Global Economy

[Ambar]

http://www.zerohedge.com/article/how-us ... s-will-end

How US Job Losses Will End.



also, inflation in India is also becoming a problem. a food-price inflation that is constantly in the double-digits and overall CPI which is always around 10% is not good for the economy. is it possible to do an analysis for Indian middle class inflation-adjusted wage growth, like it is done for the US?

Prad,excellent article. This is something that i have been saying for almost half a decade now.The obscene 25% hike year on year in India is unsustainable.We have a gigantic skilled workforce,but our domestic market,especially for services is minuscule compared to that in Europe and US.With a 10% official unemployment in US ( and around 17% if we include under-employed and those who have stopped looking for work),you have people who are willing to work for minimum wage (6.75$) here.And then there is attractive valuation when you consider the near historic lows in real-estate prices,stable or deflationary commercial real-estate rents,other parameters like good hotel rooms /quality food and transportation at attractive figures just makes it that much more appealing for companies to reverse the flow of business.And then there is the corporate tax,India is notorious for having one of the highest corporate tax in this world.Add to this a double taxation through state,VAT and other local bodies,and it makes no sense for foreign companies to move jobs out of their home bases into India.

There's another problem here.This meteoric rise in wages in India is being nullified by double digit inflation.Inflation without real growth in economy (consumption is not real growth,and consume is what America did for 30+ years until the current debacle) is capital destruction.With almost 30% of our population being below the age of 15,we need to do everything to keep the jobs in India and increase it to keep up with the birth rate.The private sector needs to come to its senses and realize that 20-25% wage increase is not feasible in the long run,what more,it just ebbs more inflation.The government on the other hand needs to increase the tax on consumption,increase the interest rates on par with CPI and regulate the inflow of 'hot money'.

At some point of time,rupee will strengthen against dollar by 25-30%,if the attraction of sending jobs to India has lost some of its shine now,its gonna look rusty when the rupee starts to strengthen. It is worth mentioning about the revolt in western societies against outsourcing which i perfectly understand.Govts in US and EU are already mulling about dramatic tax hikes on foreign profits to curb the outflow of jobs,how will this impact the businesses of these multinationals,only time can tell.

[paramu]

^^^
So, according to you, Indian economy is ITvity and outsourcing jobs where people get 25% pay hike every year....

[Ambar]

^^^
So, according to you, Indian economy is ITvity and outsourcing jobs where people get 25% pay hike every year....

The service sector accounts for 60+% of our GDP,and the wage inflation year on year has remained close to 20%.Is domestic demand enough to keep our service sector going at the current rate? Not in my opinion.

[paramu]

If you are not talking about ITBity, blame it on NREGS

[DavidD]

http://www.zerohedge.com/article/how-us ... s-will-end

How US Job Losses Will End.

I am not in the habit of regularly lifting data out of the Wall Street Journal, but even a blind squirrel occasionally finds an acorn.

I was tempted by the comparative Asian wage data they published yesterday, which I just have to get into my data base. Textile workers earn $2.99 an hour in India (PIN), $1.84 in China (FXI), and $0.49 in Vietnam (VNM). This is an 18 fold increase in labor costs from ten cents an hour since Chinese industrialization launched in 1978.

This compares to the $8 an hour our much abused illegals get at sweat shops in Los Angeles, and $10 in some of the nicer places. What’s more, the Indian wage is up 17% in a year, meaning that inflation is casting a lengthening shadow over the sub continent’s economic miracle. A series of strikes and a wave of suicides have brought wage settlements with increases as high as 20% in China.

This is how the employment drain in the US is going to end. When foreign labor costs reach half of those at home, manufacturers quit exporting jobs because the cost advantages gained are not worth the headaches and risk involved in managing a foreign language work force, the shipping expense, political risk, import duties, and supply disruptions, just to get lower quality goods.

