Archive for the ‘Investment’ Category

China’s President Gives Grim Economic Assessment

November 30, 2008

Chinese President Hu Jintao warned at a weekend meeting of the Communist Party’s elite Politburo that China is losing its competitive edge as international demand for its products is reduced, according to official state media reports Sunday.

China’s growth rate has been forecast to be about 9 percent in 2008, down from 11.9 percent the year before and close to the 8 percent that economists say China must maintain in order to keep the labor market stable.

“China is under growing tension from its large population, limited resources and environment problems, and needs faster reform of its economic growth pattern to achieve sustainable development,” Hu said, according to the People’s Daily newspaper, the official Communist Party newspaper. He did not provide specifics. 

By Maureen Fan
Washington Post Foreign Service

Chinese President Hu Jintao speaks during a news conference ...
Hu Jintao by Reuters

“External demand has obviously weakened and China’s traditional competitive advantage is being gradually weakened,” as international demand is reduced, Hu told members of the Political Bureau of the party’s Central Committee, according to the state-run New China News Agency.

Protectionism has also started to increase in investment and trade, Hu added. China’s export growth in October was 19.2 percent, down from 21.5 percent in September.

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Best Analysis of Obama’s Economic Challenges, From The BBC and Peter Morici, Univ of Maryland

November 6, 2008

This is an audio feed from the BBC, Thursday, November 5, 2008. 

The second audio segment features Professor Peter Morici of the University of Maryland, which is an excellent review of the challenges facing President Elect Obama….


Obama: Economy top priority as downturn is set to worsen

November 6, 2008

A plunge in Wall Street stocks provided a sharp reminder of the scale of the financial challenges facing Barack Obama as gloomy economic data fuelled fresh fears of a deep, prolonged US recession.

Obama owes a large slice of his electoral success to the global financial crisis. Exit polls found that 62% of voters put the US economy as their number one issue – and that 85% of Americans termed themselves “worried” about the economy’s direction.

The Guardian, UK, November 6, 2008

Yesterday, amid the celebrations, the Dow Jones industrial average tumbled more than 5%, or 486 points, to 9,139, more than eliminating Tuesday’s 300-point rise, the biggest election day gain since 1984.

Euro and US dollar banknotes in a cash register. The dollar ...

Monthly employment figures showed that 157,000 jobs disappeared during October as service sector activity contracted sharply. The numbers reinforced the bleak outlook soon to be inherited by Obama, who faces plummeting house prices, seesawing stocks, failing banks and a crisis-stricken US motor industry.

His first act will be to select a treasury secretary who will be responsible for spending a $700bn banking bail-out fund and will need to be a credible name. Candidates include the Clinton-era treasury secretary Lawrence Summers and the former Federal Reserve chairman Paul Volcker, a close economic adviser to Obama who is possibly too old at 81. A third widely tipped candidate is Timothy Geithner, president of the Fed’s New York branch, who has won plaudits for his cool-headed involvement in supporting teetering Wall Street institutions.

Even before his inauguration, Obama will be pivotal in negotiating a stimulus package to kickstart economic activity. The House speaker, Nancy Pelosi, wants a $100bn programme that would include money for states to create employment by building new transport links, schools and public facilities.

It could involve food stamps for the poor, relief for people struggling with mortgages and, possibly, a round of tax rebate cheques.

Dean Maki, an economist at Barclays Capital in New York, said the US economy was expected to contract by 2.5% in the final quarter of the year: “Given the majorities the Democrats have in both houses, it might be easier to agree on a stimulus bill. It could be passed before Obama even takes office, but he will have a role in shaping the legislation.”

Next on the list of reforms will be regulation. The US treasury has spent $250bn buying stakes to part-nationalise struggling banks. But critics say few strings have been attached to these handouts.

In a speech earlier this year, the president-elect declared that “old rules” and “old institutions” needed reform to fit the changing shape of the financial system: “Our free market was never meant to be a free licence to take whatever you can get, however you can get it.”

A potential trip-up lies in Detroit, the down-at-heel motor city. The city’s three major car-makers – General Motors, Ford and Chrysler – are losing billions of dollars every month. GM could run out of money next year unless Americans start buying cars again. The industry is pleading for a bail-out. The new president will need to show some tough love.

Key to Obama’s economic platform is a tax cut to ease the fiscal pain suffered by working-class families. Obama has pledged relief of around $500 a person, which, his campaign says, will completely eliminate income tax for 10 million Americans.

Obama’s spending plans are due to be financed through a tax rise for those earning more than $250,000 and through a windfall tax on energy companies.

In all that he does, Obama will need to be diplomatic. In an economic environment of extreme twitchiness, the new president’s intentions will be scrutinised as never before.

