Wednesday, November 26, 2003

Gustav Cassel - PPP's - China?

Over the past week I have posted several articles about the international financial architecture, the IMF, WTO, sweatshops, FTAA, etc. I felt I should expand my ideas to bring more clarity to these posts. I thought I'd use the case of China - U.S. trade and purchasing power parities. Below is quoted a few lines about Professor Cassel, the creator of purchasing power parity theory. I feel this is the most important economic theory, especially in trying to understand the global labor and wealth arbitrage now going on in the world. Many have argued trade will eventually rebalance markets. As I have already pointed out in a recent post, "the glaring imbalances in global wages is beyond economic reality, no matter what other economists' dribble may say. This sweatshop situation will almost empty America of jobs befor trade realities rebalance markets to fair global ppp's if let to continue." Let me expand.

Let's just take Wall-Mart for an example as it is the largest corporate footprint between the U.S. and China trade and economic realities - close to a trillion dollar corporation. It would be one thing if we only had to deal with a currency value at 8.27 to 1. It's quite another when the internal value of that currency is another 25 to 50 times cheaper[depending on location in China] than ours, making real wages for Wall-Mart sweatshops at an average of 10 cents/hr. to an average of 25 cents/hr. for their retail stores' workers in China. I think all the economists writing on this subject should get a handle on it by rereading Professor Cassel's books again. They may wake up and come to different conclusions about trade and economic realities being able to rebalance world markets over time - how much time, a hundred years? China is in deflation, making matters worse, not better. They have lost 22million jobs, themselves. World demand has shrunk tremendously since the crashes of `95 to 2002. We have never been here befor as Edward Hugh often points out.

The NGO's around the world are trying to wake up everyone, but the sleep seems to be a Rip-Van-Winkle reality. Befor the Elite Consensus awakens we will have arbitraged every democracy in the world to corporatocracy. Do we want that? America has been nothing but a giant dump truck full of corporations, with the body slowly going up for the last thirty years, spewing extractive corporations to every nation. No one wants them coming in and destroying but they are there doing just that. Now at this point economists and others will scream what are you a kook? No, I am not. I am simply pointing out a powerful economic reality. It is impossible to build locally, or nationally fast enough to keep up with the international economic extractive capabilites of the corporations. As Steven Roach pointed out, global trade has risen from 11% of global GDP in 1970 to 25% of global GDP in 2003, with no end in sight. Pretty soon the oceans and skys are going to be overfull with cargo carriers, polluting and using massive amounts of our precious fossil fuels, for nothing other than infectious greed.

Corporations operating out of China are making as high as 40 to 90 cents profit on every dollar. This is outrageous, and it will not stop, and they surely arent sharing out of the 37+ tax havens. Not only are they not sharing the wealth but the internation dynamics of credit producitvity and multiplication factors of drastically reduced reserve requirements' banking, is contributing to an ever faster creation of massive asset bubbles that will surely end in crashes, sooner or later. The major question is how soon, and where?

Now if anyone still thinks trade will rebalance world markets in a climate of global deflation, of 31million manufacturing jobs vanished from 1995 to 2002, let me know. Even if the currencies between China and the U.S. were floated and reached 1 to 1 the internal ppp values would still allow corporations plenty of profit to continue the madness for years to come. An does anyone seriously think the U.S., or other nations, is going to let the dollar become cheaper than the yuan? It would have to be .07, or there abouts, to the dollar to balance ppp's, and truly rebalance these markets. This is why I say this situation is beyond economic realities' solutions - future crash guaranteed if let to continue.

Gustav Cassel

Gustav Cassel, a Swedish economist, developed the theory of exchange rates known as purchasing power parity. He did so in some post-World War I memoranda for the League of Nations. The basic concept can be made clear with an example. If 2 U.S. dollars buy one bushel of wheat in the United States, and if 1.6 German marks exchange for 1 U.S. dollar, then the price of a bushel of wheat in Germany should be 3.2 German marks (2 * 1.6). In other words, there should be parity between the purchasing power of one U.S. dollar in the United States and the purchasing power of its exchange value in Germany.

Cassel believed that if an exchange rate was not at parity, it was in disequilibrium and that either the exchange rate or the purchasing power would adjust until parity was achieved. The reason is arbitrage. If wheat sold for $2.00 in the United States and for DM4 ($2.50) in Germany, then arbitragers could buy wheat in the United States and sell it in Germany and would do so until the price differential was eliminated.

Economists now realize that purchasing power parity would hold if all of a country's goods were traded internationally. But most goods are not. If the price of a hamburger in the United States was $1.00 and in Germany was $1.50, arbitragers would not buy hamburgers in the United States and resell them in Germany. Transportation costs and storage costs would more than wipe out the gain from arbitrage. Nevertheless, economists still take seriously the concept of purchasing power parity. They often use it as a starting point for predicting exchange rate changes. If, for example, Israel's annual inflation rate is 20 percent and the U.S. inflation rate is 4 percent, chances are high that the Israeli shekel will lose value in exchange for the U.S. dollar. ....Article Continued

Tuesday, November 25, 2003

Congress Cuts SEC Funding

Here's a real smart move? Yea, let's continue giving corruption public financing instead.

The Big Picture

"'WASHINGTON -- House and Senate Republicans, negotiating an $821 billion-plus year-end spending package, have taken a decidedly pro-business slant to help pick up conservative support after Thanksgiving, when the leadership hopes to win final passage . . .

And amid the growing mutual-fund scandal, the Securities and Exchange Commission, which enjoys bipartisan support, will lose a third of the $96 million budget increase it expected until recently. The decision surprised Sen. Paul Sarbanes (D., Md.), who sponsored corporate-reform legislation in the last Congress that committed the body to a steady increase in funds for the SEC. 'Once you push back, you lose the momentum,' Mr. Sarbanes said.'" ...

