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India, US and China consider joint strategic crude oil response – Money Matters – livemint.com

Big Oil is way to big to be managed by a few meetings in Seoul ... But

Big Oil is way too big to be managed by a few meetings in Seoul ... But

To protect themselves against disruptions in crude oil supplies, India, Japan, China, South Korea and the US will meet in June in Seoul to work on a joint response mechanism based on their combined strategic crude oil reserves. The five nations together account for 44% of global demand.Strategic crude oil reserves are a country’s answer to counter short-term supply disruptions. They are state-funded and meant to tackle emergency situations. (via India, US and China consider joint strategic crude oil response – Money Matters – livemint.com).

So quietly

A rather sudden development – and not widely reported, at that. Much trawling over the internet could not find any other reports on this meeting – except this one report in Livemint, linked above. It appears that this meeting in Seoul, is a follow-on meeting to the one that China proposed and hosted in 2006.

Energy security has long been an issue with China – which seems to have influenced its foreign policy strongly. Korea has long  been working on energy security with Middle East producers. India has worked on some oil storage plans with foreign investments.

Considering the low-output since the China confab, nearly four years ago, in the short run, there is little scope for any tangible outcome from the Seoul conclave. Developments if any, will only be long-term in nature – and will need significant co-ordination in oil exploration, shipping, storage, and transportation. But what it does, is establish an Asian forum for Asia’s big economies to coördinate policy.

Not a bad idea at all.

Korea-India

Oil prices and uncertainty could derail economies

Oil prices and uncertainty could derail economies

This meeting has quite some background. With the changing power equations in Asia, Korea finds itself in a difficult situation. For historical reasons, they cannot see themselves being very close to Japan (bad memories of Japanese occupation) or China (China’s support for North Korea, hegemonic designs of China, etc.).

On the other hand, the Korean experience in India has been positive. Korean brands like Hyundai, Samsung and LG have done exceedingly well in India, Unlike Chinese brands, Korean products have been received warmly by Indians. Indian prowess in design, R&D, software, also complement Korean manufacturing, global scales and plans. Korea and India have signed a Comprehensive Economic Partnership Agreement (CEPA) in August, 2009.

In India, Korea is seen as a rare, non-threatening, non-exploitative industrial-economy player.

USA-Europe-Asia

It was at Copenhagen, that for the first time, Europe realized that they no longer have the inside track with the USA. At least Obama’s administration. The ‘special relationship’ that swells the British chest has been under some strain – for some time now. The US engagement with Asia makes some sense – as it is Asia which has extended nearly US$3-4 trillion in credit, growth opportunities to the US. Europe increasingly seems more like a liability – and a truculent competitor.

The US presumably knows which side of their bread is buttered.

China-India

Post-Copenhagen, a grateful China has been effusive towards India – at least temporarily. The Chinese press did a roundel for 60 years of India-China diplomatic relationship. With this we have a round-up of the entire scenario. The sentiment and motivation are thick enough to cut with even a blunt knife.

This time around.

US economy hits the bottom

US economy hits the bottom

US economy hits the bottom

Beijing let the yuan rise 21 percent against the U.S. dollar between July 2005 and July 2008 before effectively repegging the currency, also called the renminbi, near 6.83 to the dollar to help the economy through the financial crisis.

The United States’ deficit in trade with China fell to $227 billion in 2009 from a record $268 billion in 2008,. but the Obama administration is keen to lift exports and employment.

Wu Xiaoling, a Chinese lawmaker and former central bank vice governor quoted by the People’s Daily international edition, said the root of the problem was not a cheap yuan, but the relatively low cost of labor and resources in China.

“That people feel the renminbi is undervalued is in fact because many price factors in China, including resources and labor, have not reached international levels,” she said.  (via China economist sees “room for talk” on currency row; Updated on Monday, April 05, 2010, 20:40)

You scratch … I scratch

An experienced US stalks China, waiting behind high walls of US$2500 billion foreign exchange reserves. There will be much too and fro. Much will said and retracted. Much will showbiz. In the end, it may be as,

Li Daokui, another new member of the advisory body, said China should scrap its peg to the dollar before September.

“One way of relieving pressures on the renminbi exchange rate is to make an adjustment on China’s own initiative,” Li, an economist at Tsinghua University, was quoted by Caijing magazine as saying.

Li singled out September as a deadline so that political debate over the yuan does not boil over in the run-up to U.S. mid-term elections in November.

