The Sky is Falling, USD Reserve Status Dieing!

As the Dollar reached 15-month low {and} Euro presses back above $1.50, there is bound to be renewed questions such as: Is the Dollar Fading as No. 1 Reserve Currency?

What Economists Predict.
While the future may be hard to predict we might get some educated guesses on the time frames for when structural changes may occur. Aside from a total and complete melt down of the present economic environment, Joseph Rosta {writer of last linked article} provides the views of 5 economists and what time frame they think it is possible {but unlikely} that the US fades as the number one reserve currency. Let me start with the section of the article on Wyss.

"A shift away from the dollar probably should happen, but it won't happen overnight," says Standard & Poor's chief economist David Wyss. He sees a 10-year process, with the dollar losing its dominant position to a basket of currencies. "You can't have a world currency before you have consistent global regulatory and fiscal policy," according to Wyss.

He does not explain as to why it "should happen" and it may not be good for the overall world economy even if it does happen. If in fact the world is moving toward a "basket of currencies" or a "world currency" then yes a global regulatory agency would be needed. Without a cataclysmic event like a world war then unlikely that would even be possible. It took the Euro nearly 50 years to get started and that was between a relatively small number of countries of approximately equal economic development. This basket of currencies would have to be "managed" in certain ways and the most obvious candidate for it is the IMF with "SDRs" that even has historical precedence for being suggested going back to WWII.

Steven Pearson, head of G10 currency strategy at Bank of America Merrill Lynch: Brazil, Russia, China and India are pressing for an expanded SDR, Pearson adds, but there are few stable currencies that are broadly enough traded to merit inclusion. Today SDRs are a mix of the dollar (44 percent), the euro (34 percent), the yen (11 percent) and the pound sterling (11 percent). Instead, the most likely near-term scenario will be a rebalancing of central bank currency holdings away from the dollar.

Correct, the near-term scenario is to rebalance holdings then the question is why has it not been done already and with as little fanfare as possible? One likely explanation is the idea of isolation paradox. Most of the NICs {Newly Industrialized Countries} have been export competing and with this maintaining a low valued currency with respect to the US dollar and as a result have been accumulating excess reserves. Now even the Chinese Dragon is afraid of being the leader and changing paths alone. More technically I am thinking of the Stackelberg leadership model but without the leader of the NICs willing to make the first move.

One dilemma with SDRs is that while trade patterns world wide would dictate a certain percentage breakdown of the currencies in the basket of a SDR that does not indicate that the levels of reserves of any particular country would coincide with those divisions. For example trade between Iran and the USA is nearly nothing so that the reserve percentages held by Iran should be very low in USD. And even putting aside the political aspects of the reserves, they may not wish to hold that much USD indirectly in dollar reserves. Secondly they may not just looking for holding reserves as individuals do with cash in respect to the "transaction demand for money". They may be holding it in reserves for speculation or hedging which would indicate holding not just the cash but in fact highly liquid financial instruments like T-bills. And as another economist states the following:

"SDRs are an old saw raised perennially, but without a government and central bank behind them they cannot become important," observes Paul Bennett, a fellow of Columbia University's program in law and economics.

He gives the remnimbi another 20 years before it challenges the dollar. And Bennett predicts a gradual increase in the use of euros as reserve holdings, "but nothing dramatic."

Without the discipline of a government that is held accountable then I too would agree that it is unlikely, and fear of world wide inflation could appear as the Americans objected strongly in the formation of the IMF and SDRs. There is already a growth of Euros as a reserve currency and it seems reasonable that it would continue especially based on trading patterns. But there are most definitely obstacles to the the remnimbi and to a lesser degree the euro. Back to Pearson's statement:

Others don't believe a brand new currency is likely, and doubt the remnimbi will be ready to take its place as a reserve currency anytime soon. "The remnimbi would have to be freely exchangeable and deliverable, and it's not," says Steven Pearson,...

Even if Roubini is cheering this on it does not change those facts of "exchangeable and deliverable". It also has to be robust enough to have "hot money flows" both in and out without disrupting trade flows. It must in fact be a world leader in openness to flows of goods and services and in fact have the most direct trade with all other nations. So far only the USA fits those shoes. While the Europeans may be relatively open, I am just not sure that they would be willing to face uncertainty as the world reserve currency when financial institutions like the eurodollar markets rose up because of restrictive banking practices in the USA.

Keith Leggett, senior economist at the American Bankers Association states it as the dollar will still be "a major component in these portfolios" which is supported by trade flows which are unlikely to change over the near future. And lastly, Scott Anderson, vice president and senior economist at Wells Fargo states any shift away from the dollar could take 10 years at least.

Barry Eichengreen ,professor of economics and political science at the UC Berkeley, states his forecasts for the dollar {at Reports of the dollar's death are exaggerated}:

Beyond this, the dollar isn't going anywhere. It is not about to be replaced by the euro or the yen, given that both Europe and Japan have serious economic problems of their own. The renminbi is coming, but not before 2020, by which time Shanghai will have become a first-class international financial center. And, even then, the renminbi will presumably share the international stage with the dollar, not replace it.

The rest of the article is worth reading and spells out much of the points made at The Sabrient Blog » Macro View of the Markets.

A Counter Voice and a Short Term Prediction.
But there are still some that predict the collapse of the dollar much sooner as Daisuke Uno, Sumitomo Mitsui Banking Corp.’s chief strategist, states at Dollar to Hit 50 Yen, Cease as Reserve, Sumitomo Says:

“The U.S. economy will deteriorate into 2011 as the effects of excess consumption and the financial bubble linger,” said Daisuke Uno at Sumitomo Mitsui, a unit of Japan’s third- biggest bank. “The dollar’s fall won’t stop until there’s a change to the global currency system.”
...
“We can no longer stop the big wave of dollar weakness,” said Uno, who correctly predicted the dollar would fall under 100 yen and the Dow Jones Industrial Average would sink below 7,000 after the bankruptcy of Lehman Brothers Holdings Inc. last year. If the U.S. currency breaks through record levels, “there will be no downside limit, and even coordinated intervention won’t work,” he said.

There is no denying the effects of the most recent financial crisis, but it takes more than just momentum analysis to predict a crash. If we look at other events similarly then we can note that even given Japan's financial collapse and subsequent lost decades, the yen is still used as a reserve currency. The USD also experienced huge changes in value during the mid 1980s and still maintained it reserve currency status and much of that was done with policy coordination. Unlike the experiences in Japan, there is likely to be much more policy coordination for the USD as no one wants to lose the "borrower of last resort". Lastly, the US has been a much more flexible economy and more than likely will adapt more quickly to the changing world economy. For a fairly long article about some of these last points: Last Man Standing by Tyler Cowen.

Menzie Chinn at Econbrowser has some analysis of short term prospects of the USD at The Dollar.

Both series are plotted in logs, and exchange rates defined such that up implies a stronger dollar. In both cases the 95 percent interval is shown. What is clear is the (geometric) mean forecast for the dollar implies relative stability. It's true that the lower bound implies some depreciation over the next year -- but no more than 5.6 percent decline (in log terms). That's hardly calamitous. But it would be helpful in terms of facilitating rebalancing (as I pointed out a few weeks ago [6] [7], dollar decline makes a lot of sense, perhaps even more than the 5.6 percent implied by the lower bound).

If one is more concerned about the dollar's value against major currencies (perhaps because of an interest in cross-border valuation effects on financial assets), one would want to see how the dollar evolves against the euro. Here, it appears the mean forecst implies strength over the medium term. Even the scenario for the weakest dollar implies no more than a 7.5 percent decline, at the 3 month horizon.

Nothing to Fear Except Fear Itself?
There is a lot of logical reasons to conclude that the USD will maintain its status with some weakening in reserve holdings of the USD but that should be overall a good thing to unwind the global imbalances. I find nothing that can credibly replace the dollar for the foreseeable future.



Tons of links:
South-South Trade Tensions

Here's your recovery

Dollar Demise and Double Dip: Latest Forecasts

Guest Contribution: East Asian Production Networks, Global Imbalances, and Exchange Rate Coordination

Dollar to Hit 50 Yen, Cease as Reserve, Sumitomo Says

Two Views: Blame It on Beijing Redux, or Joint Determination

Reports of the dollar's death are exaggerated

Reports of the dollar's death are exaggerated

Süddeutsche Zeitung, Germany On Government Life Support

It's Italy for America and Japan for Europe

Soros: China will emerge as winner from current economic turmoil

Last Man Standing

The return of capital controls February 18, 2009

What RMB appreciation?

EU Girds for China Fight Over RMB

The Future of the US Dollar

Global Imbalances...Part Two|Krugman no Longer on Dweeb Status

In the first post of The Sabrient Blog » Macro View of the Markets I concluded with the line: But in the meantime, do not expect the global imbalances to be corrected. This time I continue on with some of that same spirit by bringing up an article by Paul Krugman entitled: The Chinese Disconnect. Although it is widely common knowledge now about global imbalances, Krugman still has a platform to address these pedestrian issues which draws considerable attention.

Senior monetary officials usually talk in code. So when Ben Bernanke, the Federal Reserve chairman, spoke recently about Asia, international imbalances and the financial crisis, he didn’t specifically criticize China’s outrageous currency policy.

But he didn’t have to: everyone got the subtext. China’s bad behavior is posing a growing threat to the rest of the world economy. The only question now is what the world — and, in particular, the United States — will do about it.

Yes indeed about not needing to say who the gorilla in the room is as the IMF has been for years talking about global imbalances and all along tip toeing around China. But is it really that surprising that China followed the examples of the Asian Newly Industrialized Countries {i.e. Four Asian Tigers of Hong Kong, Singapore, South Korea and Taiwan as well as Japan earilier} as well as the sound advice from development economists in pursuing an export led path to development? Krugman does acknowledge that none of China's policies were anything out of the ordinary and was logical for a developing country, but it has been noted that only a certain group can get on that development escalator at one time. It is possible that only a few NICs can in fact get on the escalator but not everyone at one time as Paul Collier mentions in his books.

The trick is to know when to change course and when the structure of an economy needs to adapt to the evolving world economy. The structural elements that allowed Japan to rise to second highest GDP are the same structural elements that led to the lost decade(s). Will China be able to adapt?

And that’s a particularly bad thing to do at a time when the world economy remains deeply depressed due to inadequate overall demand. By pursuing a weak-currency policy, China is siphoning some of that inadequate demand away from other nations, which is hurting growth almost everywhere. The biggest victims, by the way, are probably workers in other poor countries. In normal times, I’d be among the first to reject claims that China is stealing other peoples’ jobs, but right now it’s the simple truth.

I too am skeptical about "stealing other peoples' jobs" but in the least it does make it hard for other countries to be able to get on the development escalator. And even for high income countries there is a need to adjust their economies in timely fashion instead of a complete schizophrenic economy.

The point is that with the world economy still in a precarious state, beggar-thy-neighbor policies by major players can’t be tolerated. Something must be done about China’s currency.

Yes a precarious place and yes China is a major player but "something must be done" might create more harm than good. Well one aspect that does not seem palatable is to allow the Chinese to buy US assets as the Japanese did in the 70s and 80s. It did not hurt the USA and in fact probably was a net gain for the USA. Another fine article about the global imbalances is from the CFR at: Global Imbalances, National Rebalancing, and the Political Economy of Recovery. It provides some background on a couple of previous global imbalances including the US-German situation in the 1920s. In addition to the quote below, I would recommend reading the whole piece especially the quote of FDR.