Monday, November 24, 2003

Derailing the Global Trade Engine - Tariff Dangers

Here are the real dangers we face. Are we to repeat the mistakes of the '20's and `30's again? My fears are stronger than Steven's in this area, as the mood I sense is building fast to repeating history's greatest mistake. If we do, we had all better start thinking seriously about how to rebuild a fallen global economy - and I mean deep introspection. The entire international financial and trade architecture will have to be reformed and rebuilt anew - top to bottom. If we cross this burning bridge, we had better prepare.

Steven Roach
Cross-border trade flows are the glue of globalization. They are the means by which the world creates ever-virtuous circles of prosperity. The theory is simple: As poor countries enter the global supply chain, their increasingly prosperous workers eventually become consumers. Supply creates new demand, and the world is a net winner. While it’s hard to argue with this theory, today’s world is having an increasingly difficult time in putting this theory into practice. The global trade engine is at risk of being derailed.

That would come as a rough jolt to the world economy. Indeed, there can be no mistaking the increasingly important role global trade has played in driving world economic growth in recent years. By our estimates global trade in goods and services now amounts to 25% of world GDP, up dramatically from the 19% share just ten years ago and an 11% portion in 1970. Over the past 17 years, 1987 to 2003, surging global trade has accounted for fully 33% of the cumulative increase in world GDP. By contrast, over the 1974-86 period, trade accounted for about 17% of the cumulative increase in world GDP. In other words, since the late 1980s there has been a virtual doubling of the role that trade has played in driving the global GDP growth dynamic. There can be no greater testament to the power of globalization....

....The first is a new and powerful global labor arbitrage that has led to accelerating transfer of high-wage jobs from the developed world to lower-wage workforces in the developing world. Enabled by the Internet and the maturation of vast offshore outsourcing platforms in goods and services alike, labor has become more “fungible” than ever. In a world without pricing leverage, the unrelenting push for cost control gives a sudden urgency to this cross-border arbitrage. The outcome is a new and potentially lasting bias toward jobless recoveries in the high-wage developed world. That brings the second major force into play -- a political backlash against the trade liberalization that allows such cross-border job shifts to occur. It is the politics of this trend that disturb me the most as I peer into the future. ...Article Continued

Saturday, November 22, 2003

Protest, Bloodshed, and Death in Bangladeshi Garment Sector - Corporations' Sweatshops

Just a peek around the world at America's amazing corporate greed in action. Especially check out National Labor Committee's link below - type Wall-Mart into their site search box. Check China's Wall-Mart sweatshop wages. The facts are sickening. I may be an economist, but the glaring imbalances in global wages is beyond economic reality, no matter what other economists' dribble may say. This sweatshop situation will almost empty America of jobs befor trade realities rebalance markets to fair global ppp's if let to continue - beware, I have warned.

The corporations have had control long enough. We need a global living wages law - Now!

If you take the picture totally in view, the corporations actually operate a cloaked global financial government through the international financial architecture of the Bretton Woods System - IMF - World Bank - WTO - 37 tax havens, and the cappers The Patriot Act, The Homeland Security Act, and the fained collusion of corporate BushCo. Washington has ripped up most all the rules and laws protecting 'democracy of the people' over the years and corporations have usurped said. All the facts to prove this are listed below on the entirety of this blog. I pray for help in the people recognizing the truth. We must take back our democracy from the corporations and their corporate bureaucracies.

Sweatshops and Death
AFL-CIO Stop Sweatshops
National Labor Committee - Sweatshops
War Profiteers
Stealing Nations
Speculation Plus
Derivatives Realities

Bangladeshi garment worker and father of one, Amjad Hossain Kamal, was killed in Fatullah, Narayanganj when police clashed violently with workers, leaving more than 200 wounded and many others missing or imprisoned. Kamal's death spurred workers and political leaders to participate in a massive outcry that lasted throughout the week....

...The violence began when the police began to beat the workers with batons and to launch tear gas shells at them after they ignored orders to disperse. Police opened fire when the workers fought back, and Kamal was killed in the gunfire. The violence did not end there. New blood stains that appeared in the drains of several factories the next morning led many workers to suspect a fresh wave of violence had occurred after Monday's initial attack. ...Article Continued

Friday, November 21, 2003

Noam Chomsky - Hegemony or Survival

Noam Chomsky has written a timely book for NGO members, other pupulists, and progressives. Just caught him on pbs with Charlie Rose. Rose had a bit of trouble keeping up. The title says it all. Chomsky truly represents the unrepresented people - read him.

Hegemony or Survival : America's Quest for Global Dominance (The American Empire Project)
by Panopticonman

To read Chomsky's HEGEMONY OR SURVIVAL is to visit a world turned upside down. A world where the characterization by U.S. elites of the 90s as the "decade of humanitarian intervention" is sharply questioned, it's also a place where interventions in the name of the "war on terror" are shown to be just the latest manifestations of an expansionist U.S. administration determined to hold onto long-range strategic imperatives, to disable rival systems and people that threaten its imperial objectives, and to strictly enforce its true animating principle -- the pro-market, anti-human ethos of the neo-liberal economic system. In other words, it's not the fumigated middle-school version of US foreign policy offered to Americans on TV....

