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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

Category: International economy
May 16, 2011 at 10:00 AM

Fallout from IMF chief scandal could go in unexpected directions

Aside from the universal magnet of a Special Victims Unit sex scandal, what does the arrest of International Monetary Fund Managing Director Dominique Strauss-Kahn have to do with Seattle and the Northwest? As a world trade center, we should be concerned about anything that injects instability into the markets. As a region facing Asia, we should take note of what happens with China and the Fund.

China is now one of the top shareholders of the IMF (the U.S. being the largest). The top job at the IMF has historically gone to a European. But pressure has been growing to select a managing director from among the developing world, particularly the BRICS (Brazil, Russia, India, China and South Africa). Strauss-Kahn has already announced he would be leaving the job, and it has been widely anticipated he would run for the French presidency. The allegations of sexual assault in New York, even if Strauss-Kahn is found not guilty, will wreck his career. They do nothing to help the institutional credibility of yet another bulwark of the global economy.

The IMF was founded after World War II as one of the American-conceived institutions to promote currency stability and economic liberalization, avoiding the kind of economic crises that helped give rise to the Nazis. It has money and power — the IMF is one of the critical players in the bailouts of wounded European economies right now. It’s also been criticized for its heavy-handed conditions on poor nations that get in trouble and need an IMF rescue. It’s been successful, sometimes at a heavy cost to average people in developing countries. Too close to Wall Street and free-market dogma? Probably.

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Comments | More in Global economy, International economy, International Monetary Fund, Trade

March 14, 2011 at 10:05 AM

More questions than answers in assessing the economic toll in Japan

In the face of the unfolding tragedy in Japan, it seems grotesque to turn to the money, but that’s the beat I walk. The story is rapidly changing, so at this moment we’re faced with more questions than answers.

  • What will be the affect on the world economy? Disasters in advanced countries, especially, bring immediate costs but longer-term opportunities in the rebuilding. Japan is a rich nation with a high savings rate. So rebuilding is likely to be highly stimulative (this happened in Miami, for example, after Hurricane Andrew), including for American exports. Will it offset the lost production from the nation’s high-tech industry? Sony, for example, has several plants in the hard-hit region. Or does the earthquake only act to further deepen Japan’s other longstanding economic and political doldrums?
  • How badly will the insurance sector be mauled? According to the Wall Street Journal, Moody’s says the sectors likely to face the heaviest losses are Japanese domestic insurers, Japan Earthquake Reinsurance Co. and international insurers, as well as global reinsurers, catastrophe bonds and retrocessionaires (the reinsurers of the reinsurers).
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    Comments | More in Global economy, International economy, Japan earthquake

    December 29, 2010 at 9:40 AM

    The dissonance between globalization and American jobs

    The survey showing many American corporations hiring overseas even as unemployment stays at post-Depression highs at home confirms what I’ve been hearing from readers for some time. They’ve written that their companies are indeed hiring, but not here.

    The reasons for the dissonance are complex, but the excuse that overseas markets are recovering while the United States languishes won’t provide much comfort. Once upon a time, major companies here were export giants with factories in America. Thus, stronger demand overseas would have meant jobs for Americans. This helped sustain a consensus that trade was a good thing for America.

    Since the 1980s, more American corporations have moved operations offshore. This has given them closer access to emerging markets and the benefits of much cheaper labor. But many nations, especially China, have demanded that foreign companies set up shop there as the price of admission to the market. Profits still flow back home, but not as many jobs.

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    Comments | More in Aerospace/Boeing, China economy and business, Global economy, International economy, Jobs/Unemployment, Trade

    November 30, 2010 at 9:45 AM

    In metro marathon, Seattle runs OK, but the leaders are in Asia and Latin America

    The good, or at least neutral, news is that metropolitan areas accelerated their dominance of economic activity through the Great Recession. The bad news: Most of those winner metros were outside of the United States. A new study from the Brookings Institution and London School of Economics shows Seattle No. 50 among 150 world metro areas in economic performance. That compares with No. 60 during the recession and 79 before the roof fell in.

