The World We’re Actually Living In

For first time in a long, long time, a Democrat is running for president and has the clear advantage on national security policy. That is not “how things are supposed to be,” and Republicans sound apoplectic about it. But there is reason President Obama is leading on national security, and it was apparent in his U.N. speech last week, which showed a president who understands that we really do live in a more complex world today, and that saying so is not a cop-out. It’s a road map. Romney, given his international business background, should understand this, but he acts instead as if he learned his foreign policy at the International House of Pancakes, where menu and architecture rarely changes. (source: Thomas L. Friedman – NYTimes – 30/09/2012)

Rather than really thinking afresh about the world, Romney has chosen instead to go with the same old G.O.P. bacon and eggs, that Democrats are toothless wimps who won’t stand up to our foes or for our values, that the Republicans are tough and that it is 1989 all over again. That is, America stands astride the globe with unrivaled power to bend the world our way, and the only thing missing is a president with “will.” The only thing missing is a president who is ready to simultaneously confront Russia, bash China, tell Iraqis we’re not leaving their country, snub the Muslim world by outsourcing our Arab-Israel policy to the prime minister of Israel, green light Israel to bomb Iran and raise the defense budget while cutting taxes and eliminating the deficit. It’s all “attitude”, without a hint at how we could possibly do all these contradictory things at once, or the simplest acknowledgment that two wars and a giant tax cut under George W. Bush has limited our ability to do even half of them.

Let’s look at the world we’re actually living in. It is a world that has become much more interdependent so that our friends failing (like Greece) can now harm us as much as our enemies threatening, and our rivals (China) collapsing can hurt us as much as their rising. It’s a world where a cheap YouTube video made by a superempowered individual can cause us more trouble than the million-dollar propaganda campaign of a superpower competitor. It is a globalized economy in which the U.S. Chamber of Commerce, America’s largest business lobby, has opposed Romney’s pledge to designate China as a currency manipulator and is pressing Congress to lift cold war trade restrictions on Russia, a country Romney has labeled America’s “No. 1 geopolitical foe”. It is a world where, at times, pulling back and focusing on rebuilding our strength at home, is the most meaningful foreign policy initiative we can undertake because when America is at its best, its institutions, schools and values, it can inspire emulation, whereas Russia and China still have to rely on transactions or bullying to get others to follow. It is still a world where the use of force, or the threat of force, against implacable foes (Iran) is required, but a world where a nudge at the right time and place can also be effective. Add it all up and it’s a world in which America will have greater responsibility (because our European and Japanese allies are now economically enfeebled) and fewer resources (because we have to cut the defense budget) to manage a more complex set of actors (because so many of the states we have to deal with now are new democracies with power emanating from their people not just one man, like Egypt, or failing states like Pakistan) where our leverage on other major powers is limited (because Russia’s massive oil and gas income gives it great independence and any war we’d want to fight in Asia we’d have to borrow the money from China).

This complexity doesn’t argue for isolationism. It argues for using our power judiciously and in a nuanced fashion. For instance, if you had listened to Mitt Romney criticizing Obama for weakness after the attack on the U.S. consulate in Benghazi, Libya, you’d have thought that, had Mitt Romney been president, he would have immediately ordered some counterstrike. But, had we done so, it would have aborted what was a much more meaningful response: Libyans themselves taking to streets under banner “Our Revolution Will Not Be Stolen” and storming the headquarters of the Islamist militias who killed the U.S. ambassador. It shows you how much this complexity can surprise you. The one area where Romney could have really challenged Obama on foreign policy was on president’s bad decision to double-down on Afghanistan. But Romney can’t, because the Republican Party wanted to triple down. So we’re having no debate about how to extricate ourselves from our biggest foreign policy mess and a cartoon debate,“I’m tough; he’s not”, about everything else. In that sense, foreign policy is a lot like domestic policy. The morning after the election, we will face huge “cliff”: how to deal with Afghanistan, Iran and Syria, without guidance from candidates or a mandate from voters. Voters will have to go with their gut about which guy has the best gut feel for navigating this world. Obama has demonstrated that he has something there. Romney has not. 


