Thursday, July 31, 2008
Michael Vick and Mike Tyson both had it.So did Marion Jones and Latrell Sprewell. In fact, so do roughly two in every three NBA players, according to a recently published Toronto Star article that assures that some 60 percent of them are guaranteed to be destitute within five years of retiring.
With that, it becomes clear that the same indomitable spirit most athletes take to the field with themisthe same mindset they carry into their everyday existence.
But in the real world, such 'a-world-is-mine' mentality doesn't translate quite the same.
The one on arms exports is a nasty reminder that the world spends billions on a horrible wasteful item. And, "JUST five countries supplied 80% of global arms exports between 2003 and 2007". Of course, the US leads the pack :-(
The latest issue of the New Yorker has wonderful content--I think the editor made it up for the remarkably awful cover on Obama. The essay on California's marijuana industry, in a legal grey area, provided details I would never have imagined. The short story by Ruth Jhabvala is exactly what I would expect from her--a slowly unfolding narration about regular folk with their own quirks. The memoir essay by Charles Van Doren, of the notorious $64,000 quiz show, is a good read.
Wednesday, July 30, 2008
I think, if at all, it is only the left that is beginning to make noise about this (not that I always agree with them). A group of ultra-lefties have signed an open letter to Obama, perhaps worried about his slow drift towards the political center. But, better yet is Katha Pollit's piece, on the bizarre response from McCain on viagra v. contraception pills:
There's the basic unfairness of not covering these essential, even life-saving drugs and devices, so fundamental to women's health and well-being, and the added insult of denying coverage while men are lavished with cut-rate erections. And there's the craven submission to religious extremists that moves the politics of that denial. It's a pocket-book issue, too: A year's worth of contraception can cost a woman $600. That's a lot of money. Is it too much to expect the next president of the United States to understand that? Now that every politican in America prides himself on knowing the price of a gallon of milk and talks like he's just finished doing the week's shopping for a family of ten?
From the (moderate) left, Daniel Gross:
Naturally, many urban-dwelling, car-hating socialists (as well as suburban-dwelling, Jeep-driving moderates like me) believe this is precisely the time to put more government funds—not less—into alternate modes of transportation: natural-gas powered buses, bicycle-sharing programs, trains, light-rail systems, subways, ferries, and rickshaws. The notion that the government should invest more in mass-transit infrastructure has always raised conservative hackles.
From the right, Peter Gordon:
Robert Reich is a public intellectual, interviewed in today's NY Times by Deborah Solomon. Among his responses is this: "... public transit has been the poor child of infrastructure spending in America."This is beyond silly and easy to check. The quickest check is at Demographia, where Reich and others can find that in 2006 road and highway subsidies per passenger mile were $0.010 while transit subsidies per passenger-mile were $0.686. These are averages. At the margin, we build rail transit that gets much bigger subsidies.Outsized and ineffectual transit subsidies have been in effect for over 40 years. Most politicians and reporters don't care and neither do many public intellectuals.
Not that I have read all the Booker Prize winners over the years. But, really, nothing to beat Rushdie's Midnight's Children for the grand prize? I remember reading Midnight's Children when I was an undergrad, back in India. I liked it a lot. But, I still remember thinking that it could not measure up to Crime and Punishment and David Copperfield, which also I read at about the same time. Of course, these are all different genres, and written in different time periods. But, Midnight's Children did not have that intellectual and emotional depth into understanding humanity that the other two had. After all, isn't literature to help us understand humanity?
Tuesday, July 29, 2008
The fertility tourists
The ads are brazen: 'healthy young women - superovulated exclusively for you!'. The fees are half those of UK clinics ('flights and hotel included!'). And the industry is unregulated, leaving doctors free of legal and ethical constraints. No wonder more and more Europeans are going to India for fertility treatment.
Read more at The Guardian
I wondered then when retail gas prices will come down, given that oil prices have retreated from the $140 levels, down to $125. Turns out that I did not have to wonder for long; here is the explanation from slate.com:
Oil prices have dropped to about $125 a barrel this week after reaching a peak of $147.27 earlier this month. Meanwhile, gas prices are still hovering around the $4 mark, down just a few cents from an all-time record average of $4.11 two weeks ago. Why does it seem like gas prices go up faster than they come down?
Because they do. Analyses of gasoline economics show that when the price of oil rises, it takes up to four weeks for gas station prices to catch up, with most of the increase taking place within the first two weeks. But when oil prices sink, it takes up to eight weeks for the savings to be passed along to consumers. The phenomenon is known as "asymmetric price adjustment" (PDF) or, more informally, "rockets and feathers."
A busy gas retailer will take delivery on a daily basis, so there's some pressure to pass along price hikes without too much delay. The stations can't raise prices too much, though, because consumers tend to be extra-vigilant about shopping for bargains when oil prices are on the rise. When the newspapers start reporting upwardly mobile barrel prices, drivers tend to comparison shop down to the penny. This keeps gas prices from rocketing even further.
The asymmetry that economists cite comes into play as soon as oil prices start to deflate. Freed from the constant reminders about rising fuel costs, drivers become less invested in looking for a bargain—and retailers don't have to worry as much about the competition. As a result, station owners can keep drivers happy by knocking just a few cents off the "old" price.
Got a question about today's news? Ask the Explainer.
Explainer thanks Severin Borenstein of the University of California-Berkeley, Matthew Lewis of Ohio State University, Mariano Tappata of the University of British Columbia, and Bart Wilson of Chapman University. Martha C. White is a freelance writer in New York.
Article URL: http://www.slate.com/id/2196273/
Monday, July 28, 2008
Sunday, July 27, 2008
Why this remark? Well, I was reading Krugman's latest column, and came across this sentence there: And as Upton Sinclair pointed out, it’s hard to get a man to understand something when his salary — or, we might add, his campaign war chest — depends on his not understanding it.
I was sure I had seen it somewhere else in his writings. I remembered it only because I spent a few minutes what exatcly Sinclair was meaning, and what the context might have been. Anyway, a Google search later I located Krugman's earlier usage. But, it was not in a column; it was in his blog.
