European Tribune - Community, Politics & Progress.

afew:

what was called Dutch Disease, when the predominance of the high-export natural gas industry in the Netherlands, among other damaging effects, drove up the exchange rate, penalising the exports of other sectors of the economy

I don't see any connection between the Dutch Disease and the Anglo Disease, actually, other than the description as a Disease.

IMHO the Anglo Disease is directly caused by the toxic combination of compounding debt and private property, particularly in land.

The Dutch disease on the other hand was a macro-economic policy mistake, on a grand scale, I think, in that they repatriated most of their surplus and did not adequately neutralise it by investing it in productive domestic assets.

The Norwegians have made sure that much of the profits of their carbon windfall have in large part been invested overseas. While this has avoided the problems experienced by the Dutch, it has not been adequately invested in productive assets. This may now be changing in response to the Credit Crunch etc.

The problem for the Norwegians - as for the other holders of petro wealth - has been the overseas investment choices they have made.

Modern conservatives engage in one of man's oldest exercises in moral philosophy: the search for a superior moral justification for selfishness.Galbraith

by ChrisCook (cojockathotmaildotcom) on Mon May 25th, 2009 at 06:45:15 AM EST
[ Parent ]

ChrisCook:

IMHO the Anglo Disease is directly caused by the toxic combination of compounding debt and private property, particularly in land.
The Dutch disease on the other hand was a macro-economic policy mistake, on a grand scale, I think, in that they repatriated most of their surplus and did not adequately neutralise it by investing it in productive domestic assets.

The UK also committed a macroeconomic policy mistake by allowing the financial sector to grow to what, 25%? of GDP with all serious people saying the City was the engine of the British economy, and capturing all the commission income from the capital flows going through The City and failing to invest it in productive domestic assets.

Instead, a lot of the money went to fuelling the property bubble.

The brainless should not be in banking. — Willem Buitler

by Migeru (migeru at eurotrib dot com) on Mon May 25th, 2009 at 06:59:09 AM EST
[ Parent ]

Wolf notes (4.00 / 8)

that finance only makes 8% of GDP, but I think it made up a disproportionate portion of GDP growth in the UK in recent years - and most of that went to a rather small number of people.

Things may not have looked too bad because government went on a hiring and spending spree on education and healthcare (thus ensuring that jobs were created - in the publc sector, not in the private sector, as the claim of "dynamism" suggests), from its skim of the financial plunder - ensuring that the government is now broke as a large source of income dries up, just at the moment it would be needed to do contra-cyclical policies.

In other words, government hid the plunder by its spending, and is now as naked as the population.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Mon May 25th, 2009 at 07:05:28 AM EST
[ Parent ]

Re: Wolf notes (4.00 / 2)

Pretty much the Irish experience as well: government used property bubble windfall taxes to sustain a low-tax highish-benefit economy and now discovers that it's not sustainable and is indulging in even more pro-cyclical policies.

by Colman (colman at eurotrib.com) on Mon May 25th, 2009 at 07:08:27 AM EST
[ Parent ]

Re: Anglo Cuckoo (4.00 / 5)

Some figures (need refreshing, but they give a notion of the just-before-crisis state) that we quoted in the Anglo Disease piece sent to the WSJ:

In the UK, where the sector's share of GDP rose to 9.4% in 2006, from 5.5% in 2001, City-dominated London received 50% of total foreign investment. Per capita Gross Valued Added rose by between 8% and 9% over the last decade in London while, in all other regions of the UK, it stagnated or fell.

by afew (afew(a in a circle)eurotrib_dot_com) on Mon May 25th, 2009 at 08:08:51 AM EST
[ Parent ]

There is a connection (4.00 / 7)

I don't see any connection between the Dutch Disease and the Anglo Disease, actually, other than the description as a Disease.

The connection is that you have a sector which has much higher profitability than the rest, and thus attracts further investment, talent and political influence to itself, and causes other industries to shrink, relatively and absolutely.

This may not appear to be a problem for as long as it lasts, but that profitability cannot last - either it's the windfall from a finite resource, or it's, as in the case of finance, the result of plunder/parasitism and it will inevitably crash under its own weight.

Then you have the disease: the "profitable sector" is gone, and the rest of the economy has been irreversibly damaged in the meantime.

The only solution is to capture the profits, to avoid excessive investment in the sector, and sustain the rest of the economy in the meantime.