The German-American financial relationship rested on weak political foundations, as neither country was really prepared for the implications of the capital flows. The United States was not willing to provide an open market for German goods that would facilitate debt service, or any government measures to deal with eventual financial distress, and the Germans were unwilling or unable to make the sacrifices necessary to provide prompt debt service.

The US now has gone full circle and while we are not in the dire straights of the Germans we are faced with similar situations. Instead of increasing our savings rates we are still priming the pump of Fiscal Stimulus and increasing debt levels as much as we can.

Normally I am a harsh critic of Krugman even if he does have a Nobel Prize but because of his podium he does get scrutinized. The Economist.com blog starts off with questioning the USA Pushing China. Direct threats or retaliation is not likely to get much traction as they are already aware that other developing countries and the EU are not happy with the Chinese actions and the IMF has been hinting for a long time about the global imbalances. The Economist continues with another post that includes some thoughts from Scott Sumner at: An expansionary peg?

Mr Krugman implicitly argues that a recovery which allows imbalances to persist is no recovery at all. Mr Sumner obviously thinks that exchange rate levels are irrelevant to imbalances. And I suppose I'm struggling to square the two views.

Without being too technical, Sumner basically points out the savings rates differences, which he uses to conclude that exchange rates do not matter. But to get to the exact portion let me quote it here:

In 1933 FDR was not trying to depreciate the dollar against other currencies, he was trying to depreciate it against goods and services. Krugman and I agree that we should be trying to do the same today. But if the Chinese were to appreciate their currency they would be imposing deflationary monetary policy on their economy...

It is a mistake to think about exchange rate policy as trade policy, it is fundamentally a form of monetary policy. China’s current account surplus is driven by its high saving rate, and changing the nominal exchange rate won’t have any significant effect as long as the savings rate remains high...

To myself that implies that incentives do not matter. That exchange rates have no effect on the economy. Then how did the low savings rates in the US come about? The mechanism is through the relative costs of tradable vs. non-tradable goods. As the Chinese currency appreciates then tradables become less expensive from abroad as well as the raw materials going into manufacturing.

Another way to look at this situation is through the absorption approach to the balance of payments {Laursen-Metzler effect}. Looking at it in the context of revaluations this would tell us that the income effect would increase Chinese consumption as they in effect have more disposable income {lowered prices of foreign products}, and the substitution effect would be to substitute domestic consumption that prices rose relatively for more external goods and services that became relatively less expensive.

Even if as Sumner states that "changing the nominal exchange rate won’t have any significant effect as long as the savings rate remains high" is correct, that considers that all actions by the central bank is in isolation. The Chinese may be looking to increase absorption {i.e. reduce savings rates} as well as reduce demands on export led development which will have effects on the current account balances.

Krugman comes back with a response and in his usual tone {"certain zombie fallacies — ideas that you kill repeatedly, but refuse to die —"} at: Adjustment and the dollar. While I agree with Krugman on most of his major points, the only question, as others have raised, is what can the USA insist on with-in reasonable expectations. I know of no one that wants a trade war now.


Links:
The Chinese Disconnect By PAUL KRUGMAN
An expansionary peg?
Adjustment and the dollar
Please China, keep “beggaring your neighbors.”
Pushing China Posted by: Economist.com | WASHINGTON

South-South Trade Tensions

FRBSF Economic Letter: Recent Developments in Mortgage Finance (2009-33, 10/26/2009)

***Two Views: Blame It on Beijing Redux, or Joint Determination
A New Meme: Blame It on Beijing (and Seoul, and Riyadh...)
Dollar Demise and Double Dip: Latest Forecasts
Guest Contribution: East Asian Production Networks, Global Imbalances, and Exchange Rate Coordination
Evaluating the new tools of monetary policy

Reports of the dollar's death are exaggerated By BARRY EICHENGREEN

Global Imbalances, National Rebalancing, and the Political Economy of Recovery
HT to EconBrowser:The Political Economy of Recovery and Rebalancing

Don't Let U.S. Capitalism Go the Italian Route
http://faculty.chicagobooth.edu/luigi.zingales/research/papers/capitalism_after_the_crisis.pdf

The growing case for a jobless recovery

Sensible

These are but two examples of Bartlett's revolutionary opinions that tax cuts don't pay for themselves and that taxation is not cyanide for job growth.

The Capital Spectator: DIVING INTO THE NUMBERS
THE CHALLENGE AHEAD

At the same time, it may be dawning on the crowd that the recovery, while looking intact for the moment, is set to be increasingly boring. The excitement of the past six months or so is on track for the dull business of looking forward, finding challenges and formulating responses. That's quite different from weighing the data du jour, looking backward and cheering that we've sidestepped a larger disaster.

The future, to put it bluntly, looks rather tedious from our perch.

China discloses currency basket composition
Composition of currency basket revealed

Zhou did not give details of the weightings of individual currencies in the basket.

China discloses currency basket composition

Misc. not needed links:
Dollar Rise Squeezes ETFs and Indexes

Dollar Rises and Sends Indexes Down Sharply

Global Financial Stability Report Navigating the Financial Challenges Ahead October 2009

IMF: "Risks to financial stability have intensified"

"Reserve Accumulation and Easy Money Helped to Cause the Subprime Crisis"

Unemployment and inflation

William Brock, Cars Hommes and Florian Wagener show how hedging instruments can destabilize markets.
http://www1.fee.uva.nl/cendef/publications/papers/arrowabridged.pdf

Random Thoughts on the Economy I

We understand that to win in markets it takes long term investment strategies like New York University economist Nouriel Roubini that so succinctly predicted the current crisis stated in Money magazine:

...Roubini himself hasn't bought or sold a thing in response to his own forecasts: He has all of his money in a diversified portfolio of index funds. "That's how I've invested for the past 20 years and how I'll invest for the next 20," he says. "I take the long-term view."

Mixed Signals or Structural Changes?
This blog post will center around the article from the Federal Reserve Bank of Dallas entitled: National Economic Update|October 8, 2009|Optimism Amid Uncertainty. That is definitely a theme that the newsletters from Sabrient ‘What the Market Wants’ has brought up. First the opening statement:

As we enter the final quarter of 2009, a number of important indicators are beginning to show expansion, suggesting that the trough of the current contraction may have come in the second quarter of this year. However, not all incoming information has been positive. Some data suggest that any optimism should be tempered, that this fledgling recovery has a long way to go before the economy achieves stability, and that the key word moving forward is “uncertainty.”

Uncertainty? Most certainly! Most recoveries also are marked by mixed signals as some of the signals may be sectors that are shrinking in overall importance and have more to do with changes in the structure of the economy than the marked level of growth. I already noted that there were some Shoots of Recovery??? in the late part of August and since then we have had more positive signals.

Manufacturing Up, but Job Losses Give Reason for Pause
An example of recent growth is the Institute for Supply Management’s Purchasing Managers Index for Manufacturing. In August, this indicator crossed the critical threshold of 50 for the first time since January 2008. And it remained above 50 during September with a value of 52.6. This typically signals expansion in the manufacturing sector. The ISM’s nonmanufacturing indicator also rose into expansion territory for the first time in a year, to a value of 50.9

Very good but manufacturing has not been a source of job growth from recoveries and the long term trends are down for employment in manufacturing. But this is not to say that manufacturing is dead in the USA like many pundits on TV state. An idea I have also had to try to correct in people's minds. But let us look at what the trend is with regard to the manufacturing sector which could be one of the shrinking sectors as sectoral shifts happen. The chart below tracks the Industrial Production Index (IPMFG) from January 2000 until August 2009 which would mark almost one decade. Data from Chicago Fed Midwest Manufacturing Index and U.S. Industrial Production.

{X-axis is months starting at January 2000 and Y-axis is the index measurement.} It clearly shows that the US will not get back to the level at the beginning of 2000 even if we are starting to see a positive numbers the last two months. It is worth noting that the index had a local high of 104.5 for July-August 2000 which took until May 2004 to recover from the recession and the 9-11 events. The index then had a nice steady growth spurt during which it reached a peak of 114.8 in December 2007 which marked the first signals of banking problems. Basically, a lost decade as far as manufacturing is concered. If you look the data more you can see that every decade was marked by increased levels of manufacturing even as far back as the 40s.

A Lost Decade for Manufacturing... What about employment?

Conversely, the job picture in September is no cause for excitement. During the month, the economy shed 263,000 jobs, and the unemployment rate rose to 9.8 percent (Chart 2). The story becomes somewhat more worrisome when looking at only private-sector jobs. As of September, the number of nongovernment jobs was just below that seen in June 1999, leaving the impression that 10 years of private sector progress has been lost through 21 months of labor market downturn.

Yes another signal of a lost decade and similar time frame for the losses noted above in manufacturing. Anyone follow the DJIA also? November 1, 1999 opened at 10,731.

There is some optimism to be found in the job market, however. Job losses in housing-related industries are now tapering off at about the same pace as in nonhousing-related activities, suggesting that the structural adjustment that this sector has been undergoing since roughly 2005 may be coming to an end.

Is Housing Spelled with a W?

Housing Market Hints at Steps Toward Normalcy
Taken together, existing-home sales and new housing starts give the impression that the housing market may have finally bottomed out (Chart 3). It’s possible that the apparent stabilization has been artificially induced, in part, by the temporary tax credit for first-time homebuyers, something that will become clearer when the tax credit expires in December. Even so, the improvement in housing market conditions is apparent in the flattening of home prices during the three months of second quarter 2009—the first time in six quarters that prices have declined by less than 3 percent. Unfortunately, this too could give way to additional price declines once the large foreclosure inventory on banks’ balance sheets hits the market.

Good news about the job market as well as the glut of houses that were foreclosed to have been absorbed into the market including the new homeowners that took advantage of the tax credits. But that could all be for naught if the rumors of the vast amounts of foreclosed homes may come on the market in another wave. I won't go into all the nuances here but this article seems to cover most of the important ones. Letter of the day? W Housing could take double dip down in 2010. And now back to the National Economic Update article.

Perhaps the most persuasive evidence that the housing downturn has halted comes from the indicator of five-month-moving-average, single-family housing permits, which we use in gauging the housing cycle. According to this indicator, the housing downturn that started in December 2005 may have ended in April of this year, making it the deepest in magnitude and the third-longest on record (Chart 4).

Just because it has been deeper and longer than most others, does not indicate that it may last even longer and deeper. It may also be marked by the double dipping in the W shape as noted above. The worst position to be in would be a vicious cycle of rising unemployment leading to further weakening of the housing market caused by increases in foreclosures as the article Mountain of modifications Industry tries to keep up with avalanche of troubled mortgages indicates.

