Global Economy

[Guest]

Soros was behind and he was able to place his own candidate.

[acharya]

Europe finds that the old rules still apply

By Kenneth Rogoff

Published: May 6 2010 03:00 | Last updated: May 6 2010 03:00

The cruel irony of the euro area's predicament is that, in many ways, the whole exercise was designed to produce the very credit explosion that bedevils it today. After all, one of the driving motivations of the euro was to enable member states to compete with the US for a share of the global reserve currency business. Reserve currency status, in turn, is the essence of America's "exorbitant privilege" (a term coined by Valéry Giscard d'Estaing, the former French president). The most important perk the US gets is the ability to issue debt at a lower interest rate than would otherwise be the case. Indeed, recent research suggests that simply by enhancing the size and liquidity of financial markets, the euro may have helped to lower real interest rates across Europe, and not just for government borrowers.



Lower interest rates, in turn, helped fuel greater borrowing, especially in the countries of the eurozone periphery. Thus, the spreading debt crisis is as much a product of the "success" of the euro as of its failure. The euro was designed to be a superior debt financing machine and, to a considerable extent, it has delivered. Unfortunately, it should have come with a warning sign: Europe's leaders were far too quick to admit members who might have been better served with a much longer probation period. The Maastricht treaty and, more importantly its implementation, was simply too forgiving, especially for countries with chequered financial histories.



A recurring theme of my academic research with Carmen Reinhart is that "graduation" from emerging market status is a long, painful process that can take 75 years or more to complete. Twenty years without, say, a sovereign debt crisis is significant, but hardly enough definitively to declare a country a "graduate". Greece resolved its last sovereign default only in the mid-1960s and Portugal had an International Monetary Fund programme as recently as 1984. (Spain's modern history is much better, despite holding the record - more than 12 - for most independent sovereign default episodes.)



The eurozone experiment was, in effect, an attempt to speed up the graduation process through the carrot of the single currency and the stick of harsher bail-out rules. Instead of having to demonstrate fortitude and commitment through decades of surpluses and declining public debt levels (as for example, Chile has done), euro members were allowed to have their cake and eat it, too. Instead of starting to hit a ceiling at 90 per cent of gross domestic product as might a "normal" emerging market country, Greece could run up its public debt to more than 115 per cent of GDP. Even more stunning a figure is Greece's total external debt to GDP, which is more than 170 per cent, counting both public and private debt. Prof Reinhart and I find that most emerging markets run into trouble at external debt levels of merely 60 per cent of GDP. Indeed, the external debt levels of Spain, Portugal and Ireland are all sky high if one were to judge them by emerging-market standards.



Is it realistic for the IMF and Europe to hope that Greece (and other struggling euro members) will survive without an eventual default? It can happen but it is not easy. In recent years, South Korea, Turkey and Mexico have all skirted sovereign default thanks to massive external assistance, albeit with significant private sector external defaults. Unfortunately, "near misses" are the exception, not the rule. Indeed, there are many cases where even an IMF programme is not enough to solve the problem. Argentina, Indonesia, Uruguay and the Dominican Republic all provide very recent examples where a government adopted an IMF programme but defaulted eventually anyway.



Will Europe's crisis end only in "near misses" rather than outright defaults or reschedulings? The answer involves a range of political, social and economic questions that are not easily quantifiable. Economists have only a limited understanding of why sovereign nations ever repay their external debt, given the lack of any supranational legal authority that might force them to do so. It is very rare for a country to default because it literally cannot pay. In most cases, and certainly in southern Europe today, the issue is willingness to pay. Romanian dictator Nicolae Ceausescu famously forced his people to endure cold winters with minimal heat to help his country repay $9bn owed to foreign banks in the 1980s. Had he been able to wait a few years, Romania would probably have enjoyed the same kind of partial debt forgiveness extended to many others at the end of that decade. The fact that a country can repay its debt does not necessarily mean it should choose to do so.



