Corporate accounting is becoming cleaner and greener, as well as meaner. Environmental indicators are good way to appeal their coporate citizenship. The majority of companies that report their environmental footprints use the guideline issued by the Netherlands-based Global Reporting Initiative (GRI). Approximately 2000 multinational corporations consult the GRI.
It’s a voluntary scheme. Some reporting companies like to have their report audited by an external consultancy or an accounting firm. But their certifications carry no authenticity – auditors don’t assume legal liability for their opinions. And what about the issues that companies don’t fancy reporting? Companies still retain total liberty what to report and what not to.
Watchdog NGOs are established to monitor the sustainability claims pronounced by companies. One of them is Climatecounts.org, that developed scorecard assessment tools to see the performance on carbon emissions. This website classifies four aspects of corporate environmentalism: a) inventory of impact, b) actual reductions, c) policy stance, and d) reporting and accountability. I had a look at some of the famous companies, and sorted them to Good, OK, and Bad.
Good – Bank of America, Canon, GE, Nike, P&G,
OK – Amazon.com, Dell, Apple, Disney, Google, UPS, fedEx,
Starter – McDonald’s, Time-Warner, Sanofi-Aventis,
It’s also possible to sort by product types (eg. Bottled waters, PCs, etc), and by brands. They are not yet comprehensive so have to be filled in. Websites like this can offer concise and independent evaluations on allegedly green companies that suddenly picked up the hype a decade ago. Private green labels continue to proliferate. Questionable and unverified carbon offset schemes mushroom. If your mileage points go to planting trees.. can we be sure they’re really doing it for you? If you fly from Heathrow to JFK, that’s 1.5 tonne of CO2 for you, which translates to 2 non-tropical trees. The cost is not only about planting but also the land, stewarding, and potential natural/human disaster risks. I don’t believe extra ₤15 is enough for all these. The 2008 financial crisis occurred when we no longer knew the true risk of mortgage in the securitised products. A lot of green claims seem similar to this. A company suddenly became carbon-neutral because they made a new contract with a utility company which claims their energy source became 100% renewable, which was untrue but a mere emissions trading and offshore offset contracting, which was actually a futures product (they don’t do it now but will do in the future), which was about a chunk of land in a developing country whose land ownership regime was unclear, which leads to… Is this really a business innovation, or shouldn’t we go back to the business of actual reduction of resource use? In 2010, all developed nations announced that they 30% in excess of carbon emissions targets set by the Kyoto agreement (USEPA, European Commission and Japan’s MoE all confirmed this). The industrial sector as a whole is not doing its fair share.
The real breakthroughs may come from home energy usage. Metres to show the real-time power consumption of, for instance, dishwasher or the tumble dryer and their cost spikes. Conscious people would choose off-peak energy use. We don’t need everybody to be so environmentally savvy. But just imagine some million of people shifting their machine use by 30 minutes to less busy time.. the results will be exciting.
Wednesday, 6 October 2010
Saturday, 6 February 2010
Will the Chinese Civilisation Clash with the West?
China Grows, and Imports
The world economy needs at least 3% growth rate to raise the standard of living, otherwise the population growth and inflation will dominate the economic growth. The Triad (US-EU-JP) is in deep depression and have not seen such a figure for quite a while. It is China that keeps the world’s 3% threshold afloat. Chinese trade volume has rapidly increased, especially imports from other Asian countries. Imports from Korea grew by 94% in 2008, from Taiwan 91%, and from Malaysia 51%. While Malaysia increased its export to China, its exports to US and Japan decreased by 13%. The growing trend of China’s import has been apparent since 2005.
China's stimulus package (Economist)
Yuan: one step at a time (Economist)
These figures suggest that the US and Japan no longer function as the locomotive of the world economy, in shadow of China. In the economic sphere, the world relies more and more on China.
Chinese demand drives regional recovery (FT)
China is expected to have grown by 13% in 2009. Such a monstrous growth rate is a bubble and it will burst sometime in the future. Yet, until the burst occurs, China is the saviour to the world economy. Unlike West Germany and Japan, that achieved economic growth but wished to accept US hegemony, China longs to convert its economic might to political muscle. Chinese economic growth coincides with its increasing political influence.
China May Overheat With 16% Growth, Government Researchers Say (Bloomberg)
More Chinese people have become conscious of their nation becoming a global player. Bookshops in major Chinese cities are flush with titles related to Chinese civilisation, hegemony theories, Western dominance, and China’s awakening. Partly due to Beijing’s censorship and partly due to China’s traditional sino-centric views, many wear nationalistic hard-liner tones.
Books in Chinese
But would the world’s future be dominated by everything that’s Chinese? Would it necessarily come into conflict with the West? Huntington’s Clash of Civilizations (1996) accurately predicted the 9-11 and the world thereafter drunk with the war on terror. Contemporary conflicts indeed mostly take place near the fault lines of world’s civilisations. But this book also speaks of other scenarios such as the demise of the Western civilisation, the rise of the Chinese counterpart, and even Sino-American War. The book did not argue with precision, and some may have read the book not as an analytical piece but as a blueprint for US foreign policy.
The World According to the West
If we wish to think about the potential clash between Chinese and Western civilisations, we first need to ponder the meaning of a civilisation. In dictionary terms, it is “a set of technical and material assets created by people” (Webster). In this case, a civilisation means a culture, since culture is a set of spiritual assets created by people. Materialism is the civilisation, and spirituality is the culture. ‘Civilisation’ owes its Latin roots to ‘civitas’ (=of city). Civilisation originally meant urbanisation, to juxtapose against ‘rural’ or ‘barbaric’.
Huntington argues the above definition was created in Germany and was not widely accepted in the rest of the world. He says that civilisations are an extension of cultures. Then the book’s title should have been Clash of Cultures. It was only replaced with Civilizations, for the sake of impact.
Civilisations are, to a large extent, a notion of the past. Before the Great War, the world had several civilisations. The Spanish empire destroyed the Aztec and Inca civilisations. Islamic civilisation represented by the Ottoman Empire had its unique material assets. Until the first industrial revolution, China was richer and more advanced than Europe. Back then, China was under the ‘Chinese civilisation’. All foreign invaders to China eventually succumbed to the Chinese civilisation. China held its own distinction between ‘civilised’ (=China) and ‘barbaric’ (=the rest) to maintain the suzerainty system.
The industrial revolution gave Europe an advantage. After the Napoleonic Wars, Britain became a hegemonic power in Europe, and gave China a beat in the Opium War. Since then, China was put under quasi-colonial state. With the destruction of the Ottoman Empire, the world civilisations were unified under the Western civilisation. Not to mention mass production and mass consumption, but transportation, telecommunication, scientific basic research, economics, law, enterprise management, accounting, electoral system, journalism, how to run a country… these are all the offspring of the Western civilisation. Sun Yat-Sen and his fellow revolutionaries strived to import Western systems and technologies in China. The Chinese Communist Party learned from the Soviet Union, which was a variant of the Western civilisation. Kemalist Turkey contemplated how to throw away Islamism and westernise. Both Sun and Atatürk looked to Japan, which achieved westernisation at a very rapid pace.
While China kept Chinese clothing and architectural characteristics for nationalist reasons, its ultimate goal was to exit Chinese and Islamic legacies as soon as possible, and replace them with Western governance system and technologies. Its role model Japan, after the Meiji Revolution, abandoned its feudal shogunate system for the purpose of adopting the Western civilisation.
Japan grew rapidly, became the P4 member in the League of Nations, and its militarist policies came to conflict with the US. But Japan was allied with Germany, thus the WWII was not the clash of Western and Japanese civilisations. The Japanese never embraced a concept of Japanese Civilisation (=that one country is the sole constituent member of a civilisation), even during the 1980s when she had her golden decade. Most Japanese think their ancestral roots are the mixture of Central Asia, Korea, and southeast Asia, its early governance system adopted from the Chinese civilisation, fully developed the ‘Japan-ness’ during the mediaeval age, and domesticated the Western civilisation in the modern era. They believe their success owes to the domestication process, but both Sun and Atatürk thought it was the unmodified importation of the Western civilisation that would lead a country to success.
Illusory ‘Chinese Civilisation’
Civilisations are geographical concepts. Before the industrial revolution, travelling to other parts of the world required much time and effort. Now the industrial revolution has fully spread to all corners of the world, they are connected with common transportation and telecommunication network. A new technology or system developed in one part of the world would quickly spread to the rest. This nullified the possibility for several different civilisations to exist independent of one another. The transportation and telecom network is based on the capitalist concepts, thus this phenomenon has allowed the Western civilisation to permanently sweep throughout the world. The evolution of civilisation is synonymous to material thus economic growth. Re-dividing the unified world is clearly not advantageous to the economic growth. The world will not go back to when there were many different civilisations. So the clash of civilisations is an oxymoron.