What Factors Lead to the Housing Crisis?
The last section brought up the issues of what caused the housing meltdown at least with regard to macroeconomic factors. Maurice Obstfeld and Kenneth Rogoff provide some insights into these factors in the PDF paper "Global Imbalances and the Financial Crisis:Products of Common Causes" and a portion of their introduction:

This apparently favorable equilibrium {strong economic performance} was underpinned, however, by three trends that appeared increasingly unsustainable as time went by. First, real estate values were rising at a high rate in many countries, including the world’s largest economy, the United States. Second, a number of countries were simultaneously running high and rising current account deficits, including the world’s largest economy, the United States. Third, leverage had built up to extraordinary levels in many sectors across the globe, notably among consumers in the United States and Britain and financial entities in many countries. Indeed, we ourselves began pointing to the potential risks of the “global imbalances” in a series of papers beginning in 2001.2 As we will argue, the global imbalances did not cause the leverage and housing bubbles, but they were a critically important codeterminant.

What about some more good news and how are consumers doing?
Before getting back to National Economic Update article let me provide a few more shoots of recovery:
U.S. CPI up 0.4% in August on higher gasoline prices Core inflation rate rising at slowest pace in five years
U.S. Q2 GDP down 0.7% vs 1.0 prev est
Spending soars to highest in eight years on clunkers' Real disposable incomes off 0.2%, marking third monthly decline in a row
U.S. Sept. ISM services highest since May 2008
Trade gap narrows on drop in crude imports
Consumer prices rise 0.2% in September Home-ownership costs fall for first time since early 1990s
Except for autos, U.S. Sept. retail sales healthy
U.S. Sept. industrial production up 0.7%

Consumer Fears Ease and Prices Remain Subdued
The pervading unease that has typified consumer spending seems to be gradually lifting as well. Headline retail sales climbed 2.7 percent in August, the biggest monthly advance since January 2006. The monthly gain remained solid—1.1 percent—even after excluding products benefiting from the cash-for-clunkers program. In addition, the University of Michigan’s indexed consumer confidence indicator has risen 15 points since the end of last year, when it hit low levels comparable with those seen in the first- to third-quarter 1980 downturn.

Finally, changes in prices have remained relatively subdued. In both July and August, year-over-year CPI inflation was between –1.4 and –1.9 percent, while core CPI inflation remained about one point below its average over the past decade. Long-term inflation expectations, as implied by forward rates, similarly remain close to historical levels.

The positive aspect throughout the crisis has been that inflation has always maintained low levels. Even when food and gas prices were rising which caused the headline inflation rates to increase, core CPI numbers stayed low. The pundits were dead wrong about stagflation.

Hot Money Flows into {out of} the USA?

Financial Indicators Provide Market Optimism
On the financial side, a host of indicators used to assess the stress of credit and securities markets are returning to historical levels, reinforcing the view that markets are beginning to heal. That is certainly the message coming from the three-month LIBOR–OIS spread. After a period of uncharacteristic elevation, the spread is quickly approaching levels seen well before the current downturn started (Chart 5).

That is very much indeed positive signs and no geopolitical tensions has changed this recently. But this spread could easily widen if there is greater uncertainty perceived or real in the global economy including how the global imbalances become resolved.

Obstfeld and Rogoff stated that China "has plenty of room to take the lead and should." But it was noted that there is a lack of incentives for the individual players and nations to change their policies in the short run that leads to longer term lack of changes. I find it hard see much "hot money flows" entering the USA right now or more broadly as a rising exchange rate for the US dollar as was experienced between April 2008 to March 2009 with a 16.4 % increase.

They also note that the "The dollar is likely to depreciate quite a bit further as adjustment proceeds, although the process will be slower to the extent that major U.S. trading partners, notably China, resist the appreciation of their own currencies." One more passage from Obstfeld and Rogoff:

Are today’s somewhat compressed external imbalances still a problem? Perhaps one could hope that the current pattern is sustainable and will require little further adjustment. A number of considerations suggest, however, that global imbalances remain problematic, both for the U.S. and the world:
• The large private foreign purchases of U.S. assets that helped finance the U.S. deficit in past years have, for the moment, contracted sharply. Given the prospect of much larger U.S. public-sector deficits down the road, with no clear and credible timetable for their reduction, U.S. external borrowing will be prolonged and investor faith in the dollar cannot be taken for granted. Recent research on crises suggests several avenues of vulnerability as U.S. government deficits and debt grow, including self-fulfilling funding crises and currency collapses once fiscal fundamentals enter a danger zone. Given the multiple equilibria involved, the timing of such events is inherently impossible to predict. It is even conceivable, if the fiscal regime comes to be perceived as non-Ricardian and therefore not self-financing over time, that inflation expectations lose their customary monetary anchor, thereby making inflation control by the Fed more difficult.35 In short, the prospect of dollar instability remains.

Most recent developments.
The equity markets and currency markets got a little choppy as the news of the PPI and housing starts figures were released including the Euro reached a high vs. the dollar since August 2008.

Dollar moves choppy after weak U.S. PPI/Housing data
U.S. PPI has declined 0.6% from August to September, while it dropped 4.8% sin the last twelve months, a well larger decline than the -0.2% monthly and -4.1% yearly drop expected by the analysts. Excluding food and energy, the Core PPI Index edged down 0.1% in September, and rose 1.8% year on year.

Furthermore, U.S. housing Starts increased 0.5% in September to a seasonally adjusted annual rate of 590,000 units, too short of the 2.0% increase forecasted by market analysts.

The drop in PPI is significant and the markets reacted in knee jerk fashion but the Core PPI is something that needs to be looked at even more closely. In this case the last month was down but only slightly and the past years numbers are quite in line with maintaining low but positive inflation levels which is good for strong economic growth going forward.

Housing and construction in general also does not seem to be sector that will lead the USA out of high unemployment as the overhang of foreclosed homes and resets mortgages may create a huge surplus of housing units on the market.

What does this mean?
I think I still come back to what Max Lichtenstein and Jessica Renier entitled their National Economic Update as "Optimism Amid Uncertainty". But along the way, we have explored some issues including the insightful paper by Obstfeld and Rogoff about the convergence of factors that lead to the financial crisis caused by the housing sector. And whether some of these sectors could be the impetus for a bain or boon going forward. We also looked at some data that showed a "lost decade" in both employment and the manufacturing sector.

Obstfeld and Rogoff ask what will happen "if the U.S. is no longer the world’s borrower of last resort." But for the mean time, do not expect the global imbalances to be corrected...

Euro touches $1.50 vs. dollar for 1st time since August 2008
Henri Guaino, a top aide to French President Nicolas Sarkozy on Tuesday, said the euro at $1.50 "is a disaster for European industry and the economy," Reuters reported.

A day earlier, French Finance Minister Christine Lagarde, speaking to reporters after a meeting in Luxembourg of euro-zone finance ministers, said officials needed to remain "disciplined" in their message calling for a stronger U.S. currency.

"We want a strong dollar; we need a strong dollar," she said, according to news reports.

And European Central Bank President Jean-Claude Trichet on Tuesday repeated his endorsement of calls by U.S. officials for a strong dollar.

Misc. Links:
Who’s afraid of the big, bad market?

On the measurability of offshorability Alan S. Blinder

Present at the Trade Wars

DOW 10,000!!!! Oh Wait, Make That 7,537

Series: TWEXB, Trade Weighted Exchange Index: Broad

Mountain of modifications Industry tries to keep up with avalanche of troubled mortgages

"Something is Wrong with Wall Street"

Implications of a Doomed Dollar

Shoots of Recovery???

Home prices up, first in 34 months, Case Shiller

Quote:

U.S. home prices rose on a monthly basis for the first time since July 2006, according to the national Case-Shiller home price index released Tuesday. On a month-to-month basis, prices in 20 selected cities rose 0.5% in May, with gains in 13 cities. "This could be an indication that home price declines are finally stabilizing," said David Blitzer, chairman of the index committee for Standard & Poor's, which compiles the Case-Shiller index. Sales slipped 0.9% in April. On a year-to-year basis, prices in 20 selected cities fell 17.1%. This is a slower pace of decline than the 18.1% drop in April.

Recession less severe in early summer, Beige Book

Quote:

The U.S. economic recession seems to becoming less severe as the summer progresses, according to the Federal Reserve's latest Beige Book report released Wednesday. While still weak, some regions reported that the pace of the downturn had moderated. Other regions said that activity had begun to stabilize. The Beige Book is designed to give Fed officials a "feel" for conditions on the ground. The report said retail sales remained sluggish, contacts in the factory sector saw a turnaround on the horizon and bank lending was flat or weakening. Perhaps the most significant development is that businesses across the country are finding creative ways to cut wages and benefits. Economists note that as long as wages are under pressure, the threat of deflation remains. Labor market conditions remain slack, the report said.

Q2 GDP falls 1.0%, shallower than past 6 months

Quote:

The U.S. economy contracted at a much smaller rate than in the past six months, the Commerce Department reported Friday. Real gross domestic product fell at a 1.0% annualized rate in the second quarter, compared with an average 5.9% drop over the past two quarters. However, this is the fourth straight quarter with a contraction in GDP. This has never happened before since records began in 1947. The big story for the second quarter was in the much smaller decrease in business investment, exports and inventories. There was also an upturn in federal and state government spending. The government also released comprehensive benchmark revisions to GDP data, but they did little to change the basic story of the economy.

U.S. July ISM factory index rises to 48.9%

Quote:

Conditions for the nation's manufacturers continued to get better in July, the Institute for Supply Management reported Monday. The ISM index rose to 48.9% in July from 44.8% in June. The July index is the strongest since September. The consensus forecast of estimates collected by MarketWatch was for the index to rise to 46.2%. Readings below 50 indicate contraction. Below the headline, the report was strong. The data is showing that the manufacturing downturn is coming to an end. Both production and new orders rose above 50%. The ISM index has been improving slowly since hitting a low of 32.9% in December. The index was last above 50% in January 2008.

Q2 GDP falls 1.0%, shallower than past 6 months

Quote:

The U.S. economy contracted at a much smaller rate than in the past six months, the Commerce Department reported Friday. Real gross domestic product fell at a 1.0% annualized rate in the second quarter, compared with an average 5.9% drop over the past two quarters. However, this is the fourth straight quarter with a contraction in GDP. This has never happened before since records began in 1947. The big story for the second quarter was in the much smaller decrease in business investment, exports and inventories. There was also an upturn in federal and state government spending. The government also released comprehensive benchmark revisions to GDP data, but they did little to change the basic story of the economy.

U.S. June factory orders rise 0.4%

Quote:

Orders for U.S.-made factory goods rose 0.4% in June, outperforming expectations from Wall Street analysts, the Commerce Department reported Wednesday. Economists polled by MarketWatch had expected orders to fall 1%, following a gain of 1.1% in the prior month. Orders for durable goods fell 2.2%, an improvement from the government's prior estimate of a 2.5% drop. Orders for nondurable goods rose 2.7%. Excluding transportation equipment, new factory orders rose 2.3%. Orders for core capital goods, which are used by businesses to expand or update their productive capacity, rose for the second consecutive month, gaining 2.6% in June. Meanwhile, overall shipments rose 1.4%, following 10 consecutive months of declines. Shipments of durable goods fell 0.1% in June, and were down for 11 consecutive months, the longest streak of declines since comparable data were first published in 1992.

