More Brain Drain

I don't think I need to say much more about this as it is common knowledge by now. This is just another classic example of the effects of brain drain in Malaysia:

Malaysia-born Ren Ng is revolutionising photography with his Lytro light-field camera.

The Australian has developed a new technology for the mass market that allows anyone to adjust the focal point of digital photographs after they have been taken, and without having to fiddle with Photoshop or other image-editing tools. 

The hand-sized digital point-and-shot camera looks like a torchlight; its key feature is what the California-based company calls “shoot now, focus later”. 

In an interview with the New York Times last year, Lytro chief executive Ng described the images as “interactive, living pictures” due to their ability to be manipulated. 

The Lytro achieves this trick with a special sensor called a micro lens array, which puts the equivalent of many lenses into a small space.

The camera was listed as Time magazine’s “50 best inventions” in its November 17 edition last year. 

Ren Ng is currently an Australian. One can only wonder what made his parents migrate to Australia when he was nine.

Stiglitz on 2012

I always like Stiglitz's analysis. Here is what he thinks about 2012:

Even before the crisis, there was a rebalancing of economic power – in fact, a correction of a 200-year historical anomaly, in which Asia’s share of global GDP fell from nearly 50% to, at one point, below 10%. The pragmatic commitment to growth that one sees in Asia and other emerging markets today stands in contrast to the West’s misguided policies, which, driven by a combination of ideology and vested interests, almost seem to reflect a commitment not to grow. 

As a result, global economic rebalancing is likely to accelerate, almost inevitably giving rise to political tensions. With all of the problems confronting the global economy, we will be lucky if these strains do not begin to manifest themselves within the next twelve months.

Source: Project Syndicate

Who Will Fix the US Economy?

Who Will Fix the US Economy? - Henry Mintzberg - Project Syndicate: "...there is no quick fix for America’s current economic problems. Firing workers or even printing money can be easy; changing dysfunctional behaviors is not. The US economy will have to be fixed by its enterprises, one by one, on the ground. Attitudes will have to change, and this will demand great dedication and patience – traits that seem to be in short supply in the US today."

That's just what I said yesterday.

The Exchange Rate Delusion

In the previous issue of the Main Streeter, I showed a bunch of quotes from economists who dismiss the whole undervalued Renminbi notion as hogwash. Michael Spence, Nobel laureate in economics, totally destroys the arguments bashing China. The post is so much of a game-winner (more like finishing move) that I am going to quote the whole post:

MILAN – If one looks at the trade patterns of the global economy’s two biggest players, two facts leap out. One is that, while the United States runs a trade deficit with almost everyone, including Canada, Mexico, China, Germany, France, Japan, South Korea, and Taiwan, not to mention the oil-exporting countries, the largest deficit is with China. If trade data were re-calculated to reflect the country of origin of various components of value-added, the general picture would not change, but the relative magnitudes would: higher US deficits with Germany, South Korea, Taiwan, and Japan, and a dramatically lower deficit with China. 

The second fact is that Japan, South Korea, and Taiwan – all relatively high-income economies – have a large trade surplus with China. Germany has relatively balanced trade with China, even recording a modest bilateral surplus in the post-crisis period. 

The US has a persistent overall trade deficit that fluctuates in the range of 3-6% of GDP. But, while the total reflects bilateral deficits with just about everyone, the US Congress is obsessed with China, and appears convinced that the primary cause of the problem lies in Chinese manipulation of the renminbi’s exchange rate. 

One problem with this view is that it cannot account for the stark differences between the US and Japan, Germany, and South Korea. Moreover, the real (inflation-adjusted) value of the renminbi is now rising quickly, owing to inflation differentials and Chinese wage growth, particularly in the country’s export sectors. That will shift the Chinese economy’s structure and trade patterns quite dramatically over time. The final-assembly links of global-value added chains will leave China for countries at earlier stages of economic development, such as Bangladesh, where incomes are lower (though without producing much change in the balance with the US). 

A somewhat more sensible concern might be that the dollar’s reserve-currency status causes it to be “over-valued” with respect to every currency, not just the renminbi. That could create additional pressure on the tradable part of the US economy, and thus might help to explain why the US tradable sector has not generated net employment for two decades. But, in order to explain performance relative to Japan and Germany, one would have to argue that the euro and the yen have been undervalued, which makes no sense. 

