical feasibility and likely efficacy of a variety of the most popular schemes. We remain strongly opposed to geo-engineering: untested boondoggles shouldn't be anyone's preferred strategy for tackling climate change.
Another paper in Nature Geoscience examines the climate forcing of actual greenhouses in Spain, arriving at a net radiative forcing of around -19 W/m^2, a shockingly high number. This is further evidence for the potential positive effect on radiative forcing of mandating white roofs with building codes.
The MIT Tech Review looks at early problems with electronic voting machines, and it gives a brief overview of the massive technical issues that face the machines. It is not that voting machines are impossible to design well; but the security implemented in them fails to meet even the most basic possible security standards.
Expected allowance shortfalls in the ETS may be reduced by as much as half because of the recession, suppressing European EUA prices.
The USDA surveys food prices and concludes that the primary barriers for low-income Americans to eat healthily are cultural, not financial. Importantly, the USDA is not arguing in favor of subsidies on corn, soy, and other crops used in processed foods: just pointing out that cost does not seem to be the dominant issue.
Chile's water authority warned this weekend that a glacier near Santiago that provides the capital with most of its water could disappear within 50 years.
A U.S. District Court judge has blocked the NYC taxi-specific fuel efficiency requirements, which would have required taxi fuel efficiencies to go from between 10-12 MPG to 25 and then 30 MPG. The judge ruled that only the federal government has the power to set fuel-efficiency standards under CAFE. Mayor Bloomberg has declared that he will explore incentive programs and other alternate means to increase the number of hybrid taxis on the streets.
An example of sustainable forestry at work, as coho salmon, whose stocks are collapsing, have returned to a watershed previously destroyed by logging and now sustainably managed.
Melamine-tainted eggs were an isolated case, China's Agriculture Minister Sun Zhengcai tells Xinhua.
Chandrayaan-1, India's first lunar orbiter, has sent back its first pictures (of the Earth).
The Reserve Bank of India cut interest rates 50bp at the weekend, to 7.5%. The Bank of England meets Wednesday and Thursday and the European Central Bank meets Thursday. Libor continues to fall, to its lowest level since the failure of Lehman Brothers. Counterparty risk, in other words, is no longer the problem; the problem is slowing real demand and debt deflation. The ISM manufacturing survey read sharply lower for October, with US factory activity at its lowest since 1982. The IEA says that U.S. oil demand has fallen by 2 million bpd. And the Fed's survey of senior loan officers shows both supply of and demand for new lending falling, with banks tightening standards on credit cards and other consumer loans, on mortgages, commercial real estate, and on commercial & industrial lending. Citigroup lost $1.4bn in Q3 on credit card securitization and said losses on credit cards may rise "well into 2009." Circuit City confirmed its plans to shut 155 stores and aggressively renegotiate existing leases; Mervyns confirmed its plans to shutter its remaining stores.
China's manufacturing index was at a record low in October (the survey began in July 2005). Calculated Risk looks at the possible consequences of Chinese fiscal stimulus for US interest rates. The LA Times runs a piece on owners deserting their factories in China. IEEE Spectrum is saying we may be at the beginning of a long-term shift of R&D spending towards lower cost countries.
The WTO will meet with major banks on November 12 to consider solutions to the failing market in letters of credit and trade finance.
Treasury has rejected GM's request for $10bn in financing to help its merger with Chrysler go through, reports the NYT, and the Bush Administration will instead try to speed up the $25bn in loans ostensibly intended to help the automakers develop fuel-efficient vehicles. In broader bailout news, thousands of smaller banks and financial firms have applied for aid from the Treasury.
Portugal is to nationalize Banco Português de Negócios and make EUR4bn available to recapitalize Portuguese banks in the form of preference shares. Commerzbank will get a EUR8.2bn credit line from the German government; Erste Bank will take EUR2.7bn from Austria. The South Korean government is proposing a $11bn fiscal stimulus plan. Gordon Brown is expecting Saudi Arabia to help shore up the IMF's reserves as it bails out nations in financial trouble.
Willem Buiter warns against liquidity provision at any cost -- now is the time to agonize over moral hazard and create the right incentives for the next credit cycle. FT Alphaville highlights a presentation from Nomura on "balance sheet recessions" with a very useful flowchart of how a "stag-deflation" like the Japanese lost decade unfolds.
