On economic growth...

With the G20 or whatever the most recent international economic talk-fest is being called in Toronto this past few days - along with the obligatory silly-shirt day - thoughts are filtering through the ol probligo's neurones carrying tags like "growth", "recession" and the like.

And I keep coming back to the same brick wall.

How can there be continuing "economic growth"? What is the basis for the measure of "economic growth"?

NZ has a record of our economy growing at an annual rate of 1.8%. Over the same period, China's economy has grown at a rate of some 9.5% p.a. I have to presume that these measures exclude the impact of inflation, currency changes, and the other "influences" that impact upon monetary measures.

Y'see, if the NZ economy has "grown" by 1.8%, does this mean we have spent and consumed that much more (very likely) or produced and made that much more (less likely).

Underlying that question is an even more fundamental bother. Is there a limit to the true value of the global economy. If there is, then the fight to increase "growth" has to be considered as a change in balance; more to one meaning less to another.

The immediate suspicion is that is only part of the answer. It is as likely that the limits are in the measurement of "wealth" and "total resource".

Thoughts?

Time to ratchet up American paranoia...

... and add to the ol' probligo's worries as well. And, TF, you do not need to "read between the lines" with this story. The only thing puzzling me is how it has missed the right-whinge news feeds in the US. At least until now (19:50 27/4/10 NZST)that is and I have not yet been across to TF's place for a read.

Today's Herald had this article reprinted from Telegraph UK -

Iran and Venezuela have already shown an interest in the Club-K Container Missile System which could allow them to carry out pre-emptive strikes from behind an enemy's missile defences.

Defence experts say the system is designed to be concealed as a standard 40ft shipping container that cannot be identified until it is activated.

Priced at an estimated £10 million, each container is fitted with four cruise anti-ship or land attack missiles. The system represents an affordable "strategic level weapon".

Some experts believe that if Iraq had the Club-K system in 2003 it would have made it impossible for America to invade with any container ship in the Gulf a potential threat.

Club-K is being marketed at the Defence Services Asia exhibition in Malaysia this week.

Novator, the manufacturer, is an advanced missile specialist that would not have marketed the system without Moscow's approval. It has released an emotive marketing film complete with dramatic background music.

It shows Club-K containers stowed on ships, trucks and trains as a neighbouring country prepares to invade with American style military equipment.

The enemy force is wiped out by the cruise missile counter attack.

The ol' probligo is not in any way claiming an ability at prescience. Not one little bit. This is a weapon that was just crying out for development. It would surprise me immensely if such a system was not already an element of the US war machine. The diff obviously being that they would limit sales to one or two good friends - like Israel for example.

So, TF (and any anyone else of like mind), this one does scare the ol' probligo. It is what I have talked of for some years come to fruition.

Where to next?

At some point in the past few days I heard a radio interview with an expert on genetics. Amongst the interesting things covered in the course of the interview was the thought that Homo Sapiens as a species is an evolutionary dead-end.

Amongst the prim-misses he put forward for the delusion was the idea that H-S has evolved to the point of becoming technology-dependant. To support this, he put forward the idea that anyone trying to survive on a totally raw diet (no restrictions on content or quantity) would die within two months from starvation. Why? For the simple reason that we have lost the means of producing natural enzymes essential for the digestion of totally raw food, and also lost the symbiotic bacteria ditto.

An interesting thought. Where are we going as a species? Do we help the long-term survival of the species through our increasing reliance on technology, and especially medical advances. I have made the comment quite a few times now that 100 years ago I would have been lucky to have seen out my 40's.

In another recent discussion it was stated that the commonly accepted age of retirement of 65 years actually comes from a scientific paper of the mid-1800's based on the fact that by then 50% of all people have in fact died. Now, we have advanced to the point where mean life expectancy (50% die before reaching it) is something like 78.

Staying with the "evolutionary dead-end" for the moment, a recent death here in Auckland pointed to another aspect of the same. The Coroner this past week heard evidence into the death of a restaurant patient who had died of an allergic reaction to either peanuts or shellfish. Sad for him and for the family, I acknowledge, given the circumstances. It raised again the question in my mind (following the radio interview I started with) about the continuing viability of the species. There are any number of human deficiencies (including heart defects of the kind I suffer(ed) from) which in times past would not have been continued in the total population other than as the occasional mutation. Thinking back, allergies were almost unheard of in my childhood, there were people who "died suddenly" of "heart failure" usually, who might well have been affected by peanut allergy or bee-sting allergy or similar. Now, (if you add them all together; allergies, coeliac, auto-immune diseases like arthritis) there is an increasing proportion of the total population who survive long enough to pass on their defective genes when in time past they would not have survived long past puberty at best.