In fact, the employment generated by the tradable sector has been in services at the upper end of the distributions of value-added per person, education, and income. As a result, growth and employment in the tradable sector have gone separate ways, with healthy growth and stagnant employment. In Germany, by contrast, the tradable sector is an employment engine. The same is true of Japan. 

The US economy’s distinctive features for at least a decade prior to the crisis that began in 2008 were an unsustainably high level of consumption, owing to an illusory wealth effect, under-investment (including in the public sector), and savings that fell short of the investment deficiency. That excess household and government consumption fueled the domestic economy – and much of the global economy as well. 

In several European countries that now confront fiscal and growth challenges, the pattern was somewhat different: most of the excess consumption and employment was on the government side. But the effect was similar: an unsustainable pattern of income and employment generation, and lower productivity and competitiveness in these economies’ tradable sectors, leading to trade deficits, stunted GDP, and weak job creation. 

One could argue that the euro has been and still is overvalued, and that this has hindered many eurozone economies’ productivity relative to non-eurozone countries. But the relative productivity deficiencies within the eurozone are more important for growth, and have nothing to do with the exchange rate. 

The focus on currencies as a cause of the West’s economic woes, while not entirely misplaced, has been excessive. Developing countries have learned over time that real income growth and employment expansion are driven by productivity gains, not exchange-rate movements. This, in turn, requires public and private investment in tangible assets, physical and telecommunications infrastructure, human capital and skills, and the knowledge and technology base of the economy. 

Of course, it is possible for a country’s terms of trade to get out of line with income and productivity levels, requiring a rebalancing. But resetting the terms of trade is no substitute for tackling the structural underpinnings of productivity. 

None of this is peculiar to developing countries. Underinvestment has long-term costs and consequences everywhere. Excess consumption merely hides these costs temporarily.
In the US, productivity deficiencies have led to a pattern of disconnection from global supply chains. So the challenge for America is not only to restore productivity, but also to restore its links to the main currents of world trade. 

China’s growth – and, more generally, that of the major emerging economies – provides a substantial potential tailwind. That is certainly true nowadays for Germany, Japan, and South Korea. The US and others can take advantage of it as well, but only if productivity relative to income levels in specific areas of potential competitiveness begin to rise.  

As long as America economic policy remains focused primarily on deficits, domestic demand, exchange rates, and backsliding on trade openness, its investment deficiencies will remain unaddressed. That means that its employment and income-distribution problems will remain unaddressed as well. 

The good news is that, at a deep level, incentives across advanced and developing countries are aligned. The emerging economies would like nothing more than the restoration of sustainable patterns of growth in the advanced economies, and are prepared to be cooperative players in that process. But focusing on these countries’ exchange rates is not the right way to go about it.

On the surface, this may appear like an economic problem. But I think it goes much deeper than that. The so called economic dominance of the US over the last century has essentially lulled it into a state of complacency. The complacency manifests itself in the form of blaming others for one's own shortcomings. This is not only prominent in the US, but in the Eurozone as well. The problems are amplified by the fact that they are democracies. Don't get me wrong, democracy on its own is not a bad thing. But democracy coupled with self-serving interest groups will naturally lead to a political deadlock much like the current Democrat-Republican impasse and the Eurozone "kick-the-can" debacle.

The finger-pointing scenario is not unlike Mark Zuckerberg vs the Winklevii (Winklevosses). In the movie, the Social Network, Mark Zuckerberg (Jesse Eisenberg) quipped that the Winklevii are not suing him because he "stole their idea", but because for the first time in their lives, something did not go their way. Granted that this is not the first time things did not go as planned for the US, but the so called economic dominance of the US over the last century has created an illusion of strength that leads to this finger-pointing attitude.

As my boss would practice:

Do not blame others for being smart, but blame yourself for being stupid

The quote is not intended to be derogatory in any way, but is a reflection of a self-reflective Asian culture. The Japanese, in particular, practiced this to the extreme in the form of harakiri.  And as Confucius says:

Do not blame everyone and everything, but yourself. Do not blame everyone but yourself for what has happened.

