Comments on: It wasn’t just the market …

By: don

don — Thu, 05 Feb 2009 01:43:33 +0000

I’m prepared to accept your premise, Brad, but one should go a bit deeper and look what caused the banking crisis. It would have come anyway, even without over-leveraging, because the global savings glut and the export-led-growth models that helped encourage it were doomed sooner or later.
Indian investor – your conspiracy theories are entertaining, but methinks they ascribe rather too much wisdom to insiders. Kissinger once said the U.S. was finished and due to come under Soviet domination. I rather think that any good economist knew better.

By: Twofish

Twofish — Wed, 04 Feb 2009 17:41:43 +0000

Huizer: Interesting debate between a Chinese modernizer (2F) and a Chinese green/conservative. Is one living in the West and the other in the East?

Be careful of dualisms. I see my own political philosophy as being quite conservative and traditional, and I reject “modernism” (in the Roman Catholic sense) and very strongly reject “Westernization”. East/West is another dualism that I think doesn’t make any sense at all.

The reason that dualisms are bad is that because you find out that people believe X, you assume that they believe Y, which isn’t true. The fact that I say very nice things about the US economy is because I’m quite “anti-Western.”

Huizer: One more observation: you admit that this export led model has run its course.

I think you can reasonably expect export industries to continue to employ several tens of millions of Chinese. I don’t see how you can use export industries to get another 600 million people up to first world standards, but neither does anyone else.

I don’t think it is wise to think in terms of economic models. You really need economic diversification.

By: Mari

Mari — Wed, 04 Feb 2009 17:32:18 +0000

“Larry Lindsey argued — I think correctly — that China’s policy of spending huge sums – to keep its exchange rate from rising, China often had to spend 15% or so of its GDP buying foreign assets — to avoid currency appreciation didn’t affect overall levels of output or employment in the US, but it certainly affected the composition of output and employment”

You could argue that the govt intervention in China reduced the welfare of Chinese…which is in line with the thesis of James Saft and against your argument that state was helpful.

By: Cedric Regula

Cedric Regula — Wed, 04 Feb 2009 15:09:14 +0000

Off the boil
“Indian : You sound like there is a Ponzi scheme that the west (and IMF) run against Asia (or EMs). Could you please explicate in lay man terms ?”

indian investor: Regarding: The Witch Hunt

I’ve got an interesting study for you. Get a long term chart of the dollar index and Fed interest rates. Line this up with the years…1994 Mexico deval, 1998 Asian Crisis, and maybe it works for the 1980s Lat Am blowups, I don’t remember.

My theory is since EM countries have to borrow in Dollars at government and corporate level (since they print their own currencies faster than a speeding bullet),then whenever the dollar strengthens, they have trouble paying back loans and that is what causes first defaults at highly leveraged businesses, then currency crisis and gov defaults or devals.

The dollar goes up when the Fed raises interest rates (ie 1994 to Mexican crisis)or the Dollar is high due to FDI coming to the US (ie late 90s stock market boom to Asian Crisis).

It didn’t happen this decade. The Dollar went down except for a brief reversal in 2005 when Greenspan finally started raising rates.

My gut feel conclusion:
Greenspan is the Witch. Modern Economics is his voodoo.

We haven’t got any EM fallout yet because the dollar was weak on average this decade, and most increased reserves to guard against strains on their currency. But now its not. Does that mean that now we will be seeing EM crisis coming up soon?

By: cdr

cdr — Wed, 04 Feb 2009 12:40:18 +0000

Please. Let’s just say that someone’s obvious (and only) obsession is to »beware of the euro«. Obvious to many but not to ECB. This OCD was and still is being played at in many mysterious ways that gave and gives rise to stupidity never before seen which needs to be blurred constantly in many different ways and in an expotential manner. The slope of this function demanded a recent recruitment of even the ECB.