From this perspective, China’s recent growth does not mean the rise of the Chinese civilisation. It is the consequence of a series of attempt to adopt the Western civilisation since Sun. China can grow now, because it has abandoned the Chinese civilisation and finally succeeded in adopting the Western civilisation. The “Great Chinese Civilisation” is merely propaganda to incite the nationalism of the Hans. If it’s the rise of the Chinese civilisation, then the former affiliate states such as Korea or Vietnam must benefit too. It’s not happening. China as a culture still does exist, but the Chinese civilisation has been dead since the Opium War. China will inevitably have to lift the yuan’s dollar peg some time in the future, and when it indeed does so, it means it has learnt the Western methods on monetary management.
Multilateralism and Single Civilisation
The world has been conquered by the Western civilisation. But that the West having dominated the world politics is another. The recent 100 years coincided the civilisational dominance of the West and the political dominance of Britain and the US. The Western civilisation with its industrial advantage ruled the rest of the world. Adoptees such as Japan contributed to the evolution of the Western civilisation, especially in the manufacturing domain. In the 21st century, however, US’ economic and military fiascos have put the Anglo-American dominance in jeopardy. The world’s contemporary civilisation has its base in the West, but politically, the West as the sole hegemony is coming to an end. The FT and other business papers foresee Asian newcomers that will engine the world economy. Like Japan did, growing India and China will make some sort of contribution to advance the incumbent Western civilisation in the future.
The Western civilisation will maintain its unitary wholeness, but it will be led by non-European countries. Perhaps it should change its name to the ‘World Civilisation’. The last clash of civilisation in the world history was when Britain destroyed the Ottoman Empire. And it was not even the main theatre of the Great War. The two world wars primarily concerned the internal conflict within the Western civilisation, such that new and more efficient players such as Germany and Japan challenged the British hegemony. It was the competition between nation states, not between civilisations. The UN and the EC were created to curtail this inevitable competition.
The emerging World Civilisation may fail to contain its internal conflicts, like the Western civilisation failed. Yet the BRIC nations are quite cooperative to global integration efforts such as the G20 or the IMF or the UN. Major warfare beyond the scale of regional skirmishes is unlikely to happen.
The world economy needs at least 3% growth rate to raise the standard of living, otherwise the population growth and inflation will dominate the economic growth. The Triad (US-EU-JP) is in deep depression and have not seen such a figure for quite a while. It is China that keeps the world’s 3% threshold afloat. Chinese trade volume has rapidly increased, especially imports from other Asian countries. Imports from Korea grew by 94% in 2008, from Taiwan 91%, and from Malaysia 51%. While Malaysia increased its export to China, its exports to US and Japan decreased by 13%. The growing trend of China’s import has been apparent since 2005.
China's stimulus package (Economist)
Yuan: one step at a time (Economist)
These figures suggest that the US and Japan no longer function as the locomotive of the world economy, in shadow of China. In the economic sphere, the world relies more and more on China.
Chinese demand drives regional recovery (FT)
China is expected to have grown by 13% in 2009. Such a monstrous growth rate is a bubble and it will burst sometime in the future. Yet, until the burst occurs, China is the saviour to the world economy. Unlike West Germany and Japan, that achieved economic growth but wished to accept US hegemony, China longs to convert its economic might to political muscle. Chinese economic growth coincides with its increasing political influence.
China May Overheat With 16% Growth, Government Researchers Say (Bloomberg)
More Chinese people have become conscious of their nation becoming a global player. Bookshops in major Chinese cities are flush with titles related to Chinese civilisation, hegemony theories, Western dominance, and China’s awakening. Partly due to Beijing’s censorship and partly due to China’s traditional sino-centric views, many wear nationalistic hard-liner tones.
Books in Chinese
But would the world’s future be dominated by everything that’s Chinese? Would it necessarily come into conflict with the West? Huntington’s Clash of Civilizations (1996) accurately predicted the 9-11 and the world thereafter drunk with the war on terror. Contemporary conflicts indeed mostly take place near the fault lines of world’s civilisations. But this book also speaks of other scenarios such as the demise of the Western civilisation, the rise of the Chinese counterpart, and even Sino-American War. The book did not argue with precision, and some may have read the book not as an analytical piece but as a blueprint for US foreign policy.
The World According to the West
If we wish to think about the potential clash between Chinese and Western civilisations, we first need to ponder the meaning of a civilisation. In dictionary terms, it is “a set of technical and material assets created by people” (Webster). In this case, a civilisation means a culture, since culture is a set of spiritual assets created by people. Materialism is the civilisation, and spirituality is the culture. ‘Civilisation’ owes its Latin roots to ‘civitas’ (=of city). Civilisation originally meant urbanisation, to juxtapose against ‘rural’ or ‘barbaric’.
Huntington argues the above definition was created in Germany and was not widely accepted in the rest of the world. He says that civilisations are an extension of cultures. Then the book’s title should have been Clash of Cultures. It was only replaced with Civilizations, for the sake of impact.
Civilisations are, to a large extent, a notion of the past. Before the Great War, the world had several civilisations. The Spanish empire destroyed the Aztec and Inca civilisations. Islamic civilisation represented by the Ottoman Empire had its unique material assets. Until the first industrial revolution, China was richer and more advanced than Europe. Back then, China was under the ‘Chinese civilisation’. All foreign invaders to China eventually succumbed to the Chinese civilisation. China held its own distinction between ‘civilised’ (=China) and ‘barbaric’ (=the rest) to maintain the suzerainty system.
The industrial revolution gave Europe an advantage. After the Napoleonic Wars, Britain became a hegemonic power in Europe, and gave China a beat in the Opium War. Since then, China was put under quasi-colonial state. With the destruction of the Ottoman Empire, the world civilisations were unified under the Western civilisation. Not to mention mass production and mass consumption, but transportation, telecommunication, scientific basic research, economics, law, enterprise management, accounting, electoral system, journalism, how to run a country… these are all the offspring of the Western civilisation. Sun Yat-Sen and his fellow revolutionaries strived to import Western systems and technologies in China. The Chinese Communist Party learned from the Soviet Union, which was a variant of the Western civilisation. Kemalist Turkey contemplated how to throw away Islamism and westernise. Both Sun and Atatürk looked to Japan, which achieved westernisation at a very rapid pace.
While China kept Chinese clothing and architectural characteristics for nationalist reasons, its ultimate goal was to exit Chinese and Islamic legacies as soon as possible, and replace them with Western governance system and technologies. Its role model Japan, after the Meiji Revolution, abandoned its feudal shogunate system for the purpose of adopting the Western civilisation.
Japan grew rapidly, became the P4 member in the League of Nations, and its militarist policies came to conflict with the US. But Japan was allied with Germany, thus the WWII was not the clash of Western and Japanese civilisations. The Japanese never embraced a concept of Japanese Civilisation (=that one country is the sole constituent member of a civilisation), even during the 1980s when she had her golden decade. Most Japanese think their ancestral roots are the mixture of Central Asia, Korea, and southeast Asia, its early governance system adopted from the Chinese civilisation, fully developed the ‘Japan-ness’ during the mediaeval age, and domesticated the Western civilisation in the modern era. They believe their success owes to the domestication process, but both Sun and Atatürk thought it was the unmodified importation of the Western civilisation that would lead a country to success.
Illusory ‘Chinese Civilisation’
Civilisations are geographical concepts. Before the industrial revolution, travelling to other parts of the world required much time and effort. Now the industrial revolution has fully spread to all corners of the world, they are connected with common transportation and telecommunication network. A new technology or system developed in one part of the world would quickly spread to the rest. This nullified the possibility for several different civilisations to exist independent of one another. The transportation and telecom network is based on the capitalist concepts, thus this phenomenon has allowed the Western civilisation to permanently sweep throughout the world. The evolution of civilisation is synonymous to material thus economic growth. Re-dividing the unified world is clearly not advantageous to the economic growth. The world will not go back to when there were many different civilisations. So the clash of civilisations is an oxymoron.
From this perspective, China’s recent growth does not mean the rise of the Chinese civilisation. It is the consequence of a series of attempt to adopt the Western civilisation since Sun. China can grow now, because it has abandoned the Chinese civilisation and finally succeeded in adopting the Western civilisation. The “Great Chinese Civilisation” is merely propaganda to incite the nationalism of the Hans. If it’s the rise of the Chinese civilisation, then the former affiliate states such as Korea or Vietnam must benefit too. It’s not happening. China as a culture still does exist, but the Chinese civilisation has been dead since the Opium War. China will inevitably have to lift the yuan’s dollar peg some time in the future, and when it indeed does so, it means it has learnt the Western methods on monetary management.
Multilateralism and Single Civilisation
The world has been conquered by the Western civilisation. But that the West having dominated the world politics is another. The recent 100 years coincided the civilisational dominance of the West and the political dominance of Britain and the US. The Western civilisation with its industrial advantage ruled the rest of the world. Adoptees such as Japan contributed to the evolution of the Western civilisation, especially in the manufacturing domain. In the 21st century, however, US’ economic and military fiascos have put the Anglo-American dominance in jeopardy. The world’s contemporary civilisation has its base in the West, but politically, the West as the sole hegemony is coming to an end. The FT and other business papers foresee Asian newcomers that will engine the world economy. Like Japan did, growing India and China will make some sort of contribution to advance the incumbent Western civilisation in the future.
