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Posts Tagged ‘Economy & Policy’

The Myth of Chinese Efficiency

Posted by Ram Kumar Shrestha on October 3, 2012

image: Pedestrians stand before heavy traffic at an intersection in Beijing. The US embassy which has its own pollution measuring system, and which rates anything over 150 as unhealthy, was showing an index of 403, or 'hazardous' on this particular day.

ED JONES / AFP / GETTY IMAGES
Pedestrians stand before heavy traffic at an intersection in Beijing. The US embassy which has its own pollution measuring system, and which rates anything over 150 as unhealthy, was showing an index of 403, or ‘hazardous’ on this particular day.

Many people in the U.S. and Europe believe China is a model of modern transport and political effectiveness. They should try to live here.

On the road to Beijing’s international airport the other day, I noticed dark clouds moving in on the horizon. My stress level immediately spiked. Flight delays have become almost the norm here in Beijing, even on the brightest of days; a little rain would certainly spell trouble. As the drops began to splat on the windshield, I had dispiriting visions of getting stuck in Beijing and missing my connecting flight in Hong Kong — and my next deadline for TIME with it. My fears were confirmed when I arrived at the gate, where the departure time came and went. Though the sun had peeked through the clouds, the damage had already been done. Read the rest of this entry »

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Nine Reasons Why This Economy Feels So Bad

Posted by Ram Kumar Shrestha on August 8, 2012

The recent slump has been unusually painful, and the feeble recovery has been disappointing. But today’s economy seems even worse than it actually is.
 
Man holding empty wallet

H. ARMSTRONG ROBERTS / RETROFILE / GETTY IMAGES

Recent U.S. economic troubles are often referred to as the Great Recession, implicitly equating them with conditions during the Great Depression. Yet by many measures the economic deterioration of the past few years is not as serious as in some earlier downturns. The drop in GDP from peak to trough for the 2007-09 recession was indeed severe, 4.7% compared with 3.2% for the 1973-75 recession. Still, it doesn’t begin to compare with the 26% decline of the early 1930s, the 18% of the 1937-38 recession or even the 12% of the often-overlooked 1945 slump. And peak unemployment was higher not only during the Great Depression, but also during the recession of the early 1980s.

Moreover, if you look beyond the national averages, several past recessions have been more destructive in certain specific regions. Rust Belt manufacturing was badly battered in the 1970s – indeed, Detroit and the U.S. auto industry have never fully recovered. And the Oil & Gas business, especially in Texas, needed a long time to bounce back from the 1980s. All things considered, the recent recession may have been worse than average, but it was hardly unprecedented – and nowhere near comparable to what happened in the 1930s. So why do today’s economic troubles seem even worse than they are? Here are nine reasons:

The recovery has been hugely disappointing. Compared with today’s feeble gains, the rebounds that followed the deep recessions of 1973-75 and the early 1980s were robust. Within 18 months, real GDP growth touched 9% and remained well above average for several years. By contrast, the current recovery has failed to get much beyond 4% at best and has averaged less than  2.25% over the three years since the official end of the recession. Read the rest of this entry »

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Defying Gravity: Is Asia’s Economic Miracle About to Stall?

Posted by Ram Kumar Shrestha on August 5, 2012

Even in Asia, where gains in wealth have been unparalleled, policymakers are finding it harder and harder to improve the welfare of the common man.
Nelson Ching / Bloomberg via Getty Images

NELSON CHING / BLOOMBERG VIA GETTY IMAGES
Pedestrians cross an intersection during the morning commute in the central business district of Beijing, China, on May 28, 2012

As the West struggles to recover from the 2008 financial crisis, it is only natural that many have looked to Asia with envy. While Americans contend with a housing bust and joblessness, and Europeans suffer through their debt crisis, much of Asia (except Japan) seems to gain economic power, wealth and competitiveness year after year. The East looks like it is eating the West’s lunch.

Much of that storyline is true. The rise of Asia is the single most important economic trend of the past half century. But at the same time, looks can be deceiving. Asia has its own share of economic troubles, which threaten to derail its heralded economic miracle.

