Wednesday, November 30, 2011

Mr. Putin's Paradise for One

A private poll of 5,000 students at Moscow State University found that 80% intended to leave the country. Nor are Russia's filthy rich too patriotic about the motherland. Negative capital flows doubled this year from $34bn to $70bn. Even if the price of crude oil hit $125 a barrel, more money would be flowing out of the country than in. As it is, four times as much money (as a percentage of GDP) is going out than in. It tells you everything you need to know about a Russia digging in for another 12 years of Putin.

Mr. Putin holds all the cards in Russia at this time. His enemies are in prison or dead. His friends and cronies hold positions of power around the country, and pay him tribute on a regular basis. Anyone willing to publicly threaten Putin within Russia would have to be crazy.
The going rate is $50m for a governorship, $500,000 for a middle-ranking bureaucrat. Little wonder that once in power, their job is to get a healthy return on their investment. There are decent governors, and the group saw one at work effectively attracting foreign investment in Kaluga, south of Moscow, but the directly appointed system itself is rotten. Putin makes little secret of his disdain for the alternative, freely elected governors. Some observers say he has a pathological hatred of democracy. To underline his disdain he has now, for the second year in a row, told the story of the elected governor who legged it out the back door rather than face the fury of the mob after a local disaster.

But, truth be told, Putin is also at a loss when he gets jeered. And this, according to the pollsters, will happen more often. It is not just that Putin's personal brand is ageing. The popularity of the entire St Petersburg clique around him is falling with him. United Russia, the party of apparatchiks he created, will by hook or by crook, but largely by crook, get the required percentage of votes in Sunday's Duma elections. Last time round Moscow students were told by tutors to take digital snaps of their ballot sheets if they wanted the right grades – one of many examples of the "vote early, vote often" variety. But the party is a fragile instrument of power because it represents no one but itself.

Putin's problem is not staying in power. It is leaving it – without all hell breaking lose between rival boyars, and with his personal fortune intact. _Guardian
Putin is easily one of the wealthiest men alive. In third world countries, that is how men grow rich -- through political power. In such states, opportunities for success outside government are minimal, and never secure or lasting. That is why the truly ambitious and competent persons in such countries who do not wish to work in the public sector, often emigrate to freer environments.

Tuesday, November 29, 2011

Wanna Save the Euro? That'll Cost You €2.3 Trillion

...the joint liability would amount to €2.3 trillion. But it would technically be temporary. For all these safeguards, Germany’s government has so far poured cold water on the idea. But time is running out. And the scale of the impending catastrophe demands radical answers. _Economist

There is no guarantee that €2.3 trillion would be enough to save the Eurozone or its currency. Recent equity markets have been behaving as if eurosalvation were a foregone conclusion. But that is far from true.
The crisis in the euro area is turning into a panic and dragging the zone into recession. The risk that the currency disintegrates within weeks is alarmingly high.

...there are signs that the euro zone’s economy is heading for recession, if it is not there already. Industrial orders in the euro zone fell by 6.4% in September, the steepest decline since the dark days of December 2008. A closely watched index of euro-zone sentiment, based on surveys of purchasing managers in manufacturing and services, is also signalling contraction, with a reading of 47.2: anything below 50 suggests activity is shrinking. The European Commission’s index of consumer confidence fell in November for the fifth month in a row.

Now an even bigger calamity is looking likelier. The intensifying financial pressure raises the chances of a disorderly default by a government, a run of retail deposits on banks short of cash, or a revolt against austerity that would mark the start of the break-up of the euro zone. _Economist
There is much more at the article excerpted above. Follow the link.

The ongoing demographic collapse of several nations of Europe is not helping their economic prospects at all. Greece, Italy, Spain, and Portugal are losing core populations particularly quickly. Without people, there is no economy worth speaking of. And yet the topic of demographic collapse across Europe is studiously ignored, in favour of virtually any other conceivable topic of conversation -- no matter how trivial.

The Great Green Energy Suicide and the turning away from new clean reliable nuclear energy, should just about put the finishing touches to the failed Euro experiment.

No one can say that the Europe of the past 30 years has not been full of the best of intentions. Good intentions mean very little after one is dead, however.

Monday, November 28, 2011

Teacher's Unions Destroying Education in US

There is also evidence that the overall quality of teachers has declined over time and that a significant fraction of this decline reflects teacher unions. For example, Caroline Hoxby and Andrew Leigh find that the share of teachers who are among the top aptitude individuals, as measured by SAT scores, has declined over time from about 5 percent of teachers in 1963 to only 1 percent in 2000, and that much of this decline is due to the fact that teacher unions, like most other unions, compress compensation, which means that the spread in compensation between the highest quality and lowest quality teachers is reduced.17 And it is not only the very top aptitude individuals that are entering teaching at a lower rate. Wage compression benefits lower ability teachers, but reduces compensation of the best teachers, and this decline in compensation at the top end leads to fewer top aptitude individuals pursuing a teaching career.

Hoxby and Leigh also note that there has been a large increase in the lowest aptitude individuals—those in the bottom 25 percent of SAT achievement—entering teaching, and that they now make up about 16 percent to around 36 percent of the teacher population.18 This change in the composition of teachers is negatively impacting teaching outcomes...

...if the bottom 5 to 8 percent of teachers were replaced with average quality teachers, then U.S. student test scores in math and science would be at the top of international comparisons. This means that the human capital of future U.S. workers would rise, and thus generate higher production and income in the future. Hanushek estimates that the present discounted value of higher future incomes that would result from replacing poorly performing teachers would be about $100 trillion.

The public sector union problem in the US will have to be solved on a state by state basis. Once that is done, any remaining federal level problem with public sector unions should be solvable via elected representatives. In the meantime, some states such as California, New York, and Illinois may have to descend into painful bankruptcy proceedings, before the citizens of those states understand how their governments have hornswoggled them into serfdom.
Unionization is much higher in the public sector than in the private sector, and there has been no tendency for unionization to decline in the public sector. While private sector unionization has declined from about 37 percent to about 6 percent, unionization in local government has been steady at around 45 percent.

Public sector unions have been able to thrive because of the very limited competition in state and local governments. This has allowed unions to increase wages above competitive levels. In particular, state and local government compensation has increased by about 40 percent since 1980, compared to about a 20 percent increase in the private sector. The average public sector compensation level is now $70,000, compared to an average of $60,000 in the private sector.

Moreover, the much higher rate of job security in the public sector, plus superior public pensions, suggest that state and local government workers would be willing to work for less than private sector pay. My findings indicate that accounting for just the much higher rate of public sector job security suggests that public sector employment could be competitive even with compensation that was about 10 percent lower than the private sector. The fact that average public sector worker compensation is higher than in the private sector, without taking into account pension benefits, suggests that public sector compensation levels may be significantly above competitive levels. I find that reducing the wages of state workers by 5 percent would reduce California’s 2011-2012 state budget deficit by nearly 15 percent. _Lee Ohanion

Sunday, November 27, 2011

China's Emerging Hereditary Elite: Inevitable Decay of Empire?

Every empire eventually reaches a point where the number of individuals and factions vying for power passes out of balance. This is true from empires as small as a family farm to empires such as the USSR, Communist China, Imperial Rome, or the bloated and rapidly inflating bureaucracy of the USA.

In China, the one-child policy tends to retard the development of hereditary clashes within the same family. But the ruling (and ravaging) of the Chinese empire is developing along clear family lines. An obvious hereditary elite -- a new nobility -- is arising within the celestial kingdom, and it is set to acquire a firmer grip on power with the decadal change of leaders next year.
Their visibility has particular resonance as the country approaches a once-a-decade leadership change next year, when several older princelings are expected to take the Communist Party's top positions. That prospect has led some in Chinese business and political circles to wonder whether the party will be dominated for the next decade by a group of elite families who already control large chunks of the world's second-biggest economy and wield considerable influence in the military.

"There's no ambiguity—the trend has become so clear," said Cheng Li, an expert on Chinese elite politics at the Brookings Institution in Washington. "Princelings were never popular, but now they've become so politically powerful, there's some serious concern about the legitimacy of the 'Red Nobility.' The Chinese public is particularly resentful about the princelings' control of both political power and economic wealth."

...The antics of some officials' children have become a hot topic on the Internet in China, especially among users of Twitter-like micro-blogs, which are harder for Web censors to monitor and block because they move so fast. In September, Internet users revealed that the 15-year-old son of a general was one of two young men who crashed a BMW into another car in Beijing and then beat up its occupants, warning onlookers not to call police.

...Many princelings engage in legitimate business, but there is a widespread perception in China that they have an unfair advantage in an economic system that, despite the country's embrace of capitalism, is still dominated by the state and allows no meaningful public scrutiny of decision making.

The state owns all urban land and strategic industries, as well as banks, which dole out loans overwhelmingly to state-run companies. The big spoils thus go to political insiders who can leverage personal connections and family prestige to secure resources, and then mobilize the same networks to protect them.

