D is Depression, and the picture in the largest economy of the world does look grim.
On the other hand, remember China? When it was said when the giant communist sneezed, the rest of the world would catch a cold ... Please correct Desi if his recolllection ain't on the spot. Blame it on Rais Yatim's deversionary tactic of sticking with "swine flu" when the rest of the universe has moved on fine wit' A(H1N1) flu...
Here's the contrasting pictire of some "gleaming" new initiatives taken by the roaring Chinese government to keep its economy's growing yet keeping inflation down, and somewhere there's that "CAPITAL CONTROLS" factor that Dr Mahathir Mohamad "borrowd" for use back in 1997/98, remember? Sombre topics for Sundae's rumination which I won't add any toppings so you are heartily welcomed to add thy thoughts as I take my CON BF!:)
From the Malaysian Insider:
It’s back to the 1930s for US economy — Paul Krugman
JULY 4 — OK, Thurday's jobs report settles it. We're going to need a bigger stimulus. But does the president know that? Let's do the maths. Since the recession began, the US economy has lost 6.5 million jobs — and as that grim employment report confirmed, it's continuing to lose jobs at a rapid pace.
Once you take into account the 100,000 plus new jobs that we need each month just to keep up with a growing population, we're about 8.5 million jobs in the hole.
And the deeper the hole gets, the harder it will be to dig ourselves out. The job figures weren't the only bad news in Thursday's report, which also showed wages stalling and possibly on the verge of outright decline. That's a recipe for a descent into Japanese-style deflation, which is very difficult to reverse. Lost decade, anyone? Wait — there's more bad news: the fiscal crisis of the states.
Unlike the federal government, states are required to run balanced budgets. And faced with a sharp drop in revenue, most states are preparing savage budget cuts, many of them at the expense of the most vulnerable. Aside from directly creating a great deal of misery, these cuts will depress the economy even further.
So what do we have to counter this scary prospect? We have the Obama stimulus plan, which aims to create 3.5 million jobs by late next year. That's much better than nothing, but it's not remotely enough. And there doesn't seem to be much else going on.
Do you remember the administration's plan to sharply reduce the rate of foreclosures, or its plan to get the banks lending again by taking toxic assets off their balance sheets? Neither do I.
All of this is depressingly familiar to anyone who has studied US economic policy in the 1930s. Once again, a Democratic president has pushed through job-creation policies that will mitigate the slump but aren't aggressive enough to produce a full recovery. Once again, much of the stimulus at the federal level is being undone by budget retrenchment at the state and local level.
So have we failed to learn from history, and are we, therefore, doomed to repeat it? Not necessarily — but it's up to the president and his economic team to ensure that things are different this time.
President Barack Obama and his officials need to ramp up their efforts, starting with a plan to make the stimulus bigger.
Just to be clear, I'm well aware of how difficult it will be to get such a plan enacted.
There won't be any cooperation from Republican leaders, who have settled on a strategy of total opposition, unconstrained by facts or logic. Indeed, these leaders responded to the latest job numbers by proclaiming the failure of the Obama economic plan. That's ludicrous, of course. The administration warned from the beginning that it would be several quarters before the plan had any major positive effects.
But that didn't stop the chairman of the Republican Study Committee from issuing a statement demanding: 'Where are the jobs?' It's also not clear whether the administration will get much help from Senate “centrists”, who partially eviscerated the original stimulus plan by demanding cuts in aid to state and local governments — aid that, as we're now seeing, was desperately needed. I'd like to think that some of these centrists are feeling remorse, but if they are, I haven't seen any evidence to that effect.
And as an economist, I'd add that many members of my profession are playing a distinctly unhelpful role.
It has been a rude shock to see so many economists with good reputations recycling old fallacies — like the claim that any rise in government spending automatically displaces an equal amount of private spending, even when there is mass unemployment — and lending their names to grossly exaggerated claims about the evils of short-run budget deficits. (Right now, the risks associated with additional debt are much less than the risks associated with failing to give the economy adequate support.)
Also, as in the 1930s, the opponents of action are peddling scare stories about inflation even as deflation looms.
So getting another round of stimulus will be difficult. But it's essential.
Obama administration economists understand the stakes. Indeed, just a few weeks ago, Christina Romer, the chairwoman of the Council of Economic Advisers, published an article on the “lessons of 1937” — the year that FDR gave in to the deficit and inflation hawks, with disastrous consequences both for the economy and for his political agenda.
What I don't know is whether the administration has faced up to the inadequacy of what it has done so far.
So here's my message to the president: You need to get both your economic team and your political people working on additional stimulus, now. Because if you don't, you'll soon be facing your own personal 1937. — NYT
China continues to push forex system diversification
A worker inspects US dollar bills inside a money changer in Manila. — Reuters file picBEIJING, July 2 — China hopes for diversification of the international currency system in the future and it would be “normal” for the issue to be raised at next week’s Group of Eight summit, Vice Foreign Minister He Yafei said today.
But He, who is in charge of China’s G8 preparation, told a news briefing he had not heard that Beijing had requested a discussion about reserve currencies at the meetings in Italy.
G8 sources told Reuters yesterday that China had asked for a debate on proposals for a new global reserve currency in Italy and the issue could be referred to briefly in the summit statement.
That news pushed the dollar down to a three week low. It is particularly sensitive to comments from China because bankers estimate the country holds perhaps 70 per cent of its US$1.95 trillion (RM6.9 trillion) in official currency reserves in the dollar.