Chinese wage growth at this rate takes them up to half our minimum wage in only five years. Recent indications that the Chinese will allow the Yuan to float, and therefore go up, will only accelerate this trend. This has already happened in South Korea (EWY), where wage costs are 60% of American ones. As a result, Korea’s GDP growth is half that seen in China.

These numbers are also a powerful argument for investing in Vietnam, where wages are only 27% of those found in the Middle Kingdom, and where Chinese companies are increasingly doing their own offshoring. This is why I have pushed the Vietnam ETF (VNM) on many occasions, with great success (click here for the call at http://www.madhedgefundtrader.com/june_8__2009.html ). I know every time I do this I get torrents of emails from that country bitterly complaining how difficult it is to do business there, and how the hardwood trees are still full of shrapnel left over from the war, and why I shouldn’t buy a 50 acre industrial park there.

China's days of decimating world industry while ramping up it's own are coming to an end. and in the current downturn, where US is leaving no stone un-turned trying for some inflation in the economy, that's even more trouble for China, b/c their miracle is dependent on exporting deflation.

also, inflation in India is also becoming a problem. a food-price inflation that is constantly in the double-digits and overall CPI which is always around 10% is not good for the economy. is it possible to do an analysis for Indian middle class inflation-adjusted wage growth, like it is done for the US?

That article takes an overly simplistic view. Rising wages in developed countries correspond to an increase in domestic consumption, which spurs indigenous technological advances, which would in turn result in goods that may compete with American exports. In fact, this is exactly what China is aiming for. Its goal is not to become the world's cheap, shoddy goods factory, it's simply a phase that it intends to pass on its way to become a leading technological center. The Chinese government's recent moves, such as supporting wage increases, planning tougher intellectual properties laws, and more becoming more restrictive toward foreign corporations, all point to their desire to step out of their current role as an export-heavy manufacturing hub.

[Ambar]

If you are not talking about ITBity, blame it on NREGS

I am not sure if NREGS is implemented across the country,and i am not sure how that has added to the wage inflation.In concise,doing business with/in western economies in general and US in particular in the current times seems more attractive than ever before.If we have to increase the job growth or atleast keep up with the birth rate,and maintain a price edge that makes it attractive for outsiders to do business with us,we need to contain wage inflation,improve infrastructure drastically and reduce corporate tax/double taxation .

[vijayk]

http://www.bloomberg.com/news/2010-07-0 ... grove.html

[vijayk]

http://www.newsweek.com/2010/07/10/how- ... again.html

In the U.S. and the U.K. in particular, there’s a sense that overreliance on
dodgy financial services is no way to create decent jobs for the masses or to
build a more stable economy. In these and many other countries, like France and
Germany, influential voices are calling for a return to the business of
producing real goods.

Contrary to conventional wisdom, manufacturing has not become a race to the
bottom. That’s why the U.S. still ranks as the fourth-most competitive nation
after China, India, and South Korea, despite vastly higher labor costs.
Germany, Japan, and Singapore also hold positions in the top 10.

There are measures the United States can take to shore up its position, though
predictably, they aren’t easy. While it’s not politically correct to suggest
that perhaps every citizen shouldn’t aspire to a university degree, high-end
technical schools that can turn a $16,000-a-year dishwasher into a
$60,000-a-year welder may in fact deserve as much private and public money as
mediocre four-year liberal-arts colleges churning out students with relatively
useless degrees. That idea has worked in Germany, though the Germans have also
done a good job producing top-level engineers—another area where the United
States lags. A much stronger K–12 focus on math and science would help the
U.S. greatly.

[wig]

The planned stress tests of European banks could be tougher than first thought. According to a German media report, up to 15 percent of the European banks to be examined may fail -- even though the criteria for the tests have been watered down.

The pan-European stress tests for banks won't be as easy to pass as previously thought, and 10 to 15 percent of banks assessed may fail them, German business daily Handelsblatt reported on Monday, citing an unnamed management board member of a large German bank.

