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China’s Cash Crunch August 20, 2012

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At first glance, that proposition seems preposterous. After all, the People’s Bank of China, the central bank, held $3.24 trillion of foreign currency reserves at the end of the first half of this year. Yet foreign currency, no matter how plentiful, has limited usefulness in a local currency crisis. In any event, the PBOC’s foreign currency holdings are almost evenly matched with renminbi-denominated liabilities that were incurred to acquire all those dollars, pounds, euros, and yen. As a result, the central bank cannot use the reserves without driving itself deep—actually, deeper—into insolvency.

When shops close to avoid predatory officials, we know China’s coffers are almost empty.  And to make matters worse, the country’s financial problems will be harder to solve now that the country’s balance of payments has turned negative.  The net outflow in the second quarter of this year was the first since 1998.  The country’s reserves also dropped in Q2.  We should not be surprised: there was perhaps $110 billion of capital flight during that period, and the gusher outflow looks like it continued in June.  Chinese citizens are losing confidence fast.

No developing country has ever escaped a major financial crisis.  The People’s Republic of China is about to have its first one now

via China Is Running Out Of Money – Forbes.

Return of the disparaged “Limits to Growth” Prediction August 4, 2012

Posted by tkcollier in Economy & Business, Enviroment, Geopolitics.
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Carlton Palmer shares this gem with these comments:

Thoughtful, analysis and personal take from a Financial realist .  Civilized not a Rant! Long, Worth the effort. Ex Pat Brit.Jeremy Granthams take on the ongoing food crisis  plus the Game changer implications for the Human condition. Of note “the ethanol/gas” idiocy.

Click on the link to download the .pdf file and take the time to read this 22 page analysis

Ex Pat Brit. Jeremy Granthams take on the ongoing food crisis

No free beer when frugal Swiss get their say July 21, 2012

Posted by tkcollier in Economy & Business, philosophy & politics.
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Swiss research shows that giving citizens a direct say over how their taxes are spent leads to lower public debts, more cost-efficient services and even less tax evasion. “Because Swiss citizens feel they can control politicians’ spending through referendums, they are more prepared to give the government money and have a more positive attitude towards the state,” said Daniel Kuebler, co-director of the Centre for Democracy Studies in the northern Swiss town of Aarau.

To be sure, direct democracy is not the only driver of the Swiss success story. The country’s neutrality, bank secrecy, liberal labor market, low taxes and stable government have all played their part in drawing investment and driving growth. But the system has forced politicians to be more frugal than elsewhere.

In the United States, direct democracy is frequently blamed for the fiscal mess in California, where a 1978 referendum known as Proposition 13 changed the state constitution to ban increases in property taxes in line with inflation. Supporters say the measure put a sensible limit on state spending, but opponents say it warped the property market to benefit the rich, forced other taxes up and made it impossible for towns to keep pace with the cost of public services. This year, three Californian cities filed for bankruptcy in the space of weeks.

Kuebler said Switzerland’s referendums, which allow voters to overrule spending decisions by the legislature, do a better job of encouraging fiscal responsibility. “You might think that direct democracy would lead to greater public spending because anyone can put forward an initiative, for example, proposing free beer for all,” said Kuebler. “But it would never have a chance, because the preference of Swiss citizens is fiscally conservative and not redistributive.”

via No free beer when frugal Swiss get their say | Reuters.

The 11 Ways That Consumers Are Hopeless at Math July 8, 2012

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You walk into a Starbucks and see two deals for a cup of coffee. The first deal offers 33% extra coffee. The second takes 33% off the regular price. What’s the better deal?

“They’re about equal!” you’d say, if you’re like the students who participated in a new study published in the Journal of Marketing. And you’d be wrong. The deals appear to be equivalent, but in fact, a 33% discount is the same as a 50 percent increase in quantity. Math time: Let’s say the standard coffee is $1 for 3 quarts ($0.33 per quart). The first deal gets you 4 quarts for $1 ($0.25 per quart) and the second gets you 3 quarts for 66 cents ($.22 per quart).

The upshot: Getting something extra “for free” feels better than getting the same for less. The applications of this simple fact are huge. Selling cereal? Don’t talk up the discount. Talk how much bigger the box is! Selling a car? Skip the MPG conversion. Talk about all the extra miles

via Business – Derek Thompson – The 11 Ways That Consumers Are Hopeless at Math – The Atlantic.

