swine flu and recovery

The swine flu is starting to look legitimately frightening as the number of suspected cases nearly doubled since yesterday. Most of the cases are in Mexico, with about 2000 infected and 152 dead. This comes just as it was beginning to look like the world is coming out of this deep global recession. Any economic effect?

The virus poses a potentially grave new threat to the U.S. economy, which was showing tentative early signs of a recovery. A widespread outbreak could batter tourism, food and transportation industries, deepening the recession in the U.S. and possibly worldwide.

Officials are enforcing some containment policies, but falling short of cancelling travel, tourism, and trade. If it gets much worse, those things might get restricted forcefully, and any thoughts of recovery will die.

kazakh default

The biggest bank in Kazakhstan has announced it will no longer pay its debts to foreign creditors, 11 billion dollars worth. My interest comes mainly from the fact that my wife is Kazakh, and my daughter was born there. Knowing the Kazakhs, none of us are surprised to see this sort of headline. In fact, I am surprised anyone would want to loan money to someone there, even a bank. Defaulting on a loan is typical there, and few see any fault in it.

“This was expected in the sense the bonds had already been trading in a deeply distressed fashion,” Adel Kambar, the chief executive of the Kazakh office of Renaissance Capital, said in a telephone interview.

True enough that financial enterprises are having trouble everywhere, so not necessarily a poor reflection on Kazakh culture. But I am still not expecting my brother-in-law to pay me back.

stop the torture

Interesting editorial from the Huffington Post on the effectiveness of torture. It begins with the observation that torture usually does get a response, that is why people like it, but the responses are never accurate nor reliable. Most of the article is a strong argument against torture, prompted by an op-ed piece written by former CIA Director Hayden and Bush’s Attorney General Mukasey. They wrote in favor of torture, a sad reflection of America’s top law enforcement officials.

Are we so morally sick, so deaf and dumb and blind, that we do not understand this? Are we so fearful, so in love with our own security and steeped in our own pain, that we are really willing to let people be tortured in the name of America? Have we so lost our bearings that we do not realize that each of us could be the hapless Argentine who sat under the Santiago’s sun, so possessed by the evil done to him that he could not stop shivering ?

pop quiz

Fun little quiz here put out by the NYTimes. I have not finished yet (4 out of 4 so far) but it looks like all the questions are on macroeconomic policy. Apparantly the questions are all taken from old  advanced placement exams.

Please post your results!

condron and alphainventions

Don’t forget to check-out condron.us and alphainventions.com, especially if you are a blogger yourself and you get a kick out of seeing lots of hits on your site.

chinese yuan to become reserve currency?

Not sure how important this is for the U.S.–but it seems a significant story–that China has recently been striking deals with many South American countries to allow more trade. Nice for the Chinese need for  resources, like oil, and nice for the potential market of exported consumer products. Encouraging the deals, the Chinese are making development funds available to several countries.

All this is interesting because of the relative absence of U.S. influence in the region. The US economy is also greatly dependent on trade, so it seems strange that they would ignore the needs of nearby markets.

“This is how the balance of power shifts quietly during times of crisis,” said David Rothkopf, a former Commerce Department official in the Clinton administration. “The loans are an example of the checkbook power in the world moving to new places, with the Chinese becoming more active.”

One of China’s bigger deals was with Argentina, giving them easy access to the Yuan and encouraging the import of Chinese manufactured goods. It cost the Chinese 10 billion dollars, and recently they made similar deals with South Korea, Indonesia, and Belarus. It is said to “lead the way to China’s currency (becoming) a reserve currency.”

Is it worth it? Nice to encourage growth in export industries, but what is the value of your currency being used as a reserve currency? It will help your money from losing value during wide-spread recession.

So what?

china’s security holdings growing slower

The first quarter of this year, China’s foreign reserves went up by only $7.7 billion. Sound like enough? Last year for the same period it was $153.9 billion. Reasons for this are numerous.

• Chinese investors are becoming wary of the safety of their foreign bond holdings.
• Exports from China are decreasing compared to imports, so less demand for the Yuan.
• Capital flight from China may be slowing.
• Non-Chinese investors are buying more US debt, keeping returns low.
• US consumers are saving more money, reducing the need for Chinese savings.

One Chinese economist was interviewed, and he was asked about the balance of financial power between China and the US. He replied–

“I think it’s mainly in favor of the United States.” (As John Maynard Keynes said) “If you owe your bank manager a thousand pounds, you are at his mercy. If you owe him a million pounds, he is at your mercy.”

Not sure I believe him, but I like the quote.

i like cheap innovation

Here is a story on how high tech companies in the US are having a hard time recruiting innovative engineers because of tough immigration requirements.

The immediate question–Why is the US not able to produce its own innovative engineers? It does get briefly mentioned in the article but is quickly dismissed as, “a slouching education system that cannot be easily fixed.” Interesting because many Americans argue that US education standards–at least at university level–are the best in the world.

Another engineer claims that there are plenty of qualified Americans for these jobs, hinting that companies hire the foreign engineers because they are cheaper. The real point for these people is protectionism and buy American nationalism, but whether the US produces its own engineers or not, it benefits everyone to have cheaper resources, including cheap innovation.

Like has been mentioned before in this space, that protectionist attitude will, more than anything else, keep the US in recession and world trade stagnant.

(As always, don’t forget to visit condron.us and alphainventions.com)

correlation and causation

Found a new economics blog with an entry today about the difference between causation and correlation. The author writes of an advertisement she saw from a food producer. They claimed that kids from families that eat dinner together get better grades in school. Of course there are lots of reasons some kids do better in school, and some of those reasons might also be correlated with eating dinner with the family.

This correlation-causation mistake happens commonly, like an advertisement I see regularly when checking my email. They say that kids who try alcohol before age 15 are three times more likely to become problem drinkers as adults. They want you to talk to your kids about drinking before this happens. Of course there are lots of reasons for problem drinking that might also be related to the likelihood of a kid drinking at a young age–not much supervision, over-active sense of adventure or curiosity, an unattractive personality.

What? You gonna pull your ten year old aside and tell em not to drink? Naaah. Better to have dinner with them.

the nice pirates gave the ship back

More activity lately among the pirates off the coast of Somalia, and the stories today are about a ship that was taken back by the crew. The ship’s captain offered himself as a hostage and left with the pirates when they abandoned the ship in one of its lifeboats.

The story also says this is the first ship taken in the area that had an American crew. The crew was all taken hostage but managed to subdue one of the pirates. They then negotiated their own release.

Now pirates might have second thoughts when they see a US flag on a ship. Likely too that there will now be more pressure to strengthen the US Naval presence in the area.