....One of his main themes is that the United States, like its imperial predecessor, Great Britain, employs an idealizing and utopian language (the language of democracy and freedom) to justify its opposition to and extirpation of any countervailing force, even those founded upon the democratic or populist impulse, e.g., Nicaragua, Guatemala. This is not, of course, an insight original to Chomsky. But what is so disorienting and unique about Chomsky's renarration of recent events is that he is exquisitely alive to the efforts of those in power to efface the historical record, to enforce forgetfulness and unknowing through a steady diet of fear and triumphalist propaganda. Reinscribing history, he quotes mainstream sources, official records, military and diplomatic experts, many of whom are unsympathetic to his point of view, and builds a compelling case to support his thesis that even the "exceptional" United States unexceptionally behaves like powerful states typically do: enhancing their power through violence, and legitimizing their policies through whatever discourses are available. And while its not original to Chomsky that absolute power corrupts absolutely, what is fine and bracing is the way he marshals legions of facts to show how those in power, unchecked in our "open society," move to stifle or subvert the will of its citizens in favor of the money power it truly serves. ...Review Continued

Steven Roach - Macro

An expanded view by Steven Roach relating to what I posted yesterday. Our imbalances at critical stage?

Torn Fabric

In the end, it’s the only solution that macro can really offer: An unbalanced world needs a realignment in relative prices. As the most important relative price in a US-centric global economy, the dollar had to fall. And that’s exactly what has been happening over the past 21 months -- an 11% decline in the “broad” trade-weighted dollar index (in real terms) since February 2002. The risk, in my view, is that there’s a good deal more to come on the downside. It’s not just economics that drives me to that conclusion. It’s also the world’s faith or, in this case, lack of faith in its reserve currency. I fear there is a tear in the fabric of confidence that underpins the special role of the dollar -- a tear that is now getting larger under the stresses and strains of an unbalanced world.

Macro can provide us with a framework that defines the tensions bearing down on currency markets. It doesn’t guarantee the magnitude or the timing of the ultimate adjustment. But it does offer an analytical construct to understand the forces at work. The set-up for the dollar’s depreciation comes straight out of the traditional macro of the current account adjustment. Large and ever-widening current account deficits are not a stable outcome for any economy. It’s only a matter of when, and under what conditions, that a mounting overhang in the quantity of a deficit currency triggers a decline in its price. An oft-cited Federal Reserve study puts the typical current-account breaking point at about 5% of GDP (see Caroline Freund, “Current Account Adjustment in Industrial Countries,” International Finance Discussion Paper No. 692, Federal Reserve Board, December 2000). That’s, of course, precisely the threshold that the US hit in the first half of 2003.

But there’s far more to the US current-account adjustment than a correction in the dollar. As the world’s largest debtor nation, America currently needs about $2 billion of foreign capital per business day to finance ongoing economic activity. There are already warning signs that foreign investors are losing their appetite for dollar-denominated assets. In data just released, overseas portfolio inflows into dollar-based assets totaled only $4.2 billion in September 2003 -- far short of the $64 billion average inflows in the first eight months of the year and the $46 billion monthly bogey required to finance the US current account deficit at its prevailing rate. Moreover, with budget deficits on the rise and little hope of an offsetting surge in private saving, the daily foreign financing requirement could climb to $3 billion by the end of 2004. Such an increase in the offshore dollar overhang only reinforces expectations of a further currency correction. Eventually, there comes a point when foreign investors need to be compensated for taking such currency risk. That compensation invariably shows up in the form of higher real interest rates. That then completes the macro equation of the forces that drive the current-account adjustment. Not only does a cheaper dollar improve the competitiveness of US exporters, but it also triggers an interest rate response that leads to a compression in domestic demand. The resulting shift in the mix of aggregate demand -- more exports and less domestic consumption -- then leads to a narrowing of trade and current account deficits. ....Article Continued

Thursday, November 20, 2003

Krugman Art!


Currency Fraud - Tip of the IceBerg!

Treasury demand is drying up - the dollar is dropping - now fraud - what next? Check out a few more of my posts down the page to get a better understanding of the overall problems. Marshall Auerback's new post at Prudent Bear is excellent. Ol' Uncle Bush is going to get caught between a rock and a hard place - Unfinancible deficits? His choice - cut back rich tax gifts or Tax-Tax-Tax!

Currency Fraud Ran Deep, Officials Say


What began with an undercover F.B.I. agent's "posing as a bad guy with money" led to the discovery of rigged currency trading by traders at some of Wall Street's biggest banks, federal prosecutors said yesterday.

An 18-month investigation led to charges being filed against 47 people yesterday, a day after F.B.I. agents swooped into offices in downtown Manhattan to make arrests. Civil fraud charges were also filed against nearly half of the 47 by the Commodity Futures Trading Commission and one was charged by the Securities and Exchange Commission....

....Over a six-month period, federal officials said the five banks involved lost more than $650,000, of which $270,000 went to the traders at the banks and the interbank brokers who were involved....

....A troubling fact for the banks, investors and regulators is that the investigation showed, Mr. Comey said, that similar rigged trading involving bank traders has been defrauding banks for as long as 20 years. That history and the fact that so many individuals could apparently pull off the rigged trading and get caught only after an F.B.I. agent became involved may serve as warning: the largely unregulated foreign exchange market, with trading volume of $1 trillion a day, is vulnerable, and banks' internal controls may not be strict enough.

"What is astounding is that you have so many people involved," David Gilmore, a partner at Foreign Exchange Analytics, said. "That is a lot of ducks to line up to commit fraud." ....Article Continued

Tuesday, November 18, 2003

The WTO - MAI - IDF - FTAA - Unlimited Companies! *A Rare Vision Inside The Global Corporate Mind!

This information is rather long, some 27 pages, but it is the full story of the most dangerous part of the upcoming FTAA - MAI - WTO treaties. I urge you to read it. The stories will make anyone angry and cry. Many pictures, also, so it isn't really 27 pages as many pictures take up whole pages. Notice it is also pdf but well worth the read. The facts are here.

I've only posted the intro and contents. This is a June report but still pertaining. It's just the best I can find to date, and it is excellent.

BTW I'm personally for fair and balanced trade, but I can not support totalitarian trade.