In the case of Europe, the decision to repay involves not only the usual costs and benefits, but also the added question of how a nation's status in the European Union will be affected. Is Europe prepared to go to great pains to punish Greece if it defaults, imposing costs much higher than those a non-euro country would face? If not, how can it seriously expect Greece to pay down debt levels far in excess of those navigated by almost any other large emerging market?



In our book on financial history, Prof Reinhart and I find that international banking crises are almost invariably followed by sovereign debt crises. Will the euro prove to be a firewall against this process, or a debt machine that fuels it? It is going to be extremely difficult for some of the peripheral eurozone economies to escape without large-scale defaults on their massive private external debts, public external debts, or both.



The writer is professor of economics at Harvard and co-author with Carmen Reinhart of This Time is Different

[Guest]

Europe can survive only by colonization, failure of Climate bill failed European union attempt to create new way to rule rest of world.

They can't fight with each other because of shortage of fighting force and chickenification of Europe. What they will do now?

[Guest]

[url="http://finance.yahoo.com/news/EU-creates-1-trillion-package-apf-644989406.html?x=0&sec=topStories&pos=1&asset=&ccode="]EU creates $1 trillion package to save euro[/url]

The European Central bank will buy government and private debt to keep debt markets working and lower borrowing costs, a crisis measure dubbed the "nuclear option," while the U.S. Federal Reserve joined with other central banks in the effort, reactivating a currency swap program used during the earlier stages of the financial crisis to ship dollars overseas to be pumped into banking systems as short-term credit.



The overnight decision immediately jumpstarted markets worldwide. The euro immediately shot back to life and up to $1.30, recovering from Friday's 14-month low of $1.2523.

Officials acted after ominous slides in world stocks and the euro last week that raised fears that the debt crisis would spread from heavily indebted Greece to other financially weak countries such as Spain and Portugal. It reached the point where President Barack Obama discussed the crisis by phone with German Chancellor Angela Merkel and French President Nicholas Sarkozy.



Policy makers worried it could shake the world economy the way the bankruptcy of U.S. investment bank Lehman Brothers did in 2008, making banks fearful of lending to businesses, hammering stocks and killing off economic recovery.



It also raised long-term worries that the crisis would force a weaker member such as Greece out of the euro.

Euro will depreciated now. It will be par to dollar or may go down.

[Guest]

Dow 8500 Before 11,500: Sell the Surge, Suttmeier Says

[acharya]

Renault to Double Use of Indian Parts Overseas to Cut Costs

May 10, 2010, 11:32 PM EDT

MORE FROM BUSINESSWEEK



By Vipin V. Nair

May 11 (Bloomberg) -- Renault SA plans to more than double shipments of parts from India, cutting costs and boosting ties with suppliers as it reenters Asia’s third-biggest auto market.

The carmaker will buy as much as 250 million euros ($320 million) of Indian components for use overseas in 2013, compared with 75 million euros this year, Sudhir Rao, chief operating officer of the company’s Indian unit, said in an interview in Mumbai yesterday. Last year, the carmaker bought 10 million euros’ worth, he said.

Nissan Motor Co., Fiat SpA and Ford Motor Co. also plan to use more India-made parts overseas to benefit from costs that Rao said are as much as 15 percent lower. Renault is also preparing to build cars in India on its own after scrapping a venture with Mahindra & Mahindra Ltd. because of tumbling sales.

“You are building relationships with the suppliers which will help in future when your own production starts.” said Deepesh Rathore, a New Delhi-based analyst at IHS Global Insight Inc. “This is very important for any company entering the Indian market.”

Renault, France’s second-biggest carmaker, will ship the India-made parts to factories in countries including Romania, Turkey and South Africa, Rao said. Affiliate Nissan will buy $40 million of parts from India in 2012, Kiminobu Tokuyama, head of the Japanese automaker’s local unit, said in March. Nationwide parts exports grew 10-fold in the past decade to an estimated $3.8 billion in the year ended March 2009, according to the Automotive Component Manufacturers Association of India.

