More "pay for NON-performance" or employing the right kind of people?

It is quite striking that almost all new hiring at Board-level continues to be for higher and higher sign-on bonuses and for bigger and bigger salaries, even BEFORE the person has proved herself or himself in her or her new job!

The British call this the "fat cat" syndrome.

This morning I had reason to recall the research done by Professors Margit Osterloh and Bruno S. Frey (both of the University of Zurich's INSTITUTE FOR EMPIRICAL RESEARCH IN ECONOMICS) which said:

"Corporate scandals are reflected in excessive top management compensation and fraudulent accounts. These scandals cause an enormous amount of damage, not only to the companies affected, but also to the market economy as a whole. As a solution, conventional wisdom suggests more monitoring and sanctioning of management. We argue that these efforts will create a governance structure for crooks. Instead of solving the problem, they make it worse. Selfish extrinsic motivation is reinforced. We suggest measures which clash with conventional wisdom: selecting employees with pro-social intrinsic preferences, de-emphasizing variable pay for performance and strengthening the participation and self-governance of employees. These
measures help to increase intrinsically motivated corporate virtue and honesty"
(published in: Ganna Grandori (Ed.) (2004). Corporate Governance and Firm Organization, Oxford; 191-211).

Apart from their own work in that chapter, here is just one piece of research quoted by them: "it is ...difficult to document that the increase in stock-based incentives has led CEOs to work harder, smarter, and more in the interest of shareholders.” (Murphy, K.J. 1999. Executive Compensation. In Ashenfelter, O., & Card, D. (Eds.), Handbook of Labour Economics: 2485-2563. Amsterdam: Elsevier) Sphere: Related Content

Response to my tweets about the situaiton in Libza

On Saturday, I twittered about the situation in Libya, drawing attention to a story that highlights not only the war on Muslims in Libya by Islamists, but also the desecration of war graves by Islamists in Libya, and the incredible ignorance of so-called "experts" in the UK, the USA and I suppose the West generally.

For the story, click http://www.lapidomedia.com/libya-war-graves-horror-benghazi

In response to my Tweets, the following response came in to me from Bradley Olson: "US / UK colonialism hand in glove with Wahhabi folks is working rather well in Saudi, I expect they hope they can do a similar thing in the wake of the "Arab Spring"". Sphere: Related Content

Switzerland may become the first country in the world to have only white money

Every country has a certain amount of black money, however small or large.

Under new rules proposed by Switzerland’s Finance Minister Eveline Widmer-Schlumphttp://www.blogger.com/img/blank.giff, Switzerland could become the first country in the world to have only white money.

Swiss banks would be required not only to obtain a declaration from their foreign clients confirming that their assets held in Switzerland are correctly taxed, but Swiss banks would also be required to investigate cases of suspected tax evasion, or cases involving, for example, cash payments from an unknown origin.

How this will fully work in practice remains to be seen, but it has actually been increasingly the case anyway (see http://www.wolfsberg-principles.com)

Interestingly, this is so little known outside the world of banks that Wikipedia doesn't even have an entry on it.

For example, the concept of "politically exposed persons" (PEPs) was invented in Switzerland and popularised because Switzerland took it to other parts of the world, so that PEPs now find it increasingly difficult to park their money abroad.

The Swiss Finance Minister's proposals have been debated widely in the country and, so far as I can see, there is no opposition to them at all, though some people are concerned that Switzerland should not move unilaterally too fast. Of course, if Switzerland moves slowly and waits to have global consensus, that will still mean that Switzerland will have led the way, but it is better for it to move fast and become the first country to have such legislation for all clients.

There is a similar model already in operation in Liechtenstein, but that applies only to British clients.

Why is there so much support for the proposals from the Swiss banking community? Because Switzerland still has more of a moral sense from its Protestant heritage, and because the Swiss are convinced that, in a genuinely level playing field, they can outperform competition from other countries in terms of banking and financial skills, so that foreigners will continue to park at least a part of their assets here.