Crazy couple of days. Two explosions in Istanbul kill at least 15, and injures more than 150.
This was after the series of bomb explosions in Ahmedabad that killed at least 45.
It is not some kind of a common ideology that links all these terrorists. There is no point fighting a Global War on Terror; these are not "global" but "local".
In any case, I can't imagine what kind of horrible people these terrorists are to be able to kill so many innocents. Atrocious.
Update: CNN reports that Four female suicide bombers and a gunmen killed at least 68 people and wounded almost 300 others during a string of attacks in central Baghdad and Kirkuk on Monday
Saturday, July 26, 2008
Sharma follows it up with:
According to the report, out of the 1.2 billi on people who defecate in the open worldwide because they have no access to toilets, more than half are Indian. An astounding 667 million people in this country have no option but to defecate in the open, a country that would like people to believe that it is on the cusp of becoming a global economic giant.
Why then does sanitation remain a subject that is accorded a relatively low priority compared to many other needs, including water and energy?
Yes, I owe VS Naipaul an apology for misusing his book title.
Friday, July 25, 2008
Here is that Youtube clip, in his memory:
Thursday, July 24, 2008
Alan Abramowitz, a politics scholar at Emory University, has shown that summer head-to-head polls convey almost no information about the forthcoming election. (Subsequent head-to-head polls are not much better.) Instead, he has a simple “electoral barometer” that weighs together the approval rating of the incumbent president, the economy’s economic growth rate and whether the president’s party has controlled the White House for two terms (the “time for a change” factor). This laughably simple metric has correctly forecast the winner of the popular vote in 14 out of 15 postwar presidential elections.
... The barometer not only picks winners but pretty accurately points to winning margins, too. In 1980, Jimmy Carter had the biggest postwar negative reading (–66); Ronald Reagan beat him by nearly 10 percentage points.
President George W. Bush’s net approval rating (favourable minus unfavourable) is currently –40; the economy grew at a 1 per cent annual rate in the first quarter; and Republicans have had two terms in the White House. Plugging the numbers into Mr Abramowitz’s formula gives the Republican candidate a score of –60, about as bad as it gets: second only to Mr Carter’s in the annals of doomed postwar candidacies. The barometer says Mr Obama is going to waltz to victory.
Wednesday, July 23, 2008
[As] more journal issues came online, few articles were cited, and the ones that were cited tended to be more recent publications. Scholars also seemed to concentrate their citations more on specific journals and articles. "More is available," Evans said, "but less is sampled, and what is sampled is more recent and located in the most prominent journals." ....
Does this phenomenon spell the end of the literature review? Evans doesn't think so, but he does believe that it makes scholars and scientists more likely to come to a consensus and establish a conventional wisdom on a given topic faster. "Online access facilitates a convergence on what science is picked up and built upon in subsequent research." The danger in this, he believes, is that if new productive ideas and theories aren't picked up quickly by the research community, they may fade before their useful impact is evaluated. "It's like new movies. If movies don't get watched the first weekend, they're dropped silently," Evans said.
Great, now some crazy economist will come up with a method equivalent to the box-office numbers for movies. As if the impact factor isn't enough already!
But when the British start complaining, particularly in formal reports, that they can't trust the US leaders, we are in for some serious trouble.
Here is an excerpt from the Guardian's report:
In a damning criticism of US integrity, the House of Commons Foreign Affairs Committee said ministers should no longer take at face value statements from senior politicians, including George Bush, that America does not resort to torture in the light of the CIA admitting it used 'waterboarding'. ....
Today's committee report said there were 'serious implications' of the striking inconsistencies between British ministers continuing to believe the Bush administration when it denies using torture. 'The UK can no longer rely on US assurances that it does not use torture, and we recommend that the government does not rely on such assurances in the future,' said the committee. 'We also recommend that the government should immediately carry out an exhaustive analysis of current US interrogation techniques on the basis of such information as is publicly available or which can be supplied by the US.'
It also urges the government to press the US authorities for information on whether any American military flights landing in the UK were part of the 'rendition circuit', even if they did not have detainees on board at the time.
Additional links on this "old" topic:
a. Should old faculty retire when they are eligible for retirement so that the younger ones waiting for a (tenure-track) job can get one?
b. At what age--80+,90+, 100+--do advanced medical treatments for the old become wasteful expenditures?
As a society, we have no choice but to deal with these difficult questions. Uncomfortable questions, no doubt. But, .....
Which comes first: economic development or liberal democracy?
In recent years, China has been a poster-child for liberal democracy taking a back seat to rapid economic growth and development. China, which is home to almost a fifth of the world’s population, significantly opened up its economy when Deng Xiaoping launched the country on a path that is, thankfully, remarkably different from the one envisioned by Mao Zedong and Zhou Enlai. But, Deng’s approach did not free up the country’s politics though.
South Korea and Singapore too, for instance, did not become affluent and democratic at the same time. These were countries where governments ruled with enormous control over their citizens, with a sharp focus on rapid economic development.
Unlike these examples, very few developing countries, like India, tried to advance economic growth and development within a liberal democratic context. The late Albert Hirschman, who was an eminent social scientist, commented that India’s economic transformation was slow because resources were being invested in building democratic institutions.
Offering a slightly different perspective, and projecting India as “the next Asian miracle”, Yasheng Huang writes in the latest issue of Foreign Policy that “the emerging Indian miracle should debunk—hopefully permanently—the entirely specious notion that democracy is bad for growth.” And, this Business Week essay contends that India will beat China.
Unless India can quickly debunk the “specious notion”, as Huang refers to it, there is a good chance that other developing countries will attempt to mimic what comes across as the only successful path towards rapid economic development—the East Asian, particularly Chinese, model. Of course, this would also then involve sacrificing liberal democracy.