Source: Project Syndicate

Volume 3 Issue 51: Two-Cent Economics

The Kettle Retaliating Against The Pot?

Who would have thought that the US, the country shouting about China's supposedly dumping practices, is practicing dumping itself?:

China will levy anti-dumping and anti-subsidy duties on certain US vehicle imports, the commerce ministry said Wednesday, a move likely to fuel tensions between the world's two biggest economies. 

The tariffs will be applied for two years to passenger cars and sports utility vehicles with engine capacities of 2.5 litres or more and will take effect Thursday, the ministry said in a statement. 

The decision will affect vehicles produced by General Motors, Chrysler Group, BMW Manufacturing, Mercedes-Benz US International, American Honda Motor and Ford Motor.

But then again, I can't say I am surprised. The US has typically treated every problem they have faced by blaming it on others, and never on themselves. America's trade deficit with China is only one of 88 countries which the US has deficits with. Why single out China?

The US trade deficit is merely a symptom of a much bigger disease. It has been around for the last 30+ years and only in the last decade or so has the US been making noise about it (see Chart 1)

Chart 1

This is because it has started to feel the crippling problems that come with the trade deficit:

THE answer to the basic question is "it depends" and I will let the others describe what the issues are. But I would like to use this opportunity to discuss the fallacy of measuring bilateral trade deficits. 

Consider the iPad. 

According to research by Ken Kraemer at UC Irvine, the component parts of the iPad are imported to China from South Korea, Japan, Taiwan, the European Union, the US and other places for final assembly. None of the component parts are made in China: it's only role is assembly.  

- Hal Varian, Chief Economist at Google

When are trade deficits not a problem?

TRADE deficits, or more concretely current account deficits, have to be financed by net capital inflows, and it is really the cause of the deficit and the nature of the financing that determines whether or not persistent trade deficits are harmful. If a country is running a trade deficit mainly because domestic investment levels are very high, the high investment levels should generate enough growth in the economy that the costs of servicing the foreign capital inflow can easily be covered. In that case many years of trade deficits are unlikely to be a problem. 

- Michael Pettis

A COUNTRY'S trade deficit and, for that matter, its current account deficit (the trade deficit plus the income earned by foreigners on their asset holdings in the country net of what the country's citizens earn on the assets they have invested abroad) are never a problem. But they may reflect a problem. To see this, suppose Raul Castro and his brother were finally to die and the country were to normalise relations with the U.S. and move to a market economy. A vast amount of capital would then flow into Cuba, where labour is cheap and vacation beaches are splendid. The equipment, building materials, vehicles, furniture—you name it—flowing into Cuba would all be counted as imports and show up as a huge trade deficit for Cuba. That wouldn't reflect Cubans spending beyond their means. It would reflect something terrific for Cuba—investment that will lead to jobs, higher wages, and higher living standards. The Cubans might have the highest saving rate of any people in the world and they would still run a massive trade and current account "deficit". But the term deficit is loaded because there is no sense in this illustration in which Cubans are going into debt by spending more than they earn.

- Laurence Kotlikoff, William Fairfield Warren Professor at Boston University

In essence, it all boils down to what the US has been importing. It doesn't take a genius to guess what is the reason that a country that has the highest obesity rate in the world spends its money on. No, not just food, but typically, consumption. Over-consumption and over-borrowing is the real problem behind the trade deficit symptom.

It's about time to start pointing fingers at oneself instead of blaming others.

Views From America's 52nd State

I can't seem to get my head around this idea that the "Westerners" think of China as the enemy. I say "Westerners" because Japan is really considered a Western country. Apparently China steals jobs, and tries to bully its neighbors into submission. Here is another sample of this "China is the enemy" point of view:

China, it is plain to see, is at the root of most of the disputes troubling Asia. Two main issues must be managed – one philosophical, the other structural – in seeking to ameliorate the problems caused by China’s unconstrained rise. Only by resolving the structural issue will Asia succeed in overcoming the philosophical problem. 

The philosophical problem concerns China’s renewed conception of itself as the “Middle Kingdom,” a state with no sovereign equal. Throughout its history, China has sought to treat its neighbors as vassals – a mindset currently reflected in the way that it has approached negotiations with Vietnam and the Philippines over the South China Sea. 