In other words: tax it.

But it IS fundamentally the same phenomenon, except that in this case the profitability was created by regulatory arbitrage, and not by resource discovery.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Mon May 25th, 2009 at 07:02:02 AM EST
[ Parent ]

Re: There is a connection (4.00 / 6)

Almost. I think it's easy to make the mistake of assuming that the City has been run independently of government.

In fact what happened is that up to the 1970s, industry was subsidised by government spending. So we had mining, car making, ship making, steel making and the rest. These were effectively job creation schemes, with a light spicing of industrial strategy. But they were never really intended to be profitable or 'competitive.'

The Thatcher revolution was partly a political move to put the working class in its place. So killing those industries was done as much for political reasons as for financial ones.

But more than that - the subsidies and tax breaks which maintained those industries were shifted to the City. So now it was the City which took the place of the industrial sector. While the City was nominally more profitable, and better at attracting foreign money, in real terms deregulation has been equivalent to a generous gift of cash. And before manufacturing died it was given exactly the same kinds of bail outs that we're seeing today.

So there was never any chance the City would be taxed at a reasonable rate. Not only was this ideologically unthinkable, it would also have defeated the object of the exercise - which was state engineering of an 'industrial' replacement for UK manufacturing.

The government is screwed now because there's no obvious replacement sector waiting in the wings.

In fact alternatives exist - green engineering, self sufficiency and resilience, distributed systems of various kinds, and the creative industries. But no one is pushing them seriously in Westminster yet as a replacement, and it's probably going to take half a generation of chaos before government wakes up to the possibilities.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon May 25th, 2009 at 08:42:49 AM EST
[ Parent ]

Re: There is a connection (4.00 / 2)

Almost. I think it's easy to make the mistake of assuming that the City has been run independently of government.
In fact what happened is that up to the 1970s, industry was subsidised by government spending. So we had mining, car making, ship making, steel making and the rest. These were effectively job creation schemes, with a light spicing of industrial strategy. But they were never really intended to be profitable or 'competitive.'

Ahem. Royal Dutch Shell hardly counts as an "unsubsidised" company either, by any account.

Granted, its subsidies have been less along the lines of suitcases full of cash from the government and more along the lines of gun shipments to various dictators around the world. But hey, that's a kind of subsidy too.

- Jake

"Terraforming your own planet to make it uninhabitable hardly counts as epic win." - ThatBritGuy

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon May 25th, 2009 at 01:55:09 PM EST
[ Parent ]

IMHO the Anglo Disease is directly caused by the toxic combination of compounding debt and private property, particularly in land

Why is that so specifically Anglo? As far as I'm aware, compounding debt and private land ownership are common to all "developed" economies.

Did it have nothing to do with the Dutch Disease, for instance? How did that qualify for the description a macro-economic policy mistake, on a grand scale, while the financial domination of the US/UK economies would not, if I read you correctly?

On domestic investment (Netherlands/Norway), I quite agree. Isn't there a case, though, for saying that the UK has exported natgas and financial services without adequate investment in a diversified domestic economy?

by afew (afew(a in a circle)eurotrib_dot_com) on Mon May 25th, 2009 at 07:11:30 AM EST
[ Parent ]

Re: Anglo Cuckoo (4.00 / 6)

afew:

As far as I'm aware, compounding debt and private land ownership are common to all "developed" economies.

Big differences. The Anglo Disease countries are - by definition of "Anglo Disease", I submit - more focused than non-Anglo Disease countries on the privatisation of everything that doesn't move, and much that does. Land is only part, but the biggest part, of the problem, in that it is through claims over land that over two thirds of Anglo money/credit is backed.

The proportion of public ownership of land/property and a tradition of land/property rentals is much greater in the non-Anglo countries, particularly (say) Germany.

In that money is involved in both Diseases then yes, there is a loose connection.

The Dutch disease is about the misinvestment of the fruits of (wasting) productive assets. The Anglo Disease is about the creation of claims over productive assets and the inequitable allocation of these claims.

afew:

Isn't there a case, though, for saying that the UK has exported natgas and financial services without adequate investment in a diversified domestic economy?

Yes, the UK has pissed away a carbon windfall on unemployment benefit.

The UK has also failed to adequately tax the windfall from the intellectual and human capital represented by the City, and to adequately invest the tax they did raise.