In such a context, Nepal will be an interesting case study to track. The monarchy started unraveling in 2001 when the then king, queen, and many relatives were killed in a drunken shooting spree by none other than the crown prince, who later fatally shot himself. This made it even more possible for a radical leftist group, the Nepal Communist Party, to step up its activities, particularly through violence.
The radicals were modeled after the Shining Path, in Peru, and are referred to as Maoist rebels because of their advocacy of Mao’s communist ideas. In the years since 2001, Nepal’s Maoist rebels signed truce accords with the government only to abandon it later, and the government imposed curfews and suspended elections.
In 2007, the rebels made clear their demands for the abolition of the monarchy, which was approved later in December as a part of the peace agreement. In May 2008, Nepal shed its monarchic tradition and is now a republic. The former rebels now hold most seats in the parliament and if they lean heavily on Maoist teaching, there is a good possibility that the government will be tempted to sacrifice liberal democracy in its pursuit of economic and social development.
It is an irony, indeed, that the land of Mao Zedong—China—has long shed its Maoist ideals, and offers a fertile economic landscape for profiting through capitalist ideas. Yet, thirty years after Deng’s decision, we now have a democratically elected government in power in Nepal that sincerely believes in Maoist ideals.
Whether elected or otherwise, countries from Rwanda to Nepal will benefit from assistance from the West when it comes to creating and sustaining democratic institutions. I suspect that the growing uncertainty in global economic conditions—the recent increases in the price of food crops and petroleum, in particular—will further compel many African and Asian countries to do something, even if it means curtailing the freedom of individuals. India better do the right things, and fast.
Monday, July 21, 2008
More at the official website
Here is what an opinion in The Hindu says (it does not list the 35% stock market dive in two months, and the stone-throwing riots as a result!):
Pakistan’s nearly four-month-old government is struggling hard to dispel the impression that it is floundering, but it’s a losing battle so far. There is a crisis on almost every front — runaway prices, the rupee in free fall, food shortages, power outages, the tightening grip of the Taliban in the northwest, panic that the United States is about to invade the country, and a shadow on India-Pakistan relations following the Indian Embassy blast in Kabul.
And, if Pakistan descends into chaos? This is the scenario that is likely to unfold. Not pretty!
Sunday, July 20, 2008
California alone uses more gasoline than any country in the world (except the US as a whole, of course). That means California's 20 billion gallon gasoline and diesel habit is greater than China's! (Or Russia's. Or India's. Or Brazil's. Or Germany's.)
That's according to the California Energy Commission's State Alternative Fuels Plan, which was posted online last Christmas Eve (pdf). The whole report makes for some fascinating reading because it's a blueprint for a low-carbon and renewable transportation fuel future. The dominant takeaway: it ain't going to be easy.
One more choice statistic: gasoline usage in California has increased 50 percent, that's 10 6.7 billion gallons, since 1988. Has there been anything close to a commensurate increase in quality of life here to accompany that rise in energy use?
But China's oil thirst is growing -- to almost 20 billion gallons in 2007 -- and perhaps as early as this year, China's 1.3 billion people will overtake California's 37 million people in total gasoline and diesel usage.
It is crazier that this is listed in the magazine under "Intelligence Report". The best kept secret in the country that was uncovered by the reporter, eh!
Defending the gazillion dollar salaries, Jennifer Kearns of the National Collegiate Athletic Association (NCAA) defends coaches’ high pay. She says that, unlike professors who have the protection of tenure, “coaches can be dismissed for lackluster records or the inappropriate behavior of 18- to 22-year-olds.”
Hey, pay me two million dollars and, heck, I will give up university teaching for the rest of my life. Try it.
Saturday, July 19, 2008
One fundamental reality continues to offer assurances that foreigners will still buy American debt:
In the global economy of the moment, the United States itself is too big to fail.
The logic for that assurance goes like this:
The American consumer has for decades served as the engine of world commerce, using borrowed cash to snap up the accoutrements of modern living — clothes and computers and cars now manufactured, in whole or in part, in factories from Asia to Latin America. Eliminate the American wherewithal to shop, and the pain would ripple out to multiple shores.
Globalization, in other words, allowed China and Japan to amass the fortunes they have been lending to the United States.
But globalization also emboldened American capitalists to take huge risks they might have otherwise avoided — like borrowing to erect forests of unsold homes from California to Florida, delivering the speculative disaster of the day. They were operating with bedrock confidence that money would never run out. Someone would always buy American debt, delivering more cash for the next go.
And this same interconnectedness appears to have reassured regulators in Washington about the health of the American financial system, as they declined to intervene against highly speculative lending during the real estate boom. Mortgages were being distributed to investors around the globe, and so were the risks, the regulators reasoned. Anyone who bought into that risk would have a strong interest in seeing that the American financial system stayed upright.
In other words, in the estimation of people in control of money, the United States cannot be allowed to collapse, just as Fannie and Freddie cannot be allowed to fail. Too much is riding on their survival.
The central truth of that logic still seems to be apparent as the Treasury keeps finding takers for American debt.
So the government offers its rescue of the mortgage companies, and foreigners keep stocking the government’s coffers. “They don’t want the U.S. to go into the worst downturn since the Depression,” Mr. Tilton says.
But all the while, the debt mounts along with the costs of an ultimate day of reckoning. Debate grows about the wisdom of leaning on foreign credit, and about how much longer Americans will retain the privilege of spending and investing money that isn’t really theirs.
Bailouts amount to mortgaging the future to stave off the wolf howling at the door. The likelihood of a painful reckoning is diminished, while the costs of a reckoning — should one come — are increased.
The costs are getting big.
Friday, July 18, 2008
Who’s to blame?
There is plenty to go around.
In the estimation of many economists, it starts with the Federal Reserve. The central bank lowered interest rates following the calamitous end of the technology bubble in 2000, lowered them more after the terrorist attacks of Sept. 11, 2001, and then kept them low, even as speculators began to trade homes like dot-com stocks.
Meanwhile, the Fed sat back and watched as Wall Street’s financial wizards engineered diabolically complicated investments linked to mortgages, generating huge amounts of speculative capital that turned real estate into a conflagration.
