New York State legislators
had a growing incentive to pass the state’s budget, albeit four months
past the official deadline; for as long as it wasn’t passed, they
weren’t getting paid.
The xenophobia directed
at BP after the Gulf of Mexico oil spill ignores the fact that six of
its directors are American & almost 40% of its shares are
owned by American interests.
Wheat prices in the past
couple of months have skyrocketed at the fastest pace in decades on
news of a lower USDA output forecast, by large rain-driven acreage reductions
in Canada’s largest grain-producing province, Saskatchewan, &
drought conditions in China & Russia (where they are now threatening
the start of planting the winter wheat that makes up two-thirds of its
wheat production). And they may be driven still higher by the floods
in Pakistan’s ‘bread basket’ region - while rainfall there averages
212 millimetres in July, the monsoons dumped 312 millimetres of it in
a one day! This is good news for Western Canadian farmers except for
the many in Saskatchewan who won’t have any to sell.
After 64 consecutive
quarters of sales increases & record sales in the previous four
quarters, Toronto’s Second Quarter condo sales slumped by 8%, to 4,991
units.
Damage control by Calgary-based
Enbridge after its oil pipeline spill in Michigan seems more adroit
than BP’s in the Gulf of Mexico (although admittedly it is on
vastly smaller). A sample thereof was by its latest move, an offer to
buy out any or all home owners along the rivers polluted by the oil
(although this was facilitated by house prices in Michigan being so
depressed, & the employment outlook so lousy, that many home owners
may jump at any reasonable cash offer & by the fact that Enbridge’s
real downside financial risk may be limited if house prices were to
recover even moderately). But take note : the pipeline was laid
down 41 years ago, while the useful life of the pipe used is deemed
to be only 30 years, and a significant number of pipelines crisscrossing
the North American continent are of a similar, if not earlier, vintage.
GLEANINGS VERSION
II
No. 372 - August
5th, 2010
CONSERVATISM HAS
LOST ITS WAY (LAT, David Klinghoffer)
· While once its
iconic figures were urbane visionaries William F. Buckley Jr, Irving
Kristol & Father Richard John Neuhaus, all now deceased. But today’s
more representative figure is potty-mouthed Internet entrepreneur Andrew
Breitbart who has a following of millions & whose most recent triumph
was to push the USDA into firing one of its officials with a deceptively
edited video clip of her supposedly endorsing racism against white people,
a move for which the Secretary himself later had to publicly apologize.
What about
Sarah Palin & the Tea Party crowd?
BIGGER CUSHIONS
DON’T CURTAIL LOANS (WSJ, David Enrich)
· Seeking to dilute
proposed new rules, that the Basel-based Bank for International Settlements
(BIS) is preparing for consideration at the November G-20 meeting in
South Korea (that would make banks hold more capital & ‘liquid
funds’ to cut the risk of another banking crisis), the industry has
argued this would curtail its ability to lend & jeopardize economic
growth; for so the argument goes, if they had to raise more capital,
its cost would rise & so would the interest it would have to charge
its customers [with a study by the Washington-based IIF (Institute for
International Finance) concluding “Higher lending rates reduce bank
credit, and, thus the aggregate supply of credit to the economy ...
This, in turn, lowers GDP and employment” & saying it would knock
3% of the collective GDP of the US, EU & Japan by 2015].
· Now three separate
recent studies have cast doubt on this banking industry shibboleth.
One by three researchers at Harvard & the University of Chicago
found that going back to 1840, a “surprising, even paradoxical”
phenomenon had emerged : the absence of a statistical correlation between
higher capital buffers & pricier loans.
This was perhaps due
to the bank absorbing the higher cost of capital. But this is anathemous
to today’s bankers who must deliver, & feel entitled to, ever-rising
profits.
FORECLOSURES PUSH
U.S. (HOME) OWNERSHIP RATE DOWN (G&M, K. M. Howley)
· Vacant residential
properties in the Second Quarter numbered 18.9MM, vs. 18.6 MM a year
earlier, the number of householder-owned homes, at 66.9%, was down from
67.1% in the First Quarter, a post-1990 low, foreclosures ran at a 1+MM
annualized rate.
Home ownership rate
peaked at 69.2 % in the Second & Fourth Quarter of 2004.
WHAT’S JAPANESE
FOR ‘MANY YEARS OF NOT MUCH? (G&M, Eric Atkins)
· James Bullard,
President of the Reserve Bank of St. Louis, believes the US is closer
to a Japanese-style outcome today than at any other time in recent history.
In all likelihood
its probability is closer to 0% than to 100%. But, whatever it is, the
longer Washington keeps dodging the fiscal situation, the more it is
that it will rise.
