IRISH AUSTERITY PLAN

A neat summary of the measures included in the Irish austerity plan can be found here:

http://www.bbc.co.uk/news/business-11831935

An item that sort of standouts:

“The government said a cut in the minimum wage was essential because the 7.65 euros per hour rate "is out of step with an economy where GNP has fallen by 19%".”

China News

CRC is taken for a ride

CRC (China Railway Construction Corporation) finds out that being state-owned can be a liability at times:

http://www.time.com/time/world/article/0,8599,2033238,00.html

Getting the Chinese to spend even more:

http://www.nytimes.com/2010/11/28/magazine/28China-t.html

Here come the 'dim-sum' bonds
http://www.bloomberg.com/news/print/2010-11-28/yuan-hungry-investors-urge-companies-to-sell-dim-sum-bonds-china-credit.html

Interesting Op-eds

Roger Cohen examines the growing sacrifice of liberty in his excellent NYTIMES op-ed.

“Give a bureaucrat a big stick and a big budget, allow said bureaucrat to trade in the limitless currency of human anxiety, and the masses will soon be intimidated by the Department of Fear.”

Meanwhile, Tom Friedman has an interesting NYTIMES op-ed on the need to: “nurture a culture of achievement and excellence”.

Interesting Articles from the New Yorker

Surowiecki examines our instinct to procrastinate – Later

A review article that begins by discussing the paper  “Procrastination and Obedience” (1991) by Nobel Prize winning economist, George Akerlof, is bound to be informative.

Cassidy on the value of the financial sector – “What Good is Wall Street?”

Gladwell on underdogs - HOW DAVID BEATS GOLIATH

It's Not All Doom and Gloom for the US Economy

Parts of the Midwest are seeing a genuine boom - record agricultural exports and high global commodity prices being the primary drivers. Unemployment Rate in North Dakota is 3.7% !!!


Unemployment Rates by States - Sept 2010 (Data Source: Bureau of Labor Statistics)

Rank	State	Unemployment Rates (%; Sept 2010; Source: BLS)
1	NORTH DAKOTA	3.7
2	SOUTH DAKOTA	4.4
3	NEBRASKA	4.6
4	NEW HAMPSHIRE	5.5
5	VERMONT	5.8
6	HAWAII	6.3
7	KANSAS	6.6
8	IOWA	6.8
8	VIRGINIA	6.8
8	WYOMING	6.8
11	OKLAHOMA	6.9
12	MINNESOTA	7
13	MONTANA	7.4
14	MARYLAND	7.5
14	UTAH	7.5
16	ARKANSAS	7.7
16	MAINE	7.7
18	ALASKA	7.8
18	LOUISIANA	7.8
18	WISCONSIN	7.8
21	TEXAS	8.1
22	COLORADO	8.2
22	NEW MEXICO	8.2
24	NEW YORK	8.3
25	DELAWARE	8.4
25	MASSACHUSETTS	8.4
27	ALABAMA	8.9
28	IDAHO	9
28	PENNSYLVANIA	9
28	WASHINGTON	9
31	CONNECTICUT	9.1
32	WEST VIRGINIA	9.2
33	MISSOURI	9.3
34	NEW JERSEY	9.4
34	TENNESSEE	9.4
36	NORTH CAROLINA	9.6
37	ARIZONA	9.7
38	DISTRICT OF COLUMBIA	9.8
38	MISSISSIPPI	9.8
40	ILLINOIS	9.9
41	GEORGIA	10
41	OHIO	10
43	INDIANA	10.1
43	KENTUCKY	10.1
45	OREGON	10.6
46	SOUTH CAROLINA	11
47	RHODE ISLAND	11.5
48	FLORIDA	11.9
49	CALIFORNIA	12.4
50	MICHIGAN	13
51	NEVADA	14.4

Austrian School of Economics

The Economist offers a succinct explanation of the Austrian theory of business cycles:

“Interest rates are held at too low a level, creating a credit boom. Low financing costs persuade entrepreneurs to fund too many projects. Capital is misallocated into wasteful areas. When the bust comes the economy is stuck with the burden of excess capacity, which then takes years to clear up.”

Innovation

Innovation Clusters

Duke University’s Vivek Wadhwa offers an interesting take on what leads to the successful creation of innovation or research clusters in his piece in The Chronicle

An interesting point from the piece:

“By the 80s, Silicon Valley and Route 128 looked alike: a mix of large and small tech firms, world-class universities, venture capitalists, and military financing. ….