Central banks make an historic turn

When the economic history of the 21st century is written, September 2012 is likely to be recorded as a defining moment, almost as important as September 2008. This month’s historic events, Ben Bernanke’s promise to buy bonds without limit until U.S. returns to something approaching full employment, Angela Merkel’s support for ECB bond purchase plans and the Bank of Japan’s decision to accelerate greatly its easing program, may not seem earth-shattering in the same way as the near-collapse of every major bank in US and Europe. Yet the upheavals now happening in central banking represent a tectonic shift that could transform the economic landscape as dramatically as the financial earthquake four years ago. (source: by Anatole Kaletsky – Reuters – 19/09/2012)

To see why, we must go back in history 40 years, to the early 1970s. Maintaining full employment was at that time regarded as the main objective of all economic policy, and this had been the case for roughly 40 years, since the Great Depression. But by the early 1970s, voters had enjoyed decades of more or less full employment and were starting to focus on inflation rather than depression as main threat to their prosperity. Economists and politicians were responding to this shift. Milton Friedman led a monetarist “counterrevolution” against Keynesian obsession with unemployment, designing new economic models to challenge Keynesian view that market economies were naturally prone to long-term stagnation. By restoring the pre-Keynesian assumption that market economies were automatically self-stabilizing, monetarist models produced two powerful policy prescriptions directly opposed to the Keynesian views.

First, the monetarists insisted that price stability, rather than full employment, was the only legitimate target for monetary policy and government macroeconomic management more generally. Second, they argued that central bankers should not accept any direct responsibility for unemployment, since sustainable job creation depended solely on private enterprise, full employment would be achieved automatically if inflation were conquered, market forces, were allowed to operate freely, with minimum of government interference or union constraints. Few years later, Thatcher and Reagan turned Friedman’s intellectual revolution into practical politics. On top of its economic impact, monetarism had huge ideological effects by absolving the government macroeconomic management of any direct responsibility for the jobs, and instead attributing unemployment to regulations, unions, welfare policies, other market distortions. The historic significance of this month’s central bank decisions should now be clear. The Fed has promised to keep printing money until full employment is restored, and it has committed itself to even bolder measures if those announced last week prove inadequate. The ECB has undertaken to “do whatever it takes” to preserve euro and specifically to buy Spanish and Italian government bonds with newly created euros in unlimited amounts. In making these announcements, the Fed and the ECB were not just demoting their previously inviolable inflation targets to near-irrelevance. They were breaking intellectual and political taboos had dominated central banking for 4 decades. This iconoclasm has prompted extreme reaction from the one remaining bastion of traditional monetarism in central banking, Germany’s Bundesbank. On Tuesday, the Bundesbank’s president, Jens Weidmann, described new central banking quite literally as work of the devil; Mephistopheles, he recalled, had used just such policies to create chaos and hyperinflation in Goethe’s Faust. And indeed, attempts to use monetary policy to restore full employment will need to overcome 2 main objections presented by monetarist theory and repeated this week by Bundesbank. Will printing more money produce intolerable inflation? What happens if businesses fail to respond to monetary expansion by creating more jobs, won’t lead to ever more desperate and risky efforts to artificially stimulate employment?

Most of the admonitions against using monetary policies to achieve full employment focus on the risk of unleashing inflation. On this score, the Fed and the ECB have a very credible response, offered most recently from Bernanke and Draghi last week: As long as unemployment and industrial excess capacity remain anywhere near present levels, generalized inflation is unlikely. Even if some commodities, such as oil or food, experience inflation, this will be offset by others goods and services whose prices fall. The more insidious danger is that the Fed will simply fail in its efforts to stimulate job creation and accelerate economic growth. Disappointment was, after all, the outcome of the last two rounds of QE. So why should this one be any different, even if Fed keeps increasing the amount of new money printed? This is the troubling question that Ben Bernanke has so far failed to answer or even seriously confront. It may turn out that just injecting money into banks and bond funds is not sufficient, regardless of amounts. A genuine economic stimulus may require newly created money to be distributed directly to businesses or households as suggested here in the past. Imagine, for example, the extra $40 billion the Fed will pump every month into bond market were spent instead on a $130 monthly payment to every U.S. citizen, repeated until the economy returned to full employment. With taboo against central banks accepting responsibility for unemployment now completely broken, such truly radical monetary policies may just be a matter of time.