Job losses moderate in July Jobless rate dips to 9.4% as 247,000 nonfarm payrolls lost

Productivity rises 6.4%, fastest rate in six years

Quote:

U.S. companies slashed their workers' hours in the second quarter, boosting the productivity of the workplace at an annualized rate of 6.4%, the Labor Department reported Tuesday. It was the fastest increase in productivity in the nonfarm business sector in nearly six years. Economists surveyed by MarketWatch were looking for a gain of 5.4%. Unit labor costs - a key indicator of inflationary pressures - plunged at a 5.8% rate, the largest decline in nine years and a slightly larger drop that the 5.3% decline expected by economists. Hourly compensation rose just 0.2% in the second quarter.

Economy leveling out, but rates to stay low a while Fed to stop buying Treasurys in October, FOMC says

Consumer prices unchanged in July

Quote:

U.S. consumer prices were unchanged in July, after seasonal adjustments, and were down 2.1% year-over-year in the sharpest annual decline since 1950, the Labor Department reported Friday. Analysts polled by MarketWatch had expected no change in the monthly consumer price index. For July, energy prices fell 0.4%, and food prices fell 0.3%, while prices rose for goods such as new vehicles, tobacco, medical care and apparel. The core CPI, which excludes often-volatile food and energy prices, rose 0.1% in July, matching analysts' expectations. Of note, shelter prices in July fell 0.2%, the largest decline since 1982, while prices for meat, poultry, fish and eggs fell 1.3%, the largest decline since 1979. In June the overall CPI rose 0.7%, while the core gained 0.2%.

Industrial production rises for first time since October Output rises 0.5% in July as auto production surges 20%

Builders' confidence inches higher in August Sentiment index rises to 18, highest in more than a year

New York factories expanding in August

Quote:

Business improved for manufacturers in New York in August, according to the Empire State index released Monday by the New York Federal Reserve Bank. The index rose to 12.1 from negative 0.6 in July. It's the first positive reading since April 2008, and the highest since November 2007. Readings over zero mean most firms said business was improving compared with the prior month. Two key components of the index -- new orders and shipments -- rose to their highest levels in more than a year

Global recession over, but will leave scars: IMF

Leading indicators rise; bottom of recession seen

Quote:

An economic recovery may begin soon, and the recession is bottoming out, the Conference Board said Thursday. For its fourth consecutive monthly gain, the index of leading economic indicators rose in 0.6% in July, following an upwardly revised increase of 0.8% in June. Economists polled by MarketWatch were looking for a gain of 0.7% in July. The interest rate spread was the largest positive contributor, while a reading on consumer expectations was the largest negative contributor. Overall, six of the 10 indicators were positive contributors, three were negative, and one was steady. The six-month growth rate for the overall index hit its highest level since mid-2004, according to the Conference Board.

Durable orders jump 4.9% on aircraft bookings

Quote:

A doubling in aircraft bookings in July drove orders for new U.S.-made durable goods up by 4.9%, the largest increase in two years, the Commerce Department reported Wednesday. Excluding the 18.4% increase in transportation goods, orders rose 0.8%, the third straight gain and the longest upward streak in four years. Economists surveyed by MarketWatch were looking for a 4% gain in durable-goods orders in July. Shipments for durable goods rose 2% in July after a 0.7% increase in June. Inventories fell 0.8% in July. Orders are down 26% in the first seven months of 2009 compared with the same period last year.

Consumer confidence index rises to 54.1

Quote:

U.S. consumers' mood brightened considerably in August, as their expectations about the near future were the most optimistic since the recession began, the Conference Board reported Tuesday. The consumer confidence index rose to 54.1 in August from 47.4 in July. Economists surveyed by MarketWatch expected the index to rise to 48.0. Consumer confidence "appears to be back on the mend," said Lynn Franco, head of the consumer research center at the Conference Board. Consumers were a bit more upbeat than they were in July about current economic conditions, but were markedly sunnier about the economy and their own financial situation over the next six months.

Home prices rise for second month in a row, up 1.4% Case-Shiller index down 15.4% in the 12 months through June

Male bias in macro-economics???

I know that many of the Diaries here are long and complex, but hopefully this diary is just to get some ideas on a question that the bloggers here might be able to help with. The question is posed in the following manner:

“Male bias in macro-economics is not only bad for women; it is also bad for the prospects of setting in train a process of sustainable development.” (Elson, 1991)

Discuss this statement in the context of the effects of structural adjustment policies on the role of women in the development process.
...
[what do the articles] reveal about the respective roles of women and men in employment and in the household.

Here are the list of "sources" to begin with, but there is no restrictions on source of information to answer the question:

Boserup, Ester (1970) Women’s Role in Economic Development, London: George Allen &
Unwin.

Boserup, Ester (1991) ‘Economic Change and the Roles of Women’ in Tinker (ed.)
Op.cit.

Elson, Diane (1991) ‘Male Bias in Macroeconomics: The case of structural adjustment’
in Elson (ed.)Male Bias in the Development Process, Manchester University Press,
1991.

Evans, Alison (1991) ‘Gender Issues in Rural Household Economics’, IDS Bulletin, Vol
22, No 1.

Moser, C. (1993) ‘Gender roles, the family and the household’, Chapter 2 from Rationale
for Gender Planning in the Third World, pp 29–34, London: Routledge.

I know most of the list of sources are not available on-line so a couple of links of note that is related to the concepts are here and hopefully maybe others might have some links that might help answer the question:
ENGENDERING MACROECONOMIC POLICY AND BUDGETS FOR SUSTAINABLE DEVELOPMENT by Diane Elson

Caroline O.N. Moser, "Gender Planning in the Third World: Meeting Practical and Strategic Gender Needs", World Development, Vol. 17, No. 11, pp. 1799-1825, 1989.

In this seminal article the author proposes a gender roles framework for gender planning that leads to a differentiation of needs. The argument is based conceptually on the identification of the triple role of women and makes the distinction between practical and strategic needs articulated here for the first time. Welfare and efficiency approaches to low income and Third World Women are critiqued from a gender planning perspective and emphasis placed on the need for shifting policy towards an anti-poverty, equity and empowerment approach.

Caroline O.N. Moser, Gender Planning and Development: Theory, Practice & Training, Routledge: London and New York, 1993.

Gender planning is defined as a new and transformative planning tradition, one that seeks to empower women. The need for differentiation of gender roles and needs in society is considered the conceptual basis for gender planning and constitutes the basis for a critique of existing development policy and practice. Institutionalization of gender planning and operational procedures for implementing gender policies, programmes and projects are central subjects for consideration. The distinction between a technical planning methodology to meet women's practical needs and a 'political' methodology to meet women's strategic needs informs much of the discussion including the outlines for gender training methodology.

What do you think?


Since NCE is a hot subject here and may be related to this subject and I suspect that many here are Keynesians {hopefully Neo-Keynesians}, let me provide another quote from Elson's paper that may prompt a response:

When challenged, economists do not deny that human resources require inputs of caring and cooking, of nurturing and nursing; and do not deny that responsibility for providing these inputs lies chiefly with women. But macro-economic thinking assumes that it is perfectly correct to proceed as if such activities were not required because they would be undertaken regardless of changes in the level and composition of national income. This assumption may be based either on the idea that reproduction and maintenance of human resources is undertaken for love, not money, and is therefore not responsive to economic changes (Roston (1983) argues that Keynes's macro-economics is based on this assumption); or on the idea that changes in the level and composition of national income have no impact on the relative costs and benefits of maintaining and reproducing human resources. This assumption would be more consistent with neo-classical economics, which does assume that the reproduction and maintenance of human resources is responsive to economic signals (for example, Becker, 1976). Both the Keynesian and the neo-classical view are one-sided. Unpaid domestic labour is not carried out entirely for love, disregarding the economic costs and benefits; but neither is it simply another economic activity. The process of the reproduction and maintenance of human resources is different from any other kind of production because human resources are treated as having an intrinsic value, not merely an instrumental value. ...

Outsource the CEOs|Dweebs at ZNET think outside the Box again.

I just love it when liberals get concerned about issues that they actually oppose. Take for instance the article:. Outsource the CEOs April 06, 2004 By Kevin Danaher. Kevin is basically a "concerned troll". He knows that no company will follow his advice so he posts it on Znet as more tongue in cheek than anything. But since Liberals run around repeating something silly such as this, then maybe I should respond. {Title link to the thread at Thom's forum.}

April 1, 2004 -- As veteran corporate accountability activists, we both have spent years challenging big business to be more responsive to the needs of workers, communities, and the environment. We have picketed outside corporate headquarters, organized sit-ins, sponsored shareholder resolutions and bird-dogged company executives. When it comes to pressuring Corporate America, we've done it as much as anyone.

But the protesting thing is getting old. We figure it's time to give up our placards and trade them in for some PowerPoint presentations. We've decided to drop our commitment to advocacy and adopt a more lucrative career -- consulting.

Haha. Not likely, as otherwise they would have to turn in their "progressive" credentials.

In recent years, hundreds of U.S. companies have generated significant savings by sending high-skilled, well-paid positions to countries such as Singapore, India and the Czech Republic. The economics are clear: If a job can be done equally well somewhere else for less money, then it should be sent abroad. Our consulting firm takes this concept to the next logical step by outsourcing all the way to the top of the corporate ladder.

Why not? After all, equally skilled and experienced chief executives in Europe and Asia earn a fraction of what U.S. executives take home. The average chief of a major U.S. company receives $10.83 million in compensation per year. The typical CEO in Europe receives about $2.7 million. Japanese CEOs are a downright bargain: Your company can expect to pay as little as $300,000 to $500,000 per year for an executive based there, with year-end bonuses averaging just 10 percent. Even if you exclude the value of stock options and bonuses -- which account for the bulk of American CEO pay -- CEOs in the U.S. on average receive twice as much as executives in other industrialized nations.

Well, if the economics is "clear" then I am sure no more Libs will bring up contrary points of view and that outsourcing is good. But we are talking different labor markets so to rectify the fact that once you bring people here for the job then how would you discriminate based on citizenship? ...

We understand that your company may be concerned that off-shoring the CEO could impact performance. That's why we have a Two-for-One Plan. For the same salary you pay one American CEO, you can get a CEO in Europe and one in Asia. By having an executive on each side of the globe, you get uninterrupted service, corporate management around the clock. Instead of putting your back office in Bangalore, you put your front office in Berlin and Tokyo.

Interesting idea but CEOs do not necessarily run the day to day operations like a micromanager. I have more to say about the "front office" later.

The benefits to your company go beyond cost savings alone. When you offshore the boss, you get rid of the person that hourly workers and management employees alike love to hate. Just think how it will boost worker morale to see the CEO booted out the door. The resulting increases in worker productivity will pleasantly surprise you.

Maybe love to hate but also have a vested interest in them so the relationship is not of hate fest but of mutual respect {at least in organizations I have been in}. Not likely that the "workers" really would be more productive since there is less clear indication of who is running the company.

What's good for the goose is good for the gander. If it makes sense to increase profits by outsourcing skilled labor, let's save big money by outsourcing the most uncompetitive worker in the U.S. corporate hierarchy -- the CEO.

