Economic Crisis in America: Mounting Household Debts, Threat to Pension Funds and Social Security

The experts’ keep telling us how great shopping is this Christmas Season when only 17% of shoppers are using credit cards. That is a drop of 50% from last year, and the lowest usage in 27 years. We guess buyers have unloaded the cookie jar and pulled their savings from under the mattress. The consumer sentiment index has risen 2.6, but we will wait to see if attitudes turn into sales. Home buying intentions continue to fall as interest rates hit 4.66% for a 30-year fixed mortgage this past week, putting a further damper on future sales.

Central Banking 101: What the Fed Can do as "Lender of Last Resort"

The Fed’s invisible hand first really became visible with the bailout of AIG. House Speaker Nancy Pelosisaid in June 2009:

"Many of us were, shall we say, if not surprised, taken aback when the Fed had $80 billion to invest -- to put into AIG just out of the blue. All of a sudden we wake up one morning and AIG has received $80 billion from the Fed. . . . So of course we're saying, Where's this money come from? ‘Oh, we have it. And not only that, we have more.’”

How much more -- $800 billion? $8 trillion?

The stage magician smiles coyly and rolls up his sleeves to show that there is nothing in them. “Try $12.3 trillion,” he says.

Doomsday for the US Dollar: Post Mortem for the World's "Reserve Currency"

Paul Volcker is worried about the future of the dollar and for good reason. The Fed has initiated a program (Quantitative Easing) that presages an end to Bretton Woods 2 and replaces it with different system altogether. Naturally, that's made trading partners pretty nervous. Despite the unfairness of the present system--where export-dependent countries recycle capital to US markets to sustain demand---most nations would rather stick with the "devil they know", then venture into the unknown.  But US allies weren't consulted on the matter.  The Fed unilaterally decided that the only way to fight deflation and high unemployment in the US, was by weakening the dollar and making US exports more competitive. Hence--QE2. 

India and capital flows: A world apart India is caught in two minds about financial globalisation

The RBI has a defensive approach to financial globalisation. The laws of economic gravity suggest capital should flow from where it is abundant to where it is scarce. But, the RBI fears, that flow can overwhelm an economy.
In 2007, for example, it tried to restrain a vigorous inflow of capital by making it harder for foreigners to play India’s booming stockmarket and by tightening limits on corporate borrowing abroad. When capital flows abruptly reversed in 2008, it eased these limits. Now that foreigners are again flocking to India’s stockmarket (see chart), capital inflows are once more playing on the RBI’s mind. At the IMF’s annual meetings in October, the RBI’s governor worried that if he had to raise interest rates earlier than other economies, the gap in returns might attract more foreign money. At the RBI’s latest meeting on October 27th, he kept rates on hold.

New Rules for Hot Money Nouriel Roubini

Capital flows to emerging-market economies have been on a boom-bust merry-go-round for decades. In the past year, the world has seen another boom, with a tsunami of capital, portfolio equity, and fixed-income investments surging into emerging-market countries perceived as having strong macroeconomic, policy, and financial fundamentals.

Such inflows are driven in part by short-term cyclical factors (interest-rate differentials and a wall of liquidity chasing higher-yielding assets as zero policy rates and more quantitative easing reduce opportunities in the sluggish advanced economies). But longer-term secular factors also play a role. These include emerging markets’ long-term growth differentials relative to advanced economies; investors’ greater willingness to diversify beyond their home markets; and the expectation of long-term nominal and real appreciation of emerging-market currencies.

The G-20’s New Thinking For the Global Economy Jeffrey D. Sachs

The Seoul G-20 summit was notable for the increasing political weight of the emerging economies. Not only was it located in one, but, in many ways, it was also dominated by them.

In two crucial areas, macroeconomics and global economic development, the emerging economies’ view prevailed. And an excellent proposal to link the two agendas – macroeconomics and development – emerged from the summit, and should be implemented in 2011.

China’s Monetary Sterilization : Fan Gang

Not long after the United States Federal Reserve Board announced its second round of “quantitative easing” (known as QE2), the People’s Bank of China (PBC), China’s central bank, announced two increases of 0.5 percentage points in the required reserve ratio (RRR) of bank deposits. The RRR now stands at 18.5%, a historic high, even in global terms.


While the Fed is planning to pump more money into the US economy, the PBC is trying to reduce the amount of money in circulation in China. Money used by commercial banks to satisfy the RRR, which is held in accounts at the PBC, can no longer be extended as loans. As a result, more money than ever is now frozen or inactive in China.

India or China? Jagdish Bhagwati

When US President Barack Obama visited India in November and complimented its leaders on the growing success and prowess of their economy, a tacit question returned to center stage: Will China grow faster than India indefinitely, or will India shortly overtake it?

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Private equity in China Barbarians in love Global private-equity firms are seduced by the China dream

SO MANY conferences are held in Hong Kong that it is hard to believe one could ever be full. Yet in mid-November the Asian Venture Capital Journal (AVCJ) was forced, with regret, to turn away customers from its private-equity meeting. There was simply no room for the hordes of European and American investors stopping in Hong Kong on their way to China.

A special report on Japan Corporate euthanasia To boost productivity at home, Japan needs to kill off some of its old, unprofitable companies

THE oldest company in the world is Kongo Gumi, a construction firm based in Osaka. It started building Buddhist shrines in 578AD, and was still run by a man surnamed Kongo 40 generations later. The next four firms by age are also Japanese. According to Yasuchika Hasegawa, chief executive of Takeda Pharmaceuticals (founded in 1781), more than 20,000 Japanese firms are at least 100 years old.

Leaving home Japan’s big companies are shipping production abroad

Japanese firms do 30% of their manufacturing overseas—twice as much as in the early 1990s. Toshiba’s foreign-made share has grown from 52% to 56% in the past year alone. Fuji Xerox and Yamaha Motor boast levels of 80% and 94% respectively. As the yen hits 15-year highs on a nominal basis, there is more pressure to ship operations abroad. “We want to keep domestic production,” sighed Satoshi Ozawa, Toyota’s chief financial officer, this month. “But we are quickly losing competitiveness.” The carmaker already produces 58% of its vehicles abroad.

Son also rises A rare, self-made business leader wants to revitalise Japan through telecoms

“THEY are the losers in battle. When you meet with them, they give all kinds of excuses. They blame the government; they blame the weather!” Masayoshi Son, the founder and boss of Softbank, Japan’s third-biggest telecoms operator, has little patience for the risk-averse managers of the country’s sluggish industrial behemoths. Entrepreneurs like him “don’t give excuses for how tough the battle is, and how tough the handicap is—we always fight.”