Some credit card issuers are proposing forgiveness for 40% of credit card debt, in what may be a bid to evade tighter regulation after the new president takes office. We say regulate them till the cows come home: if a portfolio that can withstand 40% writeoffs doesn't define predatory lending, what does?
The always-trenchant Steven Davidoff looks at the canceled KKR "IPO" and the structure of the Treasury's recapitalization of US banks.
The Washington Post reviews the growing financial crisis in Argentina as President Kirchner tries to nationalize $25bn of pensions.
Russia claims its banks have enough liquidity to carry on settlement and the Bank of Russia is taking steps to ensure that aid to the banks is not converted into forex and moved out of the country's lending system. Net capital outflows for Russia were $26bn in September, and they have totaled $140bn since August, according to BNP Paribas. More Russian mining companies are cutting output and scaling back investment plans. Venezuela Analysis looks at alarmism over Venezuelan arms purchases from Russia and points out that they do not affect the balance of military power in South America substantially. Rather, they are evidence Russia is trying to extend its power base and Venezuela is rattling its sabers, as the pace of purchases is unsustainable, particularly with falling oil prices.
Mark Thoma looks at the recent rise in military spending contribution to US GDP and speaks the forbidden words: military Keynesianism. Econbrowser looks at the likely fiscal implications of the two candidates' budgets.
John Lanchester says the world of finance went "postmodern" before it went bust. And the New Yorker takes a wistful look at tombstones. (Not what you think.)
World
Zimbabwe is again considering redenominating the Zimbabwe dollar as it is forced to introduce more higher denomination banknotes. This Is Zimbabwe write on the fate of recently disappeared Zimbabweans as Zanu-PF "fan the fires of discontent." The Standard says Zimbabwe's government is obscuring the scale of an ongoing outbreak of cholera in suburbs of Harare where sewage flows in the streets. Meanwhile, illegal mining is poisoning the country's rivers. The only people unaffected by widespread famine are Zanu-PF leadership, who are planning to feast for days at the annual party Congress.
Paul Collier in the Guardian discusses why intervention in the Congo has failed to date. The UN has "placed a naive faith in the power of elections" to solve problems that require more intervention on the ground -- a mission to which a UN force is uniquely unsuited, because of the difficulty of integrating forces from different polities. It all sounds very familiar to anyone thinking about the CPA and the failure of the Maliki government.
John Virgoe argues in Saturday's Guardian that "megaphone moralizing is not a policy" and won't help the people of Burma, whose recovery from the effects of Cyclone Nargis can't wait on the distant prospect of political change.
Israeli security forces have warned that Jewish settlers could attempt to assassinate Israeli leaders who offer concessions on the West Bank or East Jerusalem.
The Lithuanian President has said that Russia is "humiliating" the EU with its failure to abide by the terms of the Georgian ceasefire agreement. Moves by the EU to defrost relations with Russia will only encourage Russia to make land grabs at will in the future. Edward Lucas says much the same in the Guardian.
Phillip Gourevitch looks at Sarah Palin's reaction to the Ted Stevens conviction. Harry Reid has declared that, even if Ted Stevens is elected tomorrow and fails to face jail time, he will be expelled from the Senate.
After this weekend's convention of dissenters from the African National Congress, ANC leader Jacob Zuma called the breakaway group "snakes." The breakaway faction has named itself the South African Democratic Congress.
The fourth part of Alex de Waal's "How Genocides End" series tries to sidestep the "endless and fruitless debate" over whether killings in Darfur are genocide proper and instead asks whether an actual ending to the pattern of killings is at hand.
Difficulties in negotiating an agreement with the Iraqi government for the ongoing presence of U.S. forces in Iraq has led the U.S. to explore getting an extended mandate from the UN.
Zambia's opposition is challenging last week's vote for president.
Russia Profile looks at the role of pipeline politics in the ongoing talks over Nagorno-Karabakh.
Science
Real Climate runs a FAQ on common climate models, addressing issues of vocabulary, methodology, and robustness. It's a wonderful resource for those interested in how models are actually run and how to talk about them.
Nature Geoscience publishes an article taking a stab at ranking different geo-engineering schemes, right after the Royal Society announced new research into the technical feasibility and likely efficacy of a variety of the most popular schemes. We remain strongly opposed to geo-engineering: untested boondoggles shouldn't be anyone's preferred strategy for tackling climate change.