GM, FORD TRAIL
ESTIMATES (EJ, Business Browser)
· US sales in July
trailed estimates as economic concerns spooked buyers; in GM’s case,
after adjusting for the number of selling days, they were up 1½%, vs
an expected 10%.
And this was from
a level that was nothing to write home about in the first place.
OIL SANDS MISHAPS
GO UNPUNISHED (EJ, Richard Warnica)
· Kevin Timoney,
a Ph.D. in ecology, on July 30th published a list of 6,600
“routine disclosures” gleaned from, often heavily censured, government
documents obtained under the Freedom of Information Act about environmental
infractions by oil sands operators over 13 years that showed no sign
of the government ever having taken any action. As he puts it, “The
main thing Alberta Environment was doing was recording these incidents
... These companies were producing large amounts of pollutants and we
could find no evidence of enforcement.” But the Department claims
most of his information was taken “out of context ...We have a huge
amount of information to go through ... We are in the process of becoming
more transparent. It just takes more time ... There’s different levels
of allegations and complaints and whatnot, and not every one ... warrants
regulatory action.”
The Department’s
response is vintage evasive bureaucratic bafflegab. Earlier this year
one of its senior officials had to
publicly apologize to Timoney for having accused
him at a scientific conference of withholding date from a study examining
mercury levels in fish in the Athabasca River (a
key source of water for oil sands operators - it
uses three barrels of water, or more,
to produce one of bitumen - & the depository of
some of their effluent). But it is
no secret the government operates on the premise the industry, &
especially the oil sands operators,
can do no wrong & must have what it wants (unless it is forced into
action by international outrage, as it was by the death of some 1,600
ducks on a oil slicked tailings pond a few years ago.
FIVE DEAD IN LEBANESE
BORDER BATTLE OVER TREES (DT)
· The August
3rd clash along their volatile frontier which involved infantry
on the Lebanese side and Israeli tanks & a helicopter gunship on
the other, was prompted by trees, after IDF soldiers sought to trim
branches of trees along the border fence on the grounds they supposedly
interfered with its electronic anti-infiltration devices, while Lebanon
claimed they were on their side of the border. Israel has grown more
& more fretful over its Northern border in the belief that Hezbollah
has received tens of thousands of rockets from Iran & Syria. Afterwards
the Israeli Foreign Ministry warned “Israel views the government
of Lebanon as responsible for this grave event, and ... of possible
consequences if these violations continue”, while the head of
the IDF’s Northern Command, Maj.-Gen. Gadi Eisenkot, said “I believe
this is a one-time event ... we received requests from the highest ranks
in the Lebanese Army to cease fire.”
The Foreign Ministry
all but invites extremists in Lebanon to do something stupid
hoping Israel will, as it is wont to do, overreact & do something
even more stupid, thereby hampering
the peace process, eroding Israel’s fount of global
goodwill & furthering the Islamist cause.
CHINA DOWNPLAYS
DOUBLE DIP (EJ, Business Browser)
· According to the
People’s Bank of China the slowdown in the economy will stabilize
& be beneficial to the restructuring of the economy &
to sustainable growth.
China’s banking
system poses a medium term risk. In the past five years loans to non-government
entities have more than doubled (which an IMF report called
“unprecedented” & damned with faint praise by noting
“At this point, the banking system looks well placed to withstand
a significant deterioration in credit quality”).
And the risk comes from Beijing having
marketed the idea in the developing world
since the US financial crisis that this proved
its free market economic model is inferior to its state controlled model.
Longer term there is 100% certainty that its one child policy-driven,
rapidly rising ‘aged dependency ratio’ will prove a hindrance
to continuing to achieve double digit growth in the not-too-distant
future, the more so since the absence of a social safety net & the
erosion of the tradition of children providing for their elders, will
encourage saving by those still working. Might there be a parallel developing
in Beijing, albeit for different reasons, of what happened in Moscow
in the 80's when the Soviet Union imploded
& reform got out of hand?
THE (CHINESE) CULTURAL
REVOLUTION (G&M, Mark Mckinnon)
· The builders of
China’s economic miracle have been the tens of millions of labourers
from the countryside, many from the Western outreaches of the country,
who came to the cities in the Eastern part of the country willing
to work long hours & endure hardships to
put food on their families’ tables
back home. Called ‘nong min gong’, farmer workers, they
were expected to go back at some point to where they had come from;
but now their frustration at wages & working conditions is
fueling a wave of labour unrest that may invalidate China’s economic
model & raise prices on store shelves across the world
According to Zuo Xiaosi,
a labour expert at the Guangdong Academy Academy of Social Sciences,
“The new generation migrant workers ... in the cities are treated
... no better than the last generation. This is a big problem ... These
strikes are about pay, but ... also about better treatment.”