California Doesn’t Learn From China’s Train Wreck July 7, 2012

Posted by tkcollier in Economy & Business, Enviroment, News and politics, Technology.
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In California’s Legislature just authorized to spend, with Federal assistance, an under-estimated $100 billion to build a route between San Francisco and Los Angeles that will consist of a government monopoly riding on tracks near one of the largest earthquake faults in the world for most of its length, all to deliver passengers slower and at greater overall cost between two fixed points.  Airlines give consumers a choice of carriers and airports on either end of that route, will deliver passengers more quickly, and probably with a much wider choice of departure and arrival times.

In China the problem — beyond the idea of spending untold billions on the antiquated technology of static choo-choo trains — is that the three people making all these wonderful decisions  now have a high-speed rail system plagued by failurecorruption, out-of-control costs and legitimate safety concerns

The fact is that China’s train wreck was eminently foreseeable. High-speed rail is a capital-intensive undertaking that requires huge borrowing upfront to finance tracks, locomotives and cars, followed by years in which ticket revenue covers debt service — if all goes well. “Any . . . shortfall in ridership or yield, can quickly create financial stress,” warns a 2010 World Bank staff report.

Such “shortfalls” are all too common. Japan’s bullet trains needed a bailout in 1987. Taiwan’s line opened in 2007 and needed a government rescue in 2009. In France, only the Paris-Lyon high-speed line is in the black.

via China’s train wreck – The Washington Post.

Trends In The Spread of Civilization May 3, 2012

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In his latest book, Civilization, The West and the Rest, the economic and financial historian Niall Ferguson argues that Western civilization’s rise to global dominance over the past 500 years was due mainly to six killer apps, as he calls them: competition, science, rule of law, modern medicine, consumerism, and the work ethic.

While “the Rest” lacked these concepts, they might not for much longer, as emerging markets are quickly catching up. Someday, they could even surpass the West. (On May 22 and 29, PBS will air a program based on Civilization.)

What made the West unusual was that risk takers were not only rewarded but honored, whether in science, exploration, or in trade. Spreading across the Atlantic from Europe is an anti-risk culture that manifests itself in two ways. One is the welfare state, designed to remove risk from your life by guaranteeing you an income from the cradle to the grave. That’s great because it means that nobody is starving in the streets for want of work. But it isn’t great if you create poverty traps and disincentives, so that people in the bottom quintile never work, which is the case in much of Europe.

The other way in which the anti-risk culture manifests itself is with the manic regulatory mentality that tries to prescribe rules for every eventuality, including the tiny, tiny risk that an asteroid will hit this building. Regulations that protect from every eventuality end up being paralyzing because the more things are proscribed, the more the ordinary entrepreneur has to be afraid that if he doesn’t comply, he will get sued.

via Is America Becoming an Anti-Risk Welfare State? – Barrons.com.

Boomer or Bust – The War Against Youth March 30, 2012

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The recession didn’t gut the prospects of American young people. The Baby Boomers took care of that.

David Frum, former George W. Bush speechwriter, had the guts to acknowledge that the Tea Party’s combination of expensive entitlement programs and tax cuts is something entirely different from a traditional political program: “This isn’t conservatism: It’s a going-out-of-business sale for the Baby Boom generation.”

The impasse of the moment is, tragically, the result of the best aspects of the Boomers’ spirit. The native optimism that emerged out of the explosively creative postwar world led them to believe that growth would go on forever; that peace and prosperity were the natural state of things. Their good intentions seem like willful naivete today, but the intentions were genuine. Clinton actually believed that globalization would export the First World rather than bring the Third World home; it did both.

via Young People in the Recession – The War Against Youth – Esquire.

1% Getting Richer In European Welfare States Too March 9, 2012

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As the chart from the Roine and Waldenström study shows, the share of income for the top 1% in these seven countries generally follows the same trend line. That means domestic policy can’t be the principal reason for the current spread between high earners and others. Since the 1980s, that spread has increased in nearly all seven countries. The U.S. and Sweden, countries with very different systems of redistribution, along with the U.K. and Canada show the largest increase in the share of income for the top 1%.

The main reasons for these increases are not hard to find. Adding a few hundred million Chinese and Indians to the world’s productive labor force after 1980 slowed the rise in income for workers all over the developed world. That’s the most important factor at work. The top 1% gain relatively because they are less affected by the hordes of newly productive workers.

