mfioretti: money* + globalization*

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  1. finance should, in an ideal world, be creating debt in order to finance growth of activity in the real economy. Instead, what has happened since the 1970s de-regulation of global finance, has been that finance has, over time, been increasingly financing…finance. That is, it has been financing itself. Indeed, in most of the western world, the growth of financial intermediation as a percentage of gross value added, has over the last two decades outpaced the growth of the real economy. That is until the bubble burst in 2007. Finding ways to redirect finance towards productive activity in the real economy is thus crucial.

    Third, in Italy, the effect of financialization has been made even worse by the presence of entrenched interests and “clientelismo” governing Italy’s economic system. Projects receiving loans are often not judged objectively, with criteria that are based on viable potential returns and the productive nature of an investment. Rather, they are often judged by clientilistic and nepotistic relations – as was made evident with the bank Monte Paschi di Siena (although this is really just the tip of the iceberg). Indeed, lets remember that the term “clientelismo” comes from the Latin clientes which means not modern day clients, but parasites feeding on presents (regalias) from the rich and powerful who, as described by the latin writer Giovenale, every day would visit their patronus for the morning salutatio. Italy’s sick banks are thus both a cause and a symptom of its never ending clientalist culture.

    Fourth, when growth is low—as it has been in Italy for the last two decades where both GDP and productivity have hardly grown at all—the above dynamic by which finance finances itself (or lends based on dodgy criteria in the real economy) becomes even worse. If finance has fewer good opportunities for investment in good companies and good projects in the real economy, then finding those opportunities in the speculative world of finance becomes even more appetizing. Indeed, research conducted in a large EC project on finance and innovation I coordinated some years ago showed that in many countries the problem is often not one of the supply of finance for firms, but the lack of good firms demanding finance. For example, most small medium enterprises that are innovative and productive, DO find the finance that they require. There are simply too few of those types of companies. Why? High growth innovative firms tend to prosper more in countries with dynamic innovation eco-systems, with strong links between science and industry, with high public investment in education and vocational training, high private spending on training programs for workers, strong R&D, and patient strategic long-term finance. When these are lacking growth will not follow – no matter how much emphasis a government puts on reducing red tape, or making labor markets less rigid (e.g. the Jobs Act). And when the real economy does not grow, finance becomes a betting casino.
    http://marianamazzucato.com/2016/08/1...ve-key-points-for-italys-banking-woes
    Tags: , , , , by M. Fioretti (2016-08-11)
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  2. let’s recap what’s happening in China. The Chinese government has been lying about its growth numbers for years. Every year, the Government sets a target for the GDP. And miraculously, at the end of every year, the Government reports that it managed to beat its GDP target with an impressive growth rate of 7 to 10 percent. Economic growth is too important for the Chinese Government to rely on statisticians.

    Traders in New York know that, the IMF knows that, the Fed knows that, everybody knows that. And that’s exactly why stock markets already freaked out after the three-day devaluation of the yuan a couple of weeks ago. We don’t know exactly how well China is doing. Every little sign that says that the Chinese economy isn’t doing as well as expected leads to big market movements.

    So is there any way to know China’s actual economic growth? You can look at steel production numbers for example. As China needs to import most of its iron to produce steel, it can’t lie on these numbers. Steel production has been down 1.3 percent since January. Electricity production is another good indicator. It was up 7.7 percent in 2013, meaning that the country was producing more goods. It’s been up only 1 percent since January 2015.

    And yet, growth is key to China’s current situation. When China became a socialist market economy, the population and the Government sealed a tacit agreement. As long as the standard of living would improve, people wouldn’t interfere with the Government. And it has worked incredibly well so far thanks to low salaries, a huge domestic market and some very smart moves to attract foreign companies.

    But China’s real growth rate is way below 7 percent. Unemployment combined with an aging population is going to become a serious issue as there is no safety net. We are not there yet, but if the standard of living decreases in China, it could mark the beginning of an important transition period.
    http://techcrunch.com/2015/08/24/what...es-the-chinese-fallout-mean-for-apple
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  3. The Obama administration, to its embarrassment, has been spurned by Western allies flocking to a China-led Asian development bank, defying White House pleas to stand back. In a surprise announcement last week, Britain said it would become the first Western nation to join the Asian Infrastructure Investment Bank, a potential rival to the American-led World Bank.