Another paper in Nature Geoscience examines the climate forcing of actual greenhouses in Spain, arriving at a net radiative forcing of around -19 W/m^2, a shockingly high number. This is further evidence for the potential positive effect on radiative forcing of mandating white roofs with building codes.
The MIT Tech Review looks at early problems with electronic voting machines, and it gives a brief overview of the massive technical issues that face the machines. It is not that voting machines are impossible to design well; but the security implemented in them fails to meet even the most basic possible security standards.
Expected allowance shortfalls in the ETS may be reduced by as much as half because of the recession, suppressing European EUA prices.
The USDA surveys food prices and concludes that the primary barriers for low-income Americans to eat healthily are cultural, not financial. Importantly, the USDA is not arguing in favor of subsidies on corn, soy, and other crops used in processed foods: just pointing out that cost does not seem to be the dominant issue.
Chile's water authority warned this weekend that a glacier near Santiago that provides the capital with most of its water could disappear within 50 years.
A U.S. District Court judge has blocked the NYC taxi-specific fuel efficiency requirements, which would have required taxi fuel efficiencies to go from between 10-12 MPG to 25 and then 30 MPG. The judge ruled that only the federal government has the power to set fuel-efficiency standards under CAFE. Mayor Bloomberg has declared that he will explore incentive programs and other alternate means to increase the number of hybrid taxis on the streets.
An example of sustainable forestry at work, as coho salmon, whose stocks are collapsing, have returned to a watershed previously destroyed by logging and now sustainably managed.
Melamine-tainted eggs were an isolated case, China's Agriculture Minister Sun Zhengcai tells Xinhua.
Chandrayaan-1, India's first lunar orbiter, has sent back its first pictures (of the Earth).
October Themes: Monetary Breakdown
Karl Marx's most famous contribution to the social-scientific lexicon is probably the notion of fetishism, the way in which a single moment of the social process comes to stand in for (and obscure) the others -- like an individual commodity and its market value for the total process of commodity production and value creation. There is no more substantial and enduring fetish than the monetary fetish: the tendency to treat media of payment as if they did not intermediate value but embodied it.
Some groups of people have always been relatively immune to this illusion: money-market traders, for instance, whose bread and butter is the spread between short-term and long-term money. But there are times -- like last month -- when more general stresses make the seams in the process of monetary intermediation obvious to a wider audience.
Black markets and informal currencies
Robert Mugabe's Zimbabwe is likely to replace Weimar Germany as the textbook example of hyperinflation. On October 13th, one Zimbabwe blogger was quoted a 9kg cylinder of white gas at USD27,000 (ZWD340mn) - as the total breakdown of monetary intermediation brought legitimate imports of necessary commodities to a halt. Taxes of up to 75% levied on imports -- in foreign currency -- mean that basic goods imported from neighboring South Africa can cost up to four times as much in Zimbabwe.
Trading in the Zimbabwe dollar, even for ordinary goods like loaves of bread, involves so much inflation risk that even street vendors are demanding payments in foreign exchange and salaries are being paid in easily negotiable basic commodities -- sugar, salt, mealie meal.
Since inflation expectations are constantly changing and foreign exchange risk is incalculable -- and unhedgeable -- basic accounting becomes impossible for businesses of any size and all planning for investment is put on hold. Businesses that demand payments in foreign currencies run the risk of sudden raids by the Reserve Bank of Zimbabwe, which confiscates forex and replaces it with ZWD at the official rate -- far below the real, black market rate. When the RBZ suspended the interbank payment system, ostensibly to limit arbitrage opportunities between the official and black market rates, aid agencies found themselves unable to make payments and provide the subsistence support most ordinary Zimbabweans now need.
Time deposits and liquidity
On October 15, when more stores in Zimbabwe were still pricing goods in ZWD, the UN's IRIN news agency reported that managers were repricing goods several times a day -- and posting three prices for each, one in ZWD, one in USD, and one for ZWD-settlement credit cards. Supermarkets in Zimbabwe have since begun refusing to accept checks and debit cards at all -- the currency depreciates too quickly during the time it takes the payments to clear.
