Canada's Place in the Global Economy

[kstart]

P.S. The criticisms are fair enough, I did a poor job expressing myself-- I ought to have sat on my hands first and let my reactions wash over me first.  I'm still interested in middle ground and constructive solutions, even longer-term planning, but to at least start some of that to add to stabilization, because it's very frightening also this OIL dependence and frailty of economy.

I don't have to be an "expert" to raise questions, or counter-viewpoints-- this is about dialogue here and it's a place to learn from each other.  Confuscious says:  "A wise man learns from both the Fool and the Wise; A Fool learns nothing from either". (might be misquoted. . .?)

The other point to raising leftier sides is most radicals/leaders, e.g. Osama, et al., have been schooled via the West, are aware of 'political economy/geopolitical' aspects; guerilla warfare (remember the FLQ here. . .).  Trust is a really important factor I believe in the building peace and security and assurance of non-abuse.  There are perceptions of the West, religion the means of gathering an identity in opposition to us (radical fundamentalist Islam), but for the leaders I imagine, they have accessed Western education. at least with Talilan/Al Queda. . .not to mention civial war, and waring tribes/warlords.

 

[Edward Campbell]

P.S. The criticisms are fair enough, I did a poor job expressing myself-- I ought to have sat on my hands first and let my reactions wash over me first.  I'm still interested in middle ground and constructive solutions, even longer-term planning, but to at least start some of that to add to stabilization, because it's very frightening also this OIL dependence and frailty of economy.

I don't have to be an "expert" to raise questions, or counter-viewpoints-- this is about dialogue here and it's a place to learn from each other.  Confuscious says:  "A wise man learns from both the Fool and the Wise; A Fool learns nothing from either". (might be misquoted. . .?)

The other point to raising leftier sides is most radicals/leaders, e.g. Osama, et al., have been schooled via the West, are aware of 'political economy/geopolitical' aspects; guerilla warfare (remember the FLQ here. . .).  Trust is a really important factor I believe in the building peace and security and assurance of non-abuse.  There are perceptions of the West, religion the means of gathering an identity in opposition to us (radical fundamentalist Islam), but for the leaders I imagine, they have accessed Western education. at least with Talilan/Al Queda. . .not to mention civial war, and waring tribes/warlords.

You may, indeed, have misquoted Master Kong, but he did say a lot, perhaps even that. I think that both Socrates and Bismark said something along those lines. What K'ung-fu-tzu did say, for sure, was "A fool despises good counsel, but a wise man takes it to heart." Both Journeyman and Kirkhill, two people whose counsel I respect and heed here on Army.ca, have given you some very "good counsel," you should take it to heart.



Edit: spelling  :-[

 

[Journeyman]

Caution: long-winded, opinionated response follows  ;D

First, I don't think anyone has actually denied a relationship between "OIL/GAS and Security" -- the point is more on the emphasis it plays in strategic thinking. Oil is critical for western infrastructure, and hence, security. There are, however, much more readily available and less costly ways of acquiring it than fighting in Afghanistan for the sole purpose of the TAPI pipeline.

Here’s a source document, properly referenced and the following quotation summing up the nature of my fears and reactions: USAWC STRATEGY RESEARCH PROJECT......

Please note on the very first page:

The views expressed in this student academic research paper are those of the author and do not reflect the official policy or position of the Department of the Army, Department of Defense, or the U.S. Government.

The purpose of these research papers at staff college is to enhance the research, thinking, and writing abilities of senior military officers. While the research may subsequently inform government thinking, it tends not to be as significant as you may be implying. Occasionally, the research is right out to lunch.

But water, food, shelter, health care, democracy, peace and stability are essential.

Here, we disagree, but perhaps it's only a matter of scale.

- Water, food, shelter: yes, essential.

- Health care, democracy: nice to have, but not necessarily essential -- otherwise a large percentage of the planet would fail to have their "essential" needs even remotely met.

- Peace and stability: I think you're conflating the two. Stability is good. Even during the bad old days of staring nuclear eyeball-to-eyeball with the Soviets, it was a form of 'stability' -- with largely understood rules of the game. Peace, however, I believe is a utopian concept that cannot be achieved as long as humans, with all of our faults and foibles, are part of the equation.....no matter how many placards are waved or Starbucks' windows smashed.

Perhaps my pessimism is based unfairly on having deployed to some crappy places to deal with less-than-stellar humanity.......oh, and divorce lawyers! They can negatively colour one's views as well. 

I just desire some honesty here and looking out for the common good...

Ah, but there's the problem, which again gets back to that snag of humans in the equation; who decides on "the common good"? I'm vaguely familiar with some people who believe the "common good" holds that some people should be beheaded for drawing cartoons, or for being a girl going to school, or a female (but not the male) who commits adultery. Who is to say your hypothetical "common good" is any more valid than theirs? It's difficult to "standardize" opinions, as you saw with my views above, on essential needs.


Oh, and if you wish to eliminate "rhetoric" from political/economic discourse, your may want to Google "herculean labours" first; it isn't going away any time soon.


But keep going. You're on the right track -- if nothing else, you're using fewer terms like "trippy" and "freaky, freaky stuff" -- all you need now is to embrace proofeading with spell-check  ;D

 

[CougarKing]

To think that Vietnam was supposed to have taken its privatization of state enterprises much further than China has.

Perhaps Vietnam's further planned defence acquisitions other than this one might not go through if the economy gets threatened by this development?

Massively indebted Vietnamese shipbuilder misses payment

Prime minister left vulnerable before party congress as Vinashin's debts reach almost 5% of GNP

The Guardian UK, January 06, 2011

International investors are growing concerned about Vietnam's state-owned shipbuilding conglomerate Vinashin, which is on the verge of bankruptcy. Its failure would have dire consequences for one of the most dynamic south-east Asian economies. Vinashin is the flagship for the development model advocated by the current leadership of the Vietnamese Communist party.
But it has run up debts of about $4.4bn, equivalent to almost 5% of gross national product in 2009. The firm is begging its creditors, especially Crédit Suisse, which put together a $600m loan in 2007, to delay repayments. At the end of last month Vinashin failed to pay its first $60m instalment to Crédit Suisse, and the Vietnamese government announced an interest-free loan to enable the company to pay wages to its workforce.

Vinashin is in such deep trouble that it threatens the country's economy. Moody's, and Standard & Poor's, have already downgraded Vietnam's overall credit rating.

This could be a serious setback for the Vietnamese economy, which is otherwise doing well. During the 1990s the country enjoyed spectacular growth, over 7%, but then seemed to be losing pace. However last year GDP once more increased by 6.8%, according to the national office of statistics.

If Vinashin fails it is bound to have a political impact. The 11th Communist party congress is due to convene this month and will probably renew part of the national leadership.

Last November the prime minister, Nguyen Tan Dung, came under serious pressure in parliament after an MP dared to table a motion of no-confidence, a direct challenge to his authority.

The one-party system still prevails, but this does not prevent lively debate. The press picked up the story, calling the government to account, and many observers think that Vinashin's problems may undermine the position of Dung and his clan.

Dung, 60, is a southerner and a war veteran. His appointment in 2006 was a new departure for the party executive, with a change of style. In a system traditionally based on consensus-building, which tends to wipe out individual differences in favour of collective action, Dung stands out as a more charismatic figure than his predecessors.

According to the Asia Times online, Dung "is deliberately taking centre stage to signal global leaders and investors that he is in total control of his government, which wasn't always apparent with previous post-revolution Vietnamese administrations, which were run more by committee".

Various factors seem to have contributed to Vinashin's frail condition: poor management of public funds, lack of supervision and transparency, incompetent senior management, plus nepotism and corruption. Two CEOs have been appointed, then dismissed, in recent months, both sacked for bad management. One of them, Pham Thanh Binh, was close to Dung.

The shipbuilder's failure casts doubt on a business model inspired by South Korea. Hanoi set out to build something similar to the Korean chaebols, which were large conglomerates designed to drive economic growth, but in Vietnam's case they are publicly owned and under state supervision. "What has happened is very serious," said an overseas investor, "and the repercussions could well be disastrous."
Vietnam's Doi Moi policy of change and renovation, launched in the 1990s, gradually deregulated the economy while maintaining strict political control, much as has happened in China. The number of publicly owned companies has dropped from 12,000 in 1989 to 4,000.

But although these conglomerates only account for a third of Vietnam's total output, they have recently expanded a great deal in a drive to diversify their interests. With 35% to 40% annual growth, Vinashin invested in catering, distilling and insurance, among other businesses.

Other companies have taken a similar route: VietNam Electricity (EVN) has invested in mobile phones; PetroVietnam has moved into the travel business.