The Western civilisation will maintain its unitary wholeness, but it will be led by non-European countries. Perhaps it should change its name to the ‘World Civilisation’. The last clash of civilisation in the world history was when Britain destroyed the Ottoman Empire. And it was not even the main theatre of the Great War. The two world wars primarily concerned the internal conflict within the Western civilisation, such that new and more efficient players such as Germany and Japan challenged the British hegemony. It was the competition between nation states, not between civilisations. The UN and the EC were created to curtail this inevitable competition.
The emerging World Civilisation may fail to contain its internal conflicts, like the Western civilisation failed. Yet the BRIC nations are quite cooperative to global integration efforts such as the G20 or the IMF or the UN. Major warfare beyond the scale of regional skirmishes is unlikely to happen.
Sunday, 20 December 2009
The Sinking Dollar Ship
The Sinking Ship
Since its launch in 2008, the G20 has organised three summit conferences. The first meeting created an enormous expectation by the mass media and bloggers that it would the same magnitude of 1944 Bretton Woods that determined the dollar supremacy, replacing the pound. But it was a false alarm. No official resolution was made on the settlement currency. The third meeting in 2009, therefore, had no such expectations.
Nonetheless, there are signals that G20 summit is indeed a conference to discuss the leading currencies. The UN Commission of Experts on International Financial Reform, quite abruptly, announced that the dollar standard ought to be replaced with a new currency basket scheme, much in the same manner of IMF’s SDR or EMS’s ECU.
UN panel urges replacing dollar with currency basket (Reuters)
The Russian authority leaked to the media that Moscow intended to propose a discussion to establish a new international standard currency at the preparatory meeting for the G20. The Russian proposal is based on the SDR, just like the UN panel.
Russia wants to start debate on new reserve currency at G20 (Ria Novosti)
The Russians insisted that major developing countries such as China supported their plan. China doesn’t officially express that it wants a new standard currency instead of the dollar, but unofficially it has made a preliminary proposal and disseminated the dossier to G20 delegates. On surface, China cannot afford to throw the dollar to the bin as it owns huge amount of US treasury bills.
U.S. dollar: Another Sign of Accelerating Loss of Confidence (Seeking Alpha)
Bank of America's Bernstein Says Sell Bank Stocks After Rally (Bloomberg)
If G20 wishes to transform the international currency regime to a multi-polar model, currencies of developing countries such as the yuan, the rouble, or the riyal to be stable. Yet, as long as insufficient regulation is placed upon hedge funds and tax haven jurisdictions, they are reluctant to lift the dollar peg for the fear of speculative attacks. The primary goal for Germany and France is to strengthen the hedge fund regulation – this is because they know the euro alone cannot take over the dollar’s role as the settlement currency. The EU needs the stabilisation and internationalisation of the other G20 currencies. Brussels pressured traditional tax havens such as Switzerland or Singapore to revise their financial tolerance. Britain, which used to oppose to more regulations, also declared ‘the beginning of the end of tax havens’.
'Beginning of the end of tax havens' (FT)
Similarly, American mass media enthusiastically report that US corporations evade taxation by transferring their profits to offshore facilities, so tax havens should be bulldozed.
Trillions that the world could use - $11.5 trillion hidden in offshore havens (International Herald Tribune)
The US is already bankrupt
FRB has decided to print more dollars to purchase the leftovers from the bond market. It will buy $300 billion worth of long-term bonds in 2009. Furthermore, the FRB will buy additional $850 billion mortgage equities from Freddy Mac and Fannie Mae that are not selling well.
Fed to buy $300bn in Treasury bonds (FT)
Beside local buyers, the US bonds have been traditionally supported by Japan and Germany. Since 2008, however, China became the world’s largest creditor of the bond. But the Lehman shock caused a huge drop in bond appetite by foreign buyers. Depression in US lowered the export volume of China, which is now in capital shortage to buy more US bonds. By analysing China’s natural resource diplomacy, it is clear that Beijing is trying to decouple from the dollar. China aggressively buys mines and petrol fields across the world. Seventy percent of China’s financial investment was composed of the dollar. They want to lower the percentage to 50, and the other 50% to be composed of more liquid non-dollar assets such as mines. This is clever, as it can offset the loss from the dollar depreciation with the price rise of commodities.
China inoculates itself against dollar collapse (Asia Times)
Falling greenback fuels BRIC dollar reserve rethink (Reuters)
More than Guantanamo, Obama’s biggest challenge is budgeting. He has to roll out financial policy, more public expenditure to sustain the economy, and re-strengthen social security policy that was neglected by his predecessor Bush. They all cost money. US fiscal deficit may become record high. Already, America’s fiscal balance is negative $11 trillion. Obama announced that the federal government expected $7 trillion increase of fiscal deficit over the next 10 years. Congress, however, thinks it was an underestimation, and instead figures the true estimate to be $9 trillion. Rescue plans to banks were originally $500 billion, but they are now $3 trillion.
Much Bigger Deficits Seen in Budget Office Forecast (New York Times)
Although an independent budgeting, Medicare assumes government bailout in the event its balance sheet fails. Estimation of the total cost borne by the government ranges from $30 to 50 trillion. Approximately 50 million Americans have no health care coverage at all. Inclusion of this group to the Medicare is ethically correct, but financially a risky venture.
Medicare Meltdown (Wall Street Journal)
Tea parties
A number of social movement organisers in US dubbed themselves Boston Tea Party in 2009. Historically, it is a symbolic incident in colonial America, that civilian groups in Boston dumped tea leaf barrels into the harbour as a protest to British decision to grant exclusive rights to the East India Company to export tea leaves to the 13 Colonies. Bostonians were upset not to be able to send representatives to the parliament in London, while taxation was freely decided by the British. British common law already established the principle ‘no representative, no taxation’, which was employed by the colonists. Three years later, the 13 Colonies declared independence. It became an American tradition to name any movement to oppose taxation with no popular representation Boston Tea Party.
The 2009 Tea Party participants are dissatisfied at the worsening economic condition despite huge bailout efforts on large banks by the government. People were angry to know that the government admitted to give excessive remuneration to AIG directors, while the company was supported by the public money.
Editorial: A.I.G. Bailout (New York Times)
Treasury told to make bail-out banks invest in US (FT)
A federation called New American Tea Party mobilised 150 demonstrations against corrupt bankers across America.
Fed-up Americans mobilize: More than 150 tea parties (World Net Daily)
Obama and his advisor Summers expressed their anger against AIG, but it will be difficult for them to take tough measures. AIG had accepted $50 trillion worth of CDS, which was instrumental to trigger the crisis. AIG failure is the CDS failure, which will cause chain reactions to other financial institutions whose success depend on.
"Getting Tough" with Predator Financial Institutions (Global Research)
Unemployment rate in US deteriorates. Including the semi-unemployed (U6), the rate is already 13.6 percent. In key states like Michigan, California, or Oregon, the U6 unemployment rate is 20. This is as bad as the Great Depression of the 1930s.
The federal government can have the FRB to print more money. But state governments don’t have this option. Illinois announced that it intended to increase the income tax by 50% for those whose annual income exceeded $56000. The middle class is also upset. Potential for tax rejection is big. If the tax revenue becomes insufficient, governments won’t be able to pay coupons to bond holders. Foreign investors will stay away from US bonds.
Boston Tea Party in 1774 achieved the independence and the birth of a new nation, but the Tea Party in 2009 may result in the dissolution of the Union. In the US, civil rights such as democracy and civil obligations such as tax payments form a clear social contract. The United States was not created as a nation state curved by natural boundaries. It is based on contracts. If the majority of the people become dissatisfied with the current state of the federation, the US can become politically very instable. In New England, the cradle of the American Revolution, there are heated discussions on whether they should declare independence from the US.
New Hampshire in uproar over US Administration (Russia Today)
Since its launch in 2008, the G20 has organised three summit conferences. The first meeting created an enormous expectation by the mass media and bloggers that it would the same magnitude of 1944 Bretton Woods that determined the dollar supremacy, replacing the pound. But it was a false alarm. No official resolution was made on the settlement currency. The third meeting in 2009, therefore, had no such expectations.
Nonetheless, there are signals that G20 summit is indeed a conference to discuss the leading currencies. The UN Commission of Experts on International Financial Reform, quite abruptly, announced that the dollar standard ought to be replaced with a new currency basket scheme, much in the same manner of IMF’s SDR or EMS’s ECU.
UN panel urges replacing dollar with currency basket (Reuters)
The Russian authority leaked to the media that Moscow intended to propose a discussion to establish a new international standard currency at the preparatory meeting for the G20. The Russian proposal is based on the SDR, just like the UN panel.