Later in the month, in Russia, this phenomenon of double-pricing for credit resurfaced, with some Russian businesses refusing credit card payments, and at least one bank's ATMs (Sberbank) refusing debit cards from other banks.
In ordinary circumstances, consumers (and indeed most economic actors) behave as if time deposits like checking accounts and consumer credit like credit cards are equivalent to cash. But accepting payments in these media means incurring risk, however small it may ordinarily be -- payment risk (depending on the solvency of the card-issuing institution, or, in extremis, on the continued functioning of the settlement system) and time risk (exposing the payee to the risk that, in this case, the ruble might be devalued in the period between transaction and settlement).
Under pressure, monetary systems "delaminate," so to speak, as ordinarily interchangeable forms of payment -- cash, demand deposits, time deposits, repos -- start to trade separately and sometimes with very different risk premia, surprising even the most sophisticated investors. On a grander and more foreboding scale, the breakdown of the international market in trade finance -- letters of credit -- shows how ordinarily transparent, money-like credit instruments can breakdown in times of crisis. (In an important sense, letters of credit are a more basic kind of money than state-issued paper money, or even physical cash, like copper or gold: long-distance trade on any scale would have been impossible in the early modern world without flourishing markets engaged in the discounting of bills drawn on banking houses far away.)
Prices without money
And in times of crisis, national currencies can start to look more like letters of credit or commercial paper than the other way around. On October 24, credit-default swaps on sovereign debt for Ukraine (26%), Kazakhstan, Russia, Latvia, Indonesia, Argentina (38%), and Pakistan (32%) all traded above 1000bp, with CDS on a number of European sovereigns were trading above 100bp (Italy, Greece, Portugal, and Ireland), with most of the largest industrial economies' debt trading in the range of healthy or slightly stressed corporates. Some of this meteoric rise in CDS spreads is likely due to enterprising buyers expecting to be able to sell protection at even higher rates and take advantage of panic; but there is a very real sense in which, during a period of currency devaluations and debt defaults, obligations issued by a company like McDonald's are safer than obligations issued by a country like Pakistan.
And at the end of the month, Thailand announced it would barter rice directly for oil with Iran, as a shortage of forex (and Iran's political interest in doing as little dollar-denominated business as possible) incentivizes direct trade between countries -- the UN FAO says this kind of international trade may again become common as emerging countries' reserves shrink.
Currency areas and monetary hegemony
It's a general rule that within a single currency area (a loose enough term for a loose enough concept, indicating a qualitatively greater regional intensity of trading relationships) there is unlikely to be more than a single currency: a corollary of the definition of money that sees it as the commodity whose cross-elasticities with all other commodities are lowest. Every one of the vexed attempts by national governments to impose dual currency systems (one soft for internal exchange, one hard for external exchange) falls prey, in the end, to the reality of monetary hegemony. But what about local currencies that, when push comes to shove, turn out to be soft versions of harder neighboring currencies?
October saw the economies of a number of "Euro-margin" countries teetering on the brink of failure, and the provision of large dollar- and Euro-denominated bailout packages from European governments and the IMF. The collapse of the Icelandic economy is only the most spectacular illustration of the plight of a small (that is, relative to a larger, currency-hegemonic neighbor) open economy under pressure. Countries like Iceland and Hungary -- where most consumer debt is actually issued by Eurozone or Swiss banks and denominated in EUR or CHF -- need to stabilize their exchange rates in order to make sure trade necessary to their subsistence continues smoothly. But the costs to their citizens of standard, "Washington consensus" economic restructuring plans can be high: local austerity translating into large transfers of wealth out of the country.
Not that the monetary hegemons are themselves in great shape. The Federal Reserve this month vastly expanded its bilateral currency swap arrangements with G7 nations -- and also, for the first time, made dollar financing directly available to a selected group of emerging central banks. The dollar has remained the global currency of last resort and the Fed the global lender of last resort, as the only realistic competitors stagger under their own challenges: recession and retrenchment in Japan, and internal pressures in the Eurozone. Debt issued by individual Europena countries is trading at vastly different prices, as the market assesses the chances of individual governments still responsible for setting their own fiscal policies -- and bailing out their own banks. What would happen to European Monetary Union if a Eurozone country were to break its macroeconomic covenants is an open question. In the meantime, the lack of a centralized European debt issuer has made it hard for Europe to provide credible support to countries on its borders.
