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Tehran, Iran -- Election promises in Mexico are a reminder that democratic debate has given way to the marketing of fear. In turn, empty one-liners have replaced doctrines, platforms and serious business plans. However, there is no ideological alternative to stand against sound market economies and an interconnected world.
Tehran, Iran -- The G8 must show that it is in touch and relevant. The group has risen above two world wars and has been ideologically united against conflict over the last 100 years. Such unity is now necessary to engage festering issues. Transparency, an even hand and (financial) muscle, are needed.
Tehran, Iran - For the last 25 years, international trade with Iran has been subject to an unfair, albeit failed political agenda to isolate Iran with sanctions. Blocking Iran's WTO application was a cheap political tool. But alas, Iran's natural gas and oil reserves remain in demand.
Tehran, Iran - The United States' excessive spending in the Mideast and fiscal recklessness has led to a massive debt. This worries Asian countries that supply the U.S. goods. Like Bashir says, China might escape the consequences of this shifting U.S. demand for goods, but the impact on more fragile economies in the region will be significant.
Tehran, Iran - It's too easy to carve the world into blocks like the American media often does. It contrasts the West, the Muslim world, the former USSR, and "others". It then injects its simplistic religious analyses into complex events to explain the plight of women abroad. Despite what American media claim, it is not religion or culture that affects women most, but education.
Tehran, Iran - World financial markets will dilute the effects of inflationary pressure, all caused by a mix of a devaluation of the U.S. Dollar and higher demand driven by a sharp increase in the price of raw materials. The second wave of this inflationary tsunami will rise from the steady pressure on labor costs and demands for wage increases, especially in the United States were asset price inflation has leaped forward but nominal and real inflation has been kept under the cover of a massive trade deficit. It's all picking up speed in a modern way, but still retains its retro, 1970s character.
Tehran, Iran - I write from a tough neighborhood at the hub of it all. It seems that all political forces have ganged up to stop the local economy in Iran.
China is an emerging economic power, likely to power the world economy for the foreseeable future. Between its domestic growth and international investments, China is an expanding market for commodities and industrial materials.
Ah, nostalgic analysis. Are we searching for the modern day Salvador Allende or the new Juan Perón? The terms “left” and “right” are badly in need of redefinition, especially in the Anglo-American world. For the last ten years, the traditional leftist party in Britain has engaged in a confusing act of political cross-dressing while the extreme right in American politics has uncharacteristically challenged the Constitution.
The political progress of European nations after World War II has been simply remarkable. Within a few decades, centuries of hostilities were set side. A rich and diverse assortment of countries – some with colonial pasts and others historically influenced by outside powers – made the fundamental decision to shed arms and forego conflict. They voted for a convergence of values, despite retaining different languages and customs.
The twins of Bretton Woods were born after the Second World War. They were designed to maintain and promote the principles of capitalist economies and to develop stable markets, protecting them against socialist and communist methods of management.
The so-called subprime loan crisis has led to a crisis of confidence among financial institutions. Some investors have confessed to being unable to value their portfolios, which in turn has frozen trade of some securities. This has stopped lending operations by banks. As of Friday, August 10, the Federal Reserve and foreign central banks had injected $260 billion of additional liquidity into financial markets -- a massive sum equal to 2% of U.S. GDP -- in a single step and all prior to forthcoming aftershocks. As such, this concerted effort ranks among jumbo IMF rescues of emerging markets.
America and its economy are at a significant crossroads: uncontrolled asset inflation, massive consumer debt and a large budget deficit have converged on a structural fault line (not to mention the impact of its military endeavors and political isolation.) Baby boomer consumption is slower, a new generation is taking over and American demographics are moving toward a Hispanic majority within the next two decades.
The U.S. economy is also making up an ever-smaller proportion of world GDP, and that’s a trend we should get used to. The euro zone is now the world’s top economic producer (with a GDP of about $16.3 trillion), while China, India and the returning Russia are all enjoying fundamental growth.