Russia wants to start debate on new reserve currency at G20 (Ria Novosti)
The Russians insisted that major developing countries such as China supported their plan. China doesn’t officially express that it wants a new standard currency instead of the dollar, but unofficially it has made a preliminary proposal and disseminated the dossier to G20 delegates. On surface, China cannot afford to throw the dollar to the bin as it owns huge amount of US treasury bills.
U.S. dollar: Another Sign of Accelerating Loss of Confidence (Seeking Alpha)
Bank of America's Bernstein Says Sell Bank Stocks After Rally (Bloomberg)
If G20 wishes to transform the international currency regime to a multi-polar model, currencies of developing countries such as the yuan, the rouble, or the riyal to be stable. Yet, as long as insufficient regulation is placed upon hedge funds and tax haven jurisdictions, they are reluctant to lift the dollar peg for the fear of speculative attacks. The primary goal for Germany and France is to strengthen the hedge fund regulation – this is because they know the euro alone cannot take over the dollar’s role as the settlement currency. The EU needs the stabilisation and internationalisation of the other G20 currencies. Brussels pressured traditional tax havens such as Switzerland or Singapore to revise their financial tolerance. Britain, which used to oppose to more regulations, also declared ‘the beginning of the end of tax havens’.
'Beginning of the end of tax havens' (FT)
Similarly, American mass media enthusiastically report that US corporations evade taxation by transferring their profits to offshore facilities, so tax havens should be bulldozed.
Trillions that the world could use - $11.5 trillion hidden in offshore havens (International Herald Tribune)
The US is already bankrupt
FRB has decided to print more dollars to purchase the leftovers from the bond market. It will buy $300 billion worth of long-term bonds in 2009. Furthermore, the FRB will buy additional $850 billion mortgage equities from Freddy Mac and Fannie Mae that are not selling well.
Fed to buy $300bn in Treasury bonds (FT)
Beside local buyers, the US bonds have been traditionally supported by Japan and Germany. Since 2008, however, China became the world’s largest creditor of the bond. But the Lehman shock caused a huge drop in bond appetite by foreign buyers. Depression in US lowered the export volume of China, which is now in capital shortage to buy more US bonds. By analysing China’s natural resource diplomacy, it is clear that Beijing is trying to decouple from the dollar. China aggressively buys mines and petrol fields across the world. Seventy percent of China’s financial investment was composed of the dollar. They want to lower the percentage to 50, and the other 50% to be composed of more liquid non-dollar assets such as mines. This is clever, as it can offset the loss from the dollar depreciation with the price rise of commodities.
China inoculates itself against dollar collapse (Asia Times)
Falling greenback fuels BRIC dollar reserve rethink (Reuters)
More than Guantanamo, Obama’s biggest challenge is budgeting. He has to roll out financial policy, more public expenditure to sustain the economy, and re-strengthen social security policy that was neglected by his predecessor Bush. They all cost money. US fiscal deficit may become record high. Already, America’s fiscal balance is negative $11 trillion. Obama announced that the federal government expected $7 trillion increase of fiscal deficit over the next 10 years. Congress, however, thinks it was an underestimation, and instead figures the true estimate to be $9 trillion. Rescue plans to banks were originally $500 billion, but they are now $3 trillion.
Much Bigger Deficits Seen in Budget Office Forecast (New York Times)
Although an independent budgeting, Medicare assumes government bailout in the event its balance sheet fails. Estimation of the total cost borne by the government ranges from $30 to 50 trillion. Approximately 50 million Americans have no health care coverage at all. Inclusion of this group to the Medicare is ethically correct, but financially a risky venture.
Medicare Meltdown (Wall Street Journal)
Tea parties
A number of social movement organisers in US dubbed themselves Boston Tea Party in 2009. Historically, it is a symbolic incident in colonial America, that civilian groups in Boston dumped tea leaf barrels into the harbour as a protest to British decision to grant exclusive rights to the East India Company to export tea leaves to the 13 Colonies. Bostonians were upset not to be able to send representatives to the parliament in London, while taxation was freely decided by the British. British common law already established the principle ‘no representative, no taxation’, which was employed by the colonists. Three years later, the 13 Colonies declared independence. It became an American tradition to name any movement to oppose taxation with no popular representation Boston Tea Party.
The 2009 Tea Party participants are dissatisfied at the worsening economic condition despite huge bailout efforts on large banks by the government. People were angry to know that the government admitted to give excessive remuneration to AIG directors, while the company was supported by the public money.
Editorial: A.I.G. Bailout (New York Times)
Treasury told to make bail-out banks invest in US (FT)
A federation called New American Tea Party mobilised 150 demonstrations against corrupt bankers across America.
Fed-up Americans mobilize: More than 150 tea parties (World Net Daily)
Obama and his advisor Summers expressed their anger against AIG, but it will be difficult for them to take tough measures. AIG had accepted $50 trillion worth of CDS, which was instrumental to trigger the crisis. AIG failure is the CDS failure, which will cause chain reactions to other financial institutions whose success depend on.
"Getting Tough" with Predator Financial Institutions (Global Research)
Unemployment rate in US deteriorates. Including the semi-unemployed (U6), the rate is already 13.6 percent. In key states like Michigan, California, or Oregon, the U6 unemployment rate is 20. This is as bad as the Great Depression of the 1930s.
The federal government can have the FRB to print more money. But state governments don’t have this option. Illinois announced that it intended to increase the income tax by 50% for those whose annual income exceeded $56000. The middle class is also upset. Potential for tax rejection is big. If the tax revenue becomes insufficient, governments won’t be able to pay coupons to bond holders. Foreign investors will stay away from US bonds.
Boston Tea Party in 1774 achieved the independence and the birth of a new nation, but the Tea Party in 2009 may result in the dissolution of the Union. In the US, civil rights such as democracy and civil obligations such as tax payments form a clear social contract. The United States was not created as a nation state curved by natural boundaries. It is based on contracts. If the majority of the people become dissatisfied with the current state of the federation, the US can become politically very instable. In New England, the cradle of the American Revolution, there are heated discussions on whether they should declare independence from the US.
New Hampshire in uproar over US Administration (Russia Today)
Tuesday, 15 December 2009
Britain, disturbed
Britain, disturbed
London’s real estate market has been nose-diving since the Lehman shock in 2008. The market was overheated by the excess capital from leverage finances, so the contraction was also quick. The market value of assets owned by Britain’s financial institutions diminished by a large margin. Approximately one-third of the money invested in Britain’s real estate came from abroad. For instance, Icelandic banks used to manage an asset that was 10 times larger than Iceland’s GDP during their heyday, and their main investment destination was Britain. As the crisis deepens, the capital from abroad started to fly, causing the pound to depreciate.
One of the biggest mistakes by the British government in 2008 was to purchase stocks issued by banks and grant them unlimited guarantees, believing the rescue packages would work. This was a wishful thinking. Endangered Royal Bank of Scotland alone, for instance, owns credits worth 2 trillion pounds which is far larger than Britain’s GDP ($2.6 trillion in 2008, by the IMF estimate). If 10% of these credits don’t perform, the entire expenditure for the NHS and education and research will be blown off. Compensation will have to be done by the public money. London has no such fiscal strength.
We're a nation on the brink of going bankrupt (Daily Mail)
The Wall Street Journal pointed out that the British government had failed to produce the intended effect on the financial market. It was rather becoming worse, and both the price of bank shares and the pound were falling. The general fear is so strong that the double collapse of banking system and the excess devaluation of the pound may be quite possible.
Restoring Confidence in the U.K. (WSJ)
Is the pound finished?
The US and Britain share the same financial system but not the currency. The US dollars are still the settlement currency of the world, such that dollar devaluation or inflation is unlikely even if the FRB prints more dollar than it should. International capitals that seek to withdraw from corporate shares and commercial papers will simply go to the treasury bills, so the US bond sells even if the fiscal deficit sustains. But the pound sterling is not such a world currency. In 2007, despite its petrol revenue and the effort to restore the external balance, the UK recorded the world’s third largest current account deficit. Britain’s accumulated fiscal deficit is already 400 billion pounds, which is roughly 250% of its GDP. Britain is more indebted than in 1976, when she asked for a rescue to the IMF last time. Britain cannot afford to spend more.
The British government is obliged to intervene and keep the financial system from collapsing so that the savings accounts of its citizens shall be safe. Yet the exchequer can no longer obtain capital from the bond market. The government thus instructs the BoE to print more pounds to support the non-performing loans owned by banks (= lend money for worthless collateral). This is the same policy by the FRB in the US. But the pound not being a hegemonic currency means that a currency crisis will become imminent if too much pound is supplied.
Treasury gives go-ahead to `print money' (FT)
US’ hot shot investor Jim Rogers declared the end of the pound and recommended all who own assets in pounds to sell them. The North Sea oil reserves and the City’s financial community, both of which have supported the strength of the pound, are now dry. Britain now has nothing to sell. City’s dominance is being taken over by rich Asian markets.