[Guest]

[url="http://www.dailymail.co.uk/news/worldnews/article-1277393/Greece-debt-crisis-German-anger-750bn-euro-bailout-swells.html"]'We are once again the schmucks of Europe!' German media's verdict as anger at Greek bailout swells[/url]

There are rumours that the right-wingers in her conservative CDU party are plotting a coup against her - rumours strengthened by the visceral distaste for her latest largesse in trying to prop up the common currency.



'The biggest 'all-in' in the history of poker,' was how Henrik Enderlein, economics professor at the Hertie School of Governance in Berlin, described the massive aid package assembled on Sunday night in an effort to save the Euro from collapse.



Many observers see the measure as delaying the end of the Euro, not preventing it.

Kai Carstensen, an expert at the Munich-based Ifo Institute for Economic Research, said: 'I fear that states will no longer feel any pressure to lower their deficits.



'Should they not massively reduce their debts, the problems will only be bigger three years down the road because the stronger countries are currently guaranteeing the debts of the weaker ones.'

Europe's heavyweights could be taking on more than they can handle, he said.

[HareKrishna]

Is the Euro Doomed?The dreams of European union could die along with it.

By Christopher Hitchens







http://www.slate.com/id/2251986?obref=obinsite

[HareKrishna]

I can be absolutely certain that I did not do this because I wanted to be right. On the contrary, I would much have preferred to be mistaken. When I still lived in Europe, I was one of the few on the left to advocate an enlargement of the community and to identify it with the progressive element in politics. This was mainly because I had seen the positive effect that Europeanism had exerted on the periphery of the continent, especially in Spain, Portugal, and Greece. Until the middle of the 1970s, these countries had been ruled by backward-looking dictatorships, generally religious and military in character and dependent on military aid from the more conservative circles in the United States. Because the European community allowed only parliamentary democracies to join, the exclusion from the continent's heartland gave a huge incentive to the middle class in these countries to support the overthrow of despotism.



The same attraction had a solvent effect on other countries, too. Once the Irish Republic became a member and was thus part of the same customs union as the United Kingdom, the border with Northern Ireland became an irrelevance, and it was only a matter of time before the sectarian war would begin to seem irrelevant. In Cyprus, the wish of both Greek and Turkish Cypriots to become European was a potent element in setting the stage for negotiations to end that post-colonial partition. The modernization and opening of Turkey, highly uneven as it is, has a great deal to do with the same pull toward a common European system. And it goes without saying that the people of Eastern Europe, even while the Berlin Wall still stood, measured their aspirations by how swiftly they, too, could meet the criteria for membership and escape the dreary, wasteful Comecon system that was the Soviet Union's own parody of a supranational agreement.

The logic of this seemed to necessitate a single currency, which in turn meant that a unified Germany, instead of dominating Europe, as the British and French reactionaries had always feared, would become a Europeanized Germany. The decision to give up the deutsche mark in 2002 must rank as one of the most mature and generous decisions ever taken by a modern state, full confirmation of the country's long transition from Nazism and Stalinism and partition, Europe's three great modern enemies.



As it happens, though, it was a German-speaking fascist who awoke my misgivings. I was interviewing Jörg Haider, the late leader of Austria's Freedom Party, just as the euro notes and coins were coming into circulation almost everywhere between Finland and Greece. With a disagreeable sneer, he asked me if I really liked "the new Esperanto money."



This was actually a rather clever psychological thrust. The old dream of a world language called Esperanto that would abolish the Babel of competing tongues is considered a quixotic one for obvious reasons. Nobody is going to learn a language that hardly anybody speaks. There is a further quixotry involved: The invention of Esperanto ended up doing no more than adding another minor language to the mix. Now consider the euro: What if it ends up being one European currency among many instead of the money equivalent of a lingua franca?