Modern conservatives engage in one of man's oldest exercises in moral philosophy: the search for a superior moral justification for selfishness.Galbraith

by ChrisCook (cojockathotmaildotcom) on Mon May 25th, 2009 at 07:50:37 AM EST
[ Parent ]

Re: Anglo Cuckoo (4.00 / 4)

afew

Anglo Disease idea echoes what was called Dutch Disease, when the predominance of the high-export natural gas industry in the Netherlands, among other damaging effects, drove up the exchange rate, penalising the exports of other sectors of the economy

The Anglo Disease as experienced in the USA seems qualitatively different due to the dollar's role as a reserve currency. While the disease is likely to lead to an eventual change in the de facto nature of reserve currencies, the dollar's current and past status has enabled and continues to enable the USA to export many of the consequences of its own bad behavior. It, in effect, is an even bigger cuckoo sitting in the nest not just of the US economy and society, but of that of the whole world. I do not see how Wolf's goal for the U.K to "make global regulation work....(and to) discourage regulatory arbitrage" without close coordination with the US Government, and that seems problematic at best just now.

I am struck by how the thesis advanced by NBBooks in his current diary, Debunking the Myth of the Financial Markets, should fit into this discussion.
As he notes:

Wall Street simply is not doing what most people think it's doing. Nor what most people think it should be doing. Wall Street is not even doing what it says it is doing. Wall Street is pushing a big myth that its services are essential to the functioning of the rest of the economy. But the truth as, as this graph shows, Wall Street does not -- and has not for a very long time -- serve the function of allocating credit in the economy.

The arguments and graphs from Ozgur Orhangazi's Financialization and the US Economy seem cogent. I realize that selling this idea to Serious PeopleTM is an even bigger challenge than selling the recommendations Wolf has made, but the concepts are mutually reinforcing and the solutions would seem to be similar.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer at eurotrib.com) on Mon May 25th, 2009 at 12:36:57 PM EST
[ Parent ]

The Anglo Disease as experienced in the USA seems qualitatively different due to the dollar's role as a reserve currency.

IANAE, but my take on that is that the US used the dollar's status as reserve currency to inflate its financial sector, where the UK used a much more aggressive policy of being a ~~tax shelter~~ flag of convenience country.

I'll leave it to the economists to hash out whether that's a qualitative difference.

- Jake

"Terraforming your own planet to make it uninhabitable hardly counts as epic win." - ThatBritGuy

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon May 25th, 2009 at 02:01:21 PM EST
[ Parent ]

But the problem faced by the U.K. is more difficult than it would be were the pound an international reserve currency of status equivalent to that of the euro. Iceland, Ireland and the U.K are a progression of steps in economic and currency weight. The step from that progression to one containing the EMU and the USA are much greater.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer at eurotrib.com) on Mon May 25th, 2009 at 02:28:33 PM EST
[ Parent ]

That's certainly true. OTOH, as Bruce points out, the US is uniquely dependent on energy imports from countries over which it has limited political influence.

Iceland, OTOH, has abundant energy resources. And the UK has a number of markers it could surrender in the European political game in return for help with its energy issues. Ireland... well, they're not quite as far in the hole as the UK, at least to judge by what I read on ET. Being a much smaller economy located much closer to a functioning economic zone is both a blessing and a curse that way...

- Jake

"Terraforming your own planet to make it uninhabitable hardly counts as epic win." - ThatBritGuy

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon May 25th, 2009 at 03:04:30 PM EST
[ Parent ]

True enough about Iceland with geo-thermal energy, but it is hardly self sufficient and their vehicles do not yet run on electricity, do they? But everyone has their own set of circumstances.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer at eurotrib.com) on Mon May 25th, 2009 at 07:50:18 PM EST
[ Parent ]

I guess I was trying to say "yes, they're qualitatively different... for suitable values of 'qualitatively.'"

The fundamental, underlying logic is the same. The political and economic fallout, and the specific way it was implemented are not.

- Jake

"Terraforming your own planet to make it uninhabitable hardly counts as epic win." - ThatBritGuy

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon May 25th, 2009 at 08:20:46 PM EST
[ Parent ]

I think that they are self sufficient. It's just that Iceland exports much of its electricity in the form of aluminium.