In a cover story, Caijing cited unidentified sources as saying that Beijing was studying the option of dropping the yuan’s peg as soon as next month.

Curiouser and curiouser, said the Cat to Alice.

Britain – phuski or phoenix

It has been like this in the UK for 70 years now!

It has been like this in the UK for 70 years now!

With just about two months left before the expected election date of May 6, the outcome is impossible to predict. A Tory majority, a minority Labour government, or a split Parliament with the third-party Liberal Democrats holding the swing votes are all viable scenarios. The markets have a jittery season ahead of them. (via In Britain, a Rout Turns into a Race – BusinessWeek).

At the edge of the precipice!

Last time around, in the stagflation of 1970s, as the low-exchange rates era in Europe ended, in the post oil-shock world of 1973, Britain inched to the edge of precipice of becoming a Third World economy. It was North Sea Oil that saved Britain. What will it be this time? Britain’s options are shrinking.

The Great Squeeze

Between 1930-1940, Britain was in a similar position, electorally and economically. Churchill, Montagu Norman executed the Great Squeeze on the Indian Peasant. What will it be this time around?

On October 27th, 1931, the Ramsey Macdonald led “National” Government (Conservatives and Liberals coalition, fearful of the rising Labour Party) in Britain won a huge majority of 554 MPs of 615. The economic crisis of September (misnamed as the Indian Currency Crisis), ensuing Depression era problems in the US, the Weimar Republic problems – and other issues pushed this ‘National’ government to ram through a series of measures (page 130-131) that depressed silver and gold prices and raised interest rates in India.

Which way the wind blows

Will Scotland secede? Will North Sea Oil go away with Scotland? Will Britain be able to withstand a hung Parliament and a coalition Government? Italy, after WW2 and before 1993 electoral reforms, had nearly 60 Government changes in 47 years (1946-1993). Will Britain go the Italian pre-1993 coalition-era way? Rapid descent or a slow spiral.

Or an unlikely phoenix-like rise?

PS – Phuski is colloquial Hindi for damp squib

The looming Yuan-Dollar currency crisis

No dearth of pretenders - EU, Japan ... and now China!

No dearth of pretenders - EU, Japan ... and now China!

There are three separate reasons for this … The reasons refer to the broad determinants of economic growth — capital, labour and productivity.

On the first, India is investing at the same rate as China (approximately 40 per cent of GDP), on the second, India’s labour force growth is about 1.8 per cent per year faster than China, and on the third, China has outpaced India by about 2 per cent per annum (for the last five years).

Most of this outpacing has had to do with the deep and deeper currency undervaluation practised by the Chinese authorities which led to two unsatisfactory outcomes: the great financial crisis of 2008, and now the largest and fastest growing polluter of the world.

For how long will the international community stand idly by? Not very, and this is the first big forecast for the ensuing decade: China’s exchange rate will appreciate significantly starting 2010. How significantly? A first year appreciation to about 6 yuan per dollar from the present 6.8 level. (via Surjit S Bhalla: India’s Shining Decade).

Plausible! Probable … Possible?

'Get to heaven by climbing the terraced fields'. Great Leap Forward poster, Artist - Yang Wenxiu, Published - 1958, September, © Stefan R. Landsberger

'Get to heaven by climbing the terraced fields'. Great Leap Forward poster, Artist - Yang Wenxiu, Published - 1958, September, © Stefan R. Landsberger

Surjit Bhalla outlines a plausible scenario – with China needing to adjusting their exchange rate upwards – much like other US client-states had to! Europe had to in the 70s, Japan in the 90s, Asian Tigers in last 10 years. As examined earlier in some detail by 2ndlook. One question is settled. There will be economic mayhem.

However, Bhalla assumes that the Dollar-Yuan revaluation will happen smoothly – without any significant disruption. And that is one, big, huge assumption – which is based on really, really slippery slope.

Bhalla would do well to remember that last time when China had a problem, it resulted in the India China War of 1962. Just after the disastrous Great Leap Forward and before the equally disastrous Cultural Revolution.

The Great Leap Forward began in 1957-58, saw famine and hunger across China. After the Communist takeover of China, land seized from land owners, was given to peasants in 1949. Ten years later, in 1959, the Chinese State took away the same land from the same peasant. Food shortages, starvation followed. Western (questionable) estimates are that 30 million people died during this period. War with India followed in 1962 – a diversion from the domestic Chinese catastrophe.

What will it be this time?