By: Indian Investor

Indian Investor — Wed, 04 Feb 2009 12:08:24 +0000

@ Off the boil: One of the big things that’s being avoided in the whole PBoC debates is discussion of the US Govt. Debt. The sequence starts with the US Govt. A new breed of weaponry comes up, and then the old breed is sold to some other country. This justifies new breed purchases by the US Govt. And on and on. There’s an aero show in Bangalore next week and China will participate with its own aircraft for the first time. F-16s and F-18s will be on display, and Govt. of India will buy some of that. Arms dealing is a completely corrupt business everywhere in the world. But the gullible American public believes that these weaponries constitue something nationalistic which benefits the common people. Apart from a few jobs in the weapons companies, there’s no benefit, and the loss of literally trillions to the exchequer is simply amazing.
Now after the US Govt. does this kind of stupid budgeting, just like emerging banana republics and least developed banana republics, the United States B-52 Republic gets some of their economists to analyze the PBoC reserves, and such like, trying to figure out how the whole 2008 bust came about.

By: cdr

cdr — Wed, 04 Feb 2009 12:01:28 +0000

»state backed companies«
»able to borrow because of their state backing«
»state plays an active role in guiding investment decisions«
»borrowing on perception of being too close to state to fail«
»private capital wanted to finance current account deficits in the emerging world«
»private capital«
»us policies«

By: Off the boil

Off the boil — Wed, 04 Feb 2009 10:50:16 +0000

Thanks Indian. I will check regarding the PETROCYLCING and LATINO bust.

But you are very right on the WEAPONS companies.

HEre is an excerpt from the inimitable Economist of India :

“The story goes like this. The US gives away $1.5 billion worth of weapons to Pakistan. In effect, the US is paying its own producers of weapons, who in turn support the US policy makers by locating their factories of weapons of mass destruction in the policy makers’ constituency. Read more jobs for the merchants of death. Then India’s defense establishment looks over the border and says we now need $2.5 billion worth of stuff from the US. More jobs for the merchants of death. Total benefit to the merchants of death: $4.0 billion. Total cost to the impoverished populations of Pakistan and India: $4 billion. “

By: Indian Investor

Indian Investor — Wed, 04 Feb 2009 10:22:25 +0000

@Off the boil: The same thing has been done to the US economy, with some differences. The weapons companies have sold trillions worth of the unneccessary fighter/bomber planes and nuclear sailboats and the Us Govt. has borrowed some $ 10 trillion and blown much of the money on these weapons and gone bankrupt. Similarly, the primary dealer banks also exploit the Us laws and fed system to make profits out of the Treasury borrowings.

By: Indian Investor

Indian Investor — Wed, 04 Feb 2009 08:22:04 +0000

@Off the boil: It started in the 1970s with Dr. Kissinger petrodollar recycling. The petrodollars were lent to South American countries, and then there was a run on that debt, causing local markets to crash, and the sovereign to be out of external financing. In the juncture IMF economists wrote scholarly sounding papers with a simple bottomline – please open up your sectors for FDI. The same lenders then purchased equity at cheap prices in those markets.
Oil producitng countries like Mexico are targeted by hiking and then crashing the crude prices, the same treatment as what’s being given to Iran and Russia right now.
This process was first applied to the SA countries, then after Citigroup branches came up in many of those countries, and puppet regimes were installed, etc, it was applied later around the world, the last big example being the East Asian Tiger economies. In July 1997, China got the handover of Hong Kong from the UK; the credit crisis was then triggered to target China’s influence with Korea, Indonesia, Singapore, Thailand, etc with Japan being a US ally.
China lost influence but managed to escape the US Treasury dragnet that time. Once again, they’re getting off this time, because they have a good forex reserve.
People like Brad are employed to go on a witch hunt blaming People’s Bank of China for everything with un related charts.
Paulson was demanding FDI liberalization in China till Dec 2008, since the Chinese exchanges have crashed. Geithner has gone one step ahead. He wants to RMb to be strengthened so that more and more factories can shut down in China, riots can happen, the Chinese exchanges will fall further, the Communist Party will be in deep trouble and then they will be forced to sell their state owned family silver to the primary dealer banks.
I can’t say about Brad, but this Geithner, who is an ex boss of Brad’s is clearly a paid stooge pigeon for those primary dealer banks.
In India we believe that democracy is the institutionalization of doubt. Unless you are free to doubt people holding high positions, and call them to account in an accurate, democracy is just a fiction and not a reality.
Note that the RMB/USD demands from Geithner have nothing to do with US exports, etc that are tom-tomed – it’s just unreal as many commentators have pointed out. China even has their own domestic aircraft manufacturing now; there’s little or no chance of any exports to China from the US in the absence of wage adjustments.