“At the end of this movie, it’s clear that the Fed will have to care about excesses,” Mr. Barbera said.
Prices multiplied as many homeowners took on more property than they could afford, lured by low introductory interest rates that eventually reset higher, sending many people into foreclosure.
Mortgage brokers netted commissions as they lent almost indiscriminately, offering exotically lenient terms — no money down, no income or job required. Wall Street banks earned billions selling risky mortgage-linked securities around the world, aided by ratings agencies that branded them solid.
Through it all, a lot of ordinary Americans borrowed a lot more money then they could afford to pay back, running up enormous credit card bills and borrowing against the value of their homes. Now comes the day of reckoning.
In this piece, the Onion noted, among things, that:
massive debts, at least one Gulf War, massive tax cuts and recession, "tear this nation into two", more economic inequality ....
Unfortunately, everything came true.
Anyway, back to McD's and Europe. Of course, there are incredible differences between a typical McD's in South Los Angeles and one in Paris. The bottom line (from Der Spiegel):
Europe is now McDonald's largest region by revenues, despite having roughly one-quarter the number of outlets as the US. Last year, revenues from company stores and royalties from franchisees topped $8.9 billion in Europe, compared with $7.9 billion in the US. It's a trend that analysts expect to continue when the world's biggest restaurant group reports second-quarter results on July 23. West expects US sales to rise by 3.4 percent, vs. 9 percent for Europe (19 percent if you include the foreign currency impact). This year, he reckons, McDonald's, the most American of brands, will generate 55 percent of its earnings outside the US.
Joel Stein in the LA Times has the best take on it, when he ends his column with:
"We are the people we've been waiting for"? Actually, I'm pretty sure we're the people who put all our money in Yahoo and then bought a house to flip and now are hocking everything we have. We're the people China has been waiting for.
Wednesday, July 16, 2008
As always, Samuelson has quite a few interesting observations. His concluding thoughts are the best in that piece:
Today's global economy baffles experts -- corporate executives, bankers, economists -- as much as it puzzles ordinary people. Countries are growing economically more interdependent and politically more nationalistic. This is a combustible combination. The old global economy had few power centers (the United States, Europe, Japan), was defined mainly by trade and was committed to the dollar as the central currency. Its major countries shared democratic values and alliances. Today's global economy has many power centers (including China, Saudi Arabia and Russia), is also defined by finance and is exploring currency alternatives to the dollar. Major trading nations now lack common political values and alliances.
It is no more possible to undo globalization than it was possible, in the 19th century, to undo the Industrial Revolution. But our understanding of international markets, shaped by impersonal economic forces and explicit political decisions, is poor. Countries try to maximize their advantages rather than make the system work for everyone. Considering how much could go wrong, the record is so far remarkably favorable. Alas, that's no guarantee for the future.
Which is why his commentary is troubling and terrifying. Apparently there have always been rumors that Reagan put into play some kind of a presidential succession executive order that will bypass our understanding that the speaker of the House will be the one after the VP. But, how can something like this ever be done in a democracy? A president creating his own succession plan as if it were a monarchy? Bizarre, and eerie.
Anyway, Ackerman concludes his comments with:
If Reagan did issue an illegal order, Congress should publicly determine how subsequent administrations dealt with it. Perhaps President George H. W. Bush or Bill Clinton expressly repudiated the order. Or perhaps they reaffirmed it, thereby laying the foundation for President Bush, with the encouragement of Vice President Cheney, to do the same—through a process entirely independent of the administration's formal directives on the subject.
In any event, it is time for Congress to find out. Even if Reagan's initial illegal order has been rescinded, Congress must deprive it of all value as a precedent. Lawmakers should pass legislation that expressly nullifies all secret orders, present and future, through which the president asserts the imperial privilege of naming his own successor.
This piece in Salon explains how the Obama campaign has incorporated all the marketing slicing and dicing tricks of the trade from the corporate world. It ends thus:
It seems Joe McGinnis had it right 40 years ago, when "The Selling of the President" chronicled how techniques from Madison Avenue helped send Richard Nixon to Pennsylvania Avenue. If Obama wins the White House in part by looking at voters the way corporations look at consumers, by 2012 it may be even harder to tell where politics ends and marketing begins. (emphasis added)
Tuesday, July 15, 2008
This is by far the worst financial crisis since the Great Depression
Hundreds of small banks with massive exposure to real estate (the average small bank has 67% of its assets in real estate) will go bust
Dozens of large regional/national banks (a’ la IndyMac) are also bankrupt given their extreme exposure to real estate and will also go bust
Some major money center banks are also semi-insolvent and while they are deemed too big to fail their rescue with FDIC money will be extremely costly.
In a few years time there will be no major independent broker dealers as their business model (securitization, slice & dice and transfer of toxic credit risk and piling fees upon fees rather than earning income from holding credit risk) is bust and the risk of a bank-like run on their very short term liquid liabilities is a fundamental flaw in their structure (i.e. the four remaining U.S. big brokers dealers will either go bust or will have to be merged with traditional commercial banks). Firms that borrow liquid and short, highly leverage themselves and lend in longer term and illiquid ways (i.e. most of the shadow banking system) cannot survive without formal deposit insurance and formal permanent lender of last resort support from the central bank.
The FDIC that has already depleted 10% of its funds in the rescue of IndyMac alone will run out of funds and will have to be recapitalized by Congress as its insurance premia were woefully insufficient to cover the hole from the biggest banking crisis since the Great Depression
Fannie and Freddie are insolvent and the Treasury bailout plan (the mother of all moral hazard bailout) is socialism for the rich, the well connected and Wall Street; it is the continuation of a corrupt system where profits are privatized and losses are socialized. Instead of wiping out shareholders of the two GSEs, replacing corrupt and incompetent managers and forcing a haircut on the claims of the creditors/bondholders such a plan bails out shareholders, managers and creditors at a massive cost to U.S. taxpayers.