    Such performance might seem middling. But consider: out of the top 30 performing metros during the most recent year, 29 were outside the United States and Europe. Of the 30 metros with the weakest performance in the recovery, 28 were in the U.S. or Europe. Austin (26), military-dependent Virginia Beach (36), Washington, D.C. (37), Dallas (39), Baltimore (42), Minneapolis (44), Detroit (46), Nashville (48) and Cleveland (49) came in above Seattle in 2009-2010. Portland ranked 102 and Vancouver, B.C. was 92.

    The recovery leaders: Istanbul, Shenzhen, China, Lima. Singapore, Santiago and Shanghai. The metrics are limited: Employment and economic output per person, which would explain the better performance among some Rust Belt cities that saw massive out-migration. For example, Detroit ranked 147 out of 150 before the recession. It benefited heavily from the auto bailout and federal stimulus. Metros that performed well based on the housing boom are far worse off now. Las Vegas, for example, went from 14th before the Great Recession to 146th.

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    Comments | More in Global economy, Great Recession, Great reset, International economy, Jobs/Unemployment

    November 23, 2010 at 10:20 AM

    Danger signs in the heart of Asia’s economy

    Today’s artillery duel between North and South Korea involved some 175 shells, according to the New York Times. That’s no mere border incident, and a reminder that the world’s atomic-armed crazy aunt lives in the attic atop one of the epicenters of the global economy. Surely no rational nation would escalate its grievances into a world war — but is North Korea rational? Its masters have refused to join Asia’s dynamic prosperity, letting their people starve in the service of an ideology.

    And China. Surely this rising world power will restrain North Korea, which depends on Beijing as its only ally. Yet China has been reluctant to accept the responsibilities that come with its growing power. And great powers, even with huge economic stakes to lose, can miscalculate, often when small, hot-headed players are also involved (See Germany, Austria-Hungary, Russia and Serbia, 1914).

    So who knows what might happen, especially with North Korea apparently rapidly improving its nuclear technology. This is probably just another North Korea feint, hoping to be bribed to stop, the son coming to power. That’s what the experts say. And we know the experts are always right.

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    Comments | More in China economy and business, International economy, Macro/Big picture

    November 12, 2010 at 10:00 AM

    The big elephant in the room: World has hit peak for conventional oil production

    The G-20 has so many elephants in the room the summit should be held at the Seoul zoo. Perhaps the biggest is what’s behind the continued rise of oil prices, particularly for future delivery beyond this year. It could have many causes: Rising demand in China and India, and speculation among them.

    But what has received barely any coverage in the mainstream media is a report by the International Energy Agency conceding that conventional oil production peaked worldwide in 2006. The IEA is the most sober and conservative outfit, so this analysis should put to rest any doubters except the industry cheerleaders over at Cambridge Energy Research Associates.

    As happened when the U.S. hit peak around 1973, the precise point can only be seen in the rearview mirror. This doesn’t mean “the world is running out of oil.” It means we’ve used half of this one-time gift of geology and the remainder will be more difficult to find and refine, hence more expensive. (And, no, space aliens or Google aren’t going to give you a magical hydrogen car). Prepare for more instability as nations jockey for energy sources. And defunding high-speed rail, Amtrak and transit? Smart move, America.

    Interesting data and commentary from the week:

    • The numbers of people unemployed for a year or longer has risen sharply, according to the Bureau of Labor Statistics. In the second quarter, some 46 percent of the 14.6 million unemployed persons were jobless for 27 weeks or longer. But 31 percent were unemployed for 52 weeks or longer.
    • Beware of any bank reform based on Basil III trumpeted by the G-20, writes MIT economist Simon Johnson on his Baseline Scenario blog. “So here are the deepest thinkers — founders and mainstays of the entire field of finance — finally standing up and saying: Enough of this nonsense. You may wish to pretend that keeping capital requirements low is a good idea, but you should understand that this is pretense and bad science, pure and simple.”
    • Bill Gates in Rolling Stone on China’s lead in renewable energy: “In order for the United States to do the right things for the long term, it appears to be helpful for us to have the prospect of humiliation. Sputnik helped us fund good science — really good science, the semiconductor came out of it. And in the 1980s, we were driven by state-sanctioned racism — the idea that Japan was going to take over everything. But look at consumer electronics today — it’s Xbox, iPhone. Sometimes you overestimate your rival, and that can actually help.”
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      Comments | More in Aerospace/Boeing, Banking, Energy, Global economy, Great Recession, International economy, Microsoft, Trade

      November 8, 2010 at 10:00 AM

      Obama buffs his shellacking with ‘jobs trip’ to India

      I won’t be the first to note how President Obama’s first response to his “shellacking” in the election, mostly over persistent high unemployment, was a trip to India, a nation that personifies American job losses to offshoring.

