The report “Social Panorama of Latin America 2009″, presented by the Economic Commission for Latin America (ECLAC), projected that about 9 million people fall into poverty, the 2009 product of the economic crisis, which means an increase of 1.1% over the 2008. This figure marks a reversal in the trend shown in the period 2002 to 2008, representing 25% of the total population that had escaped poverty.
The current global crisis will cause nine million people in the region to fall in poverty this year, according to the ECLAC report Social Panorama of Latin America 2009, released November 19.
Source: Economic Commission for Latin America and the Caribbean (ECLAC), based on special tabulations of national household surveys.
a/ Estimates for 18 countries in the region plus Haiti. The numbers on the top part of the bars represent the percentage and total number of people living in poverty (poor and indigent).
In the study, the Economic Commission for Latin America and the Caribbean estimates that poverty in the region will increase by 1.1% and indigence by 0.8% with regard to 2008. Thus, people living in poverty will reach 189 million by the end of 2009 (34.1% of the population), compared to 180 million in 2008. Also, indigence will reach 76 million (13.7% of the population), up from the 71 million last year.
These numbers depart from the trend towards poverty reduction until now prevalent in the region. The nine million poor and indigent represent almost a fourth of the population that had already overcome poverty between 2002 and 2008 (41 million people), due to greater economic growth, the expansion of social spending, the demographic bonus and better income distribution.
The study was presented today by ECLAC Executive Secretary Alicia Bárcena, who stressed the urgency that the region develop a new long-term social protection system.
“We can’t say that all that was attained between 2002 and 2008 has been lost. It is not a lost period. However, the rise in poverty calls us to action: we need to rethink social protection programmes with a long-term, strategic perspective and measures that make the most of human capital and protect the income of vulnerable families and groups,” she said.
The projected increase in poverty for 2009 will delay the compliance of the first Millennium Development Goal of eradicating extreme poverty and hunger by 2015: the 85% of progress on this goal in the region in 2008 will drop to 78% by the end of 2009.
Some countries may experiment a greater increase in poverty than the regional average, such as Mexico, due to lower GDP and deteriorating employment and salaries.
The current crisis will nevertheless have less impact on regional poverty than prior crises, such as the “Mexican crisis” in 1995, the “Asian crisis” in 1998-2000 and the Argentinean and “dot.com crisis” in 2001 and 2002. For now, the region has been able to maintain the purchasing power of salaries and low inflation.
Income distribution in the region improved significantly from 2002 to 2008. During that period, inequality improved in seven of the 18 countries included in the study and worsened in only three.
Governments in the region have made great efforts to increase social spending. Between 1990 and 2007, public social expenditures per capita rose from 43% to 60% of average total public expenditures in Latin America.
“This shows that it is possible to grow and redistribute, expand social spending and be fiscally prudent to significantly improve living conditions of the population. Latin America is not condemned to be poor or unjust,” stated Bárcena.
For the future, ECLAC suggests reforming social protection systems and adopting both urgent short-term measures as well as strategic long-term ones. In doing so, governments should avoid fiscal irresponsibility and rigid labour markets, increase taxes progressively, redistribute social spending and extend coverage of social services.
Likewise, ECLAC recommends strengthening government assistance transfer programmes, among them conditional transfer programmes (CTPs). There are CTPs in place in 17 countries in the region, encompassing over 100 million people; that is equivalent to more than half the population living in poverty in Latin America.
ECLAC proposes a set of measures as a guide for countries to offset these results:
Dubai’s House of Cards
Dubai is the leading exponent of housing bubbles that have occurred worldwide. Eccentricity of management has turned a city in the middle of the desert in a field full of hotels and skyscrapers. It was a time – the golden era – when anything was little for the Emirate.
But the crisis has beaten hard Dubai. Works have stopped and credit flow is dead blocked. Up to the point that, yesterday the state holding announced a moratorium on payment of $ 4 billion debt – the same holding that built the famous Jumeira Palm Island. This did not sit well with international markets.
The problem is that the Emirate owes $ 80 billion and markets begin to have doubts about its solvency. As soon as the moratorium on debt payment was announced markets felt down. The worst financial crisis could recur. But instead of banks’ cessation of payments we may now witness States’ suspension of payments.
Speculative Bubble Emerging
Meanwhile, in another part of the planet – the United States – the policy of the Federal Reserve to keep interest rates near zero is fuelling a wave of speculative capital that can initiate the next crisis. Many warn that a new bubble is brewing, and several specialists see in this quantitative easing an equivalent outcome Japan had for its crisis of the early 90s. Low Japanese interest rates did contribute definitely to the outbreak of the Asian crisis in 1997.
Ben Bernanke, an academic on the Great Depression, monitored the most massive injection of liquidity into the world’s largest economy, committing himself not to make the mistake of the 30s when the Fed officials pursued a strict and rigorous monetary policy that only aggravate the crisis further enough. The lack of available money in 1930 is regularly considered the reason why the crisis lengthened for a decade. The little response to current liquidity injections shows that the situation is all but comforting and that new limits of monetary policy may further alter the global imbalances that the crisis left uncovered.
One of these speculation operations is the so-called carry trade; investors borrow in $ (0%) headed for invest in other currencies that offer higher interest rates such as Australia, Brazil and New Zealand. Much of the flow in the capital markets moves ahead that direction. Hence the importance that Asian and Oceania assets are acquiring versus Europe and US assets. Korea, Taiwan, Hong Kong and Singapore assets are rising to levels that are incompatible with the reality that replicates the real estate bubble of US in the 90s and Japan in the 80s – when the Imperial Palace Gardens in Tokyo came to cost more than the entire US state of Washington.
Despite this, former Fed Governor Frederick Mishkin assumed thatthere is no evidence that a speculative bubble is emerging, since not all bubbles present risks to the economy. Mishkin split good from bad bubbles. The former are instigate by a credit boom, whereas expectations lead to increased demand, generating a rise in asset prices, encouraging lending against those assets and positive feedbacks cycle until it explodes.
The second category of bubbles what Mishkin calls “pure irrational exuberance bubble” is less harmful because there is no credit boom, and if no credit boom occurs the bursting of the bubble can not damage the system – e.g. the bubble in technology in the ’90s and the dotcom’s of 2000, had no global impact. For Myshkin the rise of the credit stirs the bubbles. Now, there is no credit boom in small scale. But bubble is building on the macro scale of speculative capitals, those who move billions of dollars of pension funds, the very same that play in the stock market or speculate on the gold and oil at the expense of the dollar. And at macro levels, everything where bubbles get involved presage awful signs for the economy. Otherwise, it’s like thinking that a bomb may have some positive effect.
Bank secrecy and tax havens have now become a key factor for international transparency. Their linking to corruption and money-laundering has been uncovered by the financial crisis. This is one of the reasons why developed countries must tackle corruption internationally, a curse that uses secrecy to screen dirty money transfers. In this interactive map you can have a look on the transparency level in 180 countries surveyed and here is the index.
While New Zealand, Denmark and Singapore top the list of the most transparent countries in the world according to this survey of « perception of corruption », Spain lost four places in the ranking (28th to 32nd), France gets back from 23rd to 24th position, UK move back one place, same as US – demonstrating that the perception of corruption has risen. In the presentation at its headquarters in Berlin, the organization has emphasized the fight against tax havens noting that « there must be no safe haven for corrupt money ». Like every year, countries at war are perceived as the most corrupt, with Afghanistan and Somalia as the worst two.
In Latin America, Venezuela is one of the world’s most corrupt countries, ranking 162, while Chile and Uruguay are located as the least corrupt sharing 25th place, followed by Costa Rica (43) and Cuba (61). Brazil shares with Colombia and Peru where 75, Mexico shares the 89 with Rwanda and Argentina is 106. China is located in 79th.
Since 1955, the organization publishes annually an index of perceptions of corruption ranging from a score of ‘10’ for a country perceived as « transparent » to ‘0’ for one seen as « corrupt. » Transparency International does not spare criticism of industrialized countries in a time when governments attempt to revive the economy by injecting a huge mass of public capital on growth aid programs.
The first defendant is bank secrecy « affecting efforts to fight corruption and recover stolen assets”. In that sense, IT downplays its own index, indicating that the problem of banking secrecy concerns « many countries that lead the classification », such as Switzerland in fifth place and Luxembourg on the 14th. So, the report points that
« The money derived from corruption should not be able to find refuge areas. It’s time to end the excuses.»
As for the great revival plans launched by the industrialized countries, Transparency International warns its perverse effects.
« When you spend a lot of public money very quickly and the authorities that control programs are being overwhelmed, the risk of corruption increases. It is a major risk factor », said the president of Transparency in Germany, Sylvia Schenck.
One thing is clear under current circumstances: the existence of tax havens made easier the crisis to strengthen; hence, the obligation to besiege these sources of corruption.
A report published early September 2009 by Maplecroft – a British cabinet expertise on global risks – shows that the most vulnerable countries to global warming are Somalia, Haiti, Afghanistan and Sierra Leone. Twenty-two of the 28 countries exposed to “extreme risk” are located in sub-Saharan Africa.
In the meantime, the Asian Development Bank presented in Manila the results of a conclusive report: melting of Himalayan glaciers threatens the food security and water availability of 1.6 billion inhabitants of South Asia. In New York, Rob Vos, director of the UN Department of Economic and Social Affairs (DESA), ruled that ” If we do not reduce significantly GHG emissions, the damage to the [economies of] poor countries as a percentage of GDP[ gross domestic product] will be up more than ten times greater than in the United States and most other developed countries ” [1] . Mr. Vos commented on the report by his department. According to the conclusions, investments should be done every year in climate change mitigation and adaptation to its effects by 1 % of world’s GDP, i.e. more than 500 billion dollars.
A few months earlier, in May 2009, the United Nations had issued a report about the international strategy on risk reduction -launched in 2000. The document operates the first synthesis of knowledge about natural disasters that have occurred between 1975 and 2008. Even if he admits the document is not exhaustive, the text nevertheless represents a unique body of knowledge.
Between 1975 and 2008, 8.866 disasters have killed 2.284.000. Regarding flooding, the risk of death increased by 13% between 1990 and 2007. The picture is not, if we dare say, equally catastrophic. The absolute number of human or economic losses increases throughout the period, but it remains proportionately stable because of demographic and global GDP growth.
But according to UN experts, the situation would deteriorate because of climate change and ecosystems degradation. The latter is a factor too often ignored. Albeit not apple to apples, ecosystems manage to cushion the impact of natural disasters. Regarding climate change, it will increase the risk of disasters. The vulnerability of populations is one of the other factors that accentuate the risks. Action by Governments (earthquake standards, etc.) becomes crucial: Japan and the Philippines suffer roughly the same number of typhoons, but they cause 17 times more deaths in the Philippines than in Japan.
Have a look on Mr. Rob Vos’ press conference here enclosed:
The US economy yesterday offered a robust data that, at least temporarily, allowed closing the world’s largest economic downturn since the Second World War.
Budget deficits, 2001-2010, by EU region · Déficit presupuestario 2001-2010 por región UE (Source: Ronan Lyons Economic Analysis, Oct. 16, 2009)
American GDP growth in the third quarter was 3.5% after four consecutive quarters’ drops. The positive data was expected by analysts, but the strength of the US economy stunned – and pleased – the world stock markets and particularly the Dow Jones index, which rose above 2%. The turnaround from the Q2 (-0.4%) suggests that the incentive plans of the U.S. government, an interest rate of 0% practice, the takeoff of the upturn in private consumption and housing are sufficiently solids to undertake corrections in a few months which would put the economy outside the ICU. If so, we would not be far from a very modest increase in interest rates by the Federal Reserve, an assessment that, sooner or later, should be followed by the European Central Bank, especially if consolidating the growth in Germany and France. In the case of Spain, data also released yesterday show the fifth consecutive quarter of economic decline, although it is true that the deterioration has been moderating in the last three quarters we have moved from -1.9% (Q1) and -1.1% (Q2) to -0.4% in Q3. We are, according to the Bank of Spain, in an “incipient recovery” that entails a great deal of risks: the worst unemployment rates, intolerably increasing next to18.2%, deficit escalating close to 10% of GDP and an upward lack of credit to businesses and individuals.According to the latest figures in relation to countries under the Excessive Deficit Procedure (EDP) of the European Commission, the general government deficit of the euro area lay at 6.1% of GDP in 2009.As a result, the EU-15 public debt the will increase as of 69.3% GDP in 2008 to 78.4% in 2009. By 2010, however, it is expected to further increase on average 6.6% of GDP.At disaggregated level, most euro area countries in 2009 recorded a deficit exceeding the 3% of GDP, while all euro zone countries will infringe the maximum allowable deficit in 2010, according to latest IMF estimates.
Thus deficit cuts jump out over 0.5% per year, mostly in countries with higher deficits.
And what are these countries? Ireland, Greece and Spain showed the highest euro area’s gap budget, both in 2009 and 2010. In particular, Ireland’s public deficit will reach a rate close to 13% of GDP, according to recent estimates. Greece exceeds 12%, while Spain recorded a deficit of 9.5%, along with the IMF.
In 2010, these three countries will continue to be leaders in fiscal imbalance: Ireland (13.3%), Spain (12.5%), while Greece will approach 10%, given its public accounts inaccuracy, only just admonished by the Eurogroup Chairman Jean-Claude Juncker.
Designing a tax for everything that contaminates incites people to preserve environment, the atmosphere in particular, which is in serious danger. The idea is to penalize polluting energy in transport, housing and personal consumption. Every time we consume less fuel but this is not enough to achieve the goals set at the last conference on climate change: hence the idea to programme a compulsory tax (to be paid per tonne of fossil fuel issued). This in order that the world decrease to half the emissions of greenhouse gas (2050) and limit Earth warming to 2 degrees – which causes climate change.
Global warming due to greenhouse gases from the combustion of carbon dioxide is 49,000 million tons of CO2 emissions. Enough is enough, this must be punishable. Its effects could lead to an overall increase of 3% of the temperature within approximately 100 years. The cost of global warming is estimated at 5,500,000 million (Nicholas Stern) [1]. While the concept of a tax on CO2 emissions comes from Arthur Pigou (Economics of Welfare) [2] who, in 1920, first established the polluter pays principle.
Now …
Should we tax the product itself or the energy consumed?
What about taxing imported products?
How do we avoid the risks of inequality?
What can we do with the tax revenue?
The solutions adopted by each country are different. France, with about 50,000 million of environmental taxation laid up, shows a certain delay. The structure of French environmental taxation is so unwise by voluntarism emphasis that it will not generate benefits in the sense of net contribution or revenue – but only more taxes on water, on garbage, on the consumption of hydrocarbons (TIPP) which are not reversed in any improvements (infrastructure, citizen responsibilization); on the contrary, it is the umpteenth patch covering the phenomenal public deficit hole. The pedagogy turns into a demagogic fatalistic verbiage as to mislead the common man – because it ignores the virtues of consensus that in all the surrounding countries is originated in the parliamentary debate, which is where popular sovereignty revives up and where such taxation should be decided, not in the halls of the presidential palace – a very usual symptom in the French Republic whose skin politicians refuse to change. These rates represent 3% of GDP … thrown away. Unless considering France as the cleanest country in Europe thanks to its huge nuclear program, which on the contrary converts this country in less safe by the obvious potential for nuclear incidents due to its atomic central park and may involve in quantity of radioactive wastes concerned – the highest per capita in the world. The rhetoric continues, forward flight, too. The only positive point is that hydroelectricity accounts for 93% of energy resources … with the aggravated disadvantage that the driving force’s the nuclear cell. Who do we kidding? If the decrease in CO2 emissions must involve the breakneck growth of the nuclear beast, then where do we go? Stripped from one mouth to feed another.