This financial crisis will imply credit losses of at least $1 trillion and more likely $2 trillion.
This is not just a subprime mortgage crisis; this is the crisis of an entire subprime financial system: losses are spreading from subprime to near prime and prime mortgages; to commercial real estate; to unsecured consumer credit (credit cards, student loans, auto loans); to leveraged loans that financed reckless debt-laden LBOs; to muni bonds that will go bust as hundred of municipalities will go bust; to industrial and commercial loans; to corporate bonds whose default rate will jump from close to 0% to over 10%; to CDSs where $62 trillion of nominal protection sits on top an outstanding stock of only $6 trillion of bonds and where counterparty risk – and the collapse of many counterparties – will lead to a systemic collapse of this market.
This will be the most severe U.S. recession in decades with the U.S. consumer being on the ropes and faltering big time as soon as the temporary effect of the tax rebates will fade out by mid-summer (July). This U.S. consumer is shopped out, saving less, debt burdened and being hammered by falling home prices, falling equity prices, falling jobs and incomes, rising inflation and rising oil and energy prices. This will be a long, ugly and nasty U-shaped recession lasting 12 to 18 months, not the mild 6 month V-shaped recession that the delusional consensus expects.
Equity prices in the US and abroad will go much deeper in bear territory. In a typical US recession equity prices fall by an average of 28% relative to the peak. But this is not a typical US recession; it is rather a severe one associated with a severe financial crisis. Thus, equity prices will fall by about 40% relative to their peak. So, we are only barely mid-way in the meltdown of stock markets.
The rest of the world will not decouple from the US recession and from the US financial meltdown; it will re-couple big time. Already 12 major economies are on the way to a recessionary hard landing; while the rest of the world will experience a severe growth slowdown only one step removed from a global recession. Given this sharp global economic slowdown oil, energy and commodity prices will fall 20 to 30% from their recent bubbly peaks.
The current U.S recession and sharp global economic slowdown is combining the worst of the oil shocks of the 1970s with the worst of the asset/credit bust shocks (and ensuing credit crunch and investment busts) of 1990-91 and 2001: like in 1973 and 1979 we are facing a stagflationary shock to oil, energy and other commodity prices that by itself may tip many oil importing countries into a sharp slowdown or an outright recession. Also, like 1990-91 and 2001 we are now facing another asset bubble and credit bubble gone bust big time: the housing and overall household credit boom of the last seven years has now gone bust in the same way as the 1980s housing bubble and 1990s tech bubble went bust in 1990 and in 2000 triggering recessions. And a similar housing/asset/credit bubble is going bust in other countries – U.K., Spain, Ireland, Italy, Portugal, etc. – leading to a risk of a hard landing in these economies.
But over time inflation will be the last problem that the Fed will have to face as a severe US recession and global slowdown will lead to a sharp reduction in inflationary pressures in the U.S.: slack in goods markets with demand falling below supply will reduce pricing power of firms; slack in labor markets with unemployment rising will reduce wage pressures and labor costs pressures; a fall in commodity prices of the order of 20-30% will further reduce inflationary pressure. The Fed will have to cut the Fed Funds rate much more – as severe downside risks to growth and to financial stability will dominate any short-term upward inflationary pressures. Leaving aside the risk of a collapse of the US dollar given this easier monetary policy the Fed Funds rate may end up being closer to 0% than 1% by the end of this financial disaster and severe recession cycle.
The Bretton Woods 2 regime of fixed exchange rates to the US dollar and/or heavily managed exchange will unravel – as the first Bretton Woods regimes did in the early 1970s – as US twin deficits, recession, financial crisis and rising commodity and goods inflation in emerging market economies will destroy the basis for it existence.
Thus, the scenario of 12 steps to a financial disaster that I outlined in my February 2008 paper is unfolding as predicted. If anything financial conditions are now much worse than they were at the previous peak of this financial crisis, i.e. in mid-march of 2008
Well, that Polaroid era is coming to an end. Excerpt:
Polaroid has now stopped making its instant film and expects supplies to run out completely in 2009. While the organization stopped manufacturing commercial type cameras almost two years ago, the slow realization that film photography has had its day will come as little consolation to the company’s global workforce. Factories will close in Massachusetts, Mexico, and the Netherlands, leaving a core staff of about 150 employees at its headquarters at Concord, California. At the height if its powers, in the 1970s, the company employed over 20,000 workers. The decision to stop production was “due to dramatic technological changes in the photographic industry,” said the company, “which will see the organization transitioning from its analog instant film business into new and innovative digital instant photography technologies.”
Monday, July 14, 2008
Over to Bill Fleckenstein: Alan Greenspan was recommending adjustable-rate mortgages in February 2004 -- just as short-term rates were making their lows. Then, in a speech on April 8, 2005, he extolled subprime lending:
"With these advances in technology, lenders have taken advantage of credit-scoring models and other techniques for efficiently extending credit to a broader spectrum of consumers. . . . As we reflect on the evolution of consumer credit in the United States, we must conclude that innovation and structural change in the financial services industry have been critical in providing expanded access to credit for the vast majority of consumers, including those of limited means. . . . This fact underscores the importance of our roles as policymakers, researchers, bankers and consumer advocates in fostering constructive innovation that is both responsive to market demand and beneficial to consumers."
His term ended, and Ben Bernanke took over. Bernanke was famous for his "savings glut" thesis--"the past decade a combination of diverse forces has created a significant increase in the global supply of saving--a global saving glut--which helps to explain both the increase in the U.S. current account deficit and the relatively low level of long-term real interest rates in the world today."
Even as Bernanke was touted as a potential replacement for Greenspan, this is what Daniel Gross wrote:
The savings-glut meme changes the terms of the conversation about global imbalances. It's not our fault that we rely on foreigners to fund our desire to spend in excess of our resources. Au contraire. Our extreme consumption and failure to save become something of a virtue. Somebody has to keep the world's factories humming and absorb all the products made in Japan, China, and elsewhere. And until the rest of the world becomes More Like Us in its consuming habits, the imbalances are likely to persist.