How tragic it is that the euro system has already, in effect, become a two-tier one and that the bottom tier is occupied by the very countries—Greece, Portugal, Spain, and Ireland—that benefited most from their accession to the European Union. The shady way in which Greece behaved in concealing its debts, and the drunken-sailor manner in which other smaller states managed their budgets, has, of course, offended the Germans. It is openly said in Germany now that it would be better to bring back the deutsche mark than to be bailing out quasi-indigent and thriftless banana republics. Talk of that kind doesn't take long to evoke a biting response: Soon enough, Greek Foreign Minister Theodoros Pangalos was reminding nationalist audiences at home of the wartime German occupation of Greece and the carrying-off of the country's gold reserves. "Don't talk about the war" is a strong unspoken principle of European fraternity, and it didn't require very much strain to produce a major fraying of this etiquette. You can count on this atmosphere getting much worse as second-tier countries are requested by Berlin to haul in their waistlines and as Germans grumble about having to tighten their own belts to subsidize less efficient regimes.



The problem is endlessly reported as one of "bailout" terms and "packages" for "debt relief." These are all euphemisms, and they are also all short-term. The fact is that default has entered the European vocabulary on a national scale and therefore that this First World club has its own Third World to contend with. In any case, the great justification for the European Union was always political and not economic, and if the symbol of the second-order dimension becomes tarnished, then the first ideal will not escape great damage, either.



"PIGS" is the unlovely acronym for the nations—Portugal, Ireland, Greece and Spain—that constitute the shiftless out-group within the in-group. (Italy is sometimes included in the club.) It's very improbable that nations that haven't yet signed up to the euro—Britain and many Scandinavian states among them—will now do so. And that being the case, with the euro just another bill you have to exchange when moving around within Europe—then what becomes of the dream? I wish I could have ignored the croakings of an obscure Austrian fascist, but there's something about European history that makes this seem rash.

[Guest]

All this will lead to WAR.

[Guest]

[url="http://www.marketoracle.co.uk/Article19447.html"]Breaking News, Germany to Leave the Euro This Weekend?[/url]

As reported by a Zero Hedge contributor, a forum post at GoldLikeProductions from a user identifying himself as a Deutsche Bank employee, suggests that the big news to be announced this Friday as stated by German politician Gregor Gysi at a recent press conference may be that Germany will announce a return to the Deutsche Mark, eliminating the Euro as their country’s currency:



From a forum post by an Anonymous user:



I’m working at the Deutsche Bank in Germany. Today we delivered 1 container with new Deutsche Mark notes and new coins. I will present a photo from the new banknotes tomorrow morning. The curencychange will be the night from Saturday to Sunday 5/16/2010. On Friday, 19.00 GMT Angela Merkel the germany chancelor, will speach to the german nation.

Looks like a rumor, but very interesting. Euro is in big trouble.

[Guest]

Major Investment Bank: "Greece Is Going Down, Germany Drafting Law For Orderly Insolvencies"



Zero Hedge has long claimed that Greece will be forced to default, with the only question being how this will be structured by Europe in a way to not allow the evil speculators to make buck on this process. Today, Greece shot itslef in the foot a little after announcing its latest debt number, which makes any expectations of climbing out of its Keynesian hole even more laughable. As Market News reports, "Greece's general government debt rose to E310.3 billion in 1Q from E298.5 billion at the end of last year, according to data released Wednesday by the General Logistics Office of the Finance Ministry." That austerity sure is doing miracles already. But it doesn't matter: it appears that Germany has already made its mind to let Greece drown. As Neil Hume at Alphaville reports, "Big IB to clients: "they have it all planned: they are going to sink the ship (greece). Merkel is now drafting law for orderly insolvencies, but they don't want anyone to make money out of it, hence the ban."" If this is true, it 's curtains for Europe. Shorting the Euro at this point is like shorting Lehman: you may see savage short covering squeezes but the end result is well known.