Well actually CEOs are quite competitive. It was already mentioned that US CEOs earn a lot more and this will definitely attract more applicants. A person at CEO level would also be eligible for some special immigration status of someone with unique abilities or unique talents. Wish I could find out more about this, but I do not believe companies have any problem getting some CEOs recruited to the USA for work. Here is some articles that talk about immigration of CEOs.
Foreign-born CEOs cite U.S. merit-based system By Del Jones, USA TODAY

"In many companies in Europe and Asia, family connections very often take precedence over performance," says Taurel, who became a naturalized U.S. citizen in 1995.

Just as I was saying, you pay more and open up opportunities to more people and then you would expect more applicants.
Send Us Your Tired, Your Poor, Your Business ExecutivesWhy are big American companies hiring foreign-born CEOs?
Señor CEOMore executive-suite imports.

OK, now going back to the basics of what this entails, the writer of "Outsource the CEOs" seems to want to not only outsource the CEOs but also noted above the front offices. Even in middle size corporations that can be a lot of middle level managers and office staff. I am sure all the small and medium cities that have corporate headquarters would love to have their town die because of outsourcing the front office. It also has to be practical since hiring a CEO in another country also means that he/she needs to be close to a variety of staff and support personnel. It is not like you would dismember the head and all other functions would work out. Also the question of the board would need to be considered since they meet and then you would end up outsourcing the Board Members also.

From my experience of Radio Shack, Fort Worth would practically dry up without its headquarters there. Basically it is just a crazy idea and that if any company followed though would actually be protested by Jason Mark and Kevin Danaher. I might even be there to join them on that protest. Or at least to laugh at them.

Links:
Corporate Donations Increasingly Benefit Left-Wing Causes Monday, February 07, 2000

Poly is a Dweeb

Ever hear of the Reconststruction Financial Corporation? Hoover instituted it.

"It lent almost \$2 billion in its first year, which was enough to serve the immediate goal of delaying a banking catastrophe, but the money did not inspire the expected general economic upturn."

"In February 1933 the banking system collapsed again. President Franklin Roosevelt, inaugurated in March, had none of Hoover's reservations about state capitalism. Roosevelt immediately declared a banking holiday and passed the Emergency Banking Relief Act.." Reconstruction Finance Corporation

Insolvent banks weren't allowed to re-open. Solvent ones were capitalized.

This article could have been written yesterday as an explanation of the past few decades up to the present.... rather than explaining the development of the Great Depression. Deja vu?.

Great Depression in the United States

Same responses to the same problems. Of course, today there are a few differences. We've outsourced our "real economy' and are now the world's largest debtor nation rather than the world's largest creditor nation. We're broke and using non-existent resources to enable the banks to pay off derivative players in an attempt to make them solvent.

Thank you for clarifying your position. But this only points out why I find you a dull to respond to. Out of your 5 links one works and one I could fix. You failed to even acknowledge that you got confused about who said what. As far as the "Reconststruction Financial Corporation", HH was President but that was about it.

In January 1932, on the recommendation of President Herbert Hoover, Congress created the Reconstruction Finance Corporation (RFC), which would use government money to make loans to banks, railroads, and insurance companies. In July, with the crisis deepening, the Emergency Relief and Reconstruction Act authorized the RFC to make loans directly to farmers, states, and public works projects.Britannica Concise Encyclopedia: Reconstruction Finance Corporation

So not even created the bill just a recommendation and it should also be noted that it was much more than banks and was a loans only aspect of any support to the markets but then this does not fit in your view:

Hoover was wary of any sort of government intervention in the marketplace. He was slow to propose the RFC because he hoped bankers could solve their own problem, and he never stopped viewing it as a temporary agency. Hoover's chairmen (Eugene Meyer and Atlee Pomerene) insisted on an overly conservative set of guidelines. The RFC's loans carried high interest rates (they did not want to compete with private lenders), and its collateral requirements were extremely rigid. Moreover, RFC-funded public works projects had to pay for themselves (hydroelectric plants or toll bridges, for example). According to Hoover and his advisers, the primary purpose of the RFC was to encourage banks to start making loans again so the private sector could initiate its own recovery.

You conveniently ignored that section as it stated the loans had high interest rates and required collateral. Not many "Zombie Banks" have lots of good collateral lying around. It also does not seem to have any subsidy basis to it.

U.S. government agency established (1932) to provide loans to railroads, banks, and businesses. The RFC was an attempt by Pres. Herbert Hoover to counter the early effects of the Great Depression by rescuing institutions from default. It was widely used by Pres. Franklin Roosevelt in the New Deal and to finance defense plants in World War II. After the war, the RFC's powers and functions were gradually transferred to other agencies.

Oh, so FDR used it more. Well that again does not fit in your ideology.

We are pumping blood money into zombies. Same thing Herbert Hoover did.

So letting 744 banks fail in 1930 was pumping blood money into zombies? And allowing 9000 banks to fail? And wiping out 140 billion dollars of depositors money is "pumping blood money into zombies"? So maybe FDR pumped blood money into a lot of banks, railroads, farmers, and public works projects? {Bank Failures}

In January 1932, on the recommendation of President Herbert Hoover, Congress created the Reconstruction Finance Corporation (RFC), which would use government money to make loans to banks, railroads, and insurance companies. In July, with the crisis deepening, the Emergency Relief and Reconstruction Act authorized the RFC to make loans directly to farmers, states, and public works projects.

Let the spin begin...

Records of the Reconstruction Finance Corporation [RFC]

Idiot Poly

Sue wrote:

Ron, do you have any evidence to back up your arguments? Have you thought about the arguments presented here? Insulting others gives the impression that the answer is no in both cases.

What evidence are you looking for? Back to my comment:

Well the world has plenty of "fresh water" we only need to tap it or change its form. The world is 3/4 water!!

What evidence that the world is covered by 3/4 saltwater? That we only have to "tap it"-meaning that we have it go to productive activity or that we "change its form" thus meaning that if it lost its salt content but could easily retain its other traits.

You're knowledge of agriculture seems nil.

Sue, am I not an "other" also?

Back to assumptions:

1. And just what do you propose to do with all the salt after its been extracted from the water?

That assumes that there is only one solution that I have thought about but clearly the question I ask is where did the salt come from? That should answer any question and if we really concerned about salt content in the oceans then make some salt domes in the ground.

2. Have you ever seen what happens to arid land when its irrigated over a period of time? Salts in the soil are disolved, rise to the top and turn the land into desert. Edible crops can't be grown on it.

If he assumed that I took out the salt then why ask it like my only choice is to irrigate it over the land? That was another persons idea that said to divert saltwater in the Pacific to the Southwest of the USA in the old forum. But maybe salt tolerant tomatoes can grow in such areas that are present in the world. Scientists create saltwater tomatoes

I have read already about areas that have tried to do the direct application of seawater to irragated fields and the reports I read were of mixed results. Thanks for admitting as such.

Lastly nothing I said implied or even hinted that that (irrigation of straight seawater} was in my mind at the time as seaweeds are not land based or do we worry about what happens to the salt them. Do we?

First find viable solutions, impliment them, then talk to me about increasing the population.

We need more consumers...we need more consumers! When you're trapped into a system that requires continual expansion in order to not collapse upon itself...you do.

More assumptions than I care to address now. Only find some economic solutions, implement them...

 

 

 

More in the Box Thinking about Populations...

"Tell me and I forget. Teach me and I remember. Involve me and I learn."

Recently I have had the opportunity to explore some issues involving population of the world questions and so called "stresses on our environment", with possibly more discussions in the near future. I included the quote above since the paradigm of the "Population Bomb" is so ingrained in our conscious mind that we {at least a good number of us have been raised under it} accept anything that comes from so called experts. We have in essence failed to see the underlying forces as to why we see bad news at nearly every turn. We are like the old widow that reads the paper every day and imagines the world outside as one scary place that is only good to hurry back and forth for life's daily needs.

While this is trite and trivial, maybe we have failed to learn for ourselves and to question the prevailing paradigms of our time {or at least to have the right teachers as the beginning quote would suggest}. Although Searching for the Right Passage from Childhood and School By Maurice Gibbons presents a lot of physical manifestations of a quest for young people before their adulthood, there is still the inner and outer "jihad" {struggle in the basic sense}. And each must choose their own path of what is the truth to them.

So instead of dealing with the hundreds of gloom and doom forecasts {e.g. Mega-droughts In Sub-Saharan Africa Normal For Region: Droughts Likely To Worsen With Climate Change or Ocean Dead Zones Likely To Expand: Increasing Carbon Dioxide And Decreasing Oxygen Make It Harder For Deep-sea Animals To Breath or Too many ’straws’ sucking water out of the Colorado River} let me start with the most headline grabbing article that has the "experts" tell us the most pressing problems in the world in the article entitled: Worst Environmental Problem? Overpopulation, Experts Say

Overpopulation is the world’s top environmental issue, followed closely by climate change and the need to develop renewable energy resources to replace fossil fuels, according to a survey of the faculty at the SUNY College of Environmental Science and Forestry (ESF).

Well this non-expert thinks that if you can solve the energy problem {to most people's satisfaction} then it would solve the carbon problem and thus the strain on the environment, thus on casual observation they have the order reversed and was similar to an analysis I came away with nearly 30 years ago.

Overpopulation came out on top, with several professors pointing out its ties to other problems that rank high on the list.

“Overpopulation is the only problem,” said Dr. Charles A. Hall, a systems ecologist. “If we had 100 million people on Earth — or better, 10 million — no others would be a problem.” (Current estimates put the planet’s population at more than six billion.)

Dr. Allan P. Drew, a forest ecologist, put it this way: “Overpopulation means that we are putting more carbon dioxide into the atmosphere than we should, just because more people are doing it and this is related to overconsumption by people in general, especially in the ‘developed’ world.”

I have heard about wacko environmentalists talking about 1 billion or less but 100 or even 10 million starts to get really ridiculous. Even the Americas supported at least 40 million with the most primitive of cultivation methods. Unless the "experts" think the native Americans were ravaging the environment then at least that should provide a basis for what amount is allowed even in their criteria. Honestly I think the world can support 15-20 Billion humans especially if we think in concepts of what the minimum humans consume which is the carbon we expel in breathing and the carbon in the food we eat. Any other resource could be traded for dirt.

What I mean by dirt is the fact that the basic chemicals are in the dirt like silica, nitrogen and carbon and everything else is just transformation of the basic building blocks into patterns that would suit human consumption. It is not like nature is really upset that humans have dug something out of the ground that no any other living thing needs.

Rounding out the top 10 issues on the ESF list are overconsumption, the need for more sustainable practices worldwide, the growing need for energy conservation, the need for humans to see themselves as part of the global ecosystem, overall carbon dioxide emissions, the need to develop ways to produce consumer products from renewable resources, and dwindling fresh water resources.

While that is an interesting list a more practical list is provided by Bjorn Lomborg the Global prioritizer and with The outcome of Copenhagen Consensus 2008. Of course it is interesting that they place Global Warming at position 14th first since they break it down by category. Even that is just trying to increase technology to help low income countries, as Jeffery Sachs would also support. Other than that the other criteria is just mitigating the effects of global warming.