Yet, today, most people don't even know where Route 128 is. Silicon Valley raced ahead because of its dynamism, which overwhelmed the slow pace of technological change in the Boston area. What gave Silicon Valley its advantage were its high rates of job hopping, new-company formation, and a culture of information exchange and risk taking. Silicon Valley firms understood that collaborating and competing at the same time is a recipe for success in the tech world, where complex products often comprise chunks of technology harvested from many organizations. In addition, failure was tolerated and often worn proudly”.

Financial Innovation

The famously libertarian UCLA Economist, Deepak Lal, offers (in his op-ed in The Business Standard) some interesting insights on why financial innovation (and financial engineering) is good as long as government does not get into the habit of bailing out financial institutions at the first sign of trouble:

“The immediate official response to the crisis, in which the insurer AIG was bailed out, which then led it to fully repay its counterparties like Goldman Sachs, bailing them out in turn, only justified the beliefs of those who had undertaken the imprudent lending that any losses would be borne by taxpayers. Moral hazard increased even further. It was further accentuated with the classification of institutions as being “too big to fail”, and has given an incentive for the creation of even larger universal banks “too big to fail”. With the authorities egging on the conversion of previous investment banks into bank holding companies, the US financial structure has become even more oligopolistic”.

Innovation in Brazil

http://www.economist.com/node/17522484/print

Should BRIC be changed to BIIC?

http://www.businessweek.com/magazine/content/10_48/b4205021134076.htm

Does Indonesia Have a Better Case than Russia?

Japan and China - A Tale of Two (Very Different) Countries

Japanese Decline

http://www.spiegel.de/international/world/0,1518,druck-729660,00.html

Japan’s Aging Problem

http://www.economist.com/node/17522568

While Japan frets about deflation, China is concerned about inflation

http://www.nytimes.com/2010/11/18/world/asia/18china.html

http://www.economist.com/node/17528136

China’s Booming Demand for Copper

http://www.bloomberg.com/news/2010-11-02/china-seen-using-more-copper-than-world-produces-now-with-yang-s-new-stove.html

QE Explained

(Link Courtesy of Marcus Ingram)

Singapore - Innovation Center

QE2 and India

India, compared to most emerging markets, has taken a rather laissez-faire attitude towards capital inflows this year. Given India's demographics, and its enormous need for capital investment, this is not a bad strategy. It is okay to run relatively large current account deficits now (financed by foreign capital), if in the future you are able to run offsetting current account surpluses.

An Interesting Interview (conducted by FT's Amy Kazmin) with Gita Gopinath of Harvard U. regarding policy challenges facing India (in the context of Fed's QE2 and rush of capital into emerging markets)
http://link.brightcove.com/services/player/bcpid590314128001?bctid=675305984001
(Wait a few seconds for the video to load)

(As an aside, not all economists are dorky looking ... as evidence see Prof. Gita Gopinath)

New Jersey - A Great Place to Live (Really!!)

If you want to live long (and you are Asian), move to New Jersey: 

According to a study by Social Science Research Council, Asian Americans have a life expectancy of 91.8 years in New Jersey (statewide life expectancy for the general population - 79.7 years). The study defines Asian American as people originally from East Asia, Southeast Asia and the Indian subcontinent.

http://online.wsj.com/article/SB10001424052748704393604575614890084115682.html

Global Concerns Ove QE2

Chinese Official Succinctly Captures the International Concerns Over QE2:
““Major reserve-currency issuing countries excessively print money to get out of their own economic difficulties, posing a policy dilemma for emerging economies,” Jin said in Macau today, without naming any countries. “That will impose greater pressure on capital inflows, bigger bubbles in asset markets and inflationary pressure.””
http://www.bloomberg.com/news/print/2010-11-13/china-assails-monetary-easing-citing-imported-inflation-bubble-risks.html

Editors at the WSJ concur:

“The root of this embarrassment is political and intellectual: Rather than leading the world from a position of strength, Mr. Obama and Treasury Secretary Timothy Geithner came to Seoul blaming the rest of the world for U.S. economic weakness. America's problem, in their view, is the export and exchange rate policies of the Germans, Chinese or Brazilians. And the U.S. solution is to have the Fed print enough money to devalue the dollar so America can grow by stealing demand from the rest of the world.”