According to Pham Chi Lan, a former head of the chamber of commerce and an adviser to the previous prime minister, Vinashin made the mistake of "developing too many different activities too fast. The South Korean model was certainly attractive, but the management at Vinashin did not understand how it worked."

Lan thinks the next government, appointed after the party congress, will have to rethink its overall approach. She is critical of "the extreme ease with which state-owned companies can obtain bank loans ... These businesses corner two-thirds of all loans, leaving only thin pickings for the private sector."

A Vietnamese entrepreneur, working on infrastructure projects, endorses this view: "Private businesses have to pay 18% interest on any money they borrow. How on earth can we be expected to make a profit under these conditions?"

With a clan system reaching all the way up the power structure, the Vinashin affair is certain to have repercussions, though it is still not clear what form they will take. According to party officials and journalists, all of whom prefer to remain anonymous, Dung will probably stay.

In November Dung publicly accepted responsibility for Vinashin's current woes and yet he stands a good chance of staying in office. He might take over as the secretary general of the party, which is a politically powerful position but one that has a less direct involvement in economic affairs.

Mods, please move if you believe this belongs in its own topic.

 

[kstart]

Thank you Journeyman for helpful perspective and recognition of my need to get clear.  I'm not omnipotent to see all the processes leading up to US economic and security policies.  All your points are completely reasonable and valid. 

I am familiar with hermaneutics, subjectivity, critical thinking, though I think I will take a trip down to the local library though and treat myself to a pleasure read  ;D.

I’m an undergrad- social sci. dropout, though that lead up to a hunger for Kantian-related work, in particular the works of Bernard Lonergan ("cognitive method", epistemology, 'foundations of knowing').  Lonergan was also a Jesuit, some interesting applications in his work Method in Theology.  Some interesting concepts re: "conversion", and this doesn't have to be about conversion to a religion, but learning that sticks, because is fully reflected, truthfully engaged, so that it is one's own (it's protection from being picked up by the tides, whether that be insurgencies, or ideological identity-politics, etc.)

I too despised having ideology shoved at me, e.g. Marx is a 'critical perspective', but not all-encompassing 'critical thinking'   I've had some inner rebellions, because of a need to pursue things truthfully and with integrity.  So, Kirkhill, I won’t lose my ‘catholic’ core   Values and principles do matter to me, as well as practical applications.

I'm a very poor example of a person who's read/applied Lonergan, part of the problem has been my 'ptsd-urgency 'to understand and know and settle with some facts.  The quotation from the USAWC, was a coincidental de facto find, following the spontaneous insight experience, which was everything in that paragraph I referenced.  I am calm now, despite knowing there‘s some tough challenges ahead. 

Re: Common Good, ‘Universals’ (human rights) vs. ‘Relativism’ (particularities of cultural sets).  In principle, and from observable ISAF/CF accomplishments, I’m feeling secure about that.  Safety is an important basic need, and Afghanistan is a population of those living without that for so many years and IMO, that’s hard on the human spirit, individually and collectively.  I do believe in the “universalism’ of  e.g. UN Human Rights principles, but in terms of the peculiarities/relativism of a people and culture that’s endured years and centuries of intense violence, both in the domestic spheres, e.g. subjugation of women and community levels (tribal warring, etc.) they may not be there yet, and we may need patience. 

I’m starting to settle with and square with that.  I know it’s a conflict and we at home also place heavy standards and demands upon CF, because that is also part of our duty.  The fear is if we bend, do we keep bending and what becomes of us (because there’s legal realities, precedents, consequences and that also is about maintaining and protecting the health of our own democracy here at home); there’s the fear of a slippery slope.  At the same time, I recognize that this is also a process, and to start with at least common agreement on safety, security, and so other things can follow, e.g. development, employment, sustainability of stability (affording APA, NDS, etc. and plus).  So, it is frustrating that Karzai implements Sharia Law as given a radically different set of cultural values, this is a ‘middle ground’ to start with, hopefully through time, it shifts.  I know our demands are high, but I think they have to be and sometimes in the greater pursuit of the good, others wind up ‘taking one for the team’, because the laws and standards are important across time.  It is further sacrifice. 

I too dislike politics.  Poor representation of centre, left-of-centre parties.  We need some balanced planning on economy.  New energy programs would be nice, but we’re also stuck and I wish for some innovative ways to get past that impasse, even if it is just small steps.  I think we’ve lost most of our sovereignty, most has been sold out.

I’ll go quiet again.  To the library and to some re-certification of training.  If things become problematic here at home, I want to be able to help as best as I can. 

 

[Journeyman]

kstart, I'm flattered.  I'll just provide one story that got me 'thinking about thinking.'

Several years ago, I was posted into a position that got me several trips to NATO HQ to participate an annual threat assessment. Many of the committee members lived in their countries' line serials for that sort of work so they were quite familiar to one another.

As committees tend to do [ : ] we would go through the assessment line by line. Several members had strengths or quirks that it was best to know. For example, if the French representative raised a point in English, before correcting himself and speaking in French, we knew it was a significant issue to France. He knew how the game was played.

More importantly though, the Italian rep had apparently spent much of his academic life amongst the Jesuits. If he raised a point on logic, or causality, everyone listened; yes, even the Turkish rep who was just in Brussels to get laid (OK, and to make sure the Greeks didn't gain any advantage  ).

While I personally think Kant missed the boat on several points  ;D ... 'thinking about thinking' -- why you believe what you do -- can be kind of important.

I now return you to your regularly scheduled discussion on Global Economics    :-[

 

[kstart]

Great story, Journeyman-- thanks for sharing (enjoyed the humour too ).
It's interesting, the pause that can be taken to reflect on 'foundations' of the thinking, as a process is occurring, a good break for reflecting on the common ground of reasonability.

Kant and Longergan have some blindspots, but what's interesting is the continual refinement, growing from ideas, the 'dialectics' among areas of thought, the academic rigour, and in the the 'field' of it, learning to utilize it to promote clearer thinking, re-grounding and dialogue. 

There's an interesting field of "Applied Ethics" and I think those practicioners can be a useful contribution to any team effort into practical problem solving and involving multi-disciplinary approaches to problems.

I realize to this was a divergence from the topic at hand.  It's just a pause.  This was a great experience for me, even the conflict of it (my stumbling ).  Values-thinking is also important, and it doesn't have to be rigid, there's a flow to it and consensus-building.  Anyway, I'm just a total hack with it.  I am taking away with me, some new inspiration and I'm grateful.  Familiarity with Kant, check out Lonergan's Insight: A Study of Human Understanding, that is if you have some extra time on your hands  ;D  Cheers.

Back to The Global Economy.

 

[GAP]

While not Global in nature, I think this is going to have a huge impact down the line.................

Bank charges produce windfall of nearly $6B
January 14, 2011 | 09:00  Michel Munger, QMI Agency | Money
Saturday, January 15, 2011
Article Link
 
MONTREAL - Canadian banks reap nearly $6 billion a year in bank fees from their clients, a windfall that's only growing larger as the banks hike the charges.

According to figures compiled by Money, Canadians paid $5.57 billion in bank fees in 2009, an estimate that’s based on $111.5 billion in bank revenues.

The Canadian Bankers Association says that year over year, fees comprise 5% of bank revenues in Canada, or $163 per person. That's consistent with data from Statistics Canada and the results of an Angus Reid poll, where it's estimated the average Canadian pays $185 per year in bank charges.

An analysis of the big banks’ financial statements reveals that the average Canadian paid $134 in annual fees in 2005 and that the charges increased 18% between 2005 and 2009.

On Feb. 1, Scotiabank increased its fee packages, with the price of unlimited transactions rising by a whopping $9.95, to $11.95 per month from $2 a month.

Banks have other ways to maximize profits. Many now require account holders to maintain continuous balances of several thousand dollars to avoid paying monthly fees. Clients are charged for monthly printed statements and overdraft fees are as high as $5 a day.

Nevertheless, Canadian consumers aren’t complaining.

Julie Hauser of the Financial Consumer Agency of Canada, a federal consumers' group, said his agency only received 35 complaints about bank charges in 2009 out of 4,666 total complaints.

Hauser suggested that customers shop around if their fees are too high.

“If you are looking for (an account) with no annual fee or lower fees, you can use our web tool and change banks,” she said.

Caroline Arel, a lawyer for the Montreal consumer group Option consommateurs, says she regularly meets people who want to put their finances in order but are unable to maintain minimum account balances.