But the top 1% have another advantage. Many of them have unique skills that are difficult to replicate. Our top earners include entrepreneurs, rock stars, professional athletes, surgeons and lawyers. Also included are the managers of large international corporations and, yes, bankers and financiers

via Allan Meltzer: A Look at the Global One Percent – WSJ.com.

Which Countries Have Profited the Most from Globalization February 22, 2012

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Who owns America? Hint: It’s not China January 29, 2012

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Here’s a quick and fascinating breakdown by total amount held and percentage of total U.S. debt, according to Business Insider:

  • Hong Kong: $121.9 billion (0.9 percent)
  • Caribbean banking centers: $148.3 (1 percent)
  • Taiwan: $153.4 billion (1.1 percent)
  • Brazil: $211.4 billion (1.5 percent)
  • Oil exporting countries: $229.8 billion (1.6 percent)
  • Mutual funds: $300.5 billion (2 percent)
  • Commercial banks: $301.8 billion (2.1 percent)
  • State, local and federal retirement funds: $320.9 billion (2.2 percent)
  • Money market mutual funds: $337.7 billion (2.4 percent)
  • United Kingdom: $346.5 billion (2.4 percent)
  • Private pension funds: $504.7 billion (3.5 percent)
  • State and local governments: $506.1 billion (3.5 percent)
  • Japan: $912.4 billion (6.4 percent)
  • U.S. households: $959.4 billion (6.6 percent)
  • China: $1.16 trillion (8 percent)
  • The U.S. Treasury: $1.63 trillion (11.3 percent)
  • Social Security trust fund: $2.67 trillion (19 percent)

So America owes foreigners about $4.5 trillion in debt. But America owes America $9.8 trillion

via Who owns America? Hint: It’s not China – Global Public Square – CNN.com Blogs.

China Cost Advantages Erode as U.S., Mexico Gain January 5, 2012

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China, which is experiencing negative pressure as an exporter because of wage inflation, exchange-rate pressures and higher freight rates, could lose its cost advantage vis-à-vis U.S. production in four years if freight rates rise at 5 percent annually, according to the 2011 U.S. Manufacturing-Outsourcing Cost Index.

Since 2007, Mexico, some locations in Europe and locations in Asia other than China have gained a competitive advantage for offshore manufacturing. In addition to Mexico, emerging LCCs, including India, Vietnam, Russia and Romania, had lower landed cost for their exports to the U.S.

via China Cost Advantages Erode as U.S., Mexico Gain, Report Says | Journal of Commerce.

In the Future Everything Will Be A Coffee Shop December 28, 2011

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But what’s the advantage of a good job if the salary difference between that job and a non-college-level job is lost servicing student debt? It’s a reasonable question that has become more pressing as the amount of student debt required to get an education has risen.

At the same time several universities with world renown branding have begun offering online courses for free. MIT has been the pioneering institution in this. They were first to make practically all classes available online. Now they are beginning to offer some level of credential for completion of online courses through a new program they’re calling MITx.

We’re going back to the future: the modern office was birthed in 17th century coffee shops. Steven Johnson has argued that coffee fueled the enlightenment. It was certainly a more enlightening beverage than the previous choice of alcohol.

The need for offices grew as the equipment for mental work was developed starting in the late 19th centuries. That need appears to have peaked about 1980. It was a rare person who could afford the computers, printers, fax machines, and mailing/shipping equipment of that time.

Now a single person with $500 can duplicate most of those functions with a single laptop computer.  So the remaining function of the office is to be that place that clients know to find you… and that kids and the other distractions of home can’t.

via speculist.com » Blog Archive » In the Future Everything Will Be A Coffee Shop.

More Poverty in Suburbs Than in Cities December 28, 2011

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In the wake of the Great Recession, poverty rolls are rising at a more rapid pace in the suburbs than in cities or rural communities. Between 2000 and 2010, the number of suburban households below the poverty line increased by 53 percent, compared to a 23 percent increase in poor households in urban areas, according to a Brookings Institution analysis of census data.

Last year, there were 2.7 million more suburban households below the federal poverty level than urban households, according to the Bureau of Labor Statistics. That was the first time on record that America’s cities didn’t contain the highest absolute number of households living in poverty.

via America’s Dirty Little Housing Secret Is Rocking The Suburbs.

The Ruins of Detroit November 20, 2011

Posted by tkcollier in Cool photos, Economy & Business, Enviroment.
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Captured: The Ruins of Detroit | Plog — World, National Photos, Photography and Reportage — The Denver Post.