Moreover, the tax on CO2 emissions in a country is not really quantifiable to impact CO2 emissions at the global level. Global policies are needed to internalize environmental costs and act on the behaviour of firms and households. That is the healthier principle. France is wrong in the way of carrying it out: confusion over the extent rate itself (cheerfully going from 20 to 32 for up to 100 euros / TN emitted by 2030, then left who can say where?) over the exemptions, over its operation. The increased cost of living is set: estimated at 10% the additional costs of household heating in French homes by 2010, from 5 to 10 cts. for a liter of fuel at the pump now. Another consequence is that the tax, as is, will ruin the remaining local industry (current bleeding is the largest ever seen in France) and as usual, only a few (large) groups will afford to face such additional costs in the midst of an industrial desert. Who will invest in a country that overtaxes 100 euros each emitted CO2 TN? As for the wicked 35h law, nor study or reflection has been implemented and no effort tryed to coordinate with other European countries. The devil is in the details, French say …
The topic of compensation is often talked about, but what about inequality between consumers? What to do with the € 8,000 million that the government is supposed to enter through the concept (e.g. fatten the coffers of the ministry of finance)?
Swedish pedagogy against French demagogy Other countries as Sweden have also established a carbon tax, even more substantial, but with a very different modus operandi: e.g. Swedish tax implies a graduated scale for companies that invest more in technological innovation to improve production processes in CO2 emission – now that is pedagogy. It’s bad times in terms of economic crisis situation but action is credible in Sweden and demagogic in France where nobody knows whether the tax will be redistributed or yet another ‘neutral’ tax – that is, outside of Pigouvian incitement, which has the favour of Prime Minister Fillon.
Because the environment policy can not be summarized to raise the level of taxation or implementing new taxes, unless you’re old tricks again and increase unemployment and public debt. Two years back here it was the bonus / malus tax on car CO2 emissions (an onerous marketing device that ruined much of the automotive industry, with a fall of 40% of French production, forcing car manufacturers to abandon the profitable manufacture of sedans to engage in small cars’ on which the profit margin is zero or nearly zero), last year was the tax on diapers for newborns turn, this year it is the time of a tax on CO2 emissions … a joke (or better yet, a shortsighted policy).
The temptation to tax the super profits of the oil industry (Ségolène Royal) would only have negative repercussions in the pocket of the consumers. Better a tax that changes that behaviour and not simply going to fatten the coffers of the state and its lifestyle. Report and well communicate with citizen, having a little patience not changing everything at a stroke or by decree.
Taxation reforms are essential throughout our countries. We talk about tax incentive and not subsidies e.g. car industries so that they manufacture a kind of cars that they would have made anyway. Let’s face green taxes; it is just and necessary, but mostly to help us getting out from the unending virtual crisis of rampant capitalism, far from the real economy. No green custom duties at European borders, a trend advocated by some, in their eagerness, to lead us into a new protectionism; but rather concentrating on comprehensive policies, at least in Europe, better globally. It is useless to establish national policies not coordinated with the rest of countries, giving way to protectionist policies more or less latent: have a look on the global trade drop of 12%, if you want to add more crisis to crisis just add the perversion of protectionism to all the difficulties we face today. The environment is a global public good. To be honest we do not know how to deal with externalities steadily i.e. when China or Brazil pollute, they do not so in their respective territories only but in the entire world. Enforcing tariffs however is theoretically a nice building, but in practice it is just about regression. Also do not forget that China’s censure is unfair: the PRC is making genuine efforts to drastically reduce pollution in its industries – and it still does not occur in most of developed countries.
One of the biggest questions is to identify what the US attitude will be. So far the US had no concern on the Kyoto Protocol; the position is changing but it all depends on the type of changes that comes about there. Scenarios abroad are in my opinion: the role of the G20, the Doha WTO round re-launch and the climate meeting in Copenhagen. All three turn around the same concern: the need for global economic governance to meet challenges.
Pedagogy missing in the US and UK.
The increasing size of speculative capital flows, mainly in US and UK, is the pending business. I mean speculative capitals and hot money outflows are bigger now than a year ago – in the worst moment of financial-mortgage crisis. Hot money is tossed into the emerging economies as the first symptom relief crops up. Thus, the central bank of China is increasingly doomed to buy huge reserves to support a sick dollar (thus some $ 70,000 million per month, are beyond the circuit of productive investments in order to prevent the US currency to collapse again), deflecting precisely investment in productive economy. That is, in essence, we have not yet altered the global imbalances, and even we are somewhat higher than before the crisis. The issue of executive bonuses and allowances is less significant than the required dismantling of the opacity in the banking investment -something impossible in the most key European financial center, the City of London, since the future PM Cameron opposes to it. This, in US terms, is yet unimaginable. So far the best indicators of the City and NY – queues at the best restaurants – behave well as table reservations vary from 2 to 3 months … bonuses, windfalls, luxury cars, stratospheric contracts are just around the corner again. To pin a button: flows exchanged in the derivatives markets reached a record of vertigo – almost 10 times world’s GDP. So how can David control Goliath?
To be continued …
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[1] The Stern Review on the Economics of Climate Change is a report on the impact of climate change and global warming on the world economy. Written by economist Sir Nicholas Stern, commissioned by the UK government, the report was published in October 2006. The report represents a milestone by becoming the first government report commissioned by an economist rather than a climatologist.
[2] Arthur Pigou is considered the founder of welfare economics and the main precursor of the environmental movement to make the distinction between social and private marginal expenses and advocate for state intervention through subsidies and taxes to correct market failures and internalize externalities. Welfare Economics is his most emblematic book.
For some time, something smells bad in Wall Street, and despite the outright rejection that the greed of the system brings about, fraud is still the order of the day.
This time, the offensive from the authorities did not take long to show up when last Friday 16th October six people were arrested for using illegal inside trading in a financial hedge fund. Among them, investment managers Raj Rajaratnam – a 52 year Sri Lanka billionaire – and the hedge fund guru Mark Kurland, who handled $ 7,000 million dollars assets. Wall Street thriller goes on.
Along with four more people under arrest, they have been charged with profiting from insider information and manipulating assetsthat caused more than $ 20 million illegal profits. According to FBI records, this case has emerged as the largest fraud in hedge funds, investment funds that have been targeted since the beginning of the crisis on its no supervision and facilities open to fraudulent transactions.
The dismantling of this organization – orchestrated by Rajaratnam Galleon Group initiator –was made possible through wiretaps performed by the FBI. With this, the research bureau shows that the office gives to these fraud cases the same treatment than fighting drug trafficking and organized crime. Similar to Bernard Madoff, Rajaratnam enjoyed a great protection net due to be an active donor of resources to political parties.
After accusations of inefficiency and delays in monitoring cases like Bernard Madoff, SEC and the FBI have started up operational plans to clean the large image of corruption surrounding the financial sector. Rajaratnam and Kurland’s fall is just one of many to come. Part of the resolution of conflicts that sparked the current crisis, settles into purge the image of the financial sector and eliminate corporate wrongdoing.
A few analysts seem to think it is all over and have cheerfully proclaimed an end to the recession. Far from it. Normality is far off. It will take a very long time for production, employment and unemployment to return to pre-recession levels
The healine above is from the admonition of Mr. Mervyn King. The governor of the Bank of England, stated literally during a press conference:
“It’s the level, stupid — it’s not the growth rates, it’s the levels that matter here”
I got this quote from Mohamed El-Erian’s article in the Financial Times. Dr. El-Erian coined the phrase the “New Normal” for economic growth. While I agree with his conclusion, I don’t entirely agree with his analysis for the “New Normal”.
In his article Mr. El-Erian talks about how we are slipping back to the same analytical framework that encouraged “short-termism” and got us into this jam.
“Investors have not yet accepted his [Mr. Mervyn King] insight that the absolute levels of income, debt, wealth and unemployment, not just the rates of change, are what matters today. They need to, and soon.”
And we see this analytical framework at work everyday in the traditional business news media. Take a look here US Consumer Spending Jumps the Most since 2001, thus pointing an economic rebounding… funny, if you click the link the title of the story changes to something less obvious.
So, let’s take a graphical look at some of the US indicators that Dr. El-Erian mentioned in the above quote. First, income:
Interesting, could it be that the top income brackets are driving this higher? But we still have a way to go to get back to “normal”. How about consumption:
This is a huge problem. We have done nothing to change our economic growth model that relies heavily on consumption. If we maintain the status quo in terms of our economic growth model we have a very long long way back to “normal”.
What about debt levels?
Not a nice-looking picture. If we look at overall levels of debt this is still too high. Then how about the worst limitation on economic growth:
No more words needed…
As Dr. El-Erian said:
“The longer it takes for investors and the policy consensus to shift to the appropriate analytical framework – one that factors in levels rather than just rates of change – the greater the risk of disappointment in 2010.”
I would emphasize that unless we change our framework and realize that we are heading towards a “new normal” with incredibly high structural unemployment and that we are not prepared to deal with it, we are bound to much greater problems than a bear market.
The promise of a new US president with fresh ideas has been eclipsed by developments: a economy more and more ‘contracted’, elevated unemployment and a devastated – and also wicked – financial system. Rigid new financial regulation and economic stimulus plans are at the order of the day but confidence will not be easily restored. After George Bush’s last exhausted years, a new political agenda takes shape. Greater international co-operation on global issues such us climate change have featured president Obama’s strategy. The US military presence in Iraq has also begun to slow down. Despite these ‘warmer’ guidelines, trade policy has definitely become more protectionist.
Education needs to be made available to more African children
Many development analysts assumed in relation to the last G20 summit in Pittsburgh that it might not forget about Africa in its talks on the financial crisis. Developing nations on the continent are being especially hard hit at a time when things were starting to look up.
Africa’s developing countries are suffering even more from the financial crisis: not only are they having to make do with less development aid funding, but the amount of money that emigrants are able to send back to support their families at home is much smaller.
The economic crisis will make it harder to reach development aid goals
The crisis is threatening the hard-won progress made in Africa’s developing countries at a time when the situation was starting to improve. African national economies were showing an average growth of 5 to 6 percent in recent years. Kenya, for example, has seen the development of a middle class that invests in its own economy. Outside money, including from newly industrialized countries such as China, Brazil and India, had considerably upped the level of foreign investment. The International Monetary Fund (IMF) estimates that foreign investment and credit for Africa increased to $53 billion (40 billion Euros) – five times the amount in 2000. But Donald Kaberuka, president of the African Development Bank, warns that the crisis could unravel this progress.
“We have to distinguish between the financial crisis and the economic crisis,” Kaberuka said. “Until now, (the financial crisis) has not hit a single African bank, but it has affected national economies. For 2009, we’re expecting an average maximum economic growth rate of 4 to 4.5 percent, no more. And it could well turn out to be smaller. We have to mobilize inner-African capital. We have very rich and very poor countries in Africa. On the regional level, the African Development Bank has already managed to mobilize capital, but not for the continent as a whole.”
Fears of a setback
Ad Melkert is a UN under secretary-general and an associate administrator of the UN Development Program (UNDP). He also fears that Africa will suffer a setback.
“This is all happening after a considerable number of African countries have, over the past few years, experienced significant economic growth and an increase in jobs and investment,” Melkert said. “Now, there’s a reversal. That means when the international community – the G20 – meets in April in London for its financial summit, they have to work out an international agenda there. They have to ensure that they factor in Africa, because this is an international financial crisis that is having effects worldwide.”
Growth rate of 3.4 % expected for sub-Saharan Africa
International institutions such as the Organization for Economic Cooperation and Development (OECD) are calling for multilateral risk management for the financial markets. In Davos, some major actors called for the creation of global economic council. The inclusion of developing countries in such bodies will be decisive, says Melkert. The UNDP representative is hoping for a clear statement from the G20, as otherwise, the UN’s development goals will be in danger of failure.
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“The crisis has created a totally new starting position,” he said. “It really does mean a setback, even for really successful countries like China, for example. We’ll have to really go the extra mile now if we’re to reach our development goals.”
Despite the crisis, some industrialized countries as Spain and Germany have committed themselves to raising development aid bit by bit to reach 0.7 percent of their gross domestic product. Melkert advises other wealthy nations to also maintain their development aid goals.
“There’s no alternative to investing in development goals,” he said. “I hope that the G20 summit will help, I hope that the new American administration under Obama will support the Millennium goals even more. I hope that the Europeans keep their promises and invest more in development policies each year. And I hope that the growing middle classes in Africa, Brazil or in India pay their taxes and use this tax money to fight poverty.”
Poverty remains a major challenge
Although the global fight against poverty has made progress, the percentage of poor people in Africa hasn’t gone down at all, due to the continent’s fast-growing population. With a poverty rate of around 50 percent, the share of extreme poverty in the total population hasn’t changed, and Melkert fears it could even get worse.
“We have to be really ambitious here and take the problem of poverty really seriously,” he said. “With this financial crisis, more people will be forced into poverty than in years past.”
There are worries that more Africans will slip into poverty
The IMF has revised its growth projection downwards and has forecast an economic growth rate of just 3.4 percent for sub-Saharan Africa. But all African governments have to take political responsibility, says Melkert. He points to examples from Latin America, saying Africa should learn to also create effective social security systems and incentives for development.
“Good systems have been established in Latin America,” he says. “There, families get money if they send their children to school or get them vaccinated. Africa should follow this example. The World Bank, the UN or bilateral donors could financially support such a system. That would help the poorest people to have a minimal income to buy food, send their children to school or care for their health.”
He advises the international community to be patient and take a long-term view when it comes to supporting development goals – despite the global financial crisis.
“You don’t make development progress from one year to the next – it’s a question of 10 or 20 years,” Melkert said.
Interesting interview that Josh Ruxin–founder of the new NGO Rwanda Works, Professor at Columbia University, and Director of the Millennium Global Village Project in Rwanda, just had with BigThink.
In the interview, Ruxin describes his current work in Rwanda helping to promote access to healthcare and sustainability, as well as his profound insights into the policies that actually work to advance international development. Among the many current practices that Ruxin explains are simply not working, include the widely-praised spread of microfinance loans, which Ruxin believes are not nearly the “panacea” many believe them to be, and are not actually creating any significant progress in much of the developing world–particularly not sub-Saharan Africa: http://bigthink.com/joshruxin/the-case-against-microfinance-loans
Ruxin also discusses the urgency of developing sustainable agriculture in the developing world as a way to solve an array of problems, and describes some of the creative new approaches to affordably promoting sustainability in Rwanda and surrounding countries that currently being refined to meet these challenges: http://bigthink.com/joshruxin/the-key-to-developing-rwanda
ONGs y microfinanzas en Africa: la experiencia reveladora de ‘Rwanda Works’
Interesante entrevista (en inglés) que Josh Ruxin ha concedido a BigThink. Josh Ruxin es el fundador de la nueva ONG Rwanda Works, Profesor de la Universidad de Columbia, y director del Proyecto de la Aldea Global del Milenio, en Rwanda.
En la entrevista, Ruxin describe su trabajo actual en Rwanda para ayudar a promover el acceso a la asistencia sanitaria y la sostenibilidad, así como sus reflexiones lúcidas sobre las políticas que funcionan realmente para promover el desarrollo internacional. Entre las muchas prácticas actuales que Ruxin considera simplemente inoperantes, incluye la propagación del muy encumbrado sistema de microcréditos. Ruxin los juzga de tal forma que cree que no son ni la “panacea” que muchos quisieran, y no son, puesto que no representan en realidad un avance significativo en la mayor parte de el mundo en desarrollo – en particular, para África subsahariana: http://bigthink.com/joshruxin/the-case-against-microfinance-loans
Ruxin también razona sobre la urgencia en desarrollar la agricultura sostenible en el mundo en desarrollo como una manera de resolver una serie de problemas, y describe algunos de los enfoques nuevos y creativos para promover la sostenibilidad asequible en Rwanda y países vecinos que actualmente se está perfeccionando para enfrentar estos desafíos: http://bigthink.com/joshruxin/the-key-to-developing-rwanda
Asimismo Ruxin examina cómo un aumento en los derechos reproductivos de las mujeres es una de las cuestiones clave en el desarrollo internacional y por qué los funcionarios de la administración que desean invertir en ayuda al desarrollo han de proporcionar muchos más fondos para la planificación familiar: http://bigthink.com/joshruxin/the-link-between-womens-rights-and-economic-success
Aunque, como dice mi buen amigo Justo Almendros, La Vanguardia es el único periódico que ofrece noticias con 3 dias de retraso, confieso que sigo los artículos de fondo de algunos como J. Antich o E. Juliana (y evito los despropósitos de otros, léase P.Rahola, que, aunque inteligente, me pone de los nervios).
