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Posts Tagged ‘Euro’

Peaceful America in a Disturbed World: How Obama Will Win his Second Term

June 25, 2012 1 comment

How is it that things are so eerily favorable for an Obama reelection.

So unfair to the US  |  Cartoon by Bendib, source bendib.com  |  Click for source image.

So unfair to the US | Cartoon by Bendib, source bendib.com | Click for source image.

Euro-Forest fires

Euro-zone on the verge of a break-up, says main-stream English media. British and American leaders repeat ad nauseam the global catastrophe if the Euro-currency breaks up.

Islamic World afire

Middle East is in flames. After a one-year struggle, Egypt has finally chosen a President. See how ‘we’ handled Gaddafi and Osama Bin Laden. As for Pakistan … In case, Syria or Iran take one wrong step …

Just one wrong step.

Even Julian Assange is running now.

Hot BRICS

BRICS are a major problem. China’s leadership change is struggling with Bo Xilai scandal. China’s economy is in trouble – and tanking. Putin’s election has been facing protests for 6 months now. By the way,  which wife of Jacob Zuma is coming for the G20 summit.

These pretentious poseurs – the BRICs.

See where they are.

The largest emerging markets, whose economies grew more than four-fold in the past decade, are making losers out of everyone.

For the first time in 13 years, the real, ruble and rupee are weakening the most among developing-nation currencies, while the yuan has depreciated more than in any other period since its 1994 devaluation.

Investors are fleeing the four biggest emerging markets, known as the BRICs, after Brazil’s consumer default rate rose to the highest level since 2009, prices for Russian oil exports fell to an 18-month low, India’s budget deficit widened and Chinese home prices slumped. Investors are bracing for more losses as economic growth slows.

Currencies from Brazil, Russia and India will probably decline at least 15 percent by year-end, said Jen, the former head of global currency research at Morgan Stanley.

Brazil’s real lost 12 percent so far this quarter, the biggest drop among the 31 most-actively traded currencies tracked by Bloomberg. The 11.5 percent depreciation in the ruble and 10 percent drop in the rupee was almost twice the retreat in the euro. China’s yuan, which was kept unchanged during the global financial crisis in 2008 and 2009, fell 1.2 percent since March after the government widened the amount the currency is allowed to fluctuate each day.

A decade after Goldman Sachs Group Inc. (GS)’s Jim O’Neill coined the term BRIC, China has become the second-largest economy while Brazil, India and Russia are among the 11 biggest worldwide. Their combined gross domestic product rose to $13.3 trillion last year from $2.8 trillion in 2002 as their share of the global economy increased to 19 percent from 8 percent, according to IMF data. Together, they control $4.4 trillion in foreign-exchange reserves, about 40 percent of the total.

The MSCI BRIC Index (MXBRIC) of shares has surged 281 percent during the past decade, compared with 34 percent for the Standard & Poor’s 500 Index (SPX) as the real and the yuan strengthened more than 30 percent. Local-currency debt in the BRIC nations returned an average 86 percent in dollar terms since data for JPMorgan Chase & Co. indexes on all four countries began in October 2005, versus a 48 percent increase in U.S. Treasuries. (via BRICs Biggest Currency Depreciation Since 1998 to Worsen – Bloomberg).

Asian Tigers are de-fanged and without claws for now. Japan is stagnating for the last 20 years now. With Hugo Chavez dying of cancer and Castro speaking in less than 160-character haikus, there are no noises from Latin America.

That leaves us only with Yumm-Rika!

US soldiers trying to prop up the house of cards  |  Cartoon by Clay Bennett; taking off on the iconic Joe Rosenthal’s Iwo Jima Pulitzer Prize photograph taken on February 23, 1945, of US Marines raising the US flag  |  Click for image.

US soldiers trying to prop up the house of cards | Cartoon by Clay Bennett; taking off on the iconic Joe Rosenthal’s Iwo Jima Pulitzer Prize photograph taken on February 23, 1945, of US Marines raising the US flag | Click for image.