(MORE: China’s Economic Slowdown: Why Stimulus Is a Bad Idea)

We can see that in the current slowdown in the region. Despite Asia’s burgeoning wealth, its economies are still to a great degree dependent on the advanced economies of the West, and as the recovery there sags, so have Asian exports, manufacturing output and GDP growth. China is likely to post its worst economic performance in 13 years in 2012. South Korea notched its slowest growth rate in nearly three years in the second quarter. Growth in India has fallen precipitously as well. The IMF predicts the economies of developing Asia will expand by 7.1% in 2012 – not bad, of course, but a sharp drop from the 9.7% recorded in 2010. Clearly, there is a limit to how much Asia can defy the gravity of the global economy. Read the rest of this entry »

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China’s Economic Slowdown: Why Stimulus Is a Bad Idea

Posted by Ram Kumar Shrestha on July 30, 2012

What Beijing needs to spur growth is not greater spending or easy money, but fundamental reform
Soo Hoo Zheyang / Reuters

SOO HOO ZHEYANG / REUTERS
A flour vendor naps as he waits for customers in front of his stall at a wholesale market in Beijing on May 11, 2012

Anyone who thought China was impervious to either the perilous state of the global recovery or the laws of basic economics should take a look at the data streaming out of the country in recent months. GDP growth in the second  quarter slipped to 7.6%, the slowest clip in three years. Manufacturing output and exports have been weak and the property sector has stalled. The IMF recently lowered its forecast for China’s growth in 2012 to 8% — which would be the economy’s worst performance since 1999. And with the sagging data have come louder and louder cries for greater government stimulus to pump up growth, as Beijing’s policymakers did successfully after the 2008 financial crisis. “There’s lots more the government can do to ratchet things up,” HSBC said in a recent report.

That’s exactly what China doesn’t need, however. Government policies to greatly boost growth will only exacerbate the percolating dangers within the Chinese economy — dangers that could even result in an economic crisis. Instead, the current slowdown shows how badly China needs a new growth model, and the reform necessary to build one.

(MORE: Why China Should Slow Down)

For several years now, economists have been warning that China’s growth is unbalanced and, therefore, unsustainable. The economy is too dependent on investment and exports to drive growth, they argue, and to fix that problem, Beijing has to do more to encourage domestic consumption as another pillar of development. Not much has really been done to “rebalance” the economy, however, and sometimes it seemed that didn’t much matter. As the economists babbled, the economy continued to grow. Read the rest of this entry »

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Good News from the Construction Industry — But Will Housing Take Off?

Posted by Ram Kumar Shrestha on July 19, 2012

A construction worker installs a window in a new home at the Arbor Rose housing development on July 18, 2012 in San Mateo, Calif.

JUSTIN SULLIVAN / GETTY IMAGES
A construction worker installs a window in a new home at the Arbor Rose housing development on July 18, 2012 in San Mateo, Calif. The Commerce Department reported that housing starts surged 6.9% in June, the highest increase since October 2008.

While Ben Bernanke spent the past couple days on Capitol Hill delivering some dour predictions for U.S. economy, the one sector in America actually pulling its weight these days — housing — had a pretty good week.

 

Yesterday, the Commerce Department reported that housing starts were at a seasonally adjusted level of 760,000 — a four-year high, 6.9% higher than last month, and 16.8% higher than the year before. New building permits dropped from the month previous, but were still nearly 20% higher than they were last year.

This positive news echoed Tuesday’s confidence survey from the National Association of Home Builders, which rose six points to 35 for July.  While it takes a reading over 50 to indicate healthy market conditions, the gain was the largest the survey has seen in ten years and the measure put builder confidence at its highest point since March of 2007 — just months after the housing bubble reached its peak.

(PHOTOS: ‘No Place Like Home: Foreclosures in America’)

These two pieces of news reinforce the narrative that the housing market is finally recovering after six long years of falling prices and tepid demand. It appears that prices have finally hit levels that represent the true value of the underlying properties, and this coupled with historically low mortgage rates has motivated capable investors to enter the market once again.

After the good news this week, The Atlantic’s Matthew O’Brien wrote, “Let’s call it a housing recovery.” Indeed, even the Federal Reserve Chairman himself, Ben Bernanke, pointed to housing as the one demonstrably vital area in an otherwise anemic economy. In his testimony to Congress this week he said: Read the rest of this entry »

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China’s Antiquated Financial System: The Creaking Grows Louder

Posted by Ram Kumar Shrestha on June 6, 2012

Nelson Ching / Bloomberg via Getty Images

NELSON CHING / BLOOMBERG VIA GETTY IMAGES
Pedestrians walk past the People’s Bank of China in Beijing, China, Dec. 23, 2011.