The People's Daily, the party mouthpiece, acknowledged the issue last year, with a poll showing that 91% of respondents believed all rich families in China had political backgrounds. A former Chinese auditor general, Li Jinhua, wrote in an online forum that the wealth of officials' family members "is what the public is most dissatisfied about." _WSJ "China's Princelings"
Speaking of lowered social mobility, one intriguing development in the Chinese educational system, is the slashing of the number of subject areas in university. Education has generally been seen as a path toward upward social mobility in most countries. But China's leaders appear to feel that too many Chinese are becoming college educated.

Revolutions typically begin among intellectuals, and the better educated, when they feel that a society has grown too closed to allow them to achieve their potential. It will be interesting to see how those who are being closed out of the hereditary elite's celestial wonderland will react, as the new nobility tightens its grip on both political and economic power.

And it will be fascinating to watch the inevitable coming power plays between the members of the hereditary elite as they spar for advantage in the higher reaches of wealth and power. It is the sort of infighting one expects to see before deep schisms start to form, and power becomes consolidated regionally rather than nationally.

Saturday, November 26, 2011

Tragic Shortage of Bras Due to Chinese Worker's Strike

Chinese factory workers across the Pearl River Delta have gone on strike, protesting low wages and limited opportunities, in the midst of an export slowdown. Regrettably, even bra factories have been affected, with the result that even fashion models are being caught without bras (see below).
The strains underline recent warnings of a looming export slowdown from a senior Guangdong official and a survey of country-wide industrial activity in November that showed the worst contraction since 2009.

At Yue Yuen Industrial Holdings' giant shoe factory in Huangjiang town — a major supplier for sports brand New Balance — the mood remained tense after most of its 8,000 workers took to the streets on Thursday, blocking roads, overturning cars and clashing with police.

Experts and labor advocacy groups warn an external economic slowdown in debt-stricken Europe and countries like the United States could exacerbate the risk of social upheaval in China.

Besides labor disputes, Guangdong province — a crucial locomotive of China's economic growth with a GDP matching Indonesia's — has been roiled in recent months by riots over rural land grabs in Lufeng city, and abuse of power several hours drive west in the city of Zengcheng that saw angry crowds ransack government buildings.

A former deputy editor-in-chief of the official party newspaper, the People's Daily, said the number of “mass incidents” in China, an official euphemism for social disorder, was consistently above 90,000 per year from 2007 to 2009.

...As leaner times provoke aggressive factory cost-cutting and wage trimming, Chinese workers increasingly lashed by persistent inflation are often in no mood to compromise.

In a recent report, consultancy Exclusive Analysis said it sees growing risks of “violent labor unrest” flaring up in Chinese factories and causing property damage and losses, adding: “Real-time use of social media by striking workers and firms' decreased ability to meet workers' demands due to falling Western export demand are likely to drive this violence.”

Europe's economic woes, Chinese manufacturing fragility and flat consumer spending in the United States have all raised the risk that the world is headed for a steep downturn. _ChinaPost
Be that as it may, the threat of being forced to go without bras is sending panic through the ranks of most affluent western women over the age of 30. Some middle aged feminists have even threatened retribution against the Chinese government. If shipments of bras (particularly "wonder bras") to the west are not resumed, they threaten to send planeloads of feminists to the communist mainland to incite ill feeling between the sexes within the celestial kingdom.

No word yet on any response from China's leaders to the feminists' ultimatum.

Tuesday, November 22, 2011

Blowback from Chinese "Infrastructure to Nowhere"

In October, however, property transactions fell 39 percent year-on-year in China’s 15 biggest cities , according to government data. Nationwide, transactions dropped 11.6 percent, accelerating from a 7 percent fall in September.

The fall-off in transactions has affected developers’ cash flows and, in some cases, their ability to repay bank loans. Rising defaults after a lending surge in 2009 and 2010, much of which ended up in the property sector, were cited by the International Monetary Fund this month as one of the Chinese financial sector’s biggest risks. _CNBC
Property prices are falling in cities across China. Local and regional governments are chafing against the Beijing central government's recent tightening of lending rules, aimed to prevent runaway inflation. Some cities have openly defied the tightened banking rules, increasing tensions between the centre and the periphery in China today.
Residential property prices are in freefall in China as developers race to meet revenue targets for the year in a quickly deteriorating market. The country’s largest builders began discounting homes in Shanghai, Beijing, and Shenzhen in recent weeks, and the trend has now spread to second- and third-tier cities such as Hangzhou, Hefei, and Chongqing. In Chongqing, for instance, Hong Kong-based Hutchison Whampoa cut asking prices 32% at its Cape Coral project. “The price war has begun,” said Alan Chiang Sheung-lai of property consultant DTZ to the South China Morning Post.

...Citi’s Oscar Choi believes prices will decline another 10% next year, but that’s a conservative estimate. Even state-funded experts are more pessimistic. For example, Cao Jianhai of the prestigious Chinese Academy of Social Sciences sees price cuts of 50% on homes if the government continues its cooling measures.

When Beijing’s pet analysts are saying prices could halve in a few months, we can be sure they are thinking the eventual sell-off will be worse. In any event, the markets are bracing for trouble.

...recent purchasers have taken to the streets because they had suffered losses even before taking possession of their homes. A crowd of about 300 people in Shanghai smashed windows at the sales office of Longfor Properties on October 22, two days after the builder had ended a sales promotion on a project. The protestors had bought properties in earlier phases of the same project at prices as much as 30% higher than the discounted ones.

And then, on the 23rd, a smaller crowd—on the same street—demonstrated against another developer, Greenland Group. Protesters were injured in Shanghai at another demonstration, this time against a unit of China Overseas Holdings. There were also protests against builders in Beijing and in other cities, Hangzhou and Nanjing.

The cities of Hangzhou and Hefei have reportedly told developers to limit discounts to 20% to avoid unrest, but the attempt to establish fiat prices will not work for long because many builders face insolvency.

Moreover, Premier Wen has to be concerned that sometimes he cannot control his own cities, which have flouted his decrees by removing curbs on property ownership. _Forbes _ Gordon Chang
It is indeed a reason for concern, when inter-governmental discipline within a police state such as China begins to break down. China has a long history of its empires fracturing into warring fiefdoms. As China braces itself for a leadership change next year, such pressures can only be seen as unwelcome.

Monday, November 21, 2011

Putin's Coming Next 12 Years: Rumblings of Instability?

Challenged with the view that Russia and its exhausted political system were heading towards stagnation, he disarmingly said, “I have nothing to object to in what you are saying”, adding later that “our system is not perfect.” _Economist


Mr Putin seemed blithely confident that Russia’s economic growth would not be affected by the global crisis. Others are more doubtful, including his former finance minister, Alexei Kudrin, who predicts that the oil price could fall to $60 a barrel, presenting Russia with challenges as serious as those in Europe and America. Mr Kudrin’s resignation, after Mr Putin’s promise to make Mr Medvedev prime minister, also lowers the chances of the sort of authoritarian modernisation that some liberals had once hoped for.

In foreign policy Mr Putin remained unrepentantly blunt, notably on missile defence (see article). He promoted his pet idea of a Eurasian union to foster economic integration with Russia’s former Soviet neighbours. But the Kremlin has neither the money nor the popular support for this—and Ukraine, the biggest potential prize, remains unenthusiastic. _Economist
Russia is warning that the threat of nuclear war is rising once again, with Mr. Putin's return to the presidency. Putin wants to return Russia to superpower status, and one of his strategies is apparently to wave the nuclear threat.
"The possibility of local armed conflicts virtually along the entire perimeter of the border has grown dramatically," [General] Makarov said. “I cannot rule out that, in certain circumstances, local and regional armed conflicts could grow into a large-scale war, possibly even with nuclear weapons.”
But at its core, Russia is a sick, ageing, and shrinking nation. It is doubtful whether Russia can hold on to its land holdings in the far east for many more decades.
The fate of babies that are born in Russia is a bleak one. Russia ranks #6 in the world for fatality by suicide. It has the second-highest prevalence of AIDS in Eurasia. It is #7 in the world for cigarette consumption and #5 in the world for alcohol consumption. Its rate of fatality by fire is ten times that of the United States, and it is the most dangerous place in the world to drive a car or get on a plane.

...Russians are deeply, fundamentally, infamously suspicious of anyone who is not white, Slavic and Orthodox, and therefore the notion of creating a "melting pot" in Russia is nothing more than a pipe dream. If the inflow of such persons continues there will be a furious backlash led by Russia's fearless and shameless skinhead nationalists.
What's more, with every day that passes, more and more Russians flee their country, while they still have the chance. Entrepreneurs most particularly, are leaving in droves. As this process accelerates and the supply of wretched refuse so lowly that they see Russia as a step up diminishes, immigration will cease to be a factor in stabilizing Russia's population._AT
Here is how Russia can still throw its weight around:

...First, nuclear weapons. Simplest and most direct, Russia can threaten to blow up the world if it doesn't get what it wants.

