Sunday, August 30, 2009

Finally, the end of the legacy of Mrs Thatcher?

The bubble that built up after the "roll-back" of the state under Mrs Thatcher burst some months ago, but the philosophy that she espoused seems to be up for challenge only now.

In today's Financial Times a British think tank, Policy Exchange, calls for a publicly-funded bank focusing on energy, communications, utilities, schools and hospitals - not to mention transport!

This would amount to re-nationalisation by the back door, and is being called for in an exchange (or reversal) of policies not merely by ANY think tank, let alone a leftist think tank, it is an exchange of policies being called for by the favourite think tank of the CONSERVATIVE leader, David Cameron, who has inherited Mrs Thatcher's mantle. What delicious irony! Policy Exchange indeed!

The danger is that the backlash against Thacherite policies will go too far.

What Policy Exchange, or any other think tank for that matter, ought to pursue before specific recommendations such as this publicly-funded new bank, is a debate on the role of the state versus the role of the private sector - and not merely in the UK but globally.

Without that global perspective, debate and consensus we are condemned to swing between on the one hand the Keynesianesque/ trade union extreme that preceded the Reagan/Thatcher era, and on the other hand the monetarist/ bubble era heralded by the Reagan/Thatcherite extreme. Sphere: Related Content

Friday, August 28, 2009

Should central banks target stock prices?

That is the title of a paper just published by Paul De Grauwe, on behalf of the Centre for European Policy Studies, Burssels, Belgium:
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Based on a more academic Working Document, it asks whether central banks should target stock prices so as to prevent bubbles and crashes from occurring.

This was as unthinkable only a few weeks ago as Lord Turner championing the idea of the Tobin Tax (see
[Open in new window].

While I have long argued for the Tobin Tax, I maintain that targeting stock prices alone is half-baked. We need a system of independent, comprehensive watch on global stability such as outlined in my article in the New York Times Online ("DealBook" section) some weeks ago.

Not only can an independent comprehensive view never be provided by individual countries or by individual measures such as targeting stock prices, doing such things would be simply counter-productive in terms of system stability. Sphere: Related Content

Russian President Medvedev becomes a Buddhist goddess, apparently becaue he upholds the Rule of Law

On the first official visit by a head of state to Ivolginsky, a Buddhist monastery in Buryatia, eastern Siberia, President Medvedev was hailed as a Buddhist goddess, Tara.

Tara is not much known in the land that is the birthplace of Buddhism (India) but Tara is thought, at least by some devotee, to be the mother of all Buddhas. She is considered to typify compassion and serenity, which Medvedev is thought to embody - at least according to the spiritual leader of the monastery, Pandito Khambo Lama Damba Ayusheyev.

When asked about the president’s spiritual elevation, the Pandito is reported, by the the Interfax news agency, to have responded: “It’s very hard to understand this for non-Buddhists and even for some Buddhists too.”

Yes, very hard indeed.

Russia’s Buddhists consider all the country’s leaders to be an emanation of the female Buddha - a belief that dates back to the 18th century when the Empress Elizabeth officially recognised the religion.

According to the Pandito: “The leader of the country is a man who bears very serious responsibility for others. The Buddhists must support him, identifying him as a deity.”

Well, what are gods and goddesses supposed to do? Fulfil your wishes, of course! So it was entirely appropriate for Medvedev to promise financial support to the Buddhist community and to announce that he will introduce Buddhist chaplains to the Russian Federation’s army.

The latter action may make him popular among the nation's 0.7% who are Buddhist, but is likely to make him much less popular among the nation's 63% who are Russian Orthodox. After 70 years of thorough Marxist propaganda, only 16% say they are non-believers, according to a poll by the Russian Public Opinion Research Center.

So why has President Medvedev accepted the role of a Buddhist goddess? According to Geoffrey Bamford of the Oxford Centre for Buddhist Studies:“It’s a psychological thing that doesn’t quite have a parallel in our language. It’s philosophically based. Saying he is a goddess is a bad translation.For Buddhists he represents a bundle of qualities on the contemporary political scene. Identifying him as White Tara is a shorthand way of visualising that bundle of qualities in order to summon them up in oneself. Medvedev’s thing is the rule of law – he’s a lawyer. He produced a remarkable state of the nation address in November last year in which he anatomised the difficulty of making a modern state out of Russia. It was basically about being a law-based society and this, I think, is the characteristic that the Buryats and the Kalmyks identify in him when contemplating the White Tara.”