In April, Chinese Premier Wen Jiabao took aim at China’s powerful state-owned banks. According to Reuters, he said at a discussion with local businesses: “Frankly, our banks make profits far too easily. Why? Because a small number of major banks occupy a monopoly position, meaning one can only go to them for loans and capital. That’s why right now, as we’re dealing with the issue of getting private capital into the finance sector, essentially, that means we have to break up their monopoly.”

Wen’s attack on China’s big banks, followed two weeks later by the Chinese central bank’s move to widen the renminbi-to-dollar trading range from 0.5% to 1%, raises the question of whether China is about to accelerate bank and financial system reforms. Against the backdrop of the spectacular fall of Chongqing Communist Party boss Bo Xilai, who upheld the heavy hand of the state-owned enterprises in the economy, and the dramatic escape of political prisoner Chen Guangcheng, are liberal reformers now gaining momentum as China undergoes its next leadership transition this fall?

Experts say further financial liberalization is in the cards, as both domestic and external pressures mount. “The fall of Bo Xilai pushes up reform forces in the Chinese party, government and society, and that’s a good sign,” says Hoest Loechel, professor at Frankfurt School of Finance and Management in Germany and a visiting professor at the China Europe International Business School (CEIBS) in Shanghai. Pieter Bottelier, senior adjunct professor at the Johns Hopkins University School of Advanced International Studies (SAIS) and former World Bank chief of resident mission in Beijing, predicts: “Liberalization of bank interest rates could come very soon, by the end of the year, linked to further internationalization of the renminbi (RMB).” He notes that the People’s Bank of China (PBOC) says the time is right for China to open its capital account in phases, starting over the next three years, transitioning to full financial liberalization in five to 10 years.

(MORE: China’s Yesterday’s News. Who are the Next High-growth Superstars?) Read the rest of this entry »

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How the U.S. Could Pressure North Korea Tomorrow: Quit the $100 Bill

Posted by Ram Kumar Shrestha on May 27, 2012

Photo-Illustration by TIME

PHOTO-ILLUSTRATION BY TIME

U.S. negotiators are heading into a second day of what have been dubbed “serious and substantial” talks with North Korean officials. Yet amid all the discussion of how the U.S. will attempt to work with Kim Jong Un, there has been little (open) speculation as to whether Dear Leader Junior might crank up production of $100 and $50 bills. No, not North Korean 100- or 50-won banknotes, worth about as much as old tissues. I’m talking about fake greenbacks — or as the U.S. Secret Service has dubbed them, “superdollars.”

These ultra-counterfeits are light-years beyond the weak facsimiles produced by most forgers, who use desktop printers. As an anticounterfeiting investigator with Europol once put it, “Superdollars are just U.S. dollars not made by the U.S. government.” With few exceptions, only Federal Reserve banks equipped with the fanciest detection gear can identify these fakes.

Yet as unpatriotic as this may sound, perhaps America would be better off if Kim Jong Un were to try and enrich himself with DIY Benjamins. Let me explain, by way of a little background about superdollars.

(MORE: Can a Second Bailout Save Greece?) Read the rest of this entry »

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How Cash Keeps Poor People Poor

Posted by Ram Kumar Shrestha on May 27, 2012

ERIK DREYER / GETTY IMAGES

ERIK DREYER / GETTY IMAGES

Want to help the poor? Start by taking money out of their hands. More specifically, cash — coins and paper bills are the silent enemy of the poor, with costs often out of proportion with their day-to-day convenience.

On one level, it’s ridiculous to think of cash as problematic; if you have a mountain of paper money, you aren’t exactly impoverished. And at times cash seems like exactly what we need. Saying “yes” to cash can seem like saying “no” to overspending and steering clear of big banks, which means saying “no” to credit-card debt, overdraft fees and Big Brother. In the age of zeroes-happy bank bailouts and household credit-card debt on the order of $800 billion, cash stands for individual empowerment and no-nonsense finances. Right?