Tree Climbing Goats November 4, 2011

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Have you ever seen tree climbing goats? Apparently goats on the trees is a common thing in Morocco. Moroccan goats unbelievably easy get on the highest tops of argan trees to reach so loved fruit similar to olives.

Moroccan farmers constantly witness the flock of goats climbing from one tree to another. It’s not that the flock of goats to them is an unfamiliar sight, but because goats eat argan fruit in the inside of which there is a nut that goats cannot digest, therefore they spit it out or get rid of it in the form of excrement. The farmers gather them carefully.

Tree Climbing Goats – mytripsdiary.com.

Our Emerging Energy Independence October 29, 2011

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For more than five decades, the world’s oil map has centered on the Middle East. No matter what new energy resources were discovered and developed elsewhere, virtually all forecasts indicated that U.S. reliance on Mideast oil supplies was destined to grow. This seemingly irreversible reality has shaped not only U.S. energy policy and economic policy, but also geopolitics and the entire global economy.

But today, what appeared irreversible is being reversed. The outline of a new world oil map is emerging, and it is centered not on the Middle East but on the Western Hemisphere. The new energy axis runs from Alberta, Canada, down through North Dakota and South Texas, past a major new discovery off the coast of French Guyana to huge offshore oil deposits found near Brazil.

For the United States, these new sources of supply add to energy security in ways that were not anticipated. There is only one world oil market, so the United States — like other countries — will still be vulnerable to disruptions, and the sheer size of the oil resources in the Persian Gulf will continue to make the region strategically important for the world economy. But the new sources closer to home will make our supply system more resilient. For the Western Hemisphere, the shift means that more oil will flow north to south and south to north, rather than east to west. All this demonstrates how innovation is redrawing the map of world oil — and remaking our energy future.

via Oil’s new world order – The Washington Post.

The Difference Between the Israeli and Greek Wailing Wall October 8, 2011

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Wailing Wall in Israel

Greek Wailing Wall

Why Manufacturing is Returning from China October 8, 2011

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Shipping and logistics adds 17 percent; finding a viable Chinese vendor adds 1 percent; quality issues add 4 percent; travel and communications add 1 percent and “all others” add another 1 percent to the total price of a product manufactured offshore. Some products are simply not good to produce offshore — those made with highly automated precision processes; those that are bulky and heavy; products that require flexible scheduling; and products that undergo many revisions, causing an increase in quality failures.

In a case study comparing costs in the United States and China, Meeker and his MIT colleague Jay Mortenson found that it is cheaper by 8 percent to produce a current design in China. There are substantial savings associated with purchased parts from China that include direct labor (79 percent savings versus U.S. labor rates), indirect labor and salaries (61 percent savings), benefits (75 percent savings), overhead (40 percent savings) and selling, general and administrative (SG&A) (11 percent savings).

When adding logistics to the China price, the cost advantage of producing in China shrinks to 8 percent: $13.85 for a case-study product made in China versus $14.99 in the United States. But when design for manufacturing and assembly (DFMA) software is applied to the same product, the China advantage vanishes. The China cost declines to $9.79 versus the U.S.-made product at $9.47

via The Case Against Shifting Production To China; Hidden Costs And Growing Risks Make U.S. Attractive For Manufacturing. (more…)

Cities as Hotels September 12, 2011

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Private cities are happening now for a reason. Africa, India, and China are urbanizing more rapidly than has ever occurred in human history. In Africa, the number of urban dwellers is projected to increase by nearly 400 million, in India at least 250 million will move to cities and in China more than 400 million will move to cities in just the next 20 years. Not all of these people will move to older cities, which are not always in the right places and which rarely possess anything like the right material let alone the right political infrastructure. The rising middle-class want to live in first-world cities and in many of these countries only the private sector can deliver those cities.

The rapid urbanization of the developing world is an opportunity to remake cities anew. Private cities as hotels on a grand scale

via Cities as hotels — Marginal Revolution.

Globalization’s Greatest Victory September 9, 2011

Posted by tkcollier in Economy & Business, Geopolitics.
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The past four years have seen a sharp contrast between recession-hit rich countries and buoyant emerging giants. Estimates from the Asian and African Development Banks, using a rather broad definition of middle class as living on $2-20 a day, confirm the picture. On this measurement, which includes many people who are only just above the poverty line, a third of Africans and three-quarters of Latin Americans were middle class in 2008. Meanwhile, the evidence that this progress will bring political demands that will reshape the developing world is mounting.