The third thought that impinges comes from my sister's efforts to eliminate "curly calf" and Neuropathic Hydrocephalus from her herd. Again, and this leads into the question of "line breeding", is the "purity of line" more important than the long-term genetic stability of a species.

So, where do we go next as a species? Should we be looking to restricting medicine and medical treatments to those who can maintain a healthy gene stock? Are we (as a species and reportedly the descendants of as few as 2000 individuals) so badly line-bred that we can not guarantee long-term survival? Evolution (as a product of adaptation) seems well gone into the past. In all likelihood, given the opening prim-misses, we can no longer adapt. We are nailed solidly to our cross of technology.

Futures...

Y’know, it is strange sometimes how things work out. I went away for an extended weekend – I have eight days leave due to me and another 20 at the ened of the month – so SWMBO and I invited some very good friends to come and share a few days along with some good wine, good food and good conversation at the beachside in Opononi. Now the forecast was not promising, with 25 plus knots of nor-easter and rainy bits as well. But we managed, and our friends left well-satisifed as did we. But that is not what I want to talk about.

In one of the papers between Friday and Sunday was a small article that gave a somewhat different paradigm to the “current financial meltdown”. I made a mental note to look it up on the net when we got back to the big smoke. Could I find it? Not even au!!

But I did turn up two other articles, both ex Granny Herald, that have a quite curious connection apart from their appearance in consecutive editions.

The first of the two is by-lined Pamela Hess, a lady I do not recall having read previously. She has flicked out a report from the National Intelligence Council titled "Global Trends 2025: A Transformed World”

Some of our preliminary assessments are highlighted below:
 The whole international system—as constructed following WWII—will be revolutionized. Not only will new players—Brazil, Russia, India and China— have a seat at the international high table, they will bring new stakes and rules of the game.
 The unprecedented transfer of wealth roughly from West to East now under way will continue for the foreseeable future.
 Unprecedented economic growth, coupled with 1.5 billion more people, will put pressure on resources—particularly energy, food, and water—raising the specter of scarcities emerging as demand outstrips supply.
 The potential for conflict will increase owing partly to political turbulence in parts of the greater Middle East.

Hess tempts with others –

It also says the warming earth will extend Russia and Canada's growing season and ease their access to northern oil fields, which will strengthen their economies. But Russia's potential emergence as a world power may be clouded by lagging investment in its energy sector, persistent crime and government corruption, the report says.

Analysts also warn that the same kind of organized crime plaguing Russia could eventually take over the government of an Eastern or Central European country. The report is silent on which one.

It also says countries in Africa and South Asia may find themselves unstable and ungoverned, as state regimes collapse or wither away under security problems and water and food shortages brought about by climate change and a population increase of 1.4 billion.

The potential for conflict will be greater in 2025 than it is now, as the world's population competes for declining and shifting food, water and energy resources.

Despite a more precarious world situation, the report also says al-Qaida's terrorist franchise could decay "sooner than people think". It cites its growing unpopularity in the Muslim world, where it kills most of its victims.

"The prospect that al-Qaida will be among the small number of groups able to transcend the generational timeline is not high, given its harsh ideology, unachievable strategic objectives and inability to become a mass movement," the report states.

The report forecasts a geopolitical rise in non-Arab Muslim states outside of the Middle East, including Turkey and Indonesia, and says Iran could also be a central player in a new world order if it sheds its theocracy.

... suggests the world may complete its move away from its dependence on oil, ...

...that the US dollar, while remaining important, will decline to "first among equals" among other national currencies.

US global power will likely decline, as Americans' concerns about putting resources into solving domestic problems may cause the United States to withdraw some resources from foreign and global problems.

The second contrasts quite nicely. It flows like a gentle stream from the keyboard of Gwynne Dyer – a regular if not subscribed “international correspondant”. He kicks off with –

Barack Obama will inherit the in-box from hell when he becomes President. But an all-points crisis like the present one also creates opportunities for radical change that do not exist in normal times.

As Rahm Emanuel, his newly appointed chief of staff, put it: "Never waste a crisis."

Is Obama clever enough and radical enough to seize those opportunities?

From there he runs into promises to close Guantanamo, GWB’s exective veto on measures that put emission controls in place in California, and how about this for a Dyering gem

The recession will feel like a crisis for only a few more months. People eventually get used to almost anything.