Unlimited Companies
The developmental impacts of an
investment agreement at the WTO

fighting poverty together 1
Executive summary
1 Introduction
2 The risks of foreign investment
2.1 Rights under attack from foreign investment
Negative impacts on rights to land, food and sustainable livelihoods
Violating the rights of local people and communities
2.2 Negative impacts of foreign investment on the economy and poor people
3 The importance of foreign investment policies
3.1 Maximising the benefits of foreign investment
3.2 Defending against the negative effects of foreign investment
4 The proposed new WTO investment agreement
4.1 Who wants an investment agreement at the WTO?
4.2 What exactly is being proposed and how will it undermine development?
4.3 Why the WTO investment agreement must be stopped
5 The positive alternative: making foreign investment work for development
5.1 National regulation
5.2 International regulation
6 Recommendations

Executive summary
The Cancun Ministerial Conference of the World Trade Organisation (WTO), to be held in September 2003, will see a showdown over whether the WTO’s agenda should be expanded to include new negotiations on a multilateral investment agreement. Along with its promotion of the three other ‘new issues’ of competition policy, transparency in government procurement and trade facilitation, the EU’s insistence on an investment agreement at the WTO poses a severe threat to progress on international trade rules at a time when the Doha Round of trade negotiations is already on the brink of collapse. ....Article Continued

Krugman & Fraud Clarity

Thanks to Paul Krugman we have simple clarity to the complexity of the mutural funds scandal. Check out his video archives, above, for many great insights. Keep on kicking em Paul.

Funds and Games


You're selling your house, and your real estate agent claims that he's representing your interests. But he sells the property at less than fair value to a friend, who resells it at a substantial profit, on which the agent receives a kickback. You complain to the county attorney. But he gets big campaign contributions from the agent, so he pays no attention.

That, in essence, is the story of the growing mutual fund scandal. On any given day, the losses to each individual investor were small — which is why the scandal took so long to become visible. But if you steal a little bit of money every day from 95 million investors, the sums add up. Arthur Levitt, the former Securities and Exchange Commission chairman, calls the mutual fund story "the worst scandal we've seen in 50 years" — and no, he's not excluding Enron and WorldCom. Meanwhile, federal regulators, having allowed the scandal to fester, are doing their best to let the villains get off lightly.

Unlike the cheating real estate agent, mutual funds can't set prices arbitrarily. Once a day, just after U.S. markets close, they must set the prices of their shares based on the market prices of the stocks they own. But this, it turns out, still leaves plenty of room for cheating.

One method is the illegal practice of late trading: managers let favored clients buy shares after hours. The trick is that on some days, late-breaking news clearly points to higher share prices tomorrow. Someone who is allowed to buy on that news, at prices set earlier in the day, is pretty much assured of a profit. This profit comes at the expense of ordinary investors, who have in effect had part of their assets sold off at bargain prices.

Another practice takes advantage of "stale prices" on foreign stocks. Suppose that a mutual fund owns Japanese stocks. When it values its own shares at 4 p.m., it uses the closing prices from Tokyo, 14 hours earlier. Yet a lot may have happened since then. If the news is favorable for Japanese stocks, a mutual fund that holds a lot of those stocks will be underpriced, offering a quick profit opportunity for someone who buys shares in the fund today and unloads those shares tomorrow. This isn't illegal, but a mutual fund that cared about protecting its investors would have rules against such rapid-fire deals. Indeed, many funds do have such rules — but they have been enforced only for the little people....Article Continued

Monday, November 17, 2003

Lula Raises the Stakes

Luiz Inácio Lula da Silva of Brazil is another leader we should take a look at in the same light as Thaksin Shinawatra of Thailand. These two great leaders are developing paths away from the failed "Washington Consensus" aka "The Bretton Woods System" aka economic fundamentalism. I applaud them. I wish them the best.

Lula Raises the Stakes
by William Greider & Kenneth Rapoza

The bearded political leader they call Lula is the new phenomenon of globalization, a man with audacious ambitions to alter the balance of power among nations. Luiz Inácio Lula da Silva, the new left-wing president of Brazil, envisions a united South America that gains economic strength by drawing closer together in trade and bargaining collectively, much as the European Union does. He wants to create a global coalition speaking for the not-rich countries--reminiscent of the "nonaligned nations" that decades ago tried to stand between the cold war's two superpowers. And he wants to push the IMF, the World Bank and the United Nations to become more democratic....

....In South America, Lula traveled to Peru and Colombia, where he urged closer economic relations between the Andean Pact nations and their southern rivals in Mercosur (the Southern Common Market), anchored by Brazil and Argentina. He offered to mediate talks between the Colombian government and the revolutionary guerrillas of FARC. In Venezuela he gave embattled President Hugo Chávez a $1 billion line of credit to buy Brazilian exports. In mid-October Lula joined with Argentina's President Néstor Kirchner to unfurl the "Buenos Aires consensus," a proposed alternative to the much-despised "Washington Consensus," which has straitjacketed developing economies with its harsh economic rules. The future, they declared, must give poorer nations the sovereign space to determine their own development strategies, balancing social necessities with economic stability. ...Article Continued

The International Financial Architecture

I posted this snippet on last night. I hope I can stir some interest by the candidates, as I mailed it to them as well.

The International Financial Architecture

I'd like to discuss a serious issue - The IFA. I believe we could accomplish more by bringing this subject into the platform debate more than any other subject, as this is where the neocons have us over a barrel, publicly. If we were to make this subject our own, we could gain the upper hand intellectually and marketwise - the real power. The International Financial Architecture needs major reform - Reform of the IMF, The World Bank, The WTO, The International Court - The entire Bretton Woods System, including and especially the world's 37+ tax havens. Ann Pettifor's new book, "Real World Economic Outlook" states that 7.1 million super wealthy families are net worth $26.2 Trillion dollars - that's more than half of real global GDP. Much of this money is in/booked to the tax havens. We as Democrats must understand these complex markets to truly resolve the real world and national problems, as these international institutions actually control our national destiny. We could accomplish more by our candidates bringing this into the national debate more than any other goal, as it has financial hegemony over all our desires. Without this debate being brought to the front, we are simply spinning our wheels on ice!

