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Tag Archives: investment

Banks in the US are back to raising user fees for simple banking operations.

Granted, as the banks claim, they are private businesses and entitled to try to make a profit.

The problem is that the macroeconomy depends on liquidity of the banking sector to turn personal savings into investment spending.

Consumer advocates say they worry that the fees will push people out of banking and toward more expensive services, like payday lenders and loan sharks.

“A significant part of the population will be squeezed out of banks because they can’t afford it,” says Nancy Bush, founder of banking research group NAB, and columnist at SNL Financial, “and that is absolutely wrong.”

Recently I made a visit back to the US. Without any dollars, I visited an ATM machine. I had to pay a fee of $5 for a modest $100 withdrawal. That was the last time I used an ATM there.

People discouraged from saving in the financial system means there will be less spending, demand in the marketplace, fewer jobs, and less ability for the government to improve growth with fiscal or monetary policy.


China’s manufacturing sector has experienced a drop for the first time in three years, largely because of lower export demand from both Europe and the US.

This has prompted a monetary stimulus policy in China, and–at the same time–many banks internationally are providing stimulus as well, propping-up stock markets everywhere.

The emergency move by the U.S. Federal Reserve, the European Central Bank, and the central banks of Japan, Britain, Canada and Switzerland recalled coordinated action to stabilize global markets in the 2008 financial crisis after the collapse of Lehman Brothers.

In Italy, now the focal point of the euro debt crisis, the Treasury started emergency cash tenders for banks which have been squeezed particularly hard as Rome’s borrowing costs have soared towards 8 percent, a level seen as unaffordable in the long term.

The euro and European shares surged on the central bank action, which came after euro zone finance ministers agreed to ramp up the firepower of their bailout fund but acknowledged they may have to turn to the International Monetary Fund for more help.

These actions will lower the cost of borrowing, and that will be welcome both by deficit spending governments and industry, but for long-term help, there must also be a willingness to borrow and spend.

There may be a factor here that is not being given enough attention. We are in a world where we have experienced a great deal of new investment and consumer spending on personal computers, mobile phones, and the growth of new industries spawned by those technologies. It is natural that at the tail-end of those developments we will witness less investment spending and a slow-down in consumption.

This article is of interest for me because it is about Tianjin, my home for the last year and a half. It seems we are building a Wall Street wannabe in the Binhai district. The site is called Yujiapu, and the plan is to build the world’s largest financial zone over the next ten years.

Although not about to supplant Shanghai, home of China’s main stock exchange, Tianjin has been racing to hone its credentials as a financial hub. In the past three years alone, it has opened the Bohai Commodity Exchange, the Binhai International Equity Exchange, the Tianjin Climate Exchange and the Tianjin Ferroalloy Exchange.

Tianjin’s economy grew 17.4 percent last year, the fastest of China’s 31 provincial-level areas. While that would have been cause for celebration in the past, the local government has been modest in trumpeting its achievement.

Much of the article discusses China’s problems in trying to moderate its tremendous economic growth, hoping instead for consistent growth over the long term.

Fuzzy as it sounds, the concept is well understood in China to mean a more sustainable economic model: slower industrial investment, less pollution and a fairer distribution of income.

During the National People’s Congress this month, China will unveil a detailed policy blueprint for the coming five years. Hu and Wen will try to enshrine their agenda by setting an official goal of 7 percent annual growth from now until 2015, well down from the 11.2 percent average of the past five years.

Provincial governments are pushing for higher growth rates than the central government has targeted, and they have been successful, discounting the foreign perception of China as a very centralized economy.

“It’s quite clear that the central government will not be able to realize its goal,” said Yang Zhiyong, an economist in the Chinese Academy of Social Sciences, a top government think-tank.

Outsiders often assume that Beijing is omnipotent in governing China, bending far-flung cities and villages to its will. The reality is different.

Growth continues and the threat of loan defaults and a slow-down are ignored for now.

Fears of a hand-cuffed financial industry have driven the value of the Euro to 18 month lows, and markets world-wide are dropping in value because of fears for the European economy.

The president of the European Central Bank, Jean-Claude Trichet, in an interview published Saturday, warned that Europe was facing “severe tensions” and that the markets were fragile.

For Europe’s banks, the problems are twofold. Short-term borrowing costs are rising, which could lead institutions to cut back on new loans and call in old ones, crimping economic growth.

At the same time, seemingly safe institutions in more solid economies like France and Germany hold vast amounts of bonds from their more shaky neighbors, like Spain, Portugal and Greece.

Investors fear that with many governments groaning under the weight of huge deficits, the debt of weaker nations that use the euro currency will have to be restructured, deeply lowering the value of their bonds. That would hit European financial institutions hard, and may ricochet through the global banking system.

At the same time, some European producers are happy with the Euro devaluation, as export revenues have already increased and export demand should increase. World-wide, one fear stems from the big increase in government deficit levels.

The world’s budget deficit as a percentage of gross domestic product now stands at 6 percent, up from just 0.3 percent before the financial crisis. If public debt is not lowered back to precrisis levels, the I.M.F. report said, growth in advanced economies could decline by half a percentage point annually.