Ah, there is a saying, Gwynne, widely used in a beer advertisement round these parts; “Yeah, right!”

It gets worser though.

The century-long pre-eminence of the US as the economic superpower was bound to decline gradually as the Asian giants industrialised, but the financial collapse risks turning that into a steep and irreversible fall. Even the US dollar could lose its place as the global reserve currency.

To limit the damage, Obama has to play a poor hand very well. He has implicit permission from the financial gurus to run even bigger deficits over the next couple of years than the Bush Administration did.

That will let him do some repair work on the American social fabric as well as just bailing out failing businesses and jobless people. But rebuilding America's reputation abroad will take more than money.

This is getting close to populist and simplistic nonsense. Like so many others, Dyer is promoting the messianic level of Obama’s campaign. It loses sight of the truth; that POTUS is an administrator, a bureaucrat. He is not a dictator, benign or otherwise. For a commentator or mere journalist of his stature to forget that fundamental is unforgiveable.

So, I will have to return to what I can remember of the article I failed to find. It would have appealed immensely to Lucy. It was a thoughtful and practicle analysis of the similarities between personal and national finance, the need for thrift and economy not in times of hardship but at all times. It castigated the profligacy and waste of both money and resources by western society. It promoted, indirectly, the stupidity of the continual pressure to spend and consume in pursuit of the good life. It had its sweet little homilies, that TF might also have enjoyed. For instance the story of Mrs Wheelbarrow and the fridge. Mrs Wheelbarrow needs a new refridgerator. Why? The old one is still working. Well, her neighbours have a brand new one with a brushed stainless steel finish and it looks beautiful. So, Mrs Wheelbarrow deserves one as well.

It was well written and a joy to read, if you were prepared to take on board the hard lessons. It might have fitted in well with the NIC report as a means of the west's survival in the long term.

What a shame it was “lost”. I can’t find it. I can not remember the author. It has gone.

"If you don't have it, then you can't lose it..."

at least that is how I read Benedict XVI.

The global financial crisis is proof that the pursuit of money and success is pointless, Pope Benedict XVI has told a meeting of bishops in Rome.

The head of the Roman Catholic Church said that the disappearance of money as banks collapsed showed that wealth meant "nothing".

The Pope said that people should instead base their lives on God's word.

Those who think that "concrete things we can touch are the surest reality" are deceiving themselves, he said.

Now I can not agree with his alternative. You are not going to find the ol progligo going that far.

But this is interesting -

When he opened the Synod on Sunday, the Pope attacked modern culture, saying that "nations once rich in faith and vocations are losing their own identity under the harmful and destructive influence of a certain modern culture".

I wonder who that refers to?

History repeats -

I admit that the parallel of the current financial crisis with the 1929 crash was too strong for me to ignore.

Thanks (once again) to my friends at ALD, this has turned out . Scott Reynolds Nelson concludes -

In the end, the Panic of 1873 demonstrated that the center of gravity for the world's credit had shifted west — from Central Europe toward the United States. The current panic suggests a further shift — from the United States to China and India.

An idea that I suggested to Dave the Just Us a whiles back.

A weekend roundup...

The weekend started with Herald running a series of articles on the probablility of a "dirty election". Not that the election might be won fraudulently (in the direct sense) but the emergence of the "dirty trick brigades". Think, if you are American, of the SWIFT boat saga in the last elections or Richard Nixon and Watergate for extreme parallels.

Rochelle Rees' background with the Labour Party was revealed by bloggers yesterday after news stories she was behind a ploy to ensure Mr Key's website link was the first to appear when people searched for "clueless" on Google.

Yesterday, National leader John Key said it was another example of petty attacks on him by Labour.

Link to the Labour Party or not is not the issue here. The real issue is the denigration of the electoral process.

The second theme was run by the business pages of Sunday Star Times. The headline "Gluttons Table Set by Central Banks" was a good hook to a Gareth Morgan analysis of the weeks' crises in the international finance markets.

If you think that global financial "crises" seem to be happening with increasing frequency, congratulations - you're right.
...
It was back in 1996 that Fed chairman Alan Greenspan, who was really at the centre of the liquidity flood, declared the sharemarket was suffering from "irrational exuberance".

The market ignored his warning and it wasn't till two years later, in 1998, that it suffered its first setback. When hedge fund manager Long Term Capital made some wrong bets and was staring down the barrel at bankruptcy, the US central bank decided this institution was too big to fail and organised a consortium of investment banks to absorb its assets.