Update:

MARY ANASTASIA O'GRADY (cool name) of the WSJ examines the impact of Fed’s QE2 on Brazil

http://online.wsj.com/article/SB10001424052748704658204575610764115821410.html

Economist’s Cover Story: China buys up the world
http://www.economist.com/node/17463473

Speedy Construction - Chinese Style

Also, China may be reaching a major milestone earlier than previously forecasted.

The Conference Board recently released its 2011 Global Economic Outlook. Two key highlights from the report are:

• China may have a larger GDP, based on PPP exchange rates, than the United States by 2012.
• India share of global output will double between 2000 and 2020, though its impact on global growth will remain much smaller than China’s.

A Note on PPP exchange rates: PPP exchange rate can be thought of as the "rate at which the currency of one country would have to be converted into that of another country to buy the same amount of goods and services in each country” (IMF, 2007).

High Frequency Trading

Also, see the following on commodity traders:
http://www.economist.com/node/17463453

The Magic of Compounding Economic Growth Rates

An Illustration of the Magic of Compound Growth Rates

http://www.bloomberg.com/news/print/2010-11-10/singapore-seen-overtaking-malaysia-45-years-after-split-left-lee-in-tears.html

Some Neat Facts:

“Singapore’s gross domestic product will cap its fastest annual growth this year since independence, rising as much as 15 percent to about $210 billion, while the economy of Malaysia, a country 478 times its size, will expand 7 percent to $205 billion, government forecasts show. The nations are scheduled to release their 2010 data by February…

Smaller than New York City and the only Southeast Asian nation without natural resources, Singapore has grown 189-fold since independence in 1965, helping boost GDP per capita to $36,537 last year from $512. Malaysia’s economy expanded at one- third the pace during the same period and had a GDP per capita of $6,975 in 2009, up from $335 in 1965.”

Auto Sales in Emerging Markets

Auto Sales in Emerging Markets

http://www.bloomberg.com/news/print/2010-11-09/general-motors-taking-on-suzuki-in-india-with-saic-s-china-designed-cars.html

After achieving success in China, GM and SAIC turn their attention to the competitive Indian market. A risk might be the perception of Chinese quality:

“The joint venture also needs to change consumer perceptions that Chinese products are of inferior quality, said Bill Russo, a Beijing-based senior adviser at Booz & Co.

M.S. Thapa, 72, owns a security guard service in suburban New Delhi that uses three Maruti minivans to transport workers. He said he would choose an Indian vehicle over a Chinese one in the same price bracket.”

US Debt Rating Downgraded ... By a Chinese Rating Agency

As the three main rating agencies (S&P, Fitch, and Moody's) are based in the West, China is trying to develop an alternative rating agency, called Dagong. Apparently, Dagong thinks US Treasuries don't deserve a AAA rating:
http://www.bloomberg.com/news/print/2010-11-09/china-s-dagong-downgrades-u-s-to-a-on-quantitative-easing-xinhua-says.html

Book Recommendations

As we approach the end of the year, here are a few interesting books (listed by topic) that are worth reading:

Topic: Finance and the Economy

A Call for Judgment: Sensible Finance for a Dynamic Economy by Amar Bhidé

Modern Financial Macroeconomics: Panics, Crashes, and Crises by Todd A. Knoop

From Asian to Global Financial Crisis: An Asian Regulator's View of Unfettered Finance in the 1990s and 2000s by Andrew Sheng

Nineteenth Street NW by Rex Ghosh (Fiction)

Topic: International Affairs/International Business

Monsoon: The Indian Ocean and the Future of American Power by Robert D. Kaplan

Superpower?: The Amazing Race Between China's Hare and India's Tortoise by Raghav Bahl

Globalization at Risk: Challenges to Finance and Trade by Gary Clyde Hufbauer and Kati Suominen

India's Global Powerhouses: How They Are Taking on the World by Nirmalya Kumar, Pradipta K. Mohapatra, and Suj Chandrasekhar

Winning in Emerging Markets: A Road Map for Strategy and Execution by Tarun Khanna and Krishna G. Palepu

Economic History/Economic Thought

Inside the Economist's Mind: Conversations with Eminent Economists Edited by Paul A. Samuelson and William A. Barnett (The discussion in the book is a bit technical … it emphasizes the research work of prominent economists)

Lives of the Laureates, Fifth Edition: Twenty-three Nobel Economists by William Breit and Barry T. Hirsch

 

Global Economic Challenges

One of the Best Op-eds of the Year

http://online.wsj.com/article/SB10001424052748704353504575596762375409760.html

Kevin Warsh of the Federal Reserve argues that:

“Broad macroeconomic policies have not changed direction in the past several years. But change they must if we are to prosper. We can no longer afford to tolerate economic policies that are preoccupied with the here and now. Chronic short-termism in the conduct of economic policy has done much to bring us to this parlous point.”