The approaching mayhem

The next few years will be tumultuous for China.

Much like, when Europe was weaned off the low exchange rate crutch in 1967-1974 period. Stagflation, oil shock, the Nixon Chop followed. How Japan had to live with endaka, the Plaza accord, with S&L crisis in the US.  Or the Asian Tigers had to reset to a higher exchange rate and higher foreign reserves, that accompanied the 1997 (Asian Crisis) to 2000 (The Tech meltdown).

What will follow the Chinese moment in the sun? What will set off economic mayhem in China?

Crime in China (a simmering threat), terrorism in Xinjiang (remote possibility), real estate bubble (a real scenario), dollar-yuan exchange ratio (significant risk)?

Will the Chinese Government be able to ride this storm? Without a war with India? Which side of the fence will China fall? Answers to these questions will be worth waiting for! And prepared with!

Signs of coming troubles?

Great Leap Forward © Stefan R. Landsberger; Source - Zhongguo meishuguan (ed.), 中国美术年鉴 1949-1989 (Guilin: Guangxi meishu chubanshe, 1993). Designer: Zhang Xin'guo (张辛国); Liu Duan (刘端); 1958, October; Put organizations on a military footing, put actions on a war footing, put life on a collective footing; Zuzhi junshihua, xingdong zhandouhua, shenghuo jitihua (组织军事化,行动战斗化,生活集体化); Publisher: Hebei renmin meishu chubanshe (河北人民美术出版社).

Great Leap Forward © Stefan R. Landsberger; Source - Zhongguo meishuguan (ed.), 中国美术年鉴 1949-1989 (Guilin: Guangxi meishu chubanshe, 1993). Designer: Zhang Xin'guo (张辛国); Liu Duan (刘端); 1958, October; Put organizations on a military footing, put actions on a war footing, put life on a collective footing; Zuzhi junshihua, xingdong zhandouhua, shenghuo jitihua (组织军事化,行动战斗化,生活集体化); Publisher: Hebei renmin meishu chubanshe (河北人民美术出版社).

When the Soviet Union imploded, one of the unexpected fall out was the Russian mafia. Recent troubles in China, with the underworld creates a spectre of yet another mafia creating global disturbances. One more element in global trouble spots. To understand this better, turn to Chinese cinema.

Most films that have any Chinese element in it, (actors, directors, characters, locations) end up having the Chinese underworld as an important part of the storyline. Is it that the Chinese are morbidly fascinated by criminals and the underworld – much like Europe was with English pirates and murdering Spanish Conquistadors.

Ranging from Jet Li in Kiss of the Dragon, (Jet Li takes on the French mafia) or Chow Yun-Fat in The Corrupter (exposing police-underworld nexus and corruption in the USA), or Jackie Chan in Rush Hour series or the Chinese Ric Young in The Transporter, Jet Li in Lethal Weapon 4.

All have two elements in common.One is the pervasive Chinese underworld. Across Europe, in the USA. In drugs, fake currency, in smuggling boat people, the Chinese are there – everywhere. Many of these movies have Chinese stars, directed by Chinese directors or even partly funded by Chinese studios .

The second is the absence of the Buddhist monk.

India – the loose cannon!

What kind of ending will we see ...?

What kind of ending will we see ...?

Now, India is one box which defies description. By any global and historical standards, the country should not even exist – much less prosper, or be a significant global player. Too many languages, too much poverty, too much freedom, too many political parties, too many languages, too many religions, too many racial types are the common factors going against India (so goes the Desert Bloc narrative).

In such a situation, even in India, for the Westernized types or the remnants of the Desert Bloc admirers, India remains a failure waiting to happen.

Unfortunately, for these doubting Cassandra’s, India has proven them wrong for more than 5000 years now!

equally

RBI to buy 200 tonnes of IMF gold

November 3, 2009 1 comment

RBI to buy 200 tonnes of IMF gold

RBI’s decision to shore up its gold reserves needs to be seen in the context of other central banks across the globe increasing their gold reserves. Among them are the central banks of China, Russia and a few countries in the European Union.

In the last one year, China has increased its gold holdings, by weight, by 75.69%, Russia by 18.78%, the Philippines by 18.50% and Mexico by 108.91%.

Compared with this, India’s central bank did not add anything to its gold reserves in the last one year, according to Bloomberg data. (via RBI to buy 200 tonnes of IMF gold – Home – livemint.com).