Has any of this gone unnoticed by the rest of the world? No. But Americans carefully and intentionally avoid these fundamental issues as topics of conversation. American politicians and presidential candidates divert the debate to 9/11 (now six years ago), foreign policy, Iraq and the armed forces.
I do not see a worldwide recession. The economies of heartland Europe and other parts of the world have decoupled from the American economy over the last decade. Emerging giants (China, India and Russia) and other economies appear to have a fundamental growth scenario. I tend to believe that the American economy is set to lose the froth on top and the U.K.’s economy might follow. Therefore, we ought to examine the question from a distinctly American point of view.
It is a difficult era for the American economy. The EU is now the top economic producer in the world. High energy prices are exposing inefficiencies in American consumption, even though the overall energy bill of America is proportionally smaller than, say, thirty years ago. The issue is that other efficiencies are squeezed out of the American economy and there is little wiggle room in fiscal balances. The bitter truth is about the hyper-economy and how it is set to face the consequences of irresponsible borrowing. Assortments of public and private debt, one-way bets on income growth, and negative savings have converged with other factors such as an expensive war and anti-immigration policies.
The Current Discussion: In the future, global prosperity will present more of a threat than poverty, according to a recent Post op-ed. Is this just rich-American rhetoric, or is the world really getting too prosperous for its own good?
I am astonished to read the commentary of Michael Gerson, who is an analyst from Council on Foreign Relations, a group that presents itself as “nonpartisan”. Blaming other countries is not an excuse to avoid liability for one’s own inactions. Yet I am not surprised.
The Current Discussion: If countries around the world are doing so well economically, why are they still catching a cold when the United States sneezes?
The question is a very old and backward looking one. It might have been true about 20 years ago, but the question is not the focus of non-English speakers. The challenges and problems of today are different. It is not just about a search of patterns of the past 60 years and the presumptions of post-World War II markets.
The real economies and main streets of Europe, Russia, the Middle East, India and China are going about their usual business. They have accepted higher cost of fuel, energy and raw materials. A Chinese cement producer or an Indian steel mill, a food processor in Egypt, or car and biscuit makers in Iran and Turkey have enough business at home to be cheerful and all have passed on their cost increases to their customers. China welcomes the slowdown to cool its domestic economy as Chinese companies have turned to Vietnam, as a supplier of consumer goods and as a customer of machinery. Indian companies are expanding with record amounts of foreign direct investment flowing in joint ventures. Dubai is the second largest construction site in the world and nothing seems to slow the pace there. Real estate prices in Tehran and Sofia are leaping along with Moscow and Shanghai.
Yes....the Red Chinese are coming, the Indians have taken over world’s steel, and London real estate is now Russian and Arab occupied territory! Putting the wagons in a circle ought to fix the problem. Why not add pseudo-protectionism, brew a more confused cocktail, and satisfy the residual hype of the cold warriors? Does it make sense to go beyond the odd simplification that skews globalisation, capitalism and development in the same breath?
The Current Discussion:The global economy is quaking. Are we heading toward a global recession? Who's to blame?
The chain reaction in progress can be best described as a “deleveraging” of American finances. It is a uniquely Anglo-American development, not a global problem, and is likely to continue for two or three years before fundamental stability and realistic valuations fall in place. Alas, recession is a rusty description, originally coined for industrial economies. It is a misnomer for today’s American finances and post-industrial economy, isolated into a unique set of presumptions: rampant consumerism, service-based revenues, presumed constants in long-term forecasts (say, price of commodities or consumer demand), and herd behavior (mislabeled as competition); all glued together with liberal amounts of debt and stitched up with hype.
Inflation is another word for reduced purchasing power. Three elements can fuel a spiral. Increases in the cost of raw materials lead to higher prices of final products. Higher prices put pressure on wages to go up so workers can pay for what they buy -- which increases the costs of production and again leads to higher prices. Finally, as prices increase, more capital is needed to produce the same item, which also increases the cost of production and leads to higher prices -- particularly if interest rates go up at the same time.