Election: Routine, Historic or Catastrophic?

November 2, 2008

Some elections are routine, some are important and some are historic. If Sen. John McCain wins this election, it will probably go down in history as routine. But if Barack Obama wins, it is more likely to be historic – and catastrophic.

By Thomas Sowell
The Washington Times

Once the election is over, the glittering generalities of rhetoric and style will mean nothing. Everything will depend on performance in facing huge challenges, domestic and foreign. Performance is where Barack Obama has nothing to show for his political career, either in Illinois or in Washington.

US Democratic presidential candidate Illinois Senator Barack ... 

Policies that he proposes under the banner of “change” are almost all policies that have been tried repeatedly in other countries – and failed repeatedly in other countries.

Politicians telling businesses how to operate? That has been tried in countries around the world, especially during the second half of the 20th century. It has failed so often and so badly even socialist and communist governments were freeing up their markets by the end of the century.

The economies of China and India began their take-off into high rates of growth when they got rid of precisely the kinds of policies Mr. Obama is advocating for the United States under the magic mantra of “change.”

Putting restrictions on international trade in order to save jobs at home? That was tried here with the Hawley-Smoot tariff during the Great Depression. Unemployment was 9 percent when that tariff was passed to save jobs, but unemployment went up instead of down, and reached 25 percent before the decade was over.

Higher taxes to “spread the wealth around,” as Mr. Obama puts it? The idea of redistributing wealth has turned into the reality of redistributing poverty, in countries where wealth has fled and the production of new wealth has been stifled by a lack of incentives.

Economic disasters, however, may pale by comparison with the catastrophe of Iran with nuclear weapons. Glib rhetoric about Iran being “a small country,” as Mr. Obama called it, will be a bitter irony for Americans who will have to live in the shadow of a nuclear threat that cannot be deterred, as that of the Soviet Union could be, by the threat of a nuclear counterattack.

Suicidal fanatics cannot be deterred. If they are willing to die and we are not, then we are at their mercy – and they have no mercy. Moreover, once they get nuclear weapons, that is a situation that cannot be reversed, either in this generation or in generations to come.

Is this the legacy we wish to leave our children and grandchildren, by voting on the basis of style and symbolism, rather than substance?

If Barack Obama thinks such a catastrophe can be avoided by sitting down and talking with the leaders of Iran, then he is repeating a fallacy that helped bring on World War II.

In a nuclear age, one country does not have to send troops to occupy another country in order to conquer it. A country is conquered if another country can dictate who rules it, as the Mongols once did with Russia, and as Osama bin Laden tried to do when he threatened retaliation against places in the United States that voted for George W. Bush. But he didn’t have nuclear weapons to back up that threat – yet.

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America: Comparing us to what?

November 2, 2008

After the September financial meltdown, many abroad, and some at home, immediately – and with undisguised glee – blamed U.S. problems on cowboy excess and forecast the end of American global influence.

But while those opportunistic critics had a point that reckless Americans had taken on far more debt than they should, the growing global economic downturn may well hurt others far more than the United States.

We got into this mess not because the American political system was flawed or because its free market system was stagnant. The problem was that after some six years of uninterrupted growth, human greed drove us to demand even more than we had earned.

Statue of Liberty, NY.jpg

Republicans let fast-talking Wall Street gurus gamble their firms into oblivion. Democrats allowed politically correct Fannie Mae and Freddie Mac bureaucrats to siphon off bonuses while guaranteeing loans to millions who had no business taking out a mortgage.

By Victor David Hanson, The Washington Times

We, the people, ran up credit cards, borrowed for overpriced houses and drove gas-guzzling cars fueled by high-priced imported fuel. The result was a national-debt flu – but not a depression cancer – that sickened an otherwise healthy host.

Why then would America in recession still be in better shape than others?

(1) Oil prices are crashing. That will soon save us hundreds of billions in imported-fuel expenses – while denying our overextended enemies in Russia, as well as in Iran, Venezuela and others in the OPEC cartel, half of their accustomed cash to cause trouble.

Meanwhile, the United States is increasing natural-gas production; is likely to increase drilling offshore; will all but certainly soon build more nuclear power, wind and solar plants; and is sitting on the world’s largest coal reserves. A new generation of hybrid, electric and flex-fuel cars are on the horizon that could even shave off more from our imported-fuel bills.

(2) We are already way ahead of the rest of the world in dealing with toxic debt. Western Europe is discovering its banks lent more against their reserves than did their American counterparts. European real estate was often more inflated than our own. Bankers in Frankfurt, London and Paris are looking at trillions of dollars in uncollectible euro loans throughout Latin America, Asia and Eastern Europe. Most of our toxic debt was at least owed as mortgages by fellow Americans; far more of Europe’s is owed by those outside the European Union.