The Long Term Capital episode was the first big indication that the financial system was getting sick. If a single institution that was only four years old was too big to fail without bringing the US financial system down, then something was wrong with the system. But it would get worse.

Nice to have the 20/20 now, but let's follow a bit further...

Oh oh! Here's the problem. Central banks, and the Fed in particular, have become so addicted to the need for economic growth each year that they have sacrificed a tenet of sound central banking. It seems they no longer care whether lending by banking is within prudential bounds.

Indeed, it is their effective prudential supervision that they have sacrificed at the altar of this newfound, but ultimately false, belief - that you can have continual economic growth and low inflation. This shows a surreal confidence in the private sector's ability to constantly deliver sufficient productivity gains so that inflation isn't an issue, plus deliver more income to everyone in the economy year after year.

Not covered here, but a strong echo of the 1929 crash - which was fuelled in part by the fervor for stock - any stock - as long as it earned more than the money borrowed to buy it.
Also in the same section this morning was this news item.

Now I spoke of "derivative trading" in my last bit on the subject.

In the past two weeks billions of dollars have vanished as the shares in Australia's Macquarie Group have fallen 45 percent, America's Morgan Stanley 47%, Goldman Sachs, 35 percent.

Their plummeting stocks appear to be following other financial giants into the abyss, as Bear Stearns, Lehman Brothers, Merrill Lynch and HBOS suffered such meltdowns they were forced to sell to rivals.

Bear, which hit trouble in March, was acquired by JP Morgan Chase in May. Lehman filed for bankruptcy protection on Monday and its core businesses were acquired by British bank Barclays the following day. Merrill Lynch is now owned by Bank of America after watching its shares dive 38% in less than a week. HBOS went to fellow British bank Lloyds TSB on Thursday after its shares fell 40% in a matter of days.

The screaming headlines say these institutions were victims of a financial meltdown as their dangerous punts on speculative debts turned septic.

There's another story and it's not pretty either.

Sydney-based Macquarie Group believes it is the victim of a concerted campaign to manipulate its share price and Australia's market regulator has started an inquiry into allegations that short-sellers who profit from falling shares are spreading false rumours.

Now hang on a sec!! What's this? Spreading false rumours to create loss in value on specific stocks?

An inquiry immediately announced by the Australian Securities & Investments Commission was echoed by New York attorney-general Mario Cuomo, who announced on Thursday a probe into possible illegal short selling in financial stocks.

"This investigation will not only encompass short-selling of Lehman Brothers and AIG but also short-selling in other companies that may be occurring, like Morgan Stanley and Goldman Sachs," he said.

In Australia, short-sellers are required to report their positions to the stock exchange daily. "Clearly some haven't been doing that," said one market source.

OK, so what is "short selling"?

TO "short sell" you first borrow someone else's stock. You sell it on the open market. You then wait for the value of that stock to fall. Then you buy back the same stock - at hopefully a considerable gain. The apparent risk is that the stock does not fall - which is where the dirty tricks brigade come in to play.

But, it gets worse -

In practice, in Australia only "naked" short sales are being reported to the exchange - these are deals where the short seller has not yet borrowed stock. A legal ambiguity means "covered" shorting, where the seller has borrowed shares, is not reported to the ASX. As a result, no one knows how big those positions are.

Say WHAT? Selling stock you don't own, or haven't even borrowed yet?

Executives at Bear Stearns believe they were the victims of just such a calculated attack by short sellers. In a detailed exploration of the fall of Bear published last month, Vanity Fair journalist Bryan Burrough uncovered signs of deliberate efforts to undermine confidence in the firm.

He quotes a senior executive at a rival firm: "If I had to pick the biggest financial crime ever perpetuated, I would say, Bear Stearns."

Proving someone was behind the Bear collapse, or any other share price death spiral, is tough. The firms that are targeted are vulnerable precisely because they are highly leveraged and it may be easy for a short seller to point to evidence supporting their negative view of a stock.

You betcha it would be. Super tough.

The article concludes -

CRACKDOWN

UNITED STATES: September 18 - New York attorney-general Mario Cuomo announces probe into alleged illegal short selling of shares in giant investment banks Lehman Brothers, Goldman Sachs, Morgan Stanley and insurer AIG. Short selling is a share trading strategy where a trader borrows shares and sells them on market in the hope they can be bought back more cheaply later. September 17 - Securities & Exchange Commission bans "naked" short selling, in which traders sell stock without first arranging to borrow it.