Also, see Der Spiegel’s Interview With German Finance Minister Schäuble

http://www.spiegel.de/international/world/0,1518,druck-727801,00.html

“Schäuble: The German export successes are not the result of some sort of currency manipulation, but of the increased competitiveness of companies. The American growth model, on the other hand, is in a deep crisis. The United States lived on borrowed money for too long, inflating its financial sector unnecessarily and neglecting its small and mid-sized industrial companies. There are many reasons for America's problems, but they don't include German export surpluses.”

Rebalancing is Not Easy

http://online.wsj.com/article/SB10001424052748704049904575554290932153112.html

India and the US

Indo-US Ties

http://www.nytimes.com/2010/11/07/weekinreview/07yardley.html

“If America needs a partner, Europe is aging, Japan is aging and China is going to age,” he said. “The only two major nations in the world who will not be aging, at least for the next 30 years, are the United States and India.”

-          K. Subrahmanyam

GE Looks to Boost India Sales

http://www.bloomberg.com/news/print/2010-11-06/immelt-bets-on-energy-health-to-drive-ge-s-10-billion-india-sales-goal.html

List of India-US Deals

http://blogs.wsj.com/indiarealtime/2010/11/06/white-house-confirms-india-deals/tab/print/

Obama’s Post-Election Enlightenment:

“There still exists a caricature of India as a land of call centers and back offices that cost American jobs,” Mr. Obama said. “That’s a real perception. But these old stereotypes, these old concerns ignore today’s reality: In 2010, trade between our countries is not just a one-way street of American jobs and companies moving to India. It is a dynamic, two-way relationship that is creating jobs, growth, and higher living standards in both our countries.”

http://www.nytimes.com/2010/11/07/world/asia/07prexy.html

Joke of the Day

“Geithner declined to comment on the U.S. monetary policy stance, saying today the U.S. has an “independent” central bank”.

http://www.bloomberg.com/news/print/2010-11-06/geithner-says-u-s-won-t-use-dollar-to-gain-competitive-advantage-in-trade.html

When the Shoe is on the Other Foot...

http://www.bloomberg.com/news/print/2010-11-05/china-says-u-s-fed-must-explain-bond-buying-or-endanger-global-confidence.html
A few quotes from the above article:
“Many countries are worried about the impact of the policy on their economies,” Vice Foreign Minister Cui Tiankai said at a press briefing in Beijing today. “It would be appropriate for someone to step forward and give us an explanation, otherwise international confidence in the recovery and growth of the global economy might be hurt.” 
"German Finance Minister Wolfgang Schaeuble yesterday said the U.S. was creating problems for the world and the subject would be raised during next week’s Group of 20 leaders’ summit in Seoul." 

Interesting Cartoon (from Grant's Interest Rate Observer)

Emerging Markets in the News

Tom Friedman on Innovation in India
http://www.nytimes.com/2010/11/03/opinion/03friedman.html

Challenges facing Dilma Rouseff (Brazil's Newly Elected President)
http://www.bloomberg.com/news/print/2010-11-03/rousseff-s-ex-professor-must-wean-brazil-off-cheap-credit-to-meet-debt-vow.html

Airbus vs. Boeing in China
http://www.bloomberg.com/news/print/2010-11-02/airbus-set-to-erode-boeing-s-lead-in-china-with-100-plane-order-this-week.html 

Harley Davidson for Mangoes

QE II

On Free Trade

George Mason's Don Boudreaux makes an excellent case for the relevance of free trade:
http://www.econlib.org/cgi-bin/printarticle2.pl?file=Columns/y2010/Boudreauxglobalization.html


Meanwhile, international concerns grow about US commitment to free trade:
http://www.nytimes.com/2010/10/31/opinion/31friedman.html