And there is evidence that some of the 20MM first generation migrant
workers forced by the economic slowdown to go back home
found their new-found skills were marketable there & have
been replaced by a better educated, more
upwardly mobile-ambitious & savvy generation that
plans to stay permanently to grab the brass ring of the
‘good life’, and these people didn’t come for low pay and poor
working- & living conditions.
LOW-INCOME HOUSING
COMES TO SHANGHAI (G&M, Andy Hoffman)
· Recently 1,187
low-income residents of Shanghai were the first selected to buy a house
they could afford in this city where buying a house is beyond the reach
of most residents, incl. many middle class professionals. They will
be the first of many. For Beijing has allocated 60BN yuan (US$9.07BN)
to build 3MM affordable apartments this year in cities for low income
earners & shanty town residents, and another 2.8MM in rural areas.
Beijing has tried the affordable housing gig before but many of the
units built ended up in the hands of corrupt officials, who quickly
sold them for a profit, or of people who lied about their incomes as
a result of which the Mercedes Benzes & BMWs proliferated in the
neighbourhoods where they were built. So now there are severe restraints
on the buyers. Their monthly household income cannot exceed 2,300 yuan
(US$348) per person. Household savings cannot exceed 70,000 yuan (US$10,600).
Their present accommodation must be < 15 square metres (165 sf) per
person. And owners cannot sell for five years &, when they do, the
government gets 70% of the profit.
This program has two
objectives. To help pick up slack in a construction industry that, due
to their recent price weakening has put the building of high-end homes
on hold, but that employs 250MM workers & is a major
factor in GDP growth. And to reduce the risk of social unrest
among the hundreds of thousands of workers flocking to the cities &
among rural residents.
THE HUGE SCALE
OF PAKISTAN’S COMPLICITY (G&M, Chris Alexander)
· The really useful
aspect of Wikileaks’ revelations is how it documented that the Pakistan
Army is the main driver of the Afghan conflict through Afghan proxies
in strongholds in Baluchistan & Waziristan (that are flourishing
& largely off-limits to the Army).
The idea is to keep Pashtun nationalism down, Karzai weak & India
out. The Army’s Chief of Staff, General Ashfaq Kayani said as much
when he told a Washington audience he was committed to “strategic
depth” : an Afghanistan that is a Pakistani vassal, free of
Indian or other outside influence, as it had been from 1992 to 2001
under the Taliban.
· Afghanistan is
doing OK. Its economy is growing at high double digit rates, inflation
is non-existent, rising farm output is replacing costly food imports,
government revenues are up 60% over 18 months, schools, clinics &
new rural infrastructure make life better for the hoi polloi &,
despite some thickets of corruption, some ministries combine integrity
with delivery.
The writer is not
without bias : he was Canada’s Ambassador to Afghanistan in 2003-2005
& then, for four years the UN Secretary-General’s Deputy Special
Representative for Afghanistan. Still it is useful to hear a view other
than the common wisdom in the media (that knows that
bad news sells newspapers & seeks to take advantage of the Western
grass roots’ ennui with a long & drawn-out affair
incompatible with an instant gratification mindset).
NATO LOSING WAR
: PAKISTAN PRESIDENT (Bloomberg, Gregory Viscusi)
· After meeting
with President Sarkozy, & before going to Britain to meet Prime
Minister Cameron, which he hopes will restore “a bit of calm” after
the latter said on July 28th
in India, Pakistan cannot be allowed to “look both ways ... in the
fight against terrorism”), he told Le Monde on August 3rd
“The international community, of which Pakistan is a part, is losing
the war against the Taliban because we have lost the battle for hearts
and minds ... Military reinforcements are only part of the response
... To win the support of the Afghan population, you must bring economic
development and prove you cannot only change their lives, but improve
them ... the game is lost once you think there is a rapid solution.
The action of the international community must be based on the long
term. The success of the insurgents is knowing how to wait” (while
also opining the Taliban “don’t have any chance of retaking power.”)
But White House spokesman Robert Gibbs told the press “I don’t think
the president would agree ... the actions and the efforts that ... the
international forces and American forces have taken over the last several
months have very much the hearts and minds of the Afghan people at the
forefront.”
Given the
“strategic depth” objective, President Zardari was talking
“his own book” (even though his observations were
‘on the mark’). Saying the Taliban won’t have
“any chance of retaking power” sought to fuel the growing disillusionment
in the US & elsewhere with the war effort
so as undermine the ISAF coalition’s continued presence, thereby giving
Pakistan a freer hand to further this objective.