In fact, there is plenty of evidence that many people were earlier not putting their money into Switzerland at all, because of the popular suspicion that there was still huge amounts of black money here. Of course, there were always people who have declared their money and paid their taxes who put their money in Switzerland, but with the decline of suspicion regarding Switzerland, many more such people are feeling encouraged to put their money in Switzerland .

Why would they do that? Because commonsense tells you that it is not wise to have all your eggs in one basket. So white money will continue to flow into Switzerland on the best possible and only sustainable basis: portfolio diversification, currency diversification, political stability, and sheer quality of expertise and service.

In fact, many Swiss banks feel that much more money will flow into Switzerland once it becomes clear that all the money here really is white.

Meanwhile, the US is now (or soon will be) the largest holder of black money in the world. Who is going to force the US into cleaning itself up? Sphere: Related Content

Research findings - on research!

Readers of this blog will be aware of my skepticism regarding "science", "research", and so on

Therefore I could be expected to be pleased to read the results of RESEARCH (!) that "proves" that research is not always reliable: http://pss.sagepub.com/content/22/11/1359

However, as this is a piece of research, how do we know whether these researchers too have not deluded themselves?! :) Sphere: Related Content

Ambassador Dr. Benoît Girardin's book: Ethics in Politics Why it matters more than ever and how it can make a difference

Ambassador Dr. Benoît Girardin's book: ETHICS IN POLITICS: WHY IT MATTERS MORE THAN EVER AND HOW IT CAN MAKE A DIFFERENCE is the latest publication in the Focus series from Globethics.net, the global network on ethics, which is based in Geneva.

The launch event is on Thursday 8 March at the Ecumenical Centre, Salle 2/3
150 Route de Ferney, Grand-Saconnex, Geneva from 12:30-13:30 (with Snacks: 14:00)

Moderated by Prof. Dr. Christoph Stückelberger, Executive Director and Founder of Globethics.net, the launch event features speeches also by Ambassador Walter Fust, President of the Board of the Globethics.net Foundation (who will Present the Declaration for Ethics in Politics) and Dr Colum de Sales Murphy, President of the Geneva School of Diplomacy and International Relation (who will comment on the book and the declaration, as well as the challenges of “ethics in politics” in the training and development programmes for diplomats).

The author of the book, Ambassador Benoit Girardin, worked for many years at the Swiss Ministry for Foreign Affairs (for example, as Ambassador in Madagascar and Delegate of Development Cooperation in Romania, Pakistan, and Cameroon). He is a lecturer in ethics, political philosophy and international relations at the Geneva School of Diplomacy and International Relations.

Ambassador Walter Fust was Ambassador, served in many high level functions for the Swiss Government, and was for a long time the Director General of the Swiss Agency for Development and Cooperation.

Dr. Colum de Sales Murphy, served in the field of peace negotiations for the United Nations and the European Union and in several wars, among others in Bosnia. He founded the Geneva School of Diplomacy in 2003.

The invitation to the launch event says, among other things>

"The book and the declaration are an affirmation: Yes, ethics in politics is possible – and it pays off. It is not a naïve dream. The declaration includes “Principles of using power” and “Cardinal ethical values in politics”. The declaration and the book adopt a pragmatic approach, testing whether and how value-orientation can make a difference in politics. The book singles out four ethical values as fundamental: limitation of power, effectiveness, accountability and justice. It develops a global and inter-cultural perspective and presents practical cases, with criteria for dealing with dilemmas, based on (real life) experiences.
In a globalised, interdependent world of pluralistic societies, ethics in politics becomes a global ethics in politics which reflects the commitment of Globethics.net". Sphere: Related Content

Millenarianism versus Lutheranism and Calvinism (and the parallel with Vedanta in the case of India)

At an academic conference the other day, it struck me that the fascination with Millenarianism in academic work is a way of focusing on the quirky and the extreme in order to avoid confronting in theoretical work the massive and indeed fundamentally transformative impact of Lutheranism and Calvinism.