People ask, what did America do for the world? It set the conditions for this to happen – and then it defended that system from those who would do it harm. The US is only world power in history whose primary goal has been the peaceful rise of other great powers through trade and development.

via Thomas P.M. Barnett’s Globlogization – Blog – Chart of the Day: globalization’s greatest victory.

Latin America’s blind love with China may be over September 9, 2011

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Barbosa, who served as ambassador to Washington during the Luiz Inácio Lula de Silva government and now heads the foreign trade council of Brazil’s powerful FIESP industrialists federation, said Brazilian executives working for Chinese firms are also complaining about “long work days, frequent overtime, teleconferences in the wee hours, and production goals that are unrealistic and non-negotiable.”

As a result, 42 percent of Brazilian executives working for Chinese firms quit their jobs in their first year, he said, quoting a story in the daily Folha de Sao Paulo. Barbosa concluded that China’s business practices “should be followed with attention” by government authorities, labor unions and business associations.

Almost simultaneously, a new study by the United Nations Commission for Latin America and the Caribbean (ECLAC), “Overview of Latin America’s insertion in the world economy,” shows that 87 percent of Latin America’s exports to Asia — mainly China — are raw materials, while only 13 percent are manufactured goods.

By comparison, 60 percent of Latin America’s exports to the United States are manufactured goods, and the remaining 40 percent raw materials, the study says.
Read more: http://www.miamiherald.com/2011/09/07/2395293/latin-americas-blind-love-with.html#ixzz1XT8lszI6

Citing an article in The Economist on China’s investments in Africa, Barbosa says that China “is destroying parks and forests in search of mineral and agricultural resources, and routinely violates the most elementary labor laws. Roads and Hospitals built by the Chinese are badly finished, among other things because their construction companies pay bribes to local officials.”

via Latin America’s blind love with China may be over – Andres Oppenheimer – MiamiHerald.com.

E-Trade Baby Hit By the Market August 13, 2011

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Why China Still Buy US Debt August 9, 2011

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The People’s Bank of China (PBoC) accumulated its forex reserves by borrowing yuan from the Chinese people. The U.S. dollar assets and yuan liabilities are roughly balanced on the central bank’s balance sheet. If the U.S. government is addicted to debt, so is China’s.

The purpose of that precarious balance sheet is to subsidize exports by keeping the yuan’s value low and deferring inflation. An economy like China’s that is enjoying rapid productivity growth would normally see rising real wages and hence benign inflation that would increase the cost of its exports. Because that process has been stopped, China’s exporters remain competitive across a range of labor-intensive products such as shoes and garments in which the country no longer has a true comparative advantage.

Were the PBoC to stop buying U.S. Treasurys and other dollar assets, the result would be an immediate increase in the yuan’s value. The losses on U.S. investments as the yuan slowly appreciates are one part of the cost for the export-subsidy policy.

In the short term Chinese threats to stop buying U.S. debt are empty, since there are no other asset markets deep and liquid enough to absorb the purchases needed to keep the yuan stable. Were China to buy euros or yen in sufficiently large quantities, it would soon run into a protectionist backlash in Europe and Japan as those nations ran trade deficits. The U.S. willingness to run a persistent trade deficit is key to the dollar’s status as a reserve currency.

via Review & Outlook: China’s Debt Addiction – WSJ.com.

June 17, 2011

Posted by tkcollier in Economy & Business, Geopolitics.
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China Has Divested 97 Percent of Its Holdings in U.S. Treasury Bills June 17, 2011

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China has dropped 97 percent of its holdings in U.S. Treasury bills, decreasing its ownership of the short-term U.S. government securities from a peak of $210.4 billion in May 2009 to $5.69 billion in March 2011, the most recent month reported by the U.S. Treasury.

Treasury bills are securities that mature in one year or less that are sold by the U.S. Treasury Department to fund the nation’s debt.

Mainland Chinese holdings of U.S. Treasury bills are reported in column 9 of the Treasury report linked here.

Until October, the Chinese were generally making up for their decreasing holdings in Treasury bills by increasing their holdings of longer-term U.S. Treasury securities. Thus, until October, China’s overall holdings of U.S. debt continued to increase.

Since October, however, China has also started to divest from longer-term U.S. Treasury securities. Thus, as reported by the Treasury Department, China’s ownership of the U.S. national debt has decreased in each of the last five months on record, including November, December, January, February and March.

via China Has Divested 97 Percent of Its Holdings in U.S. Treasury Bills | CNSnews.com.

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