Charlie Rose - Home

Charlie Rose - Home

I found very interesting the interview at Charlie Rose site to Niall Ferguson.
Mr Ferguson, author of amongst others The Ascent of Money in his style, predicts the disaster to the US economy given the level of debt that it's accumulating, the risk of default, the raise in the interest rates as you loose credibility,...

Mr Rose pushes him with the inner feeling that America cannot default, that all economists working now in the recovery of the economy are not talking about that...

What I find wonderful is this debate is the following: the bigger the picture or the longer the period you consider in your analysis, the more gloomy, dark and risky the picture becomes. When historians like Ferguson look into the picture, they see a long trajectory that almost inevitably goes in very bad direction. It has to do with the dynamics of empires, the decadence of the system...

On the other hand, when you apply a shorter view things look much better. We're coming out of the woods with all the money pumped intot he system, bailouts,etc. Economy seems like is starting to grow again, people get more optimistic...

It would be interesting to apply a kind of technical analysis of the type that is used in financial markets, to country economies. What would the picture be for the US economy?

The Tech Sector Trumpets Signs of a Real Rebound - NYTimes.com

The Tech Sector Trumpets Signs of a Real Rebound - NYTimes.com

Is technology going to lead the recovery? To answer that question we need to understand what is guiding the investment in technology, particularly IT in the corporate world these days. And the key factor of that spending is cost savings.

What companies are doing these days is invest in IT primarily to reduce costs, not only IT costs, but total operational costs. The impact of these measures is that the business improvements achieved via IT are sticky. That is, they will not go back to normal when the crisis is over. In other words, jobs cut and improved business processes will stay.

IT is going through the extended part of its development cycle: after the first 20 years of development, we had a big bubble burst. Now we are in the phase in which IT is penetrating all sectors of activity, all industries and although there may not be radical innovations, the cumulative improvements that it brings produce massive economic results.

The other fundamental trend that is happening in modern capitalism is that IT is becoming central to corporate strategy. It has evolved from being a tool to becoming a crucial component of the way business is done. From the operations of telecom operators, to banks, to new healthcare, including all e-government initiatives, technology is now at the heart of how products and services are delivered today. That's the other reason why IT is showing signs of strength.

Marc Faber Blog: The Lifestyle In The West Won`t Improve Meaningfully

Marc Faber Blog: The Lifestyle In The West Won`t Improve Meaningfully

Where can the west go from here? With a GDP per capita in the region of USD 35,000, how is the life of the midle class going to change in the next 20 years?
Besides, Asian emerging countries with GDPs ranging from 1,000 to 3,000, where will they be in 20 years?

The argument is clear that in a global economy, emerging countries will catch up and benefit from the goods and services that are available in the world. Assuming the finance instruments to allow the consumption are there to support it of course.

But the assumption that the life of the standard western citizen is not going to improve dramatically is too short minded. Who coul dhave predicted what happened in the west in the last 30-40 years? From the development of the information technology and it's impact in all areas of economic activity, improved productivities, telecommunication, health, transportation,...What lies ahead of us in terms of innovation?

There is of course a big difference in the growth of developed countries versus developing countries. The latter just need to emulate and copy the innovation that others create. The former need to continue innovating in order to keep the growth. This is the most important task for governments in the west: ensure we have a framework and an incentive structure that keeps innovation alife so it can bring the growth and job creation that is needed.

Barack Obama and the Nobel peace prize: Even greater expectations | The Economist

Barack Obama and the Nobel peace prize: Even greater expectations The Economist

A prize that recognised intentions, not achievements. This is bad for Mr Obama. It's bad for him because the expectation is now defying gravity. No matter what he achieves, there will likely be disappointment. Besides, I guess it will make it difficult for the US to use it's military power in the future, even in circumstances that justify it. Is this not an incentive that can ignite Iran or terrorists from around the world to attack the US? More so, in a weak economic circumstance that will make it more difficult to react.