Jim Rogers: 'Sell any sterling you might have. It's finished' (The Independent)
Jim Rogers: `UK has nothing to sell' (FT)
Rogers, upon anticipating the continued growth of Asia, has moved his headquarter from the US to Singapore. Britain did not collapse as fast as he had wished, and Chinese stock prices have been falling. Nonetheless, Britain’s recovery doesn’t seem to occur any time soon, and business keeps on growing in Asia. Rogers is not a demagogue. Tory leader Cameron warned that Britain might soon need to ask the IMF for rescue. News agency Bloomberg anticipated IMF’s bailout for Britain before 2010.
We'll have to go begging to the IMF, says Cameron (The Independent)
Britain to Go Broke, Russia to Join OPEC in 2009 (Bloomberg)
One of the few not-so-bad banks, HSBC, has relatively fewer non-performing loans. But this is due to HSBC’s unique history that its Asian division used to be part of Britain Empire’s oriental wing, and after the 1997 Hong Kong handover, excess lending had been discouraged under the supervision of HK Monetary Agency. The Guardian observed sarcastically, that Britain’s savings account holders must praise Hong Kong.
Unless we are decisive Britain faces bankruptcy (The Guardian)
The curse of the euro
As the chancellor of exchequer, Brown concluded that Britain would not join the euro after his famed ‘five points test’. Looking back, it was a bad luck for Britain. If joined, the currency wouldn’t have been devaluated so much even if London enlarged the fiscal deficit. Indeed, the Maastricht Treaty obliges signatories to limit the deficit under a threshold, but Brussels doesn’t enforce it during the crisis times. In the eurozone, government deficit is rapidly expanding in Spain, Italy, Ireland, and Greece, to an extent that they may have to leave the euro. The Times says that Britain in non-eurozone will suffer less than in the continental countries, where the only fate is an economic meltdown after the expulsion from the eurozone.
It's a bitter chill but Britain is not Iceland (The Times)
In reality, however, such expulsions are unlikely. Eurozone states have given up their sovereign rights to print money and short-term monetary policies, and have agreed to be bound in their various economic policies. The EU aims to gradually take away the rights from its member states for harmonisation. Such strong political will probably render no intention kick out troubled fellow members. In fact, the EU has been extremely lenient in countries that failed in their obligations.
If the eurozone countries will never be expelled, under the same financial crisis and real estate market collapse, Spain and Ireland would appear in much better stead than Britain or Iceland. Icelandic kronas had to be suspended after its central bank printed too much, while Ireland had no such monetary trouble. Iceland recently filed an application to join the EU. The europhiles in Britain will similarly criticise the government for not joining the euro. The Guardian thinks the financial market will never recover unless London promises to join the euro after the crisis. But that would mean that the assets of the British people would be valued lower than before the pound devaluation. Then critics would undoubtedly say that Britain should’ve joined the euro while the pound was still strong. Chinese Xsing-Hua even analysed that Britain cannot join the euro in the future in any case.
News Analysis: Are Britain's hopes to join euro dashed? (Xin-hua)
President Obama chose Sarkozy as the first head of state to meet with during his European tour. Then Merkel. Brown was kept waiting in queue. Compare with 2002 when Bush swore into office, the first European visitor was Blair.
Barack Obama: Downing Street prepares for Obama snub (Telegraph)
During his last year in office, the same Bush refused Brown’s request for a meeting to prepare for the G20 summit, and instead chose Sarko. America is now looking for a new partner in Europe. Britain’s economy is heavily financialised, and its market system is a copy from the US.
Intelligence, you too
Britain’s traditional advantage is not only the City, but also its intelligence capability to manipulate international politics and markets. Commodity markets, Russia, democratisation movements in CIS and the Middle East, climate change, there are many fields at their discretion. If China’s growth is detrimental to Britain’s interest, for example, the MI6 can conspire to forge a military alliance between India and Japan to create political tension and instability in the Asia-Pacific. Yet, recently, the MI6 has made three big mistakes. First of such was the failure of the war on terror. Obama carefully seeks an exit strategy, and he will definitely close Guantanamo during his first term.
Obama 'declared end' to war on terror (Yahoo Canada)
Secondly, Israel is in danger. Israeli lobbyists in US have spoken for the benefits of Britain in many aspects of foreign affairs. 2009 invasion on Gaza was hugely unpopular by the UN, calling for a tribunal on war crimes committed by Israel. Thirdly, regulators in most major countries are interested in enact legislation to limit the activities of hedge funds and tax haven jurisdictions, which have been instrumental for Britain to wage economic wars against enemy markets. Cesspools of undisclosed capitals and speculators are now targeted for closure. These indicate that MI6 is not as powerful as it used to be. In Henry Kissinger’s recent essay, he insisted that the international political government needs to expand its scale to manage the global financial system. Effectively, he means that international organisations must acquire new functions to act like the world government. He otherwise articulated things such as the new Bretton Woods regime would be desired; US’ presence in the world was too strong; Sino-US relation would determine the world economic order; if the G2 is in conflict then China would attempt to create the Asian international order without US, and US would be tempted to protectionism.
Après le déluge. The chance for a new world order (NY Times)
With the weakened financial community and intelligence capability, Britain has much less to offer. America may not need the special relationship anymore, and perhaps seeks a new rival to partner with.
London’s real estate market has been nose-diving since the Lehman shock in 2008. The market was overheated by the excess capital from leverage finances, so the contraction was also quick. The market value of assets owned by Britain’s financial institutions diminished by a large margin. Approximately one-third of the money invested in Britain’s real estate came from abroad. For instance, Icelandic banks used to manage an asset that was 10 times larger than Iceland’s GDP during their heyday, and their main investment destination was Britain. As the crisis deepens, the capital from abroad started to fly, causing the pound to depreciate.
One of the biggest mistakes by the British government in 2008 was to purchase stocks issued by banks and grant them unlimited guarantees, believing the rescue packages would work. This was a wishful thinking. Endangered Royal Bank of Scotland alone, for instance, owns credits worth 2 trillion pounds which is far larger than Britain’s GDP ($2.6 trillion in 2008, by the IMF estimate). If 10% of these credits don’t perform, the entire expenditure for the NHS and education and research will be blown off. Compensation will have to be done by the public money. London has no such fiscal strength.
We're a nation on the brink of going bankrupt (Daily Mail)
The Wall Street Journal pointed out that the British government had failed to produce the intended effect on the financial market. It was rather becoming worse, and both the price of bank shares and the pound were falling. The general fear is so strong that the double collapse of banking system and the excess devaluation of the pound may be quite possible.
Restoring Confidence in the U.K. (WSJ)
Is the pound finished?
The US and Britain share the same financial system but not the currency. The US dollars are still the settlement currency of the world, such that dollar devaluation or inflation is unlikely even if the FRB prints more dollar than it should. International capitals that seek to withdraw from corporate shares and commercial papers will simply go to the treasury bills, so the US bond sells even if the fiscal deficit sustains. But the pound sterling is not such a world currency. In 2007, despite its petrol revenue and the effort to restore the external balance, the UK recorded the world’s third largest current account deficit. Britain’s accumulated fiscal deficit is already 400 billion pounds, which is roughly 250% of its GDP. Britain is more indebted than in 1976, when she asked for a rescue to the IMF last time. Britain cannot afford to spend more.
The British government is obliged to intervene and keep the financial system from collapsing so that the savings accounts of its citizens shall be safe. Yet the exchequer can no longer obtain capital from the bond market. The government thus instructs the BoE to print more pounds to support the non-performing loans owned by banks (= lend money for worthless collateral). This is the same policy by the FRB in the US. But the pound not being a hegemonic currency means that a currency crisis will become imminent if too much pound is supplied.
Treasury gives go-ahead to `print money' (FT)
US’ hot shot investor Jim Rogers declared the end of the pound and recommended all who own assets in pounds to sell them. The North Sea oil reserves and the City’s financial community, both of which have supported the strength of the pound, are now dry. Britain now has nothing to sell. City’s dominance is being taken over by rich Asian markets.
Jim Rogers: 'Sell any sterling you might have. It's finished' (The Independent)
Jim Rogers: `UK has nothing to sell' (FT)
Rogers, upon anticipating the continued growth of Asia, has moved his headquarter from the US to Singapore. Britain did not collapse as fast as he had wished, and Chinese stock prices have been falling. Nonetheless, Britain’s recovery doesn’t seem to occur any time soon, and business keeps on growing in Asia. Rogers is not a demagogue. Tory leader Cameron warned that Britain might soon need to ask the IMF for rescue. News agency Bloomberg anticipated IMF’s bailout for Britain before 2010.