China: el dragón quiere comer menos

(…..) Marta Bekerman, directora Cenes, destacó que China muestra cambios estructurales en períodos muy cortos y citó como ejemplo que en sólo 10 años se convirtió en uno de los principales socios comerciales para la mayoría de países de la región. Concentración parece ser la palabra clave. Durante el seminario “La expansión económica de China y Asia Pacífico. Desafíos productivos y comerciales para la Argentina y el Mercosur”, organizado por el Cenes, Facultad Ciencias Económicas UBA y Fundación Friedrich Ebert, Bekerman explicó de qué se trata; Concentración 1: El 80% de las exportaciones y el 60% de las importaciones chinas hacia la región se concreta con 4 países: Argentina, Brasil, Chile y México; Concentración 2: Sólo 2 productos representan el 79% de ventas argentinas a China, el 68% de las brasileñas y el 80% de las chilenas; Concentración 3: Lo que la región compra a China también está concentrado. Insumos industriales elaborados, bienes de capital, artículos consumo. El último punto, además, tiene como efecto desplazamiento terceros mercados en favor de China. Socios tradicionales UE y EEUU perdieron participación, pero también se produjo una “desregionalización” de compras: Brasil y la Argentina vieron cómo en el mercado de su socio productos chinos reemplazaron a los suyos. En el estudio del Cenes, se muestra que más allá del desplazamiento de Brasil como proveedor de ciertos artículos de consumo y bienes de capital a la Argentina, la presencia China alteró hasta los cultivos en el país. “El exceso de demanda de oleaginosas y aceites generado por China aumentó marcadamente la rentabilidad de estos cultivos, lo que llevó a la Argentina a una fuerte sustitución del área sembrada de trigo por soja. Lo que trajo aparejado fuerte aumento de las exportaciones de granos de soja a China junto a una caída de exportaciones de trigo a Brasil”. “El panorama muestra un comercio de tipo interindustrial que lejos de desarrollar una diversificación productiva en países latinoamericanos impulsa hacia la primarización”, dijo Bekerman. ¿Se puede hacer algo para modificar esa relación? El embajador de Brasil en la Argentina, Enio Cordeiro, admite que China se convirtió para muchos países, especialmente Brasil, en elemento anticíclico. “Es un importante proveedor de inversiones para países emergentes, pero centradas en el sector primario y de commodities, esto contribuye a la reprimarización de la economía. Mi percepción es que aún no tenemos una estrategia común (región) ni coordinación política y que los beneficios que tenemos por esta relación son absorbidos casi como una sorpresa”. El diplomático cree, “el gran problema hoy, tanto para Brasil como la Argentina, es la reprimarización de exportaciones, mientras que 70% de importaciones chinas son industriales y tecnología. Es posible revertirlo, pero para eso hay que superar las dificultades que implica entrar al mercado chino, a lo que se suma la red de protección del mercado asiático que representan los más de 200 acuerdos que tienen. Las estrategias defensivas son necesarias, pero no son la única receta”. Enio Cordeiro concluyó con un mea culpa. “La clave de nuestras economías es cómo reducir costos producción industrial. Brasil y Argentina sólo venden productos industriales en propios mercados y en el del vecino gracias al Mercosur, sino, ni siquiera sería así. El problema central no es China sino Mercosur. Tenemos muchos deberes para hacer. Parece haber agotamiento del modelo industrial actual. No se pueden transferir indefinidamente costos de producción al consumidor final. De lo contrario pasará lo que pasa en Brasil: empresas que producían, hoy importan. No todo es culpa de China. Tenemos mucho por hacer, está comprendido, lo que falta es decisión política” (…..)


Does Peer Steinbrück Have the Stuff to Be Chancellor?