A fairly long article but a good read is: Bound to Burn Humanity will keep spewing carbon into the atmosphere, but good policy can help sink it back into the earth. I do not share the pessimism of the writer on many of the points but the conclusions are well worth the read to build his points on. Which I include a part here:

If we’re truly worried about carbon, we must instead approach it as if the emissions originated in an annual eruption of Mount Krakatoa. Don’t try to persuade the volcano to sign a treaty promising to stop. Focus instead on what might be done to protect and promote the planet’s carbon sinks—the systems that suck carbon back out of the air and bury it. Green plants currently pump 15 to 20 times as much carbon out of the atmosphere as humanity releases into it—that’s the pump that put all that carbon underground in the first place, millions of years ago. At present, almost all of that plant-captured carbon is released back into the atmosphere within a year or so by animal consumers. North America, however, is currently sinking almost two-thirds of its carbon emissions back into prairies and forests that were originally leveled in the 1800s but are now recovering. For the next 50 years or so, we should focus on promoting better land use and reforestation worldwide. Beyond that, weather and the oceans naturally sink about one-fifth of total fossil-fuel emissions. We should also investigate large-scale options for accelerating the process of ocean sequestration.

A Mind is a Terrible Thing to Waste even if it is Krugman's

Tea Parties Forever
By PAUL KRUGMAN Published: April 12, 2009
This is a column about Republicans — and I’m not sure I should even be writing it.

Today’s G.O.P. is, after all, very much a minority party. It retains some limited ability to obstruct the Democrats, but has no ability to make or even significantly shape policy.

Beyond that, Republicans have become embarrassing to watch. And it doesn’t feel right to make fun of crazy people. Better, perhaps, to focus on the real policy debates, which are all among Democrats.

But here’s the thing: the G.O.P. looked as crazy 10 or 15 years ago as it does now. That didn’t stop Republicans from taking control of both Congress and the White House. And they could return to power if the Democrats stumble. So it behooves us to look closely at the state of what is, after all, one of our nation’s two great political parties.

One way to get a good sense of the current state of the G.O.P., and also to see how little has really changed, is to look at the “tea parties” that have been held in a number of places already, and will be held across the country on Wednesday. These parties — antitaxation demonstrations that are supposed to evoke the memory of the Boston Tea Party and the American Revolution — have been the subject of considerable mockery, and rightly so.

Yes, Paul, you should have stopped at the first sentence instead of sticking both feet in your mouth. You may be a fairly good intellectual in the field of Economics but you clearly show yourself as a political hack. Are you not aware of the party of Dems that has Code Pink for one prime example? Have you been in a cave for the last 8 years and all the anti-war demonstrations as well as 9-11 truthers and the plot to invade Iraq and Afghanistan for oil? Lastly, you must not get any news about San Francisco where you are since you clearly are not aware of the phony outrages over the Marine Recruitment station there. The post {This one is truly prize winning for a Fascist.} is his and my response is below.

And most recently More Unintentionally Humorous Video From the Failed Liberal Tea Parties. But naturally he ignores the fruitcakes in his side of the aisle and concentrates on the Republicans. What a hack.

Thus, President Obama is being called a “socialist” who seeks to destroy capitalism. Why? Because he wants to raise the tax rate on the highest-income Americans back to, um, about 10 percentage points less than it was for most of the Reagan administration. Bizarre.

But the charge of socialism is being thrown around only because “liberal” doesn’t seem to carry the punch it used to. And if you go back just a few years, you find top Republican figures making equally bizarre claims about what liberals were up to. Remember when Karl Rove declared that liberals wanted to offer “therapy and understanding” to the 9/11 terrorists?

I can not speak for others but liberals want to take from the rich and give to the poor and socialist want to own everything like Banks and manufacturing and if they can do that bloodlessly then take from the rich and create a socialist state.

The question about rates is direction of the country and a portent to what really may happen. That is he will raise the taxes for all US taxpayers to fund all Obama's giveaways. Instead of class for itself, Americans understand fairness and once you tax to death the successful it is not too long before you tax all signs of success even if it is just marginally. The question you {Krugman} should answer and give econometric reasons why the rate higher 10% is good for society. And there may be plenty of theoretical as well as analysis in econometrics that should help answer this question.

Then there are the claims made at some recent tea-party events that Mr. Obama wasn’t born in America, which follow on earlier claims that he is a secret Muslim. Crazy stuff — but nowhere near as crazy as the claims, during the last Democratic administration, that the Clintons were murderers, claims that were supported by a campaign of innuendo on the part of big-league conservative media outlets and figures, especially Rush Limbaugh.

Made by whom? Pretty sloppy as no name. It could be a plant or misinterpretation or just some fool that showed up. You don't think there are plenty of fools in the Democratic party?

Going back to those tea parties, Mr. DeLay, a fierce opponent of the theory of evolution — he famously suggested that the teaching of evolution led to the Columbine school massacre — also foreshadowed the denunciations of evolution that have emerged at some of the parties.

I will defer to this post about that portion: We Farm Out The Krugman-Bashing (And Help Truth Get Its Boots On).

Last but not least: it turns out that the tea parties don’t represent a spontaneous outpouring of public sentiment. They’re AstroTurf (fake grass roots) events, manufactured by the usual suspects. In particular, a key role is being played by FreedomWorks, an organization run by Richard Armey, the former House majority leader, and supported by the usual group of right-wing billionaires. And the parties are, of course, being promoted heavily by Fox News.

But that’s nothing new, and AstroTurf has worked well for Republicans in the past. The most notable example was the “spontaneous” riot back in 2000 — actually orchestrated by G.O.P. strategists — that shut down the presidential vote recount in Florida’s Miami-Dade County.

It seems that Republicans are only taking a page out of the Left Wing Wacko Billionaires for Democrats. Have you ever heard of George Soros and ACORN, or do you live in a cave? Yes, a few people that stormed an office 8 years ago. You have anything more recently as I certainly do for the Left wing wackos.

For now, the Obama administration gains a substantial advantage from the fact that it has no credible opposition, especially on economic policy, where the Republicans seem particularly clueless.

But as I said, the G.O.P. remains one of America’s great parties, and events could still put that party back in power. We can only hope that Republicans have moved on by the time that happens.

Yes, the Democrats are in power so why don't you be creative instead of showing your "concerned Troll" impressions especially since you have no balanced analysis of anything in politics. Even most conservative economists give advice to both sides of the aisle and other ideologies like Milton Friedman visits to Chile and China.

Burkina Faso/Niger and Desert Encroachment.

Burkina Faso/Niger and Desert Encroachment.

In the article, In Niger, Trees and Crops Turn Back the Desert, we get a nice summary of the problems with desertification happening in Niger and what policies exasperated the problems. (Title link) Basically trees became an obstacle to farmers developing their lands and the assets of trees were owned by the state (or more loosely the people). Instead of caring for the trees on their lands, the trees were more or less an obstruction for planting nice even rows of cash crops. Thus the benefits of soil retention and reducing water runoff were lost when the majority of trees were either cut down or neglected in farming practices. All that was required was for reestablishment of property rights along with a long forgotten agricultural technology to stimulate the growth of productive trees for farmers.

Andrew Leonard provides a summary of these techniques in the article A tree grows in the Sahel. Basically it is simply digging a hole and filling it with organic matter of any kind and the most varied the better for retention of waters in the space created as well through the organic materials in the pit. Then the soil is covered back up and if need be plant a tree nearby that will draw upon the water retained in the hole as well access to the organic compounds. Bugs, worms and termites will make holes to the material to help aerate the soil and allow water absorption. In a short time, the farmer will be able to harvest various things from his crop of trees including firewood, fruits, and falling leaves for more pits. The holes are called “zai holes” or planting pits.

A more complete analysis is available in the paper entitled THE EMERGENCE AND SPREADING OF AN IMPROVED TRADITIONAL SOIL AND WATER CONSERVATION PRACTICE IN BURKINA FASO. From the abstract:

This paper describes the emergence of improved traditional planting pits (zaï) in Burkina Faso in the early 1980s as well as their advantages, disadvantages and impact. The zaï emerged in a context of recurrent droughts and frequent harvest failures, which triggered farmers to start improving this local practice. Despair triggered experimentation and innovation by farmers. These processes were supported and complemented by external intervention. Between 1985 and 2000 substantial public investment has taken place in soil and water conservation (SWC). The socio-economic and environmental situation on the northern part of the Central Plateau is still precarious for many farming families, but the predicted environmental collapse has not occurred and in many villages indications can be found of both environmental recovery and poverty reduction. (Kabore, Reij, abstract)

The thing to note about this process, it is mostly traditional and requires no special technology to perform and no outside technology is basically needed. The one aspect that could benefit is dissemination of the technique and collection of data for improvement upon the application of this ancient technology. Cellular telephones again might be handy in disseminating as well as agricultural extension services through government entities or NGOs. Ultimately this will lead to production capability increases but it does not require increased labor force during peak times and can be spread out over the year when labor demand is lowest. (SG, Section 3.5.4) The pits can be done at any time and when the rainy season starts then the benefits can begin the process.







References:
1. Vaitsos, C.V. (1973) ‘Bargaining and the Distribution of Returns in the Purchase of Technology by Developing Countries’, from Henry Bernstein [ed.] Underdevelopment and Development, Penguin Books: Harmondsworth, England, pp 315–22.
2. Paul Collier (2007). The Bottom Billion. Oxford, Oxford University Press.
3. Kabore, Daniel and Reij, Chris (2006), THE EMERGENCE AND SPREADING OF AN IMPROVED TRADITIONAL SOIL AND WATER CONSERVATION PRACTICE IN
BURKINA FASO (PDF), EPTD Discussion Paper No. 114, International Food Policy Research Institute.
4. Bush Encroachment Report on Phase 1 of the Bush Encroachment Research, Monitoring and Management Project,

5. ET:Bush to Solve all African Problems!
6. In Niger, Trees and Crops Turn Back the Desert


7. Lydia Polgreen, New York Times, In Niger, Trees and Crops Turn Back the Desert
8. Andrew Leonard (Oct. 4, 2006), Salon.com, A tree grows in the Sahel

A Dweeb asks: Can America be saved? Paul Krugman.

When Dr. Krugman asks, Can America be saved?, we have to ask from what do we need saving?

So I read this:

Boehner said Americans want government to practice the same financial restraint they have been forced to exercise: “It’s time for government to tighten their belts and show the American people that we ‘get’ it.”

and I wonder if this country can handle the crisis we’re in. Remember, John Boehner is, in effect, the second-most influential member of the GOP (after Rush Limbaugh). And while Democrats hold a majority, it’s not enough of a majority to make the minority party irrelevant.

So the fact that Boehner’s idea of economics is completely insane matters.

What’s insane about Boehner’s remark? He’s talking about the current economic crisis as if it were a harvest failure — as if we faced a shortage of goods, so that the more you consume the less is left for me. In reality — even most conservatives understand this, when they think about it — we’re in a world desperately short of demand. If you consume more, that’s GOOD for me, because it helps create jobs and raise incomes. It’s in my personal disinterest to have you tighten your belt — and that’s just as true if you’re “the government” as if you’re my neighbor.

Yes there is this perception in society and Economists have not been able to dispel that when demand goes down that more belt tightening may not be the answer as the collective. But if all we do is to transfer wealth from the future to now how is this moral for us to it? {I am not saying that I believe that only that is the koan that he must address.}

But we face the isolation paradox and yes please Dr. Krugman, Thoma, etc spend all your money and if you would be so nice, buy some of my products or my wife is in Architect and I am sure she could use the work. The government does not have unlimited resources, it too much abide by some constraints, whether we are approaching that is the question.