Interesting philosophical and practical question: Is accepting the role of a god in line with promoting the rule of law?

Another interesting question: Which societies have been most committed to the rule of law?

Readers of my blog will be aware that my answers to these questions are, respectively, "No", and "Northern Europe and North America". Sphere: Related Content

Are we anywhere near recovery yet?

That the answer is "No" is confirmed by the latest figures from the Federal Deposit Insurace Corporation:

All the institutions insured by it together reported a net loss of US$3.7 billion in th quarter ending June 2009, even though they had a net income of US$7.6 billion in the previous quarter.

Provisions for loan losses totaled $66.9 billion in the 2nd quarter this year, an increase of $16.5 billion (32.8%) year-on-year.

Extraordinary losses stemming from writedowns of asset-backed commercial paper totaled $3.6 billion.

Noninterest expenses were $1.7 billion (1.7%) higher year-over-year - though it must be conceded that this may have been primarily due to increased FDIC deposit insurance premiums.

Indicators of asset quality continued to worsen during Q2.

And so many people still want to believe not merely that we have reached the bottom of the cycle but that things are actually improving! Sphere: Related Content

Wednesday, August 26, 2009

Are we at the bottom of the crisis?

It is difficult to say whether we are.

While most "authorities" are happy to have announced teh end of the crisis, we need to keep in mind the following factors:

1. I have commented earlier that there is too much printed money in the world, as a result of over-printing over the last 20 or so years. This money acts as a natural booster of the economy, because no one who holds money likes to keep it under the mattress so to speak. In other words, there is a systemic "push" to invest, and everyone has been indoctrinated in the last 20 years to believe that equities will always outperform other forms of investment "in the long run" (whatever that is). So even Pension Funds which should have an interest in stable long term returns, and therefore should invest largely in bonds, tend to invest largely in equities. Beliefs about where the money should go act as a self-fulfilling prophecy - money goes to where people believes it should go, creating a demand for equities that is systemically too high (i.e. higher than it should be, given fundamentals). That is what explains "animal spirits" in the stock market.

2. We can therefore say that the crisis is over not when investors rush into the stock market (which has happened, and will happen several times before the crisis really eands), but when real expenditure returns to the market. That is mostly cosumer expenditure historically, but there is no reason why capital expenditure should not take its place. In fact, tax incentives to increase capital expenditure in relation to green technologies would be the most intelligent way of increasing consumption, but no one is doing that in any substantial way at present, leaving it to private consumption to drive the economy. What about government expenditure? It is of course a significant factor at present, but it can never be large enough to really drive the economy, first because it is not large enough in relation to private and capital expenditure and because it usually takes too long and is usually not productive enough (governments tend to spend on defence, infrastructure and social services). Briefly, government expenditure is up practically all over the world, but capital and private expenditure is not up - and till that improves the crisis will not be over.

Private expenditure tends to be driven by three factors (beliefs, employment levels and house prices). The beliefs can be manipulated by government propaganda and stock prices. Employment figures can be manipulated by governments to a certain extent. House prices tend to be relatively objective, though of course governments can and do intervene in the housing market.

We have been told that employment will not pick up for some time. But that is simply what the US government believes, or would like us to believe.

As for housing, The S&P/Case-Shiller 20-City Composite Index fell is still declining, having fallen 15.4% y/y in June 2009 after declining 17.1% y/y in May.

By June 2009, average home prices were at similar levels to what they were in early 2003.

From the peak in mid-2006, the 10-City Composite is down 32.5% and the 20-City Composite is down 31.4%. If one agrees that the peak was hugely exaggerated, the questions are: (a) has the decline now reached the lowest it is going to reach? and how long will it be before there is a sustained (even if slow) rise in price of say 3% or more a year? My answer to (a) is "No", though I do not know how much further house prices have to fall (I hope not a lot). My answer to (b) is that no one knows, not even governments who have made public their "belief" that house prices, employment levels and the economy in general will start coming out of the recession in 2010.

For the reason that I mentioned at the start of this post, too much money sloshing around the system creates systemic distortion and unpredictability. It can (as it has already) cause an apparent end to the crisis very much sooner (or very much later) than 2010.

My view continues to be that we will continue to yo-yo along something like the bottom, reaching marginally lower levels (which will be systemically discounted - at least, so I hope!) and touching marginally higher levels (which will be systemically heralded as the end of the crisis.

Certainly it helps if large numbers of business leaders and ordinary people behave as if the crisis is over.

But watch the fundamentals I mention above.