The Social Democrats have finally ended the suspense, choosing former Finance Minister Peer Steinbrück as their candidate to unseat Merkel in next year’s general elections. Though widely credited with helping lead Germany through financial crisis, he can be abrasive. Does he stand a chance? “Are you really going to buy a DVD player because it now costs £39.10 instead of £39.90?” then-German Finance Minister Peer Steinbrück wanted to know in a December 2008 interview with Newsweek. “All this will do is raise Britain’s debt to a level that will take a whole generation to work off.” The comment was made just weeks after the global financial crisis began ravaging world economy in the wake of Lehman Brothers bankruptcy in fall of 2008. And it was a signature moment for the often brash Steinbrück. Now, with German general elections just year away (2013), he is aiming even higher. On Friday, Sigmar Gabriel, the head of Germany’s Social Democratic Party, announced that he will propose Steinbrück as party’s candidate to unseat Chancellor Angela Merkel, a woman whom he was instrumental in helping become one of the few significant world leaders not to lose their jobs in the wake of the financial crisis. “I accept this challenge,” Steinbrück told reporters during a press conference at SPD headquarters in Berlin on Friday. “We want to replace the current government. Our goal is a coalition government with Green Party”. The choice of Steinbrück, analysts say, is a good one. For months, SPD had been refraining from announcing which of a trio of leaders would ultimately take the reins. Lately, though, it had become increasingly apparent that SPD leader Gabriel lacked popularity among German voters, and parliamentary floor leader Frank-Walter Steinmeier was lukewarm at prospect of a renewed candidacy after having led the party to its worst-ever postwar result in 2009 general elections. Steinbrück, though, is widely credited with having shown a steady hand during the darkest moments of the crisis in 2008 and 2009. And he has also given every indication recently that he is up for challenge. “Steinbrück is most dangerous candidate for Merkel because he is attractive to centrist voters,” political analyst G. Neugebauer told Reuters on Friday. Gerd Langguth, another well-respected commentator on German politics, added: “He would be the most capable of poaching voters from the conservative camp.” The 65-year-old is also something of a known quantity overseas. In the initial months of the crisis, Steinbrück was never far away from the headlines, and didn’t mince words. “The US will lose its status as the superpower of the world financial system. The world will become multi-polar,” Steinbrück said in one much-cited comment made before Bundestag, Germany’s parliament, September 2008. He coined the phrase “crass-Keynesianism” as part of his critique of massive spending packages aimed at softening the effects of the crisis. “When I ask about the origins of the crisis, economists I respect tell me it is the credit-financed growth of recent years and decades,” he said in the Newsweek interview. “Isn’t this the same mistake everyone is suddenly making again under all public pressure? It’s the yearning for the Great Rescue Plan. It doesn’t exist. It doesn’t exist” (…..)


Quiero hablarles del futuro

(…..) Quiero hablarles del futuro y de cambios que ya son una verdad en mi país. Sabemos que el actual Gobierno mantiene una relación con los países europeos basada exclusivamente en criterios ideológicos- políticos, en lugar de hacerlo a partir de intereses de venezolanos y soluciones a sus problemas. La transgresión de principios clave, como la autonomía de los poderes públicos, constante violación de derechos humanos han despertado una frecuente preocupación de instituciones como el Parlamento Europeo, que ha hecho exhortaciones al actual Gobierno para que cumpla con la Constitución y las leyes. Ustedes, lectores, en estas mismas páginas han tenido noticias de estas referencias y han visto cómo el reconocimiento que antes tenía Europa por la democracia venezolana se ha desvanecido. El proyecto que encabezo hará que Venezuela tenga un sistema democrático sólido y contemporáneo, que sea una demostración de las nuevas maneras de hacer política que precisan estos tiempos para que en el mundo entero la noticia sea el éxito de los venezolanos y no una voz que se habla a sí misma, anacrónica y adicta al poder. En mi Gobierno, Venezuela será un referente reconocido por la protección a los derechos humanos y el respeto a los acuerdos internacionales y no solo por sus riquezas materiales y sus escándalos de autoritarismo. La Unión Europea y sus 27 Estados miembros siguen siendo para Venezuela una oportunidad para el intercambio comercial, destino posible para nuestras exportaciones y una excelente fuente de inversiones, en especial en las áreas donde países como España tienen experiencia y éxitos comprobados. Pienso ahora en turismo y en políticas culturales, dos espacios con mucha potencia en Venezuela y donde tenemos pensado activar el talento nacional y el desarrollo de nuestras capacidades para llevarle progreso a cada lugar de nuestro mapa. Después de nuestra victoria el 7/10, cuando los venezolanos demuestren cómo la esperanza es capaz de vencer al miedo, los venezolanos serán la prioridad de nuestro Gobierno. Son muchas las materias pendientes que Venezuela tiene con relación a la política internacional, la diplomacia y el intercambio económico y cultural con el resto del planeta. El Gobierno actual ha perdido demasiado tiempo subrayando quiénes son sus políticos amigos y quiénes no, dejando a un lado lo que yo considero que es el buen uso del poder: la oportunidad de servir a los venezolanos que han decidido confiar en nosotros, en especial a quienes más nos necesitan. La cooperación entre Venezuela y España, al igual que con todos los países UE, será conducida por este nuevo camino: la posibilidad de compartir experiencias, iniciativas y conocimientos que hagan posible mejorar la calidad de vida de los venezolanos como prioridad y la de los ciudadanos de los países a quienes Venezuela pueda ayudar. Fue el voto de los venezolanos lo que me puso a la cabeza de un equipo formado por personas, instituciones, partidos que tienen distintas maneras de pensar y plantearse las cosas pero un asunto común lo suficientemente grande como para cohesionarnos: progreso para todos por igual. Esta unión es una muestra de que podemos trabajar sin exclusión y poniendo a los venezolanos por encima de cualquier tipo de interés. Llegaremos juntos a las soluciones que nos unen para cambiar la manera de hacer política siendo transparentes e incluyentes (…..)