Europe agreed to bank stress tests after US President Barack Obama urged fellow G20 leaders to follow Washington's lead and do more to address lingering uncertainty over the balance sheets of their banks. US regulators had published bank stress tests last year and the move had been credited with calming market fears.

http://www.spiegel.de/international/bus ... 76,00.html

[Sanjay M]

http://www.newsweek.com/2010/07/10/how- ... again.html

In the U.S. and the U.K. in particular, there’s a sense that overreliance on
dodgy financial services is no way to create decent jobs for the masses or to
build a more stable economy. In these and many other countries, like France and
Germany, influential voices are calling for a return to the business of
producing real goods.

Contrary to conventional wisdom, manufacturing has not become a race to the
bottom. That’s why the U.S. still ranks as the fourth-most competitive nation
after China, India, and South Korea, despite vastly higher labor costs.
Germany, Japan, and Singapore also hold positions in the top 10.

There are measures the United States can take to shore up its position, though
predictably, they aren’t easy. While it’s not politically correct to suggest
that perhaps every citizen shouldn’t aspire to a university degree, high-end
technical schools that can turn a $16,000-a-year dishwasher into a
$60,000-a-year welder may in fact deserve as much private and public money as
mediocre four-year liberal-arts colleges churning out students with relatively
useless degrees. That idea has worked in Germany, though the Germans have also
done a good job producing top-level engineers—another area where the United
States lags. A much stronger K–12 focus on math and science would help the
U.S. greatly.

Capital-intensive industries. This includes knowledge capital, and financial capital.
Look at Google - not everybody can build datacentres, as they do.

Capital intensive industries usually have high cost-barriers to entry, thus keeping the field clean of too many competitors. India's moves into aerospace are a positive sign. Not everybody can launch multi-ton satellites into orbit, like ISRO can do. India needs to do shipbuilding, chipmaking, airliners, etc.

[Singha]

but wouldnt working in a factory (producing some high value machine made goods) go against the prevalent societal attitudes against blue collar jobs -vs- white collar sales/media/mkting/finance/it that same people can aspire to. with atleast 55% of total univ grads in USA being female, do you think this ipod+latte drinking generation will be keen to go back to shopfloor and assemble motors, batteries, aerospace parts and bmw cars? in czech republic/hungary/russia/ukraine maybe but not USA!
the people going into liberal arts degrees are hardly the clientale to shift into manufacturing - they want to get into media and Mba jobs later. there's a ton of Mba in america with BA Hons in english or economics.

[abhishek_sharma]

THE VOLCKER RULE

http://www.newyorker.com/reporting/2010 ... ct_cassidy

[Sanjay M]

East India Company returns after 135-year absence (BBC)

An Indian entrepreneur is relaunching the famous East India Company with the opening of a luxury food store in London on Saturday.

Sanjiv Mehta at the store of the East India Company in London Mr Mehta hopes the company will once again be a worldwide business force

[Sanjay M]

Global Map of Economic Recovery

http://www.guardian.co.uk/business/inte ... -recession

[Ameet]

Jain May Be Lost in Translation as Deutsche Bank Seeks Chief

http://www.bloomberg.com/news/2010-08-1 ... chief.html

With speculation reviving over who will succeed Josef Ackermann as chief executive officer of Deutsche Bank AG, the company will have to decide how German the leader of Germany’s biggest bank must be.

The rise of Anshu Jain to sole head of the investment bank last month put him in charge of more than 80 percent of Deutsche Bank’s profit and reinforced his position as a frontrunner to become CEO. One catch: he was born in India and doesn’t speak German, a potential handicap for an executive who must negotiate the corridors of political power as well as global markets.

“Based on performance, Jain is the crown prince,” said Lutz Roehmeyer, who helps manage about $15 billion at Landesbank Berlin Investment in the German capital. “But Deutsche Bank has a split personality -- a global investment bank being run out of London and a German lender with a very political role. Any successor’s key challenge will be bridging these two worlds.”