[Guest]

[url="http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/7765383/Double-dip-fears-over-worldwide-credit-stress.html"]Double-dip fears over worldwide credit stress[/url]

The global credit system is flashing the most serious warning signals in almost a year on triple fears of a Spanish banking crisis, escalating political risk in Asia, and a second leg to the US housing slump.

[acharya]

[size="6"]THE MIDDLE CLASS IS FINISHED, OVER, KUPUT!

[/size]

In the history of the world, a large middle class was a freak post WW2 phenomenon and the world is regressing to the norm. There are many reasons for the start of the middle class bubble and at least one good reason for its demise.



For the first 30 years after WW2 the working class, mostly through union contracts, received about 80% of the net increase from increased productivity. In the last 30 years our owners aka employers aka international corporations have kept 80% of the net increase.



Why should the international corporations resume giving profits to their employees without world wide labor union pressure? Why can't world wide unemployment stabilize at 10% or worse?



Does anyone think that Henry Ford's claim that he paid high wages so that his employees could buy cars still hold water? Rolls Royce/Bentley cars have been built for close to 100 years. What do their employees drive?



http://www.alternet.org/economy/147113/w...oney_again



The recession was a carefully orchestrated plan with the same objectives as the one from the 1930's. Which is to bring the middle class to their knees, cause small/medium sized banks and companies to go bankrupt, then buy out everything for a penny on a dollar and concentrate wealth in the hands of fewer and fewer international bankers. They did it in the past, and will continue doing it as long as the fractional banking system and the Federal Reserve exist. The reduction of the middle class is a desired result of recession.



-----

[size="5"]

We Won't Climb Out of the Great Recession Until the Middle Class Has Money Again

We need a new New Deal that will bolster America’s floundering middle class.[/size]

June 4, 2010 |

Advertisement





We’re falling into a double-dip recession.



The Labor Department reports this morning that the private sector added a measly 41,000 net new jobs in May. (The vast bulk of new jobs in May were temporary government Census workers.) But at least 100,000 new jobs are needed every month just to keep up with population growth.



In other words, the labor market continues to deteriorate.



The average length of unemployment continues to rise – now up to 34.4 weeks (up from 33 weeks in April). That’s another record.



More Americans are too discouraged to look for a job than last year at this time (1.1 million in May, an increase of 291,000 from a year earlier.)



Of the small number of jobs created by the private sector in May, many came from temporary help services.



Which is one reason why the median wage continues to drop.



Why are we having such a hard time getting free of the Great Recession? Because consumers, who constitute 70 percent of the economy, don’t have the dough. They can’t any longer treat their homes as ATMs, as they did before the Great Recession.



Businesses won’t rehire if there’s not enough demand for their goods and services.



The only reason the economy isn’t in a double-dip recession already is because of three temporary boosts: the federal stimulus (of which 75 percent has been spent), near-zero interest rates (which can’t continue much longer without igniting speculative bubbles), and replacements (consumers have had to replace worn-out cars and appliances, and businesses had to replace worn-down inventories). Oh, and, yes, all those Census workers (who will be out on their ears in a month or so).



But all these boosts will end soon. Then we’re in the dip.



Retail sales are already down.



So what’s the answer? In the short term, more stimulus – especially extended unemployment benefits and aid to state and local governments that are whacking schools and social services because they can’t run deficits.



But the deficit crazies in the Senate, who can’t seem to differentiate between short-term stimulus (necessary) and long-term debt (bad) last week shot it down.



In the longer term, we need a new New Deal that will bolster America’s floundering middle class.

[acharya]

Who couldn't have seen this coming? We cannot survive without a robust work force with actual purchasing power. We can't do that unless we begin manufacturing again. You, Robert, encouraged a service industry, as if that was going to sustain us, apparently seeing no value in keeping factories and steel plants going right here.



We will not survive as long as the profits from our purchases go overseas. Countries like China and India are celebrating the direction our corporate greed and governmental corruption has taken us. They win, we lose.