“I may have met at least five people since 2001 who have managed to maintain a balance in their account to avoid paying fees, and I’m being generous,” she said.
little more on link

 

[Nemo888]

Canadian GDP(Gross Domestic Product)
agriculture: 2.3%
industry: 26.4%
services: 71.3%

I wonder what percentage of this is banking and financial services related? Could a predominance of financial services and not actually making anything useful be the problem with Western economies? Interest and fees on moving money is technically GDP "growth" on paper.

The best guesses for banking are around 8%-10% and the third largest sector in the economy but if someone can find a breakdown by sector please post it. I think a  predominantly service economy and globalization are what are killing our prosperity. Bankers are one of the least productive elements of our society IMO and are taking too big a slice .

 

[Edward Campbell]

This reproduced under the Fair Dealing provisions (§29) of the Copyright Act from today’s Globe and Mail web site, illustrates a potential problem for the EU and the world:

http://www.theglobeandmail.com/report-on-business/economy/euro-in-most-difficult-phase-angela-merkel-says/article1484453/

There are a limited number of options for Greece, Europe and the international financial community – none of them very good.

In the longer term Europe must come to grips with its propensity to allow the PIIGS (Portugal, Ireland, Italy, Greece and Spain) to lie to the EU and get away with it. None of the five can be in the Eurozone under its own rules. Most should be expelled, even if they can bring their economies into line with the rules, because their governments are chronically dishonest and inept. There can be no case for making the Euro (€) a new, competitive reserve currency, or even for using SDRs that are heavily weighted with Euros, so long as the PIIGS remain € members.

Germany, France, the Netherlands and a few other respectable/responsible European governments need to sauve qui peut while there is still something, the € and the reasonably stable economies of North-West Europe, to be saved. The PIIGS should be "invited" to withdraw from the Eurozone (before they destroy it) as a precondition for massive help from the solvent members of the EU.

As an aside, the US debt:GDP ratio makes it a ‘pig,’ too, and adds fuel to China’s push to replace the $ with SDRs as the global reserve currency. The Chinese motive is not, totally, monetary/fiscal; China’s long term policy interests would be served by seeing the US humiliated by the world’s ‘rejection’ of the greenback.

The Chinese are making some, limited but still measurable headway in their quest to dethrone the US dollar from its position as de facto global reserve currency according to this article, reproduced under the Fair Dealing provisions (§29) of the Copyright Act from the Globe and Mail:

http://www.theglobeandmail.com/report-on-business/economy/economy-lab/daily-mix/world-bank-makes-case-for-new-reserve-currency/article1870084/

World Bank makes case for new reserve currency

KEVIN CARMICHAEL
WASHINGTON— Globe and Mail Blog

Posted on Friday, January 14, 2011

It’s easy to dismiss French President Nicolas Sarkozy’s pledge to use his term as chairman of the Group of 20 to talk about overhauling the international monetary system as quixotic, a distraction from the more pressing problems related Europe’s sovereign debt crisis, or even a waste of time.
The World Bank is taking a different view.

Those who bothered to read to the end of the Washington-based institution’s 30-page economic outlook this week stumbled on perhaps the clearest reasoning yet for why Mr. Sarkozy is right to begin discussing whether the world needs a new reserve currency.

“To date the dollar remains and is likely to remain for a long time the dominant reserve currency in the global economy,” the says the report, which was written by an economics department led by chief economistJustin Lin. “In the long-run a gradual move toward reliance on new or additional currencies is both likely and desirable.”

The World Bank was moved to this position by the events of last year. The decision of the Federal Reserve to adopt “very loose monetary policy and the depreciation of the dollar may be having impacts on global confidence in the dollar as the international reserve currency, which could have important consequences.”

The World Bank adds in the report that the situation is exacerbated by Europe’s debt woes, which undermines confidence in the euro. Its economists note that over the past several years, the values of the dollar and the euro have oscillated “a great deal, potentially reducing their qualities as a stable store of value that partly explains their use as international currencies.”

For those who wonder why any of this matters, the World Bank points out that both the abandonment of the gold standard during the Great Depression and the collapse of the Bretton Woods system in the 1970s were associated with extended periods of slow economic growth. In other words, there might be a correlation between stability in the international monetary system and a healthy global economy.

Mr. Sarkozy, who flew to Washington earlier this week to talk about his plans for the G20 with President Barack Obama, has stressed that his not seeking to undermine the dollar. Rather, the French president says he simply wants to have a discussion to explore ways to calm increasing volatility in foreign-exchange markets.

China is on board and will host a conference on the subject under the G20 banner later this year. Canada, judging by Finance Minister Jim Flaherty’s answer to a question about the possibility of a new reserve currency earlier this week, is opposed.

The G20’s immediate priority should be dealing with the “potential dangers in Europe,” Mr. Flaherty said after a speech in Washington. “The American dollar is serving the purpose” of reserve currency, Mr. Flaherty said.

Mr. Lin’s World Bank economists are less certain. While they agree it’s unlikely, they refuse to rule out the possibility that the dollar and the euro could “cease anchoring” the international monetary system over the medium term. “This could give rise to a further bout of protectionism and disruptive exchange rate volatility, with damaging effects for global growth and poverty reduction.”

 

[a_majoor]

More areas of concern, fueled by the devaluation of the Greenback:

Exchequer
NRO’s eye on debt and deficits . . . by Kevin D. Williamson.
 
The OPEC Bailout Is Not Happening
January 14, 2011 10:55 A.M.
By Kevin D. Williamson
Tags: Anemic Fiat Dollars, Inflation, Politics

Good news for Generic Republican, who already has established himself as a legitimate contender for the White House in 2012: OPEC is not bailing us out. The oil cartel is making it known that it is cool with $100 oil and will not act unless prices move significantly higher and stay there. Oil, like most commodities, has been rising steadily as governments around the world keep their printing presses running to dump new money into the global economy.

Oil producers have a real good to sell, one with intrinsic value. They do not want to be paid in devalued currencies. Neither do producers selling precious metals, fertilizer, farm products, etc., which is one reason why wholesale food prices are going zoom, zoom, zoom.

Oil at $100 and unemployment ~10 percent is bad news for Obama’s re-election hopes, of course. (It should go without saying that it is bad for America, too, and that I do not wish for economic suffering to be visited upon my fellow citizens in order to hamper the Obama administration.)  But you know what’s even worse than $100 oil? $150 oil, which the CEO of Gulf says would not surprise him. There will be tremendous political pressure put on OPEC and the other producers if that happens. But why would OPEC want to bail us out? What is in it for them? Devalued U.S. dollars? If the Obama administration will not get behind a solid dollar for sound economic reasons, maybe narrow political self-interest will be enough.

We spend a lot of time thinking about our competition with China in producing goods and services; but it is equally important, probably more important, that we compete with the Chinese and the other rising economies as consumers of goods and services. The United States is still the big boss in terms of global energy demand, but small, steady changes elsewhere are making it a new game. The energy autarkists who like to rave about the evils of “Arab oil” (never mind that the biggest part of our oil imports are Canadian and Mexican) fail to appreciate that with every passing month it matters a little bit less to the Arab world whether we buy their oil or don’t. Clout has a shelf life, and money talks. What is our money saying, vis-à-vis oil, food, metals, etc.? I think it’s saying “Help me!” in that tiny, terrifying little voice at the end of the original The Fly.

Back to Obama: I’m starting to think that we despairing deficit hawks have to be more politically engaged. I’ve operated for the past several years under the theory that when it comes to the big, macro debt-and-deficit issues, it does not much matter who holds political power: I did not see much evidence that a Republican Congress or a Democratic Congress was going to act before the market acts, forcing fiscal discipline on the United States by jacking up borrowing costs. Yes, there are differences, but the differences between the parties is very small compared with the difference between either of the parties and what reality requires.

But I am starting to reconsider that. The Republican party still is not serious about the fiscal issues, but there is an element within the party that is, and it needs to be encouraged and empowered. Somebody has a chance to own this issue. Who will?

—  Kevin D. Williamson is a deputy managing editor of National Review and author of The Politically Incorrect Guide to Socialism, just published by Regnery. You can buy an autographed copy through National Review Online here.

 

[GAP]

15 Indian companies bid for Afghan iron deposits news
20 January 2011
Article Link

With the negotiations for the TAPI (Turkmenistan-Afghanistan-Pakistan-India) oil pipeline reaching a successful outcome and the security situation within the country taking a turn for the better over the last quarter of 2010, Afghanistan is now moving ahead on a path of national development. On Wednesday it invited 22 companies, including 15 from India, to bid for the development of its giant Hajigak iron ore deposits.