The IMF is, of course, the long-shot global monetary authority of last resort. But it may exhaust its capacity to lend to distressed countries in the near future, leading some commentators to punt the possibility it will issue bonds (which it has never done) or Special Drawing Rights, an exotic international currency based on a weighted basket of major national currencies (1 SDR = $1.48) not issued since the fall of the Soviet Union, in order to fund its operations. But without substantial policy-making independence from Washington, the bank, whose operations have always been funded by its members' quotas, is unlikely ever to be able to shoulder the responsibilities of a genuinely global central bank.
Some groups of people have always been relatively immune to this illusion: money-market traders, for instance, whose bread and butter is the spread between short-term and long-term money. But there are times -- like last month -- when more general stresses make the seams in the process of monetary intermediation obvious to a wider audience.
Black markets and informal currencies
Robert Mugabe's Zimbabwe is likely to replace Weimar Germany as the textbook example of hyperinflation. On October 13th, one Zimbabwe blogger was quoted a 9kg cylinder of white gas at USD27,000 (ZWD340mn) - as the total breakdown of monetary intermediation brought legitimate imports of necessary commodities to a halt. Taxes of up to 75% levied on imports -- in foreign currency -- mean that basic goods imported from neighboring South Africa can cost up to four times as much in Zimbabwe.
Trading in the Zimbabwe dollar, even for ordinary goods like loaves of bread, involves so much inflation risk that even street vendors are demanding payments in foreign exchange and salaries are being paid in easily negotiable basic commodities -- sugar, salt, mealie meal.
Since inflation expectations are constantly changing and foreign exchange risk is incalculable -- and unhedgeable -- basic accounting becomes impossible for businesses of any size and all planning for investment is put on hold. Businesses that demand payments in foreign currencies run the risk of sudden raids by the Reserve Bank of Zimbabwe, which confiscates forex and replaces it with ZWD at the official rate -- far below the real, black market rate. When the RBZ suspended the interbank payment system, ostensibly to limit arbitrage opportunities between the official and black market rates, aid agencies found themselves unable to make payments and provide the subsistence support most ordinary Zimbabweans now need.
Time deposits and liquidity
On October 15, when more stores in Zimbabwe were still pricing goods in ZWD, the UN's IRIN news agency reported that managers were repricing goods several times a day -- and posting three prices for each, one in ZWD, one in USD, and one for ZWD-settlement credit cards. Supermarkets in Zimbabwe have since begun refusing to accept checks and debit cards at all -- the currency depreciates too quickly during the time it takes the payments to clear.
Later in the month, in Russia, this phenomenon of double-pricing for credit resurfaced, with some Russian businesses refusing credit card payments, and at least one bank's ATMs (Sberbank) refusing debit cards from other banks.
In ordinary circumstances, consumers (and indeed most economic actors) behave as if time deposits like checking accounts and consumer credit like credit cards are equivalent to cash. But accepting payments in these media means incurring risk, however small it may ordinarily be -- payment risk (depending on the solvency of the card-issuing institution, or, in extremis, on the continued functioning of the settlement system) and time risk (exposing the payee to the risk that, in this case, the ruble might be devalued in the period between transaction and settlement).
Under pressure, monetary systems "delaminate," so to speak, as ordinarily interchangeable forms of payment -- cash, demand deposits, time deposits, repos -- start to trade separately and sometimes with very different risk premia, surprising even the most sophisticated investors. On a grander and more foreboding scale, the breakdown of the international market in trade finance -- letters of credit -- shows how ordinarily transparent, money-like credit instruments can breakdown in times of crisis. (In an important sense, letters of credit are a more basic kind of money than state-issued paper money, or even physical cash, like copper or gold: long-distance trade on any scale would have been impossible in the early modern world without flourishing markets engaged in the discounting of bills drawn on banking houses far away.)
Prices without money
And in times of crisis, national currencies can start to look more like letters of credit or commercial paper than the other way around. On October 24, credit-default swaps on sovereign debt for Ukraine (26%), Kazakhstan, Russia, Latvia, Indonesia, Argentina (38%), and Pakistan (32%) all traded above 1000bp, with CDS on a number of European sovereigns were trading above 100bp (Italy, Greece, Portugal, and Ireland), with most of the largest industrial economies' debt trading in the range of healthy or slightly stressed corporates. Some of this meteoric rise in CDS spreads is likely due to enterprising buyers expecting to be able to sell protection at even higher rates and take advantage of panic; but there is a very real sense in which, during a period of currency devaluations and debt defaults, obligations issued by a company like McDonald's are safer than obligations issued by a country like Pakistan.