Even when the United States is reeling from financial panic, foreign investment continues to flow into America; the dollar, meanwhile, is climbing against the euro. China’s export-driven and Russia’s energy….

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Specter of Deflation Lurks as Global Demand Drops

November 1, 2008

As dozens of countries slip deeper into financial distress, a new threat may be gathering force within the American economy — the prospect that goods will pile up waiting for buyers and prices will fall, suffocating fresh investment and worsening joblessness for months or even years.

By Peter S. Goodman
The New York Times

The word for this is deflation, or declining prices, a term that gives economists chills.

Deflation accompanied the Depression of the 1930s. Persistently falling prices also were at the heart of Japan’s so-called lost decade after the catastrophic collapse of its real estate bubble at the end of the 1980s — a period in which some experts now find parallels to the American predicament.

The Mansfield Manufacturing plant in Dongguan, China. The global economic crisis is threatening the country’s factory jobs.  Photo: Agence France-Presse — Getty Images

“That certainly is the snapshot of the risk I see,” said Robert J. Barbera, chief economist at the research and trading firm ITG. “It is the crisis we face.”

With economies around the globe weakening, demand for oil, copper, grains and other commodities has diminished, bringing down prices of these raw materials. But prices have yet to decline noticeably for most goods and services, with one conspicuous exception — houses. Still, reduced demand is beginning to soften prices for a few products, like furniture and bedding, which are down slightly since the beginning of 2007, according to government data. Prices are also falling for some appliances, tools and hardware.

Only a few months ago, American policy makers were worried about the reverse problem — rising prices, or inflation — as then-soaring costs for oil and food filtered through the economy. In July, average prices were 5.6 percent higher than a year earlier — the fastest pace of inflation since 1991. But by the end of September, annual inflation had dipped to 4.9 percent and was widely expected to go lower.

The new worry is that in the worst case, the end of inflation may be the beginning of something malevolent: a long, slow retrenchment in which consumers and businesses worldwide lose the wherewithal to buy, sending prices down for many goods. Though still considered unlikely, that would prompt businesses to slow production and accelerate layoffs, taking more paychecks out of the economy and further weakening demand.

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Obama’s Tax Increase Ideas Already Hurting Markets?

October 30, 2008

Are Barack Obama‘s proposed tax increases adversely affecting our financial markets? We say yes, unambiguously.

By Jack Kemp and Peter Ferrara
The Washington Times
October 30, 2008

The senator has done a masterful job distracting attention from his tax increases with his $500-per-worker tax credit supposedly for 95 percent of Americans.

Mr. Obama has also set forth more than a half-dozen additional refundable income tax credits targeted to low- and moderate-income workers for child care, education, housing, welfare, retirement, health care and other social purposes. These tax credits are devised to phase out based on income, which will ultimately increase marginal income tax rates for middle-class workers. In other words, as you earn more, you suffer a penalty in the phase-out of these credits, which has the exact effect of a marginal tax rate increase. That harms rather than improves the economy.

With the bottom 40 percent of income-earners in America not paying any federal income taxes, such tax credits would not reduce any tax liability for these workers. Instead, since they’re refundable, they would involve new checks from the federal government.

These are not tax cuts as Mr. Obama is promising. They are new government spending programs buried in the tax code and estimated to cost $1.3 trillion over 10 years.

Mr. Obama argues that while these workers do not pay income taxes, they do pay payroll taxes. True – but his planned credits do not involve cuts in payroll taxes. They are refundable income tax credits designed solely to redistribute income and “spread the wealth.”

Meanwhile, Mr. Obama has proposed effective tax increases of 20 percent or more in the two top income tax rates, phasing out the personal exemptions and all itemized deductions for top earners, as well as raising their tax rates. He wants a 33 percent increase in the tax rates on capital gains and dividends, an increase of 16 percent to 32 percent in the top payroll tax rate, reinstatement of the death tax with a 45 percent top rate, and a new payroll tax on employers estimated at 7 percent to help finance his health insurance plan. He’s also contending for higher tariffs under his protectionist policies.

Finally, he would increase corporate taxes by 25 percent, even though American businesses already face the second-highest marginal tax rates in the industrialized world, thus directly harming manufacturing and job creation while weakening demand for the dollar.

Mr. Obama argues disingenuously that his tax increases would only affect higher-income workers and “corporate fat cats.” But it is precisely these top marginal tax rates that control incentives for savings, investment, entrepreneurship, business expansion, jobs and economic growth. While he wants to tax the rich, the burden will fall on the poor and the middle class.