Common Sense
- Lloyd Gillespie, Retired Engineer/Economist (November 16, 2003; Rockland, ME)

Friday, November 14, 2003

Steven Roach - Asia Musings

Steven back from China - Asia. China becoming the second most important economy in the world - shaky footing?

Steven Roach

The New Asia is all about China. Japan, with a per-capita GDP that is about 40 times that of China, has all but abdicated pan-regional leadership to China. The rest of the region is overwhelmed by the sheer size and scope of the Chinese economy — to say nothing of the rapid transformation from a centrally-planned to a market-based system. China has become a magnet for foreign capital, much to the dismay of other Asian economies; foreign direct investment into China hit a record US$53 billion in 2002, whereas FDI flows elsewhere in the region have remained at relatively depressed levels since the Asian crisis. At the same time, China’s powerful growth dynamic has now been transformed into an engine of pan-regional growth for the rest of Asia. In the first eight months of this year, fully 73% of Japan’s total export growth went to China; for Korea, the share was 40%, and for Taiwan it was 99%. Even for the more diversified and smaller ASEAN economies, exports to China accounted for between 20% and 30% of total export growth in the first eight months of this year. Largely lacking in domestic demand, an externally-driven Asian economy has become increasingly dependent on Chinese trade as a major source of growth; that’s great when China is surging to the upside, but it’s a perilous course when China slows — precisely our concern in the first half of 2004 (see my November 4 dispatch, “China Pull”). ...Article Continued

Paul Krugman - The Sweet Spot

DrFunkenstein posted this article of Paul Krugman's on John Kerry's site last week. I thought it worth a post - Bush-Co. and tax stealth.

Paul Krugman - John Kerry

The Sweet Spot
By Paul Krugman

What we have here is a form of looting." So says George Akerlof, a Nobel laureate in economics, of the Bush administration's budget policies — and he's right. With startling speed, we've blown right through the usual concerns about budget deficits — about their effects on interest rates and economic growth — and into a range where the very solvency of the federal government is at stake. Almost every expert not on the administration's payroll now sees budget deficits equal to about a quarter of government spending for the next decade, and getting worse after that.

Yet the administration insists that there's no problem, that economic growth will solve everything painlessly. And that puts those who want to stop the looting — which should include anyone who wants this country to avoid a Latin-American-style fiscal crisis, somewhere down the road — in a difficult position. Faced with a what-me-worry president, how do you avoid sounding like a dour party pooper?

One answer is to explain that the administration's tax cuts are, in a fundamental sense, phony, because the government is simply borrowing to make up for the loss of revenue. In 2004, the typical family will pay about $700 less in taxes than it would have without the Bush tax cuts — but meanwhile, the government will run up about $1,500 in debt on that family's behalf.

George W. Bush is like a man who tells you that he's bought you a fancy new TV set for Christmas, but neglects to tell you that he charged it to your credit card, and that while he was at it he also used the card to buy some stuff for himself. Eventually, the bill will come due — and it will be your problem, not his. ...Article Continued

Thursday, November 13, 2003

Hazel Henderson - New Paradigms in World Trade

One of the brightest minds in the world has done it again. Hazel not only puts the proper people in their place, she also clearly points out where governments, and their international financial and trade institutions, have failed miserably to solve the world's sustainability conundrum.

Hazel Henderson


by Hazel Henderson

Beyond Globalization” – Foreign Trade Sustainability, a Social Responsibility
Thank you for the honor of addressing this important gathering. SEBRAE represents many of the key values for building more equitable, sustainable futures in Brasil and Latin America: entrepreneurship, leadership in local development, innovation in both social and technical spheres, social responsibility and best practices in management of small and medium size enterprises, which are the engines at the heart of robust, home-grown, domestic economies. Today, economists are re-assessing their fashionable strategies of export-led national GDP-growth – in the face of a crisis-ridden world economy in need of repair and rebalancing. The traditional economic theories that produced today’s economic globalization are discredited – as are many of its international financial institutions – the International Monetary Fund (IMF), the World Bank and the World Trade Organization (WTO).

President Luiz Inacio Lula da Silva has emerged as a world leader in pointing to healthier, alternative paths toward sustainable economies, at local, national, regional and global levels. Brasil’s leadership in forming the Group of 21 (now 22) developing nations opened a new era in world trade at the Cancun WTO meeting. No longer will narrowly-calculated trade rules and negotiations trump fairness, higher human values and goals. Brasil’s business community also articulated at Cancun the new model of socially-responsible business management. Ricardo Young Silva of the Instituto Ethos de Empresas e Responsabilidade Social, called for these higher standards of social and economic performance to be incorporated, along with full cost prices and life-cycle costing into WTO rules and accounting practices. The new economics and indicators of sustainable human development and quality-of-life are beginning to call into question the traditional GNP-growth model (see Figure 1, GNP Problems). The social costs, waste and ecological destruction of this obsolete model are now self-evident. The first international conference of world-class statistical experts on these expanded national accounts, ICONS, will convene in Curitiba, October 26-29. (To register, visit Brasil’s leaders in these new statistics of sustainability will also showcase their groundbreaking work.