Two years ago …

2ndlook had estimated that the Chinese could possibly (and they have)  increase their monetary gold reserves. On April 24th, 2009, Bloomberg reported that China had increased

its (gold) reserves by 454 tons to 1,054 tons through domestic purchases and refining scrap metal, Hu Xiaolian, head of the State Administration of Foreign Exchange, said in an interview with the Xinhua News Agency today. China, the world’s biggest gold producer, has increased its holdings before, Hu said in the interview carried on the administration Web Site. They rose from 394 tons to 500 tons in 2001 and to 600 tons in 2003. The U.S. has the world’s biggest gold holdings at 8,134 tons, followed by Germany with 3,413 tons, World Gold Council data show. France has 2,487 tons and Italy 2,452 tons, while the IMF has 3,217 tons, according to the council.

Another report, from Market Watch, a WSJ web publication added,

The increase makes China the world’s fifth-largest holder of gold, just ahead of Switzerland, and among the six nations plus the International Monetary Fund that have reserves of more than 1,000 metric tons. Although Hu did not elaborate on where China had sourced the additional bullion, her comments were interpreted as meaning they came from domestic sources and may included refining of scrap metal.  Traders also say the gold was accumulated systematically over a number of years. Last year China ranked as the world’s largest gold producer with 12.2% of world output, equivalent to 288 metric tons. The U.S. ranked second with a 9.9% share, or 234 metric tons.2008 - Sensex VS Gold

What are the future plans of the Chinese? A report quotes an analyst

China should increase its gold reserve from 600 tons to about 2,500 tons in a short term and to 3,000 tons in a long term to cope with the versatile exchange rate risks, said Teng Tai, an economist of China Galaxy Securities Company.

Exactly …

This really does not mean much – except that it may keep gold prices on boil. Whether a currency is backed by 5% or a 10% gold reserve makes no material difference, especially in this era of rampant use of (not just by the US of A) “a technology, called a printing press” as an economic tool. For long term economic stability, gold needs to be in the hands of individuals – and not Governments.

Why India

Since China is a significant gold producer by itself, it may not get a shot at buying IMF gold. India has negligible domestic gold production -and was possibly therefore given preference by the IMF. Of course, preference may have been given to RBI’s purchase, given its ‘responsible’ and ‘mature’ behaviour during the current Great Recession.

What does RBI’s gold purchase mean

RBI’s gold purchase means two things.

The Indian Government which has had a rather low percentage of gold holdings as their currency reserves will now bolster these reserves. Even after this purchase, Indian official reserves, will only be the ninth largest in the world in absolute terms.

On average, countries hold about 12.6% of their reserves in gold, up from 9.9% a year ago. Some of this represents an increase in gold holdings, but another driver of the increased proportion is the rise in the value of gold. (from India propels gold to new high.)

The overhanging threat of open market sales by the IMF, speculated by many and discounted by 2ndlook, now stands neutralized. This will be a kicker to gold prices in the short term.

The ideal thing …

Sell gold to individuals. Governments should not have such large holdings of gold. Gold in the hands of Governments is the prime cause of war. Gold holding should be widely dispersed, as widely as possible, amongst individuals – like the Indian gold possession model. No national government, in the new financial architecture should be allowed to have more than 250 tons of gold – to progressively reduce to 50 tons.

A dollar devaluation by another name

September 25, 2009 2 comments
Devaluations can be addictive

Devaluations can be addictive

British Prime Minister Gordon Brown said on Tuesday there was substantial support among the Group of 20 nations for creating a new framework to tackle global economic imbalances … Analysts said the United States’ drive to agree a roadmap for a more balanced global economy could meet resistance from China which is unlikely to agree reforms that would threaten its growth … A document outlining the US position ahead of the September 24-25 summit said big exporters, which include China, Germany and Japan, should consume more, while debtors like the United States ought to boost savings … The euro hit a one-year high against a sliding dollar ahead of a federal reserve meeting and the G20 talks on rebalancing, a process which is likely to require a weaker dollar.

Like Quicktake has pointed out in earlier posts, the US has alternated between an overvalued currency to gain ownership over large sections of world economy – and now with a devalued dollar, it seeks to gain an upper hand in merchandise exports. The three main points that one needs to understand are: –

One – It reduces the real value of US debt. The Chinese, the Rest of BRICS and the Others need to be paid a lot less in the future. (as pointed out earlier in various posts linked here.) Two – It makes US exports artificially competitive. (as pointed out earlier in linked posts). Three – The US competitiveness will be anchored to assets purchased with over-valued dollars.