This is somewhat parallel to the way in which an obsession with Vedanta comes in the way of adequate study of the other 5 branches of "modern orthodox" Hindu philosophy, let alone of Assertive, Dalitbahujan, Shakta, Vashnava, Vedic and other schools and spiritualities. Sphere: Related Content

Visit to musical Estonia

I've just returned from a week of lectures and meetings in Tartu (at the University) and Tallinn.

This was my first-ever visit to the country, and was part of the programme for Heartbeat Tallinn (www.2012.ee).

Freezing weather right now but lovely people, and I can imagine that, once the entire country starts blooming in the Spring, it must be stunningly beautiful through to the Autumn.

I was prepared for the worst of Eastern European type food, specially for a vegetarin asuch as myself, but it surprisingly has excellent food, even for a vegetarian.

Nowadays, as my wife is able to join me on some of my excursions around the world, she enjoyed the oldest medieval town centre in the world, and the excellent handicrafts (I was able to join her briefly during a break from work on one afternoon).

Quality versus price probably the best in the world.

Certainly for everything to do with linen and wool, she says.

What were my lecture topics?:
- "The Current Global Crisis: Why Was Getting Here So Easy and Why Is Getting Out So Hard?"
- "Contemporary Changes and Timeless Values: The Challenges of Business Ethics in a Globalising World"
- "Why Businesses Don't Prosper: The Most Common Reasons"....

At the Economics Seminar, where I spoke on "Business Conduct: The Role of Traditions, Religions, Values and Ethics", it was most interesting to hear Hardo Pajula, the well-known SEB Economist on "The Effects of the Loss of Transcendence on the Contemporary State", and Professor Meego Remmel on "Integrity As A Complex Virtue".

For the ensuing panel discussion, chaired by Janek Mäggi, CEO of Powerhouse, we were joined by the Estonian political analyst, Ahto Lobjakas.

I was inspired by watching the 2006 film "The Singing Revolution" on how this tiny nation of 1.3 million people, without firing a single shot and without shedding a single drop of blood, became the first country to declare independence from the USSR, to be followed by mighty Russia and other countries, thus ending the USSR.

Why was this small group of people able to do all this?

Extraordinarily, because of the power of music to hold the country together through 50 years of Soviet "Russification" and earlier years of Nazi oppression.

I'll be happy to return to Estonia any time.

If you don't know the country, it is definitely worth a visit.

And, if you are planning to visit, try to time it during the high week of Heartbeat Tallinn, which will be July 24 to 29 this year. Sphere: Related Content

Why did Russia and China veto the UN resolution against Syria's Bashar?

Russia and China have, as expected, vetoed the U.N. draft resolution backing the Arab plan calling on Syrian President Bashar al-Assad to resign.

Why have Russia and China done so? Because birds of a feather flock together -robbers, thieves and murderers have to support each other.

The Russiana nd Chinese regimes fear that if such a resolution goes from the UN re Syria today, it could come from the UN to Russia or China tomorrow.

Further, Russia and China calculate (correctly) that vetoing the UN resolution will make them closer friends with Syria while Bashar's regime lasts.

The question is how long the regime will last.

And the problem with such realpolitik-based decisions is that whenever the Bashar regime falls, Russia and China will find themselves the more firmly and completely out of Syria.

The US was apparently "disgusted" by the vetos. But what did it expect? Russia and China should never have been admitted to a body whose basic values and constitution they do not respect. Sphere: Related Content

Crunch time for Greece - and for the EU - and indeed the world economy

The current state of play is at: http://www.reuters.com/article/2012/02/04/us-eurozone-idUSTRE8130TF20120204

so the question is whether Greece will pass the needed legislation by the end of this month

somehow, I think they are going to continue prevaricating till the last minute

and then we will see whether they do get the legislation through

I think that then they will because they have to - the alternative (bankruptcy) will be even worse for them

However, I regret I don't know Greek culture well enough to be able to say whether they belong to that class of people who are prepared to disadvantage themselves in order to do harm to someone else.