[Sanjay M]

General Motors unveils plans for a massive share sale

General Motors has paved the way for an initial public offering (IPO), expected to be the second largest share sale in US history.

[manish]

Jain May Be Lost in Translation as Deutsche Bank Seeks Chief

The article in turn was discussed in this article. See the comments section for an interesting comment.

ludwigvonmises on Aug 18, 3:41 PM said:
@afrikaner: Holy Smokes, I worked with this dude (anshu) in the late 1980s when he was a futures analyst pumping goofy trade ideas to Merrill futures salesmen. Either he had a brain transplant or else this is an alien from another planet since the anshu i knew until the mid-1990s was just a smooth futures sales-guy with no idea about risk. Wait, he follows in the tradition of most Merrill CEO's who were nothing but glorified salesmen and i guess that is what deutsche is trying to emulate a US wire house..

The comments seem to convey that Germans dislike outsiders at the helm of their businesses in the same way the French seem to. What is the real story like? Gurulog?

[ramana]

An example of non-tariff barrier:

Was Toyota right all along?

Note the hike in visa fees that target Indian software programmers is another example of trade war lite.

[Uttam]

Andy Xie is a nut case for many of his views but I respect him for many of his predictions on financial bubbles in past and straight talk. And I find it very hard to disagree with this prediction.
China Swallows Obama Stimulus Meant for U.S. Economy: Andy Xie

.............
Multinationals such as General Electric Co. or Siemens AG decide on whom to hire. The Wangs and the Gandhis offer productivity but have little money. So they are willing to accept low wages to accumulate wealth. The Smiths and the Gonzalezes have wealth and won’t accept Third World wages. When their governments give them money to spend, their demand just makes the Wangs and the Gandhis richer and themselves poorer with rising national debt.

The West must wait for the Wangs and the Gandhis to become rich enough so that they demand Western wages and spend like the Smiths and Gonzalezes.

It is a long and painful process for the West. And there is no way around it.
...........

[Manishw]

^ Good read Andy Xie at his best.

[abhischekcc]

Andy Xie is not a nutcase - he is probably the commentator with the best insight into how the Chinese economy functions - that he is a sinophile does not hurt in this either - easier to get access to party officials and their thoughts. Although his earlier words should have been taken with some salt, his latest prnouncements are much more balanced.

---------

ramana, many moons ago, you had remarked that the roots of the current crisis go back to the 70s when the US did tweaked the bond market . Can you go over the arguments/history of that period and the reasons for that?

[ShivaS]

People laughed when Ross Perot during 1992 election debate about NAFTA and the consequent giat sucking of jobs (manufacturing going out of country).

The worst thing to happen to US was Jack Welch of GE who kept on and on about moving manufacturing to PRC. The BS of PRC becoming democracy as its GDP grows was the stale mantra even now some chant on MSNBC and CNBC.

[Neshant]

not sure where to put this but this guy in the UK is trying to live without money and has been doing so since 2008.

he grows his own food, forages, or does barter trade with others exchanging work for grain or other stuff.

he wrote a book ÈThe Moneyless ManÈ

http://www.youtube.com/watch?v=5uTyjvAO6ww

[Prem]

http://www.huffingtonpost.com/2010/08/2 ... 98297.html
China Premier Wen Jiabao Says Japanese Companies' Wages Too Low

BEIJING — Premier Wen Jiabao told a visiting Japanese delegation Sunday that Japanese companies operating in China should address workers' unhappiness over low wages that he says led to labor disputes this year.Wen's comment comes after Japanese Foreign Miniter Katsuya Okada called for "transparent policies" governing workers in China, saying the labor disputes that halted work at dozens of factories were troubling to Japanese companies.Okada brought up the issue at a high-level economic meeting between China and Japan – the world's second and third largest economies – held in Beijing to discuss ways to recover from the economic crisis and foster regional cooperation. Wen met the Japanese delegation on Sunday."Labor disputes are occuring at some foreign companies, where there is a problem of relatively low wages. We would like (Japan) to address this issue," Wen told Japanese officials, according to a news release by Japan's foreign ministry.Okada said Saturday that the sides discussed ensuring transparent policies during talks on how to improve the business environment in China. "As to the recent frequent labor dispute issue, the Japanese side expressed willingness to further strengthen discussion."The widespread strikes were rare for China but the government permitted them, apparently trying to put more money in workers' pockets as part of efforts to boost consumer spending.

