November 2011

The Dragon’s Shadow

The Chinese government announced that it will increase its stakes in the four largest commercial banks, which are already largely public-owned. The move is designed to ”support the healthy operations and development of key state-owned financial institutions and stabilise the share prices of state-owned commercial banks”. But why was this move considered necessary at all? Recently, investors have been dumping Chinese bank shares, anticipating a slowing down not just of the economy as a whole, but in particular the property market, which had experienced a bubble of massive proportions. But the underlying concern about the health of Chinese banks reflects a deeper concern, about the extent of entanglement of these commercial banks with the growing ”shadow banking sector”. What exactly is shadow banking? Basically, this refers to non-depository banks and other financial entities like investment banks, mutual funds, hedge funds, money market funds and insurers, who typically do not fall under banking regulation. The growth of this sector has been explosive in the last decade: in the United States, in the run-up to the financial crisis, its size was estimated to be significantly bigger than that of the formal banking sector. In the aftermath of the crisis, many of these institutions, and banks that were exposed to them, had to be rescued. UNCTAD’s Trade and Development Report 2011 noted that ”The shadow banking system depends on wholesale funding, which is extremely unstable and renders the system very fragile, as evidenced by the crisis.” (page 94) It argued strongly in favour of bringing shadow banking under regulation not just money market mutual funds, but also the asset-backed securities market financed with repos. Even at the IMF, a recent meeting of regulators called for greater regulatory focus on shadow banking. Participants noted that shadow banking operations, that firms doing these bank-like activities […]

Environmentalism Lost and Found

Mainstream environmentalism is preoccupied with giant technofixes – from windfarms to ‘sustainable consumption’ – and pays almost no attention to the underlying cultural reasons why our civilisation is destroying the planet. Somewhere along the way of observing and experiencing the degradation of the planet, environmentalism morphed from being a project designed to protect the wider natural world from destruction by human industry, into a project that exists to protect the lifestyles of middle-class consumers in as ‘sustainableÕway as possible. We are kidding ourselves that we will not have to radically change our ways; if oil, food and commodity prices keep on rising, then localisation will happen, if not for economic rather than simply sentimental reasons. The effects of the 2008 collapse are still playing themselves out, but globalisation is already in retreat. In ten years time, the world will look very different. By acting now, rather than waiting for systems to fail catastrophically and force our hands, the long-term future for renewal can be extremely bright. Ridiculously high land property prices and entrenched land ownership patters are major obstacles preventing an intelligent use of our countryside today, but as a greater majority of the world’s population migrates towards urban living, cities must regenerate and reinvent themselves. But the exciting thing about cities is their dynamism and agility in adapting and renewing themselves, absorbing new ideas and becoming more enjoyable places to live and work. The new element in the mix is climate change, and so all development must now embrace social, economic and environmental sustainability. Consumers have traditionally expected governments to take the lead in protecting the environment, but now they are looking more to the corporate world to take action, rather than individuals with political influence. Increasingly, Asians want economic growth but believe it should be achieved through greener […]

Caution urged to resolve food crisis

  The world has faced food crises twice since the latter half of the 20th century. The first one took place in 1973. The world end of term grain stock ratio, which had been on the decline for some years because of the worldwide grain failure, sank to a record-low of 15.4% in 1972. In the same year, the Soviet Union became a net-importer of grain due to the increase of livestock products consumed by the Soviet people. The 1973 crisis was caused by factors such as the bulk purchase of grain by the Soviet Union under the circumstances of poor harvest, and the U.S. placed an embargo on soybeans, albeit for a short period of time. The impact was so enormous that they named it the Reappearance of the Ghost of Malthus, and grain was referred to as the third strategic material behind nuclear weapons and oil. After that, however, countries including the European Community (EC) steered toward the enhancement of agricultural production, which considerably alleviated the condition of grain supply and demand. While protecting national borders by levying import surtaxes under the Common Agricultural Policy, the EC protected intraregional agriculture through generous support for farm product prices. As a result, they were plagued by excess produce in the 1980s. The EC implemented the raw milk quota system in 1984, and the U.S. also undertook the set-aside. The world grain market substantially shifted to the tone of excesses. The EC, which had failed to eliminate such excess, exported excess agricultural products to developing countries with export subsidies, and the U.S. used the said subsidies in defiance, causing a dumping battle with financial burdens. The agricultural negotiations in the Uruguay Round of GATT started in 1986 under the theme of removing the market distortion through agricultural protection by such developed […]

Is the World Becoming a Better Place?

  It has been ten years since the September 11 terrorist attacks shocked the world. Over these past ten years, the world has been swayed by the ‘war on terrorism’ through events such as the attacks on Afghanistan and the war with Iraq, triggered by 9.11. Obama’s having assumed the presidency has not changed the fact that the Middle East is a battlefield, and the Middle East peace problem has remained at an impasse. There came the sudden Jasmine Revolution in Tunisia, Egypt’s January 25 Revolution that was inspired by the Jasmine Revolution, and the regime collapses in Arab nations, all while those in the Arab nations were still filled with a sense of stagnation toward the state of affairs. As authoritarian Arabian regimes, which had been believed to never budge, were overthrown by mass demonstrations, media and intellectuals in Europe and the US have become optimistic that democratization would start to spread in Middle Eastern nations in a domino effect. One wonders, however, if spring has really come to the Arab world. At the moment, it is a little too early to be joyful about spring having come to the countries where the regimes were overthrown. Spring in Arab nations, centered on the ones in North Africa where the regimes have collapsed, is an unstable season where sandstorms continue for tens of days before the flowers start to bloom.  The Eastern European Revolution and the Arab Spring The optimistic view that the media in Europe and the US have in calling the political changes in Arab nations the ‘Arab Spring’ is due to their seeing these changes the same way they saw the Eastern European revolution of 1989. To be sure, there is one thing that the ‘Arab Spring’and the Eastern European revolution definitely have in common, namely, the […]