Current imbalances ought not to be shocking or unexpected. Asset prices and raw materials have shot up, but wages and incomes remained stagnate, and we were told that all is rosy as growth is a one-way and upward trajectory with joy, and debt, for all. I raised this issue back in January, 2007 .
For the time being, there are low stocks, but not acute shortages of, food-- assuming the consumer can afford to pay. Cows are still producing the same amount of milk as two years ago, but it is more expensive to feed the cow and process, package and transport the milk. The excuse of increased demand from China and India is a tall tale. They both have vivid memories of food shortages in the 1950s and 1960s, which was overcome domestically by Chinese and Indians despite political isolation.
The easy days are behind us and the era of a tough climb up the proverbial hill of beans is ahead. Civil commotion about food prices are essentially about low incomes and reduced purchasing power. And these are not limited to developing countries. Soaring home foreclosures and depleted savings in US, a 25 percent jump in British use of credit cards for food purchases since December, and stagnate property prices in Japan are all telling signs of the same story. Blaming oil exporters for high oil prices is a worthless diversion too -- the governments of importing countries raise more cash from fuel and excise taxes (especially in Europe and Japan) than the sum paid to the original exporter of crude oil.
Iranian consumers are not different, as all juggle inflation and low incomes. Like Russians, Turks and others in Eastern Europe, pensioners and retired people here are especially squeezed by reduced purchasing power. Economic pains of transformation, from a state-planned system to a market-managed economy, are expected to repeat events seen elsewhere.
Where is the surprise, I ponder. Essentially the flow of “aid” or assistance from rich countries is in two parts of government money: channeled through charities and NGOs or partial subsidies of the pharmaceutical companies, or through direct research and development money from private companies.
Cures for known diseases are not a big money-maker for the pharmaceutical companies. Medications and preventative materials are old, tested goods and “generic” merchandise. Patents and other intellectual property rights have long expired for medications for malaria and the like, and thus from a business point of view, those products are either generic or very low profit. Moreover, planners sit in air-conditioned offices of modern cities, sip bottled water and pay the weekly wage of an African patient for a triple cappuccino and a piece of bread. Their daily dilemma is to choose between two different luxuries to pacify their boredom. Worries about basic needs such as clean water, sanitation or inoculation for locally “eradicated” diseases is a remote concern in, say, Copenhagen or Atlanta. Thus the focus is on fame and fortune--if a miracle drug is found for HIV/AIDS, heart attack, cancer or other diseases, there is a large, rich customer base in high-stress, urban living areas.
The Current Discussion: What's the next likely target of Russia's reassertion of power?
In the first reading of the tea leaves, we can recall the famous line from the White House-- all options are on the table. However, the options have different meanings to different countries around the world.
The Current Discussion: Australia is suffering from a drought of men - about 100,000 of them, most of whom have gone overseas to travel and work. China has the opposite problem - a shortage of women. Which is the more worrisome problem? Should we be worrying about a "de-population bomb?"
This is not a world issue, but a question for many countries in their national, tribal-minded assessment of immigration policies. Australia is a young nation and a land of immigrants. But it has recently changed course to experiment with membership in the Xenophobes Club and closed its doors to immigration. In turn, the relatively small population of about 21 million people (about half the population of Spain) has reached an economic saturation point. Now, Australians search for jobs and opportunities elsewhere by taking advantage of the new global economy. This is merely the age old story of migration and the search for economic and natural resources that historically led to the Silk Road, Columbus and his maritime adventures and colonial wars over spices, gold and minerals.
The Current Discussion: Does the crisis on Wall Street mean that the American style of capitalism is no longer the model for the world?