Second, oil and gas. Especially in former Soviet space, Russia can threaten energy blackmail, turning off the lights and the heat in any country that doesn't do Moscow's bidding. The government of Ukraine has recently announced a massive shale exploration program to try to break its dependence on Russian crude.

Finally, cold war politics. Russia can funnel money, weapons and diplomatic support to the rogue regimes of the Middle East, just the way the USSR always did. It can threaten to roil their oil markets and create political instability throughout the region. _AT
Mr. Putin is not reluctant to play the international thug on the world stage, either. If he can not be the leader of a world superpower, at least he can make things more difficult for other leading economic powers. According to traditional thinking of the Russian peasant class, it is better to keep your rival from getting ahead, than to get ahead yourself.

But the erstwhile tsar will have his hands full just keeping his own country in one piece. Meddling in the far corners of the globe while his own human infrastructure crumbles, may be his downfall.

Saturday, November 19, 2011

Russia's Ongoing Brain Drain to the West

Not for the first time, Russian scientists are taking their considerable knowledge and moving abroad. Some of the brainy emigrants cite funding problems and Russian red tape as reasons to move. For others, heading West is simply a lifestyle choice.

...Russian graduate students prefer just about any small, unknown laboratory in Europe over the brand-new Russian scientific complex [Skolkovo]. “A stable trend has been established: 100% of working young people who get the opportunity to work abroad leave Russia,” said one scientific analyst. “If a young researcher gets the opportunity to enter the international arena, he or she will do it.”

Indeed, the trend extends beyond scientists. In October, 2011, a survey found that 22% of Russian citizens in general were prepared to leave the country. The only thing that sets the scientists apart is that they tend to be much more welcome by the receiving countries. “It’s not even really about the lack of financing for scientific projects, but general quality of life,” said one of the scientists. “If regular people are not coming back to Russia, then why would scientists do so?” _WorldCrunch

Russia is the world's largest country, in terms of land mass. It is a land rich with natural resources, and one of the world's foremost energy exporters. But not all is well in the land of the Russian bear. Alcoholism, suicide, mental illness, crime, and infectious diseases such as HIV and Tuberculosis, are all endemic. Russia's men die before they can retire, leaving Russian women with nothing but vodka to keep them warm at night.

Beautiful young Russian women compete to be mail order brides for European, North American, and Australian men. Ambitious and competent young Russian men compete for overseas positions -- anything to escape the dreary dead-end that Russia has come to represent to so many of its young.
“It turns out that in only two years the number of articles published by Russian scientists has dropped by 10%. That is unprecedented,” said a researcher at a Physics Institute in Moscow, who like other protesters interviewed, asked to remain anonymous. “That hasn’t happened in the United States, where funding is still plentiful for scientists, in Japan, which has suffered through several years of economic stagnation, or even in Greece, which is drowning in its own debt.”

...“Scientists have always left our country, but now we are talking about a large increase in the number of people who are moving away. Nearly all of our friends have packed up their things,” said one of the protest organizers. “Dissertation advisors don’t discourage young scientist from choosing to leave. Now we’re seeing a huge wave of people who are leaving the country. The only thing keeping most of them here is that they haven’t defended their dissertation yet.”

There are no specific statistics on the number of scientists who leave – emigrants don’t generally notify the Russian migration office that they are leaving. But this is not the first exodus. There was a massive wave of scientists who left Russia after the fall of the Soviet Union. Mathematicians, physicists, and biologists took whole laboratories to the United States. The second most popular destination was Israel, where a previous wave of Russian scientists had already set up shop in the 1970s.

By the beginning of the 2000s, nearly all the top names from Soviet science were working outside of Russia. According to the Association of Russian Speaking Scientists, there are around 100,000 Russian-speaking scientists and researchers working outside of the Russian Federation, counting those who left Russia before and after the fall of the Soviet Union.... _WorldCrunch
Russia's core population would be shrinking even without the outgoing emigration. But the loss of Russia's most ambitious, competent, and fertile young people to the outside world does nothing to improve the morale of those left behind.

Friday, November 18, 2011

Iran's Insurgency Begins to Heat Up

The world has been watching the Syrian dictatorship fighting off an insurgency made up of army defectors and disaffected citizens, with Turkey warning Syria to stop murdering its civilians. And now, an insurgency movement inside Iran is apparently beginning to heat up.

Iran's insurgency is likely to have much larger global repercussions, because Iran's mullahcracy has been the center of so much regional discord and killing over the past 32 years -- from Gaza to Lebanon to Iraq to Saudi Arabia. Overthrowing the backward and bloody theocracy of Iran would be a significant step forward to world harmony, and the dismantling of the Russia - Iran - North Korea - Cuba - Venezuela axis of global destabilisation.

What we are beginning to see in Iran, is an upsurge in explosions targeting Iran's energy infrastructure, and its Iranian Revolutionary Guard in-house instrument of terror and murder. If the Iranian insurgency is able to reach into the heart of the Iranian government's terror apparatus, it is apparently serious about changing the established order.
These attacks on the Guards — the symbol of the regime’s intensifying repression and slaughter of the Iranian people — are part of a pattern that includes explosions at refineries and pipelines. At the same time, strikes have been spreading (and no wonder; up to 30,000 retired teachers have been waiting for their pensions for many months). In short, people have lost patience, and the smaller of the two explosions at the RG base was aimed at Major General Hasan Tehrani Moghaddam, one of the most brutal of the country’s military leaders.

Contrary to the inevitable suspicions of the thumb-suckers (the Americans did it! no, the Israelis did it! no, it was an accident!), the operation was planned and carried out by Iranians from the opposition-that-does-not-exist. They intended to demonstrate that no leader is safe from the people’s wrath (if that base can be penetrated, any place can, and if that man can be assassinated, anyone can), and that the opposition knows its gravediggers.

The second, larger, explosion was not planned, nor was the extremely high number of casualties (I am told that hundreds of people, including some “very important foreign dignitaries,” were blown up). That second blast was apparently from a quantity of liquid fuel designed to extend the speed and accuracy of Iran’s Shahab-3 missile, the one the mullahs hope will some day carry a nuclear warhead. My sources claim that the fuel caused the big white plume seen in the photographs. The cloud may well have caused respiratory problems for the survivors.

There is another, fascinating report, that right after the explosions, the two main Green Movement leaders, Mir Hossein Mousavi and Mehdi Karroubi, were taken from house arrest, leaving their wives behind. This bespeaks a high level of anxiety within the regime, suggesting that they feared an all-out assault was under way, and under those circumstances they would take vengeance on the two Green leaders. Whether or not the rumor is true, its existence suggests that Khamenei et. al. take a more serious view of the opposition than some of our own expert analysts.

What this all means is clear was only a matter of time until the opposition abandoned its commitment to non-violence. We are now in a new phase. A French analyst, Jean-Jacques Guillet, understands the situation very well, and has called for a Western policy to intensify the pressure on the Iranian regime in order to bring it down. “If we press the regime strongly,” he said, “there could be an implosion. The real objective these days should be the regime’s implosion, not more talk.”

Instead, we have leaders [Dumbama etc.] who still believe in the talking cure, and who seem not even to know what the Iranian opposition wants, even when it’s delivered to them in black and white. As it was, at the height of the turmoil in 2009. _PJMedia

Thursday, November 17, 2011

China's Economy Faces a Bumpy Road Ahead

Yuhan Xhang recommends caution when viewing the Chinese economic "miracle":
Over-reliance on investment and exports makes China’s economy very unbalanced, vulnerable, and unsustainable. Prolonged investment on a massive scale creates significant overcapacity in a range of sectors such as steel and solar heating, which diminishes productivity improvements. Additionally, huge investment including the 4 trillion renminbi stimulus plan leads to increasing debt. Much of the medium- and long-term bank lending for infrastructure flows to local quasi-government agencies. At the end of 2009, local debt incurred by China’s investment reached to 6 trillion renminbi (Lardy 2010) and now stands at 10.7 trillion or even more (New York Times 2011 and Wang and Hu 2011). It is not likely that those local quasi-government agencies will go bankrupt, because local governments repay the debt through household wealth transfers. Too much dependence on exports is also risky for China, as the West may start to save and consume much less. During the global economic crisis, the depression penetrated China’s 31 provinces, and in the fourth quarter of 2008, millions of migrant workers lost their jobs.