Yes, we need a WPA, a CCC, a New Deal--all of those programs that rebuild our country and put our people to work. But if we had been doing it all along, we wouldn't be at the emergency stage we're at now.



This is not a recession, it's a depression, and it will only get worse unless The Powers come to terms with the fact that their love of capitalism (and their hatred for market rules) is destroying us.

[HareKrishna]

capitalism is finished

we need technocracy and resource-based economy.

[acharya]

Brzezinski had the answer in 1997. He advised the US administration that a catastrophic event like Pearl Harbour would likely bring US public opinion on-side for a major military incursion to secure the oil assets of Central Asia and the Middle East. What's that? It's already happened? Well, perhaps but not the way Cheney, Bush, Rumsfeld and Brzezinski's pay masters had envisaged.



Iraqi oil production has remained stalled as lucrative contracts have turned out to be somewhat less than the bean-feast that US oil giants were anticipating. For the UK, having BP partnered with China signals a very definite end to the 'special relationship' with our colonial cousins across the Pond. So, the forecast by the US military is not so much about Peak Oil but Peak Oil under current circumstances. In the meantime, it's a safe bet that there are countries that will see building relationships that are to the detriment of the US's energy strategy as a major part of their foreign policy.



David Gale - Independent PPC - Derby North

[Guest]

US current policy is towards Global Government, actual working UN headed by US. But I think 2012 election will change direction again. Till then enjoy depression and start living with less.

<img src='http://www.india-forum.com/forums/public/style_emoticons/<#EMO_DIR#>/biggrin.gif' class='bbc_emoticon' alt='' />



Euro is dying drip drip.

[Guest]

[url="http://finance.yahoo.com/news/Changes-in-China-Could-Raise-nytimes-1946081566.html;_ylt=AjTRpKOgT2F6xhl7xtgfJIK7YWsA;_ylu=X3oDMTE1NzV1bzk3BHBvcwM5BHNlYwN0b3BTdG9yaWVzBHNsawNjaGFuZ2VzaW5jaGk-?x=0&sec=topStories&pos=7&asset=&ccode="]Changes in China Could Raise Prices Worldwide[/url]

United States and European Union officials have been pressing China to help improve the health of the global economy by consuming more and reducing the country’s massive trade surpluses.



Rising labor costs here aren’t the end of cheap production in China, analysts say, but they are likely to help change the country’s manufacturing mix.



“China isn’t going to lose its manufacturing base because it’s got a huge domestic market,” said Mary Gallagher, director of the Center for Chinese Studies at the University of Michigan. “But it will move them toward higher-end goods. And that matches the Chinese government’s ambition. They don’t just want to be the workshop of the world. They want to produce high-tech goods.”

[Guest]

[url="http://www.bloomberg.com/news/2010-06-20/china-turns-tables-on-aaa-debt-time-bomb-nations-william-pesek.html"]China Turns Tables on AAA Time-Bomb Nations: Commentary by William Pesek[/url]

Your move, folks.



That’s the message from China’s surprise move to allow a more flexible yuan. China, in signaling it’s okay with a rising currency, voiced a strong vote of confidence in its economic outlook. It also shifted the onus to the developed world in a crafty and unambiguous way.



Timothy Geithner and his team at the U.S. Treasury should keep on ice the champagne they’re tempted to open. Now it’s time to start getting their own imbalances in order. The debt explosion of the past two years isn’t just unsustainable, it’s a growing threat to global stability.



Chess games are won by those who can think and plan the farthest ahead. China, at least at the moment, appears to have a better sense of how the board is laid out. The question now is what Geithner and his partners in history’s greatest debt orgy do.



It’s wrong to conclude China was browbeaten into acting. Yes, the step means Chinese officials can breathe easier arriving in Toronto for next weekend’s Group of 20 meeting. Yet a rising yuan will make it easier to tame asset bubbles and reduce inflation risks. It also increases the purchasing power for the nation’s 1.3 billion people. Efforts to kick China’s addiction to exports are now underway.

....