If Greece does go into default at the end of this month, expect the Euro to go into a tailspin (so far as markets are concerned - the Euro will recover, but it will be considerably damaged and weakened), and expect a concomitant impact on the world economy.

If Greece does put the required reforms in place, then expect possible political and social upheaveal in Greece, but an uptick in the Eurozone as well as in the world economy. Sphere: Related Content

A contrasting view of China

I always try to be fair and objective.

So here's a view of China that contrasts with mine.

It is from the highly qualified director in McKinsey's Shanghai office, Gordon Orr http://e.mckinseyquarterly.com/128a00052layfousubqp4jiiaaaaaa7vxpx3ss7mj3iyaaaaa Sphere: Related Content

prognoses and prescriptions for the year

If you bothered to read the text of the speech which I was invited to deliver in the Autumn at the Arizona Council on Economic Education, you will not have been surprised at the upturn in the US economy since then: US economic data has performed in line with my expectations and ahead of what was generally expected. As a result, stock markets are generally up, and even European sovereigns have borrowed money successfully in spite of the propaganda barrage against the Euro emanating from the US, with consequent fears about the Euro on the part of the deceived or ignorant.

In that speech, I pointed out that the biggest factor holding back the US economy was lack of confidence.

That lack is primarily due, I said, to uncertainty regarding the rules of play. The result is that big companies are still reluctant to hire, and have huge amounts of cash doing little (though some smaller companies have begun to move). Purchases of capital goods are stalled even though the cost of borrowing is so low, presumably because of expectation that prices will fall lower. Consumers are not splashing their money about either.

In a more recent post, I pointed out that people were paying the Governemnt of Denmark to keep their money for them. This is also true of US, where 10-year indexed bonds are at present losing investors about 15 basis points.

In other words, some investors are putting at least part of their money to the most secure place they can, because they think they will lose MORE money by putting their money elsewhere.

In Britain, the situation is even worse: some people are giving at least part of their money on a loss-making basis not for 10 years but for 30 years.

So, is real growth going to resume this year? Am I right or are the doomsayers right? Actually, both are right. The economy IN THE U.S. has begun to turn around BUT everyone knows that is not because the basic issues have been addressed. Nor is it because the ground rules are now clear. It is only because money has flowed back to safe havens from emerging markets since the Autumn.

The good news, for the US, is that money will continue to flow back to the US (though of course there will be blips along the way).

The question continues to be how well the US will use this opportunity. At present, I see little sign that the US is using the opportunity well.

However, as long as the US does not do anything silly, the opportunity will continue to be open - at least till the next set of elections when an improving economy will help the Democrats, though a long period of only slow improvement, if it makes America impatient (and America is probably the most impatient country in the world), may make the election anti-incumbent. I suppose the outcome depends on the extent of the recovery in the US, as well as on what hits the world and the responses to those hits (foreseeably in relation to China and Iran at present, though there are always unforeseeable things). Sphere: Related Content

What China will do next to try to shore up its ailing economy

Zhu Baoliang, chief economist at the State Information Centre, a government think-tank, has apparently signalled the probability that China will cut taxes and slash banks' reserve requirements to try to support slowing economic growth http://www.reuters.com/article/2012/02/02/us-china-economy-policy-idUSTRE8110NL20120202

As the regime is flush with cash (at least as far as we know), cutting taxes is a smart move.

However, reducing banks' reserve requirements is a palpably false move since there is already a lot of bad debt in the system, and such a move will make it worse - and thereby make Chinese banks even more vulnerable than they already are.

As growth declines to 8% or less, a lot more capital will flee China - making the situation even more difficult for China to handle. Sphere: Related Content

The state of play regarding one key aspect of reforms that would provide a basis for growth

One of the key factors strangling growth at present is that the basic rules of play are not clear.

I hailed the Dodd-Frank Act as providing one such basic rule of play, on the basis of which growth could be soundly resumed.http://www.blogger.com/img/blank.gif

But as its requirements have played out there has been intense action against each of those requirements by exactly the organisations that created the crisis.