The country's ministry for mines has set 3 August 2011 as the deadline for bids for what it says is the largest un-mined iron deposit in Asia. It said it expected exploration to begin in 2012.

The Hajigak deposit straddles Bamiyan, Parwan and Wardak provinces.

The ministry estimates the worth of its reserves at as much as $350 billion.

Even as the country opens up its large reservoir of natural resources for commercial exploitation investors feel successful exploitation may well be years if not decades away as the country continues to battle insurgency and virtually non-existent infrastructure.

The ministry said interested companies included India's Jindal Steel and Power Ltd, JSW Steel, Tata Steel, NMDC, Steel Authority of India and Ispat Industries. UK-based Stemcor was also named, as well as Canadian-based Kilo Goldmines Ltd.

"The development of Hajigak will involve major infrastructure improvements and will stimulate the local economy and improve and lives of the citizens of Bamiyan province and beyond," mines minister Wahidullah Shahrani said in a statement.

United Mining and Minerals Co was the only Chinese company on the list, the ministry said.

Inspite of non-existent infrastructure and a raging Taliban-inspired insurgency in the country, China's top integrated copper producer, Jiangxi Copper Co and Metallurgical Corp of China are developing the vast Aynak copper mine south of Kabul after bagging the contract in 2007 through bribes.

Metallurgical Corp considered it wise to pull out of an earlier tender for Hajigak in 2009, following accusations it had won the Aynak contract through bribery. The firm denied the charges.

The ministry for mines cancelled the tender, blaming the cancellation on the global recession and changes in the world market structure for iron.

Strategically Afghanistan is too important a country to be ignored and resource starved countries are always sniffing for opportunities.
More on link

 

[a_majoor]

Like most things, the source of the problem (and potential solution) turns out to be quite simple after all. The problem lies in those who profit from the various branches and sequels that fan out from the root cause...

http://www.nationalreview.com/exchequer/257439/contra-kristol-contra-gold

Contra Kristol, Contra Gold
January 18, 2011 8:32 P.M.
By Kevin D. Williamson

Tags: Anemic Fiat Dollars, Debt, Deficits, Despair, Picking Fights

I think that the great Bill Kristol is wrong in his call for a “modernized international gold standard” — whatever that might look like — as  part of a program to end the U.S. dollar’s status as the world’s reserve currency. A couple of things:

First, the dollar’s status as a reserve currency is not inherently related to the question of an international gold standard. Whether we have fiat dollars, dollars backed by gold, or dollars backed by something else, nations that hold large foreign-currency reserves may or may not choose to hold as many dollars tomorrow as they hold today. Large institutional investors, be they sovereign-wealth funds or other top-tier players, may wish to hold something backed by gold, in which case they have an obvious alternative: gold. (Or gold-related securities.) Dollars are freely traded on  global exchanges; gold is freely traded on global exchanges; there is never any question about the value of a dollar vis á vis gold. Yes, the value of the dollar fluctuates, and so does the value of gold. There is no inherent economic advantage in uniting those fluctuations; the main attraction of the gold standard is its alleged power to cause governments to conduct their fiscal affairs intelligently and honestly. Alas, it does not.

The question of what a “modernized international gold standard” would look like is worth asking, inasmuch as expecting a motley selection of self-interested sovereign nations to adhere to a rigid international standard that does not serve their political goals has some precedent — the euro’s deficit rules, the Kyoto  Protocols, etc. — and that precedent suggests this: Ain’t never gonna happen. All standards are gameable by sovereign states. Gold standards do not deliver on their promised benefits, and create problems of their own.

I also think Mr. Kristol is wrong when he writes: “It’s the dollar’s status as a reserve currency that has allowed the U.S. government to amass huge debts, debts which the legislatively imposed debt ceiling has been unsuccessful in limiting.” There are lots of countries that manage to amass massive debts without issuing a currency that serves as a world reserve.

The dollar probably will continue to act as the world’s preferred reserve currency, with that position diminishing slowly over time as attractive alternatives prove their mettle (if not their metal). Likewise, U.S. Treasuries probably will continue to be the standard of safety, with that position eroding over time as well. Those are not necessarily bad things or good things. What would be a bad thing is a sudden run on dollars and Treasury bonds, a financial black swan emerging from our troubled accounts. But, if anything, large dollar holdings by China and other governments give them an incentive to help prevent or ameliorate such an event. Hu is long the dollar, after all. Awful long.

In general, I think we put too much weight on things like Chinese dollar reserves, or the fact that the global oil trade is conducted in dollars, and the like. Our real economic problems are far simpler: We spend too much, borrow too much, carry too much debt, have a poorly structured tax system and an overextended national-defense presence, are governed by a Congress of children, and refuse to believe that the laws of supply and demand apply to U.S. dollars and U.S. Treasury bonds.

—  Kevin D. Williamson is a deputy managing editor of National Review and author of The Politically Incorrect Guide to Socialism, just published by Regnery.

 

[a_majoor]

Devaluing the US dollar and exporting inflation. The fallout is getting ugly:

http://finance.fortune.cnn.com/2011/02/01/egypt-and-the-growing-problem-of-global-inflation/

Egypt and the growing problem of global inflation
February 1, 2011 11:08 am

When prices rise faster than economic growth, the outcome is damaging for any population, but especially for a young one like Egypt's. Unfortunately, there are worrying signs that stagflation is spreading around the world.

By Keith R. McCullough, Hedgeye

Suffocating your citizenry with stagflation is a problem, particularly when that citizenry is young, hungry, and unemployed. By definition this is the Egypt we're seeing today. While this may be a very old country (established in 3100 BC), this 21st century social revolution is being driven by the very young. Almost two-thirds of Egyptians are under the age of 30, and of the 79 million people who live in Egypt, approximately 40% of them live on less than $2 a day.

The Egyptian government has been telling its people that inflation is currently running around +12%. The people of Egypt obviously don't believe that -- and they shouldn't. However, they do believe that the country is running double-digit unemployment. They don't have jobs.

Captains of Keynesian economics don't use the word 'stagflation' very much for a reason. The last time these bubble-makers plugged the world with stagflation was in the mid-to-late 1970s. That's when US Federal Reserve Chairman Arthur Burns was attempting to monetize America's debt as President Jimmy Carter bet that it would not create any globally interconnected risk. Sound familiar?

We call it stagflation when real-world inflation readings are growing faster than economic growth. Even if we were lemmings enough to believe the Egyptian government on a +12% inflation number, that would be plenty enough to justify calling this situation for what it is. Egyptian GDP is only running +5% at this stage of what the thinkers in Davos, Switzerland last week would have you believe is an "emerging market boom." It's sad.

It's time to recognize what America's debauchery of the US Dollar is doing to global inflation. If US monetary policy makers are still in the camp of the willfully blind and want to believe there's no real-world inflation out there because Ben Bernanke's conflicted and compromised calculation of CPI says so, Godspeed having the world agree with them on that.

And for all of those who are still out there cheering this on because it's good for the inflation in our portfolios, here's some global starvation math we can't hide from – immediate-term inverse correlations between the US Dollar Index and three major global food prices:

  1. Corn = -0.91
  2. Rice = -0.90
  3. Wheat = -0.85

Those are extremely high (and alarming) correlations. So the next time someone tells you that the US Dollar and the policy that backs it doesn't matter to the price of the Number One food staple for 3 billion of the world's people (rice), forward them the math. Risk managers like me wouldn't be perpetuating higher food prices by trading them with a bullish bias if we didn't fully expect American policy makers to let its currency burn.

The US Dollar Index is down for 4 out of the last 5 weeks and down almost 4% since the first week of January. Chaos theorists don't have to look very far to find that incremental grain of sand that tipped the Egyptian pyramid of risk into turmoil. This is what you get when you debauch the world's reserve currency. Global Inflation is a policy – and it's priced in US Dollars.

Inflation kills emerging markets. Inflation kills bond markets. These are historical facts and they are also reflected in last week's bearish price action in emerging markets:

  1. Egypt = down 15.7%
  2. Chile = down 4.2%
  3. Turkey = down 4.1%
  4. Brazil = down 3.5%
  5. India = down 3.2%
  6. Thailand = down 2.5%

We've been writing about how Chinese growth is slowing as inflation accelerates for the last few months as well. Chinese equities, down 2% so far this year, are now outperforming 15 other country equity markets, including all of the ones on this list. Inflation's contagion is broadening its base.

Stagflation doesn't just stop when a politician tells it to. Stagflation is sticky. Since Bernanke opted for a second round of quantitative easing, the 19-commodity component CRB Commodities Index has inflated by +27%.