[paramu]

he grows his own food, forages, or does barter trade with others exchanging work for grain or other stuff.

he wrote a book ÈThe Moneyless ManÈ

These type of guys are just trying to be cool. It is possible to do these kind of things when one is young and healthy. I suspect that he must be hoping to make more money by selling the book. In order to have a realistic demonstration of lifestyle of this kind, he should have a family, children and elderly parents to take care of, while following this lifetyle.

[Neshant]

These type of guys are just trying to be cool. It is possible to do these kind of things when one is young and healthy. I suspect that he must be hoping to make more money by selling the book. In order to have a realistic demonstration of lifestyle of this kind, he should have a family, children and elderly parents to take care of, while following this lifetyle.

He freely admits his lifestyle is not possible for a family of 4 as its too extreme. However he says people could live on a lot less they think they need.

I don't think his way of living is practical either.

Proceeds of his book are going towards setting up a moneyless village to extend his idea from a single person to a community. Can't say whether its just a gimmick or real.

[Ameet]

China And India Are Quietly Changing The Landscape Of The Gold Market

http://www.nuwireinvestor.com/articles/ ... 55968.aspx

As Western gold analysts scramble to get a bead on the world’s supply and demand of gold bullion , China and India are quietly changing the landscape. An emerging bullion market in China, and a massive under-the-radar bullion stockpile in India, may require that analysts redefine the world’s bullion supply and demand dynamics.

[Suraj]

Estimates suggest Indian gold holdings of approximately 30,000 tons . At the current ~$1245/oz price, that is a stockpile value of $1.195 trillion . I'm sure ldev will find this interesting.

[krisna]

Spain (of PIGS) fame Reaches Out to China on Government Debt

Spain hopes China will increase its investment in Spanish government debt, Prime Minister José Luis Rodríguez Zapatero said on a visit to Beijing, highlighting China's importance as a source of global capital.

A spokesman at the Spanish embassy in Beijing said China bought €400 million of Spanish government bonds in July.

Mr. Zapatero's statement reflects how China is increasingly seen as a source of capital by global corporate and political leaders, thanks to its massive pile of foreign-currency reserves, which is by far the largest in the world, totaling $2.454 trillion at the end of June. The majority of China's holdings are invested in Treasurys and other U.S. dollar assets, but the government has made efforts to diversify into other currencies and asset classes in recent years, and companies and governments have sought to take advantage of that.

Earlier this year, the Greek government approached the Chinese reserves managers about buying its bonds during that country's sovereign-debt crisis. And in February last year, during her first visit to China as U.S. Secretary of State, Hillary Clinton praised China for its ongoing purchases at a time the U.S. was concerned about how it would fund its planned stimulus spending.

Move over world bank here comes the dlagon.

[krisna]

Markets boosted as China and US soothe recovery fears

Global markets rallied yesterday as better-than-expected manufacturing data from the US and China allayed fears of a double-dip recession.

[Sanjay M]

EU to Defend IMF Clout as U.S. Seeks Wider Emerging-Market Role

Sept. 6 (Bloomberg) -- European finance ministers this week will try to protect their clout at the International Monetary Fund after the U.S. unexpectedly forced a debate on which countries sit on the institution’s board of directors.

Meeting today and tomorrow in Brussels, European officials are under pressure to reduce the number of their seats to give emerging economies more voice. They’re rushing to respond to a U.S. decision last month to block a proposal to maintain the IMF board in its current 24-seat form.