Occasionally, I have commented on the tussle between those who want to implement the requirements of Dodd-Frank in the spirit in which they were intended and those who would like to dilute them as far as possible.

The current state of play regarding the key matter of the Volcker Rule is at: http://www.reuters.com/article/2012/02/02/us-financial-regulation-volcker-idUSTRE8112AU20120202

The crux of the matter is that all the struggles since then, and all the compromises and exceptions that are now being included, which have resulted in the 298 pages of the current version, have apparently (and predictably) simply muddied the waters.

In general, the longer the draft of a regulation, the more exceptions it is trying to allow while also trying to safeguard at least something of the letter of what was originally proposed.

All that fudging ends in - guess what? - a fudge.

According to the Reuters report to which I refer above, "the divide comes down to a natural tension between attorneys writing the comment letters and traders whose activities will be curtailed". The point of the Volcker Rule was precisely to curtail those activities.

Further, the report says the split is about "the best approach to make sure the ban on proprietary trades doesn't also capture trades that banks make for their customers' benefit, known as "market making", or firms' own portfolio hedging". The Volcker Rule was clear that banks should not be making trades for customers' benefit (that should be done by other entities).

And hedging a portfolio is a bit of nonsense.

The portfolio is itself meant to spread (or hedge) risk. If that does not spread the risk sufficiently, something is wrong with the portfolio, and it is in principle wrong to then go to someone else to try to take whatever risk is there in that portfolio off you.

Portfolio managers are supposed to be paid for their expertise in spreading risk by portfolio methods.

If the managers are not good enough, they should be fired - not insured.

If you do not fire incompetent portfolio managers but seek to insure them instead, you are asking an insurance company, which does not know the portfolio intimately, to second guess someone who does know the portfolio intimately.

In principle, only an idiotic insurance company would take on such insurance.

Yet we know that insurance companies DO take on such insurance - on very large scales. And when you think of such insurance companies, remember AIG.

In America, the favourite way of avoiding genuine debate is by labelling something "communist" or "leftist".

The reporter gives away Reuters' bias by saying that the Volcker Rule was "hailed by leftists" and goes on to say: "the Volcker rule has been excoriated by the right, who warn it could take liquidity out of the market and make it hard for firms to raise capital". That was, and is, the whole point of the Volcker Rule.

Difficult as it is to think about this in the current state of the global economy, there are some kinds of liquidity that are bad.

And certain kinds of firms should not be able to raise capital too easily.

The scale of the bust was primarily because too much capital was going into speculation. Not enough capital was going into productive uses.

Capital should go to productive uses, not to speculative uses.

In other words, production should be favoured over gambling.

That is essentially what the Volcker Rule is about.

If we want to take back Capitalism from Casinoism, then it is critical to back the Volcker Rule, not fudge it.

If the regulators proceed to incorporate the sort of "discretion" that is being suggested, to be exercised by the entities that created the crash, then it is clear what will happen soon enough - another crash. And an even bigger crash. Sphere: Related Content

The current state of robotics in Japan

Readers may recollect that I had publicised, some years ago, the year 2012 as the date on which Japan would start releasing the next generation of "intelligent robots" (some of which I previewed in those posts).

I don't see any sign that any spectacular release is planned for this year, though it could be that the releases may happen without much fanfare - or that the launch has been delayed by the crisis which started in 2007. However, there is lots going on the robotics industry in Japan.

Japan is biggest producer of robots in the world. For example,some 290,000 industrial robots were operating in Japan last year, 60% more than in its closest competitor, North America. Japanese companies are more active in certain fields than in others - e.g. houcsecleaning and nuclear sites have not been among their priorities so far. However, at the Fukushima Daiichi nuclear plant, it was Japanese robots that entered the No. 2 reactor building (while American ones entered building no. 3). The Japanese robots, called Quince, were developed by the Chiba Institute of Technology. Not only is Japan the overall leader, but it is also launching new initiatives to become the world leader in segments, verticals and niches where it is not yet number one.