...Spurring private consumption and leveraging its share to 50% will also be a challenge. In 2012, private consumption will grow faster than GDP, supported by solid employment and wage growth and increased government social expenditures on pensions and healthcare (Wang and Hu 2011). But the Chinese stimulus programme and ongoing massive investment in the emerging strategic industries have already led to overcapacity and huge nonperforming loans, which will ultimately be paid off by Chinese households. Chinese private consumption will be hampered (Pettis 2011). In the past two decades, China’s consumer confidence index and consumer expectation index have trended downward overall. Future improvement depends on systemic reform.
In 2011–20, China’s economy will become even bigger, but its growth rate will somehow wane down..... _Voxeu
Although Xhang recommends caution, it is likely that he is himself a bit over-optimistic as to the true middle-term future for China. China's enormous investment bubble -- its "infrastructure to nowhere" -- will have to be dealt with, at the same time as China's dysfunctional and corrupt financial infrastructure will have to be reformed.

Failure to deal with either problem expeditiously and scrupulously will result in lingering and worsening problems over the long run.

Wednesday, November 16, 2011

Truth About China's Finances Slowly Seeping Out

Larry Lang is the chair professor of Finance at the Chinese University of Hong Kong. If he says that China's finances are in a difficult position, outsiders should pay attention. Keep in mind that these incendiary remarks were made in a session where all forms of filming or taping were strictly forbidden:
In the unusual, closed-door lecture, Lang gave a frank analysis of the Chinese economy and the censorship that is placed on intellectuals and public figures. “What I’m about to say is all true. But under this system, we are not allowed to speak the truth,” he said.

Despite Lang’s polished appearance on his high-profile TV shows, he said: “Don’t think that we are living in a peaceful time now. Actually the media cannot report anything at all. Those of us who do TV shows are so miserable and frustrated, because we cannot do any programs. As long as something is related to the government, we cannot report about it.”

...Lang’s assessment that the regime is bankrupt was based on five conjectures.
Firstly, that the regime’s debt sits at about 36 trillion yuan (US$5.68 trillion). This calculation is arrived at by adding up Chinese local government debt (between 16 trillion and 19.5 trillion yuan, or US$2.5 trillion and US$3 trillion), and the debt owed by state-owned enterprises (another 16 trillion, he said). But with interest of two trillion per year, he thinks things will unravel quickly.

Secondly, that the regime’s officially published inflation rate of 6.2 percent is fabricated. The real inflation rate is 16 percent, according to Lang.

Thirdly, that there is serious excess capacity in the economy, and that private consumption is only 30 percent of economic activity. Lang said that beginning this July, the Purchasing Managers Index, a measure of the manufacturing industry, plunged to a new low of 50.7. This is an indication, in his view, that China’s economy is in recession.

Fourthly, that the regime’s officially published GDP of 9 percent is also fabricated. According to Lang’s data, China’s GDP has decreased 10 percent. He said that the bloated figures come from the dramatic increase in infrastructure construction, including real estate development, railways, and highways each year (accounting for up to 70 percent of GDP in 2010).

Fifthly, that taxes are too high. Last year, the taxes on Chinese businesses (including direct and indirect taxes) were at 70 percent of earnings. The individual tax rate sits at 81.6 percent, Lang said.

Once the “economic tsunami” starts, the regime will lose credibility and China will become the poorest country in the world, Lang said. _ET
Apologists for the communist regime's finances have not been silent, attempting to portray Lang as a sensatinalist and a rabble-rouser. If that were the case, why would he insist that no taping or filming be allowed for his closed-door presentation?

Brian Wang has a somewhat contrary view from Lang's here: Lang Xian ping claims a depression has started in China

It is important to understand and acknowledge that the Chinese communist government is a police state which carefully controls as much information coming out of China as possible. China jails political prisoners, uses them for organ donours, and executes them if the person is obscure and little known outside the country.

Like Russia, China has never had a stable representative democracy. China has always cycled from insurrection to warring fiefdoms to empire and back again. No one really knows how long the current empire can last.

Problems With Africa's Rapidly Growing Population

No other region will come close to having such a rapid rate of population growth in the coming decades (1.9 percent per year). Africa’s billion only represents 15 percent of world population today, but Africa will account for 49 percent of global population growth over the next four decades.

High fertility rates are driving rapid population growth in Africa. Globally, women are having an average of 2.5 children over the course of their childbearing years. But the average African woman is having nearly 4.5 children (and over 6 in four countries). One consequence of Africa’s high fertility is that a preponderance of its population is young. Twenty-seven percent of the world’s population is under age 15, but in Africa, the figure is 40 percent.

These facts are troubling because population growth is clustered with, and aggravates, other major problems. If you look at all countries in terms of income poverty, water poverty, and the Failed States Index , the 14 countries that rank high on all three, all but one are in Africa (Burkina Faso, Burundi, Central African Republic, Chad, Democratic Republic of the Congo, Ethiopia, Guinea, Guinea-Bissau, Malawi, Niger, Nigeria, Sierra Leone, and Uganda). And the average annual population growth rate of those countries is a whopping 2.6 percent. _Independent

This is a useful article, so I will excerpt roughly 1/3 of the total article below. The author makes some very important points, and reveals some of subSaharan Africa's most pressing problems.
There are three main reasons for pessimism. The first is that even today it struggles to provide for its people. Africa’s population is still growing, even if more slowly because fertility is falling in many countries. And it still faces the classic constraints, identified by Thomas Malthus in the 19th century, of land and water.

Africa today produces less food per head than at any time since independence. Farms are getting smaller, sometimes farcically so. Dividing village plots among sons is like cutting up postage stamps. The average smallholding of just over half an acre (0.25 hectares) is too small to feed a family—hence the continent’s widespread stunting. Africa’s disease burden extends to its animals and crops. Bananas, for example, are subject to two diseases—bunchy top disease and bacterial wilt disease—which can ruin 80% of a harvest. Scientists reckon 30m people who depend on the fruit are at risk; many of them live in conflict zones such as eastern Congo.

...One African in two is a child. The numbers are such that traditional ways of caring for children in extended families and communities are breaking down. In southern Africa, as a result of HIV/AIDS, an increasing number of families are headed by children. A recent report by the African Child Policy Forum, says there are now 50m orphaned or abandoned children in Africa. It thinks the number could rise to 100m, meaning misery for them and more violent crimes for others.

Millions of children already live rough in towns and cities. Prostitution and death await the poorest girls. The boys take to glue, petrol and crime. Africa has the highest rate of child disablement in the world. Some think 10-20% may be disabled, a staggering number.

Throughout Africa the burden of disease weighs heavily. Between them, malaria and HIV/AIDS account for about a third of the continent’s 10m deaths each year. In the ten years to 1995, more than 4m Africans died of AIDS and many countries have ten times as many people living with HIV as have died. Most are between 20 and 59. So HIV/AIDS is damaging that very section of the population—working-age adults—on which the demographic dividend depends.

...Africa’s highest fertility rates are in the refugee and internally displaced camps in Sudan and Somalia, then in those countries recovering from war, then in famine-pocked patches of desert and scrub stretching from Mauritania to Kenya.

Some Africa-watchers fear that parts of the continent may be getting trapped in a downward spiral: more babies mean more competition for resources, more instability—and more babies. Jared Diamond, a professor at the University of California, Los Angeles, thinks bits of the continent are already suffering a Malthusian collapse of a sort.

...Africa needs a green revolution; more efficient cities; more female education; honest governments; better economic policies. _Independent
It would be expecting too much to think that the author would discuss the elephant in the room -- Africa's famously low average population IQ. Without more high IQ persons in Africa, there will never be a sustainable green revolution, there will not be more efficient cities, there will not be honest governments nor better economic policies. Everything hinges upon Africa somehow acquiring a larger "smart fraction," which will be capable of guiding the many cultures of Africa into a more prosperous and orderly future.

Without an increase in Africa's human capital, the prospects are not only dismal -- they are hopeless.

Tuesday, November 15, 2011

More On Obama's Green Crony Crusades

Putting green lipstick on a pig doesn’t turn that pig into Ralph Nader. A full generation after the movement kicked off, too many greens are still clueless babes in the woods, regularly taken to the cleaners by cunning and clever corporate interests who know how to say all the right words. Like ethanol, solar and subsidy.

There may be a dumber mass movement in the country than the fuzzy minded sentimentalists of the great green herd, but it isn’t easy to figure out which mass movement that would be. _WalterRusselMead

There is no pig like political pigs feeding from the public trough. And no one lays on a better pigfest for his supporters and cronies than the current US President, Barack H. Obama.

at least 10 members of Obama’s finance committee and more than a dozen of his campaign bundlers were big winners in getting your money. At the same time, several politicians who supported Obama managed to strike gold by launching alternative-energy companies and obtaining grants. How much did they get? According to the Department of Energy’s own numbers ... a lot. In the 1705 government-backed-loan program, for example, $16.4 billion of the $20.5 billion in loans granted as of Sept. 15 went to companies either run by or primarily owned by Obama financial backers—individuals who were bundlers, members of Obama’s National Finance Committee, or large donors to the Democratic Party. The grant and guaranteed-loan recipients were early backers of Obama before he ran for president, people who continued to give to his campaigns and exclusively to the Democratic Party in the years leading up to 2008. Their political largesse is probably the best investment they ever made in alternative energy. It brought them returns many times over. _Newsweek

Monday, November 14, 2011

China's Hard Soft Crash Landing -- What Do You Bet?