Modern conservatives engage in one of man's oldest exercises in moral philosophy: the search for a superior moral justification for selfishness.Galbraith

by ChrisCook (cojockathotmaildotcom) on Mon May 25th, 2009 at 08:31:07 PM EST
[ Parent ]

From what I saw, Alcoa had made an arrangement that left the state liable for most of the cost of the Alcoa plant and it was planning on ridding itself of any obligation to pay Iceland. I may be mis-remembering the details. Do you know how that has worked out?

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer at eurotrib.com) on Mon May 25th, 2009 at 09:31:10 PM EST
[ Parent ]

Re: Anglo Cuckoo (none / 1)

There is a film - "Dreamland" - about the whole thing

Modern conservatives engage in one of man's oldest exercises in moral philosophy: the search for a superior moral justification for selfishness.Galbraith

by ChrisCook (cojockathotmaildotcom) on Tue May 26th, 2009 at 04:27:06 AM EST
[ Parent ]

Without having seen more than thait trailer, it does seem like the usual PC anti-industrial leftist clap-trap.

With the economy going to hell, I'd say the people of Iceland will be pretty happy they'll still have the aluminum industry left, especially as I've heard the guestworkers have been shipping out because of the currency collapse: their wages aren't that high anymore in real terms.

So the Karahnjukar project should be a good thing now, if Alcoa doesn't fuck them over somehow.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid (arvid.hallen at gmail.com) on Tue May 26th, 2009 at 07:18:26 AM EST
[ Parent ]

Given Alcoa's record, that's a pretty big "if," though...

- Jake

"Terraforming your own planet to make it uninhabitable hardly counts as epic win." - ThatBritGuy

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue May 26th, 2009 at 08:10:27 AM EST
[ Parent ]

Is there anything in particular they're doing, or what? I thought both the smelter and the dam were on schedule and will work just as planned.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid (arvid.hallen at gmail.com) on Tue May 26th, 2009 at 08:18:54 AM EST
[ Parent ]

I'm worried about the sticky strings attached, more than whether the industrial machinery will operate or not. Alcoa does not have a particularly convincing record when it comes to honest business practise, human rights, paying taxes and other such niceties.

The fact that they were one of the central players in Pinochet's coup doesn't precisely do wonders for my confidence in their willingness to do well by Iceland either. AFAIK, they were never seriously punished for that story.

- Jake

"Terraforming your own planet to make it uninhabitable hardly counts as epic win." - ThatBritGuy

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue May 26th, 2009 at 08:56:22 AM EST
[ Parent ]

Fair enough.

We'll just have to wait and see.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid (arvid.hallen at gmail.com) on Tue May 26th, 2009 at 09:04:42 AM EST
[ Parent ]

A couplet of things... (none / 1)

1) I've been waiting for this. When all this started last summer, I wondered when we'd hear:

First, the UK needs to make global regulation work. It should discourage regulatory arbitrage even if it expects to gain in the short run.

A call for a new Bretton Woods type conference. I don't know, frankly, if the US would participate, and if we do, if we would do anything more than try to limit any such conference's work. Shades of Kyoto.

:and:

2) Ok, who has an answer to this: greater regulation on finance and a firmer grip on risk management will mean companies will find it harder to get access to the funds they need to operate. Fine, as far as that goes, it's a premise I'm willing to consider, but to what extent are companies already facing this condition? Are we going to lose more jobs? Are those jobs already the ones currently at the most risk anyways? Or already gone? Have the weak been culled by now?

"It Can't Be Just About Us"
--Frank Schnittger, ETian Extraordinaire

by papicek (papi_cek_at_hotmail_dot_com) on Mon May 25th, 2009 at 07:51:17 AM EST

Re: A couplet of things... (4.00 / 5)

I don't think 2 is true. I'm not even sure that the money that was sploshing around the system prevously was available for companies who wanted to do real work. Pure financial stuff was much sexier.

Anyway, the level of lending in a more sensible environment should be much higher than the current level, since the problem at the moment is that the banks don't have any money to lend.

by Colman (colman at eurotrib.com) on Mon May 25th, 2009 at 07:58:18 AM EST
[ Parent ]

Re: A couplet of things... (4.00 / 2)

I'm not even sure that the money that was sploshing around the system prevously was available for companies who wanted to do real work. Pure financial stuff was much sexier.