While Japan anticipates going into the red in terms of its trade balance this year, I anticipate that it will move back into the black as soon as the new generation of intelligent robots is properly in the market.

The most interesting robots produced recently include:

1. The Wedding robot:
The wedding of Professor Satoko Inoue and Satoko Shibata was presided over by I-Fairy, a 4-feet high robot, valued at 6.3 million yen and made by Kokoro Co. Ltd. I-Fairy is able to recognise people and imitate natural movements while reciting pre-recorded lines.

2. The Singing and Dancing Fashion Model:
Fashion designer Yumi Katsura chose Miim, a 5-foot 2’’ robot to model a wedding dress on the catwalk as the finale for her design showcase. Miim is walks the catwalk and pauses at the end. She not only talks, walks, claps, waves, smiles, frowns, sings, exercises, and dee jays, she can even hold her own in a press conference!

3. The Perfect Companion:
Created by computer specialist Le Trung, Aiko is a pretty robot who can cook, clean, do the accounts, read newspapers and speak 13,000 sentences in English as well as Japanese.

4. The Sommelier:
NEC System Technologies and Mie University developed a ‘wine-bot’, a 2ft robot sommelier that can ‘taste’ wine and provide customers with accurate identification of the wine. Apparently, the robo-sommelier can be programmed to provide personalized wine recommendations.

5. The Dental Patient:
Simroid is a robot designed by Kokoro and Co. Simroid looks like a small Japanese woman and has a full set of teeth with sensitive virtual nerves. Designed for dental patients to practice on, Simroid is able to yelp if the dental students touch any nerves.

6. Kobot is a three-wheel single-seat electric scooter that responds to a smart phone and, for example, folds itself into a space of about one cubic meter for storage.

7. The Hairdresser:
Panasonic created a hair-washing and drying robot with 8 fingers and a 3-motor mechanism.

8. The Actress: Geminoid F is a robot actress that has performed in a play directed by Japanese director Oriza Hirata, alongside human actress Bryerly Long. Geminoid F was created by Hirohoshito Ishiguto and is scarily lifelike

9. Dual home cleaning/cinema:
RIDC-01 is a $85,000 robot designed to clean houses. Once finished, RIDC-01 has a projector and can be converted into a home cinema to project DVDs.

10. The Ladder-Climber:
Osaka-based industrial equipment maker Muscle Corporation and a few other Japanese companies have developed a humanoid that can climb up and down ladders all by itself. The so-called “Dream Robo” was initially showcased during the Shanghai Expo 2010. Now it stands 1.4m high, weighs about 30kg and moves with the help of five motors that are built into its body.

11. The Farmer:
You may not believe it, but robots are being sent in to try and save Japan's ravaged agricultural production. After the 9.0-magnitude earthquake and subsequent tsunami that devastated Japan in March 2011, the government is planning to spend $52 million in the next 6 years to place robots on farmland decimated by floodwater from the tsunami. The robots will work the fields and then box the crops after harvest. Whether anyone will want to buy and eat what is boxed is a different kind of question. Sphere: Related Content

Apologies

I apologise for having been "off" for a bit but I was travelling, and my computer was on the blink.

The idea is to resume some service as of today, and full service on Feb 1. Sphere: Related Content

What happens to philanthropy during a recession?

Interestingly, IN THE USA, it goes UP!

http://www.bauer.uh.edu/rexdu/how%20economic%20contractions%20and%20expansions%20affect%20expenditure%20patterns.pdf

The above link takes you to the text of an article based on results of a substantial study (6000 households over 20 years - 1982 to 2003 - which experienced three recessions).

The article is published in The Journal of Consumer Research, by Wagner A. Kamakura (Ford Motor Company Professor of Global Marketing, Fuqua School of Business, Duke University) and Rex Yuxing Du (Hurley Professor of Marketing, C. T. Bauer College of Business, Houston University).

What does the data show? That: recessions shrinking US GDP by 2% caused some US consumers to increase charitable giving by 32% (!!!), while others increased their tobacco consumption by 16%.