Image Source

In response to the 2008 worldwide financial collapse, Chinese authorities unleashed $2.1 trillion of stimulus, or almost 33% of GDP. This compares to the US stimulus of $800 billion, or 5.5% of GDP, spent on worthless Keynesian pork. Unlike the US, where no jobs were created, China’s command-and-control structure funneled the stimulus into building cities, malls, roads, office buildings, and residential units. Millions of Chinese were employed in creating properties for which there was no demand. Moody’s approximates that China’s banks have funded at least RMB 8.5 trillion (US$1.3 trillion) of the RMB 10.7 trillion of outstanding local government debt, which was a significant portion of the 2008 national stimulus package. When the central authorities tell the banks to lend, the banks ask, “How much?” The result has been soaring real estate inflation and malinvestment.

Everyone has seen the pictures of the ghost cities (Chenggong) with no inhabitants; ghost malls (South China Mall, Dongguan Mall) with no shoppers; residential towers with no residents; and roads with no cars.

...All of the major ratings agencies are warning about an impending banking crisis in China. Fitch downgraded the country’s credit rating and warned there was a 60% chance the Chinese banking system will require a bailout in the next two years. Just like the US, China has too-big-to-fail banks, with five banks accounting for 50% of the lending in China. In a July 2011 report, Moody’s cautioned that the non-performing loans on the balance sheets of Chinese banks could rise to between 8% and 12%, versus the 1% proclaimed by Chinese officials. China’s regulators have belatedly applied the brakes, but it is too late. The house of cards looks susceptible to just the slightest of breezes.

Fraser Howie, managing director at CLSA in Singapore, captured the essence of the coming collapse in his recent assessment:

If you are going to address the misallocation of capital in the banking system and credit system, that’s going to have huge knock-on effects on the profitability and viability of the banks. And if there were a major banking crisis, you would start to see money trying to get out of China. What would the government do to maintain stability? You could have a whole host of problems. It’s almost far too complicated to contemplate.

There is one sure thing regarding bubbles: They always pop. It’s in their nature. _Source
More on the drastic slowdowns to hit China (and India) here
Conference Board

Sunday, November 13, 2011

Have the Energy Starvationists and Carbon Hysterics Taken Over?

The International Energy Agency (IEA) has released its Energy Outlook 2011. What strikes Al Fin energy analysts the most deeply, is the defeatist tone of the document (executive summary PDF). Briefly put, the IEA assumes that demand for energy will continue to grow exponentially -- mainly from the emerging world -- and that the world will largely reject nuclear power as a result of the Fukushima earthquake & tsunami triggered tragedy. It further assumes that the continued use of carbon based fuels will have adverse effects on the climate, a certain sign of the absence of rational thought going into the document.
 World demand grows for all energy sources. The share of fossil fuels in global primary energy consumption falls slightly from 81% in 2010 to 75% in 2035. Natural gas is the only fossil fuel to increase its share in the global mix over the period to 2035. Absolute growth in natural gas demand is similar to that of oil and coal combined. Oil demand increases by 15% and is driven by transport demand. Coal demand, dictated largely by emerging economies, increases for around the next ten years but then stabilises, ending around 17% higher than 2010.

 In the power sector, nuclear generation grows by about 70%, led by China, Korea and India. Renewable energy technologies, led by hydropower and wind, account for half of the new capacity installed to meet growing demand. Overall, modern renewables grow faster than any other energy form in relative terms, but in absolute terms total supply is still not close to the level of any single fossil fuel in 2035.

 Large-scale investment in future energy supply is needed. In the New Policies Scenario, $38 trillion in global investment in energy-supply infrastructure is required from 2011 to 2035, an average of $1.5 trillion per year. Two-thirds of this is required in non-OECD countries. The power sector claims nearly $17 trillion of the total investment. Oil and gas combined require nearly $20 trillion, increasing to reflect higher costs and a need for more upstream investment in the medium and long term. Coal and biofuels account for the remaining investment. _IEA 2011 Outlook Factsheet PDF

One cannot judge the entire document from its executive summary, factsheet, and presentations to the media, of course. But the available material reeks of groupthink and the lack of imagination. No room is given to innovative science or engineering.

The abject surrender of the document makers to the IPCCs big money climate scam would disqualify the document from serious consideration all by itself. But such conformity is to be expected on the international front these days, with groupthink being highly rewarded -- and heretical rationality being roundly condemned and demonised.

Humans live in such large numbers on the planet for one reason only: A small fraction of humans throughout history have developed innovative and evolutionary / revolutionary technologies, in areas where most humans at the time would have least expected it.

It is fashionable to bet on human failure these days, and if one were restricted to mainstream thinkers, academics, journalists, politicians, media makers, labour unions, attorneys organisations, NGOs, intergovernmental organisations, and behind the scenes string pullers such as George Soros, such a bet would pay off rather well.

But if one wants to understand why human ingenuity has won out over the doomers throughout the period of time humans have existed, one might wish to look at this free online book.

Saturday, November 12, 2011

Occupy Yourself! Zombies of Occupy Defecate on Everyone

Young persons who sense that there is something wrong with the world, and who have never been exposed to the boggling complexity of circular causation interwoven into the real world, may be attracted to the Occupy! movement, as a novelty. The movement appears to be "accomplishing something," as opposed to meekly taking it on the chin from an indifferent world ruled by wealthy narcissists. To such relative babes in the world, Occupy may seem to hold a promise of ultimate justice for all the wrongs done to the weak.

In the real world, Occupy is a herd of naive assholes being led by well-paid and cynical professional activists, who bring out the worst behaviour in everyone they influence.

Here's another point of view, from California Occupy! observers:
Last night, San Diego residents held a fundraiser for two street vendors whose carts were burglarized and vandalized, with blood and piss, by Occupy protesters. The protesters were angry that the vendors would not “donate” their wares to the movement. CBS Los Angeles reports that the vendors, one who sold hot dogs, and one who sold coffee, also received death threats for refusing to give away their goods.

At the Port of Oakland earlier this month, workers and observers could only enter—and more horrifying, leave—the port after the mob “voted” their permission. When one trucker tried to break through the blockade, his vehicle was attacked. The protester who did the attacking had this to say: "These people tried to kill us. I can't believe they are being that aggressive over a paycheck, over your own people fighting for you." (Savor the irony.) While people waited into the early morning hours for permission to see their families and do their jobs, Oakland Mayor Jean Quan, who gave the OK for Oakland Police to fire tear gas and rubber bullets into a crowd of Occupy Protesters, sat safely in a government building.

Even if we are to assume that the bulk of these crimes have been committed by members of Black Blocs—groups of anarchic nihilists who cover their faces in order to wreak meaningless havoc, yet are not really on board with the wider aims (whatever they may be) of the Occupy movement—and other minorities of the movement, there’s still no good explanation for why Occupy protesters on the whole are causing more harm to their local economies than they are to their government.

Show me an Occupy demand that can be met by destroying the livelihoods of people who are on the cusp of poverty (due to government regulations on food vendors), smashing the windows of a Men’s Warehouse and a coffee shop, trashing the bathroom of a Manhattan restaurant, pushing an old lady down a flight of D.C. stairs after imprisoning her and her fellow conservative conference attendees using a human chain, or "clobber[ing] a store manager with a credit-card reader." You can’t. That’s because the government holds the strings here, not the people who Occupy is hurting. The government gives away corporate welfare, controls cops, sends perverse signals to the market, drops bombs, exposes itself to regulatory capture, deals out special favors to big interests, operates drones, prohibits drugs, and destroys immigrant families through deportation. Hot dog vendors sell hot dogs, restaurants sell food, store managers manage stores, truck drivers drive trucks.

While disrupting local businesses is significantly easier than disrupting local and national government (Hot dog vendors don’t pack heat, the government—and sometimes, the NYT—does), screwing over the rest of the 99 percent simply because it's easier isn't going to accomplish Occupy's goals, unless of course triggering schadenfreude and alienating possible allies are agenda items on one of the dozen-or-so lists of demands floating around the web. _Reason
Occupy! will never go after the real source of all the problems they bemoan. Because that would mean going after their backers and their heroes. The naivete of the true believers in the camps is both heart-rending and sickening, as is the ease with which they are manipulated.

No one ever said that dumbing down entire societies would be without its repercussions.

Friday, November 11, 2011

Occupy Movement: Lord of the Flies for Modern Devolved Leftists?

The Occupy movement is becoming more and more surreal. At UC Berkeley and Harvard, students are clamouring to build occupy camps of their own, on campus. Expect this to become a growing trend at elite universities where children of the 1% are prepared to rule the world.