Leo hoy un papel elocuente de Enric Juliana en LV. Y a la luz de su escrito me vienen estos comentarios a modo de escritura automática.
Aznar daba la impresión de determinación y coherencia. Zapatero, muchas veces admirable en su determinación por hacer avanzar la sociedad española y posibilista en su gestión de las diferencias territoriales, da ahora la sensación de improvisación en materia económica.
Da la impresión que, algunos como Aznar, supieron gestionar en su momento la bonanza económica (incluso la descomunal bonanza del ladrillo) y capitalizarla para el futuro. Mientras que otros, léase Zapatero, no saben gestionar la economía en tiempos de crisis, porque no supieron capitalizar los tiempos de bonanza económica.
Algunos amiguetes de Zapatero le susuran al oído de subir los impuestos, lo cual ninguno de sus correligionarios del G20 proyecta ¿Con estas intenciones va a Pittsburg???
La economía no puede ser el atajo ideológico y oportunista de algunos como José Blanco. Faltan sensatez y planteamientos macroeconómicos a medio plazo. Sobran la incoherencia de personajillos de dudoso credo -como Miguel Sebastián- o con los arneses ideológicos como los de la inexperimentada y maximalista talibana económica Elena Salgado.
Sarkozy – y no solo por efecto de recencia – bajó los impuestos a principios de su mandato para el 95% de los franceses, es decir la ingente clase media. Resultado: tasa de paro hoy en el 9%, destrucción de empleo en franca disminución, crecimiento económico de 0,3% en el primer semestre, 0,7% previsto a fin de ejercicio de 2009, poder adquisitivo estabilizado. Quién da más? Las cifras de la economía española, mejor me las callo…
Creo que buena parte de los españoles teníamos la mosca detrás de la oreja durante los años de la bonanza del ladrillo. No había que ser muy listo para darse cuenta de que estábamos construyendo nuestro futuro sobre arena. Luego vino Zapatero y empezamos a darnos cuenta que el pájaro era un tanto inepto en economía, un presidente que gobernaba a bandazos y al que encima le cayó la recesión. Y ahora, ¿qué hacemos?
Por eso, se me ocurre a contrario de Enric Juliana en su artículo (“La tentación bonapartista: el admirado Sarkozy”) lo de Sarkozy capitán de barco, Zapatero marinero de agua dulce…
Aunque, como dice Lluis Bassets hoy en El País, cuán diferente es el caso de los añorables Helmut Kohl y Angela Merkel: no hay trampa ni cartón, valen lo que valen y se les debe valorar por sus acciones y (buenos) resultados.
“[…] Todo lo contrario de lo que representan los prototipos de Sarkozy o Berlusconi, dos variedades, ciertamente de distinta calidad moral, en la fauna contemporánea del poder que comparten narcisismo, vanidad e hinchazón del ego, características ajenas a la sicología de la canciller [Merkel].”
¿Es en el espejo de ésta en que se reconoce Zapatero o en el de aquellos dos?
In light of the potentially weakening effects, it is crucial both for African and world leaders and policy makers to discuss the possible responses to diminish the impact of crises on the continent.
One way of responding successfully to the crisis is to give priority to building African markets. In particular, policies to strengthen the African markets and institutions necessary to promote growth and ensure that African economies are more resistant to external shocks. There is also a need for tighter regulation of African financial markets. Moreover, creating a more conducive business environment to reduce costs and limitations associated with doing business in African economies to raise their profile as a business destination less expensive, less risky and more profitable, helping to attract more Foreign capital flows and investment in the context of a capital market has become considerably more risk averse following the onset of the financial crisis. The reforms that encourage foreign direct investment and portfolio flows and the measures that raise the level of confidence in financial systems in Africa can have an equally positive impact.
Sub-Saharan Africa is dropping behind in infrastructure
Source: Preliminary results AICD 2008. African Perspectives and Recommendations to the G20. Committee of African Finance Ministers and Central Bank Governors. 21/03/09
.
The expansion of trade with other developing countries represents another potential means to ease the severity of the negative effects of the crisis on African economies. Global trade statistics suggest that trade between developing countries as percentage of total world trade, and therefore world trade has been increasing for quite some time. In fact, trade in goods among developing countries grew at an average annual rate of 13 % between 1995 and 2007 and in 2007, represented a fifth of total world trade flows. It is vital for Africa to increase their share of this link between South-South trade to offset some effects of the anticipated decline in demand for their commodity exports. Along with this is the need to increase intra-regional trade flows and trade in Africa in order to reduce the dependence of African economies in overseas markets. [3]
Similarly, measures to improve South-South economic cooperation, particularly in terms of investment, financial flows and joint efforts to stabilize foreign exchange rates and debt, should be investigated. In particular, South-South several measures to address potentially available for African countries to tackle the worst effects of the global financial crisis. First, the increased funding of regional development banks could offset the anticipated slowdown in international aid and donor funding for African economies. Secondly, regional stimulus packages could be implemented to help sustain the market and sustain economic growth. Similarly, regional agreements could be used that are specifically designed to mitigate the impact of financial shocks through, for example, the provision of international financial liquidity through swaps. Finally, African countries burdened by high debt levels, measures to diversify foreign exchange reserves could be adopted whereby the purchase of other developing countries “that debt.
Globally, according to the World Trade Organization Director General Pascal Lamy said reaching a global trade deal that represent a relatively simple way to alleviate the effects of the crisis. The promise of such a comprehensive agreement “is particularly attractive to African economies, which are perhaps amongst the most threatened by the prospect of increased protectionism arising from the crisis. Specifically, the new national protectionist measures, mainly in the form benign appearance, the political crisis linked to the encouragement of the government and relief campaigns, the exchange rate devaluations, antidumping and countervailing duties and ‘buy local policies that discriminate against foreign firms and workers can suppress the export sectors in Africa even more. It is therefore essential for African politicians to push for a global agreement that keeps opening up markets and prevent a flood of new crisis linked to protectionist measures.
Furthermore, following the emergence of the global financial crisis, it is clear that there is an urgent need to reform the multilateral financial architecture, particularly in terms of ensuring greater representation of African countries in international financial institutions. Despite the financial crisis that originated in Africa, the continent has been excessively exposed to its effects. This has led to strident calls for a more inclusive multilateral governance that provides a greater voice “to African countries in international financial institutions. Countries is important for developing countries, and Africa in particular, to play a role most important of these institutions and the economic crisis management.
Domestic fiscal and monetary policy responses should also be explored by African countries with the capacity to implement them. For example, in African countries with relatively large foreign exchange reserves may be possible to use these reserves to cushion the worst effects of crisis and decline to fund any capital flows. Alternatively, African countries that operate under systems of fixed exchange rate may have some leeway to adopt more flexible exchange rate regimes in order to “allow the nominal exchange rate to absorb some of the impact of external shock and reduce the actual effects in the national economy. “In terms of fiscal stimulus options, the expansionary fiscal policies such as reducing taxes or increasing government spending may help boost demand and employment in African economies. The usual argument against the expansionary fiscal policy – that it crowds out private sector investment – is unlikely to apply, given the climate of reduced appetite for credit and a drastically reduced risk among investors.
Finally, while Africa is certainly feeling the effects of the global economic slowdown, the impact of what is likely to deteriorate further, the credit crunch in the world’s most advanced economies may actually create opportunities in terms movement of capital into emerging economies. For example, sovereign wealth funds before investing in the financial systems of the United States and Europe are now increasingly looking to the developing world to possible locations for investment. However, for this to happen in Africa, the continent’s countries have to implement measures to improve its ratings on investment risk.
Africa is facing a large and growing economic gap
The fact that many African countries are relatively detached from the global financial system has softened the continent from some of the consequences of the global financial crisis. However, the initial view proposed by many commentators that Africa would be “spared” from the effects of the financial crisis that originated in several advanced economies in the world has proven to be unfounded. Prices and demand for African exports of commodities have dropped significantly amid a sharp decline in world industrial output. Moreover, the climate of declining credit arising from the crisis is likely to lead to a substantial decrease in international financial flows to African countries in the form of private investment and capital flows, trade credit, financing donors and remittances from Africans in the diaspora. These factors have led to predictions of sharp fall in growth in sub-Saharan Africa.
It is evident that African countries and their leaders should try to take initiative and economic policy measures and reforms to mitigate the effects of the crisis on African economies. These should include interventions to strengthen the African markets and institutions, expand “South-South trade and economic cooperation, including increase or intra-regional trade to reduce dependence on overseas markets, and implement expansionary monetary and fiscal policies to boost demand and employment. In addition, globally, African leaders must push for reform of global financial architecture to include greater representation of African interests in the forum of the international financial institutions. Furthermore, it is extremely important that the continent supports efforts to conclude a global trade deal that maintains the openness of markets and the safeguards against the proliferation of new crises linked to protectionist measures.
[1] South-South trade could soften impact of financial crisis for vulnerable economies. UNCTAD. 2009.
[2] Impact of the crisis on African Economies. Sustaining growth and poverty reduction, African Perspectives and Recommendations to the G20, by The Committee of African Finance Ministers and Central Bank Governors. 21 March 2009
[3] World Bank to Help Mitigate Impact of Global Financial Crisis on Africa’s Development. 19 November 2008
[4] International Monetary Fund. 2009. What the Global Financial Crisis Means for Sub-Saharan Africa. Speech by Takatoshi Kato, Deputy Managing Director, IMF, 12th AU Summt, Addis Ababa, Ethiopia, 3 February 2009.
Because of the existing overall crisis, the projected growth for 2009 should move down to the lowest rate of decrease in 60 years. In 2008, the drop in demand resulting from the financial crisis together with synchronized crashes in manufacturing and industrial production, credit problems in traffic finance and consumer reliance caused a fall by 4 % in the growth of global trade.
Initially, many analysts believed that the world’s emerging economies, mainly those in Africa, would rather be protected from the effects of the crisis that came from the advanced industrialized countries. However, in the developing world the impact of financial instability and uncertainty in industrialized countries are beginning to take hold. Access to emerging markets for trade and investment is unlikely to diminish. In fact, UNCTAD estimates that exports of developing countries could decline by 9.2 % in 2009 [1]. The fall in commodity prices that went along with the downturn is particularly troublesome to African economies, many of which are greatly dependent on fresh commodities and raw material exports as the main source of export income. Moreover, the market for trade finance has seriously declined over the past six months; the crisis has aggravated the lack of liquidity to finance trade credit. Emerging economies are also expected to experience ongoing financial contamination, particularly in the form of capital flight and capital flows.
Even though these potentially weakening effects, the G20 predictions suggest that over 80 % of potential world economic growth depends on emerging market countries. In the same way, while the International Monetary Fund (IMF) has predicted that developing countries will increase by 3.3 % in 2009, it is expected that advanced economies will decline by 2 % roughly [2].
GDP Growth by Country Group
In this context, measuring the impact of the crisis on African economies and the accessibility and adequacy of measures to alleviate the effects of crises on the continent, are decisively imperative considerations for prospect growth scenario in Africa.
The Impact
The impact of the global financial crisis is expected to differ among African countries in line with their exposure to international financial system, its production and export structure and its aptitude to employ policy instruments to lessen the adverse effects. Overall, the short term in many African countries can be mitigated by the fact that most countries on the continent are relatively detached from the global financial system. Moreover, emerging banking systems in many African countries are generally characterized by simple structure, conservatism, the rules of prudent financial management, foreign exchange controls and a very limited exposure to subprime loans and the Credit default swaps, has protected the continent’s financial structures of all the effects of the crisis. In fact, Benedicte Christensen, deputy director of IMF’s Africa Department, went so far as to state in late 2008 that “there is no systemic risk that we see in any African country in terms of banking.” [4]
This does not mean that Africa is immune to the effects of the crisis. It is in the medium and long term effects of the crisis on African economies will be realized. The slowdown in global growth linked to the crisis could drive millions of Africans in the line of poverty. This possibility was highlighted in the report of the IMF, World Economic Outlook April 2008, which stated that a fall in world growth of just one % could result in a decrease of 0.5 percentage points of gross domestic product of Africa. Already, the IMF predicts that growth in sub-Saharan Africa will be reduced from about 5.25 % in 2008 to about 3.25 % in 2009. [4]
The slowdown in global growth, together with a sharp drop in world industrial production, has reduced the demand for African exports, reflected especially in the downward spiral of prices and demand for commodity exports. This is alarming given the fact that exports of commodities represent the main source of export earnings of most African countries. Moreover, the fall in export earnings is likely to have negative repercussions in terms of reduced government revenues, thus. Worsening already precarious budgetary situation in many African countries.
Prices of commodities for sub-Saharan Africa
The global credit crunch following the crisis has also caused a huge reduction in the flow of private investment and bank financing, thereby reducing capital inflows and a restriction on the availability of trade finance. This is likely to be reflected in a substantial decrease in international financial flows to African countries, most prominently in the form of reduced foreign direct investment, portfolio flows and remittances from the Diaspora living in the developed world. Regarding the latter, a long-term reduction of remittances from Africans living abroad is likely to be particularly difficult to feel, as these funding streams currently contribute an estimated $ 10 billion annually across the continent .
The effects of reduced foreign investment in Africa to countries that are funding large current account deficits could be especially devastating. For example, South Africa depends to a large extent, at least in the short term, on private capital flows to finance its large current account deficit – equivalent to about 8 % of the country’s total GDP. The projected reduction in capital flows means that South Africa will be responsible for their substantial current account deficit. Other African countries operated relatively large current account deficits, such as Uganda and Tanzania are likely to be similarly affected. These problems may be compounded by the prospect of expanding the deficit caused by the crisis itself. In fact, the IMF has forecast the current account deficit of the entire sub-Saharan African region will expand by more than 4 % of GDP to reach 6.75 % of GDP in 2009.
Saharan Africa: the current versus pre-crisis growth forecasts, 2009
The projected decline in private capital flows can also have a long-term impact on investment in infrastructure projects in African states, many of whom may face funding shortfalls. Since many African capital markets are small, even the relatively limited withdrawal of foreign investment can have a significant potential impact.
Furthermore, African countries may face increased pressure for debt repayment as international institutions and Western banks, not only to strengthen their lending policies, but try to shore up its reserves. Along with this there is the possibility that the global financial crisis will result in a slowdown of foreign aid and development funding to African countries due to the global credit crunch.
[1] South-South trade could soften impact of financial crisis for vulnerable economies. UNCTAD. 2009.
[2] Impact of the crisis on African Economies. Sustaining growth and poverty reduction, African Perspectives and Recommendations to the G20, by The Committee of African Finance Ministers and Central Bank Governors. 21 March 2009
[3] World Bank to Help Mitigate Impact of Global Financial Crisis on Africa’s Development. 19 November 2008
[4] International Monetary Fund. 2009. What the Global Financial Crisis Means for Sub-Saharan Africa. Speech by Takatoshi Kato, Deputy Managing Director, IMF, 12th AU Summt, Addis Ababa, Ethiopia, 3 February 2009.
In late June 2009, before the French Parliament convened in Congress at Versailles, President Nicolas Sarkozy announced the launch of a government bond issue aimed at individuals and not just at banks. It was “intended for finance investment for future”.
President Sarkozy's take office in May 2007
Here are my personal views on borrowing through French records.
Revenue, resources and bond issues
Initially, it sounds appropriate to consider the key differences between “revenue” and “resources” for a private company or a State, as well:
The “revenue” is the annual turnover achieved by a company or the overall taxes collected by a state, from which “expenses” or “charges” are deduced to calculate the yearly profits or the balance due, if that event.
The “resources” are made up of new loans and profits (if positive); they ensure financing the company or State needs, i.e. the refund of loan encountered, investments… and the potential deficit.
This recall of vocabulary may well figure out some evidence often mishandled by a regularly empty and specious political rhetoric:
A sound financial management should start from the deficit. Deficit comes from too low revenue or too high expenses, in order to deduct the amount of resources to find with the view to finance this deficit and to meet other needs. Doing otherwise, ie fixing the deficit depending on resources that could be gathered, is a rash fool policy!