Global government for a global crisis

One of the topics I frequently discuss regarding the current crisis, is that we do have a global financial system, but we do not have a global government model. The implications are profound. The impact of the capital markets in everyday life are huge, and indeed they are not going to diminish.
However, there is an obvious need to define global coordinated actions. Yes, we do have G20, IMF and the like, which are adapting their governance models to a more balanced world, with bigger roles to superpowers like Brasil and China. But, I always struggle with one issue:
Q:what's in the agenda of a politician? 
A.The next election.
Q: is this the best motivation to solve global and enduring issues like the global financial crisis?
A: obviously not.
Q: then, what are they going to do to solve the issues?
A: focus on what can give them an easy headline for domestic political consumption, i.e., limit bonuses of bankers, impose regulation to imports,...
You see what I mean.
I would like to see a bunch of technocrats designing a global solution and the politicians adhering to it, rather than the other way around. We could transfer legitimate power to a group of 10 that could design a solution, without immediate election results in mindset. Is that possible? Yes. Are we ready to do it. I guess not.

BBC NEWS | Special Reports | Global recession

BBC NEWS Special Reports Global recession

In an interesting debate on BBC held in Istanbul after the IMF meeting, the two most important questions that remained with an unclear answer where:
- Are we going to see growth soon, and what type of growth will that be?
- Are we going to create jobs again soon, and what type of jobs?

Clearly, both questions are related. The conclusion was that in order for growth to resume and jobs to be created again, it needs to be driven by private sector. But, with unemployment on the rise and not a clear sign of when it's going to start declining as Greenspan said yesterday, expect consumption to be weak for a while.

This is the recipe for continued stimulus packages. Although most of the first package has not been utilized, some voices like Paul Krugman, start advocating for more stimulus. Clearly, we've not seen it all in terms of fiscal deficit.

The G20 and Why Export Dependency And Global Imbalances Matter | afoe | A Fistful of Euros | European Opinion

The G20 and Why Export Dependency And Global Imbalances Matter afoe A Fistful of Euros European Opinion

In a previous post I mentioned that the post-crisis macromindset is going to be a very different one and that this is going be a multi year process. Now, here is an article that explains why the imbalances we've seen in the past need to change 180º before we see a recovery in the world economy that is not driven by the fiscal stimulus. In other words, only a coordinated more balanced economic growth in the future where surplus economies like China, Germany raise their domestic demand, and deficit countries like US reduce their budget and trade deficits.

The difficulty to execute this, is related to the lifecycle of savings. Countries with young adult median ages have a strong deficit fueled by domestic consumption and lending booms (US, Spain, Ireland, Eastern Europe,...). Countries with a mature median age have surpluses and their tendency to exports grows as the population ages (Germany, Japan, China,...).

This is the trick: how are we going to get surplus countries with ageing populations (in other words lower fertility rates) to increase their domestic demand? Anyone approaching retirement age in Germany is not going to start spending like crazy now. And for sure, they are not going to give birth to another kid.

What is the way out? Getting the young countries, with high fertility rates and high domestic demands to consume more. The name is Emerging Economies. The interesting challenge is how are we going to channel the lending funds that those countries need to absorb all the exports from the mature countries? Nice puzzle in the current re-regulation of the financial markets.

FT.com / In depth - Return of the old ways of thinking threatens recovery

FT.com / In depth - Return of the old ways of thinking threatens recovery

This article from Mohamed El-Erian, really nails it. Are we seriously adapting our models to the new reality? Or does everybody think that this is over and we can carry on as before?

All evidence suggests that current growth is mainly driven by stimulus packages, rather than real demand. This graph shows the evolution up until April of corporate earnings. It shows how earnings have declined much faster in this recession than in previous ones.

Worldwide, the biggest transformation needed has not yet occured and it doesn't seem to be ocurring any time soon: the swap from excesive leverage and excesive consumption in the US, to a higher consumption and lower saving in China. The news coming from China about their excess capacity being built there are not sending the signals that this is happening as of yet.

This is a multiyear transformation process and the market pricing in a short term recovery is unrealistic.