      Are we supposed to be comforted by his assertion that India is not merely a nation of call centers? Indeed, it is not. India has millions of high-skilled workers who can do the jobs of Americans for a fraction of the cost. American corporations are well along in taking advantage of this.

      The administration considered the highlight of the “jobs trip” the announcement of $9.5 billion in export deals, said to “support” 53,670 U.S. jobs. Boeing was a big winner, with $4 billion in military transport aircraft, showcasing how arms are one of our last big export clusters. General Electric was given a deal for engines for combat aircraft.

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      Comments | More in Aerospace/Boeing, International economy, Jobs/Unemployment

      October 20, 2010 at 10:15 AM

      Rumors of trade war could make Boeing’s triumph short-lived

      As happy as every Puget Sound resident should be about Boeing’s strong profit — bolstered by commercial aircraft orders — a back beat warns, “enjoy it while you can.”

      This is based not merely on slowing global growth or fears of a Chinese bubble, but the increasing tensions among the world’s top economic powers. “I’m worried about the global situation,” Indian Prime Minister Manmohan Singh told the Financial Times. New Delhi rightly sees the split as between creditor nations and debtor nations. Psst, we’re the biggest debtor. Yet the divisions go beyond that.

      The G-20 is unable to reach an agreement on exchange rates and making itself seem increasingly irrelevant. Many leaders worry the currency fight — led by China’s unwillingness to allow the renminbi to float as other major currencies — could lead to a trade war and protectionism. In a speech, Bank of England Governor Mervyn King said it “could, as it did in the 1930s, lead to a disastrous collapse in activity around the world.”

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      Comments | More in Aerospace/Boeing, China economy and business, International economy, Trade

      October 13, 2010 at 9:32 AM

      The dragon in the living room: China increasingly dominates the economy

      News you might have missed:

      — A team of seasoned Silicon Valley entrepreneurs attracted billions of dollars in a bid to dramatically lower the costs of solar panels. Their hope, according to the New York Times, was that the venture would “make them the Intels and Apples of the global solar industry.” Instead, that honor is going to the Chinese.

      Chinese manufacturers, heavily subsidized by their own government and relying on vast economies of scale, have helped send the price of conventional solar panels plunging and grabbed market share far more quickly than anyone anticipated. As a result, the California companies, once so confident that they could outmaneuver the competition, are scrambling to retool their strategies and find niches in which they can thrive.

      — As BHP Billiton makes a hostile bid for Potash Corp., it’s expected that a group of state-owned Chinese companies and financiers will emerge with a rival offer. Potash is the largest maker of fertilizer in the world. As the NYT’s Andrew Ross Sorkin observes, “45 percent of Potash’s production is sold to farmers in North America. The big worry, in part, is that the Chinese could seek to redirect that supply to China, starving other countries of a much-needed commodity.”

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      Comments | More in Canadian economy, China economy and business, Income/living standards, International economy, Jobs/Unemployment

      October 11, 2010 at 10:00 AM

      Nail guns into the housing coffin; wealth inequality, and a dollar mystery

      The week begins with Wall Street trying to hold onto the Dow’s 11,000 mark and the hangover from the freeze in foreclosures because of sloppy/fraudulent paperwork. Nearly every economic event has winners and losers, so those facing the loss of their property have gained time, perhaps a great deal of it. On the other side, the housing downturn will be even more prolonged, with consequences fanning out across the economy.

      As I’ve written before, the old housing boom is not coming back. The foreclosure freeze just puts a glacier atop the other forces that will prevent it.

      With the house no longer a piggy bank, wages stagnant and most Americans not partaking in the trading in world capital markets, what’s an average Joe or Jill to do? Move to Sweden, according to a provocative piece in the Baseline Scenario. It looks at the actual historic high in wealth inequality, measured against what Americans estimate the disparity to be, and what they consider to be an ideal distribution.

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      Comments | More in Dollar, Housing, Income/living standards, International economy, Jobs/Unemployment

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