The savings glut may be an accurate and subtle take on the world's economic imbalances. But less subtly, it minimizes the impact of the potentially destructive monetary and fiscal policies pursued by the U.S. over the last five years. It also lays the responsibility for change squarely on the backs of foreigners and makes a virtue out of what appear to be our own failings. No wonder Bernanke is so popular at the White House.
And, ironically enough, it is Bernanke trying to manage a liquidity and credit crisis. So quickly we burnt up all those savings, eh? Well, as Bernanke, Paulson, and the Congress pour billions more down this sinkhole, let us turn to The Onion for the best report of all:
"What America needs right now is not more talk and long-term strategy, but a concrete way to create more imaginary wealth in the very immediate future," said Thomas Jenkins, CFO of the Boston-area Jenkins Financial Group, a bubble-based investment firm. "We are in a crisis, and that crisis demands an unviable short-term solution."
From the Times (London):
For the second year in succession, the American entrant in the Miss Universe pageant failed to meet the crucial challenge of walking and smiling at the same time.
Crystle Stewart, from Texas, tripped and fell on stage at the global beauty contest today, just as Miss USA did last year.
Watch it happen:
Compare it with the fall in 2007:
I still remember how the Fighting Irish ran circles around awful USC teams until Pete Carroll arrived at USC. But, Notre Dame and Stanford always offered a special attraction because of their much higher calibre--academic--students. This LA Times oped brings up all these issues. An excerpt:
Although Notre Dame cuts football players a break in regard to admissions, its relatively high 79% federal graduation rate (FGR) -- the best measure of whether recruited athletes fit a school's academic profile -- indicates that the university recruits athletes who actually are likely to graduate from Notre Dame. The average FGR for last year's top 25 Football Bowl Subdivision teams was about 50%. Louisiana State University, the 2007 national champion, graduated 38% of its players; runner-up Ohio State University graduated 48%. (California's football powerhouses produce mediocre results at best, with USC at 54%, UCLA at 51% and UC Berkeley at 44%.)
.... Perennial powers such as LSU and the universities of Georgia, Florida and Oklahoma, on the other hand, have teams with graduation rates in the 35% range. Notre Dame endured a crushing loss to LSU in the 2007 Sugar Bowl. These data suggest that schools that hold their ground on academic standards for athletes may be at a disadvantage in college sport's recruiting wars. Is it merely coincidence that Stanford and Duke, two of the teams the Irish were able to beat in 2007, have football graduation rates over 90%?
The National Collegiate Athletic Assn. no longer discloses the average standardized test scores of various football teams. But would anyone be surprised to find that test scores, like federal graduation rates, correlate negatively with gridiron success?
Sunday, July 13, 2008
This is Tina Ambani, wife of Anil Ambani--the sixth richest man in the world. (Photo from Forbes)
She was Tina Munim and was a hindi film star. Later, as most female actors of those days did, she married a rich guy and ditched movies.
The only movie of hers that I watched was Karz, which was one heck of a masala movie.
Here is a youtube clip from Karz: (Click here for a translation of the Hindi lyrics to English)
Saturday, July 12, 2008
"Mexico, Brazil, China, India and South Africa challenged the Group of Eight countries to cut their greenhouse gas emissions by more than 80% by 2050.
The so-called G5 countries threw down the gauntlet in a statement before they joined the G8 summit in Japan. " ....
.... "The chairman of the UN's Intergovernmental Panel on Climate Change, RK Pachauri, said developed countries should show leadership.
"They should get off the backs of India and China," he told reporters in the Indian capital, Delhi.
"They should say: 'We'll assist you to move to a pattern of development which is sustainable, low in terms of emissions intensity. But we as the richest nations are willing to take the lead and we affirm our commitment to do so.'"
Friday, July 11, 2008
NINE years ago, Ahmad Batebi appeared on the cover of The Economist. He was a 21-year-old student, one of thousands who protested against Iran’s government that summer. He was photographed holding aloft a T-shirt bespattered with the blood of a fellow protester. Soon afterwards, he was arrested and shown our issue of July 17th 1999. “With this”, he was told, “you have signed your death warrant.”
He was sentenced to death for “creating street unrest”. But after a global outcry, the sentence was commuted to 15 years in jail. He speculates that his high profile made it hard to kill him without attracting negative publicity. For two years, he was kept in solitary confinement, in a cell that was little more than a toilet hole with a wooden board on top. He was tortured constantly. Only when he was allowed to mingle with other prisoners again did he begin to overcome his despair.
During his interrogation he was blindfolded and beaten with cables until he passed out. His captors rubbed salt into his wounds to wake him up, so they could torture him more. They held his head in a drain full of sewage until he inhaled it. He recalls yearning for a swift death to end the pain. He was played recordings of what he was told was his mother being tortured. His captors wanted him to betray his fellow students, to implicate them in various crimes and to say on television that the blood on that T-shirt was only red paint. He says he refused.
He suffered a partial stroke that left the right side of his body without feeling. He needed medical attention. The regime did not want to be blamed for him dying behind bars, he says, so he was allowed out for treatment. Three months ago, on the day of the Persian new year, he escaped into Iraq. On June 24th he arrived in America.
He spoke to The Economist on July 7th. Looking at the picture that sparked his ordeal, he says that another man in his place might be angry, but he is not. Mr Batebi is a photographer himself. He says he understands what journalism involves. Had we not published the picture, he says, another paper might have. Looking at the same picture, his lawyer, interpreter and friend Lily Mazahery says she is close to tears: in it, the young Mr Batebi’s pale arms are as yet unscarred by torture.
The protests Mr Batebi took part in nine years ago frightened Iran’s rulers. The students were angry about censorship, the persecution of intellectuals and the thugs who beat up any student overheard disparaging the regime. Mr Batebi thinks Iran could well turn solidly democratic some day. In neighbouring states, religious extremism is popular. In Iran, he says, the government is religiously extreme, but the people are not.