Préstamos de China mejoran su acceso a país de la OPEP luego de impago ecuatoriano

La incapacidad de Ecuador de tomar crédito en mercados internacionales luego de el impago de 2008 lleva al país a acercarse a China conforme el mayor consumidor del mundo de materias primas otorga préstamos a cambio de acceso: al petróleo y metales. Ecuador, que cuenta con reservas no explotadas de cobre similares a las de Chile y Perú, los mayores productores del mundo, ha firmado préstamos chinos por valor de US$7.300 millones desde 2009, alrededor de la tercera parte del presupuesto anual del país andino, según los datos que recopiló Bloomberg sobre la base de anuncios gubernamentales. Rafael Correa, pide a China US$1.700 millones más para reforzar el gasto público antes de las elecciones de febrero, con lo que sigue los pasos de su aliado, Hugo Chávez. China otorga préstamos a Ecuador, que tiene las terceras mayores reservas de petróleo de América del Sur, a cambio de materias primas que necesita para alimentar crecimiento económico. El dinero le permitió a Rafael Correa, que tiene 49 años, aumentar un 9% el gasto público este año. “Han obtenido acceso a otra fuente de financiamiento externo”, dijo por teléfono el 14 de septiembre Sarah Glendon, analista en NYC de Moody’s Investors Service. “Que pudieran recurrir a China sin duda ha sido positivo”. Con programas similares a los que ha instrumentado Chávez, ha utilizado préstamos chinos para reconstruir deteriorada infraestructura de energía del país y expandir su sistema de autopistas. El ex profesor de economía, que presidió el impago de Ecuador de US$3.200 millones en 2008 y 2009, también ha concedido a compañías estatales chinas contratos gubernamentales y concesiones mineras y petroleras. Ecuador firmó en marzo primer gran contrato minero con división cuprífera de la compañía estatal China Railway Construction Corp. y Tongling Nonferrous Metals Group Holdings Co., segunda mayor productora de cobre de China. Cinco meses después, China Petroleum Chemical Corp. acordó la compra de parte operaciones petroleras Repsol SA en Ecuador, que es miembro de la Organización de Países Exportadores de Petróleo. La financiación china ha contribuido al mejoramiento de la calificación crediticia de Ecuador, según Moody’s. El 13 de septiembre, la compañía, que tiene sede en Nueva York, aumentó un nivel la calificación crediticia soberana de Ecuador, a Caa1, siete niveles por debajo del grado de inversión, sobre la base de un crecimiento económico que promedió 4,2% en últimos 5 años. El rendimiento de los bonos ecuatorianos en dólares de referencia con vencimiento en 2015 han declinado 90 puntos básicos este año, a 8,38%, según datos que recopiló Bloomberg, mientras que los bonos venezolanos en dólares de similar vencimiento cayeron 388 p.b. Si bien préstamos de China implican condiciones, el país tiene pocas alternativas, dice Vicente Albornoz, decano de la facultad de administración de las Universidad de las Américas en Quito. “Sólo China le presta a Ecuador”. “Si recurriéramos a los mercados internacionales, las tasas serían aun más altas”. (Fuente: La Tercera /Bloomberg News – 27/09/2012) 