Dr. Krugman for me also does not use a more refinement in his analysis than just "demand" and then interpreting that to me consumer demand. A better understanding is absorption in describing a recession or depression. In a basic economy we have Consumers and Business denoted by Investments {planned and unplanned} and Government and lastly the World {exports-imports}. Yes we have unplanned investments by business happening now and consumer spending is down and exports while helped the US in certain months has also dried up as a way to raise absorption. It seems that business in this environment is not willing or even able to increase planned investments to make up the shortages right now and Obama is not making things any better with populist rhetoric. If there is no way to know with certainty what the returns on investments are going to be then business increases its risk aversion levels and thus does not invest. The stock market seems to be indicating these sentiments.

He may think that the Big Push might help us but we still have to think if Government deficits now have a positive benefit to society and not just feel good promises as well as expansion of the welfare system.

Plus, who is “the government”? It’s basically us, you know — the government spends money providing services to the public. Demanding that the government tighten its belt means demanding that we, the taxpayers, get less of those services. Why is this a good thing, even aside from the state of the economy?

Again, this is what the leaders of a powerful, if minority, party think. Can this country be saved?

Yes, we are the government and we do not have Polyarchic Government. But the question he fails to address is whether conservatives in general believe that we are getting value out of those services. Where is the NPV analysis of these projects?

Well, I am sure he is just sitting at home worrying about the Republican Party. But his attitude does not match his concern. I mean if he thinks that "the second-most influential member of the GOP (after Rush Limbaugh)" is going to win friends and influence people then he must be a Libtard. Why not try to correct his mistakes instead of being a political hack?

Instead he sides with Practical Pelosi.
Pelosi open to another stimulus if necessary Economists say it's working, but may not be big enough

"You have to keep the door open to see how this goes," Pelosi said. "But we must give it time to work."
"There's a drum beat of optimism in regard to this package and this president, that is very positive," Pelosi said. She said it would take time for the stimulus to have an impact, but she hoped confidence would return to families and markets quickly.

So a week is enough? a month? We have not even started to seriously hand out the dough and talk about we need more is just silly. But Dr. Krugman eats that up. Sure glad neither of them are at the Fed.

Allen Sinai, chief global economist for Decision Economics, said the stimulus would probably create 2.5 million jobs in the first two years. "Initially, the jobs created may be a little disappointing, but over time, over a three-year period, I think 3 million new jobs is not unrealistic at all."
Despite that forecast, the stimulus is a good policy, Sinai and two other economists agreed.
It just may not be big enough.

I agree in using econometrics as a tool, but there comes a point when there are so many factors that just guessing or a dartboard can be better. Of course they are "creating or saving jobs". How do you prove you "saved" a job based on some indirect effect. That is aside from the paychecks for specific tasks in the government checking account.

Krugman is Still a Dweeb

Let me first start with his latest editorial complete {since short}.
Japan reconsidered

For a decade or so Japan's lost decade has been the great bugaboo of modern macroeconomics. Economists constantly warned that you mustn't do X or you must do Y, because otherwise we'll turn into Japan. And policymakers congratulated themselves in advance for not being like their Japanese counterparts, who dithered and drifted, refusing to make hard decisions.

Well, I'm sure I'm not the only person to notice this: Japan doesn't look so bad these days.

For one thing, the famed sluggishness of Japanese policy — the refusal to face up to banking system losses and pour in the funds needed to recapitalize the system, the refusal to let zombie banks die, the stop-go nature of fiscal policy, with concerns about rising debt warring with concerns about the economy — all of that seems entirely comprehensible now, doesn't it? Even with the knowledge of what happened to Japan to motivate us, so far we're following exactly the same path.

And given what the next couple of years are likely to look like, Japan's lost decade — yes, growth was slow, but there wasn't mass unemployment or mass suffering — is actually starting to look pretty good. We may or may not be about to face our own lost decade, but the sheer misery millions of Americans will face in the near future probably exceeds anything that happened in Japan during the 90s.

I still hope we can do better than the Japanese did, but it's not at all obvious that we will.

I find it funny that he can say with a straight face that "we're following the same path", when he understands that we have done them differently just maybe not as "big push" as he would want us to. Including the fact of "quantitative easing" that Japan did not start until 2001.

But if it was not so bad as in: "Japan doesn't look so bad these days." Then one has to wonder about a couple of his articles he has written before. He does seem to have studied the "lost decade" to understand it more than most economists. First: Setting Sun Japan: What went wrong?
By Paul Krugman

But the new story is much more interesting than the old one. How could a wealthy, productive, sophisticated country have gone from enviable growth in the 1980s to stagnation in the '90s, and now be slipping into a downward spiral of recession and deflation? True, Japan is not a country on the edge of chaos--as Indonesia or Russia is--but that only adds to the mystery. Japan isn't a place where the state is weak, unable to collect taxes or convince investors that their property rights are secure. Nor is it a country at the mercy of skittish foreign investors who must be persuaded to roll over its debt: Japan is still the world's largest creditor. So what's the explanation?

Inefficiency? Japan has many inefficiencies that limit its productive capacity--too many mom-and-pop stores, not enough computerization in the office, and so on--but inefficiency per se is not the immediate problem. What Japan lacks right now is not supply but demand: Japan's consumers and investors just aren't spending enough to keep the country's shops and factories busy.
And the usual remedies for inadequate demand aren't working. Interest rates have been pushed down almost as far as they can go. Like the Fed, the Bank of Japan normally targets the interest rate on overnight loans that banks make to each other. The difference is that this rate is more than 5 percent here, but basically zero there. The big public spending projects the Japanese government launches every now and then do create some jobs, but they never seem to yield enough bang for the yen: The economy keeps relapsing, while government debt keeps mounting.

And: TIME ON THE CROSS: CAN FISCAL STIMULUS SAVE JAPAN?

Now you could argue that the experience of the Depression and after provides just such evidence. Many economists thought that with the end of World War II spending the United States would revert to Depression-type conditions; a whole school of thought, the "secular stagnation" hypothesis, was built around that idea. In fact, once jolted out of depression, the U.S. did not fall back; one explanation is a story something like that in Figure 2.

But it is quite a stretch to argue that Japan in the 90s is a parallel case. It might be; but an at least equally, if not more, plausible story is that Japan has a structural excess of saving over investment, even at a zero interest rate; in that case a temporary fiscal stimulus will produce only temporary results.

What continues to amaze me is this: Japan's current strategy of massive, unsustainable deficit spending in the hopes that this will somehow generate a self-sustained recovery is currently regarded as the orthodox, sensible thing to do - even though it can be justified only by exotic stories about multiple equilibria, the sort of thing you would imagine only a professor could believe. Meanwhile further steps on monetary policy - the sort of thing you would advocate if you believed in a more conventional, boring model, one in which the problem is simply a question of the savings-investment balance - are rejected as dangerously radical and unbecoming of a dignified economy.

Will somebody please explain this to me?

Hey, well he can always change his mind, but it seems that at least he should acknowledge his change in positions and that maybe he was giving the wrong advice either then or now.

ET:Bush to Solve all African Problems!

Well, since I got your attention, let me start with a couple of problems wrapped up in the article:Namibia: Policy to Create a Water Scarcity?

Ever since the government has started its reform of the rural water supply, water has become a scarce commodity, says Mukuya. Under the colonial South African administration, water was free for people in the communal areas. It was one of the many mechanisms the apartheid regime put in place to control the rural population.

Now communities are organised in Water Point Associations (WPAs), governed by committees, tasked with regulating and collecting the levies for the water supply, explains Mukuya, while he tightens the tap to make sure not a drop is lost.

"The government has stopped buying fuel for the pumps as part of the reform programme. They still come in to fix the pump when it breaks, but that will also stop eventually."

It is meant to lead to a paradigm shift. "Under the South Africans, water was used in a completely ecologically unsustainable manner", says Dr. Thomas Falk, author of a soon to be published study on the impact of the decentralisation of the rural water supply that affects one million Namibians.

Basically a neoclassical economics approach can help explain the shift from a resource that was free and thus overused to now trying to "get prices right" through the necessary "paradigm shift". Others may look at this trying to reduce the consumption of a precious resource, but who "pays for it" is a question that society must also answer. Namibia already has the highest Ginni index in the world and anything else to make it harder for the rural peasants will not necessarily be good for society.

Though the water situation in Namibia is believed to be extremely precarious - only the Sahara desert nations are more arid - astonishingly nobody knows exactly how little water there is.

"A quantitative analysis of available groundwater data is on the books, but will take three years to complete", says Greg Christelis, deputy director of Geohydrology at the Ministry of Agriculture, Water and Forestry. He says there is no data indicating that aquifers are depleting countrywide, but acknowledges that existing studies are confined to particular geological sites.

"All we know is that bush encroachment has a large effect on the groundwater table. In areas where bush is removed, recharge is much higher."

Bush encroachment is the most common form of land degradation in Namibia with roughly 26 million hectares of rangeland affected.

Some of the knowledge and technology could be provided by other countries. Of course there needs to be a sensitivity in developing their resources including human capital in problem solving. One of the initiatives that the IMF has endeavored in, is in helping with coordination of international aide agencies, and this passage seems to show a lack of coordination:

An evaluation report on various donor projects by the European Commission in 2008 concluded: "There appears to be little co-operation between water supply and sanitation scheme planners and the providers of water; merely an assumption that water is, or will be, available."

OK, so we got to see how "Bush" creates more problems for the world and how it is destroying Namibia and adversely affecting the poorest of the poorest in Namibia. Let me start with an anecdotal story.

At the meeting, geo-hydrologist Frank Bockmuehl said bush encroachment had reached such alarming proportions, that "our rivers flow far less than two, three decades ago or in some cases don't flow at all any more".
"On our farm in the Outjo area, my grandmother used a lovely spring to water her extensive vegetable garden. She regularly supplied the school hostels in town with the vegetables. The spring dried up 18 years ago; the water table on the farm had dropped by 10 metres."

He then started a debushing exercise and cleared 300 ha recently.
"To my great surprise and joy, the water at the fountain came back a few months ago and has kept a steady flow," the geo-hydrologist said. "The water table rose."

Luckily, there seems to be a solution but maybe this is the area that I honestly need more information about. The quote above and our further discussion is from: Namibia to start bush-to-electricity project from invader-bush. I have other documents that talk about this process but hasn't the USA has tried some of these projects over at least the last 30 years? Even "the Bush" talked about switch grass a few years ago.

A new way of combating bush encroachment and restoring Namibia's savannah landscapes will start in September when a N$ 14 mm project to set up an independent power plant fed with invader bush will kick off. The “bush-to-electricity” project is run by the Desert Research Foundation of Namibia (DRFN), an energy expert at the organisation has announced.
"Other partners are the Namibia National Farmers' Union (NNFU) and the Namibia Agricultural Union (NAU)," Claus-Peter Hager told a meeting of charcoal producers at Otjiwarongo. "The Ministries of Environment and Tourism and Agriculture were also consulted. Funding of N$ 14 mm from the European Union over the next 24 months has been secured," Hager said.