While that may be up less than what US stock market volatility (VIX) is up in the last 2 weeks (+29%), that's still up a lot – and we think that both globally interconnected markets and the people living in this world outside of Washington, DC have noticed.

Since the beginning of 2011, I have not been bullish on stocks or bonds in general, which is why I have such a large asset allocation to cash. Last week, I raised my cash position to 67% versus 61% at the end of the week prior. I've sold all of our oil and German equity exposures (and there are no rules against buying them back).

The updated Hedgeye Asset Allocation Model is as follows:

  1. Cash 67%
  2. International Currencies 21%
  3. US Equities 6%
  4. Bonds 6%
  5. Commodities 0%
  6. International Equities 0%

Again, this isn't an asset allocation model for a fund mandated to be fully invested. This is where I'd be positioned as an individual or family who has made positive absolute returns in all of the last three years. We'll have plenty of opportunities in the coming weeks and months to buy things on sale.

 

[a_majoor]

Here is an example of how domestic political agendas can trump the greater good:

http://keithhennessey.com/2011/02/08/hidden-message/

The President’s hidden trade message

on FEBRUARY 8, 2011

At the U.S. Chamber of Commerce yesterday the President spoke about trade:

[W]e finalized a trade agreement with South Korea that will support at least 70,000 American jobs – a deal that has unprecedented support from business and labor; Democrats and Republicans. That’s the kind of deal I’ll be looking for as we pursue trade agreements with Panama and Columbia and work to bring Russia into the international trading system.

This sounds like a free trade agenda, or at least a pro-trade agenda, which would be good from a President whose party often leans heavily toward protectionism.  The problem is that the U.S. already has trade agreements with Panama and Colombia.  The President is in reality saying that he is undoing those deals.  He also appears to be saying that “unprecedented support from … labor [and] Democrats …” is a precondition to further progress on free trade.

When President Obama took office, he found three signed Free Trade Agreements (FTAs) on his desk awaiting Congressional approval:  the [South] Korea FTA, the Colombia FTA, and the Panama FTA.

Congress must approve any trade agreement negotiated by the President (more accurately, by his U.S. Trade Representative) with another country.  Under normal legislative procedures, the implementing legislation for a trade agreement would be subject to amendments in Congress.  Since any trade agreement will make compromises that sacrifice certain geographically or economically  limited interests for a broader national benefit, it would be vulnerable to being amended in Congress after it has been negotiated.  Foreign negotiators know this.  They don’t want to negotiate with the USTR and then have their deal reopened by Congress.

The clever solution to this collective action problem is called trade promotion authority (TPA), formerly known as fast track authority.  Congress passes and the President signs a law that gives the President and his USTR authority to negotiate and sign trade deals for a certain number of years.  In this legislation, the Congress limits itself to a simple yes-or-no vote on the whole treaty.  Through this law they surrender their later rights to amend the treaty when it comes before them.  In legislative parlance, we say that the treaty gets a straight up-or-down vote in both the House and Senate.

This binary choice strengthens a U.S. President and his trade negotiator.  While they still must convince the foreign power that they can get Congress to support the agreement being negotiated, they don’t have to worry that Congress will amend the agreement.  This gives U.S. negotiators the ability to get a better deal, because their counterparts have a high degree of confidence that the U.S. team can deliver on its commitments.

The Korea, Colombia, and Panama FTAs were all negotiated under now-expired trade promotion authority that Congress gave to President Bush.  President Bush did not send any of these FTAs to Congress because Speaker Pelosi made it clear she would kill all three trade agreements, either through procedural means or by rallying the votes to defeat them.

When President Obama arrived, he said the South Korea FTA negotiated during the Bush Administration was a bad deal for the United States.  Rather than submitting it to Congress for approval, he directed his USTR Ron Kirk to renegotiate certain parts of it with the Koreans.  Those negotiations resulted in a new Korea FTA which looks a lot like the old one.

The Korea FTA is a big deal for both the U.S. and Korea.  South Korea is our seventh-largest trading partner, and this agreement would rank second only to NAFTA in economic impact on the U.S.  Almost two-thirds of U.S. agricultural exports would immediately be duty-free, and tariffs and quotas on almost all other U.S. agricultural goods would phase out over the next decade.  The treatment of U.S. beef was a hotly contested issue, as the Koreans argued that a 2003 outbreak of mad cow disease in the U.S. justified continued import barriers.  The other contentious issue was trade in autos.

The President now must deal with Republican Speaker John Boehner.  Republicans are by no means universally in favor of free trade, but the party leans more heavily in that direction than Democrats.  Free trade in the U.S. is typically enacted by a center-right coalition.  About a third of Democrats ally with >80% of Republicans to deliver the votes needed.  It is therefore easier for the President to get an FTA through with Speaker Boehner than it might have been with Speaker Pelosi.

In his State of the Union address, the President said,

This [South Korea free trade] agreement has unprecedented support from business and labor, Democrats and Republicans – and I ask this Congress to pass it as soon as possible.

This sounds great.  Other than some complaining by Senate Finance Committee Chairman Baucus over beef (and he is a critical legislative player on trade), the South Korea FTA looks like it’s in good shape.  We finally have a legislative configuration that should allow the implementing legislation to be quickly enacted.

Isn’t it great that this agreement has “unprecedented support from business and labor, Democrats and Republicans?”  The problem is that this unprecedented support, and in particular from labor unions and their allies in Congress, was not costless.  In this case, it slowed things down by two years.

We see from yesterday’s remarks that the President wants this to be the model for future trade agreements.  This gives labor unions and their Congressional allies tremendous leverage to water down or even block FTAs they don’t like.

Some business leaders at the Chamber probably smiled yesterday when they heard the President say “trade agreement … South Korea … Panama and Colombia.”  But opponents of free trade listening carefully heard the President’s hidden message:  I am reopening the agreements with Panama and Colombia, and giving you the ability to block them and other future FTAs by denying your support. If labor and Democrats oppose a future free trade deal, it won’t be “the kind of deal I’ll be looking for.”

This will certainly slow things down, and could easily result in a halt to expanded trade as labor unions and other interest groups that oppose free trade leverage the President’s reluctance to go with a center-right strategy.

The President knows that all the economic juice for the U.S. is in the Korea FTA.  FTAs with Colombia and Panama would be a big deal for those economies, but not for the U.S.  They’re just too small for it to have a measurable economic effect outside of Florida and a few other states.

Congressional Republican leaders fear that they will enact the South Korea FTA and then the President will never get around to finalizing the other two.  The President will repeatedly tout the economic benefits of the Korea FTA.  At the same time he will say he is hard at work on the other two, but never quite able to bring them to conclusion, because they lack “unprecedented support … from labor and Democrats.”  U.S. labor unions that oppose the Colombia FTA argue that the Colombian government has not done enough to crack down on violence against union activists.  Their opposition to the Panama FTA hinges on Panama’s rules for allowing unions to be formed.

If the direct economic benefits to the U.S. of the Colombia and Panama FTAs are small, why should we worry about them?

Colombia and Panama are free and democratic allies in Central America.  We want to promote freedom, democracy, and friendship with the U.S. throughout Central America, especially relative to that thug Chavez in Venezuela.  We do that by helping their economies grow; by promoting capitalism, free trade, freedom, and democracy; and by further strengthening our ties with them.
Other small countries outside of Central America will learn about the U.S. from how we interact with these two.  We should show the world that we treat all our friends well, not just the ones who can help us economically.
Every Free Trade Agreement is a small movement in a positive economic direction.  Economists (and I) generally prefer a few good multilateral FTAs to many smaller bilateral agreements, but I’ll take forward movement wherever we can get it, especially when protectionism is slowly growing around the world.
It weakens U.S. trade negotiators in future negotiations when the President (or Congress) reopens past agreements.  It should always be the case when you’re negotiating with the U.S. that a deal is a deal.
If you want to put the President’s strategy in a positive light, you would say that he has found a strategy on Korea that seems to be working.  He renegotiated that FTA and in doing so mitigated significant opposition from the left, making it highly likely that implementing legislation will be quickly enacted.  You would argue that he is now trying to replicate that model with Colombia and Panama, and will submit those for approval when they are good and ready.  His strategy is slow, you would argue, but effective.  You would admit that this strategy damages negotiations with other countries by reopening previously signed deals, but would argue that this is a small price to pay for broader Congressional support for the final deals.

If you’re a skeptic, you are nervous that the President intends to let Colombia and Panama languish after enacting Korea.  This would damage two allies in Central America.  It would undermine our ability to strengthen our ties through free trade with other countries, and it would weaken our trade negotiators who would be less able to convince their counterparts that a signed deal would be final.  It would give opponents of free trade and open investment further opportunities to slow things down and erect other protectionist barriers.