Well, it did slosh around the housing market in the US. A few new home builders went from local to regional to national and if they didn't become massive centers of the economy (like finance was), certainly became the bellweather of US economic "health". It was one of the reasons I ran away from the equities market - for quarter after quarter, only housing was doing well.

But your point is well taken that the economic picture we see today is probably more accurate, except for those trying to meet contractual obligations made under seemingly more propitious conditions. I wonder to what extent that has worked its way through as well. I've heard both good projections and bad.

banks don't have any money to lend

After all the billions of TARP dollars thrown at banks just so they would lend? I have trouble wrapping my mind around that. I know there was criticism over banks using TARP funds for M&A - definitely not what it was meant for - and all that money, years of debt burden...for nothing?

"It Can't Be Just About Us"
--Frank Schnittger, ETian Extraordinaire

by papicek (papi_cek_at_hotmail_dot_com) on Mon May 25th, 2009 at 08:14:07 AM EST
[ Parent ]

Re: A couplet of things... (4.00 / 4)

::
banks don't have any money to lend
After all the billions of TARP dollars thrown at banks just so they would lend? I have trouble wrapping my mind around that. I know there was criticism over banks using TARP funds for M&A - definitely not what it was meant for - and all that money, years of debt burden...for nothing?

Once again there is a misapprehension as to the nature of banking. Banks do not take in existing money and lend it. If they did, there could not be any new money.

Credit Institutions aka Banks simultaneously create new money as interest-bearing credit and matching deposits.

Sure, Banks are made liquid through TARP and may have better quality assets (bailing out the rich), but they are conserving capital jealously against further defaults, and they have a shortage of creditworthy people and projects to whom to lend.

The TARP money is a credit transfusion replacing the credit haemorrhaging out of the economy as it collapses. The only ways of getting it into the economy is to spend it or lend it.

Modern conservatives engage in one of man's oldest exercises in moral philosophy: the search for a superior moral justification for selfishness.Galbraith

by ChrisCook (cojockathotmaildotcom) on Mon May 25th, 2009 at 08:23:30 AM EST
[ Parent ]

Re: A couplet of things... (4.00 / 2)

banks don't have any money to lend
After all the billions of TARP dollars thrown at banks just so they would lend?

If you want lending to happen you don't throw money at insolvent institutions hoping they will start lending. You lend.

Or you have the banking regulators intervene the institutions and put them back on their feet so they can start lending again, at a lower cost than TARP.

The brainless should not be in banking. — Willem Buitler

by Migeru (migeru at eurotrib dot com) on Mon May 25th, 2009 at 09:00:03 AM EST
[ Parent ]

banks do have money to lend (4.00 / 3)

and actually do lend.

The problem is that the shadow banking system, which had taken such a big role in financing the economy (via securitisation, and commercial paper, asset backed or otherwise, mainly), is now gone, and banks cannot step up to replace it.

So banks actually lend a little bit more than before, but companies get much less financing than before, because of the disappearance of the unregulated lenders, and the inability of the banks to step in on the scale required.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Mon May 25th, 2009 at 08:36:22 AM EST
[ Parent ]

Re: banks do have money to lend (4.00 / 2)

No, no they don't. Not generally. Not here.

by Colman (colman at eurotrib.com) on Mon May 25th, 2009 at 08:37:57 AM EST
[ Parent ]

ok (4.00 / 2)

but statistics for France, the UK and the US do show what I wrote above - even if the perception is that banks are not lending to replace what was funded in other ways previously

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Mon May 25th, 2009 at 08:50:03 AM EST
[ Parent ]

Re: banks do have money to lend (none / 0)

So my concern in point number 2 above is already (largely) behind us? There's no further downside to enhanced regulation?

"It Can't Be Just About Us"
--Frank Schnittger, ETian Extraordinaire

by papicek (papi_cek_at_hotmail_dot_com) on Mon May 25th, 2009 at 09:30:16 AM EST
[ Parent ]

Hedge funds are gone? (none / 1)

Cerberus is gone? Trump is gone? I wish! Unfortunately that rotten giant shoe has not dropped yet...

Patrice Ayme Patriceayme.com Patriceayme.wordpress.com http://tyranosopher.blogspot.com/

by Patrice Ayme on Mon May 25th, 2009 at 11:29:05 AM EST
[ Parent ]

Re: A couplet of things... (none / 1)

I think even more blood must float under the bridges until we have such a clean slate that everyone can compromise enough to make Bretton Woods II possible.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid (arvid.hallen at gmail.com) on Mon May 25th, 2009 at 07:58:54 AM EST
[ Parent ]

Re: A couplet of things... (none / 0)

It's the first call for something like the BWC, so I can't but agree.