As regular readers of my Blogs will know, I have followed philanthropic giving for some time, and this finding is astounding.

Americans really are rather special people. Sphere: Related Content

If interested in textiles from India

On my visit to India this year, in the cold of Delhi, I am reminded that one of the most honest and reliable exporters of wollens, carpets, etc from India is Mr Om Prakash Kalia, whose office is very near the Golden Temple, telephone: +91 9988 245 000.

I have known him for some decades, and can call him a real friend. And I suppose I should make it clear that I have no share in his business, and benefit financially from it in no way. Sphere: Related Content

Assessment of Global Risks 2012 by the World Economic Forum

If you have not yet read the WEF view for this year's Global Risks, I encourage you to read it: http://reports.weforum.org/global-risks-2012

Here are the top five clusters of risk (which they call risk-related Centres of Gravity):

•Chronic fiscal imbalances (economic)
•Greenhouse gas emissions (environmental)
•Global governance failure (geopolitical)
•Unsustainable population growth (societal)
•Critical systems failure (technological)

I am surprised to find "unsustainable population growth" included here, as it is fairly clear that global population growth will start declining shortly. The biggest societal risk is surely the rise of a worldwide "me" generation, that cares little for wider society and does not want to get involved in politics, leaving the first field to a few do-gooders, and the second field to liars, thieves and murderers. Sphere: Related Content

The Druid forecast versus mine for 2012

A cheerful bit of news from a local newspaper in the UK apparently says: “2012 will be a great year... Druids... have high hopes after the Sun shone on Stonehenge, in Wiltshire, yesterday to mark the Winter Solstice.”

The friend who sends me the above says: "THANK YOU, DRUIDS! We could all do with a great year".

Yes, we could indeed all do with a great year.

But if what is meant by a great year is a great year financially or economically, you'll have to wait to see whether the Druids are right, or I....

Meanwhile, the really good news is that money isn't everything. It isn't even signify a lot. Money is merely a necessity or convenience. What matters is what one does with the money one has, however little that may be.

Do good to others. Spread cheer to the people you come across. Reach out to the poorest and most miserable folk that you may not even know personally, through people you trust. That way, whatever is happening in global economics and politics, the year will be a great one for you and yours. Sphere: Related Content

Forecast for 2012

I am probably in a minority of one in making the following forecast, but here it is for what it is worth.

Let me start with the apparently not very important countries, explain why I am doing so, and then move to the more important countries, and finally to what implications all that has for the management of your savings and wealth.

Established democracies (India and Indonesia) are being threatened by fascist forces (in one case Hindutva, in the other Islamist), though the established structures have so far proved resistant to fascist agendas. Expect the threats and attacks to continue, and let us hope that these democracies continue to weather the attacks.

Budding democracy in Nepal is threatened by Hindutva forces that want to restore the corrupt and incompetent monarchy. Here, one can only hope and pray, as the basic shape of what is to come is not clear.

Emerging or struggling democracies in North Africa and the Middle East face the possibility of having democracy nipped by Islamism (for example, Pakistan, Iraq, Tunisia and Egypt). In these countries, a particular Islamic ideology (Salafist or similar) is being imposed by violence on the population without anyone in authority seeming inclined or able to counter that, in order to nurture political, cultural, religious and social openness in these countries.

So what will happen if the anti-democratic forces in such countries succeed in imposing their agenda? The countries concerned may have an initial period of stability and even prosperity, but stagnation will soon ensue, and it may then take three generations before they liberate themselves from the hold of such forces.

China’s new generation of leaders, led in all probability by Xi Jinping and Li Keqiang, will have an interesting time helping determine and working with their new team. While they will have the support of the existing leaders, who will step down but remain available and influential, the key question is whether they will together be able to steer China through challenges it has never before faced in its history: a population gradually but inevitably becoming more open to the outside world at the same time as the growth rate falls below 8% and therefore begins to unleash social and political tensions as unemployment rises. It is not at all clear to me that China will find it easy to negotiate these challenges. There is therefore a very real danger of China taking to internal repression and/or external aggression.