But the Taliban recent activities seem
inconsistent with ‘the war is lost mantra’; for it failed to stage
an attack on the recent conference in Kabul attended by senior representatives
from 68 nations, the August 3rd ground attack
on Kandahar airfield, home to 20,000 ISAF personnel, was called
“amateurish” by airfield commander Gordon Moulds of the RAF compared
to the May 22nd attack : all ten or so attackers
died, incl. the suicide bomber who blew himself up to breach the perimeter
fence, while the only damage was “$70 dollars worth of fence.” And
it recently told its fighters to avoid
killing civilians & forbade them to seize weapons or money.
So the staff-type General Petraeus may
well still emerge from all this smelling like rose
due to a strategy conceived & promoted by the politically inept
‘boondock soldier’-type Gen. McChrystal.
POLITICAL &
ETHIC STRIFE KILLS AT LEAST 45 IN KARACHI (AP, Ashraf Khan)
· This city of 16MM
is Pakistan’s commercial hub & a key to the flow of supplies to
ISAF in Afghanistan. It has long been run by the Muttahida Qaumi Movement
(MQM) whose core support is among the descendants of the Urdu-speaking
people that fled India after its independence in 1947. Its main rival
is the nationalist Awami National Party of mostly ethnic Pashtun from
the Northwest where the Taliban is based. But in recent years there
has been an inflow of Pashtun fleeing the Pakistani Army’s offensives
against the Taliban, prompting the MQM to warn of a “Talibanization”
of the city. On August 4th, a senior member of the MQM, Raza
Haider, was assassinated, the latest party activist slain in the past
month, and within hours buildings were being torched & gun fire
erupted in many parts of the city, and some killed execution-style.
The Interior Minister
didn’t help things by being quoted as
saying Islamist extremists were the suspects since Mr. Haider
was on their hit list (giving both sides an excuse to move into action).
TURKEY’S GENERALS
NOW TAKING ORDERS, NOT GIVING THEM (G&M, Susan Sachs)
· For 80 years the
military has been the guarantor of the constitution, enabling the generals
to make or break governments with impunity for since WW II (to the point
their role in society became an obstacle to Turkey’s bid for EU membership).
Displeased with President Erdogan’s Islamic bent, the generals sought
to block his nominee for president in 2007 & then snubbed him by
not showing up for his swearing-in ceremony.
· Now the powers
of NATO’s second-largest military’s powers are being trimmed. Military
appointments to regulatory bodies have been cut back. A civilian now
heads the National Security Council. Civilian judges now try human rights-
& Kurdish activist cases military courts once did. A constitutional
amendment to be voted on in a September referendum would reduce the
military’s role in the choice of high court judges. And the clearest
sign of change is the success civilian prosecutors have had indicting
high-ranking officers : 196 military, incl. 100+ generals &
admirals, are to stand trial, accused of involvement in four plots since
2002 to destabilize President Erdogan’s Justice and Development party
government (& many mid-level officers have been detained in other
investigations).
While some observers
welcome this as a prerequisite to EU membership & to enable it to
play a key role as a bridge between the Western & Muslim worlds,
President Erdogan’s foreign policy has all but turned its back on
the EU (& the military thing was a bit of an excuse anyway) &
towards the Arab world, and an openly Islamist regime may not make
the best bridge with the Muslim world. While
all this has reduced the army’s “hard power”, its
“soft power” remains : people still trust the army as an institution
& many people are frightened by the prospect of a civilian-controlled
army & of a once secular & anti-Islamist judiciary becoming
politicized.
GREEKS FEEL HEADACHE
OF ‘SOBERING UP’ (G&M, Doug Saunders)
· Small shop keepers,
taxis drivers & other traditionally cash-only business owners must
now give receipts, or risk a 200 Euro if tax inspectors catch them,
as part of the government’s effort to cut the size of the underground
economy that accounts for 25% of its GDP. Once secure do-nothing
government jobs are now tenuous. People lose jobs & & homes
are lost. The new reality means saving & paying for things rather
than using cheap & endless credit and having to declare all forms
of income, a universal retirement age of 65, rather 50 as was the rule
in some fields, & lower retirement benefits. And for many merchants,
the 23% VAT is hugely painful since they never paid any before. One
hairdresser says she may as well go to Toronto & an electrician
got a notice from the government demanding he pay three years’ of
health care premiums totalling 10,000 Euros that he had never paid because
no one had asked him to. But outside the state-dominated economy there
is jubilation among many returnees from abroad who had left because
they couldn’t compete with a government with seemingly endless resources.
Ireland quickly ceased
to be newsworthy because its government acted early & brutally to
restore a measure of confidence. But Greece is really the canary in
the gold mine, if only because its
government is only one of many government that went
‘one bridge too far’.