We'll have to go begging to the IMF, says Cameron (The Independent)
Britain to Go Broke, Russia to Join OPEC in 2009 (Bloomberg)
One of the few not-so-bad banks, HSBC, has relatively fewer non-performing loans. But this is due to HSBC’s unique history that its Asian division used to be part of Britain Empire’s oriental wing, and after the 1997 Hong Kong handover, excess lending had been discouraged under the supervision of HK Monetary Agency. The Guardian observed sarcastically, that Britain’s savings account holders must praise Hong Kong.
Unless we are decisive Britain faces bankruptcy (The Guardian)
The curse of the euro
As the chancellor of exchequer, Brown concluded that Britain would not join the euro after his famed ‘five points test’. Looking back, it was a bad luck for Britain. If joined, the currency wouldn’t have been devaluated so much even if London enlarged the fiscal deficit. Indeed, the Maastricht Treaty obliges signatories to limit the deficit under a threshold, but Brussels doesn’t enforce it during the crisis times. In the eurozone, government deficit is rapidly expanding in Spain, Italy, Ireland, and Greece, to an extent that they may have to leave the euro. The Times says that Britain in non-eurozone will suffer less than in the continental countries, where the only fate is an economic meltdown after the expulsion from the eurozone.
It's a bitter chill but Britain is not Iceland (The Times)
In reality, however, such expulsions are unlikely. Eurozone states have given up their sovereign rights to print money and short-term monetary policies, and have agreed to be bound in their various economic policies. The EU aims to gradually take away the rights from its member states for harmonisation. Such strong political will probably render no intention kick out troubled fellow members. In fact, the EU has been extremely lenient in countries that failed in their obligations.
If the eurozone countries will never be expelled, under the same financial crisis and real estate market collapse, Spain and Ireland would appear in much better stead than Britain or Iceland. Icelandic kronas had to be suspended after its central bank printed too much, while Ireland had no such monetary trouble. Iceland recently filed an application to join the EU. The europhiles in Britain will similarly criticise the government for not joining the euro. The Guardian thinks the financial market will never recover unless London promises to join the euro after the crisis. But that would mean that the assets of the British people would be valued lower than before the pound devaluation. Then critics would undoubtedly say that Britain should’ve joined the euro while the pound was still strong. Chinese Xsing-Hua even analysed that Britain cannot join the euro in the future in any case.
News Analysis: Are Britain's hopes to join euro dashed? (Xin-hua)
President Obama chose Sarkozy as the first head of state to meet with during his European tour. Then Merkel. Brown was kept waiting in queue. Compare with 2002 when Bush swore into office, the first European visitor was Blair.
Barack Obama: Downing Street prepares for Obama snub (Telegraph)
During his last year in office, the same Bush refused Brown’s request for a meeting to prepare for the G20 summit, and instead chose Sarko. America is now looking for a new partner in Europe. Britain’s economy is heavily financialised, and its market system is a copy from the US.
Intelligence, you too
Britain’s traditional advantage is not only the City, but also its intelligence capability to manipulate international politics and markets. Commodity markets, Russia, democratisation movements in CIS and the Middle East, climate change, there are many fields at their discretion. If China’s growth is detrimental to Britain’s interest, for example, the MI6 can conspire to forge a military alliance between India and Japan to create political tension and instability in the Asia-Pacific. Yet, recently, the MI6 has made three big mistakes. First of such was the failure of the war on terror. Obama carefully seeks an exit strategy, and he will definitely close Guantanamo during his first term.
Obama 'declared end' to war on terror (Yahoo Canada)
Secondly, Israel is in danger. Israeli lobbyists in US have spoken for the benefits of Britain in many aspects of foreign affairs. 2009 invasion on Gaza was hugely unpopular by the UN, calling for a tribunal on war crimes committed by Israel. Thirdly, regulators in most major countries are interested in enact legislation to limit the activities of hedge funds and tax haven jurisdictions, which have been instrumental for Britain to wage economic wars against enemy markets. Cesspools of undisclosed capitals and speculators are now targeted for closure. These indicate that MI6 is not as powerful as it used to be. In Henry Kissinger’s recent essay, he insisted that the international political government needs to expand its scale to manage the global financial system. Effectively, he means that international organisations must acquire new functions to act like the world government. He otherwise articulated things such as the new Bretton Woods regime would be desired; US’ presence in the world was too strong; Sino-US relation would determine the world economic order; if the G2 is in conflict then China would attempt to create the Asian international order without US, and US would be tempted to protectionism.
Après le déluge. The chance for a new world order (NY Times)
With the weakened financial community and intelligence capability, Britain has much less to offer. America may not need the special relationship anymore, and perhaps seeks a new rival to partner with.
Monday, 14 December 2009
Ig-Nobel and National Competitiveness
Factory superstar
There is an event called the World Skills Competition (WSC). Starting in Spain in the 1950s, it is now a large-scale biannual competition, often dubbed as the Olympic Games for manufacturers and other skilled professions. The competition genre is broad, from robotics, metal plating, facial massage, confectionary, electronics circuits, to aroma therapy.
In the context of manufacturing and service output, occupation masters often speak of finesse and intuitive heuristics that they acquired after decades-long experience. But ‘outputs’ are not just that. They are the results of the nexus consisted of research, planning, design, development, production, and sales.
Scientists engage in the basic research, engineers in design and development, creators in innovative product planning, operators in production sites – the quality of an output is determined by the collaborative effort of these players in the same value chain.
Six dimensions of production
Can we quantitatively analyse such an output quality and potential of a nation? Much has been done by economists on this subject. But how does it look like from a natural science perspective? If we use the World Skills Competition as an index for production skills, I would choose the following indices for statistical comparison.
1. Production - Number of gold medals at the World Skills Competition
2. Design - Number of applications under the Patent Cooperation Treaty
3. Development - Number of publication in natural science and engineering
4. Research - Number of Nobel Prizes in physics, chemistry, and physiology/medicine, economics
5. Theory - Awards in mathematics and computational sciences (Fields Medal, Nevanlinna, Abel, Schock, Wolf, Gauss, Turing, Gödel)
6. Planning - Number of awards at Ig-Nobel Prize
Part of the upper work flow at the WSC involves creative thinking as a designer. Great ideas may mature to be recognised as patents. Patent Cooperation Treaty (PCT) provides for the common recognition of patents that are applied and acknowledged in all the important patent jurisdictions like the US, Japan, and Britain. I use the number of PCT applications as the proxy for the design ability. Alongside the design department, there is another specialism that is responsible for development and sampling. Achievements in natural science and engineering such as new mechanisms and regulatory mechatronics will be submitted as theses to the academia. The development potential can be understood as the number of academic theses. This area is not only a monopoly of private enterprises – research institutes and universities also strive in their endeavour. One process upstream from development lies the foundation or ‘pure’ research. The most authoritative brand thereof is obviously the Nobel Prize. To value ‘research’, I count the prizes in physics, chemistry, physiology / medicine, economics, and exclude literature and peace prizes. The Nobel Prizes, however, doesn’t include mathematics – the mother of all sciences. This is due to Alfred Nobel’s philosophy that the prize shall be awarded to direct contribution to the society. Therefore I chose additional 8 prizes that are internationally admired (6 from mathematics: Fields Medal, Nevanlinna prize, Abel prize, Schock prize, Wolf prize, Gauss medal; 2 from computation sciences: Turing prize, Gödel prize). This will be the index for pure theoretical science.
The order from the WSC to mathematics is sorted according to the general production tasks. From another perspective, the later categories may seem more luxurious. When a country becomes richer and accumulates social capital, there will be more engineers who are highly trained to be able to produce scientific theses. Companies can afford to have their own foundation research institutes. Governments can spare their budget for mathematics, whose direct contribution to industries is often difficult to see. Societies are more mature and they allow research in things that don’t general immediate returns. On the same line of argument, I thought there should be another category for “useless research that are too strange to be reckoned”.
Ig-Nobel Prize, an award for aesthetic and witty planning
Ig-Nobel Prize is an unofficial award by volunteer academics, awarded at Harvard. Ig-Nobel committee chooses researches or phenomena that cannot be highly regarded by the authentic natural sciences but are uniquely indicative to the hard science. Here are some of the examples from the past recipients.
- Training a pigeon to distinguish paintings of Picasso and Monet (cognitive science)
- Tamagotchi (economics, for wasting of hundreds of work hours)
- Dog-to-human translation device (peace)
- Special steel on which pigeons wouldn’t shat (chemistry/material science)
- Karaoke (peace, for a unique way to learn tolerance)
- 34 years of dietary record for the study of brain and bodily conditions (physiology, for an attempt that nobody dared)
- Beer froth and the law of exponential decay (physics)
- Hippocampi of London cab drivers (medicine)
- Verbal indignation in organisations (literature)
Certainly, inventions of tamagotchi or doggy translator wouldn’t be in good regard by the academia, but may be pioneer products for man-machine-interface in its design philosophy. Pigeon training is a good indicator for something that is easy for humans but extremely difficult for computers, a research that may be applied to vision recognition and robot engineering. These are, in other words, children’s play that can entertain the best scientists.