He is cagey about how exactly he escaped. But he says he used a cellphone camera to record virtually every step of his journey, and will soon go public with the pictures and his commentary. Meanwhile, he seems to be enjoying America. He praises the way “people have the opportunity to become who they want to be”. Shortly after he arrived, he posted a picture of himself in front of the Capitol on his Farsi-language blog, with the caption: “Your hands will never touch me again.”
Thursday, July 10, 2008
- Computer Engineering
- Electrical Engineering
- Computer Science
- Mechanical Engineering
- Civil Engineering
- Political Science
At the university where I teach, criminal justice and psychology are huge magnets for students. Those students might be shocked at the report in Forbes:
The reality is that few psychology majors move on to graduate school--and the career path for the rest of the group: not so rich. Psychology majors during their first few years out of school typically make around $35,000; those with 10 to 20 years' experience are pulling in $54,000. Those are the second-lowest incomes in both cases in our study of the most lucrative college majors. Only criminal justice majors fare worse.
Wednesday, July 09, 2008
Responding to the same temptation to offload expenses into the future, public employers have committed to trillions of dollars in future liabilities. In New Jersey, a huge pension liability has created a budgetary nightmare for the state. The city of Vallejo, Calif., burdened by police pensions, recently filed for bankruptcy.
Just as G.M.’s shareholders bore the burdens of its pensions, states and cities will have to force taxpayers to sacrifice in the form of service cuts, tax increases or both.
It is too late to restore G.M. to its former grandeur. But if public officials do not show courage by quickly funding the pensions they have promised to their workers, taxpayers will soon find themselves in an even worse crisis than the one G.M.’s shareholders are facing now.
What an interesting week: I came back from vacation to find the two presumptive presidential nominees running away from their bases. Suddenly John McCain is evading, not embracing, the media, limiting access and getting testy with the very people whose formerly friendly coverage made him a popular "maverick." Meanwhile Barack Obama is complaining that his "friends on the left" just don't understand him – he's not moving to the center, he is "no doubt" a progressive, just one who now supports the scandalous FISA "compromise" and Antonin Scalia's views on gun rights and the death penalty, no longer plans to accept public campaign funding, and wants to make sure women aren't feigning mental distress to get a "partial-birth" abortion (the right's despicable term of choice; the correct phrase is either late-term or third-trimester abortion.) .....
I've admired Obama, but I never confused him with a genuine progressive leader. Today I don't admire him at all. His collapse on FISA is unforgiveable.
Meanwhile, here is a news item from a different part of the US--Muskegon, MI:
A man, allegedly upset over a real estate transaction, shot a realtor in the head at the realtor's office Tuesday morning.
Robert Johnson, 73, walked into Nexes Realty at 880 Broadway in Muskegon and asked for the realtor, Troy VanderStelt, by name. He went into a conference room and waited.
"It appears this was essentially an execution-style murder in the conference room," Muskegon County Prosecutor Tony Tague said. "He went over there with a handgun, asked specifically for this real estate agent, went into a conference room and within minutes fired a shot at point blank range into the side of the victim's head."
Tuesday, July 08, 2008
Volatile India-Pakistan Standoff Enters 11,680th Day
Monday, July 07, 2008
The Financial Times reports:
George W. Bush said he was prepared to be "constructive" in discussions on climate change yesterday, although the president insisted that any agreement depended on the participation of China and India.
And, this is what India's prime minister, Manmohan Singh, said, according to The Hindu:
I had said (last year at the Heiligendamm G-8 summit) that India’s per capita emissions of greenhouse gases will never exceed the average of the developed countries, and therefore if the developed countries make deeper cuts, that will be an incentive for us to move at a faster pace”
Too bad that David Leonhardt is taking a break until September--we will miss his wonderful observations like this one:
The common thread in these myths is that they serve to minimize the scope of the economy’s weakness. They make it sound as if the problems are acute — job cuts, oil speculation, a little real estate overexuberance — rather than fundamental.
For the first time on record, an economic expansion seems to have just ended without most families having received a raise. For the first time on record, the typical home price nationwide is falling. The inflation-adjusted value of the Standard & Poor’s 500-stock index has dropped 20 percent in the last year — and 30 percent since its peak in 2000.
I think the public has called this issue exactly right: the American economy has some real problems. Even if this summer’s downturn turns out to be mild, those problems aren’t mild — or simple — and they aren’t going away anytime soon. It’s going to take some real work.
Jesse Helms died on the Fourth of July. Well, ok, other than the Carolinans and political junkies, most Americans might not have heard of him. The Washington Post reprinted David Broder's column from 2001, when Helms announced his retirement from the Senate. In that column, Broder wrote, "What really sets Jesse Helms apart is that he is the last prominent unabashed white racist politician in this country -- a title that one hopes will now be permanently retired."
Christopher Hitchens does not try to sugar coat his obit piece. (But then when has Hitchens ever done any sugar coating in any of his writings!) I liked this paragraph the best:
It was a scandal that a man with so little knowledge of the outside world should have had such a stranglehold on American foreign policy for so long. He once introduced Benazir Bhutto as the prime minister of India. All right, that could have happened to anybody. But what about the hearings on North Korea in which he made repeated references to "Kim Jong the Second"? In order to prevent any repetition of this idiotic gaffe, Helms' staff propped up a piece of card on which was clearly written the pronunciation "Kim Jong ILL." The senator from North Carolina duly made the adjustment, referring thenceforth to the North Korean despot as "Kim Jong the Third."
BTW, did you read Hitchens' piece on waterboarding? Here it is.
"I believe it is right to adopt a more cautious approach until the evidence is clearer about the wider environmental and social effects of biofuels. We also need to allow time for more sustainable biofuel technologies to emerge."
Later on, in the same report from the Guardian, is an example of horrible use of metaphors. Why didn't the editor axe this?