You are further worried that the President is signaling to domestic interest groups that oppose free trade that he will not move forward without them.  This will at best slow progress, and at worst it will kill the Colombia and Panama FTAs, as well as any other free trade opportunities while President Obama is in office.

Senate Minority Leader McConnell and new Senate Finance Committee Ranking Republican Orrin Hatch expressed these concerns in a letter to the President:

We appreciate your support for prompt implementation of the U.S. – South Korea Free Trade Agreement.  … We are disappointed, however, not to see the same level of commitment from your administration for trade agreements with Colombia and Panama. … We urge your support in passing these through Congress without delay.

… Colombia and Panama are key allies of the United States in Latin America, a region of particular strategic importance to our country.  Further delay in implementing these agreements risks sending the signal to other countries in Latin America that the United States is not interested in closer economic engagement in the region and is unable to follow through on our commitments to our allies.

Finally, given what we believe is broad, bipartisan support in Congress for these agreements, we would like to make clear that we see no need for further negotiations with Colombia and Panama.  As currently written, they are solid agreements which benefit our nation and our workers.  We are confident that they would receive strong support in the Senate and the House of Representatives. We urge you to immediately engage with Congress to achieve Congressional approval to get these agreements signed into law as soon as possible.

This letter reinforces the same message from Speaker Boehner, “Now more than ever, America needs strong leadership to complete and implement the three pending trade deals in tandem with one another.”

We should neither abandon our friends in Central America nor risk leaving them behind.  The President should submit and Congress should quickly pass Free Trade Agreements with South Korea and Colombia and Panama.  He should not give labor unions or anyone else the ability to block progress on free trade.  This is an area where Congressional Republicans will happily work with the President, if only he will do the same.

 

[a_majoor]

Chinese drought could cause global waves:

http://www.nytimes.com/2011/02/09/business/global/09food.html?_r=2&pagewanted=print

U.N. Food Agency Issues Warning on China Drought
By KEITH BRADSHER

HONG KONG — The United Nations’ food agency issued an alert on Tuesday warning that a severe drought was threatening the wheat crop in China, the world’s largest wheat producer, and resulting in shortages of drinking water for people and livestock.

China has been essentially self-sufficient in grain for decades, for national security reasons. Any move by China to import large quantities of food in response to the drought could drive international prices even higher than the record levels recently reached.

“China’s grain situation is critical to the rest of the world — if they are forced to go out on the market to procure adequate supplies for their population, it could send huge shock waves through the world’s grain markets,” said Robert S. Zeigler, the director general of the International Rice Research Institute in Los Baños, in the Philippines.

The state-run news media in China warned Monday that the country’s major agricultural regions were facing their worst drought in 60 years. On Tuesday the state news agency Xinhua said that Shandong Province, a cornerstone of Chinese grain production, was bracing for its worst drought in 200 years unless substantial precipitation came by the end of this month.

World wheat prices are already surging, and they have been widely cited as one reason for protests in Egypt and elsewhere in the Arab world. A separate United Nations report last week said global food export prices had reached record levels in January. The impact of China’s drought on global food prices and supplies could create serious problems for less affluent countries that rely on imported food.

With $2.85 trillion in foreign exchange reserves, nearly three times that of Japan, the country with the second-largest reserves, China has ample buying power to prevent any serious food shortages.

“They can buy whatever they need to buy, and they can outbid anyone,” Mr. Zeigler said. China’s self-sufficiency in grain prevented world food prices from moving even higher when they spiked three years ago, he said.

The United Nations Food and Agriculture Organization said Tuesday that 12.75 million acres of China’s 35 million acres of wheat fields had been affected by the drought. It said that 2.57 million people and 2.79 million head of livestock faced shortages of drinking water.

Chinese state news media are describing the drought in increasingly dire terms. “Minimal rainfall or snow this winter has crippled China’s major agricultural regions, leaving many of them parched,” Xinhua reported. “Crop production has fallen sharply, as the worst drought in six decades shows no sign of letting up.”

Xinhua said that Shandong Province, in the heart of the Chinese wheat belt, had received only 1.2 centimeters, or about half an inch, of rain since September. The report did not provide a comparison for normal rainfall for the period.

The Food and Agriculture Organization, in its “special alert” on Tuesday, said the drought’s effects had been somewhat tempered by relatively few days of subzero temperatures and government irrigation projects. The agency went on to caution that extreme cold, with temperatures of minus 18 degrees Celsius (just below zero Fahrenheit), could have “devastating” effects.

Kisan Gunjal, the F.A.O. food emergency officer in Rome who handles Asia alerts, said by telephone that if rain came soon and temperatures warmed up, then the wheat crop could still be saved and a bumper crop might even be possible.

On Tuesday, Chinese meteorological agencies were warning of frost for the next nine nights in the heart of Shandong Province, with temperatures falling as low as 21 degrees Fahrenheit. They forecast little chance of precipitation in the next 10 days except for the possibility of a light rain or a dusting of snow on Wednesday or Thursday.

Mr. Gunjal said the special alert on China was the first that the F.A.O. had issued anywhere in the world this year. There was only one last year, expressing “grave concern” about food supplies in the Sahel region of Africa, notably Niger.

President Hu Jintao and Prime Minister Wen Jiabao, China’s top two officials, made separate visits to drought-stricken areas last week, and each called for “all-out efforts” to cope with the water shortage.

Typically, world food reports barely mention China, partly because many details of the country’s agriculture production and reserves are state secrets. But China, in fact, is enormously important to the world’s food supply, especially if something goes wrong.

The heat wave in Russia last summer, combined with floods in Australia in recent months, has drawn worldwide attention to the international wheat market, because Russia and Australia have historically been big exporters. But China’s wheat industry has existed in almost total isolation from the rest of the world, with virtually no exports or imports, until last year, when modest imports began. Yet it is enormous, accounting for one-sixth of global wheat output. The statistical database of the United Nations’ food agency shows that in 2009, the last year available, China produced almost twice as much wheat as the United States or Russia and more than five times as much as Australia.

Currently, the ground in the country is so dry from Beijing south through the provinces of Hebei, Henan and Shandong to Jiangsu Province, just north of Shanghai, that trees and houses are coated with topsoil that has blown off parched fields.

China’s national obsession with self-sufficiency in food includes corn, another crop that is grown and consumed entirely in China with minimal imports or exports. Little known outside of China, the country’s corn industry actually grows one-fifth of the world’s corn, according to F.A.O. statistics. China’s corn crop is mostly in the country’s northern provinces, where the drought is worst now.

Mr. Gunjal said the success or failure of the corn crop, as well as the rice crop, would depend mostly on rainfall this spring and summer, not the shortage of rain this winter.

Winters tend to be dry in southern China, the world’s largest rice-producing region. But this winter is drier than most.

China had about 55 million tons of wheat in stockpiles as of last summer, Mr. Gunjal said. That was equal to about half the annual harvest.

China is already the world’s largest importer of soybeans, which are oilseeds, not a grain. China buys soybeans mainly for use as animal feed, because the Chinese diet is shifting toward more meat.

 

[a_majoor]

Something for conspiracy theorists to ponder. While this is inside the bounds of plausibility, the method, motive, opportunities seems weak and no actual players are identified. (You could also pin this on the Illuminati, Al Qaida or George Soros depending on your inclination).

http://pajamasmedia.com/tatler/2011/02/28/pj-tatler-exclusive-was-the-us-a-victim-of-an-economic-911-in-2008/?print=1

PJ Tatler Exclusive: Was the U.S. a victim of an economic 9/11 in 2008?

Posted By Patrick Poole On February 28, 2011 @ 10:15 pm In Economy,News,Politics | 89 Comments

Bill Gertz has an article running in this morning’s Washington Times, “Financial terrorism suspected in ’08 economic crash,” on a report prepared by the Department of Defense in June 2009. In the report, financial analyst Kevin Freeman argues that the 2008 economic crisis was assisted by outside forces. What the study (which we are providing a copy of exclusively here at PJ Tatler at the conclusion of this post) investigates is how outside forces could have helped things along by manipulating oil prices, naked short selling of U.S. financial firms (e.g. Bear Stearns), and attacking the U.S. dollar. Gertz reports:

    Evidence outlined in a Pentagon contractor report suggests that financial subversion carried out by unknown parties, such as terrorists or hostile nations, contributed to the 2008 economic crash by covertly using vulnerabilities in the U.S. financial system.

    The unclassified 2009 report “Economic Warfare: Risks and Responses” by financial analyst Kevin D. Freeman, a copy of which was obtained by The Washington Times, states that “a three-phased attack was planned and is in the process against the United States economy.”