Here is a short list of one day's misadventures in the Occupy camps of the world:

If you have ever wondered what would happen in a society consisting entirely of liberals, the Occupier movement is providing the answer: devolution. It is almost impossible to keep up with the downward spiral, but here are some of the highlights of the last 24 hours:

* In Portland, an Occupier was arrested for throwing a Molotov cocktail down the stairwell of a building.

* In London, employees of St. Paul’s Cathedral have had to clean up human waste left by Occupiers inside the cathedral. (What is it with the Occupiers and toilet issues?)

* In Portland, another drug overdose.

* In Vermont, a man was shot to death at the Occupy Burlington encampment.

* At Occupy San Diego, a citizen journalist was violently assaulted.

* In Atlanta, tuberculosis has broken out among the Occupiers.

* In Salt Lake City, four were arrested after a melee broke out in the Occupy encampment.

* In San Francisco, police expressed concern about escalating violence among the Occupiers, following incidents including gun possession, assault on a city worker and trespassing on the new holiday ice rink.

And this is just a smattering of today’s headlines! The Occupiers are conducting a sort of experiment in the viability of left-wing ideas, and the results aren’t pretty.

Others have been shot and killed, raped, molested, robbed, assaulted, etc. in the immediate vicinity of Occupy camps. Business and properties have been badly vandalised. Public health and sanitation have flown out the window, with public hazards largely ignored by lawful authorities.

This is a movement subsidised by wealthy leftists, abetted by leftist government administrators, and populated by professional activists of the left. It is a useful phenomenon, as a test for idiocy. If one joins the "movement," one is clearly an idiot with nothing important to do.

Either that, or someone who is a peripheral "hanger-on." A curiosity seeker (with nothing important to do), or someone with darker motives.

It is certainly an entertaining circus, as long as you can keep your distance.

Thursday, November 10, 2011

Economic Troubles in Europe Causing a Global Headache

Uncertainty over the future of European economies and the European currency are throwing a pall of uncertainty over world markets. Market indexes for the US, Europe, and Asia were uniformly down as of this writing, as were most commodities and industries across the board. No one seems to know what is going to happen in European economies from one day to the next:
"The authorities should understand the gravity of the situation. If they don't, then they are admitting defeat and the euro will be called into question," said Goncalves. _CNBC

Simply, private investors and other governments, notably cash-rich China and other big exporters, expect Italian and other European sovereign debt to fail. They are concerned the euro will simply implode all together -- leaving no European government with both the resources and inclination to stand behind the ESFS’s failing bonds.
With the implosion of Italy, Portugal and Spain would not be far behind, and French debt will come under closer scrutiny. At that point, investors will stampede from the euro-denominated debt of most governments. With rates so low on US Treasuries and too little Japanese and Chinese sovereign debt in open circulation, gold would become the asset of choice. _NYPost

Europe rattled its begging bowl, and the Chinese walked on by. Mendicants who can't control their spending, with family members who refuse to put up their own cash, don't make for attractive borrowers. _WSJ

Rosenberg remains a harsh critic of Europe: “It is apparent to me that there is no near-term resolution to the European sovereign debt and banking sector problems. This latest bailout attempt for Greece has proven to be little more than a charade.”

Charades are facades; well-intentioned, perhaps, but spineless. What investors need now is certainty. What they’ve got is certainly far less. _Marketwatch

China’s exports rose at the slowest pace in almost two years in October as Europe’s deepening debt crisis crimped demand, adding pressure on policy makers to support growth in the world’s second-biggest economy. _Bloomberg

Along with the ongoing European economic slowdown, and the ongoing Obama recession in the US, there are signs of a likely middle- to long-term slowdown in the BRIC nations as well as in most nations which are heavily dependent upon commodities and manufacturing exports, over the next decade.

Wednesday, November 09, 2011

Spotlight on China via Mish

Mike Shedlock (Mish) presents a broad look at the state of China's economic state today:
Reuters reports Global Shipping Downturn Worse Than 2008
November 3
Global shipping is in a downturn even worse than during the 2008 financial crisis, China's transportation minister said on Thursday, with the outlook for the industry made increasingly uncertain by the European debt crisis...
Shanghai Daily reports Hong Kong Home Sales Fall Over 50% in October
November 3
HONG Kong's home sales fell for a 10th straight month, dropping by half in October from a year ago as buyers put off purchases....
This is a prediction but Hong Kong Tips Into Recession, Most Accurate Forecaster Says
November 7
Hong Kong’s economy, a barometer of global growth, probably sank into recession with a contraction in the third quarter, according to Daiwa Capital Markets Ltd. and Australia & New Zealand Banking Group Ltd....
Bloomberg reports China Credit Squeeze Prompts Suicides
Nov 6, 2011
Hours after a creditor and his gang of tattooed thugs hustled Zhong Maojin into a coffee shop in Wenzhou, he says he wouldn’t yield to their demands....
September 29: China Loan Shark Market Crashes; Scores of Chinese Business Owners Unable to Pay Black Market Loans Commit Suicide or Disappear

October 14: Chinese Banks Deteriorate; Loan Sharks Come Knocking; Copper Ponzi Financing Revisited; 5 Reasons to Expect Lower Commodity Prices

Cash Crunch Reported by Ministry of Railways

The Standard reports Rail Authority Faces Dire Cash Crunch
November 7
The Ministry of Railways could be facing a shortfall of up to 800 billion yuan (HK$980 billion), putting many projects on hold, mainland media reported....
Reuters reports Gloomy Outlook for China Exporters as Factory Closure Wave Looms
November 8
Up to a third of Hong Kong's 50,000 or so factories in China could downsize or shut by the end of the year as exporters get hit by cost rises and darkening global demand for Chinese goods, a major Hong Kong industrial body said on Tuesday....
Anyone expecting China to disconnect from a slowing global economy is not thinking clearly, nor are they looking at the increasingly grim facts.

Europe is in recession and Europe is China's biggest export market. The US is slowing as well, just not as rapidly.

Moreover, and as I have reported on numerous occasions, a regime change is coming in China in 2012. That regime change is highly likely to be more focused on an overheating property bubble as well as China's unsustainable dependency on a heavily overbuilt infrastructure model.

Even if the Chinese economy as a whole does not crash, the real estate and infrastructure sectors will. If so, commodity prices will come down, and that in turn will pressure the hard asset currencies of Australia and Canada.

An outright global recession is likely, led by Europe.
... _Mish
Bubbles eventually burst, whether in Europe, North America, Australia, or China.

In order to rejuvenate the global economy, a host of political and economic reforms will be necessary across the developed, emerging, and developing world. Given the general unpopularity of these "tough love" reforms among the parasitic classes in government, academia, the media, and other unproductive institutions, they are not likely to be put into place any time soon. Hence, the likelihood of much more suffering in the future than would be necessary if we would only bit the bullet today.

Tuesday, November 08, 2011

China's Structural Economic Problems Coming Home to Roost?

The Chinese banks are in serious trouble. They have papered over losses. The bank books in China aren’t giving an accurate picture of their true financial position. In the US this is fraud. In China, it’s supported by the government.

The Chinese government has a lot of competing interests to control. It is virtually impossible to have a long term successful centrally planned economy in a country as large and diverse as China.

I have heard stories of how the Chinese simply take huge tracts of land and develop it . The concept of property rights and individual rights are non-existent. It’s impressive to see how they have built amazingly gargantuan cities practically overnight. Underneath all of that, the foundation is unsteady. _PointsandFigures

Al Fin economists have been warning about the structural problems within China's economic structure for years now. Slowly but surely, the overt reality is catching up to the covert reality which had triggered the alarm bells within the Al Fin Economic Institute, years ago.
...China’s growth is likely to slow to 8.7 percent next year, 6.6 percent in each of the four years after that, and then average 3.5 percent per year between 2017 and 2025. It has long been an article of faith inside China and among most China watchers that the country needs 9 percent growth per year to avoid widespread instability.

If China’s growth decelerates that fast, that far, the biggest question in world politics won’t be how the rest of us will accommodate China’s rise. The question will shift to whether China can last.

The report, well covered in the Wall Street Journal, is a sober read. Overall, world growth is expected to decline, with both China and India leading the decline. The advanced countries are expected to recover from the current slump, but growth will remain anemic for years to come. In other parts of the developing world, growth could slow to a crawl, presumably reflecting poor demand for basic commodities in a slow growth world. _WalterRussellMead
As the economies of India, China, Brazil, Turkey, Russia, etc. slow down, the decline of the BRICS will trigger a secondary decline in commodities producing nations, as demand for commodities fails to keep up with supplies.

Regimes across the globe will fall, rise, and fall again in the resulting economic and political instability. Wars will be triggered -- and if the world is lucky, they will be confined to local regions, and not be allowed to escalate to global and nuclear scales.