Factor US Germ

any

Japan China ASEAN India
Labour High High High Low Med. Low
Welfare Costs High High High Low Med. Low
Entrepre

neurship

Med. Med. Low Low Low High
Domestic market Large Med. Med. Med. Small Large
Raw materials

(Self-owned)

High Low Low Med Med Med

What the US is proposing is that the Chinese Yuan must become ‘stronger’ – and the dollar must become weaker. This will mean a real reduction in US debt – and a subsidy for US exports. Of course, a devaluation has never helped any regime in the long run – but in the short run it reduces imports and increases exports. But is a ‘fix’ that the patient begins to row dependant on!

Is that the US is wanting to do to itself?

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  • Shashi Tharoor patterns Indian foreign policy on US-Israel template

    September 2, 2009 Leave a comment

    As President-elect Barack Obama prepares to take office this month, he has avoided the fawning praise of India that has become fashionable in some Washington circles. But experts on the region say that India-US ties now have a momentum of their own. Industries in each country now have a vested interest in deepening ties with their counterparts.

    “In 20 years, I expect the Indo-US relationship to resemble the Israel-US relationship, and for many of the same reasons,” said Shashi Tharoor, an Indian writer and former undersecretary general of the United Nations. (via Will the love-fest stoked by Singh, Bush bear fruit? – Economy and Politics – livemint.com).

    Am I missing something here?

    Am I missing something here? Look at the cartoon date!

    Why is the Israeli model a bad idea

    The first disqualification against accepting the Israeli State model is the fact it is heavily dependent on America, for fiscal and military aid – which “since 1974 totals roughly $80 billion”.

    Do I sense envy when an article from Daily Times Of Pakistan says “The United States has poured $140 billion into Israel since its formation”. That is about a US$56,000 for every Israeli family.

    Is this what you learnt at the UN Tharoor Saar

    First, did it ever occur to Tharoor Saar to check where is the guarantee that the US will be in a any position to underwrite India’s long term requirements?

    After satisfying himself, did Tharoor Saar ever ask, “Why would the US underwrite India?” In case of Israel, the US had good reasons. After all, (as NYT says)

    America has vital long-term strategic interests in the Middle East. The gulf has well over 60 percent of the world’s proven conventional oil reserves and nearly 40 percent of its natural gas.

    To some it may look like a boon, but is surely the kiss of death.

    American policymakers began regarding Israeli strength as an American asset in the Cold War, they supported significant aid as a matter of strategy, not charity. … American aid continues to flow to Israel. … critics on the opposite end of the political spectrum argue that while aid to Israel may be tied to the best of intentions, it does more harm than good to the Jewish State by propping up a big and inefficient government and making Israel dependent upon the U.S.

    For how long can any country, society, individual survive on foreign largesse? Note how during the 1973, Arab Israeli War, the tide of battle finally turned when the massive US airlift of weapons, tanks, spares happened! Which itself, is self-serving – American assistance, emerging as a disjointed policy that urges a peaceful resolution to the conflict while boosting military aid to Israel.”

    Another client state of US, Pakistan enviously records, that

    Israel is the only country that receives all of its U.S. aid in a single package, while others only receive it in quarterly installments.” It continues, “Most recipients of military aid are obliged to spend it in the US but Israel is permitted to spend 25 percent of what it receives to subsidize its own defence industry,”…

    Doubtful motives, suspect intentions

    Three aspects of the Israeli behaviour makes Israeli intentions doubtful.

    One – Israel surely knows that US support cannot continue ad infinitum. What will be the Israeli response after they stop getting US support?

    Two – After consistent and constant efforts to make enemies, over the last 50 years, how does Israel plan to continue living in a hostile neighbourhood – without American aid?

    Three – With a population of little over 50 lakhs (5 million) in Israel and a world Jewish population of less than 1.3 crores (13 million), how does the Jewish population stop itself from going extinct?

    Is there a pattern …

    Tharoor Saar’s statement needs to be read in light of two other incidents. For starters, read Manmohan Singh’s speech at Oxford, praising the Raj,  while receiving his honorary doctrate. Continue with Chidambaram’s decision to end “abject poverty” in India that he seems to “have known for 5,000 years.” And now add Tharoor Saar’s stated objective to make India into a US-client state in another 20 years. Are these three incidents stray and unrelated? Do they form a pattern?

    Any which, Tharoor Saar’s thinking is a cause for concern.

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