[Neshant]

Bewarned. By emerging economies the US mostly means China. They want to get China onboard a global IMF led SDR type currency and once that happens, US debts will be free to inflated away its debts. Probably Arabs and others including perhaps Americans savers will take it up the &&&. The federal reserve knows the dollar ponzi scheme is eroding and wants to move important creditors to a new system while screwing all other dollar denominated debt holders.

In time, the new SDR paper game will surely prove just as worthless as the federal reserve ponzi scheme.

Jim Rickards Interview from June 14th with Eric King
http://www.kingworldnews.com/kingworldn ... 3A2010.mp3

[Sanjay M]

If that's the case, then USA's major share in agricultural output means that global food prices could drop significantly. The common man in India might see benefit in this through a reduction in inflationary pressures, particularly on food.

[Neshant]

If that's the case, then USA's major share in agricultural output means that global food prices could drop significantly. The common man in India might see benefit in this through a reduction in inflationary pressures, particularly on food.

But as prices drop, supply is curtailed due to a drop in producer's profits. Don't know which way it will go.

One thing is for sure, there will be a drop in western living standards. Nobody will trust US govt debt or promisary notes again. There might be an uptick in employment in the interm but it all will come at the expense of those who have been defaulted on by this fiat trickery. The aim seems to be to make this default a global phenomena so as to mask the ripoff of savers in any one country.

Watch out for the next G-20 meeting in South Korea. Something wicked comes this way.

[Neshant]

I found a scene in the movie Lawrence of Arabia where the guy creates a gold ETF on the spot :

http://www.youtube.com/watch?v=mEwbojiD-yE

Basically Lawrence of Arabia convinces Arabs to invade Acuba which is occupied by Turkey to oust the Turks. He promises them there will be gold there for them to loot. But once they take the city, there is no gold.

So he whips out a piece of paper and writes the Arabs an IOU :

"5000 gold guineas within 10 days from the crown of England."

That's what a gold ETF is.

[krisna]

China, India to be top M&A targets till 2012: UNCTAD

Merger and acquisition activities of trans-national corporations (TNC) are due for a rebound and will be the major focus in foreign direct investment (FDI) activities around the globe, according to an UNCTAD survey. China, India and Brazil are likely to be the major beneficiaries of this rebound in global M&A business.

China, India, Brazil, US, Russian Federation, Mexico, UK, Vietnam, Indonesia and Germany are the top ten investment destinations for FDI until the end of 2012, says the survey. Last year's number two, the United States of America, is now in fourth place with India moving up from third position to occupy the second slot behind China.

[Sanjay M]

^^^Neshant,

Where can I get a breakdown on the global distribution of US dollar-denominated assets?

I'd like to get an idea on who's going to take the hit, and who will come out ahead/unscathed thru least exposure.

[ramana]

^^ SanjayM, This post might have partial info:

http://forums.bharat-rakshak.com/viewto ... 34#p934734

[Sanjay M]

Japan Plans to Seek Discussions With China on Bond Purchases
September 08, 2010, 11:24 PM EDT

By Toru Fujioka and Kyoko Shimodoi

Sept. 9 (Bloomberg) -- Japan’s government said it will seek discussions with China over the nation’s record purchases of Japanese bonds as an appreciating yen threatens to undermine an economic recovery.

[abhishek_sharma]

Quotable: Lula on the WTO

http://bosco.foreignpolicy.com/posts/20 ... on_the_wto

We had a fight with the United States in the WTO on cotton and we won. We had a fight with them on sugar and we won,' Lula said, referring to two cases in which the World Trade Organisation had ruled in favour of Brazil and against U.S. farm aid. 'In the olden days, they said don't fight with the United States, they are very big,' Lula said during a public works inauguration in the central Minas Gerais state. 'Look, an elephant has a certain size. The trunk is as big as 10 rats but put a mouse near the elephant and see how the beast trembles and wets itself,' he added.