The American money machine became lost in the woods after the Cold War. It embarked on a new path as a rogue and insubordinate creature, ignoring the need to prepare for a rainy day and the potential for a downturn. It was a rogue missile out of control; a pyramid scheme of debt, with financial institutions charging fees for every misguided layer they added until they lost sight of what was happening at the foundation: bad loans being issued to people who could not afford them.
The Current Discussion: How do we get a coordinated global response to this global credit crisis? Who should lead?
Let’s not fool ourselves. This is the Big One. The naked truth is that the financial system has collapsed, even though more fashionable softball descriptions (seizure of credit markets, sub-prime loans, credit default swaps, insured rating upgrades, casino capitalism) are the latest spin and blame. It is the day after the not-so-unexpected Financial Chernobyl meltdown, and not an aimless crisis.
Which international affairs issue should the next U.S. president address first after he takes office?
The next president of the United States cannot avoid tackling this economic earthquake. This is not a mere domestic bank bust and it is not going to go away any time soon. It will take a long time to clean up the scene and a strategic rethink is urgently required.
The "recession" whose reality and outlines we see today is just the beginning of a decade-long test period that shall strip bare elements of raw, unregulated and highly leveraged Anglo-American markets crossed with short-term, destructive decisions. The highly interconnected global economy is now a force and a trend with its own downward momentum -- and America is both the primer and leader of it.
Those in the less leveraged EU will revise their assumptions on the spread of risks in trans-national markets and tighten controls, definitions and, if necessary, flows of capital. Other notable economies (Russia, China, Brazil and India) will reverse plans to discard the assured social safety net of socialism and may well label reduced state intervention as a bad experiment.
Americans will be busy with concurrent revisit of FDR’s New Deal, Johnson’s Great Society and a series of trial-and-error tools and means to put out the fire, de-leverage their finances and reinvent economic performance.
One ought not to be worried about Europe, including Eastern Europe, the Middle East or many parts of southeast Asia, as these regions are realists and used to cycles of boom and bust. The memories of tea and foreign currency rationing, nationalization of Leyland car factories and Newcastle coal mines (in Britain, circa 1970s), and deep bankruptcy and stark readjustments (in Eastern Europe, circa 1990s) have not faded. It took decades to re-train and return many to work from heavy industry, steel mills and shipyards to fast food, coffee franchises, the odd car parts plants and computers.
The Current Discussion: The U.S. will lift travel restrictions on Cuba, but leave the larger trade embargo in place. Is that a smart move? Does it go far enough? Too far?
If five phrases could summarize shallow thoughts and frame failed, self-defeating politics of the last fifty years, the term economic sanctions will be one of them— along with the wisdom of projecting raw military power, using nuclear weapons, declaring the end of history, and leaving financial markets to self-regulation. Simply put, economic sanctions are self-defeating in the Global Age. It has never worked when visibly practiced (against Cuba, USSR, Serbia or Iran), or when fudged and fabricated of threats and negative, hyper-subjective postures (China and India until 1990s, pro-socialist France and Italy in 1970s, or Iran and Zimbabwe these days). There is no record of capitulation by a sovereign state since the second World War just because America decided to ban its own people from doing business or have contact with that country.
The world’s concern, and China’s immediate focus, is about America’s financial discipline. Its effects will sketch America’s credibility and its economic health in the near and long-term. For China, it is a job of deciphering it all. China is especially worried about the value and potential devaluation of its vast holdings of American debt, which adds up to about 50% of Chinese GDP, as America is its largest export market. Is America going to stop printing dollars, or will she flood the markets with cash (with so-called Quantitative Easing methods) and thus devalue the dollar and diminish the hard, reserve currency?
Many are wondering if it is all a repeat performance of the British economy circa 1960s and 1970s-- when the Pound Sterling lost its sterling, politely became the British Pound and faded away as a reserve currency—after rounds of mass nationalizations (British Leyland Motors, British Airways, banks, IMF loans and the rest). The effect was the diminished role of Britain as a world power in an economic overheating, mindless asset inflation, high levels of debt and currency devaluation.
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