Untoward developments in any country will further weaken confidence in emerging markets, and pull out from them even more money, both domestic and international.

That applies also to the European Union, though I am more optimistic about that. I expect that the 17 nations which have decided to go ahead with fiscal union will proceed with it, at least the important ones among them in the next three to six months, though it will take perhaps up to two years for everything to be agreed. Naturally, if the Euro project falters, then that will pull money ≈ out of the Euro area also.

Where will all the money pulled out of these countries go to? To the US and UK, where it is already headed in a significant though not yet substantial way.

The UK economy will begin an upswing for structural reasons from some time in 2012 (and the timing of that will depend to a certain extent on how well or badly the Olympics go from a financial and business point of view).

The US economy has already begun its upswing, as I stated publicly some months ago in my speech in Phoenix. This will continue. American banks will start lending to businesses again, and US businesses should do well, at least in the US itself. While unemployment will fall, it will regretfully not fall in proportion to economic growth, due to reasons I have detailed elsewhere.

President Obama will therefore have a recovering economy to boost his prospects of re-election, but a resistant rate of unemployment to mar his prospects.

While he will be tempted to focus all his energies on domestic issues in order to try and win the Presidential race, his chances of actually reducing unemployment and ensuring a victory depend entirely on whether he can take the international initiatives that will reduce unemployment - that is, by means of a world trade agreement that provides a level playing field for all countries, and does not unfairly privilege countries which improperly exploit their human resources, and avoid looking after their environmental and ethical responsibilities.

For the last three decades or so, unethical and environmentally-unfriendly practices have driven global "growth". This may be the crucial year which determines whether our leaders turn our back on that kind of growth and put growth on a new basis which is sustainable and just.

We are going into a year that could be dangerous or exciting, depending on how our leaders respond to the crises that are facing us in principle, and will face us even more in actuality this year.

So much for global politics. What about global economics? Here too we are in an unprecedented situation, with at least one of the best economies in the world now offering a negative rate of return for government bonds - in other words, investors are paying that government to keep their money for them, and losing money in order to do so, presumably on the basis that it is better to have a guaranteed (small) loss than the prospect of much bigger losses elsewhere (e.g. in equities).

What am I talking about?

Denmark's Central Bank has just placed government bonds with three-, six- and nine-month terms, and gained 2.32 billion Danish kroner (approximately EUR 310 million). Two of the three bonds offer investors a return of less than zero per cent - the State will have to pay back less money than it has been lent. The interest for the three-month bonds is minus 0.21 percent, while the interest for the six-month bonds is minus 0.07 percent. Meanwhile, if you were interested in Italian government bonds, those were offering over 9% interest. That is now the gap between bonds from an "unsafe" economy versus bonds from a "safe" economy. Expect more such offers from governments, but weigh them carefully.

Stupid quesiton, but why did not the Danish investors put more of their money in gold? Because even gold might still be over-valued in the current circumstances. Why not more money then in real estate? Because current prices regarding that may turn out to be a bubble too.

So what is the best way of investing? Spread your portfolio as wide as possible, forgetting growth and focusing solely on protecting the value of your savings or wealth. The worst investments might well turn out to be, as I have said for a long time, in the so-called "liquid investments" (i.e. in quoted instruments), which are most exposed to a fall in value. And the best investments might turn out to be those you make in real businesses, producing real goods and services, run by people you know and can trust. But don't forget that it is the US market which is the only one that is guaranteed to grow - unless something extremely stupid is done by America's leaders.

As we go through the swings and roundabouts, and the ups and downs, of 2012, let's do our best with our money and our talents, but let's keep in the forefront of our minds that this life is temporary.

What matters to us eternally is whether we are living our lives on the basis of developing a relationship with God, or whether we want to run our own lives in defiance or ignorance of God.

May Jesus the Lord bless and guide each of us on our path as we consider these things. Sphere: Related Content