    In significant ways, this is a problem of America’s own making. The United States has urged China to exercise more leadership, but the top posts at the International Monetary Fund, the World Bank and the Asian Development Bank have been restricted to Europeans, Americans and the Japanese. Congress bears considerable blame for refusing to pass legislation to shift voting power more fairly among I.M.F. member states, including China. China’s move to create the new development bank is part of the price being paid for that obstruction.

    President Obama has also mishandled the issue. The American position of opposing the new bank until China accepts certain principles of governance and lending would have been more effective if the administration had worked with its allies to produce a set of common principles that could then be negotiated with the Chinese.

    On Tuesday, Germany, France and Italy announced that they would also join the bank, and Australia and South Korea are expected to follow.

    Their decisions were proof that even Europe’s biggest economies, founders with the United States of the postwar global economic order, cannot resist the newest gold rush — into China, the world’s second-largest economy and a major export and investment market.

    Funding the new bank is another effort by China to become an even more dominant influence in the region. The Americans worry that China could establish a parallel economic order that could weaken the World Bank and its affiliates and erode already strained international lending standards of transparency, creditworthiness, environmental sustainability, and concern for labor and human rights that took decades to put in place.
    http://www.nytimes.com/2015/03/20/opi...allies-lured-by-chinas-bank.html?_r=1
    Tags: , , , , , , by M. Fioretti (2015-03-22)
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  4. Beijing's move to bail out Russia, on top of its recent aid for Venezuela and Argentina, signals the death of the post-war Bretton Woods world. It’s also marks the beginning of the end for America's linchpin role in the global economy and Japan's influence in Asia.

    What is China's new Asian Infrastructure Investment Bank if not an ADB killer? If Japan, ADB's main benefactor, won't share the presidency with Asian peers, Beijing will just use its deep pockets to overpower it. Lagarde's and Kim’s shops also are looking at a future in which crisis-wracked governments call Beijing before Washington.

    China stepping up its role as lender of last resort upends an economic development game that's been decades in the making. The IMF, World Bank and ADB are bloated, change-adverse institutions. When Ukraine received a $17 billion IMF-led bailout this year it was about shoring up a geopolitically important economy, not geopolitical blackmail.
    http://www.bloombergview.com/articles...-25/china-steps-in-as-worlds-new-bank
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  5. raising interest rates could implode the monster derivatives scheme. Michael Snyder observes that the biggest banks have written over $400 trillion in interest rate derivatives contracts, betting that interest rates will not shoot up. If they do, it will be the equivalent of an insurance company writing trillions of dollars in life insurance contracts and having all the insureds die at once. The banks would quickly become insolvent. And it will be our deposits that get confiscated to recapitalize them, under the new “bail in” scheme approved by Janet Yellen as one of the Fed’s more promising tools (called “resolution planning” in Fed-speak).

    As Max Keiser observes, “You can’t taper a Ponzi scheme.” You can only turn off the tap and let it collapse, or watch the parasite consume its food source and perish of its own accord.

    Collapse or Metamorphosis?

    The question being hotly debated in the blogosphere is, “What then?” Will economies collapse globally? Will life as we know it be a thing of the past?

    Not likely, argues John Michael Greer in a March 2014 article called “American Delusionalism, or Why History Matters.” If history is any indication, governments will simply, once again, change the rules.

    In fact, the rules of money and banking have changed every 20 or 30 years for the past three centuries, in an ongoing trial-and-error experiment in evolving a financial system, and an ongoing battle over whose interests it will serve. To present that timeline in full will take another article, but in a nutshell we have gone from precious metal coins, to government-issued paper scrip, to privately-issued banknotes, to checkbook money, to gold-backed Federal Reserve Notes, to unbacked Federal Reserve Notes, to the “near money” created by the shadow banking system. Money has evolved from being “stored” in the form of a physical commodity, to paper representations of value, to computer bits storing information about credits and debits.

    The rules have been changed before and can be changed again. Depressions, credit crises and financial collapse are not acts of God but are induced by mechanical flaws or corruption in the financial system. Credit may stop flowing, but the workers, materials and markets are still there. The system just needs a reboot.
    http://ellenbrown.com/2014/07/25/you-...t-taper-a-ponzi-scheme-time-to-reboot
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  6. With the dollar as the world’s reserve currency, globalization leads to huge US balance of trade deficits and other imbalances.
    Figure 10. US Balance on Current Account, based on data of US Bureau of Economic Analysis. Amounts in 2012$ calculated based on US CPI-Urban of the Bureau of Labor Statistics.