The mass delusions of carbon hysteria, global resource scarcity, exponential growth in demand, overpopulation doom, and all the rest of the lefty-green instigated wild-goose-chases which have led to such great resource misallocation, will die a long overdue death.

The challenge will be to maintain the momentum of advanced research and technology which will allow the global population to move up to a cleaner and more abundant future. This can never happen as long as the lefty-greens maintain influence.

Saturday, November 05, 2011

Russia Attempts to Build Its Own "Silicon Valley" De Novo

Russia’s version of Silicon Valley — an "innovation city" built from scratch on the outskirts of Moscow — is finally starting to take shape. The project, popularly known as Skolkovo, has already lined up over $1 billion in financing from Western tech giants such as Cisco and Nokia as well as the official government support of both Prime Minister Vladimir Putin and President Dmitri Medvedev. All Skolkovo needs, quite simply, is an influx of the right technology start-ups to make it work. Which begs the question: Is it really possible to create a state-planned high-tech hub in an emerging market like Russia, where Western institutions such as IPOs and venture capital are virtually unknown and the free-wheeling, risk-taking culture of Silicon Valley has yet to take root? will require the types of incentives — both financial and creative — that will encourage the best and the brightest in Russia to choose careers in technology and technical fields when they could easily be making fortunes in natural resources and finance. It is the same choice ahead of many young American graduates — either a career in investment banking or with an established Fortune 500 company, or a risky attempt to create a new company with a speculative new technology. For now, the odds appear to be stacked against Moscow - the nation’s business regulations are notoriously difficult to negotiate, with the country ranking among the most difficult in the world to do business in. _WaPo
It is a question of evolution vs. intelligent design. Silicon Valley evolved naturally due to a confluence of economic and intellectual factors that was largely unplanned. The Russians, on the other hand, are attempting to transplant innovation into the heart of a stagnant statist autocracy. The odds are against this approach.

The COO of the Skolkovo Foundation feels more optimistic about the project's potential:
What we are trying to do is build a world-class innovation center. And, if you study innovation centers around the world, whether they are Silicon Valley, or Boston, or Cambridge, or Singapore, you’ll find 4-5 core elements that together create an environment that allows innovation to happen. The first element is people, and that’s basically based around a strong university doing scientific research. And that’s what we are building with MIT. The second you find is policy, some type of government support. Silicon Valley came out of the original DoD contracts in 1950s. We have that government support coming from the Russian government in the first phase of our project. The next thing you find I investment money. And that is initially coming from the government and also from the private sector. You need the money to build these physical assets and to attract people and to fund start-ups. The next element is a physical infrastructure, a physical place, where people can within a certain amount of proximity interact and work together. Digital advances, telecommunication advances have reduced the need for a face to face interaction. But still, being in close proximity – researchers in close proximity to a venture capitalist, students in close proximity to the researchers, multinational laboratories in close proximity to the researchers they are funding – all these things tend to work better when they are in one place. That one place for us is Skolkovo city inside Moscow area, about 100 ha. You put these elements in place and you find, if you get very lucky, they all start to interact and create synergies together, where they start “feeding off” each other and you get a nice virtual feedback loop. And that’s what we are trying to create in Skolkovo. These elements in place simultaneously, once they start working together, they start interacting, they start developing innovation that we witness in other successful innovation centers around the world. _Voice of Russia
But look at what Putin's Russia has done to earlier Russian innovators: It has thrown them in prison, forced them into exile overseas, and in some cases it may have liquidated them, KGB style.

To Putin, innovation represents a threat to his absolute control of power in Russia. All dictators such as Putin, and would-be dictators (such as Obama?), fear the private sector ferment which is likely to spawn all types of new forces likely to be disruptive to the established power blocs. That is why dictators tend to destroy innovation whenever they can, to limit the number of surprises they must face.

Russia needs an infusion of fresh, new blood, and new ideas. Without new approaches, Russia will shrivel and die in stagnant statist autocracy. If not under Putin, then under some other bombastic autocrat. For Russia to live and thrive, something has to give.

A Measure of a Society's Resilience

The US is a dynamic mixture of large and small. While in most nations it is the large central cities which feed knowledge and culture to the rest of the society, in the US knowledge and culture flows in both directions.

In ancient times, power tended to flow from one city-state to another, as conditions suitable for prosperity naturally shifted over time. With the coming of the nation-state, it was thought by many analysts that the city-state concept had become obsolete -- particularly in regard to smaller cities. But it is the health of cities -- including small cities -- that contributes to the resilience and robustness of the nation.
Images from Wired

Livable cities draw creative people, and creative people spawn jobs. Some places you’d never expect—small cities not dominated by a university—are learning how to lure knowledge workers, entrepreneurs, and other imaginative types at levels that track or even exceed the US average (30 percent of workers). Here are some surprising destinations from the data of the Martin Prosperity Institute, directed by Richard Florida, author of The Rise of the Creative Class. _Wired

Most conventional analysts of societal growth and knowledge dynamics will assume that knowledge flows out of large universities and university towns into society at large. But in a free society with a market economy, knowledge is apt to originate most anywhere the market operates. And that knowledge is apt to flow anywhere the market can reach.
Above: How Omaha Nebraska was transformed into one of the US Midwest's most vibrant cultural hubs, starting in the 1990s and proceeding into the 2000s (see case study).

Adapted from an earlier article published originally in Al Fin Potpourri

Friday, November 04, 2011

China's Impending Struggle to Survive As an Empire, As a Nation


The modern Chinese empire is riding a whipsaw of a politico-economic trajectory. China's billion and a half are growing old before growing rich. And they are growing old without a social safety net to speak of. Things are growing tense in the celestial kingdom already, and are likely to only grow worse.
According to a recent article in Foreign Affairs by Yanzhong Huang, The Sick Man of Asia, China's Health Crisis in 2006 80% of China's health care expenditures were funneled into the treatment of only 8.5 million government officials. Another amazing statistic Huang cites: more than 73% of Chinese hospitals have reported violent incidents between patients and healthcare professionals. Why? Because feelings run high when you are told that your child, your parent or your spouse cannot be given treatment because you cannot pay for it. China is worried about getting both old and sick: by 2040, more Chinese will be suffering from Alzheimer's than the total populations of all the developed nations combined.

Health care is not the only area of concern. The Chinese government is aware that there is growing resentment of income inequality, the result of the introduction of capitalism and the wholesale abandonment of its social safety net. When I first went to China in 1979, the so-called Gini coefficient, the measurement of income inequality, was low. China was a truly socialist country and all services including housing were provided by the state. China in 2011, nominally and in fact politically still a communist country, has greater income inequality than the US.

...The bullet train tragedy, the grounding of the new Airbus made in China, and similar events add up to an enormous glitch factor as China attempts to step up the technology ladder to more complex systems. Overheard comment--an inspector on the Shanghai's vaunted subway system will not allow his family to use their trains. Whenever there is an atmosphere of fear, bad news does not get reported up the command chain.

Other countries are increasingly less willing to share their technology with China for a variety of reasons. Some businesspeople have had bad experiences, either in terms of political pressure (Google) or more commonly, theft of intellectual property. Lack of protection by China's legal system is cited as the number one structural impediment to foreign companies doing business in China.

... Chinese banks are equipped to funnel loans to the large state-owned businesses, but they do not have credit analysts who can determine whether or not a business should be given a loan on its own merits. The languishing stock market is still dominated by behemoth state-owned enterprises, so when startups need capital, they often turn to foreign investors. In spite of the glut of savings within China's banking system, all of China's major Internet firms raised funds in US stock markets--Sina, Sohu, Alibaba. Lack of access to capital has also resulted in the loss of thousands of Chinese engineers and entrepreneurs who decided to come to the US to start their businesses, to the inestimable gain of Silicon Valley.

Another common misperception is that China will overcome the US militarily. First of all, China has no major allies, with the possible exception of Russia, which clearly seeks to protect its own interests first and foremost. The US on the other hand has firm global allies, military bases worldwide, and a navy that girdles the earth. Secondly, in today's world, warfare is all about technology, and in spite of its successes with rockets and satellites, China is still handicapped in this area. Finally, there is the question of political will. China will fight to protect its interests in Taiwan and in Tibet. But other than that, North Korea has proved to be a major albatross, and there is another strong power in the region, Japan, which will do everything it can to check China's military ascendency. _HuffingPost

China’s Ministry of Railways has halted 90 percent of projects due to lack of funds, leaving many railway stations, bridges, and tunnels in construction sites across China unfinished, and wages owed to tens of thousands of migrant workers.

The Railways Ministry has halted projects affecting about 10,000 kilometers (6,213 miles) of railway tracks, Wang Mengshu, a scholar at the Chinese Academy of Engineering and deputy chief engineer of the China Railway Tunnel Group, told Chinese media.

...The scale of this work disruption is unprecedented in China’s railway history, a high-level official from a large state-owned engineering company told The Economic Observer. Once a project stops, it triggers a domino effect; many parties, including migrant workers, construction companies, and the equipment and materials suppliers are all affected, he said.