The obsolete neoliberal model applied to world trade, drove World Bank advice, which led developing countries to focus on short-term export-led growth and resulted in many of today’s glutted markets in commodities, from coffee to computer chips. Such short-term strategies, often with tax-holidays, export platforms and reliance on cheap labor, minimum regulations and all the other Washington Consensus policies have led to today’s global “race to the bottom.” In Mexico, some 300 manufacturing plants have moved to China in the past two years.[1] China will soon overtake Mexico as the second largest US trading partner after Canada. China’s labor costs, combined with today’s undervalued renminbe (rmb) are about one quarter of those in Mexico. One cannot blame China, since some 2/3 of all China’s exports to the USA are by US corporations.[2] The longer-term structural focus needed in Mexico must address general education and the skill levels of its workforce to retain its back-office paperwork businesses (still second only to India). Even deeper is the issue that only 1% of inputs to Mexico’s export manufacturing plants are produced in Mexico and little tech transfer occurs in this typical world-trading pattern. Thus, many developing countries, including those like Mexico, in the top tier, are vulnerable to powerful global market rule-makers, corporations, investors and currency speculators they cannot control. ...Article Continued

Wednesday, November 12, 2003

The Patriot Act - Criticism!

A nation should make its decisions out of courage, not cowardice and self inflicted fear as our present blind ideological regime seems only to know. Inordinate power granted to government has a history of too often being abused. We must all unite to rewrite/re-right this horrendous theft of liberty and freedom. It is dangerous to blindly accept such a doctrine which simply plays into the hands of the corporate elite, lending credence to their dreams of enslaving us lessers as libertyless sheep.

The Patriot Act:
FISC - Foreign Intelligence Survelliance Court - Secret Court?
The Patriot Act II - Secret
Patriot Act II - Overview
The Homeland Security Act

by James Bovard

How do you find a needle in a haystack? Set fire to the haystack.

Following the September 11 attacks, Congress joined the largest manhunt in history by passing a 342-page bill called the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act. The bill's acronym, USA PATRIOT, revealed the depth of feeling, if not thought, that had gone into the measure. In support of the bill, House Judiciary Committee chairman James Sensenbrenner declared, 'The first civil right of every American is to be free of domestic terrorism.'

USA PATRIOT rewrote laws that had been put in place to curb past government abuses. It gave Attorney General John Ashcroft powers that would have been unthinkable a few months before. Lawmakers claimed they were bringing the Bill of Rights up to date, allowing law enforcement to operate efficiently in the age of the cell phone and laptop.

Thanks to USA PATRIOT and the flurry of executive orders that have followed, our government now can more easily conduct secret trials, listen to privileged conversations between prisoners and their counsel, imprison people indefinitely on minor charges without even confirming they are being held, eavesdrop on any telephone that a suspect may use (including those in public places such as airports), sort through thousands of private e-mails while promising not to read "content" (a term left undefined), conduct "sneak and peak" searches for physical evidence without notifying the suspect at the time, rummage through school records of foreign students and appoint bank clerks and employers as deputy counterterrorists (with no training). The CIA and other intelligence groups have been allowed back into the domestic arena. All manner of checks and balances, of oversight, have been tossed onto the bonfire. ...Article Continued

Tuesday, November 11, 2003

Richard Duncan - Bretton Woods - Global Imbalances

Is global deflation creating a real global credit trap? Are we in a catch-22 debt trap of globalization's failed Bretton Woods System? If so, where do we go from here? I think it is high time for a real global discussion by the powers that be to take this issue seriously and do something, fast. The real global imbalances will require a complete rethinking and total reform of the disastrous state of present globalization - Now! We need to restore sustainable growth and demand - globally! Interviews Richard Duncan

Richard Duncan is author of a new book called "The Dollar Crisis: Causes, Consequences, Cures." In it, he argues that the Japanese bubble, the Asian Crisis and the U.S. bubble are related. In Mr. Duncan’s view, problems have been building since the U.S. ditched the Bretton Woods system for what turned out to be a "dollar standard." As Richard will explain, the U.S. has benefited from the dollar standard because the U.S. is allowed to play by different rules. It appears, however, that we've overplayed our hand. But before we find out why Mr. Duncan thinks that a "dollar crisis" is inevitable, let's learn how we got here.

PRUDENTBEAR.COM: Before we find out where we are, can you help us find out where we've been by filling us in on Bretton Woods? For example, under Bretton Woods, what happens when a country imports more than it exports?

RICHARD DUNCAN: To see what has gone wrong with the global financial architecture, it’s first necessary to understand that the global economy functions very differently today than it did before the Bretton Woods System collapsed in the early 1970s. Today, the United States’ Current Account Deficit is 60 million Dollars…AN HOUR. A Million Dollars a minute, if you will. Or roughly 17 thousand Dollars a second. Let’s call it HALF A TRILLION DOLLARS A YEAR.

That’s the amount by which the United States is subsidizing the rest of the world’s economy each year. AND, that’s the amount by which the United States’ net debt to the rest of the world is increasing each year. It’s also the amount by which international reserves—and the Global Money Supply—are expanding each year since the increase in international reserves is more or less determined by the size of the annual US Current Account deficit. ...Interview Continued

Monday, November 10, 2003

Reality Check - GAO

Thought I'd post this speech/report to show the correlation between the economists and writers I have chosen for my site and the official figures. I'm quite satisfied they match reasonably well. Check for yourself.

The United States General Accounting Office - Speech

Let me start by reviewing the federal government’s current financial condition. The federal government’s fiscal 2002 annual financial report says a lot but not enough. The good news is that as of September 30, 2002, we had about $1 trillion in reported assets. The bad news is that we had almost $8 trillion in reported liabilities. According to my math, that left us with an approximate $7 trillion accumulated deficit, or a little over $24,000 for every man, woman and child in the United States. In fiscal 2002, the federal government reported a net operating deficit of $365 billion. Many of you may be more familiar with the unified budget deficit number, which was $158 billion in fiscal 2002. Irrespective of whether you focus on the accrual based accounting numbers or the cash based budget numbers, the picture is not good and it’s getting worse. For example, the Congressional Budget Office (CBO) estimates that the unified budget deficits in fiscal years 2003 and 2004 will be $401 billion and $480 billion, respectively. These numbers are up significantly from fiscal 2002. Interestingly, CBO estimates that we will incur about $157 billion in interest on publicly held federal debt in fiscal 2003 even though current interest rates are low on a relative basis. Furthermore, CBO estimates that, excluding Social Security surpluses, the total deficit for fiscal years 2003 and 2004 will be $562 billion and $644 billion, respectively. If all these numbers are making your head spin, don’t worry; just remember that they are all big, and they are all bad! ...Speech Continued

Friday, November 07, 2003

Monbiot - Stealing Nations

Monbiot really outdid himself on this one. This is excellent. The best macroeconomic expose' overview I have come across.