    Figure 10. US Balance on Current Account, based on data of US Bureau of Economic Analysis. Amounts in 2012$ calculated based on US CPI-Urban of the Bureau of Labor Statistics.

    With increased globalization and the rising price of oil since 2002, the US trade deficit has soared (Figure 10). Adding together amounts from Figure 10, the cumulative US deficit for the period 1980 through 2011 is $8.6 trillion. By the end of 2012, the cumulative deficit since 1980 is probably a little over 9 trillion.

    A major reason for the large US trade deficit is the fact that the US dollar is the world’s “reserve currency.” While the mechanism is too complicated to explain here, the result is that the US can run deficits year after year, and the rest of the world will take their surpluses, and use it to buy US debt. With this arrangement, the rest of the world funds the United States’ continued overspending. It is fairly clear the system was not put together with the thought that it would work in a fully globalized world–it simply leads to too great an advantage for the United States relative to other countries. Erik Townsend recently wrote an article called Why Peak Oil Threatens the International Monetary System, in which he talks about the possibility of high oil prices bringing an end to the current arrangement.

    9. Globalization tends to move taxation away from corporations, and onto individual citizens. Corporations have the ability to move to locations where the tax rate is lowest. Individual citizens have much less ability to make such a change. Also, with today’s lack of jobs, each community competes with other communities with respect to how many tax breaks it can give to prospective employers. When we look at the breakdown of US tax receipts (federal, state, and local combined) this is what we find:
    http://ourfiniteworld.com/2013/02/22/...s-why-globalization-is-a-huge-problem
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  7. Many of us intuitively recognize that we’ve constructed a ginormous Rube Goldberg machine which for a number of reasons may not continue to crank out goods and services for the next 30-40 years. We blame this and that demographic for our declining prospects – the Republicans, the environmentalists, the greedy rich, the lazy poor, the immigrants, the liberals, etc. We blame this and that country or political system – evil socialists, heartless capitalists, Chinese, Syrians, Europeans, etc. We watch TV and internet about the latest ‘news’ influencing our world yet are not entirely confident of the connections. But underlying all this back and forth are some first principles, which are only taught piecemeal in our schools, if at all. Below is a short list of 20 principles underpinning today’s global ‘commerce’. I should note, if I was a 25 year old starting business school, eager to get a high paying job in two short years, I wouldn’t believe what follows below, even if I had time or interest to read it, which I probably wouldn't.
    http://www.theoildrum.com/node/8402
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  8. how economy works and doesn't work in words and pictures
    http://economixcomix.com/home/tpp
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  9. Mr. Hollande, in announcing his intention to reduce taxes on businesses while cutting (unspecified) spending to offset the cost, declared, “It is upon supply that we need to act,” and he further declared that “supply actually creates demand.”

    Oh, boy. That echoes, almost verbatim, the long-debunked fallacy known as Say’s Law — the claim that overall shortfalls in demand can’t happen, because people have to spend their income on something. This just isn’t true, and it’s very much not true as a practical matter at the beginning of 2014. All the evidence says that France is awash in productive resources, both labor and capital, that are sitting idle because demand is inadequate. For proof, one need only look at inflation, which is sliding fast. Indeed, both France and Europe as a whole are getting dangerously close to Japan-style deflation. a sign of the haplessness of the European center-left
    http://www.nytimes.com/2014/01/17/opi...andal-in-france.html?ref=opinion&_r=1
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  10. La moneta unica è praticamente la sola al mondo di fronte alla quale tutte le altre divise, grandi, medie e piccole, hanno perso valore. Sull'euro si sono svalutati il dollaro americano (del 4,2%), quello canadese (dell'11%), lo yuan cinese (del 2%), per non parlare dello yen giapponese (meno 22%), del real brasiliano (meno 19,7%), del dollaro australiano (meno 20%), del rublo russo (meno 13%) o della lira turca (meno 24%).

    La lista continua per decine di monete, inclusi il franco svizzero (meno 1,5%), la corona norvegese (meno 15%) e la rupia indiana (meno 14,5%). La maggior parte di queste svalutazioni sono a doppia cifra e gran parte delle divise estere, incluso il biglietto verde, hanno toccato i minimi dell'anno sull'euro ieri sera. È un segno che lo smottamento è ancora in corso. Dai Paesi avanzati alle economie emergenti, tutte le aree del pianeta stanno conquistando competitività di prezzo sui mercati globali rispetto ai prodotti venduti a partire da Eurolandia.
    http://www.repubblica.it/economia/201...infinita_del_super_euro-74635474/?rss
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