The irony of this line of thinking is that most of the people espousing the virtues of cash simultaneously enjoy the safety and cost savings of electronic money. Even those who despise credit cards usually have bank accounts, receive payments via auto deposit, use stored-value cards for public transit and more likely than not pay their rent or mortgage, utilities, medical expenses, Internet service, hotel bills and auto insurance by transferring sequences of 1s and 0s between faraway computers. Click. Sure, you may still need a bill or two now and then for Salvation Army Santas, waiters and bellhops. But for the most part, the better off you are, the less you need cash — and the easier it is to avoid it.

(MORE: How the U.S. Could Pressure North Korea Tomorrow: Quit the $100 Bill) Read the rest of this entry »

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Does the World Believe America Will Pay Its Debts?

Posted by Ram Kumar Shrestha on April 7, 2012

GETTY IMAGES

If you spend any time reading about economics on the internet, you’re aware of the many virtual pamphleteers who loudly portend the impending downfall of the American government and global financial system in general. It’s become somewhat fashionable to proclaim America a banana republic, arguing that she is financing her debt with central bank purchases of government bonds, a strategy that is unsustainable and often ends in a blaze of hyperinflation and economic collapse.

No serious observer really believes that the U.S. faces this fate in the near term. Perhaps much of this hyperbolic rhetoric is merely an effort to get the U.S. to reign in its debt – something, long term, it certainly needs to do. But a strand of this thinking has made its way into the mainstream and is distorting the debate about the federal government’s attempts to steer the economy out of a recession.

(SPECIAL: Turning Point for the Global Recession?)

Lawrence Goodman opined in the Wall Street Journal last week that, “Demand for U.S. Debt Is Not Limitless.”  In the piece, Goodman takes aim at those who have argued that demand for U.S. debt is strong, and that regardless of what the rating agencies say, the marketplace believes the U.S. will pay its bills. In particular, he highlights the “stunning” fact that in 2011 the Fed purchased 61% of the debt issued by the Treasury, up from negligible amounts prior to the 2008 financial crisis. This, he added, “not only creates the false appearance of limitless demand for U.S. debt but also blunts any sense of urgency to reduce supersized budget deficits.” Read the rest of this entry »

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The Fall of Bo Xilai and the Future of Chinese Growth

Posted by Ram Kumar Shrestha on March 29, 2012

MARK RALSTON / AFP / Getty Images

MARK RALSTON / AFP / GETTY IMAGES
Bo Xilai, the charismatic but controversial Communist Party leader of China’s Chongqing municipality, was removed from his post.

The fall of Bo Xilai, the former head of the Chinese Communist Party in the sprawling mid-Western city of Chongqing, is the stuff of movies.  A member of the party elite and supposed corruption fighter who was seen to have brought order to a Blade Runner-esque sprawl with a population the size of Belgium, Bo was not only poised to enter the top rungs of the Politburo this year, he was the first Chinese celebrity politician since Deng and Mao. In a country where the Party likes to speak with one voice, and tall poppies are often cut down, he stood out. He dressed well; he cultivated the media; he had his own one page Comment and Analysis piece in the Financial Times.

But in March, he was abruptly dismissed as the Party head of Chongqing, after his police chief, Wang Lijun, sought asylum in the U.S. consulate in Chengdu, a city several hours northwest of Chongqing. Wang had provided evidence of crimes allegedly involving Bo, according to reports in the Financial Times and the Wall Street Journal, including murders carried out on his order. Wang also claimed that a dead British businessman, Neil Heywood, who was said to be close to Bo’s wife Gu Kailai, had been in a business dispute with her, and had been poisoned. Rather than being a tough-but-honest politician fighting corruption in China’s Wild West, a very different picture of Bo began to emerge — one of a man who his critics say was an entitled “princeling” (his father was Bo Yibo, a revolutionary general who had fought alongside Chairman Mao), and who was corrupt himself; someone willing to torture, frame, and even murder anyone who got in his way. Read the rest of this entry »

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Why Portugal May Be the Next Greece

Posted by Ram Kumar Shrestha on March 28, 2012

The worst is over for the euro zone, the experts say. But Greece isn’t really fixed and Portugal could become a second big problem before year-end
Getty Images

GETTY IMAGES

When Greece celebrated its Independence Day on Sunday, there were scattered protests over the harsh austerity program aimed at stabilizing the country’s finances. The government reportedly removed low-hanging fruit from bitter-orange trees along the parade route, so it couldn’t be thrown by protesters. But, basically, the most recent bailout appears to be successful. As a result, worries about the European financial crisis have diminished somewhat. Indeed, European Central Bank president Mario Draghi has said that the worst is over for the euro-currency zone.