If the financial markets have enough capacity to lend resources to the company or the State, there is no need to have a bond debt directly from individuals –which is always done in costlier conditions: individuals expect an interest rate higher than which is offered by banks (or they look ahead for a tax benefit). Alternatively, placing the bond debt with hundreds of thousands of people is inevitably more expensive than with a few dozen banks.
It may be decided –for purely reasons of corporate communication or political view– to borrow a modest annual funding requirement from individuals, although it is far more expensive. For instance, Electricité de France-EDF –a public energy supply company– borrowed €2 billion from the French individuals on a yearly overall bond debt of € 10bn roughly. And the State, through the voice of the president himself, plans to borrow round about € 10bn from individuals on an annual basis program loan of € 150bn…140 of which are made by markets, which could easily go up to 150.
Time is gone since the financial markets did not have enough capacity to accommodate the needs of some important EDF or public bonds in the 1980s: the Lepercq’s loans during the post-war years, the Pinay’s in 1958 or Giscard’s in 1965 then in 1973 could still appear justified. On the contrary, the Balladur bond debt in 1993 was no longer acceptable and that of Sarkozy in 2009 will not either: their sole function is political, in spite of the extra financial cost.
Claiming that such borrowing “brings new revenue to invest” [1] is a nonsense: we merely substitute an expensive outline of financing by another costlier. If by this we mean that the state will increase its capital spending proportionately to the amount of resources provided by this particular loan, we have to admit that the State has decided to increase the budget deficit as much –which points to an inveterate laxity again.
Finally, the insistence that the resources of this bond debt will only finance “productive” expenses is simply childish: the remaining loans will finance more widely the unproductive expenses –as it is true how money is “fungible.” Both in private companies as in the state budget, the pre-allocation of resources is a figment of mind.
Rigor, laissez-faire and Euro
After recovering from the late 1990s, which enabled France to qualify for the Euro, the period 2002-2008 has witnessed a creeping deterioration of the fiscal deficit and external accounts, which in total is equivalent to that of early years of François Mitterrand in 1981-1982. Although any turnaround plan equivalent to that of 1983 has come back on course, while public debt has doubled since then and despite the defiant words required in this regard on the campaign trail …
The truth of the matter is that, first, the external obligations linked to the risk of French franc crisis disappeared with the creation of the Euro. Conversely, the French government refused the forced substitution of “Maastricht criteria” (the deficit accounts should not exceed 3% of GDP) as evidenced by the constant postponement of the date of return to balance (in 2010, then 2012, then 2015…) –more often than not since the election of President Sarkozy in 2007…
In 1983, by denouncing the policy of restraint, the Communists and some Socialists in the movement of Jean-Pierre Chevènement, elaborated a scholarly quibbling about the difference between the “chosen” (or “virtuous”) deficit, which “prepares the future” by the investment, and “suffered” deficit that would increase the debt [1].
The same retractions are now ran again in President Nicolas Sarkozy’s preach and his finance minister Christine Lagarde, in an attempt to evade European strain of returning to financial balance by making a scholarly distinction between structural, crisis and activity support deficits.
These quibbles were no more selected in 1983 by the fiscal authorities (President François Mitterrand and his Finance Minister Jacques Delors) than they are today by European leaders, responsible for the accuracy of fiscal policies of each State acceding to the Euro. At the most, the neo-lax of 2009 will try to delay a little the maturity date of austerity policy –such as lax did in 1982 when they delayed it a year. Even though it is pleasant, in the meantime, to spot their discourse converging with those of former radicals as Marchais, Chevènement and so…
The financial reality will retrieve its rights within a year or two –let nature reclaim! Then the economic recovery will allow European authorities to require a reorganization of the French management of public finances. As a result, France would then be punished by an increase of 3 percentage points of VAT orthrough the social tax called CSG. As Germany did in 2005, when its situation deteriorated as that of France, a situation that led Chancellor Schroeder to take corrective measures (that French President Chirac had refused to endorse). Predictable in the short term, this increase would also bridge the gap of current € 30 billion in Social Security; whose mere existence, next to deficit of state budget, should be an intolerable scandal for those who have campaign saying that the debt was unsustainable, and its transfer to future generations unjustifiable.
The future government bond is a substitution “resource”, an undeniably ordinary one. As it does not represent a new “revenue”, which can only come from taxes that will inevitably join to cost savings in order to balance the public budget in the mid term.
It would take little for banks to have hands free again. What emerges from the crisis is a system even worse than the one who had caused it. The bank rescue lets the banks free hand to remake the same mistakes. It is urgent to raise prudential ratios.
Henri Cartier-Bresson · Shanghai (Run on Bank)
The panic of autumn 2008 now tends to fade. However, the period during which it is possible to draw lessons and make changes is nearing completion. Without radical changes, another crisis is inevitable. It could even happen much sooner than we think.
Never again? This is probably asking too much. But avoid “it” happening again quickly is crucial. Financially, politically and morally, governments cannot afford repeating this crisis in the short term: the lives of so many people can again be sacrificed to the whims of a few irresponsible.
So far, what emerges from the present crisis is a financial system even worse than that which had provoked. The survivors form an oligopoly of financial monsters too big and too interconnected to fail. And they won. Not because they are necessarily the most healthy institutions, but because they are the ones who received the largest support. One can easily imagine how they will behave when you consider all the devices that encourage risk taking.
What should we do? The most common response recommends tinkering some regulatory safeguards. You’d better worry about aligning the deck chairs on the Titanic: perfectly futile.
The proposals recently put forward by the US Treasury would fall partly into this category. Now the financial system must be protected from its own clumsiness at managing risk. In addition, it will not change it by external control, but only by redefining the system of incentives and bonuses.
The starting point must be the famous “too big to sink”. We need a credible system capable of dismantling huge financial institutions if necessary. The proposals are more attractive to look at the “good banks” in which creditors, in want of warranty, become shareholders. It would be easier if, as proposed by President Barack Obama and as demonstrated Mervyn King, governor of the Bank of England, a regulated institution was obliged to submit a plan for orderly stop its activities.
However, bank failures are like buses: you do not see one for hours and suddenly there came a half-dozen at once. The authorities cannot credibly promise that they would be willing, at a systemic crisis, to accept the failure of all affected establishments. This would lead to a particularly serious panic. The “too big and too interconnected to sink” is indeed a reality. And it is because, as recently remarked Andrew Haldane, from Bank of England – his speech “Rethinking the Financial Network” is available on Bankofengland.co.uk – the financial system is a network increasingly tight.
If institutions are too big and too interconnected to sink, and no satisfactory structural solution can be found, then we must identify alternatives.
The most obvious would be to raise considerably the amount of capital required and to pay greater attention to liquidity. Today, major financial institutions operate virtually with no capital: in the United States, the average debt ratio of commercial banks was 35 to 1 in 2007; in Europe, it was 45 to 1. This allows shareholders to play all out with results that we previously witnessed.
Let financial institutions being managed by the interests of shareholders who provide only 3% of funds intended to be loaned, is pure folly. To align the interests of managers with those of shareholders is even more insane. Given their current capital structure, major financial institutions have a real incentive to play with taxpayers’ money.
How much equity would be reasonable for systemically significant institutions? The answer is: “Much more than today.”
Moreover, the risk that capital needed could be exposed should not be evaluated based on banks models, which are unreliable. Shareholders’ funds should be at least 10% of assets. In the U.S., there was a time when it was much more.
More important capital equities might be a good way to internalize negative externalities – and more precisely the risks – generated by an institution in respect of the rest of the system. Ideally, therefore, the capital requirement might be correlated to the weight of systemic schools, as recommended in the latest annual report of the Bank for International Settlements (BIS). Moreover, these requirements should be calculated based on all the activities derived from fully consolidated accounts.
As part of a financial system much better capitalized, it is also relatively easy to implement a system of macro-prudence, while the required capitals increase during booms and decrease during decline periods.
Again, the higher the proportion of shareholders would be important the less would be worrying to see the bonuses of managers aligned with theirs. Even then, as it is the taxpayers who bear the residual risk, regulators should exercise control over the premiums paid to managers.
Two problems remain. First, transition. Secondly, level of regulation.
Regarding the first point, requiring now more significant capital ratios would jeopardize the recovery of the economy. It is better to imagine a long transition period, stretching perhaps over a decade.
For the second point, it is obvious that we cannot let the so-called “shadow banking system” operating outside any capital constraint if some entities are systemically significant –as we got evidence with funds acting on the money markets.
In addition, capital equity requirements might be imposed in all significant countries. The United States is powerful enough to urge a movement in this direction –by requiring any foreign bank operating in their territory to be properly capitalized.
The conservative method of small steps, not radicalism, is today the most risky option. What must first apply this radicalism? The answer is obvious: the system of premiums and bonuses, of course.
Spain has passed from rating ‘AAA’ ‘to rating ‘AA’, after Standard & Poor’s, the 1st international rating agency (IRA), lowered its assessment of long-term debt; so she did with Greece, Ireland and Portugal. This is the first time that the S&P financial rating drops for Spain in 30 years.
What is under consideration?
From the French side, on the one hand, what is at issue is the structural weakness of these economies. Beyond a snide comparison with the food and the stars of the Michelin guide, this decision might have serious consequences for the countries concerned and for the future of the European Union. Because the differences between European states today are so important that each country acts without consulting others, and in addition, the principle of subsidiarity seems more often invoked than solidarity.
However, the shock wave of the financial crisis has reached the credit of the States themselves. To put it clearly, some countries cannot afford to borrow financing their reflation plan.
During the first half of 2009, in addition to the degradation in rating of several countries by the IRA, Ireland has appealed the intervention of the IMF, the Eastern countries have called for help to historical Member States, and the pound sterling fell on the foreign exchange market.
Alternatively, many well-informed specialists consider that the announced downturn due to the financial crisis is greatly exaggerated [1]. Most of banking operators have dealt with serenity and the European Commission forced restructuring of banks that received state aid to encourage further integration of the sector within the EU single market.
A Special Report on the Euro Area [2] published in The Economist pointed how the Euro has brought however, an irrelevant achievement.
“The ECB has fulfilled its remit to maintain the purchasing power of the Euro. Since the currency’s creation, the average inflation rate in the Euro area has been just over 2%. Fears that the Euro would be a “soft” currency have proved unfounded. It is unquestioningly accepted at home and widely used beyond the Euro area’s borders.”
Even if the Euro has not made possible significant gains in productivity or GDP, it has unquestionably engendered greater stability.
What can the Europe Union do to face this?
Despite the bad omens of some analysts, the current crisis shows how the Euro area is not at a critical stage of its existence yet.
Then again and despite of a single currency, there is no economic policy, no budget, no solidarity. Spanish government on top and, to a lesser extent French as well, believe that, to be able to attest its usefulness, the EU might directly help the most vulnerable States by financing reflation plans mutually beneficial.
Oddly, countries that are now complaining of the burden of the Euro are those that once mainly benefited from their membership to it. Thus:
“[The Spanish economy] grew at an average annual rate of 3.9% between 1999 and 2007, almost twice the Euro-zone average and much faster than in any of the currency area’s other big countries…Unemployment fell from close to 20% in the mid-1990s to just 7.9% in 2007.”
Too much at once, as the prosperity met with prices and unit wage costs getting higher, both of which are now particularly painful in the context of recession. Aided by a strong currency, its current account deficit has risen to 10% of GDP. Same for Greece, Italy, Ireland and Portugal. As the report [2] explains
“The main hazard for investors in high-inflation countries—that a steady loss of domestic purchasing power will drag the currency down—is eliminated in a fixed-exchange-rate zone.”
The consolidation of the Euro area needs to move up a gear in terms of political ambition and economic governance. Economic governance, the word is dropped, and it is on everyone’s lips.
Does the 10th anniversary of the European single currency will be marked by the bursting of the Euro area, as some economists fear?
What is involved in crisis management by Europe: politics or money? The lack of economic government, or the absence of a common currency?
In other words, will the EU survive to the crisis?
As indicated earlier, prestigious analysts point that the consequences of the so-called recession are important, but that its context has been exaggerated too. [1].
Alternatively, for The Economist, leaving the Euro zone is inconceivable:
“The costs of backing out of the Euro are hard to calculate but would certainly be heavy. The mere whiff of devaluation would cause a bank run: people would scramble to deposit their euros with foreign banks to avoid forced conversion to the new, weaker currency. Bondholders would shun the debt of the departing country, and funding of budget deficits and maturing debt would be suspended.” [2]
Therefore, borrowing costs would increase considerably, which could induce a wage-price spiral. Inflation and currency stability would be precarious at best. Thus, it is not surprising that in most European member states, citizens surveyed remain strongly in favor of the euro. Additionally, those who are about to join, remain more convinced to do so:
“As emerging economies they are prone to sudden shifts in foreign-investor sentiment, which makes for volatile currencies, so exchange-rate stability holds considerable appeal for them.” [2]
Romania and most Baltic countries have already ask the EU and the IMF for help to avoid a loss of investor confidence. Poland is also vulnerable to exchange rate because many of its loans are denominated in foreign currency, and it should join the Euro in 2012.
In late January, workers at the Total Lindsey Oil Refinery, UK, protested against the recruitment of Italian and Portuguese workers. The strikers brandished banners urging to keep back “British jobs for British workers”. On February, 40 hired workers returned to Portugal.
Simultaneously, Argentina has imposed restrictions on importing televisions, Ecuador has increased tariffs on mobile phones, India has banned the admission to Chinese toys for six months, Europe has increased export subsidies for butter and cheese, Russia has increased tariffs on imported cars, the U.S. Congress voted in January the “Buy U.S.” clause when reviewing the president Obama’s plan (once after George Bush announced tripling the tax on Roquefort). And in France, president Sarkozy granted a government loan to carmakers in exchange for commitments on maintaining home production and employment.
Confronted with the crisis, countries are increasingly working for reflation plans with preferential conditions for their domestic producers, so that at many forums (Davos in late January, G20 meeting in April, EU conference in June), the alarmist statements about an alleged threat of protectionism have amplified.
This reopens the debate on a taboo subject: protectionism. Is protectionism an overall mistake? Is it completely wrong? Does protectionism deserves a severe disapproval?
Wasn’t European protectionism the founding principle of the Common Market? The goal: bringing countries closer together by geography and culture, but economically disparate. Customs duties on the borders of Europe defined a zone of free trade in the initial model of the CAP (import duties and export aid): Free Trade and Protection in Europe towards countries outside Europe. Helping less developed countries to catch up is a reasonable and challenging project –without risking the collapse of entire industries because of unfair competition due to the rapid upgrading of the countries concerned.
In addition, if you consider the reasons that led Europe to face globalcompetition (functional sclerosis, and obstacles to free enterprise, continual union arm wrestling…) we may come to a conclusion: the basic necessity in organizing the involvement inside the companies in order to share profits and risks in the form of forced savings (stocks buyout) –thoroughly related to salaries and proportionally linked to the costs of the consolidated turnover. No more, no less.
Alcohol and cigarette products are usually subject to high taxes. This occurs because the economic theory recognizes that the price of these products does not reflect the true social cost of consumption.
Thus, a Pigovian tax [1] is applied to neutralize the externalities [2] caused by these products in both consumers and society.
In this regard, developed countries have begun to consider the option of raising the tax burden of the food low in nutrients and high in saturated fats and carbohydrates, also called junk food as a way to lighten the deficit and in turn combat obesity [3]. If implemented successfully in the case of tobacco or alcohol, why not tax the junk food and improve the way consumers make decisions about their diet?
In return, during the first half of 2009, interesting reports have been published focused on discussing the aspects of the issue. Thus, Engelhard, Garson and Dorn (July 2009) [4] put the junk food as a major cause of obesity, with direct consequences for the economy through a decline in productivity per worker and increased costs for medical care. United States estimates that medical costs of obesity are $ 700 higher than the costs of a thin person.