UNITED KINGDOM: September 18 - The Financial Services Authority bans all short selling in financial companies until January 16. It said anyone creating a net short position in a financial sector company is "engaging in behaviour that is market abuse [misleading behaviour]."

AUSTRALIA: September 17 - Australian Securities & Investments Commission announces extension of inquiry into market manipulation and false rumours, citing specific alleged false rumours against Macquarie Group.

Anyone hearing stable doors being slammed on empty stalls?

And Roundup? Very popular here in the agricultural community for some years. There was a bit I caught during the the week on the use of glyphosphate on roses imported from India to stop their propagation in this country, and just how easy it was to do just that.

As inevitable as two trains on the same track...

Here we go again folks!

The place of China in the world...

A Sydney Morning Herald John Gray op-ed that caught the eye this morning draws a bead upon a matter that I have prated on about in various comments left in odd corners of the blogiverse (usually in response to extremely uppitty Americans ;D )

A decade ago policymakers and opinion formers were supremely confident that globalisation meant the spread of Western institutions and values throughout the world. Political leaders and international institutions looked forward to a time when "democratic capitalism" would be accepted everywhere.

This confidence was not based on any rational assessment of facts. The mania surrounding globalisation was the latest incarnation of the Enlightenment faith that the advance of science and technology would create a universal civilisation, and predictably it was not long before it gave way to anxiety and foreboding. Islamist terrorism and the emergence of Russia as an authoritarian great power, together with American troubles in Iraq, have shattered the certainties of the 1990s. Yet the faith they expressed has not been destroyed. If anything, it is more fervent than before. For many people the Enlightenment has become a magic amulet clutched to the heart as a talisman against fear. In its most influential forms the Enlightenment has always been an ersatz religion - think of Marxism, for example - and in response to the shocks of the past years it has undergone a fundamentalist revival in much the same way that other faiths have done.

The other end of that particular observation is - of course - the sight of some very strange bed-fellows at anti-globalisation demonstrations. It also gives rise to fervour of the religious right singing the same hymnal as the corporate capitalist.

But enough already because Gray makes some important points in here which are expressed far better than I could ever have assembled...

Will Hutton in The Writing on the Wall: China and the West in the 21st Century asks: "Is the baton of global leadership going to pass from Anglo-Saxon hands, which held so many values in common, to Chinese hands? If so, the implications could not be more profound. The world would have to accommodate a wholly different civilisation and values; the character of global institutions, our culture and the primacy of our English language would be challenged.

"If the next century is going to be Chinese, it will only be because China embraces the economic and political pluralism of the West in general, and our Enlightenment institutions in particular, modified … for the Chinese experience." The caveat is worth noting. There is nothing about accepting China on equal terms with the West; rather, "our" Enlightenment inheritance must be modified to ensure that China becomes Western.

Regular visitors will be aware of my apposition of Dave Justus with the "consoling illusion" and I respectfully submit this quote from Hutton as another instance; another case in point.

If China tries harder it can achieve what Hutton sees as the supreme prize - it can become like us. Instead China has renounced Maoism without becoming like us, and its astonishing record of economic growth over the past quarter of a century is a result of that. The largest economic expansion in history has occurred without any of the institutions many would argue to be universally necessary - such as the rule of law and property rights. Can China's economic success be maintained without the freedoms supposedly integral to the "knowledge economy"?

Now there is the opening here for the argument that, in fact, China is starting to follow the Capitalist model. I agree, that does seem to be so. But at the same time there are very important differences that must be borne in mind.

The first is the obvious role of the State, and the implementation of their command economy. That that is still an imperative is beyond question - one need look no further than the Three Gorges Hydro scheme for immediate confirmation. It is not just in that macro decision to proceed, the State is in full control at the micro level as well with the "distribution" of labour from the cities now under the Three Gorges Lake being moved to other industrial areas.

The second is the current development of the all-important "middle class"; the consumers of national production. This is perhaps the strongest prop for the "China is Changing" supporters. To have such a "middle class" is (to them at least) a strong signal that China is change "to western ways".

And that is where Gray's conclusion comes in...

Behind the stale debates about human rights and cultural relativism looms the fact that Western power is in decline. No longer backed up by invincible military might or unchallengeable economic primacy, Western institutions are now only one way of realising universal human values. Having rejected Maoism and retaining Marxism only in name, China has set out on a path of development that owes few of its ruling ideas to the West. The outcome is uncertain, but in the end what Hutton and others like him fear most is not that the Chinese experiment will fail. It is that China will succeed.