George Monbiot

The International Monetary Fund does not make its "mistakes" by accident.
By George Monbiot.

For how much longer should we give those who run the global economy the benefit of the doubt? The International Monetary Fund has made the same "mistake" so many times that only one explanation appears to remain: it is engineering disaster.

The crises over which it has presided in Thailand, South Korea, Russia and Argentina are well documented, by Joseph Stiglitz, the former chief economist of the World Bank, among others. But we have, until now, lacked a comprehensive description of the way it worked in eastern Europe. A new book by the economist Pongrac Nagy shows for the first time how the IMF smashed Hungary. ...Article Continued

Global - Another New Paradigm?

Pretty hard to beat Steven Roach for leveling the reality playing field. He mentions a favorite of mine, Richard Duncan. Have a glance.

Morgan Stanley

The current New Paradigm goes something like this: Global imbalances don’t matter. Never mind, America’s unprecedented current account deficit -- let alone massive current-account surpluses in Asia. Pay no heed to the shaky foundations of a saving-short US economy and its runaway federal government budget deficit that lies at the heart of America’s massive external imbalance. Don’t worry about the ever-rising overhang of private sector indebtedness in the US, especially for the household sector. This is what the New World Order is all about. America is supposed to consume beyond its means, as those means are delineated by the economy’s domestic income-generating capacity. Awash in surplus saving, a demand-deficient rest of the world will gladly finance America’s gaping external imbalance -- and will do so willingly and in a relatively costless fashion. The result will be open-ended foreign demand for dollar-denominated assets. US Treasuries -- the most riskless segment of this superior asset class -- will benefit the most. That will keep US interest rates low, providing even more support to American aggregate demand. In a unipolar world, the dollar -- the world’s reserve currency -- can’t fall. After all, what other currency could rise?

Asia is particularly enamored of this New Paradigm. That’s to be expected. After all, Asia has taken the lead in funding America’s gaping external imbalance. China and Japan, alone, accounted for over $150 billion of net purchases of long-term US securities in 2002; in the first half of 2003, their combined demand hit nearly $120 billion -- nearly double the pace in the first half of 2002 and enough to fund nearly 45% of the entire US current-account deficit over that period. The thinking in Asia is that this is a mutually advantageous relationship: China, for example, benefits from selling goods to American consumers, and the US benefits from getting low-cost, high-quality Chinese products that expand private sector purchasing power. China gets paper in response -- and US Treasuries have a natural bid. It’s the ultimate in global virtuous circles.....

.....The ultimate trial of any New Paradigm comes from the unintended consequences that arise along the way. They provide the stress test that any theory must withstand. I firmly believe that such a test is coming for the US economy -- now the world’s debtor of first and last resort. And I also anticipate a challenge to Asian economies that are now accumulating massive reservoirs of official reserves. Such reserves don’t come out of thin air. They are the functional equivalent of excess liquidity creation that has the clear potential to spill over into product or asset markets. That, by the way, is a particularly important distinction between the first phase of the Bretton Woods era and the one we are supposedly in today. Richard Duncan, author of The Dollar Crisis (Wiley , 2002), points out that while total international reserves increased by only 55% over the 1949-69 period, since 1969, the increase has been more than 2000%. In other words, lacking the anchor of a gold-backed currency, today’s post-Bretton Woods system of international finance is far more biased toward excess liquidity creation and a related potential for asset bubbles. Unfortunately, the record speaks for itself -- Japan’s monstrous bubble, a multitude of asset bubbles in pre-crisis Asia, and, more recently, the property bubble in China. I have a hard time calling this the ultimate virtuous circle of a dollar-based world. Nor does there appear to be much virtue in a regime that encourages the United States to embrace a growth strategy characterized by an unprecedented drawdown in net national saving and a concomitant build-up of household sector indebtedness. ....Article Continued

Thursday, November 06, 2003

Bretton Woods - IMF - Lay View

A good lay person's article simply explaining the Bretton Woods System and IMF. I am not in agreement with all of it, but here's the requested post.

Bretton Woods - IMF

How I learned to stop worrying and love the IMF
by Econ Tim

A short history of international monetary policy really begins in 1944 at a place with the improbable name of Bretton Woods, in New “Live Tax Free or Die” Hampshire. At Bretton Woods, the soon to be victorious Allies (the Soviet Union had an excused absence as they were actually fighting a freaking war at the time) brainstormed about how such a horrible war could be avoided in the future and they could make piles and piles of money. (This sounds a little crass, but it really was what they were doing.)

The idea they came up with was a World Bank and the International Monetary Fund. The World Bank would make loans for rebuilding the tattered economies of rapidly becoming unoccupied Europe and the International Monetary Fund would ensure stability by creating a system of currency conversion. The idea behind the IMF/Bretton Woods system was that every country would make their currency worth a certain amount of dollars, e.g. $1 = .6 English Pounds. In fact, many countries didn’t even bother and adopted the dollar. Only in cases where some fundamental problem developed would they change that value.

The dollar would be fixed to $35 an ounce. Ideally, you could take $35 to Fort Knox and say, “One ounce of gold, please.” In reality, it was merely a paper arrangement backed up by a number of restrictions on gold ownership. ...Article Continued

Wednesday, November 05, 2003

The Failure of Free Markets?