This is an excellent proxy to assume the degree of creative and curious thinking in a culture. Sensitivity in this area has a strong applicability to the most upstream of the production chain – the product planning. If we define the path from the Skills Olympics to mathematics as a course of technology, Ig-Nobel is perhaps a diversion of manufacturing to an artistic pursuit.
The results
The counts were done according to the nationality of the recipients. All the mentioned awards have official websites, which show the past recipients.
The below ranking table showed the result of this exercise. Quite easily, interesting tendencies can be observed.
There is an event called the World Skills Competition (WSC). Starting in Spain in the 1950s, it is now a large-scale biannual competition, often dubbed as the Olympic Games for manufacturers and other skilled professions. The competition genre is broad, from robotics, metal plating, facial massage, confectionary, electronics circuits, to aroma therapy.
In the context of manufacturing and service output, occupation masters often speak of finesse and intuitive heuristics that they acquired after decades-long experience. But ‘outputs’ are not just that. They are the results of the nexus consisted of research, planning, design, development, production, and sales.
Scientists engage in the basic research, engineers in design and development, creators in innovative product planning, operators in production sites – the quality of an output is determined by the collaborative effort of these players in the same value chain.
Six dimensions of production
Can we quantitatively analyse such an output quality and potential of a nation? Much has been done by economists on this subject. But how does it look like from a natural science perspective? If we use the World Skills Competition as an index for production skills, I would choose the following indices for statistical comparison.
1. Production - Number of gold medals at the World Skills Competition
2. Design - Number of applications under the Patent Cooperation Treaty
3. Development - Number of publication in natural science and engineering
4. Research - Number of Nobel Prizes in physics, chemistry, and physiology/medicine, economics
5. Theory - Awards in mathematics and computational sciences (Fields Medal, Nevanlinna, Abel, Schock, Wolf, Gauss, Turing, Gödel)
6. Planning - Number of awards at Ig-Nobel Prize
Part of the upper work flow at the WSC involves creative thinking as a designer. Great ideas may mature to be recognised as patents. Patent Cooperation Treaty (PCT) provides for the common recognition of patents that are applied and acknowledged in all the important patent jurisdictions like the US, Japan, and Britain. I use the number of PCT applications as the proxy for the design ability. Alongside the design department, there is another specialism that is responsible for development and sampling. Achievements in natural science and engineering such as new mechanisms and regulatory mechatronics will be submitted as theses to the academia. The development potential can be understood as the number of academic theses. This area is not only a monopoly of private enterprises – research institutes and universities also strive in their endeavour. One process upstream from development lies the foundation or ‘pure’ research. The most authoritative brand thereof is obviously the Nobel Prize. To value ‘research’, I count the prizes in physics, chemistry, physiology / medicine, economics, and exclude literature and peace prizes. The Nobel Prizes, however, doesn’t include mathematics – the mother of all sciences. This is due to Alfred Nobel’s philosophy that the prize shall be awarded to direct contribution to the society. Therefore I chose additional 8 prizes that are internationally admired (6 from mathematics: Fields Medal, Nevanlinna prize, Abel prize, Schock prize, Wolf prize, Gauss medal; 2 from computation sciences: Turing prize, Gödel prize). This will be the index for pure theoretical science.
The order from the WSC to mathematics is sorted according to the general production tasks. From another perspective, the later categories may seem more luxurious. When a country becomes richer and accumulates social capital, there will be more engineers who are highly trained to be able to produce scientific theses. Companies can afford to have their own foundation research institutes. Governments can spare their budget for mathematics, whose direct contribution to industries is often difficult to see. Societies are more mature and they allow research in things that don’t general immediate returns. On the same line of argument, I thought there should be another category for “useless research that are too strange to be reckoned”.
Ig-Nobel Prize, an award for aesthetic and witty planning
Ig-Nobel Prize is an unofficial award by volunteer academics, awarded at Harvard. Ig-Nobel committee chooses researches or phenomena that cannot be highly regarded by the authentic natural sciences but are uniquely indicative to the hard science. Here are some of the examples from the past recipients.
- Training a pigeon to distinguish paintings of Picasso and Monet (cognitive science)
- Tamagotchi (economics, for wasting of hundreds of work hours)
- Dog-to-human translation device (peace)
- Special steel on which pigeons wouldn’t shat (chemistry/material science)
- Karaoke (peace, for a unique way to learn tolerance)
- 34 years of dietary record for the study of brain and bodily conditions (physiology, for an attempt that nobody dared)
- Beer froth and the law of exponential decay (physics)
- Hippocampi of London cab drivers (medicine)
- Verbal indignation in organisations (literature)
Certainly, inventions of tamagotchi or doggy translator wouldn’t be in good regard by the academia, but may be pioneer products for man-machine-interface in its design philosophy. Pigeon training is a good indicator for something that is easy for humans but extremely difficult for computers, a research that may be applied to vision recognition and robot engineering. These are, in other words, children’s play that can entertain the best scientists.
This is an excellent proxy to assume the degree of creative and curious thinking in a culture. Sensitivity in this area has a strong applicability to the most upstream of the production chain – the product planning. If we define the path from the Skills Olympics to mathematics as a course of technology, Ig-Nobel is perhaps a diversion of manufacturing to an artistic pursuit.
The results
The counts were done according to the nationality of the recipients. All the mentioned awards have official websites, which show the past recipients.
The below ranking table showed the result of this exercise. Quite easily, interesting tendencies can be observed.
Wednesday, 9 December 2009
The World According to the 5 Currencies
Leaders of the FRB, the ECB, and the Bank of England jointly expressed their dissatisfaction to the dollar peg that many Asian countries pursued. In the wake of global inflation, the peg is detrimental, the bankers say. Donald Kohn of the FRB described that overheated Asian economies increased the commodity demand, inviting the price hike. Flexible monetary policy would be beneficial to counter the inflation. Kohn only said ‘Asian economies’, but it is widely understood that he meant China and Saudi Arabia.
Federal Reserve exports inflation (Seeking Alpha)
Kohn speech hints at call to drop dollar peg (Financial Times)
Governor King of the BOE spoke at the Parliament, saying “a very important region to the world economy pegs to just one currency called the dollar. [because of the peg] This region has to increase the monetary supply [because US does so to counter the crisis], causing worldwide inflation”. A very important region, of course, means Asia.
Interest rates in dollar-pegged Asia not appropriate (FX Street)
France’s governor Noyer, who was also the vice-president of the ECB, criticised the overstretched monetary policies of the pegged Asian countries. Flexible exchange rate would help balance the global trade flow, by which the depreciated dollar would increase US exports and discourage Asian exports to the US.
To keep the peg, China and the Middle East has invested in the financial industry of the US, as well as supported US bonds. The series of public statements made by the Western central banks represent that the US now thinks the negative impact of the inflation outweighs the benefits of capital inflow from Asia. At the same time, by these statements, the US authorities have admitted that US’ increase of dollar supply was the cause of the worldwide inflation.
Trans-Atlantic cooperation at stake
This is not the first time when the Western governments put the pressure on China and the Gulf to stop their dollar peg. In 2006, the IMF and the G7 called for the appreciation of those currencies against the dollar, to balance the terms of trade. The IMF created ‘Five Poles Council’ (=US, EU, Japan, China, Saudi Arabia). Yet the abandoning of the peg was not materialised by the opposition by China and Saudi Arabia, supported by Japan. The second call for the peg stop was due to America’s crisis that requires lowering of the interest rate and inflation due to shaky dollar credibility which disables to raise the interest rate. While the Fed’s FOMC keeps the interest rate, the ECB tends to raise the rate to counter the inflation.
Eurozone inflation soars to new high (FT)
In comparison to US economy, the eurozone counterpart is not performing so badly. The ECB wants to raise the interest rate to fight inflation. The inflation rate of the eurozone in 2007-08 was 4%, twice larger than its inflation target. Unlike America’s FRB, the ECB abhors inflation more than anything, by the tradition it inherited from the Bundesbank.
US sees a shadow of the Bundesbank (FT)
If the interest rate variance widens between the US and the Eurozone, the dollar will be sold for the purchase of the euro. The credibility of the dollar will be thus weakened further. Amidst the crash of the housing market, the US authorities are thought to continue its oversupply of the dollar. This is exactly the reverse of the dollar-euro interest rate variance in the 1990s, that threatened the nascent euro. Now investors perceive the euro as a more solid currency.
Morgan Stanley warns of catastrophic event as ECB fights Federal Reserve (Telegraph)
This is not advantageous to Europe. In Asia, many countries peg their currencies to the dollar – such that euro appreciation against the dollar automatically means expensive euro against the Asian monies. Europe wants Asia to stop the dollar peg.