"It Can't Be Just About Us"
--Frank Schnittger, ETian Extraordinaire

by papicek (papi_cek_at_hotmail_dot_com) on Mon May 25th, 2009 at 08:16:06 AM EST
[ Parent ]

Re: A couplet of things... (none / 0)

A call for a new Bretton Woods type conference. I don't know, frankly, if the US would participate, and if we do, if we would do anything more than try to limit any such conference's work. Shades of Kyoto.

There will be such a conference before too long, I think, and it will look rather like a Creditors' Meeting for the US, in particular.

I don't think that there is anything that the US will really be able to do to limit its work either any more than any other debtor can direct their creditors.

Ok, who has an answer to this: greater regulation on finance and a firmer grip on risk management will mean companies will find it harder to get access to the funds they need to operate. Fine, as far as that goes, it's a premise I'm willing to consider, but to what extent are companies already facing this condition? Are we going to lose more jobs? Are those jobs already the ones currently at the most risk anyways? Or already gone? Have the weak been culled by now?

Governments should be able to ensure enough credit to allow strong mature companies to operate, but there is a continuing cull gathering pace, I think, of those mature companies which have been weakened by private equity debt loads.

The biggest difficulty will be for start-ups and developing enterprises, since these are not 'bankable'.

Modern conservatives engage in one of man's oldest exercises in moral philosophy: the search for a superior moral justification for selfishness.Galbraith

by ChrisCook (cojockathotmaildotcom) on Mon May 25th, 2009 at 08:14:15 AM EST
[ Parent ]

Re: A couplet of things... (none / 1)

I don't think that there is anything that the US will really be able to do to limit its work either any more than any other debtor can direct their creditors.

Possibly. Don't underestimate the US's ability to manage outcomes internationally. At times we're very good, even if very underhanded at it. Depends on how aggressively China can leverage her status as the world's largest consumer now that the US is not.

The biggest difficulty will be for start-ups and developing enterprises, since these are not 'bankable'.

Most of the smaller firms are more manageable risks, as they require less capital. Nobody is trying to enter markets, even now, where there are strong barriers to entry. So we're talking local franchises. I'd be more worried about a scenario like the big three automakers soaking up all the available capital retooling their lines to maintain competitiveness with Toyota and Honda, while similarly big firms trying to expand and/or diversify as well. (Global Marine planning on refurbishing its fleet for deeper drilling would be another great credit sponge, for instance.)

"It Can't Be Just About Us"
--Frank Schnittger, ETian Extraordinaire

by papicek (papi_cek_at_hotmail_dot_com) on Mon May 25th, 2009 at 08:28:50 AM EST
[ Parent ]

nope (4.00 / 4)

China can leverage her status as the world's largest consumer now that the US is not.

China is a midget compared to the US and Europe. And need I remind you that it was Europe, not the US, that was the locomotive of the world economy over the years leading to 2007?

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Mon May 25th, 2009 at 08:41:14 AM EST
[ Parent ]

Re: nope (none / 0)

Wasn't it you who put up a diary in which you showed a graph of China's overwhelming hunger for concrete?

Your graph in that earlier diary was on growth. What's the situation in absolute dollars - or any currency you choose?

"It Can't Be Just About Us"
--Frank Schnittger, ETian Extraordinaire

by papicek (papi_cek_at_hotmail_dot_com) on Mon May 25th, 2009 at 08:54:29 AM EST
[ Parent ]

yes (4.00 / 3)

Chine does dominate demand for some specific sub-sectors (concrete, cranes, iron ore) linked to their heavy focus on heavy-industry buildup and infrastructure construction.

But otherwise, their share of world demand is still pretty low.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Mon May 25th, 2009 at 09:02:38 AM EST
[ Parent ]

You're right... (none / 1)

As my first ET chart will illustrate:

GDP PPP in USD 2008 est.

China is not even close to being the world's leading consumer, but hardly a midget, and with lots more upside than either the EU or the US.

Source: CIA World Factbook.