Pax Americana

But the US economy seems to on the mend.

Unemployment figures have reduced. Oil prices are declining. Dollar has gained against nearly all currencies. Gold prices (in USD) are down – and dollar is stronger.

You want a Black President. Y’all will get one for two terms. Hell! You want a purple-colored President, we got one for ya …

You got what yer wanted.

Now can we jes git back to work …

One question … any answer

For the rest of us, with so much pain and mayhem in the world, the only only question left was

“One has no clue where it is going to end,” Ashok said in a June 22 phone interview from Mumbai. “The uncertainty and the volatility is the biggest concern.”

Try this answer.

Till US elections are over.


Problem With Europe

June 9, 2012 1 comment

US think tanks and experts are making the worst assessments of Europe and the Euro. Can they be believed?

Can the attempted Euro-dollar duopoly work?  |  Cartoonist R.J. Matson of Roll Call; source & courtesy - Politicalcartoons.com / msnbc.msn.com  |  Click for image.

Can the attempted Euro-dollar duopoly work? | Cartoonist R.J. Matson of Roll Call; source & courtesy – Politicalcartoons.com / msnbc.msn.com | Click for image.

In the last five hundred years, Europeans have fought with each other and the rest of the world. Over slaves, gold, coffee and sugar, religion and territory, seas and rivers.

In short, everything.

The European Union is a classic example of an organization built around a “win-win” economic logic. The idea of the EU’s founding fathers was that economic cooperation and shared prosperity would create a positive political dynamic. And for 50 years it worked beautifully. But that win-win logic has gone into reverse. Instead of feeling stronger together, EU countries increasingly worry they are pulling each other down. The result is a surge in political tensions inside Europe and, in particular, an outbreak of anti-German sentiment.

This has global implications; for one, America’s pivot to Asia is posited on the idea that Europe will no longer require attention — a premise I somehow doubt. (via The Rise or Fall of the American Empire – By Robert Kagan, Gideon Rachman, and Daniel W. Drezner | Foreign Policy).

Gideon Rachman, the author of the extract above, has made a career by being paranoid about the future of the West. He sees an enemy of the West under every bed. Fact is the West is its own worst enemy.

Looking at the crisis in EU and the USA, could Gideon Rachman be right.

Just this time around?


Defla-inflation – the Answer to Europe’s Problems

July 19, 2010 10 comments

If the USA could ride on a dollar-float equal to US GDP, for the last 60 years (1950-2010), could EU be left standing, watching, inactive and hurting (as in envy).

The problem of stagnant economies! (Cartoonist - Chip Bok; published on 2005-06-05; source and courtesy - cartoonistgroup.com).

The problem of stagnant economies! (Cartoonist - Chip Bok; published on 2005-06-05; source and courtesy - cartoonistgroup.com).

Curse of the ‘Strong-Euro’

Euro-zone would not have gotten itself into such a twist but for chasing the ‘strong’ Euro chimera.

An over-valued Euro made imports cheaper, gave excess inflows, liquidity, and the average Europeans abroad, a false sense of prosperity.

The strong Euro also made way for stagnating, indebted, deficit-prone economies of Europe.

Behind the ‘Strong-Euro’

Of course, Europe needed to make a success of the Euro. If the USA could ride on a dollar-float equal to US GDP, for the last 60 years (1950-2010), could EU be left standing, watching, inactive and hurting (as in envy).

USA let the Euro-Ride continue for the last 7 years (2002-2009) knowing that this can only result in a over-priced, stagnant, option-less Europe. Makes me wonder if Goldman Sachs acted alone in arranging all those off-book loans to Greece?

Hank Paulson … have you been naughty, again?

This may look like Bleak House on 'Bleaker' Street! But the situation ain't so bad. (Cartoonist Bruce Tinsley; Mallard Fillmore series; published on 2010-04-15; source and courtesy - cartoonistgroup.com).

This may look like Bleak House on 'Bleaker' Street! But the situation ain't so bad. (Cartoonist Bruce Tinsley; Mallard Fillmore series; published on 2010-04-15; source and courtesy - cartoonistgroup.com).