However, Yaniv, Tobol and Rosin [5] argue that the implementation of taxes on junk food has technical shortcomings. For example, there are too many possibilities of interpretation to decide what products should be considered within that tax. A hamburger has high levels of fat, protein and calories but these are also necessary for metabolism. In addition, unlike the case of cigarette or alcohol, consumption of junk food does not produce a direct negative externality on the welfare of someone other than the individual’s. Therefore, we must ponder the results of these surveys further to soon begin the implementation of tax measures that directly affect the purchasing decision of consumers.
Barcelona · Array of fruits and vegetables at La Boqueria Market
[1] A Pigouvian tax is a duty charged on a market activity to correct the market outcome, if there are negative externalities associated with the market activity. .
[2] In economics, an externality or spillover of an economic transaction is an impact on a party that is not directly involved in the transaction. In such a case, prices do not reflect the full costs or benefits in production or consumption of a product or service. A negative externality occurs when an individual or firm making a decision does not have to pay the full cost of the decision. If a good has a negative externality, then the cost to society is greater than the cost consumer is paying for it. Since consumers make a decision based on where their marginal cost equals their marginal benefit, and since they don’t take into account the cost of the negative externality, negative externalities result in market inefficiencies unless proper action is taken. .
[3] An individual is classified as obese based on his body mass index (BMI), which shows the relationship between weight and height as an indicator of body fat. An adult is classified as “overweight” if his BMI is between 25 and 25.9. If his BMI is greater than 30 it is classified as obese. .
[4] ENGELHARD, Carolin; GARSON Arthur; DORN Stan “Reducing obesity: Policy strategies from the tobacco wars”, Urban Institute. July 2009. .
[5] YANIV, Gideon; ROSIN Odelia; TOBOL Yossef. “Junk-food, home cooking, physical activity and obesity: The effect of the fat tax and the thin subsidy”. Journal of Public Economics. June 2009.
Unempirical hypothesis in economic theory are subverting efforts to work out environmental threats
Economy stark naked
The pattern maker fathers of neoclassical economics –the current core assumption of the global market system– were supposed to transform their scope into a scientific discipline. But what is not commonly acknowledged is that these now celebrated economists –Jevons, Walras, Edgeworth and Pareto– developed their hypothesis by adjusting equations from the 19th century physics that finally became outdated. Unluckily, it is clear that neoclassical economics has also become obsolete. The assumption is based on unscientific statements that are delaying the implementation of workable economic solutions for global warming and other worrisome environmental threats.
The physical theory that the creators of neoclassical economics used as a pattern was formulated in reply to the inability of Newtonian physics to rationalize the experiences of heat, light and electricity. In 1847 German physicist Hermann von Helmholtz framed the conservation of energy rule and assumed the existence of a field of conserved energy that fills all space and merges these observable facts. Later in the century James Maxwell, Ludwig Boltzmann and other physicists developed better explanations for electromagnetism and thermodynamics, but meanwhile, the economists had borrowed and changed Helmholtz’s equations.
The approach that economists employed was effortless and illogical—they replaced economic variables with physical ones. Convenience utility (a measure of economic well-being) took the place of energy; the sum of utility and expenditure replaced potential and kinetic energy. Many eminent scientists warned the economists that there was definitely no basis for making these swaps. But the economists ignored such analysis and carry on claiming that they had transformed their line of work into a strictly mathematical scientific discipline.
Weirdly, the genesis of neoclassical economics in mid-19th century physics was elapsed. Successive generations of conventional economists admitted the assertion that this hypothesis was scientific. These peculiar occurrences make clear why the mathematical theories used by conventional economists are built on the following unscientific assumptions:
The market structure is a closed circular flow between production and consumption, with no inputs or outputs.
Natural resources are present in a domain that is separate and distinct from a closed market system, and the economic value of these resources is determined barely by the dynamics that operate within this system.
The cost of damages to the external natural environment by economic activities must be treated as positioned outer the closed market system or as costs that cannot be built-in in the pricing mechanisms that operate within the system.
The external resources of nature are largely boundless, and those that are not can be replaced by other resources or by technologies that diminish the exploitation of the limited resources or that depend on other resources.
There is no biophysical limit to the expansion of market systems.
If the environment preservation crisis did not be there, the fact that neoclassical economic theory grants a consistent base for running economic activities in market systems could be considered as adequate justification for its common purpose. But since the crisis does exist, this speculation can no longer be considered as useful even in pragmatic or utilitarian terms for the reason that it fails to meet what must now be regarded as a deep-seated prerequisite of any economic theory –the point to which this theory permits economic activities to be harmonized in environmentally responsible conducts on a global extent. Because neoclassical economics does not even recognize the costs of environmental harms and the limits to economic growth, it represents one of the utmost obstacles to fight climate change and other threats to the planet. It is imperative that economists work out new theories that will take all the concepts and realities of our global system into account.
A few number of economists over the past two decades, including such top personalities as Kenneth J. Arrow, have expressed doubts about the effectiveness of neoclassical economic hypothesis. However, the most express challenges to obvious postulations in this theory have been made by the game theorists. Such as, these academics have challenged the supposition that economic actors are absolutely rational, act upon fixed decision-making rules and are unable of making dreadful choices. In conservative neoclassical economic theory, the natural laws of economics supposedly find out the best possible outcome of a cost-effective process and economic actors lack of all evident human characteristics. This theory presupposes as well that the sphere of economy is established and static and that economic actors are completely rational entities who do not talk back. When getting through the box of human bias, the game logicians have been obliged to conjecture a growing number of unplanned variables to justify the decision-making of individual economic actors. And this enlightens why the history of game theory is marked by a recurrent regression into the incredible complexities of language and culture. As the economist R. Sugden states it [1]:
“There was a time, not long ago, when the foundations of rational-choice theory appeared firm, and when the job of the economic theorist seemed to be one of drawing out the often complex implications of a fairly simple and uncontroversial system of axioms. But it is increasingly becoming clear that these foundations are less secure than we thought, and that they need to be examined and perhaps rebuilt. Economic theorists may have to become as much philosophers as mathematicians.”
This explains why the United Nations Framework Convention on Climate Change (1992) failed to protect the climate system, why the Convention on Biological Diversity (1992) did not even begin to reduce losses in biodiversity, and why the U.N. Convention to Combat Desertification (1994) did not slow, much less, reverse this process. However, the cooperation of the most part of economists and environmental scientists –that the world needs without delay– may occur when both recognize the unique opportunity they have to look after the existence of current mankind and the future existence of its descendents by resolving the crisis in the global environment.
The United Nations Conference on Trade and Development (UNCTAD) published on June 25 the “Economic Development in Africa 2009” [1]. It is focused on the promotion of economic integration in the region, which should become a key factor for boosting and diversifying economic growth, expand markets and attract more foreign investment, especially in the context of current global financial crisis.
Regarding the effects of the financial crisis in the African region, it was noted that the main channels are through the fall in exports, reduction of investment flows and lower revenue collected by governments. In this regard, according to the projections of the African Economic Outlook (AEO) in May, it is pointed that the region could grow 2.8% in 2009, much less than the growth rates of 5.1% in 2008 and 6% in 2007.
The impact of the global financial crisis would already be reflected in exports and reduction in prices of raw materials. A study of the organization ActionAid, says that the financial crisis will cause African economies lose up to 49 billion dollars during 2009 due to the drop in international aid since the fall of exports, among others. The report said that countries that liberalized their markets and that were large enough to attract significant investments will be most affected by the financial crisis, starting with South Africa that could see a drop around 20%. However, they also state that Africa is now better prepared to face the crisis than it was 10 years ago.
[1] Economic Development in Africa 2009. Strengthening Regional Economic Integration for Africa’s Development. UN. June 2009.
Desde la osadía, y ante la bajada de los precios unido a los alarmantes vaticinios de los “expertos” en economía –lo de expertos va entrecomillado porque tengo mis dudas sobre la capacidad de algunos para vaticinar nada y menos para aportar soluciones, en esto de la crisis muchos son los expertos que a priori se han equivocado y nos han equivocado– de que la deflación puede acarrearnos más trastornos económicos y sociales, me atrevo a hacer pública mi reflexión sobre las consecuencias de la deflación.
Alguien ha dicho, que “los efectos de la deflación sobre la actividad económica son muy negativos y difíciles de corregir. Un descenso de los precios deteriora los resultados empresariales, lo que implica recortes de plantilla y de inversión en bienes de equipo, lo que a su vez lleva a una disminución de la demanda que de nuevo recorta el excedente empresarial. En ausencia de políticas correctoras, la salida de este círculo vicioso sólo se produce cuando los precios han disminuido lo suficiente para que los consumidores y empresas puedan restablecer progresivamente su nivel de demanda”.
Desde esa perspectiva, si los precios bajan las empresas ganan menos y están expuestas a cerrar. Hasta aquí, esto parece de una claridad meridiana. Pero se me antoja que, hasta la aparición de los primeros síntomas de la crisis, los precios no marcaban la realidad de los costes de elaboración, comercialización, distribución y venta al público de la mayoría de los bienes de consumo. En otras palabras, los precios estaban inflados.
También se puede decir de otro modo: algunos, muchos, se aprovecharon, codiciosamente, de los buenos tiempos para matar a la gallina de los huevos de oro y ahora ponen el grito en el cielo. Los consumidores también, con nuestra sumisa actitud ante precios abusivos, hemos contribuido a ello.
Lo que parece cierto es que las empresas no cerrarán por bajar los precios. Las empresas cerrarán por falta de financiación externa. Los precios de mercado anteriores a la crisis, en mi opinión sobrestimados, le han supuesto a las empresas un buen colchón para amortiguar la caída del precio de todo lo que se consume. El “inocente” redondeo del euro es el que sin duda alguna contribuyó y sigue contribuyendo, a engrosar ese colchón. Insisto en que el problema no es ese, el problema es la financiación. A pesar de la crisis, si hay financiación sin duda alguna se venderán más coches y más viviendas. No tantos como antes de la crisis, pero sí se notará una mejoría importante en estos sectores. Aunque, hay que reconocerlo, la crisis nos ha enseñado que hay que apurar más el coche y ser más austeros a la hora de gastar.
¿Alguien puede explicar la subida tan bestial que sufrió el precio del barril de petróleo y asegurar que con la enorme bajada de las mismos los productores de petróleo están perdiendo dinero? No, creo que nadie lo pueda explicar. El precio de los combustibles es algo que tuvo mucho que ver con la inflación y con la aceleración de la crisis; al tiempo que los costes estaban, sin duda alguna, más que sobreevaluados.
La deflación puede ser dura y hasta si se quiere tóxica, pero en mi opinión no es tan alarmante como se dice. Al contrario la deflación –como la crisis en general– tiene las espaldas anchas y se ha convertido en la mejor de las excusas para que muchos responsables de empresa tiren por el camino de en medio tomando decisiones excesivas bajo la presión del accionista global. Esos mismos que van por las alturas, y cuya gestión ya vemos adonde nos ha llevado.
President Obama presented yesterday the expected reform of the US financial system. It is widely considered as the primary source of the crisis that led global markets to the brink of collapse at the end of 2008. The President basically cleared the key lines, the frame where successive changes in legislation should be built –but whose application is expected to be tough both in the Senate and in the House of Representatives. It is likely that Treasury Secretary Timothy Geirthner, will upgrade details during his appearance scheduled today.
Definitely, the US President did not spare critics to the banks when analyzing the situation. However, he either did not skirt to mention mistakes that -due to insufficient or maladroitly- regulatory bodies did incur. As of now, the Fed will hold additional powers -almost full- to monitor any activity, including the full range of products, services and benefits already included in the system or on the point of being so. Everything to be done in an intricate attempt -in the words of Obama himself- of safeguarding the balance between the free market and state intervention. In other words, ensuring that financial markets regain their momentum, while avoiding that risks just happened recur.
Undoubtedly, this will be the core of controversy in the process of successive parliamentary proposals, but blockages will appear from the financial system itself, where voices have begun to emerge suggesting that given that the worst is past, it would be reasonable to return as much as possible to normal. In fact, after presidential intervention, some appreciate that the original plans become softer -due to pressures on the White House from the sector. Whatever comes, it is likely that, beyond the threat of collapse of the system, there is less willingness to accept greater control now than six months ago.
Nothing different what is happening on this side of the Atlantic. The European Union has not implemented yet its own reform. The reorganization is necessary: if the imperative of globalization made possible the rapid spread of financial creativity –coming from the United States- it originated the dysfunctions that quickly spread out the planet too.
Probably the European regulation will require a different reform, as the starting point is different and the banking profile system, as well. It does not mean that this innovation will represent less difficulty.
So far, the recommendations of the Larosière Report -prepared at the request of the European Commission- seemed to have focused no particular enthusiasm. Hence, there is little disposition in the Euro area to correct the singularity that the ECB-European Central Bank determines the monetary policy but has no legal command to enforce its banking supervision -unlike the US Fed and the Bank of England. This is not the only impediment that is seriously compromising in parallel, here and there, the implementation of changes (changes that G20 members diagnosed as urgent prerequisites.)
A lot of people on the far left are quite happy claiming that American-style capitalism has failed. They miss out a few facts. First, this is just the flip side of the business cycle. The American economy will be back to normal before you know it. Second, it was a quasi-governmental agency, the Federal Reserve, that is primarily responsible for the housing bubble, and thus the housing bankruptcy. Third, even in this downturn Europe’s economy is doing worse than America’s.
The benefit of the American economic system is that it produces greater economic growth (and thus greater overall wealth) in the long run, but in return you get greater economic disparity.
In the video, she claims that “the American way makes everyone better off.” This overstates the case. The American way makes most people better off. In general, Americans are better off in the middle and top of the economic and social scale, but worse off at the bottom.
I predict however that when all is said and done, and we look at the performance of the French and US economies from, say, 1970-2020, the French will trounce the Americans. The US economy right now is a total sham, and it’s in for a massive depression. While we’ll no doubt drag the rest of the world down temporarily, the issues in the US are structural, and will take a very long time to resolve. Frankly, we’ve yet to even acknowledge what those issues are, much less craft solutions.
France -and Europe to a large extent- is certainly not without its problems, but unlike the US, it does have a solid industrial base; sound, productive, high-tech, high-value industrial firms; an intelligent, well-educated workforce possessing a wide range of skill-sets; much lower dead-weight in terms of military spending and the cost burdens of an overseas empire; and an assertive, socially-aware working class which makes the ruling class continually justify their position by demanding positive social outcomes.
But France has a severe fondness to decline. And if reforms are required, they are not necessary because of a supposed French lack of adaptation to globalization, but because it is mandatory that their leaders reconsider their abusive lifestyle and the incompetence that follows (from both right and left wings). It was often claimed that social protection was mainly responsible for the endemic unbalanced financial situation, as if social care was a scapegoat. The way political leaders communicate the deficit is used on a regular basis for the purpose of political marketing and in fact it subsidizes further deficits, i.e. at the present time 9 billion deficit, including 5 billion from government vs. social care admin. Is this the only government public spending? Also you never talk about Europe financing and its Mexican army of civil servants, and so …
One wonders if it is not time to leave the ship, because the captain is crazy!
In France, the ultra-pessimistic are frequently claiming that another Great Depression is right here. Many of the most pessimistic economic commentators have happily been comparing the current recession to the Great Depression. To give readers a sense of how not awful the current recession is, here is the decline in GDP of several major recessions vs. the Great Depression:
By dint of comparing the current recession to the early 1980s recession (1981-1982), I come to the conclusion that the early 1980s recession was worse. The graph above makes the current glance worse. Though, the graph above seems to be a peak-to-trough measurement. The early 1980s recession was the fourth in a series of recessions in which the unemployment rate didn’t fully recover before the next recession hit, resulting in a peak unemployment rate that was significantly higher than the current unemployment rate. (And before the conspiracy theorists out there claim we can’t compare the current unemployment numbers to those of previous decades, you’re wrong.)
So to speak, it seems very probable that the recession in progress will be the longest lasting since the Great Depression. Even supposing the current recession seems to be at the end, the unemployment rate may very likely achieve the second highest level since 1948, and could maybe go higher than that of 1982. It would definitely be the worst recession since the Great Depression —But it would be a far from what our grandparents and great-grandparents experienced during the 1930s.