Governments have begun to put many sensible things in place, which I have been arguing for, and which are helping to resolve the crisis, but we still have the unresolved question of toxic assets - all that we have done is move them from private hands to the hands of governments. In one or two small countries, we see encouraging signs that at least some of the toxic assets are no longer toxic. Assets become less toxic or eventually beneficial as the economy improves, but become more and more toxic as the economy deteriorates. It is only as the bulk of toxic assets in the world economy as a whole are sorted out that the fundamentals will have been addressed sufficiently. Sphere: Related Content

Thursday, August 20, 2009

The idiocies of Lists and Rankings

Forbes magazine (USA) has just a Special Report listing "The 100 Most Powerful Women".

According to this, the most powerful woman in the world is Chancellor Angela Merkel of Germany. This is possibly true.

The 2nd most powerful woman is Sheila Bair, the Chairman of the United States' Federal Deposit Insurance Corp - also possibly true.

However, the 3rd most powerful woman - hold on to your seat! - is Indra Nooyi, the CEO of PepsiCo. This too might be true, except that, down at number 13 on the list, BELOW Cristina Fernandez, President of Argentina, is our own Sonia Gandhi!

Well, Forbes is an American magazine, so I guess their perspective must be that the further away geographically from the US one is, the less important one must be! Sphere: Related Content

Monday, August 17, 2009

The latest from the Global Association of Risk Professsionals

In relation to my review of Dr Willi Brammertz's book, a friend draws my attention to last week's Newsletter of the Global Association of Risk Professionals (GARP), which had a stunning bit of news:

GARP has now moved to accepting that standard contract types need to be defined for credit derivatives. It also now accepts that higher capital charges need to be made if standards are not followed. You may recollect that these are two key proposals made in Dr Brammertz's book.

The new GARP view is a bit of a revolution for the organisation - even if, in light of the crisis, the change of heart is not wholly unexpected.

At present, the GARP proposal is limited to credit derivatives - but it should be applied to all financial contracts, as Dr Brammertz quite correctly argues in his book. Sphere: Related Content

Iran is apparently now going to have WOMEN in the Government!

Well, to be precise, what is being signalled is women members of the Cabinet:

Iran's president, Mahmoud Ahmadi-Nejad, said he would nominate at least three female ministers to his cabinet, reaching out to the women who have been particularly active in post-election protests against his government:

Even if it is a result of mere politics of the most cynical sort, the move should be welcomed by all people of goodwill as a dilution of Islamism (which, by the way, is a heady but contradictory mixture of Koranic, traditional and reactionary views).

Most importantly, it should be welcomed as signalling a change in the oppression of women that has occured again in newly-Islamised societies - think, for example of the re-suppression of education for women in Afghanistan and of acid being thrown on women who are not dressed in the traditional burqa.

If women are in the cabinet in Iran it will be more difficult to suppress women's rights not only in Iran but in all the places where Iran's influence runs, from Lebanaon to Afghanistan (and much wider!). Sphere: Related Content

Saturday, August 15, 2009

Are all religions the same?

In response to one of my posts, a friend writes: "All religions are the same. It is the belief which counts. Believe in Him and you can never fail".

I could respond with material to fill a book, but I'll confine myself to the following:

Dear A

Your sort of comment is often heard nowadays, but it doesn't bear examination.

First, not all "religions" accept that there is a "Him" (or "Her" or "Her/Him"). Buddhism, Jainism and Vedanta (if you consider them "religions") believe either in an "It" or finally in nothing, depending on which version of these you accept.

Then, it is not merely a matter of belief. In Judaism and Islam, e.g., what is expected is that you commit yourself to quite specific actions too - e.g. Ramadan or Shabbat or eating or not eating certain kinds of food or….

Finally, "believe in Him and you can never fail" is a modern corruption of traditional religions, most of which hold that you will reap the reward of your good deeds in the NEXT life though in this life you may and probably will have HUGE problems.

"So what?", you may retort, "The average person lives on the basis I have indicated and scholars may go hang".

Well, belief systems have consequences not only at the individual level but also at the social, economic and political level. That's why India is still so corrupt and backward while Northern Europe was cleaned up by the Protestant Reformation, with an impact slowly in other parts of the world due to the social, economic and political progress that resulted there being copied by other parts of the world - including our own country.