    While economic analysts and a final report from the federal government’s Financial Crisis Inquiry Commission blame the crash on such economic factors as high-risk mortgage lending practices and poor federal regulation and supervision, the Pentagon contractor adds a new element: “outside forces,” a factor the commission did not examine.

    “There is sufficient justification to question whether outside forces triggered, capitalized upon or magnified the economic difficulties of 2008,” the report says, explaining that those domestic economic factors would have caused a “normal downturn” but not the “near collapse” of the global economic system that took place.

    Suspects include financial enemies in Middle Eastern states, Islamic terrorists, hostile members of the Chinese military, or government and organized crime groups in Russia, Venezuela or Iran. Chinese military officials publicly have suggested using economic warfare against the U.S.

    In an interview with The Times, Mr. Freeman said his report provided enough theoretical evidence for an economic warfare attack that further forensic study was warranted.

    “The new battle space is the economy,” he said. “We spend hundreds of billions of dollars on weapons systems each year. But a relatively small amount of money focused against our financial markets through leveraged derivatives or cyber efforts can result in trillions of dollars in losses. And, the perpetrators can remain undiscovered.”

“This is the equivalent of box cutters on an airplane,” Freeman added.

It should be noted that Freeman doesn’t claim that outside forces were responsible for the major factors of the economic crisis, namely the subprime mortgage fiasco, but that these outside forces might have intentionally helped things along. The report identifies three key stages in this possible economic attack:

    * The first phase was a speculative run-up in oil prices that generated as much as $2 trillion of excess wealth for oil-producing nations, filling the coffers of Sovereign Wealth Funds, especially those that follow Shariah Compliant Finance.

    * The second phase appears to have begun in 2008 with a series of bear raids targeting U.S. financial services firms that appeared to be systemically significant.

    * The risk of a Phase Three has quickly emerged, suggesting a potential direct economic attack on the U.S. Treasury and U.S. dollar.

Here’s the unclassified DOD report we’re making available exclusively here at PJ Tatler:

Economic Warfare: Risks and Responses by Kevin D. Freeman

Article printed from The PJ Tatler: http://pajamasmedia.com/tatler

URL to article: http://pajamasmedia.com/tatler/2011/02/28/pj-tatler-exclusive-was-the-us-a-victim-of-an-economic-911-in-2008/

 

[a_majoor]

More warning signs. A similar movement happened in the past, as bonds markets imposed discipline by demanding higher riskl premiums when government debts began getting too out of line. The markets might have chosen not to react so far due to the economic turmoil, but I think everyone is clear now that the huge debt loads ARE the cause of the turmoil, and we are witnessing a deleveraging:

http://www.nationalreview.com/exchequer/261796/biggest-bond-fund-dumps-us-debt

Exchequer

NRO’s eye on debt and deficits . . . by Kevin D. Williamson.

Biggest Bond Fund Dumps U.S. Debt
March 9, 2011 7:42 P.M.
By Kevin D. Williamson

Tags: Debt, Deficits, Despair, Fiscal Armageddon

So, the guy behind the world’s largest bond fund is dumping U.S. government debt.

Got your attention yet?

Bill Gross of Pacific Investment Management Co. (PIMCO) is no great fan of  U.S. government debt to start with: His fund also zeroed out its holdings of Uncle Sam’s IOUs back in 2009, but had added some back into the portfolio. No more. He’s not buying what Washington is selling, and he’s urging others to dump U.S. bonds, too. Bloomberg reports:

    Gross in his February commentary urged investors to reduce holdings of Treasuries and U.K. gilts and buy higher-returning securities such as debt from emerging-market nations. “Old-fashioned gilts and Treasury bonds may need to be ‘exorcised’ from model portfolios and replaced with more attractive alternatives both from a risk and a reward standpoint,” Gross wrote.

So, what’s wrong with U.S. government debt? With deficits running at insane levels but interest rates still low, the risk-reward ratio is out of whack, even compared to “emerging-market” countries — read: those Third World regimes whose farcical finances we used to regard with a mixture of scorn and pity, until we began emulating them. All the money-printing down at the Fed is taking a toll:

    Gains in so-called headline inflation matter more for the U.S. economy than Fed Chairman Ben S. Bernanke suggests and rising oil prices may cut U.S. gross domestic product by a quarter to half a percentage point, Gross said March 4 in a radio interview on “Bloomberg Surveillance” with Tom Keene.

    “Bernanke tends to think this doesn’t matter — at least in terms of headline versus the core — we do,” Gross said.

What this means, of course, is pressure on the U.S. government to offer higher interest rates on its bonds. Gross says that the rates need to go up about 1.5 percent to reflect market realities. And market realities, ignored for the past few years, are going to start reasserting themselves as “quantitative easing” ends and the Fed stops buying U.S. debt that the markets don’t want.

As things stand, interest on the debt (at about 6 percent of all federal spending) is equal to about one-third of all discretionary spending combined (about 19 percent of the budget). Current forecasts have debt-service costs alone amounting to nearly $1 trillion by 2020, consuming 20 percent of all federal tax revenues. That’s a vicious circle: Bigger deficits add to the total debt, which drives up the cost of debt service, which creates bigger deficits, shampoo, rinse, repeat, and wake up in Argentina circa 1999–2002.

Which gets us back, as usual, toward the one inevitable, undeniable fact of American life at this moment: The major entitlement programs — Social Security, Medicare, Medicaid — other “mandatory” spending, national defense, and interest on the debt make up more than 80 percent of federal spending. Everything else put together accounts for less than $1 in $5 of government outlays. Assuming we don’t default on our national debt, interest on the debt is the one spending item that is truly off the table. Even if we cut national-defense spending to zero, that would only get us just over halfway toward eliminating the trillion-dollar deficit headed our way in 2012. (We aren’t cutting national-defense spending to zero.) Meaning that major reform of the entitlement programs is not optional. It is do or die.

Bernanke & Co. have baked inflation into this cake, and catastrophic state and local finances mean that Washington really can’t pass off its spending schemes onto the governors, mayors, and state legislatures.

You may think the Ryan Roadmap looks harsh and disruptive. But we simply must start dealing with these things right now, while we have some resources, some options, and some time. It will be much more harsh and disruptive to try to deal with these things after the fiscal crisis is upon us, when inflation is skyrocketing, unemployment is through the roof, and the markets start demanding a very high premium to finance the debt of Washington, the states, and the cities, if indeed investors are willing to do so at all.

We are in an extraordinarily dangerous period, one that calls for real leadership in Washington, where the geniuses in charge are currently locked in a death struggle over whether to cut nothing or next to nothing.

NPR? Foreign aid? Food stamps? That isn’t going to do it. The fact that we’re even having a discussion about whether we have to federally subsidize experimental opera companies in Topeka suggests that the message has not quite hit home. Maybe when the Social Security checks stop coming, Americans will notice. Which is to say, when it’s too late.

To be clear, PIMCO in and of itself is not disastrous — it is just a mile marker on the road to Fiscal Armageddon. But it is one worth noting.

—  Kevin D. Williamson is a deputy managing editor of National Review and author of The Politically Incorrect Guide to Socialism, just published by Regnery. You can buy an autographed copy through National Review Online here.

 

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Walking on financial eggshells:

http://finance.yahoo.com/banking-budgeting/article/112328/dow-plunge-should-you-be-worried;_ylt=AsLLGtqv3fNxgquMZnfgGdlO7sMF;_ylu=X3oDMTE5N2xpZTRpBHBvcwMyBHNlYwN3ZWVrZW5kRWRpdGlvbgRzbGsDMTByZWFzb25zdG93

The Dow's Plunge: Should You Be Worried?by Brett Arends
Friday, March 11, 2011
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On Thursday, the day before the Japanese earthquake, the Dow Jones Industrial Average saw its biggest drop since August. Markets tumbled while fears surged -- about jobs, Spain and Saudi Arabia.

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But what does this mean for you, the investor?

Was this just a one-day wonder, a buying opportunity, a small but passing cloud on an otherwise sunny horizon? Or was it something more ominous?

The market's next move is always a mystery. It could go up 500 points next week or down 500 points, or stay in range. You shouldn't let one day's price movement govern your financial decisions. It's never sensible to panic. And sure, this could be just a passing storm.

Yet there are reasons to be concerned about what just happened. Maybe I'm being too nervous here. I hope so. When the market sells off, I usually like to find reasons to buy stocks more cheaply. But here are 10 reasons why this 228-point slump in the Dow makes me sit up and take notice.