Mark Avery of the RSPB said: "We all know what someone who finds themselves in a hole should do. This review seems to be saying that it's OK to keep digging, as long as we dig with a little less enthusiasm. The review's analysis is based on rational argument but its conclusion comes with a large dollop of politics mixed in."
Sunday, July 06, 2008
The Canadians are concerned that their spending on higher education is falling behind spending in the US, and elsewhere. And we in the US point to spending in other countries as proof that we need to up the ante ....
Excerpt from the Chronicle of Higher Education:
Four-year public universities and colleges in the United States have significantly more resources for teaching and research than their counterparts in Australia, Canada, and Britain, according to a report by the Association of Universities and Colleges of Canada.
The resource gap between Canadian and U.S. universities in particular has been growing over the past 30 years
A single bomb dropped over Iran will push the world over the ultimate tipping point towards a chaos that can be beyond the wildest imagination.
Here is an excerpt from the NY Review of Books:
At a moment of serious challenge, battered by two wars, ballooning debt, and a faltering economy, the United States appears to have lost its capacity to think clearly. Consider what passes for national discussion on the matter of Iran. The open question is whether the United States should or will attack Iran if it continues to reject American demands to give up uranium enrichment. Ignore for the moment whether the United States has any legal or moral justification for attacking Iran. Set aside the question whether Iran, as Secretary of Defense Robert Gates recently claimed in a speech at West Point, "is hellbent on acquiring nuclear weapons." Focus instead on purely practical questions. By any standards Iran is a tough nut to crack: it is nearly three times the size of Texas, with a population of 70 million and a big income from oil which the world cannot afford to lose. Iran is believed to have the ability to block the Straits of Hormuz in the Persian Gulf through which much of the world's oil must pass on its way to market.
Keep in mind that the rising price of oil already threatens the world's economy. Iran also has a large army and deep ties to the population of Shiite coreligionists next door in Iraq. The American military already has its hands full with a hard-to-manage war in Iraq, and is proposing to send additional combat brigades to deal with a growing insurgency in Afghanistan. And yet with all these sound reasons for avoiding war with Iran, the United States for five years has repeatedly threatened it with military attack. These threats have lately acquired a new edge.
Saturday, July 05, 2008
So, am delighted that the LA Times has done a story on the show and the two faculty behind it. Cool.
Friday, July 04, 2008
After gaining citizenship, the Fourth of July is, of course, way too special. To quote from the musical, West Side Story, “I like to be in America, okay by me in America.” Perhaps it is a typical immigrant story after all when I think that my love for this country is out of the ordinary because I consciously weighed the alternatives and worked to come to America. Hey, American citizenship was not my "birthright."
Immigrating to America or any other country has never been as easy as it is now—unlike a few generations ago when most of the world’s population stayed in, or close to, the places where they were born and raised. Now, we move from state to state in this country, and we relatively effortlessly migrate across international borders, and make ourselves new homes in strange places.
In our family, my grandfather was offered a job in Ceylon (now Sri Lanka) because of his valued metallurgy qualifications from a reputed Indian university. If my grandfather had sailed on that ship, for sure my family’s history would have taken a different turn. However, he was compelled to reject that offer and stay back in India, and it was not because the job did not pay enough. His mother, who was deeply rooted in traditions, threatened to commit suicide if he crossed the sea—considered as grounds for excommunication only eighty years ago!
The distance between my grandfather's hometown and Ceylon’s capital city, Colombo, was nothing—a mere 250 miles. In contrast to that, a few decades later, my wife and I travelled half way around the world—independently—in order to be here in the US. And America has been home since the day we landed in Los Angeles.
Rudyard Kipling remarked that we are not able to call the entire world our home “since man's heart is small”.
Kipling, too, was a product of globalization—he was born in India to British parents, and spent his early childhood in Bombay (now Mumbai), which he described as “mother of cities to me.”
Of all the places he had been to, Kipling felt that one place was special. He wrote about that in a poem entitled “Sussex”:
Each to his choice, and I rejoice
The lot has fallen to me
In a fair ground—in a fair ground—
Yea, Sussex by the sea!
Happy Birthday, America!
The UN aims to reduce by half the number of people without basic sanitation by 2015.
But in India alone they face a huge task.
It's estimated that around 700 million Indians to do not have access to safe and hygienic toilets.
Experts say that scavenging in India is most prevalent in the states of Uttar Pradesh, Rajasthan, Madhya Pradesh and Gujarat.
Thursday, July 03, 2008
Similarly, when we have minimum age requirements to be an elected official, how come we do not have maximum age limitations? I remember Strom Thurmond never making any sense.
So, while in a prior blog entry I referred to the discussion on whether death can become optional, I am equally concerned about politics, and the benefits of political decisions, being dominated by the elderly, leaving the dwindling younger generations to pay the price.
Sharmila Wheelan, an economist at CLSA, a brokerage firm, forecasts that India’s current-account deficit will rise to almost 4% of GDP in the current fiscal year, and to 5.5% next year. Not only is the trade deficit soaring, largely as a result of higher oil prices; the overseas earnings of Indian IT services companies (two-fifths of which come from the financial sector) are likely to shrink this year.
The nature of the capital inflows financing a deficit also matters. Foreign direct investment (FDI) is less volatile than speculative capital inflows. If we assume that net FDI continues at last year’s pace, then it would more than finance the expected current-account deficits in Brazil and Mexico this year. In contrast, net FDI might finance less than one-third of India’s deficit and only one-sixth of South Africa’s, implying that their currencies are more at risk. The rupee has fallen by almost 10% against the dollar since late last year. Ms Wheelan forecasts that it will drop by another 9% by March 2009.
While in Foreign Policy, Yasheng Huang writes that India is the "Next Asian Miracle."
The only way both can be correct? The Economist is looking short-term, while Huang is looking at a much longer time horizon.
I think that Huang is overselling India. In fact, a perfect storm is brewing in India: elections are due in a few months; the ruling coalition is facing problems over the treaty with the US; inflation has kicked up to double-digits; and Pakistan seems to be getting more unstable. If India were a stock, I would sell now when it is high.
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