So to speak, it seems very probable that the recession in progress will be the longest lasting since the Great Depression. Even supposing the current recession seems to be at its end, the unemployment rate may very likely achieve the second highest level since 1948, and could maybe go higher than that of 1993. It would definitely be the worst recession since the Great Depression —But it would be a far from what our grandparents and great-grandparents experienced during the 1930s.
Please note that in economics, the term recession generally describes the reduction of a country’s gross domestic product (GDP) for at least 2 quarters. The usual dictionary definition is “a period of reduced economic activity”, a business cycle contraction.
… or the French way against economic commonplace topics
French investments might have seemed like a dreadful idea for the first two years of French President Nicolas Sarkozy’s term. After his election in May 2007, Sarkozy looked like a huge disappointment – unless you really enjoy tabloid stories. He divorced his wife, married the dramatically old fashioned ex-model Carla Bruni, and went on an enviable honeymoon in Egypt – but appeared to do nothing useful about France’s economic problems.
But now there’s some good news for French investments. As many good Frenchmen, Sarkozy might prefer first to concentrate on his private life when elected President. Once his private life is now complete, he’s been able to spare some time for France’s economic problems. And the results for France’s future economic performance and French investments are quite positive.
First, Sarkozy got rid of the 35-hour week. This economy destroying measure, by which companies were forced to set up a maximum 35 hour workweek, was brought in by Lionel Jospin, Premier Socialist in 2000, and has embedded itself throughout the French economy, increasing labour costs, dropping productivity and damaging French investments. Removing it will not make much difference for big business – as one union leader said “nobody wants to renegotiate the 35 hours and reopen Pandora’s box,” but it will make a huge difference for medium-sized and smaller businesses, which will be able to match their workforce with the demands of their business, without being forced to get into the rigid models by the state.
Sarkozy has also passed reforms freeing up France’s retail sector to increased competition with longer operating hours, tighter regulation of unemployment benefits, and autonomy for firms to negotiate directly with employees rather than deal with a union.
In addition to these economic reforms, Sarkozy has pushed through constitutional reforms, limiting the president to two five-year terms and giving the legislature more power to introduce legislation. That is not the big reform formerly announced, but just a first step in the way for.
The remarkable feature of Sarkozy’s split of reformism is that the French unions have been unable to connect and rely with the streets of Paris with major demonstrations, as they had done to stand several previous bursts of reformism in the last decade. A Day of Action protest in 19 March had only half the expected audience and the May nationwide strike had only 4% support. Point barre, end of discussion.
But Sarkozy’s tactic has been to move forward with reforms on several fronts at once; this seems to have worked during 2007, and Sarkozy’s opinion poll numbers have recovered from lows hit till late autumn of 2008, when the financial breakdown started. Yet, it is true that his attractiveness has endured since, similar to several of his colleagues in the European neighbourhoods.
Facts and figures to Sarkozy’s advantage
The benefits of these reforms will be seen most clearly in France’s next period of economic expansion, which may not be immediate because of the general global slowdown. France’s gross domestic product [GDP] is expected to decrease by 0.7% in 2009, according to the Economist, a bit better as the average for the 15-nation Eurozone as a whole.
On the bright side, inflation is expected to be only -3.2%, below the Eurozone expected average and well below U.S. inflation rates. The balance of payments deficit is only 1.6% of GDP, well below both the United States and Britain, in spite of the current high valuation of the euro. Euro short-term interest rates are currently 3.55%, above France’s inflation level, and French long-term government bonds yield 2.8%, well above inflation, so there is no danger of an inflationary spiral. A deflationary situation is yet possible in early autumn 2009,
French economy handicaps
It is a mandatory to get out the French companies off public handouts: a sort of usual public allowances run between companies, authentic availability of free / cheap working force, trainees and complete dependant underdogs, lack of competition in many sectors, lack of penalties for corporate officers, abusive tax exemptions / reductions, volunteer lack of judges at labour assessment and safety inspectors. The french are among those of the OECD who work most for a grotesque wage related to the cost of living. It is most necessary to get effective control over the business and tax them only on their real add value and their employment rate. It is time enough of all these banks, estate agent or other telephone vendors that serve no purpose except to increase inflation and delay the French competitiveness. Investing in university research and development instead of distorting the economic market by offering it to a band of idle heirs.
Also, get out of the dichotomy between a left which would defend assistantship (giving out benefits) and a right who supposedly takes on all of the hard work.
Outlook should suggest a slight improvement at the end of 2009. Sectors most affected are automotive, metal, chemical, building and retail.
Current business environment
Since December 2007, the United States economy has entered into recession. The economy witnesses the increasing unemployment, reduced purchasing, lower consumer reliance, a greater number of mortgage impounds and a lower manufacturing level. In Q4 of 2008, GDP growth declined by 6.3%, the level of consumption felt by 4.3% and exports by 23.6%, the most dramatic drop since 1971. By Q1 of 2009 forecasts are that GDP remained poor due to the continuous unemployment growth [8.5% in March 2009] and the manufacturing industry decline [-0.8% in new orders durable goods in March 2009] as well.
In the first week of May 2009, corporate loan costs felt to the lowest level since October 2008. Thus US Government’s efforts to retrieve the battered credit markets are working. Banks remain reluctant to extend credit yet. There is much uncertainty with regard to capital reserves, as well as bases of assets, market value of the assets owned by lenders and credit quality. At this time, credit markets give support to the most consistent only.
Projection on US market
Compared to 2007, bankruptcies of companies reached 49%, getting 30,000 in 2008. Business insolvency did intensify for 10 consecutive quarters, and further complications are scheduled by late 2009. This year 62,000 bankruptcies are expected.
The short-term economic outlook for the United States remains poor, with a minor possibility of experiencing a slight improvement late 2009.
The most affected sectors are:
• The automotive sector, the expected production of vehicles ranges between 9.2 and 9.7 million cars, a considerable drop compared to latest 16-17 million.
• The metal market, this sector is also related to automotive products and capital, both sectors stagnating.
• The chemical products segment, in view of the demand, reduced inventories, high costs and financial positions have adversely affected their margins, their profits and liquidity.
• The Real Estate and commercial building sector, as lending continues to decline and there is a surplus of inventory in warehouses and office space.
• The paper and packaging markets, because demand is falling by the economic recession and high costs.
• The retail segment remains concerned by reduced consumption and high unemployment.
Among these markets, two are quite significant and representative to my liking as to give a symptomatic evaluation.
Metallurgy sector assessment
Impact of the global crisis in the metal industry
The economic slowdown has adversely affected the U.S. metal sector in terms of reduced volume and prices. The sector supplies products primarily to the automotive industry [30% of all steel sold in the United States], construction, infrastructure, machinery, aerospace and energy, all of whom are now in decline. Because of falling demand in the retail market, new orders for metal are running short, because customers are limited to free themselves of their stocks and new orders are only for projects already underway.
Aluminium producers significantly decline in their credit profile, and continue to suffer severe declines on credit levels as their capacity surplus, inventory and supply face a low demand in the retail market. The balance sheets are bad, the main producers and distributors still have high debt levels and access to capital markets is uncertain due to the restriction of credit.
Update on trends and basis: payment delays, outstanding invoices and insolvency
Delayed payments were boosted by the negative impact that the demand levels got on companies’ liquidity and current assets (current capital). At the beginning of collapse, industry levels of cash flows were strong. Except credit profile of the strongest buyers upset by volumes cutback and pricing reduction. It is quite possible that this trend will continue for the remaining 2009 –and it could lead to a higher rate of outstanding debts and insolvencies.
What should the metal suppliers take care of?
They should be careful with the next maturity of debts; also to generate cash from operations; free cash flows; the cycle of cash conversion; the margin of financial covenants; any other issue that might cause a requirement for immediate liquidity or a loss of liquidity. In order to sort out the potential decline on primary line, it is critical to cut costs, such as level of energy, labour or another function in the manufacturing process. Special attention should be given to buyer’s final market.
What is the short-term forecast for the sector?
Negative: For 2009 a continued fall in demand and a stabilization of the sector in 2010 with assistance from the Government are foreseeable. We are witnessing a process of realignment and consolidation of businesses, as cost containment and cash flow accumulation are to be maintained during 2009. Persistent weakening of the sector and an bad debts increasing are predictable until it can gather the necessary capacity to cope with falling demand.
Chemical sector assessment
Impact of the global crisis in the chemicals sector
The global crisis has resulted in a rapid drop in demand for commodities and specialty chemicals, leading to a significant dive in the credit profile of the sector. Demand decrease for paints, coatings, plastics, performance adhesives, or crystals in the automotive and construction sectors has led to a significant drop in the volume of demand and prices. From November 2008 until February 2009, new orders have practically disappeared –due to the credit freezing of markets and the obvious trend toward inventory reduction of end-users to facilitate drain inventories.
On the threshold of this decline, the sector did not amass huge amounts of cash flow. High energy and production costs of 2008 depleted the treasury and reduced margins in many businesses. As an area of intensive use of capital, the debt levels are unsurprisingly high, and should keep on increasing.
Update on trends and basis for payment delays, outstanding invoices and insolvency
The chemicals’ has experienced a significant increase on payment delays, outstanding, bankruptcies and selective unpaid –because of inventory reduction and limited access to external capital disturbed the cash levels of many buyers: the drop in demand has also been a negative factor for their levels of liquidity and capital. So far in 2009, several major chemical companies went to bankrupt and a significant decline in the credit profile is being experienced by most industry buyers. It is quite possible that this trend will persist during the second half of 2009, albeit at a slower pace.
What should the chemical suppliers take care of?
Companies should be careful about deteriorating prices and volume of their buyers. Drop of sales volume and prices has resulted in narrower margins, operating losses, interest coverage and little or no loss of liquidity. Controlling energy costs and raw materials is essential to strengthen up the potential dive on primary line within the manufacturing process. The ability to bear cost increases, cut costs and generate cash is essential to foresee the buyer’s payment capacity. Furthermore, they should pay special attention to the buyer’s final market.
What is the short-term forecast for the sector?
Negative. Throughout the months ahead demand will weaken. Any increase in energy costs could further damage cash and margin. Cost containment and cash accumulation are quite recommended all through 2009.
The financial crisis is convulsing politics in unexpected ways. The triumph of an inexperienced black liberal senator in the US presidential election may yet be counted as the first surprise of many. What else could be in store?
Emmanuel Todd, the French historian, made a name for himself by predicting the collapse of the Soviet Union. He has been canvassing into his crystal ball again. In his latest book, Après la démocratie (After Democracy), he brings to mind the alarming possibility of a post-democratic Europe reverting to ethnic disasters and dictatorship.
The author’s starting point is incredulity that a politician as “vacuous, violent and vulgar” as Nicolas Sarkozy could ever have been elected president. As interior minister, Mr. Sarkozy proved he was ill-suited to high office by inflaming social tensions during the riots in France’s troubled suburbs, Mr. Todd argues. Mr. Sarkozy’s first months in power have only confirmed this judgment. As incompetent in economics as in diplomacy, the hyperactive Mr Sarkozy is going nowhere fast, the author contends, rather like a cyclist pedalling away on an exercise bike.
Yet Mr. Sarkozy’s election is a symptom of the sickness of French democracy rather than its cause. Once, French politics was neatly defined by its ideological divisions: the Communists represented the secular, internationalist, working class; the Gaullists represented nationalist, conservative, Catholic values. But the collapse of religion and ideology has destroyed that framework, leaving behind a politically atomized society wide open to manipulation by the likes of Mr. Sarkozy or Silvio Berlusconi in Italy. Tough economic times will only tempt such populist politicians to stoke public fears of immigration and to adopt ever more authoritarian ways.
However, the author is equally scathing about France’s opposition Socialists, a party of cosseted bureaucrats who have betrayed the workers they once represented. French civil servants do not have to worry about the corrosive effects of globalization because their own jobs cannot be sent offshore.
Mr. Todd paints a picture of a collusive political-media elite that benefits from globalization while being disconnected from the people who suffer from it. As arrogant as the aristocracy on the eve of the 1789 revolution, this elite blithely ignores the views of voters whenever it suits them. French voters rejected the European Union’s constitutional treaty, but a modified version was later adopted by parliament. Britain’s voters protested massively against the war in Iraq, but the government sent in the troops regardless.
Ordinary workers blame cheap-wage China for killing jobs and compressing wages. Instead, France’s leaders scapegoat Muslim immigrants and target militant Islam, justifying an unpopular intervention in Afghanistan. Employees want Europe to protect their jobs but, in spite of his increasingly protectionist rhetoric, Mr. Sarkozy – and the opposition Socialist party – still adhere to the free-trade dictates of the EU and the World Trade Organization.
In Mr. Todd’s reductionist view, globalization is simply the exploitation of cheap workers in China and India by US, European and Japanese companies. He is therefore an unabashed champion of European protectionism. Erecting trade barriers would increase European wages which, in turn, would increase demand and boost trade, he argues. The “social asphyxia” that is sucking the breath out of democracy would disappear.
The British, whose very identity is wrapped up in free trade, will never buy protectionism, Mr. Todd suggests, but Germany and the rest of the EU could be persuaded.
At times, Mr. Todd’s anger outstrips his analysis. Too many questions are left hanging. Does globalization not benefit western consumers? Why would Germany, one of the great exporting nations, turn its back on free trade? Has Mr. Sarkozy not performed well in the crisis? But there is no doubt that the intellectual assault on free trade is intensifying. Mr. Todd’s book is a passionate assault in that war of ideas!
A tip: Do not run to buy it at the bookstore. Although some assumptions are attractive at first sight, the overall analysis, on an anthropological and demographic basis (Emmanuel Todd’s “primary business”), confines often to correlations too hastily constructed and argued quickly. Todd’s argument boiled down to something like: After democracy = “After sarkozysm” too simplistic to my liking. If you are interested in the future of democracy, rather try Wendy Brown, professor of political science at the University of Berkeley (Edgework: Critical Essays on Knowledge and Politics Out of Politics and History). This time, the analysis is all the more exciting and not a French framed one. Of course, keep in mind Colin Crouch’s classic Postdemocracy.
¿Hay que bregar por un Estado ‘aligerado’ de peso, o bien habremos de insistir en un Estado fuerte, reformado y justo?
Para algunos, la vuelta al proteccionismo se presenta como una técnica dogmática. No se trata tanto de una secuencia de medidas económicas que, una vez puestas en aplicación por los poderes públicos y obtenido el resultado esperado, se esfumaría para dar paso de nuevo al sistema de libre cambio imperante desde Bretton Woods. No se trataría pues de una táctica temporal sino de una doctrina que se instalaría para durar. El escenario actual de crisis ve multiplicarse los planes de recuperación global de la economía, así como planes de apoyo a sectores estratégicos. La paradoja es que tales planes pesan fuertemente en las cuentas públicas, hasta tal punto que los estados ven cómo el incremento del déficit presupuestario favorece el aumento de sus importaciones. Lo cual es contrario al objetivo deseado.
Peor aún. La crisis actual está debilitando a algunos países, cuya infraestructura económico financiera es aún frágil, poniendo en entredicho la estabilidad política necesaria para afrontar los embates de la crisis. Primero fue Islandia en estado de quiebra técnica. Es sobre todo el caso de los países emergentes de Europa central, especialmente Estonia, Hungría y la República Checa. La situación de Rumania empieza a ser preocupante y necesita un apoyo urgente del FMI. Polonia sufre una inestabilidad a nivel de su ejecutivo, que puede calificarse de endémica.
¿Por qué los liberales se oponen al proteccionismo?
Por razones éticas: El proteccionismo es una expresión de la ley del más fuerte, el Estado, que favorece con arbitriariedad los intereses de algunos productores a expensas de otros (extranjeros o no);
Por razones económicas: Contrariamente a lo que muchos creen ingenuamente, el proteccionismo no beneficia al país que lo practica. Su único efecto, a resultas del cierre del mercado, es incrementar los costos productivos del país proteccionista, en beneficio de unos pocos productores que se enriquecen indebidamente.