Ever wonder about the deregulation decrease of our constitutional laws, and the re-rigging increase of international agencies' rules, regulations, treaties, and laws? Could this be destroying our democracy and creating a future/present corporatocracy? Here's an exellent example of how the " Washington Consensus'" international free markets truly work - The Failed Bretton Woods System?

Marshall Auerback

Latin America Loses Faith In The Free Market

Most Latin Americans live in fear of losing their jobs and believe the neo-liberal free market reforms of the past 2 decades have done little to improve their living standards, according to a region-wide survey published last week by Latinobarometro, a non-profit organisation of polling groups in 17 different Latin American countries. Only 22 per cent of respondents thought that privatisation of public services had benefited their country, compared with 28 per cent last year and 46 per cent in 1998, the tail end of the mid-1990s boom. More significantly, only 16 per cent were satisfied with the market economy as a model.

To anyone who has witnessed the havoc wreaked on Argentina, Brazil, Bolivia, and Peru (to name a few prominent examples) over the past decade of ?reform? such sentiments become readily understandable. Globalisation and the measures successively introduced by the World Bank and IMF have not delivered the promised free market nirvana. In fact, there is virtually no good evidence that the creation of efficient, rent-free markets coupled with efficient, corruption-free public sectors is even close to being a necessary or sufficient condition for a dynamic capitalist economy. ...Article Continued

Time to Rein in Global Finance

Since William Greider is in the news and on radio with his new book "The Soul of Capitalism", I thought I'd post this older article about global finance. It is a further extention of some of his ideas presented in the new book. It covers the Bretton Woods System in more detail than his newer work. I think this article quite important for lay people's understanding.

Article Link

Time to Rein in Global Finance
by William Greider

The financial crisis that collapsed Asian economies in mid-1997 and then bounced around the world was a distant sideshow to most Americans until it reached Wall Street. One year later, when Russia defaulted and Brazil was engulfed by the investor panic, US financial markets plunged too, and some major American banks and brokerages were at risk (as a result of lending billions to such magical schemes as Long-Term Capital Management, the wildly overleveraged hedge fund that went bust). The Federal Reserve rushed to the fire, supervised a forgiving bailout for Long-Term Capital and swiftly cut interest rates three times to restore confidence. The giddy boom resumed, but the US establishment was rattled. Led by the President, important voices from financial and academic circles began to talk earnestly about the need to reform the global financial system. "A new international financial architecture," they called it. ...Article Continued

Tuesday, November 04, 2003

Putnam - My Pension Fund - Going Under?

This is the official law suit filed by the S.E.C. against Putman traders, Justin M. Scott and Omid Kamshad, for insider self-dealing. To say the least, I am a little worried about my recently drawn pension. Will it survive? ...Update: My pension fund directors fired Putnam 11-4-03.

FindLaw -- S.E.C. v. Justin M. Scott and Omid Kamshad

Excessive Short-Term Trading
14. Excessive short-term trading in mutual funds can be detrimental to long-term shareholders in those funds. Such trading can dilute the value of mutual fund shares to the extent that a trader may buy and sell shares rapidly and repeatedly to take advantage of inefficiencies in the way mutual funds prices are determined. Dilution could occur if fund shares are overpriced and redeeming shareholders receive proceeds based on the overvalued shares. In addition, short-term trading can raise transaction costs for the fund, it can disrupt the fund's stated portfolio management strategy, require a fund to maintain an elevated cash position, and result in lost opportunity costs and forced liquidations. Short-term trading can also result in unwanted taxable capital gains for fund shareholders and reduce the fund's long-term performance. In short, while individual shareholders may profit from engaging in short-term trading of mutual fund shares, the costs associated with such trading are borne by all fund shareholders. Consequently,investment advisers often maintain policies and procedures to detect and prevent market timing and other short-term trading.

Short-Term Trading by Putnam Employees
15. Beginning in at least 1998, Justin M. Scott, managing director and chief investment officer of Putnam's International Equities Group, and Omid Kamshad, managing director and chief investment officer of Putnam's International Core Equity Group, engaged in repeated short-term trading of Putnam mutual funds in their personal accounts. Scott's trading continued until at least mid-2000; Kamshad's trading continued into 2003. Both Scott and Kamshad engaged in short-term trading in their personal accounts of mutual funds over which they had investment decision-making responsibility and about which they had access to non-public information regarding, among other things, current portfolio holdings, valuations and transactions not readily available to all fund shareholders. ...S.E.C. Law Suit Continued

Monday, November 03, 2003

Understanding Deflation & Public Spending

This is an excellent economic paper on deflation and the real uses of public spending - causes - consequences - realities. It's well worth the read. It's a great addition to our real economic understanding of such macroeconomic policies as FDR's New Deal and Thaksinomics.

Thanks to Teddy over at itstheeconomy for the link.

Understanding Deflation: Treating
the Disease, Not the Symptoms

L. Randall Wray and Dimitri B. Papadimitriou - The Levy Economics Institute

Deflation can be defined as a falling general price level utilizing one of the common price indices.the consumer price index; the GDP deflator or other, narrower indices as the wholesale price index; or an index of manufactured goods prices. Falling indices of output prices can be the result of several mechanisms: productivity increases, quality increases and hedonic imputations of prices, competition from low-cost producers, government policy influences, or depressed aggregate demand. Falling output prices, in turn, can have strong effects, especially on the ability to service debts fixed in nominal terms; depending on the level of indebtedness of households and firms, they can set off a classic Minsky-Fisher debt deflation spiral. In this paper, we argue that deflation can and usually does generate large economic and social costs, but it is more important to understand that deflation itself is a symptom of severe and chronic economic problems. This distinction becomes important for the design and implementation of economic policy." ...Article Continued