"It Can't Be Just About Us"
--Frank Schnittger, ETian Extraordinaire

by papicek (papi_cek_at_hotmail_dot_com) on Mon May 25th, 2009 at 09:19:59 PM EST
[ Parent ]

Re: A couplet of things... (4.00 / 5)

greater regulation on finance and a firmer grip on risk management will mean companies will find it harder to get access to the funds they need to operate.

Not quite. You'd expect the inevitable overshoot into lending paranoia, which is more or less where we are now,

But eventually companies should find it easier to get access to funds. Funds could be made available with less draconian expectations of instant returns. So jobs would be created and wealth could - potentially - be distributed more equitably.

A lot of healthy industries have been destroyed by insane expectations of ever-expanding quarterly growth. One of the easiest ways to create the illusion of growth is to fire people. Relaxing that criterion would create and sustain jobs and allow the real economy to rebound.

Most of the risk has been in property lending. Reducing prices by 50% or 75% would be brutal in the short term, but would have the useful side effect of making housing affordable again. It would also free up disposable income which could be spent on other things, beyond trying to service a mortgage.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon May 25th, 2009 at 08:20:54 AM EST
[ Parent ]

Re: A couplet of things... (4.00 / 4)

A lot of healthy industries have been destroyed by insane expectations of ever-expanding quarterly growth.

You don't have to tell me. I work at a publically traded retailer, who is currently stressing and restressing that each of us squeeze the last penny out of the customer that we can.

I've pushed back on this as much as I can, but I'm already starting to hear grumbles from my managers over my performance. I haven't thrown the NYT in WWI example at them yet, and I'm keeping my mouth shut (at work) about the low regard in which I hold shareholders. (To me, they're no more than gamblers and deserve as much consideration. I've heard the "boss who signs your check" already, but as it wasn't directed at me, I haven't replied, "it's the customer who funds the payroll account and the customer is the only one with any choice in this equation. That should be a fun conversation.)

"It Can't Be Just About Us"
--Frank Schnittger, ETian Extraordinaire

by papicek (papi_cek_at_hotmail_dot_com) on Mon May 25th, 2009 at 08:39:31 AM EST
[ Parent ]

Re: A couplet of things... (4.00 / 4)

Well, that's the real problem - the maintenance of power and status relationships for their own sake, even when they're ultimately self-destructive.

Too many people in the US believe that businesses should be run as feudal mini-states, and the owner is literally a king. When customers shop, they're nominally guests, but in fact they're really there to pay tribute. (This pretty much explains everything about how IBM, Microsoft, and other corporates do business.)

The concept of symmetrical obligation seems almost completely alien to the Anglo outlook. Whenever it's suggested it's labelled 'socialism' and greeted with grunting, hooting and pointing, shit flinging and simian hysterics.

The US will continue down its fail spiral until a majority of the population outgrows this outlook.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon May 25th, 2009 at 08:51:48 AM EST
[ Parent ]

Re: A couplet of things... (4.00 / 3)

I don't know, frankly, if the US would participate, and if we do, if we would do anything more than try to limit any such conference's work. Shades of Kyoto.

Or shades of Bretton Woods I, where the US scuppered Keynes' superior proposal in favour of a system they could milk.

The brainless should not be in banking. — Willem Buitler

by Migeru (migeru at eurotrib dot com) on Mon May 25th, 2009 at 09:02:23 AM EST
[ Parent ]

& did it secretly (none / 1)

Putting $ as world currency was blocked by Keynes, then secretly reinstated.

Patrice Ayme Patriceayme.com Patriceayme.wordpress.com http://tyranosopher.blogspot.com/

by Patrice Ayme on Mon May 25th, 2009 at 11:51:41 AM EST
[ Parent ]

Re: A couplet of things... (4.00 / 2)

Possibly. But, as Chris is fond of asking, how many barrels does the US have?
No. The most important regulation will be to split the short term secured credit away from the long term credit and ban most forms of short term un- or poorly secured credit. Firms do not use short term unsecured credit for serious investment, from 1950 to 1980 firms were very much able to obtain financing for real projects with a financial sector where short and long term credit was split into two different markets.

If anything, regulating finance should make more money available to the real economy, because less money is wasted on bonus schemes and gambling in the paper markets.

- Jake

"Terraforming your own planet to make it uninhabitable hardly counts as epic win." - ThatBritGuy

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon May 25th, 2009 at 02:07:40 PM EST
[ Parent ]

Re: A couplet of things... (none / 1)