Vast tracts of farmland cannot be used for farming because of encroachment by hardy shrubs and trees, generically known as invader bush. Studies indicate that about 26 mm hectares of agricultural land are infested, which is preventing the growth of useful grass species. It also results in soil compaction in the bush-encroached areas.
This has reduced Namibia's carrying capacity for livestock, resulting in reduced cattle numbers over the past 50 years -- from 2,5 mm in the commercial farming areas down to some 800,000 head of cattle. According to experts, the reduced availability of land for grazing causes economic losses of N$ 700 mm in the agricultural sector every year.

Another worrying factor is that the extensive root network -- up to 40 metres long -- of some invader bush species robs the soil of moisture. Soil also gets compacted, which prevents rain water from penetrating the soil and replenishing the underground water table. Hager told the meeting that usually, underground water was recharged with just 6 % of rain received.
"In bush-infested areas it is less than 1 %." Another adverse effect is that invader bush increases water run-off and erosion.

The project will be located in one of the areas with the highest density of invader bush -- around the north-central towns of Tsumeb, Otavi and Grootfontein. It wants to use farms that already harvest invader bush for charcoal production. The proximity of the areas to power lines, where the generated power can be fed into the national electricity grid, will also play a role.

Well, read the rest of the article since it is short and covers the issues quite succinctly.

What do you think? What other issues/problems should be discussed for this project? To provide some more background, let me start with what inspired at least another look at the Bush encroachment in Namibia. I was looking into property rights and some techniques in Niger dealing with desert encroachment in the blog post: Creeping dunes threaten African nation/But There is Hope in Some Areas. Then das monde had brought up the issues of the Invader bush and the Namibian savanna and he does a good job bringing out the important points in that article.

The following article gives some details about the project but I found the following points important in getting incentives right in any social/economic problem such as invader bush.
Namibia to use invasive shrubs for bioenergy, to meet all power needs

Individual, small farmers whose land is invaded say it is cheaper to buy a new farm than to try to eradicate the hardy bushes.
...
Although there are other methods to limit bush encroachment such as herbicides, use of browsers, fire, stumping or felling and bulldozing among others, many of these methods have been found to be so costly that farmers say it is cheaper to buy another farm than to debush.

This exposes our dilemma in how humans will deal with this economic problem. You can't just continually move to new land when the old land is not going to recover on its own.

The executive summary of the Bush Encroachment Report has some important considerations also:

Policies and legislation
For many years we have thought that problems in agricultural sector should and could be counteracted through scientific and technological solutions alone. Today we realize that the degradation process, with bush encroachment as a prominent sympton, could also be ascribed to policy failures, mainly in the socio-economic field.
...
Since most of the methods to combat bush encroachment are expensive, recommendations are also made herein to Government to introduce a number of socio-economic incentives that would encourage farmers to participate in restoring the land, this precious Namibian asset, to a more healthy and ecologically balance state.

Which again ties back to getting incentives right as we explored already in: Creeping dunes threaten African nation/But There is Hope in Some Areas

Mark Thoma may be missing Ricardian Equivalent.

Let me first start off with the post and with Dr. Thoma's comments:Snake-Oil Assets Robert Shiller:

I'm not sure that confidence and too much trust on the upside and the pessimism and fear we see on the downside are the causes rather than the effects of cycles (and I'm also not sure that Shiller is making that claim). That doesn't mean that psychological factors don't have important feedback effects that help reinforce booms and busts, or that these reinforcing effects can't produce volatile swings in the economy that need to be prevented or dampened through government action, only that the changes in mood seem to be more a part of the process than a primary cause of it. But I don't want to close my mind to the possibility.

But if the effects of the psychological factors are driving the cycles then the start or the very seedlings of the cycle turns may be of little interest. It just depends on the factor weights of each of the causes of the cycles. When the cycle turns {in that instant} it may be nothing just the heard in the pact decides to go the other direction and everyone else starts to feel the draft.

From the article:A failure to control the animal spirits By Robert Shiller

The next blog post is more in line with the title in: Rogoff: Countries Risk Drowning in Red Ink Ken Rogoff with lots of gloom and doom:

That's why I wrote this. As I noted, there are plenty of people who are anxious to pin our economic problems on the deficit, and going one step further, the welfare state (e.g. the "growth could be particularly dismal, as the Obama administration steers the country toward more European levels of welfare assistance and income redistribution" statement above). But government intervention is not going to make things worse for, say, the typical unemployed worker, it will make things better by improving job prospects and providing an enhanced level of support while unemployed (health care, unemployment insurance, food stamps, and similar programs). The stimulus package won't prolong the recovery period, it will shorten it by jump starting the economy in important areas and keeping it going until the private sector can take over (think of the government spending and tax cuts as a bridge over troubled assets).

Well, being basically a conservative although when it shown externalities or deficiencies in the markets then I have no problem with interventions. At on at least one level I believe in libertarian paternalism or Pigou Taxes. So this Shock Socialism does not bode well to me in the least. Now I agree about the facts of the safety net and helping those that are low in disposable income for the short time period. But to assume that it will help people with job prospects is the question still not answered to my satisfaction. Because even if does jump start the economy which I also question based on the steps in this government intervention programs, it still may not help the individual that is unemployed. Does he have the job skills and training that will make him eligible for the new jobs? Is it in the community he lives in? Other idiosyncratic traits of the individual could hamper his abilities to get a job.

So I want to emphasize one more time that stabilization policy does not have to change the size of government in the long-run (and see pgl for a debunking of some of the claims about the size of government. i.e. he notess that "Federal spending as a share of GDP was about as high in 1985 as it is projected to be for 2019"). Fiscal policy can increase the size of government, but it can also shrink the size of government (lower taxes in the downturn, then cut spending when things are better to eliminate the deficit and government will shrink). So the criticism is not about the use of stabilization policy to help people during the downturn and to give the economy a boost, instead it's a claim about the long-term political aims of the administration with respect to the size of government. However, according to pgl's calculations, the projections are that the size won't exceed what we had under that well known socialist sympathizer Ronald Reagan.

Believe me, I am a Keynesian so I understand about taking from the abundant years and transferring them to the lean years. But some of these new proposals is an entrenchment of government and that {my friend Dr. Thoma} is the question. If anyone has not learned about how the UK handles these Fiscal Issues should look more into it. Here are two sources that I used a lot in my class {got a B not sure why}:

5. HM Treasury, ‘Fiscal Stabilisation and EMU’, Sections 2–4 Willem Buiter (2003), ‘How to Reform the Stability and Growth Pact’.

6. Carl Emmerson, Chris Frayne and Sarah Love (2001, Updated 2006), “The government’s fiscal rules”, http://www.ifs.org.uk/bns/bn16.pdf

As far as projected in 2019 being about the same size as 1985, we have some things coming that may make that comparison mute. First, baby boomers will be well into retirement and as such may not be contributing any longer to economic growth. Secondly, with this downward demographic predictions then the fact of those projections must seriously be questioned when they were basing it on over 3% growth some years and {I believe} they used 4% in out years. Thirdly, social security will then have to start paying out more than it receives. Thus the budget has to even more frugal than what it was in 1985. Until the baby-boomers start dieing off then Fiscal restraint may be hard to do.

Finally, I think I will get to my main point in this post and that is how Ricardian Equivalence {RE} is related to all this mess. The first time I read about RE, I was quite skeptical and not only for the reasons of the Homo economicus, but for the fact that who benefits from the government may be different than those that pay for the government "gifts". While the strict RE would say we are only concerned about the taxpayers and they then would know what the level of debts/deficits are. But would they take into account all factors in the debt accumulation or are they tuned into what the debt is at every moment? Heck most citizens are stupid "on the street" and not aware that Obama did not pick Sarah Palin.

I, being more of a "structuralist Neo-Keynesian" then I am thinking that RE may be apropos at this time. Right now, since Obama has become President and even after confirmation that he won by an undisputed margin then the markets and to a degree main street as well as banks have become more risk adverse. At times like this then a good Fiscal Shot in the arm could under normal conditions fill in the absorption gap.

But, and this is a big but, since taxpayers are becoming a more scarce breed in the sense that more and more workers do not pay anything into the Federal Government and may actually get some in return or pay little, then those "rich" people may understand that it means them. They no longer are sure at what the rates of return are. In addition to the normal risks involved in the market they also face uncertainty about what the tax structure will be and to handle the tax implications. If the plans were already out there as to who will face tax increases and to what amount then, maybe the markets would get back to normal.

Thus, the more that Obama seeks to stimulate the economy without saying how that it will be paid off makes the market all the more skeptical about expected returns on investments and this is increased by increasing levels of uncertainty. So far, the peace dividend does not appear to come to fruition {50k in Iraq,more to Afghanistan}, earmarks are still alive and well, not sure what taxes that Pelosi will dream up and a host of "get the rich man" is not making the investor class or even the investor class very comfortable. Dr. Thoma like me probably does not put much stake into the Ricardian Equivalence but like most economic theories, they did explain something in the past and those same factors could come around again in a different time and place. It is up to economists to try and think which models may explain the current situations and not stuck into one set of models no matter how good they are in most economies.

Talking about uncertainty: Market Uncertainty Leads to Selloff.

One last thing Dr. Thoma, one of my tutors was Dr. Paul Downward and he wrote the following that I think you may find enlightening: Reorienting Economics Through Triangulation of Methods Paul Downward and Andrew Mearman

Carry on...

A Global Retreat As Economies Dry Up

A Global Retreat As Economies Dry Up As World Trade Plummets, Bustling Ports Stand Idle And Foreign Workers Track Back Home

Interesting, I did note this on the caption for the first page:

Facing a repressive government under U.S. sanctions, thousands of Burmese risked their lives in a quest for new factory jobs in Thailand. But when the global economy went code red, Thailand's factories collapsed.

Not sure why it needed to mention about US sanction, why not indicate that the nation propping up that regime is China?

Western governments, through bailouts and nationalizations, are exerting profound new influence over banks and multinationals that helped sow the seeds of globalization throughout the developing world. But the message being sent by the West now is that there's no place like home for job creation and investment. In France, President Nicolas Sarkozy offered a $5 billion lifeline to French automakers, then promptly called on them to use only French-made parts and relocate their factories in Eastern Europe back to France. In the United States, President Obama's 2010 budget would tighten taxation on U.S. companies with operations overseas, limiting incentives to do business abroad. In Britain, bailed out and nationalized banks are being told to offer loans to Britons first.

Now did someone mention somehthing about how bad "Buy American" was? But this clearly looks like an excuse to do what they wanted to do anyway:

A case in point: After "Buy American" provisions won support in the United States as part of the $787 billion stimulus package, Indonesian authorities fired their own salvo. They ordered all civil servants in Southeast Asia's largest economy to consume food, clothing, shoes and other products made only in Indonesia.

"How can you expect countries like Indonesia not to respond when our products are being turned away abroad," Prihortono said. "That's the problem. People think they are only doing what is fair."

There is one bit of possible silver lining in this. No longer does there seem to be a brain drain or human capital drain from LICs to high income countries. Hopefully they will take their skills back home but for countries like Burmese, that is not likely at all...

 

 

 

"This is clearly not going to be a short period of adjustment . . . but globalization is not a bad strategy," he said. "It just takes patience during times like these."

Yes, truly.