1. It happened when the price of oil was falling.

For weeks, the market has been worried that the rising price of oil was going to knock the economy back into the hole. But the price of light sweet crude fell $2 a barrel on Thursday to $102, and it fell another 1.3 percent to $101.30 a barrel on Friday following the Japanese disaster). That followed a $1 fall earlier this week. It's still above the critical $100-a-barrel figure that may spell economic trouble. Nonetheless, some relief on oil should have been good news. If the market sells off at the same time it suggests investors may be reevaluating the fundamentals of the recovery.

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2. It was across the board.

It wasn't just isolated to a few exchanges here or in Europe or in the Middle East. Exchanges fell around the world. Wall Street was down 1.9%. Shanghai and Tokyo both fell about 1.5%. Brazil's Bovespa was down 1.8%. London fell 1.5%. Even gold fell. The Standard & Poor's 500-stock index is now down about 4% from the peak seen last month. Since then it's tried three times to get its mojo back, and it's failed each time. Not cheerful.

3. The financial cockroaches are back.

The European debt crisis. Our continuing jobs gloom. Oh, and let's not forget the rocketing national debt that is financing the entire stock-market boom. In past months I've been watching with amazement as Wall Street -- and a lot of investors -- have been trying to sweep these under the carpet. But they won't stay there. On Thursday, markets were spooked when Moody's downgraded Spain's government debt. But why is anyone surprised? Had investors been paying attention, they would have known that the market for default risk was already sending serious warning signals about Spain and Portugal's credit -- not to mention that of Greece.

4. One of the smartest bulls I know has suddenly turned very edgy.

He's a European hedge fund manager who turned bullish in January 2009 -- on high-risk financials, no less -- and has stayed upbeat for most of the past two years. He was a raging bull last summer. Even a handful of weeks ago, he thought we'd see more momentum. Today? He's singing a slightly different tune. One of his biggest worries now is China -- in particular the strength of its economy and its sudden, surprise trade deficit last month. He's still looking for opportunities, as always, but I thought he'd be buying aggressively in this correction. He isn't. (Another manager I know thinks there is some juice left in the rally, as first-quarter earnings roll in. But she expects to turn more cautious after that.)

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5. The bull market has just come so far, so fast.

Too far? From the lows of two years ago, the S&P 500 has almost exactly doubled. By any measure, it's been a remarkable boom. The Russell 2000 index of smaller stocks has soared 130%. So has the S&P Mid Cap 400 index of medium-sized companies, taking it to a new record high. But look at the fundamentals. Over that time economic growth has been sluggish. The economy today is no bigger, in real terms, than it was three years ago. The true jobs picture remains a disaster, and far worse than the official data will tell you. Wages have been stagnant. Yes, companies have boosted profits -- to near-record levels -- by slashing costs. But how far can that take you? (Perhaps in the end there will just be one, very productive guy left with a job. It would be Apple's Steve Jobs, of course. But then, alas, he'd have to buy all those new iPads himself.)

6. There's no "margin of safety" left in stocks.

While Wall Street was backing off a cliff Thursday morning, I was interviewing one of the brightest and most original thinkers in the market -- James Montier, strategist for tony fund shop GMO and author of "Behavioral Finance." Mr. Montier pointed out that stocks are now so expensive, they leave investors with almost no "margin of safety" in case things go wrong. Anyone investing now, he said, is taking a big bet on sunny skies and plain sailing ahead. It can happen, but life is not always so kind. "We're not completely 'priced for perfection,' but we're not far off," Mr. Montier said. And, he added, the risk curve was wrong as well: Based on GMO's calculations, investors in small-cap stocks at these levels actually face worse returns than investors in large-cap stocks. As small caps are more volatile, they should offer better returns to compensate.

7. Wall Street looks unappealing by the numbers.

The dividend yield on the S&P 500 is well below 2%. According to data compiled by Yale economics professor Robert Shiller, stocks are a thumping 24 times cyclically-adjusted earnings. That's extremely high. The historical average is about 16. In the past, today's levels have been associated with bubbles and hot markets, and have generally been followed, sooner or later, by a correction. A similar conclusion is reached by comparing equity prices to the cost of replacing company assets, a metric known as "Tobin's q." It also says Wall Street is heavily overvalued. Maybe worst of all: It is just extremely hard to find any cheap stocks out there. If I saw some great bargains, I'd say, "Don't worry about the market, buy this terrific company on six times earnings." But these types of opportunities are so thin on the ground right now. No one measure has all the answers. But plenty of metrics are signaling, at least, caution.

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8. The public was just starting to buy stocks again.

Oh, brother. The U.S. private investor, who spent most of the 2009-10 rally getting out of stocks, started piling in again earlier this year. According to the Investment Company Institute, investors cashed out a net $31 billion from equity mutual funds between the start of March 2009 and the end of last year. But since Jan. 1, they have shoveled a net $33 billion back in. History has frequently shown that the public gets in -- and out -- at the wrong times, buying near peaks and selling near troughs. Is it happening again? I wish I felt better about this.

9. The insiders have been getting out.

Executives and directors across the market have been cashing out stock at a fast clip. "The pace and volume of insider sales hit a four-year high during Q4 '10," reported InsiderScore, a firm that tracks such data. While many of the top brass may have been locking in capital gains before a possible tax hike in 2011, it said, the pace of insider selling actually speeded up after the December tax deal, which gave a last-minute reprieve on taxes. And that suggests "it was valuations and opportunity -- not the Taxman -- that were the main catalysts for the record surge in insider selling," said InsiderScore. "Each sector and market cap group experienced heavy selling." So far this year insider selling has remained at a strong pace, too.

10. Sentiment had become giddy.

Jim Cramer on his TV show "Mad Money" has on occasion recently decried "all the negativity that's out there." I like Mr. Cramer, with whom I once worked, but he must be hanging out with an unusually gloomy group of people. I can hardly see any bears anywhere. They're in hiding from a two-year-old bull. As reported not long ago, fund managers had turned downright euphoric about the stock market. Hedge fund managers are now once again betting heavily on rising stocks -- and rising oil -- with borrowed money. Equity analysts have been hiking their forecasts. Oh, and the hot stocks were back -- like Salesforce.com, which recently hit 100 times forecast earnings. That's a hefty multiple for an $18 billion company. Whether Salesforce stock turns out well or ill over the longer term, you can hardly deny that its investors are cheerfully -- some might say remarkably -- optimistic.

None of this is a reason to start panicking. But these are grounds for investors to be cautious.

Write to Brett Arends at brett.arends@wsj.com

 

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This link has large map graphics:

[INFOGRAPHICS CODE]
A Global History of Debt: National Debts Rise and Fall in the Last 10 Years

We all read about the U.S. national debt, and whether we should be concerned that it’s in the $12 trillion range these days. But the United States isn’t the only country carrying a huge amount of debt. In fact, it seems that operating just about any country is a money losing proposition.
According to the CIA’s Worldbank data, the majority of countries carry huge sums of national debt. And for most countries – although there are exceptions – that debt is constantly rising.
Look at Mexico: In 2000, the country had a $150.3 billion national debt. That’s miniscule by U.S. standards, yes, but, like the United States, Mexico’s debt is growing. Worldbank estimates that the country’s national debt has risen to $189.4 billion in 2010.
And Mexico is far from alone: Poland’s national debt has risen from $65.8 billion in 2000 to a much higher $185.2 billion in 2010. Hungary’s debt has jumped from $29.5 billion to $134.7 billion during the same time, a rather large bump.
Turkey, too, has seen its national debt soar. The country’s debt stood at $117.3 billion in 2000, but is estimated to be at $310.6 billion now. In India, the national debt has risen from $99.1 billion in 2000 to an estimated $204.5 billion in 2010.
Not all countries, though, are adding to their debt. Some have managed to slash their debt over the years. Brazil has seen its national debt fall from $239.2 billion in 2000 to $232.3 billion in 2010. Argentina’s national debt has dropped from a mark of $147.5 billion in 2000 to $132.7 billion today.
In all, though, most countries and regions have seen their national debts rise fairly steadily during the last decade. This might give some comfort to the people worried that the United States is growing its debt too quickly. Though to be fair to the critics, there is no country out there growing its debt quite as significantly as is the United States.
According to the U.S. Treasury Department, the U.S. total national debt has increased more than $500 billion each year since fiscal year 2003. This includes sky-high yearly increases of $1 trillion in fiscal year 2008 and $1.9 trillion in fiscal year 2009.
If the United States was a consumer, then, it would have long ago maxed out all of its credit cards.


Credit Loan: A Global History of Debt By Region: Map from 1970-2010