Europe’s Austerity Madness

So much for complacency. Just a few days ago, conventional wisdom was that Europe finally had things under control. European Central Bank, by promising to buy bonds of troubled governments if necessary, had soothed markets. All that the debtor nations had to do, story went, was agree to more and deeper austerity, the condition for central bank loans, and all would be well. But the purveyors of conventional wisdom forgot that people were involved. Suddenly, Spain and Greece are being racked by strikes and huge demonstrations. The public in these countries is, in effect, saying that it has reached its limit: With unemployment at Great Depression levels and with an erstwhile middle-class workers reduced to picking through garbage in search of food, austerity has already gone too far. And this means that there may not be a deal after all. (source: Paul Krugman – NYTimes – 28/09/2012)

Much commentary suggests that the citizens of Spain and Greece are just delaying the inevitable, protesting against sacrifices that must, in fact, be made. But the truth is that the protesters are right. More austerity serves no useful purpose; the truly irrational players here are “the allegedly serious” politicians and officials demanding ever more pain. Consider Spain’s woes. What is the real economic problem? Basically, Spain is suffering a hangover from a huge housing bubble, which caused both an economic boom and a period of inflation that left Spanish industry uncompetitive with the rest of Europe. When the “huge” bubble burst, Spain was left with difficult problem of regaining competitiveness, a painful process that will take years. Unless Spain leaves the euro, a step nobody wants to take, it is condemned to years of high unemployment. But this arguably inevitable suffering is being greatly magnified by harsh spending cuts; and these spending cuts are a case of inflicting pain for the sake of inflicting pain. First of all, Spain didn’t get into trouble because its government was profligate. On the contrary, on the eve of the crisis, Spain actually had a budget surplus and low debt. Large deficits emerged when economy tanked, taking revenues with it, but, even so, Spain doesn’t appear to have all that high a debt burden. It’s true Spain is now having trouble borrowing to finance its deficits. That trouble is, however, mainly because of fears about the nation’s broader difficulties, not least fear of political turmoil in face of very high unemployment. And shaving a few points off the budget deficit won’t resolve those fears. In fact, research by the International Monetary Fund suggests spending cuts in deeply depressed economies may actually reduce investor confidence because they accelerate the pace of economic decline. In other words, the straight economics of the situation suggests Spain doesn’t need more austerity. It shouldn’t throw a party, and, in fact, it probably has no alternative (short of euro exit) to a protracted period of hard times. But savage cuts to essential public services, to aid to needy, and so on actually hurt country’s prospects for successful adjustment.

Why, then, are there demands for ever more pain? Part of the explanation is that in Europe, as in America, far too many “Very Serious People” have been taken in by the cult of austerity, by the belief that budget deficits, not mass unemployment, are clear and present danger, and that deficit reduction will somehow solve a problem brought on by private sector excess. Beyond that, a significant part of public opinion in Europe’s core, above all, in Germany, is deeply committed to a false view of the situation. Talk to German officials and they will portray euro crisis as a morality play, a tale of countries that lived high and now face the inevitable reckoning. Never mind the fact that this isn’t at all what happened and the equally inconvenient fact that German banks played a large role in inflating Spain’s housing bubble. Sin and its consequences is their story, and they’re sticking to it. Worse yet, this is what many German voters believe, largely because it’s what politicians have told them. And fear of a backlash from voters who believe, wrongly, that they’re being put on the hook for the consequences of southern European irresponsibility leaves German politicians unwilling to approve essential emergency lending to Spain and other troubled nations unless borrowers are punished first. Of course, that’s not the way these demands are portrayed. But that’s what it really comes down to. And it’s long past time to put an end to this cruel nonsense. If Germany really wants to “save” the euro, it should let the ECB do what’s necessary to rescue debtor nations and it should do so without demanding more pointless pain.