Occupying planet earth

As you can gather from our cover feature which appears on Page 3, we are focussing this issue on the differences which are making living intolerable for people around the world. The Occupy Wall Street movement which is now in other countries highlights a whole raft of issues which really do show the imbalances on this planet of 7 billion people. Overnight the Greek government is calling for a vote to have their financial rescue package put into action so the situation has changed already. Food availability is becoming a real problem, especially with the economic growth of emerging nations like China and India. This has brought resource price hikes including crude oil as well as a rapid increase of livestock product consumption due to an income increase among the people in emerging nations. Funny about that. There has recently been comment on whether oil will fall in price now in Libya now that Gadaffi is no longer around. Again as long as consumption is high (in demand) prices for oil will stay that way too. Overall, in the scheme of things, we’re in a mess. Social unrest around the globe threatens stability because people are not getting a fair go. How on earth is the planet going to look after 7 billion people today when she is struggling? When we get to 50 billion who will be growing the crops, what will the quality of the soil be like? Will there be enough transport to move the goods around the world? You concerned about these comments? I hope so because itÕs about time we all did something about the pressures of life we currently have and the future we are facing. The world is not caring enough for its people. Send in your ideas on how to make a […]

BOOKS: Boomerang

  By Michael Lewis Penguin Books $RRP $47 Having made the U.S. financial crisis comprehensible for us all in The Big Short, Michael Lewis realised that he hadn’t begun to get grips with the full story. ÊHow exactly had it come to hit the rest of the world in the face too? Just how broke are we really? Boomerang is a tragi-comic romp across Europe, in which Lewis gives full vent to his storytelling genius. The cheap credit that rolled across the planet between 2002 and 2008 was more than a simple financial phenomenon: it was temptation, offering entire societies the chance to reveal aspects of their characters they could not normally afford to indulge.Icelanders wanted to stop fishing and become investment bankers. The Greeks wanted to turn their country into a pi–ata stuffed with cash and allow as many citizens as possible to take a whack. The Irish wanted to stop being Irish. The Germans wanted to be even more German. Michael Lewis’s investigation of bubbles across Europe is brilliantly, sadly hilarious. He also turns a merciless eye on America: on California, the epicentre of world consumption, where we see that a final reckoning awaits the most avaricious of nations too. This is the ultimate book of our times. It’s time to brace ourselves for impact. And, with Michael Lewis, to laugh out loud while we’re doing it. Extract The Secret Lives of Germans By the time I arrived in Hamburg, in the summer of 2011, the fate of the financial universe seemed to turn on which way the German people jumped. Moody’s was set to downgrade the Portuguese government’s debt to junk bond status, and Standard & Poor’s had hinted darkly that Italy might be next. Ireland was about to be downgraded to junk status, too, and there […]

BOOKS: Her Fearful Symmetry

  By Audrey Niffenegger Random House $38.99 Her Fearful Symmetry is a great book for a dark winter night. It takes place in and around London’s Highgate Cemetery and deals with love, obsession and ghosts (real and metaphoric). The book is quietly suspenseful, slowly drawing readers into the lives of an unusual set of characters before moving into a fast and somewhat frantic climax. Elspeth has been estranged from her twin sister for years, but before dying of cancer, she decides to leave her apartment near Highgate Cemetery to her twin nieces who she has only met once. The condition: the nieces must move from America and live in the apartment before selling it. The twins’ mother (Elspeth’s sister) is not allowed into the apartment. Julia is thrilled to inherit the apartment and have a chance at adventure. Her twin, Valentina, is less enthusiastic, but always lets Julia make the decisions. Once in London, however, Valentina begins to find some independence. She also experiences a strange connection with her aunt, which is further solidified when the twins discover that their aunt’s ghost is living in the apartment. This all may sound a little far-fetched and silly, but if you read The Time Traveler’s Wife, you know that Niffenegger has a gift for taking the far-fetched and making it seem plausible. As she does so, she reveals depth in her characters and looks at the nature of love and control.  

The Global Oil Price Story

It may seem hard to believe now, but for more than half a century, world oil prices have not moved much around the average figure of US $27 per barrel in 2007 price terms. The occasional shifts away from this average have been few and the periods of oil price spikes were relatively short, with the most notable being the OPEC-induced “shocks” of 1970s. Between the mid-1980s and 2003, the real price (that is adjusted to inflation) of crude oil on the major international trading exchanges was typically less than $25 per barrel. The recent rise in the price of oil began in 2004, when it became evident that the US invasion of Iraq was going to be ineffective in securing IraqÕs oil reserves for the US. However, even then the price rise was substantial without being a surge. It is really only in the past year that the global oil price has behaved like a runaway horse, breaking all speed limits and previous barriers. In the three years between January 2004 and April 2007, the oil price in nominal dollar terms increased by around 2.3 times, to $65 a barrel. But in the period between then and early June this year, that is just 14 months, the price more than doubled again, to reach a peak of $139 per barrel on 6 June before coming down very slightly to $132 on 10 June. A price of around $100 per barrel in 2007 prices would be equal to the maximum achieved in the post-World War II period, in 1980. So the global price of oil is now higher in real terms than it has been since the 1920s. And the rate of increase of oil prices in the past year has been the fastest ever recorded. Also, there seems to […]