En su versión agresiva, es decir, cuando opera de puertas afuera, el proteccionismo obliga a comerciar en exclusiva a ciertos países extranjeros, ya sea por la fuerza, ya sea a través del dumping (precios anormalmente bajos compensados por subvenciones estatales al productor local); en este último caso, el contribuyente del país proteccionista se ve engañado en beneficio del productor de ese mismo país.
Para los liberales es un error considerar que el proteccionismo enriquece la economía de un país de manera general, porque ¿a quién enriquece en realidad? Lo que ocurre a menudo es una redistribución dentro del propio mercado a expensas de los más (consumidores o contribuyentes, según el caso) y en beneficio de unos pocos (los productores).
Un producto de calidad, o con una buena relación calidad-precio, no necesita medidas proteccionistas -dicen los liberales- para venderse mejor. En este sentido, tienen razón los librecambistas al considerar que el proteccionismo es un intento de cambiar por la fuerza una situación de desventaja comercial.
El único caso en que el proteccionismo puede favorecer decisivamente el enriquecimiento de un mercado es cuando éste dispone del peso específico suficiente como para imponer su punto de vista sobre el resto para obligarle a comprar sus productos al precio que él solicita: ¿no es acaso ésto un expolio de otros mercados? Un expolio que implica asimismo unos costes políticos, diplomáticos y fiscales más o menos ocultos.
El arte del hombre político que promueve medidas proteccionistas -nacionalismo puro y duro- consiste en hacer creer que esa política se ha de llevar a cabo en nombre del “interés general”, un concepto comodín que sirve para encubrir intereses particulares.
¿Qué temen los proteccionistas?
Los proteccionistas acusan -no sin razón- al liberalismo económico de apostar en exceso por el principio de la propiedad individual -que, a contrario, los liberales consideran un derecho natural, al mismo nivel que la libertad de expresión- y de oponerse a la intervención de los poderes públicos so pretexto que éstos perturban el libre juego de la competencia.
A lo que los liberales contestan que, con fecuencia es el estatalismo o el estado providencia, quien instaura obstáculos al comercio, para facilitar la formación de conglomerados industriales o de acuerdos con el fin de adquirir una posición hegemónica en el mercado. Algunos, sin duda, verán en Francia el ejemplo axiomático de esta tipología. No les falta razón, aunque para ser honestos, otros mercados más liberales la aplican en mayor o menor medida: España y Alemania (medidas protectoras para sus respectivos sectores de automoción), obviamente la administración americana (automoción y banca, por ejemplo). La diferencia es que en estos tres mercados, las medidas proteccionistas tienden, desde siempre, a ser temporales. Francia y muchos países del este europeo y, en mucha mayor medida, Rusia y China, son economías nacionalistas-estatalistas en los que abundan los conglomerados y en donde el tejido de PYMEs es reducido (caso francés) a prácticamente inexistente (Rusia).
La acusación contemporánea más común contra el liberalismo es que prácticamente no concede valor a la reducción de las desigualdades y considera las políticas de solidaridad como estrategias peligrosas. Los liberales hacen hincapié en mantener distintos y paralelos, el funcionamiento de la economía y el de la política social, dos áreas con objetivos diferentes. Consideran que la mezcla de ambos crea confusión, opacidad y efectos perversos en detrimento de ambos, olvidándose que en la interrelación de ambos reside el progreso, que unos llaman capitalismo de rostro humano y, otros llanamente, socialdemocracia.
La solución a los desequilibrios financieros vendrá de los mismos actores: el mundo occidental más los países emergentes y en vías de desarrollo. De Rusia en menor medida por cuanto dispone de una estructura financiera pobre. En gran medida de China, al ser éste el mayor titular de cash del planeta y primer comprador de deuda norteamericana. Es el país que está y que estará más implicado. Seamos realistas, la solución será política y vendrá progresivamente, lo que excluye cualquier cambio súbito o de grandes proporciones. Tendrá un objetivo de resultados en un devenir a medio plazo.
Conviene recordar que, durante los años 1945-1974,se intercambiaba de media un dólar comercial por 1,5 ó 2 dólares financieros. En la actualidad, esta proporción es de 1 a 80-120, según los mercados. Las causas de tal disparidad hay que buscarlas en la gestión egoísta de las diversas crisis por parte de las sucesivas administraciones norteamericanas. Otras veces al hacer endosar su deuda a la comunidad de naciones en beneficio propio. Las más, se debió a una visión estrecha y, con frecuencia, adhoc de las circunstancias a que se enfrentaban. Y por supuesto un afán de expansión constante debido al revolving generado por la deuda endémica de los hogares norteamericanos.
La responsabilidad inicial del desajuste se debe a la decisión del presidente Richard Nixon, que en 1971 decretó el fin de la paridad dólar-oro. Hasta entonces y, a resultas de la conferencia de Bretton Woods (1944), la compensación de las las transacciones internacionales se podía efectuar mediante dólares, libras esterlinas u onzas de oro. La estabilidad del sistema consistía en la intercambiabilidad con el oro de las otras dos divisas a un tipo constante.
Pronto la libra se cayó del sistema, quedando únicamente la convertibilidad $-oro a razón de 35 dólares por onza de oro.
Entretanto, los Estados Unidos incrementan el servicio de su deuda presupuestaria: la guerra de Vietnam es una contienda muy costosa en vidas y en presupuesto. Este es cada vez más desequilibrado y la tesorería se descontrola hasta tal punto que ya no puede garantizar el equilibrio de la convertibilidad fija. Nixon se encuentra ante un dilema: equilibrar su presupuesto poniendo fin a la guerra de Vietnam y acabar con el endeudamiento de los hogares norteamericanos que se habían acostumbrado a gastar sin control (fenómeno cultural que viene de los años 50); o bien abandonar la paridad y apostar por el dólar como único medio de pago internacional. Desde ese momento se pasa a un sistema de cambio flotante con una cotización que varía cotidianamente. Concretamente eso supone que los procesos de producción que hasta el momento operaban con previsiones, se vuelven difíciles de preveer y controlar pues el tipo de cambio es incierto. Como consecuencia de ese nuevo sistema, el comercio se dirigió a la banca y sobre todo al sector de los seguros buscando productos que permitieran protegerse contra los riesgos del cambio flotante. Aparecen entonces los productos derivados (V. El desequilibrio, en el origen de la crisis) como mecanismo que aporta seguridad a la hora de adquirir a un precio y una fecha preestablecidos. El problema es que esos productos derivados se vuelven también intercambiables y que a final de la década de 1980 el conjunto de productos derivados se vuelve de uso corriente constituyendo un nuevo mercado que se desarrolla rápidamente, tomando grandes proporciones, incluso mayores que las de las bolsas de valores tradicionales.
El sistema no tardaría en descontrolarse. Los créditos revolving (relacionados a las tarjetas crediticias) aumentan la potencialidad de crecimiento a corto plazo; en cambio, su desarrollo es directamente proporcional al aumento de insolvencia de los hogares. Extrapolando el fenómeno en términos macroeconómicos, el crédito al consumo descontrolado, acordado por las entidades crediticias occidentales, es responsable en gran medida de la importante paralización de las economías norteamericana y europea que hoy conocemos. Hasta el tercer trimestre de 2008 los márgenes financieros, cada vez menores debido a la gran competitividad y costos de financiación de dicha política desenfrenada de concesión de créditos, ha llevado a los estamentos financieros a dirigirse a nuevos mercados en donde dar cabida a su necesidad incesante de expansión constante. El pronóstico es que las entidades financieras varíen su actividad a nuevos mercados como el Este Europeo o Asia, y aumenten el uso de nuevas tecnologías para la concesión de créditos vía Internet.
El problema es que, hasta hace muy poco, el crédito al consumo estaba respaldado por poderes públicos y entidades bancarias que lo consideraban como factor esencial de crecimiento. . .
The social relations are tightened. Extra benefits, windfall, stock options, golden/early retirements and other premiums do not pass anymore. What was previously accepted or tolerated, especially when the economy brought jobs, no longer works, more than ever when social plans come to pass.
It is a simple but worrisome observation. One can easily recognize the persistence of the dreadful conditions on companies’ financial position within the United States and the Euro area as well. There’s all but evidence: evolution of the notes granted for the credit to companies, bankruptcies, lesser productivity, etc… The reasons are well-known: credit becomes more and more expensive, much more difficult to obtain and the production in the manufacturing sector moves back more quickly than employment, even if everywhere the companies react very quickly by reducing their enrollment.
The situation could appear even more severe in the Euro area than in the United States because the profitability and the self-financing rate of the companies are furthermore polluted there. The American companies made large efforts to reduce costs. Europe is likely to be more damaged by a later growth return. China seems to be the foremost country to recover such a growth, followed next by the US and Mexico, and later on Asia except for Japan. Japan and Europe eventually at the end, because public reflation plans are definitely less important in both areas.
But market segments differences are quite dissimilar. The bad situation of the American automobile industry is enough to enlighten, both large manufacturers and outside contractors as well.
Some people say that the companies face a hardest choice: either to preserve employment or profitability at all cost. What figures state is serious to a great extent: companies do not preserve employment but neither do they recover their financial profitability. The particularity of the crises is that they place the economic actors in a situation where their freedom of choice –their good judgment- is reduced to nothing or next to nothing
Si en 1929-1932 la torpeza de las administraciones públicas tanto a nivel nacional como internacional agravó la crisis, hoy en día no es así. La comunidad internacional y los estados están reaccionando en la misma dirección, quizás no lo suficiente, pero si de manera adecuada. La reunión del G20 que se reunió el pasado 2 de abril puso en escena a un presidente norteamericano inteligente (en lugar de su inepto antecesor) y a las potencias económicas más significativas. Todos andando con un mismo paso –aunque lentamente. Seamos honestos, el balance es más que honroso.
Sin embargo cuando la anterior administración norteamericana decide no respaldar a Lehmann Brothers, está poniendo en un brete al NYSE y al resto de mercados bursátiles mundiales. La administración no quiere dar a entender que va a salvar a todas las entidades a cualquier precio (táctica que ha estado a punto de repetirse con la industria del automóvil). Al contrario, el gobierno del presidente Bush quiso que el caso sirviera de ejemplo y dejó ir a la quiebra a la banca de negocios por excelencia. Esta decisión fue una verdadera catástrofe que generó mucha más desconfianza que toda la impericia de esa administración en ocho años de mala gestión financiera. Porque un banco no es solamente una entidad constituida de accionistas y empleados. Es además una red económica importantísima con empresas clientes cuyos depósitos dan cuerpo a la entidad. La desaparición de Lehmann tuvo un efecto multiplicador al ampliar en gran medida lo que iba a ocurrir semanas después.
La recesión económica es no obstante, anterior a la crisis financiera. Desde la primavera de 2005 hemos asistido al alza imparable de los precios del petróleo, de las materias primas minerales e incluso del precio del trigo y de la leche. La razón es que todos estos mercados estaban sometidos a la “presión” de los productos derivados(*). Se trata de montajes financieros creados para, en principio, protegerse contra las variaciones excesivas del valor de las cotizaciones de un producto. Pero paradójicamente, los derivados no pueden ofrecer tal garantía más que a condición que la variación se produzca lenta pero progresivamente (se necesita crecimiento para alcanzar beneficio). Y en este trance quien sale peor parada es África.
En los años 1945-1974, el mundo desarrollado conoce un crecimiento rápido y regular de 5% anual de media; sin crisis de ningún tipo y una situación de pleno empleo. Actualmente, entre 15 y 20% de la población activa se encuentra en un entorno de empleo precario. Otro 10 a 12% en paro irremisible. Queda también por enumerar una capa de la población pobre, que no es ni parado ni empleado precario. El conjunto de los tres grupos corresponde más o menos a una cuarta parte de la población total de los países desarrollados. Y así el papel cada vez más protagonista del accionista –que busca rentabilidad y beneficio a corto– va en detrimento del consumidor por cuanto la desaparición de la seguridad del poder adquisitivo debilita al consumo.
Durante los felices años 2000 esta anemia económica y el consiguiente descenso del poder adquisitivo, del consumo y de la demanda), ha ido a la par de una verdadera euforia financiera (cuyos signos más ostentosos fueron el incremento de las transacciones inmobiliarias de lujo en el centro de las grandes ciudades o la sobre valoración de obras de arte). Es en ese desequilibrio en donde se sitúa el origen de la crisis. Porque en los Estados Unidos de George W. Bush y Alan Greenspan se substituyó el poder adquisitivo por el crédito. Y como corolario la liquidez circulante no se utilizó para producir bienes y servicios sino para atender a la especulación. Casi inmediatamente la enfermedad de los derivados se convirtió en una pandemia al extenderse rápidamente por todos los mercados del planeta.
* Por ejemplo Fondos Garantizados, Bonos y Depósitos Indiciados, Equity Swaps, Warrants, etc..
I have just read the book. And it is a rather surprisingly pessimistic –and surprisingly (to my mind) reactionary– assessment of the state of politics and society in Europe. In particular, Todd apparently emphasizes the socially stabilizing value of religion and calls for protectionist trade barriers.
Democracy is on the road to ruin. Religious values (Christianity, Communism …) have collapsed. Free-marketism and its corollary, globalization, are slowly destroying society. And to make matters worse, the French have elected as their leader a president who is “incapable of exercising power”. A man who, once in power, immediately aligned himself with the United States, like “a rat rushing to scurry onto a sinking ship”.
That, in a few words, is the thesis of this fulgent, fulsome, and flat-footed book, as Emmanuel Todd was caught flat-footed by the financial crisis that would “re-presidentialize” Nicolas Sarkozy. Nor did he predict that the “Bushist America” he curses would elect Barack Obama.
At once independent-minded and upset (emporté), Emmanuel Todd is not any more lenient towards the Socialists. He accuses the Socialist Party (PS) of having betrayed the values of the left by converting to capitalism. In Ségolène Royal’s popularity he discerns signs of “rot [décomposition]” in the body politic. And he blames “cynical careerism” for the promotion of the Socialist Pascal Lamy to the head of the World Trade Organization as well as that of Dominique Strauss-Kahn as director of the International Monetary Fund.
This is a point to which he comes back often: the Socialist elites are of the same ilk as Nicolas Sarkozy. Historian, demographer and sociologist, he sees in their patent complicity the explanation for the ideological void that France has sunk into. With “a rise in the power of antidemocratic forces” as the consequence.
The exploration of this ideological void is at the heart of his exposition. The crumbling away of the great religious faiths, explains Emmanuel Todd, aggravates the decline of politics. But this decline is also due to a rise in the level of knowledge — a disturbing statement for those who believe that education automatically improves democracy. That was true yesterday. But times change. The increasing number of graduates with higher levels of education, notes Emmanuel Todd, has reshuffled the deck by creating a category of individuals impervious “to the strong affiliations that used to structure the nation, the public, the social domain”.
Add to this gloomy picture the temptation to fill the religious and ideological void he denounces with calls to reclaim identity: the castigation of Islam, the creation of a ministry of national identity, the “ethnicization” of a national myth… One begins to understand why this book is titled After Democracy.
Which democracy is supposedly at risk of disappearing. Emmanuel Todd does not rule out a “coup d’Etat”, the temptation to which he perceives in Henri Guaino, Nicolas Sarkozy’s special counsel. Similarly, he suspects the Socialists of wanting to “withdraw the right to vote from the people, or to at least to seriously limit its practice”.
At times one wonders if he is joking, but he is not the type. Emmanuel Todd is convinced that the free market and globalization, considered by France’s elite to be a foregone conclusion, have disintegrated French democracy.
The solution flows from the source: abandon globalization and institute a salvational protectionism at the borders of Europe. Thanks to such a reasoned protectionism, French wages, pulled down to the bottom by Chinese workers, will rise again. National cohesion will come out of it re-strengthened. And democracy —at last! — will find its colors again.
Sprinkled with cutting judgments, this exposition often vacillates between essay and satirical tract, in the process losing its force. Above all, Emmanuel Todd is too presumptuous. If the solutions that he argues for were the panacea, we would follow them without hesitation. Unfortunately…
Anterior a la crisis financiera y como preámbulo de ésta hemos venido asistiendo desde 2006 a una progresiva pero decidida “anemia” económica.