If the fears turn-out to be justified, this seems a classic example of crowding out, where government deficit spending raises interest rate to levels that discourage private investment.

Alpha Inventions Ranking

Some of this story about the Chinese bullet trains is really impressive.

The Chinese bullet train, which has the world’s fastest average speed, connects Guangzhou, the southern coastal manufacturing center, to Wuhan, deep in the interior. In a little more than three hours, it travels 664 miles, comparable to the distance from Boston to southern Virginia. That is less time than Amtrak’s fastest train, the Acela, takes to go from Boston just to New York.

Even more impressive, the Guangzhou to Wuhan train is just one of 42 high-speed lines recently opened or set to open by 2012 in China. By comparison, the United States hopes to build its first high-speed rail line by 2014, an 84-mile route linking Tampa and Orlando, Fla.

OK, bragging rights over the US are one thing, but the really impressive part is the economic stimulus this investment provides for both short term and long.

Of course jobs are being created now with the construction of the trains and tracks, but the new, fast transport will also improve the mobility of labor and other resources needed in an expanding economy.

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gmThe NY Times reports that GM Adds Workers and Shifts as Demand Surges. Due mostly to the Cash for Clunkers program, the US auto industry looks like it is recovering. Cash for Clunkers was sold as a program to reduce emissions, help the economy, and restore manufacturing jobs, but does it really?

Many people in the US seem to think that good for business means good for the economy. That is another fallacy that is fairly easy to understand. Let us take a look at what is really going on.

Cash for clunkers is basically a subsidy to car manufacturers. People get a new car, but industry ends up with the money. Where does the money come from? Ultimately, the taxpayer. Given that the government is already deep in debt, the extra borrowing increases interest rates, and that is a great deterrent to private investment. Emission reduction? New cars must get 22 miles to the gallon to qualify. Sorry, but that is a very low standard to set for a program that comes at the expense of consumer income and potential investment in other areas of the economy.

Cash for clunkers is not a program for emission reduction, not a program for the economy, not a program for jobs. It is only a transfer of income from the worker to industry.

chinasafariThis book review gives some insight on China’s investment and deal-making with many African countries. Namely, why are the Chinese in Africa, and how is it different than the colonialism of European states?

For the first question–

The authors contend that China’s ambitions in Africa are grandly geopolitical as well as economic. As Jacob Wood, a Shanghai-born housing developer based in Africa for more than 30 years, tells them: “I’m going to be honest with you, China is using Africa to get where the United States is now, and surpass it.”

As for any possible differences between China’s presence and the European’s–

Many African leaders are enamored of the Chinese mix of authoritarianism and capitalism in business affairs, an emphasis on efficiency and a lack of preaching about human rights, the authors say. Moreover, when the Chinese talk, they back up their words with concrete actions.

“The Chinese build things, the Europeans don’t,” declares Claude Alphonse N’Silou, the minister of construction and housing of the Congo Republic.

Of course, most of China’s investment there is for natural resources–mining, oil, timber–and I suspect most of the infrastructure projects support harvest and transport of those resources. Bilateral trade between China and Africa reached 55 billion dollars in 2006.

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marketToday stock markets in Shanghai, Taiwan, and Hong Kong have jumped to their highest levels since October. Reasons for the jump are said to be optimism over the recovery in China and–for Taiwan–the expectation that their markets will soon be open to Chinese investment.

My own casual observations might also fuel optimism on Chinese markets. I spent Saturday afternoon in a new shopping mall near our home in Suzhou. My daughter was there to experience the big indoor playground, but first we explored the mall, got a bite to eat, watched the crowds wander by. The crowds were big. The mall has only been open a few days, and there was a light rain outside, so maybe that explains the crowds, but I was surprised to see people shopping in what is supposed to be a big economic downturn.

But were people spending money? Hard to say. They were buying snacks and paying for the kids to get in the playground, but I don’t remember seeing many shopping bags around.

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us_securitiesExpansionist monetary policy, but I did not know it was not commonly used.

The Fed surprised investors on Wednesday by announcing it would buy $300 billion worth of these U.S. Treasuries for the first time since the early 1960s as part of a move to inject an additional $1 trillion into the U.S. economy by also purchasing more U.S. mortgage and agency debt.

The news spawned higher demand for Asian securities and sent the value of the dollar into free-fall. The plan is meant to feed into the economy by lowering borrowing costs and attracting investors back to work. It seems to have spurred some optimism, which is good in itsself, but I don’t know if it will work. Will the sellers of these securities turn around and spend the cash? Or find someone who wants to borrow it?

What do you think?

africa_poverty-383x480146 million more people are falling into poverty, defined now as income of less than $1.25 per day. Like I mentioned here a couple of days ago, yes, the people most vulnerable to a recession are those that are marginally employed.

It is obvious that people with such small incomes are much more likely to spend an extra dollar or two if it was made available. Would it not make good sense to give all the bailout money to the poor? Not only because they need it more, they are much more likely to spend their increased income, increasing the multiplier and encouraging new investment