A supervisor at one construction site told First Financial Daily that he has been working in the railway industry for 23 years and has never seen anything this serious before. _EpochTimes
The Chinese government cannot afford its massive misallocation of capital into the "infrastructure to nowhere," but so many government officials are tied into the massive state owned enterprises, and are addicted to the wild profits of the last two decades, that they are willing to break all the rules to keep the good times coming -- at least for themselves and others who are well connected.

For everyone else, things are likely to become very difficult. And when you are talking about hundreds of millions of people who are essentially disenfranchised, with no voice or clout within the system, the room for unruly disenchantment is quite substantial.
Due to the One Child Policy, China’s fertility rates plummeted during the 1980’s and 90’s. In 1970, China’s fertility rate was 5.5 births per woman; by 1980, it dropped to 2.6 and in 1990, even lower at 2.3 (source: World Bank, World Development Indicators).

What this means of course, is that there will soon be a sustained decline in new entrants into the labor force. Over the past three decades, political legitimacy in China has been built on fast economic growth, which has been powered by a seemingly inexhaustible supply of cheap, young labor.

...With a virtually non-existent government pension and social welfare systems, Chinese leaders will likely need to reprioritize and shift resources away from investment and production in the coming decades. (Caixin, a Beijing newspaper, recently reported that there’s already a severe shortage of nursing services and elderly residential facilities in Beijing).

Today, China’s 65+ population is only around 8%, which is a lot lower than that of the US, Germany, or Japan (around 20% for all three). But they’ll catch up in about 30 years, when they may face the same problems that have led to Japan’s current economic stagnation: a declining labor supply, aging population, and increased public spending obligations. _ChinaTimeBomb
Can China last that long? It is debatable whether the CCP government can hold the empire together under such severe demographic stress.

It is best to tread carefully when investing in China, and to keep your options open for a quick retreat if called for.

Thursday, November 03, 2011

Who Will the Hacker Group "Anonymous" Go After Next?

Update 6 Nov 2011: There are reports that the Zeta gang has released the individual associated with the Anonymous hackers. It is further reported that the Anonymous hackers have backed down from their threat against the Zetas. No harm, no foul, apparently. But regardless of the outcome of this isolated episode, the problem of the cartels and other organised crime gangs will not go away using conventional law enforcement -- particularly in third world nations such as Mexico or Peru. The corrupting influence of large sums of illegal money flowing through these organisations is too great for the defence and law enforcement operations of most undeveloped nations to withstand.
Image Credit

The group of hackers calling itself "Anonymous" has gone after child poronography sites and is threatening Fox News. But now a person claiming to represent "Anonymous" is publicly threatening the notorious murdering Mexican drug gang, the Zetas!
The Zetas are one of the biggest players in Mexico's drug war, which has resulted in about 40,000 deaths since 2006. Earlier this month, a YouTube video showed a man in a Guy Fawkes mask who claimed to speak for Anonymous warning the Zetas that the collective would reveal the names of people who had aided the cartel, including taxi drivers, police officers and journalists, if a kidnapped member of Anonymous weren't released.

...BBC News reports that local authorities weren't able to authenticate the video, in which the claim was made that "we cannot defend ourselves with weapons, but we can with their cars, houses and bars" and that exposing Zetas is "not difficult ... we know who they are and where they are."

...In September, the narcogang decapitated 39-year-old Marisol Macías Castañeda in the town of Nuevo Laredo for supposedly posting comments to social-networking sites under the name Laredo Girl. The sign next to her body read, "Nuevo Laredo en Vivo and social networking sites, I'm The Laredo Girl, and I'm here because of my reports, and yours."

That same month, two bodies were found hanging next to a sign that stated, "This is going to happen to all Internet snitches. Pay attention, I'm watching you."

The name of the supposedly kidnapped Anonymous member was not revealed. If the collective does reveal the identities of Zeta members, those members will likely be vulnerable to attacks from rival gangs. _Techland
Technology is likely to play an ever greater role in the pursuit of violent gangs, cartels, and organised crime syndicates.

Better nanotechnological methods of surveillance and intervention will give the controllers of such technology what would once have been considered god-like powers. Of course, one would almost need god-like powers to deal with such ruthlessly murderous groups like the Zetas. In Latin America, such groups often have more power than governments, within their area of control.

Wednesday, November 02, 2011

World Population to Peak in 2050s, Then Rapidly Decline is likely that world population will peak at nine billion in the 2050’s, a half-century sooner than generally anticipated, followed by a sharp decline. _ProjectSyndicate
More people are beginning to look at the rapid aging and shrinking of populations in the developed world. And some people are predicting that the baby bust that is seen in modern nations is likely to spread to the primitive third world, resulting in a rapid and significant collapse of the global population beginning in the second half of this century.
According to the United Nations’ Population Division, the world’s human population hit seven billion on October 31. As always happens whenever we approach such a milestone, this one has produced a spike in conferences, seminars, and learned articles, including the usual dire Malthusian predictions. After all, the UN forecasts that world population will rise to 9.3 billion in 2050 and surpass 10 billion by the end of this century.

Such forecasts, however, misrepresent underlying demographic dynamics. The future we face is not one of too much population growth, but too little.

Most countries conducted their national population census last year, and the data suggest that fertility rates are plunging in most of them. Birth rates have been low in developed countries for some time, but now they are falling rapidly in the majority of developing countries. Chinese, Russians, and Brazilians are no longer replacing themselves, while Indians are having far fewer children. Indeed, global fertility will fall to the replacement rate in a little more than a decade. _ProjectSyndicate

Europe, Russia, Japan, and South Korea seem to be aging and shrinking particularly quickly. But it will not be long before the process begins in earnest in China and other parts of the developing world. This transformation is apt to trigger significant unrest both within and between the countries where it is most pronounced. International wars and intranational unrest and civil war are both likely to occur, as differential birthrates between subpopulations shift the balance of power away from a dominant group and toward groups of lower rank.
The TFR for most developed countries now stands well below replacement levels. The OECD average is at around 1.74, but some countries, including Germany and Japan, produce less than 1.4 children per woman. However, the biggest TFR declines in recent years have been in developing countries. The TFR in China and India was 6.1 and 5.9, respectively, in 1950. It now stands at 1.8 in China, owing to the authorities’ aggressive one-child policy, while rapid urbanization and changing social attitudes have brought down India’s TFR to 2.6.

An additional factor could depress future birth rates in China and India. The Chinese census suggests that there are 118.6 boys being born for every 100 girls. Similarly, India has a gender ratio at birth of around 110 boys for every 100 girls, with large regional variations. Compare this to the natural ratio of 105 boys per 100 girls. The deviation is usually attributed to a cultural preference for boys, which will take an additional toll on both populations, as the future scarcity of women implies that both countries’ effective reproductive capacity is below what is suggested by the unadjusted TFR.

...These shifts have important implications for global labor supply. China is aging very rapidly, and its working-age population will begin to shrink within a few years. Relaxing the one-child policy might have some positive impact in the very long run, but China is already past the tipping point, pushed there by the combined effect of gender imbalance and a very skewed age structure.

The number of women of child-bearing age (15-49 years) in China will drop 8% between 2010 and 2020, another 10% in the 2020’s and, if not corrected, at an even faster pace thereafter. Thus, China will have to withdraw an increasing proportion of its female workforce and deploy it for reproduction and childcare. Even if China can engineer this, it implies an immediate outflow from the workforce, with the benefits lagging by 25 years.

Meanwhile, the labor force has peaked or is close to peaking in most major economies. Germany, Japan, and Russia already have declining workforces. The United States is one of a handful of advanced countries with a growing workforce, owing to its relative openness to immigration. But this may change as the source countries become richer and undergo rapid declines in birth rates. Thus, many developed countries will have to consider how to keep people working productively well into their seventies. _ProjectSyndicate
The average IQ of populations will play into this global transformation. The highest birthrates are currently in regions and nations with the lowest average IQ levels. This dysgenic trend is likely to continue for several decades longer, at least.

Since such low IQ areas are also places with some of the highest crime rates in the world, expect the large population overflow from these areas to immigrate to parts of the modern world, bringing high crime rates with them. This is likely to prove a terrible shock to the aging populations of Europe, who will be totally unprepared for dealing with these violent and prolific youngsters from alien, untrainable, and unassimilable populations.

The US has already experienced this culture shock, in the face of a quasi-invasion of violent illegals from Latin America and the Caribbean. But in much of Latin America, population growth is likely to decline, leading to lower rates of emigration to the North.

In subSaharan Africa, on the other hand, populations are slated to soar. The overflow from those populations is likely to flow directly toward North Africa and on to Europe, joining overflows from Southern and Western Asia.

If you want to see Western Europe as a tourist, before the deluge, you had better hurry. Most of Eastern Europe will likely resist the alien invasion.