And at the end of the month, Thailand announced it would barter rice directly for oil with Iran, as a shortage of forex (and Iran's political interest in doing as little dollar-denominated business as possible) incentivizes direct trade between countries -- the UN FAO says this kind of international trade may again become common as emerging countries' reserves shrink.
Currency areas and monetary hegemony
It's a general rule that within a single currency area (a loose enough term for a loose enough concept, indicating a qualitatively greater regional intensity of trading relationships) there is unlikely to be more than a single currency: a corollary of the definition of money that sees it as the commodity whose cross-elasticities with all other commodities are lowest. Every one of the vexed attempts by national governments to impose dual currency systems (one soft for internal exchange, one hard for external exchange) falls prey, in the end, to the reality of monetary hegemony. But what about local currencies that, when push comes to shove, turn out to be soft versions of harder neighboring currencies?
October saw the economies of a number of "Euro-margin" countries teetering on the brink of failure, and the provision of large dollar- and Euro-denominated bailout packages from European governments and the IMF. The collapse of the Icelandic economy is only the most spectacular illustration of the plight of a small (that is, relative to a larger, currency-hegemonic neighbor) open economy under pressure. Countries like Iceland and Hungary -- where most consumer debt is actually issued by Eurozone or Swiss banks and denominated in EUR or CHF -- need to stabilize their exchange rates in order to make sure trade necessary to their subsistence continues smoothly. But the costs to their citizens of standard, "Washington consensus" economic restructuring plans can be high: local austerity translating into large transfers of wealth out of the country.
Not that the monetary hegemons are themselves in great shape. The Federal Reserve this month vastly expanded its bilateral currency swap arrangements with G7 nations -- and also, for the first time, made dollar financing directly available to a selected group of emerging central banks. The dollar has remained the global currency of last resort and the Fed the global lender of last resort, as the only realistic competitors stagger under their own challenges: recession and retrenchment in Japan, and internal pressures in the Eurozone. Debt issued by individual Europena countries is trading at vastly different prices, as the market assesses the chances of individual governments still responsible for setting their own fiscal policies -- and bailing out their own banks. What would happen to European Monetary Union if a Eurozone country were to break its macroeconomic covenants is an open question. In the meantime, the lack of a centralized European debt issuer has made it hard for Europe to provide credible support to countries on its borders.
The IMF is, of course, the long-shot global monetary authority of last resort. But it may exhaust its capacity to lend to distressed countries in the near future, leading some commentators to punt the possibility it will issue bonds (which it has never done) or Special Drawing Rights, an exotic international currency based on a weighted basket of major national currencies (1 SDR = $1.48) not issued since the fall of the Soviet Union, in order to fund its operations. But without substantial policy-making independence from Washington, the bank, whose operations have always been funded by its members' quotas, is unlikely ever to be able to shoulder the responsibilities of a genuinely global central bank.
Readings: Mirabeau
"All the possessions consisted of scattered and secret securities, a few warehouses, and passive and active debts, whose true owners are to some extent unknown, since no one knows which of them are paid and which of them are owing. No wealth which is immaterial or kept in people's pockets can ever be got hold of by the sovereign power, and consequently will yield it nothing at all. This is a truth which should be constantly repeated to the governments of those agricultural nations which take such pains to school themselves to become merchants, i.e. to plunder themselves. The wealthy merchant, trader, banker, etc., will always be a member of a republic. In whatever place he may live, he will always enoy the immunity which is inherent in the scattered and unknown character of his property, all one can see of which is the place where business in it is transacted. It would be useless for the authorities to try to force him to fulfill the duties of a subject: they are obliged, in order to induce him to fit in with their plans, to treat him as a master, and to make it worth his while to contribute voluntarily to the public revenue."
Victor Riqueti, marquis de Mirabeau, Philosophie rurale (1763)
Victor Riqueti, marquis de Mirabeau, Philosophie rurale (1763)
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