In their new book, “The End of Prosperity,” Art Laffer, Steve Moore and Peter Tanous argue that the threat of this tax tsunami is already destabilizing our financial markets and causing capital flight from…

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Bargains await cash-rich China

October 9, 2008

By Chris O’Brien
The Washington Times

BEIJING | When the world’s economies bottom out, the most populous nation will be better poised than others to turn the financial implosion to its advantage, leading Chinese economists say.

China‘s financial institutions have been relatively unscathed by the meltdown. Laden with $1.8 trillion in foreign exchange reserves, they possess the spending power to splurge on bargain-price shares in the world´s crumbling banking and real estate giants.

China's founding leader Mao Zedong appears on Chinese currency, ...
China’s founding leader Mao Zedong appears on Chinese currency, the Yuan. (AFP/File/Frederic J. Brown)

A mood of caution appears to prevail, however, after two high-profile investments faltered last year.

The China Investment Corp. (CIC), a sovereign wealth fund set up a year ago with $200 billion in foreign exchange to invest, bought a $3 billion stake in Blackstone Group and $5 billion in Morgan Stanley, both of which are mired in the U.S. crisis.

The Chinese government’s reluctance to wield its financial clout overseas would represent a missed opportunity to invest in some “grossly undervalued” companies, said Yao Shujie, an economics professor and head of the School of Contemporary Chinese Studies at Nottingham University in Britain.

“Investors are repressed by fear and a lack of confidence at the moment, and it is understandable individual investors don´t want to jeopardize their life savings. But China, as a country, has the ability to bear a large amount of risk. Now is the time to take risks,” he said.

Mr. Yao is not advocating a wholesale purchase of Wall Street´s financial stocks. China lacks the experience and expertise to manage the likes of Goldman Sachs or Morgan Stanley, the remaining major investment banks.

Instead, he said, China should follow a strategy of “a billion dollars here, a billion dollars there,” spreading risks over a diversified portfolio, and should consider board-level representation so Chinese bankers can learn new management techniques.

A week ago, Japanese banking giant Mitsubishi UFJ Financial completed a $9 billion deal to buy a 21 percent share in Morgan Stanley.

“If the Chinese government follows this kind of policy, then by the time this crisis is over, which in my view will be in one to two years, it could have made a huge profit from it,” Mr. Yao said.

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Defense spending beacons

April 1, 2008

By John R. Guardiano
The Washington Times
April 1, 2008

Is America spending too much or too little on defense? That”s a fair and crucial question, especially at a time of war, when U.S. soldiers, sailors, airmen and Marines are dying overseas. But because advocates on both sides of the issue are asking the wrong questions, recent media analysis of the issue has been ill-informed and misplaced.
Critics of increased defense spending argue correctly that, in absolute dollar terms, the United States spends more on defense than at any time in its history. In addition, they note, the U.S. spends more on defense than the next 10 countries combined. Therefore, they argue, defense spending is more than adequate.
Proponents of increased defense spending counter that a dollar today is worth a lot less than in it was in previous eras. Moreover, they add, as a share of the gross domestic product (GDP), defense spending is at a historic low during a time of war.
The United States spends less than 4 percent of its GDP on defense. By contrast, Defense spending averaged some 14 percent of GDP in the Korean War, nearly 10 percent during the Vietnam War, and more than 33 percent during World War II.
Clearly, both sides in this debate have legitimate contextual points; however, both sides miss the mark.
Defense spending relative to that of other nations is an unhelpful comparison because the United States isn’t like other nations. America is the world’s sole remaining superpower, with far-reaching obligations to protect U.S. national security interests worldwide.
Moreover, American considers its soldiers, sailors, airmen and Marines to be its greatest military asset. Thus, we are unwilling to sacrifice their lives when technology can prevent the loss of life. That’s one important reason America has invested literally hundreds of billions of dollars in advanced weapons systems: We know dollars spent today can save lives tomorrow.

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Vietnam ranks 6th in foreign investment

March 21, 2008

HO CHI MINH CITY, Vietnam, March 21 (UPI) — Vietnam now ranks sixth in the world in attracting foreign investment, a report issued Friday said.Within a year after joining the World Trade Organization, Vietnam has attracted more than $98 billion in foreign investments, which trails only China, India, Russia, India, the United States and Brazil, the Vietnam News reported.

Over the past year, the country has also signed agreements on Rights of Intellectual Property, reduced tariffs, shed subsidies under World Trade Organization guidelines and opened doors to financial investments, the report said.

“Vietnam will continue to develop local resources and take initiatives to integrate into the global economy, especially focusing on improving international trade and investment co-operation,” the head of the Foreign Investment Department Phan Huu Thang said at a conference of business leaders in Ho Chi Minh City Thursday.

The country’s goal for 2006 through 2010 is to attract $150 billion in foreign investment, the report said.