The attempt to produce the shoots without the roots is interesting and can even be encouraging, but roots have to be put down sometime if you want growth to be sustained. Sphere: Related Content

Friday, August 07, 2009


Having been a vigorous atheist from the age of 8, I became a follower of Jesus at the age of 14. Ever since then I have tried in my feeble and failing way to invest at least some energy in making the world a little better. That had huge consequences for my family, including having to leave the country I love. However, even in the more congenial West, one is always conscious of how deeply unfashionable and unrewarded it is to be engaged even partially in something so quixotic. From time to time, one gets discouraged.

Then I call to mind the story of the discouraged prophet who complained to God that he was the only prophet left unkilled by a wicked queen and that even he was being hunted. The prophet is told that actually seven thousand people were still faithful to God. In the Bible, three symbolises God, seven symbolises perfection, and ten symbolises plenitude - so you do not need me to spell out what ten times ten times ten indicates. In another story, the prophet Elisha asks God to give his discouraged servant a momentary glimpse of what is really going on, so that he is encouraged.

An experience like those happened to me yesterday, when I received the following mail from someone who I had never even heard of earlier:

"I teach both an undergraduate course in organizational behavior as well as an MBA course in leadership and organizational behavior at Rowan University in Glassboro, New Jersey.

"Ever since I heard your program on NPR's Speaking of Faith on “The Gods of Business,” I have begun these courses by asking the students to listen to that program and then write a three-page “working note” (based on the idea originated by A.K Rice at the Tavistock Institute).

"It has been a wonderful way to get business majors to take seriously the relationship between their goal of learning how to make lots of money and their responsibility as citizens of the human community. They respond thoughtfully and it sets the stage for a usefuI semester. I thank you and Krista Tippett for the conversation."

Dr. Thomas Michael, who is Professor Emeritus at the Rohrer College of Business, goes on to say "I intend to begin the MBA class with the program again this September" and then to ask some questions that I was happy to try to answer.

Dear Dr. Michael, thank you. I do not know if you realise it but in Hebrew, which is the language from which your surname comes, "Michael" means "Who is like God". Because Michael is the name of one of the chief angels in the Bible (as well as in the Koran), I take it that the name indicates that, of all created beings, Michael is most like God. In the two or three glimpses we are given of him in the Bible, Michael both works actively himself for God, and assists and encourages others in their work.

Dear Dr. Michael, I have no idea whether you put your trust in God or do not even believe that He exists. But in working for ethics and responsibility you are acting like the angel - indeed like God, as God Himself directly encourages us and requires us to be...and you may not have realised this either, but you encouraged me like your namesake angel yesterday. Sphere: Related Content

Thursday, August 06, 2009

How can the economy grow if consumption does not pick up?

What is the basic problem with the global economy today?

I have made my view quite clear in this blog: unfashionably, I maintain that the fundamental problem is still toxic assets - and, while a temporary reprieve has been provided by governments being persuaded by our elites to spend an unprecedented amount of tax money, the result is the economic decline is merely slowed or halted, at the expense of massive public liabilities that will haunt the relevant countries for decades to come.

And "slowing down or halting the decline" is not the same thing as an economy that is growing healthily!

In the global economic model that we have at present, economic health depends entirely on consumption.

The US has been the primary consumer in the world, with private consumption in 2008 amounting to some US$10 trillion, which accounted for 16% of global output. By contrast, private consumption in the EU, even though it is a much more populated region, was about US$9 trillion; and the largest population group in the world, Asia, provided less than US$5 trillion of consumption. This was already in the middle of the crisis, with spending in the US and Europe slowing from their usual highs, and spending in Asia being artificially boosted by government actions.

US and EU consumption is continuing to slow due to more people being "let go" from their jobs, and those who have money becoming much more careful about when and how they spend.

Will Asia be able to take up the slack? As far as I can see, not in terms of private consumption. Even in the case of governments with cash, e.g. China, they have not so far succeeded in encouraging private consumption, rather the governments has spent money on things such as highways (which is of course very good, and which does indirectly put money in the hands of employees).

So we have two choices: either re-expand global consumption with all the ecological consequences, or we can re-orient the global economy towards a more rational and sensible model - on which I have written at several points in this blog and in various articles. Sphere: Related Content

Wednesday, August 05, 2009

China's "Economic Growth Story"

Readers of my Blog are aware that I have for years been skeptical of the figures that are routinely produced regarding "China's economic growth".

Naturally, I have no doubt that economic growth is taking place. My skepticism relates only to the kinds of figures that are bandied about by officials as well as non-officials.

Now the Financial Times newspaper becomes the first of the respectable Western periodicals to join the skepticism:
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Sphere: Related Content