Such optimism may be premature, however. Not only does Greece remain a long-term financial concern, but in addition Portugal is on track to become a second big problem.

The dangers Greece still poses are clear. Higher taxes and government-spending cuts may reduce new borrowing, but such austerity policies also undermine a country’s ability to pay the interest on its existing debt. Unless accompanied by progrowth policies, austerity can become the financial equivalent of a medieval doctor trying to cure patients by bleeding them. In addition, the bailout plan for Greece consisted of marking down the value of much of the country’s debt held by banks and other private lenders. That means entities such as the European Central Bank now hold most of Greece’s remaining debt. And so, in the event of a default, important international institutions would suffer the greatest damage.

(MORE: Is Germany’s Euro-Crisis Strategy Actually Working?)

The net result has been to postpone the Greek financial crisis for months or even a couple of years, while raising the stakes if things go wrong. That could be seen as a considerable achievement, if you believe Greece is a unique case and that the problem has been successfully contained. The trouble is that other countries — and especially Portugal — seem to be heading down the same path. Here’s why forecasters are worried: Read the rest of this entry »

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Can Asian-Style Capitalism Save the West?

Posted by Ram Kumar Shrestha on March 26, 2012

Getty Images

GETTY IMAGES

As you can imagine, the people out in Asia are feeling pretty good about themselves these days. And why shouldn’t they? While the U.S. and Europe struggle with debt, unemployment and sagging competitiveness, most of Asia seems to jump from strength to strength, its economies powering through the downturn with apparent ease, its companies becoming more and more prominent on the world stage. So it’s no wonder that many Asians have come to believe that their economic systems are superior to those of the U.S. and Europe — and that policymakers in Washington, London and Berlin should finally sit up and pay attention. For decades, Asia had been schooled in the wonders of free capitalism by the West, and benefited tremendously. Now, many out there believe, the time has come for the West to learn from Asia.

Kishore Mahbubani, dean of the Lee Kuan Yew School of Public Policy at the National University of Singapore, made this argument outright in a recent blog post on the Financial Times website, in which he argued that Asian-style capitalism is the solution to the West’s woes:

The time may have come for Asians to reciprocate the generosity of the west in sharing capitalism with Asia. Western policymakers and thought leaders should be invited to visit the industrial complexes and service industries of Japan and Korea, Taiwan and China, Hong Kong and Singapore. There may be a few valuable lessons to be learnt.

What are those lessons? Can they really turn around the economic fortunes of the West? Despite Mahbubani’s confidence, those questions are not so easy to answer.

(MORE: Are China’s Big State Companies a Big Problem for the Global Economy?) Read the rest of this entry »

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How the U.S. Could Pressure North Korea Tomorrow: Quit the $100 Bill

Posted by Ram Kumar Shrestha on February 25, 2012

PHOTO-ILLUSTRATION BY TIME

U.S. negotiators are heading into a second day of what have been dubbed “serious and substantial” talks with North Korean officials. Yet amidst all the discussion of how the U.S. will attempt to work with Kim Jong Un, there has been little (open) speculation as to whether Dear Leader Junior might crank up production of $100 and $50 bills. No, not North Korean 100- or 50-won banknotes, worth about as much as old tissues. I’m talking about fake greenbacks — or, as the U.S. Secret Service has dubbed them, “superdollars.”

These ultra-counterfeits are light years beyond the weak facsimiles produced by most forgers, who use desktop printers. As an anti-counterfeiting investigator with Europol once put it: “Superdollars are just U.S. dollars not made by the U.S. government.” With few exceptions, only Federal Reserve banks equipped with the fanciest detection gear can identify these fakes.

Yet as unpatriotic as this may sound, perhaps America would be better off if Kim Jong Un were to try and enrich himself with D-I-Y Benjamins. Let me explain, by way of a little background about superdollars. Read the rest of this entry »

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