La historia del capitalismo está jalonada de crisis. Concretamente, desde los años 70 presenciamos una cada 5 ó 6 años. Sistemáticamente. Sin embargo, de ésta que ahora ocurre, desconocemos su “mecánica” interna: no se trata de la conocida crisis cíclica que sobreviene periódicamente. Tampoco de una crisis estructural previsible, analizable en términos de mecánica.
Desde que el capitalismo existe como tal, en los albores del s. XIX, la cuestión del hábitat se convierte en un problema de peso puesto que se trata de prestar “hipotecariamente” a quien no tiene pero ofrece suficientes garantías para invertir el equivalente de 5 a 7 años de su salario –que es lo que cuesta de media. El préstamo se otorga mediante una hipoteca sobre el objeto en sí, a condición que la entidad financiera evalúe correctamente los ingresos del que lo solicita, es decir a condición de solvencia del prestatario (titular del préstamo). La entidad no cubre normalmente más allá del 70 u 80 % del valor total. El mecanismo se apoya pues en el esfuerzo complementario del titular.
Ahora bien, en la práctica, y desde finales de los años 90, la tendencia imperante en Estados Unidos ha sido de incitar a que una mayoría de ciudadanos se convierta en capitalista –fuesen éstos solventes o no– y empezando por la casa. La administración norteamericana empuja a ello, los bancos actúan con laxismo, “después de todo, dicen, por qué no prestar a cualquiera”. Con frecuencia, la evaluación de la capacidad de cobertura financiera se hace en función de la “cara” del cliente, cuando no, en la práctica, se le supone solvente. La entidad financiera se pone a salvo puesto que su solvencia no depende ya únicamente de la del prestatario sino sobre todo del valor intrínseco del bien: así, si el titular del préstamo deja de pagar, el banco lo expropia (a veces se habla de embargo, lo cual es incorrecto) y vende la casa para redimir la deuda. Este sistema se ha generalizado hasta el pasado mes de diciembre de 2008. Los bancos norteamericanos y, en menor medida, los europeos, otorgaban créditos de manera indiscriminada, especialmente a familias modestas y minorías activas (hispanos y afroamericanos), concediendo el 100, 110 e incluso el 120 % del valor del inmueble con la razón de que siempre hay obras que realizar o muebles nuevos que adquirir a la hora de instalarse. Y para que la técnica fuera más tentadora aún si cabe, la ingeniería financiera acostumbraba a proponer un montaje a partir del cual los 2 ó 3 primeros años no había reembolso de capital sino únicamente de los intereses.
El todo iba acompañado de tipos de interés variable, es decir fluctuante, con la excusa de que “con el tiempo, ya verá usted, su salario aumentará”. Es lo que se ha dado en llamar la doctrina de la expansión constante.
Durante el verano de 2007 alrededor de 1.700.000 familias norteamericanas pierden su hogar, expropiadas, desahuciadas. Con sus respectivos hijos en la calle, en muchos casos, desalojados del sistema de escolarización. En realidad las medidas de expropiación iban dirigidas a unos 4.000.000 de hogares, pero las autoridades encargadas de ejecutar las sentencias de desahucio –jueces y policía– se negaron en muchos casos a cumplir medidas tan impopulares. Esto llevó a muchas entidades crediticias a serias dificultades de tesorería, cuando no a la quiebra ya que eran titulares de sumas masivas de créditos fallidos; se habla de 150 a 300.000 millones de dólares. El efecto multiplicador no tarda en llegar y la totalidad de la banca norteamericana se encuentra con que es titular de préstamos hipotecarios fallidos, viciados, que allí se dieron en llamar subprimes, porque conllevaban un sobre tipo de interés, una sobre prima en el caso de que el titular del préstamo no fuera solvente.
Aún así no se puede hablar todavía de robo, sino de “brutalización” cínica del sistema bancario por cuanto este último decide de no tratar más con personas (familias, hijos y sus respectivos riesgos) sino con objetos (el valor de esos riesgos). En un sistema ético y normal, se hubieran debido evaluar los estados de pérdidas de las entidades, aprovisionar fondos y prevenir a las autoridades de seguridad competentes (banco central y autoridades bursátiles) que habrían tomado las medidas necesarias. No fue así. La mayoría de las entidades financieras camuflaron los préstamos fallidos con otros que no lo eran, creando así paquetes, los denostados packages. Estos, a su vez, eran objeto de nuevas transacciones dirigidas a otras entidades (a las que no avisaban evidentemente del montaje). Con ello los bancos se deshacían de préstamos “conflictivos” y en sus balances no aparecían más que nuevos activos circulantes, aparentemente sanos. Esta técnica, llamada de “securitization” o de titularización de crédito, es totalmente legal pero en este caso, ha sido desnaturalizada. En teoría se trata de convertir activos (créditos, p.ej.) en valores o títulos interbancarios. En la práctica la conversión se realizó en base a préstamos personales, dando así lugar a activos corrompidos pues los fallidos quedaron ocultos tras los activos solventes.
La estafa es incuestionable en tanto en cuanto los bancos norteamericanos aceptan la situación y el resto de bancos occidentales asumen los subprimes sin rechistar. A partir de ese momento los nuevos títulos se vuelven títulos negociables –en inglés “marketable securities”– en todo el mundo, es decir que son admisibles a cotización oficial y, por tanto, son transferibles en bolsa. Los títulos invaden los mercados occidentales y, poco a apoco, los bancos depositarios se derrumban: unos son conscientes y otros sospechan que en su portafolio existen créditos insolventes; pero son incapaces de determinar cuántos y de qué importancia son. La perversión llegó a extremos insospechables. Así, se ha llegado al caso en que se dividió la titularidad de la hipoteca de una casa en varios títulos de manera a separarlos e incluirlos en diferentes packages. ¿Quién da más?
Fueron muy pocos los bancos capaces de medir su propio riesgo o el de su vecino con quien, hasta entonces, intercambiaba tesorería todos los días. Se generaliza la desconfianza entre bancos y es el fin del crédito interbancario.
A partir del cuarto trimestre de 2008, la economía real (es decir la productiva) se resiente fuertemente por el efecto en bies de la paralización creciente de las líneas de crédito a comercios y pequeñas empresas: los bancos no garantizan una de sus misiones esenciales, es decir la “irrigación” de cash necesario para mantener en vigor los niveles de intercambio.
Hay quien piensa que la crisis actual va a llevar a los estados, sobre todo europeos, a encerrarse en sí mismos para proteger sus intereses nacionales, su empleo e in fine a sus ciuadadanos (no hay que olvidar que son también electores). Estamos así expuestos a un repliegue nacionalista al tiempo que buscamos chivos expiatorios, extranjeros de preferencia.
Según otros, la crisis podría empeorar la fractura/factura social, que mina la cohesión nacional de nuestros viejos países europeos.
¿Dónde radica pues la mayor amenaza? ¿En el espíritu jacobino republicano francés, obsesionado por la unidad nacional (véase también la franja más ultramontana de la derecha española) hasta tal punto que aniquila el derecho a la diferencia? ¿O en el multiculturalismo de origen anglosajón que favorece la diversidad hasta tal punto que puede poner en entredicho nuestra capacidad para vivir juntos (caso de las revueltas de jóvenes en muchos suburbios urbanos franceses o de las huelgas racistas en las refinerías inglesas de febrero pasado)?
¿Es posible volver al proteccionismo? ¿Es legítimo preguntarse por la pertinencia o no del librecambismo? ¿Es el proteccionismo una idea de izquierdas o un concepto conservador?
¿Cuál es la razón de ser del proteccionismo? ¿Una vuelta de tuerca proteccionista es aún posible?
Algunos como Emmanuel Todd, piensan que al volver a elevar las barreras arancelarias a escala europea, podríamos restaurar las condiciones de lealtad comercial y poner fin a la competencia entre trabajadores de los países industriales y de los países en desarrollo, con salarios bajos. Es decir, evitar el dumping social, sin olvidar el dumping ecológico ampliamente practicado. Y a fin de cuentas, defenderse de la ‘amenaza‘ china.
Para los detractores del protecccionismo esta respuesta es simplista. Recurren a la historia para recordar que en la práctica el proteccionismo siempre ha decepcionado. Baste recordar que el proteccionismo es considerado el principal responsable en el hundimiento del comercio mundial tras la crisis del 29.
Teléfono rojo,¿volamos hacia Moscú? de Stanley Kubrick [con música We'll Meet Again, de Vera Lynn]
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Dubai o la historia de un castillo en el aire
Dubai es el máximo exponente de las burbujas inmobiliarias que se han sucedido por todo el mundo. La excentricidad de sus gestores ha convertido una ciudad en medio del desierto en un campo plagado de hoteles y rascacielos. Pero era la época dorada y cualquier cosa era poca para este emirato.
Pero la crisis ha golpeado con fuerza a Dubai. Las obras se han parado y el flujo de crédito se ha detenido. Hasta que el pasado 26 de noviembre se ha anunciado una moratoria en el pago de una deuda de 4.000 millones de dólares del holding estatal que ha construido las famosas Islas de las Palmeras. Esto no ha sentado muy bien en los mercados internacionales.
El problema es que el emirato debe 80.000 millones de dólares, y empieza a haber dudas sobre su solvencia. Ha sido pedir la moratoria del pago de dicha deuda y caer todos los mercados. Lo peor de la crisis financiera podría estar por llegar. Pero en lugar de suspender pagos los bancos podría ser peor. Ahora, podrían empezar a suspender pagos los Estados.
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Gestación y eclosión de la burbuja especulativa
La política de la Reserva Federal de mantener los tipos de interés cercanos a cero está alimentando una ola de capital especulativo que puede causar la próxima crisis. Muchos advierten que se está incubando una nueva burbuja, y varios especialistas ven en este relajamiento cuantitativo la misma respuesta que Japón tuvo para su crisis de principios de los años 90. La baja tasa de interés de Japón habría contribuido al estallido de la crisis asiática de 1997.
Ben Bernanke, un estudioso de la Gran Depresión de los años 30, ha supervisado la más colosal inyección de liquidez en la economía más grande del planeta, comprometiéndose a no cometer el error de los años 30 cuando los funcionarios de la Fed aplicaron una política monetaria estricta y rigurosa que lo único que consiguió fue agravar la crisis. Se culpa a la falta de dinero disponible en 1930 que la crisis se prolongara por una década. La poca respuesta a las inyecciones de liquidez actuales demuestra que la situación no deja de ser delicada y que los nuevos límites de la política monetaria pueden alterar aún más los desequilibrios globales que la crisis dejó al descubierto.
Una de estas operaciones especulativas es el llamado carry trade, con inversores que se endeudan en dólares (al 0%) para invertir en otras monedas que ofrecen un interés más alto como es el caso de Australia, Brasil o Nueva Zelanda. Gran parte del flujo en los mercados de capitales sigue esa dirección. De ahí la valoración que están adquiriendo los activos de Asia y Oceanía versus los activos de Europa y Estados Unidos. Los activos de Corea, Taiwán, Hong Kong o Singapur están subiendo a niveles que son incompatibles con la realidad lo que replica la burbuja inmobiliaria de Estados Unidos en los 90 y de Japón en los 80 (cuando los jardines del Palacio Imperial de Tokio llegaron a costar más que todo el estado de Washington).
Pese a esto, el ex-gobernador de la Fed, Frederick Mishkin sostuvo que no se está consolidando una nueva burbuja especulativa, dado que no todas las burbujas presentan riesgos para la economía. Mishkin separa entre burbujas malas y buenas. Las primeras son provocadas por un auge del crédito, en el cual las expectativas dan lugar a un aumento de la demanda, lo que genera un alza en el precio de los activos, alentando los préstamos contra esos activos y retroalimentando positivamente el ciclo hasta que explota.
La segunda categoría de burbujas que Mishkin llama de “exuberancia irracional” son menos dañinas porque aquí no hay un auge del crédito, y si no hay un auge del crédito el estallido de la burbuja no puede hacer daño alguno al sistema. Cita como ejemplo la burbuja tecnológica de los 90 y la de las puntocom del 2000, que no tuvieron un impacto global. Para Mishkin es el auge del crédito el que desata las burbujas. Ahora bien: no hay un auge del crédito en la pequeña escala. Pero en la macro escala de los capitales especulativos, aquellos que mueven los miles de millones de dólares de los Fondos de Pensiones y juegan en las bolsas o especulan con el oro y el petróleo, a costa del dólar, hay creación de burbuja. Y todo lo que sea burbuja es malo para la economía. Escomo pensar que una bomba atómica puede tener algún efecto positivo.
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A report published early September 2009 by 
![Barcelona · Mercat de la Boqueria [Sant Josep]](http://zikipediq.files.wordpress.com/2009/08/barcelona-c2b7-mercat-de-la-boqueria-sant-josep.jpg?w=466&h=302 "Barcelona · Mercat de la Boqueria [Sant Josep]")
President Obama presented yesterday the expected reform of the US financial system. It is widely considered as the primary source of the crisis that led global markets to the brink of collapse at the end of 2008. The President basically cleared the key lines, the frame where successive changes in legislation should be built –but whose application is expected to be tough both in the Senate and in the House of Representatives. It is likely that Treasury Secretary Timothy Geirthner, will upgrade details during his appearance scheduled today.
Outlook should suggest a slight improvement at the end of 2009. Sectors most affected are automotive, metal, chemical, building and retail.
The financial crisis is convulsing politics in unexpected ways. The triumph of an inexperienced black liberal senator in the US presidential election may yet be counted as the first surprise of many. What else could be in store?
Para algunos, la vuelta al proteccionismo se presenta como una técnica dogmática. No se trata tanto de una secuencia de medidas económicas que, una vez puestas en aplicación por los poderes públicos y obtenido el resultado esperado, se esfumaría para dar paso de nuevo al sistema de libre cambio imperante desde Bretton Woods. No se trataría pues de una táctica temporal sino de una doctrina que se instalaría para durar. El escenario actual de crisis ve multiplicarse los planes de recuperación global de la economía, así como planes de apoyo a sectores estratégicos. La paradoja es que tales planes pesan fuertemente en las cuentas públicas, hasta tal punto que los estados ven cómo el incremento del déficit presupuestario favorece el aumento de sus importaciones. Lo cual es contrario al objetivo deseado.
La solución a los desequilibrios financieros vendrá de los mismos actores: el mundo occidental más los países emergentes y en vías de desarrollo. De Rusia en menor medida por cuanto dispone de una estructura financiera pobre. En gran medida de China, al ser éste el mayor titular de cash del planeta y primer comprador de deuda norteamericana. Es el país que está y que estará más implicado. Seamos realistas, la solución será política y vendrá progresivamente, lo que excluye cualquier cambio súbito o de grandes proporciones. Tendrá un objetivo de resultados en un devenir a medio plazo.
It is a simple but worrisome observation. One can easily recognize the persistence of the dreadful conditions on companies’ financial position within the United States and the Euro area as well. There’s all but evidence: evolution of the notes granted for the credit to companies, bankruptcies, lesser productivity, etc… The reasons are well-known: credit becomes more and more expensive, much more difficult to obtain and the production in the manufacturing sector moves back more quickly than employment, even if everywhere the companies react very quickly by reducing their enrollment.
Si en 1929-1932 la torpeza de las administraciones públicas tanto a nivel nacional como internacional agravó la crisis, hoy en día no es así. La comunidad internacional y los estados están reaccionando en la misma dirección, quizás no lo suficiente, pero si de manera adecuada. La reunión del G20 que se reunió el pasado 2 de abril puso en escena a un presidente norteamericano inteligente (en lugar de su inepto antecesor) y a las potencias económicas más significativas. Todos andando con un mismo paso –aunque lentamente. Seamos honestos, el balance es más que honroso.
I have just read the book. And it is a rather surprisingly pessimistic –and surprisingly (to my mind) reactionary– assessment of the state of politics and society in Europe. In particular, Todd apparently emphasizes the socially stabilizing value of religion and calls for protectionist trade barriers.
Hay quien piensa que la crisis actual va a llevar a los estados, sobre todo europeos, a encerrarse en sí mismos para proteger sus intereses nacionales, su empleo e 