A nervous Europe

Erosion of Western dominance makes Europe resort to underhand ideas, legalistic sleights of hand that stretch definitions and prolongs the war of attrition.

  1. With Indian and Chinese manufacturing on the roll a nervous Europe is stuck for answers.
  2. With Indian pharma and auto sectors challenging the world, Euro-powers are nervous and fidgety.
  3. With surging Chinese manufacturing, Europe has run out of answers.
  4. With an indifferent USAon one side and the economic expansion of Asia on the other side makes for one, very nervous Europe.

Luring Kenya, with an Uganda waiting in the wings, by the use of ‘incentives’ to create legal hurdles for pharma-imports is a demonstration of this strategy.

TRIPS recognises IPRs as territorial rights and IP is protected only in the jurisdiction where it is registered. However, Kenya’s recent Anti-Counterfeit Act even recognises IPRs protected in other countries . This would make generic goods imported into or transiting through Kenya illegal if a patent exists anywhere in the world. This has serious repercussions not only for Indian exports but also takes away right of Kenya to independently define patentability criteria based on its development requirements. This is also a loss for Kenya, which in initial stages of its development would be denied the opportunity of drawing innovation and encouraging economic growth within the country.

Many other African countries are being lured into the same trap. There were allegations that EU provided funds for a similar bill in Uganda. Such legislations would deny public access to generic drugs and make them dependent on monopoly of a few patent drug suppliers. Three AIDS victims had to move Kenya’s Constitutional Court against the Anti-Counterfeit Act for a stay on the grounds that it denied them access to generic anti-retroviral drugs and, thus, violated their Right to Life. (via Time to challenge plus-size IPRs-Comments & Analysis-Opinion-The Economic Times).

How will Europe get out of this pit?

How will Europe unwind this complex knot?

The way out for Europe will mean severe belt-tightening. Not an easy thing in easy times, belt-tightening is the bitter pill that Europe may need to swallow.

A mix of defla-inflation with Euro-devaluation will be needed to fix things for some time. Deflation in wages, property and stock prices, inflation in consumer prices combined with Euro devaluation below dollar parity may see Euro zone on the road to growth! Not an easy road!

Is it a wonder that you get to hear a stuck Europe, squealing!


The dangerous case of the Chinese stumper

The dollar and euro need to be devalued by 25%-50% which means yuan must appreciate another 20%-35% from it record high (update on 26th August, 2011)

Let us call this the Chinese Stumper! (Hambone by Mike Flanagan; Cartoon courtesy - Business Standard; from issue dated 19th May 2010; Copyright - Graphic Syndication, England).

Let us call this the Chinese Stumper! (Hambone by Mike Flanagan; Cartoon courtesy - Business Standard; from issue dated 19th May 2010; Copyright - Graphic Syndication, England).

Siamese’ triplets

The Great Recession is like a case of conjoined triplets.

One is the USA – who has used their Bretton Woods licence to print dollars and flood the world market with excess liquidity. The US has also used their ‘dollar power’ to gain loyalty by favouring their allies, satellites and client states with low exchange rates that boost exports. Europe, Japan, Asian Tigers, (and now) China have all been favored with a ‘beneficial’ exchange rate in the past. At an ‘appropriate’ time, this ‘benefit’ was taken away. The US gained by ‘recruiting’ low-cost labour of these economies.

The US 'out-thunk' the Euro-zone on the Euro-currency strategy!

The US 'out-thunk' the Euro-zone on the Euro-currency strategy!

US imports, were underwritten by an increasing volume of IOUs, denominated in depreciating dollars. By paying for imports with IOU notes, the US could subsidize their high-cost exports, to these ‘semi-captive’ markets.

With dollar IOUs and dollar liquidity, US funded hi-tech R&D, overseas acquisitions (of companies, raw materials, allies), commercialize new technologies and standards (internet, software) space and defense, et al. Last forty-year estimates, show that US obtained funding equal to one full year’s US GDP. At nil cost!