“I have not heard that China has this request,” He said in response to a reporter’s question about the matter. “I have not heard of China raising this for discussion.”
A Russian Finance Ministry source told Reuters today that Moscow had not seen any official requests from China regarding a debate on a global reserve currency.
“At the Finance Ministry level, at the level of financial sous-sherpas, at deputy ministers’ level we have not received such information. We also have not heard anything like this from our colleagues at the Foreign Ministry,” the source said.
The dollar ticked higher after the comments by He, who also said the dollar was the main global reserve currency and he hoped it would be stable.
But he flagged that Beijing expected the issue to come up at the three-day G8 meeting starting next Wednesday.
“This financial crisis has fully exposed some shortcomings in the international currency system,” He said. “Of course we hope that in the future, the international currency system can diversify.
“I think this is an objective that the international community naturally wants to realize, and as I just said, if in the meetings some leader raises this issue for discussion, that would be normal.”
China’s central bank last week renewed its call for the creation of a super-sovereign reserve currency to reduce the dollar’s global domination, which it said had worsened the financial crisis.
President Hu Jintao, who will be in Italy to attend the G8 summit, has yet to make any public statement about the idea for a new reserve currency.
The People’s Bank of China caused a stir with its suggestion, first made in March, that the International Monetary Fund’s Special Drawing Right (SDR) could eventually displace the dollar as the principal reserve currency.
The SDR is an international reserve asset allocated to IMF members and its exchange rate is determined by a basket of dollars, euros, sterling and yen.
WANTED: STABLE DOLLAR
“At present the US dollar is the main reserve currency,” He said. “We of course hope the exchange rate of the main reserve currency maintains stability.”
Chinese officials have expressed concern that massive US fiscal and monetary stimulus will generate inflation and drive down the dollar, handing Beijing big losses on its vast portfolio of US bonds.
But these holdings also make China nervous about any tough talk that can drive down the value of the dollar, creating uncertainty about how aggressively it will press for debate on reforming the global currency system.
“We will see more diversification, but I don’t think anything’s going to happen quickly because it would almost be like shooting yourself in the foot,” said Mitul Kotecha, global head of FX at Calyon in Hong Kong.
The SDR proposal has not just been idle talk from China. The IMF this week unveiled its long-awaited plan for issuing debt denominated in SDRs, and China has committed to purchase up to US$50 billion of the notes, more than any other country.
Despite China’s economic clout, its ability to press for changes in the global reserve currency system is circumscribed by the fact that its currency, the yuan, is not fully convertible on the capital account.
“When the SDRs are revised, China would gain little of a sympathetic hearing if it hasn’t done further work to reform its FX system,” Patrick Bennett, economist with Societe Generale, said in a note.
At the G8 summit, Vice Foreign Minister He said China’s focus would be on the financial crisis, with the hope that countries will be able to harness their policies to help the global economy recover as soon as possible.
“The international crisis is still spreading,” he said. “The outlook on whether the world economy can revive or when it will revive is still unclear.”
He said China also wanted the summit to improve coordination between the Doha round of world trade talks and climate change negotiations. He said Beijing was worried that some countries might use global warming as a pretext for trade protectionism, imposing tariffs on exports linked to carbon emissions. — Reuters
Bank of China announces yuan trade deal with HK’s HSBC
BEIJING, July 4 — China's largest foreign exchange bank, the Bank of China, has reached a yuan trade settlement agreement with HSBC bank in Hong Kong, taking advantage of new rules allowing such deals.
Under rules announced this week, foreign banks will be able to buy or borrow yuan from Chinese mainland lenders to settle trade in Hong Kong and Macau under a pilot scheme.
The central bank chiefs of China and Hong Kong signed a memorandum on Monday, paving the way for the scheme, which analysts say is a move to greater international use of the yuan, also called the Renminbi.
Today, the Bank of China (BOC) announced on its website that it reached agreements with HSBC and BOC's own separately listed Hong Kong unit to carry out yuan trade transactions.
"With the signing of these agreements, the Bank of China can begin carrying out cross-border settlements and clearances using Renminbi funds with these banks," said the statement.
It did not detail the size or other details of the deals.
Last month, HSBC also became the first foreign bank to sell yuan-denominated bonds, raising funds for its mainland operations at a time when China is trying to increase acceptance of its currency in the region.
The new rules make clear that China will be checking to ensure that banks and companies do not try to use the pilot programme to get round the country's capital controls. To that end, any yuan loans must be supported by trade documentation. — Reuters
China statistics chief sees no inflation risk this year
BEIJING, July 4 — China's chief statistician said today that he saw no risk of inflation for the country in the second half of 2009, reinforcing recent comments playing down worries about credit-fuelled price rises.
"I believe that in the second half of this year there are no risks of inflation in view," Ma Jiantang, the head of the National Bureau of Statistics, told a forum in Beijing.
Ma's remarks came a day after Li Yang, a former adviser to the People's Bank of China, said China's rapid money and credit growth would not fuel inflation.
Consumer prices fell 1.4 per cent in the year to May, marking the fourth straight month of falls in the CPI.
But some economists have expressed concern that a record burst of bank lending is feeding into money supply growth and will eventually generate inflation. Others are more worried that part of the flood of money is finding its way into the property and stock markets, inflating new bubbles. — Reuters
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