Germany and Japan for the 1970s, China and GCC for the 2000s
China left its official dollar peg in 2005, and yuan has shifted to the peg to a currency basket of the dollar, euro, yen, and pound sterling. Yet the Chinese authorities still keep their flexible peg, by which they control the exchange fluctuation range against the dollar. The Gulf States (GCC6) plans to launch a common currency in 2010 while keeping the dollar peg. The US pressures both China and GCC6 to leave the peg, but they are reluctant. For them, currency management is easier while they free-ride on the US hegemony. Nonetheless, times are against the peggers. Depression in the US, financial crises, dollar credibility, worldwide inflation; they are all negative incentives to keep the peg. If they indeed leave the peg, they will no longer have to have a large amount of foreign reserves made of dollars cash and treasury bills. In the long run, such will devalue the dollar and US bonds. The US somehow needs to make sure that they won’t sell the dollar.
In the 1970s when Nixon left the gold standard, many thought West Germany and Japan would take over the economic hegemony. High level ‘Three Poles Committee’ was created to discuss this inevitable. However, the Germans and the Japanese didn’t wish sudden power shift to their camp. The old axis states of the WWII were well aware of the consequence of such an adventurism. The US took advantage of their unwillingness, and instead created the G5, in which Germany and Japan would collectively intervene to support the dollar.
In the 2000s, similarly, neither China nor the GCC wish to acquire sudden economic hegemony. But unlike Germany or Japan, they are not US allies, nor have they general pacifist tendencies in their societies. They also maintain good relations with anti-US states ie Iran and Venezuela. Will they take a big step to claim the position of world financial centre at some point?
Can they manage international currencies?
Saudi Arabia in the 1970s used to simply waste out the petrol revenue for … nothing. Petrol exporters these days invest in infrastructures and the sovereign wealth funds (SWFs). Iran’s Ahmadinejad also advocates the GCC common currency, albeit that it shifts from the dollar peg to the currency basket. He wants the crude oil to be denominated in the GCC currency, instead of the dollar.
The GCC has never managed its own currency. In the 1970s, before the dollar peg, they used the Indian rupee which was pegged to the pound. Some see that the GCC lacks an ability to form and manage its own currency. Yet it has a huge revenue base from the petrol. If it can somehow obtain techniques to manage the currency, it will be able to launch a strong common currency and leave the dollar peg. The Chinese, likewise, did not have an expertise on foreign exchange. But thanks to knowledge transfer from Goldman Sachs and the FRB, they improved their macroeconomic management ability. Like the Chinese, the Arabs have the traditional excellence in trade and commerce. They can do it too.
The monetary map of the world will shift from the current dollar dominance to a multipolar one, involving the five major currencies.
Sunday, 6 December 2009
The FRB bubble
The Midwest state of Montana submitted a proposal to circulate a new currency backed by bullion for transactions by the state government and the private sector, alongside the US banknotes issued by the FRB. The Montana State congress was concerned that the FRB was printing too much dollar and the anticipated inflation when its value goes down. Rare metal commodities such as gold and silver are known to fluctuate less than cash currencies. Identical proposals have been discussed in other states of Indiana, Colorado, Missouri, Georgia, and Maryland.
State considers return to gold, silver dollars (World Net Daily)
Old rivalries
Since the creation of the Union, the debate between the federalists and the democratic-republicans (and later Jacksonians, Monroevians) has never ceased in the US. The FRB system, though its power is concentrated in New York, is officially a collaborative conference of 12 geographically-spread reserve banks. Democratic-republicans tended to distrust the FRB and tended to perceive the federal government as having been hijacked by the Wall Street capital owners. Use of bullion-backed money instead of the federal dollar has been discussed for a long time. The stimulus package has contributed to FEB’s 17% increase of money supply, whose seigneurage is to be used to support the unsold treasury bills. State governments are worried.
Beyond the dollar (Asia Times)
Recently, the FRB has published a thesis that advocated the strong interest rate policy whose desirable rate would be minus 5 percent. A negative rate is practically impossible for interest rates so the only option must be the quantitative easing by overprinting of the dollar.
Fed study puts ideal US interest rate at -5% (Financial Times)
Then, will the US at the state level be able to avoid the negative impacts from the dollar fall? Most likely not. US economy is fully integrated as a nation, such that no state has a stand-alone economy. Gold coins are just proposals, or expressions of dissatisfaction to the federal policy. The most radical Democratic-republicans go beyond just another currency but call for the demolition of the FRB system itself. A number of libertarians insist that scrutiny on the FRB would be necessary. If the true amount of non-performing loans owned by the FRB is publicised, the credibility of the Federal Reserve will plummet to the ground. One of the most important functions of the FRB is to print the dollar and supply the money to buy the treasury bills or commercial papers, or reduce the money circulation by selling them. This is called an open market operation. During the normal times, it provides stability to the real estate markets and ease inflation pressures, and allocate the right amount of capital for the economic activities. Money balance will have its equilibrium.
However, since 2007, the FRB has kept on increasing its dollar output, by ignoring inflationary pressure as well as instability of real estate collateral equities. If the government bond market falls, the interest rate of the bond will go up, taking the housing loan rate with it, such that the real estate market will even worsen. The FRB bought equities from private banks, but booked for its paper company and not on its own balance sheet. Congress audit will not be able to detect the kinds of equities that the FRB had received from banks. Before the crisis, major US banks had created out-of-book special investment vehicles (SIV), and operated high risk equities there. The FRB has many ‘super SIVs’.
Why Obama’s new Tarp will fail to rescue the banks (FT)
Volcker says Fed’s authority probably to be reviewed (Bloomberg)
Everybody’s the Fed
If the FRB survives on its credibility creation function, the private sector did the same by securitisation. Just like the FRB can transfer the nation’s credibility to the value of the dollar, corporations could transfer their credibility to the value of their corporate bonds and commercial papers. Credit rating agencies determined the value of those bonds, and safety net such as credit default swap (CDS) strengthened the new system. Non-creditworthy enterprises or individuals could easily obtain monies by securitisations and real estate collaterals. American and British economies benefitted much from this. The 2007 crisis is the end of the ‘everybody is the Fed’ system. Ten trillion dollar worth of value created by securitisations is at stake.
State considers return to gold, silver dollars (World Net Daily)
Old rivalries
Since the creation of the Union, the debate between the federalists and the democratic-republicans (and later Jacksonians, Monroevians) has never ceased in the US. The FRB system, though its power is concentrated in New York, is officially a collaborative conference of 12 geographically-spread reserve banks. Democratic-republicans tended to distrust the FRB and tended to perceive the federal government as having been hijacked by the Wall Street capital owners. Use of bullion-backed money instead of the federal dollar has been discussed for a long time. The stimulus package has contributed to FEB’s 17% increase of money supply, whose seigneurage is to be used to support the unsold treasury bills. State governments are worried.
Beyond the dollar (Asia Times)
Recently, the FRB has published a thesis that advocated the strong interest rate policy whose desirable rate would be minus 5 percent. A negative rate is practically impossible for interest rates so the only option must be the quantitative easing by overprinting of the dollar.
Fed study puts ideal US interest rate at -5% (Financial Times)
Then, will the US at the state level be able to avoid the negative impacts from the dollar fall? Most likely not. US economy is fully integrated as a nation, such that no state has a stand-alone economy. Gold coins are just proposals, or expressions of dissatisfaction to the federal policy. The most radical Democratic-republicans go beyond just another currency but call for the demolition of the FRB system itself. A number of libertarians insist that scrutiny on the FRB would be necessary. If the true amount of non-performing loans owned by the FRB is publicised, the credibility of the Federal Reserve will plummet to the ground. One of the most important functions of the FRB is to print the dollar and supply the money to buy the treasury bills or commercial papers, or reduce the money circulation by selling them. This is called an open market operation. During the normal times, it provides stability to the real estate markets and ease inflation pressures, and allocate the right amount of capital for the economic activities. Money balance will have its equilibrium.
However, since 2007, the FRB has kept on increasing its dollar output, by ignoring inflationary pressure as well as instability of real estate collateral equities. If the government bond market falls, the interest rate of the bond will go up, taking the housing loan rate with it, such that the real estate market will even worsen. The FRB bought equities from private banks, but booked for its paper company and not on its own balance sheet. Congress audit will not be able to detect the kinds of equities that the FRB had received from banks. Before the crisis, major US banks had created out-of-book special investment vehicles (SIV), and operated high risk equities there. The FRB has many ‘super SIVs’.
Why Obama’s new Tarp will fail to rescue the banks (FT)
Volcker says Fed’s authority probably to be reviewed (Bloomberg)
Everybody’s the Fed
If the FRB survives on its credibility creation function, the private sector did the same by securitisation. Just like the FRB can transfer the nation’s credibility to the value of the dollar, corporations could transfer their credibility to the value of their corporate bonds and commercial papers. Credit rating agencies determined the value of those bonds, and safety net such as credit default swap (CDS) strengthened the new system. Non-creditworthy enterprises or individuals could easily obtain monies by securitisations and real estate collaterals. American and British economies benefitted much from this. The 2007 crisis is the end of the ‘everybody is the Fed’ system. Ten trillion dollar worth of value created by securitisations is at stake.
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