All this due to the US dollar’s reserve currency status!

Can Europe be far behind

The Euro unwinds!

The Euro unwinds!

Post-Plaza Accord, Europe decided to get into ‘reserve-currency’ game, with the launch of the Euro currency in Jan 2002. As an incentive to TT-Note holders, the ECB ‘allowed’ the Euro to appreciate – vis-à-vis the dollar. This gave windfall gains to countries holding Euro as a reserve currency.

From dollar parity in 2002, the EU appreciated by more than 60%. After the introduction of Euro, in the first six years, Euro-bond holders hit a gusher. Anyone who held Euro bonds from January 2002 upto Decemeber 2007, would have made some 80% return during this six years. A return of 15% per annum. Close to junk bond returns.

After the ECB took the bait, the US played a waiting game. After running with the overvaluation bait, for 8 years, the Euro- fish is now tired. It is not able to break free of the over-valuation hook. The US is now reeling in the fish.

With a ‘strong’ currency, the option for Euro-zone is massive and painful deflation. Wages, pensions, prices, welfare state benefits will need to come down – and drastically. Do they have the steel or the hunger to do this. Used to a gold-plated Welfare State, Euro-zone does not have the moral resolve to go on a cold turkey diet of frugality.

500 years ago, a poor and marginal Europe could take the risk – and inflict genocide, slaughter, war, crime on a hapless world. Today’s geriatric Europe, effete and crumbling, cannot repeat their run of ‘success’, confronted as it is, by a militarily prepared Asia. Modern Europe’s problem is compounded by the lack of availability of victims.

Which brings us to China.

Change in US Govt securities by China - which has ranged between 30%-60% of total reserves. (Image source and courtesy - http://usa.chinadaily.com.cn). Click for larger image.

Change in US Govt securities by China - which has ranged between 30%-60% of total reserves. (Image source and courtesy - http://usa.chinadaily.com.cn). Click for larger image.

Doing business with bankrupt customers

China’s currency reserves of some US$2.5 trillion, (Update – US$ 3.2 trillion August 2011) in rapidly depreciating Euros and dollars with manufacturing overcapacity, exports-growth economic model is building into a complicated pressure head. Waiting to blow up. Already under US pressure for a yuan revaluation, add complications like

  1. Empty building blocks combined with inflated real-estate prices
  2. Bloated banks loan ledgers with ballooning bad debts
  3. Low entrepreneurial levels with foreign ownership of Chinese businesses
  4. Aging population with a dominant public sector
  5. Increasing foreign exchange reserves of depreciating currencies

and the Chinese Growth story begins to sputter.

As for the Rest of the world

The real challenge for the rest of the world, will be, one, wealth protection. Easily done. Buy gold.

Two, how do we let events unfold – safely. Insulating ourselves from the cycle of calamity, catastrophe, chaos, confrontation, confusion, crises – and then finally a crash.

A cycle that a 86-year young, mentally active, Gujju stock-broker, in Mumbai, shivering with Parkinson’s, explained to me, a few days ago.

Europe ain’t crying about the Yuan

April 5, 2010 5 comments

Euro-zone is not sniffling? What is the secret?

Euro-zone is not sniffling? What is the secret?

No-one shouts louder than American politicians over the value of China’s currency. But other countries may be ready to speak up too. Five G20 leaders this week called for a more “consistent” approach to exchange rates — with fingers implicitly pointing at China. The yuan is a matter of global concern. But widening the debate might not help the US cause.The euro zone is China’s largest trading partner and the yuan is pegged to the dollar, so euro companies should have more reasons to complain than their American competitors. One dollar, and thus one yuan, is worth quarter less in euros now than in November 2008. (via Group-think needed).

Europe ain’t complaining about the Yuan

Greece, Ireland, Italy, Portugal, Spain, are on the verge of a sovereign default. Eurozone is upto its gills in debt. The Euro is being called names. And they are not snivelling about the Yuan and China.

Very un-European!

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