China’s free-floating rise, unanchored in any regional structure or settlement, makes this mindset particularly worrying. At the Hawaii summit, Obama must orchestrate the first steps toward constructing an effective multilateral framework within which the complications posed by China’s rise can be addressed. 

The absence of such a structure of peace has been obscured, to some extent, by America’s dominant role in Asia since the Pacific War. But China’s rise and America’s other global and domestic concerns have left many Asians wondering just how enduring those commitments will be in the future. Nevertheless, China’s recent strategic assertiveness has led many Asian democracies to seek to deepen their ties with the US, as South Korea has done with a bilateral free-trade agreement. The US is reciprocating by pledging not to cut Asia-related defense spending, despite the big reduction in overall US defense spending that lies ahead.

No surprises here. The author is the former Minister of Defense of Japan, Youriko Koike. As my boss likes to say, Japan is America's 52nd state. Whatever that Koike has said about China can be said of the US. Historically, the US is known to use strong arm tactics to get countries to bend according to its will. It is a plain and simple fact. With rising economic power comes economic influence. There is nothing wrong with that. Let it be known that historically, China has NEVER ventured across its borders to go to war. Can the same be said for the US?

America's Other 87 Deficits

As always, Stephen Roach delivers:

China-bashing in the US speaks to a corrosive shift in the American psyche. It deflects attention away from those truly responsible for perpetuating the greatest saving shortfall in history. Washington has been seduced by the political economy of false prosperity. That seduction has encouraged America to squander its savings and live beyond its means for nearly two decades. Now the game is up.

The likes of Chuck Schumer needs to put an end to this China bashing thing. It is definitely more political posturing under the guise of "protecting the jobs of Americans". All this claim about predatory pricing is rubbish. As Roach says, China accounts for ONLY 42% of the 2010 trade deficit. The other 58% comes from 87 other countries that the US has deficits with. I would venture to say that none of them practice "predatory pricing". So what explains that trade gap?

You can read here for more on why this China bashing crap needs to stop. The US-China trade deficit is a howler and exaggerated. The iPhone case proves it.

Volume 3 Issue 43: Two-Cent Economics

Chuck Schumer, The Big Fat Bully

Another great piece from Scott Sumner. If you have been keeping up to date with the currency debate, Chuck Schumer would be a familiar name to you. He is one of the strongest proponents of China being a currency manipulator. He has brought it up so many times since 2004 that I can't even remember. It is always some lame excuse with no backing whatsoever.

Scott Sumner calls him the big bully in high school:

If only it were true. There really isn’t any “problem” at all, but the perception is that the yuan is getting increasingly undervalued. Back in 2005, Chuck Schumer said the yuan was 27.5% undervalued, and he demanded a revaluation. China has more than complied with this request; the yuan has increased by nearly 30% in nominal terms and more than 50% in real terms. So is Chuck Schumer happy now? Not quite. He now insists the yuan is 32.5% undervalued, and demands another massive revaluation. All this despite the fact that the previous revaluation didn’t reduce the deficit by 1 cent; indeed the deficit got bigger. 

Remember the high school bully that would pick on the nerdy kid? You know, the one that would promise to stop beating him up if he just did what the bully wanted. Then when the victim complied, the bully would just issue more demands, and keep picking on the poor boy. That’s Chuck Schumer.

Volume 3 Issue 41: Two-Cent Economics

Scott Sumner Pwns Paul Krugman

The entire post is really long. Basically, Krugman has returned to his China-bashing ways with this article and personally, I don't see how a Nobel laureate can get it so wrong. As a result, Scott Sumner just bashes Krugman into the ground with his reply. Here are some excerpts:

But how do we know the yuan is undervalued? Its current value is not out of line with predictions of the Balassa-Samuelson Theorem, which predicts that countries with higher per capita GDPs will have higher real exchange rates. Krugman points to the huge Chinese trade surplus. But is their surplus actually all that large? After all, China is a very big country. As I pointed out earlier, the Germanic/Nordic current account surplus is vastly larger, despite the fact that the countries lying between Switzerland and Norway have a combined population only a tenth as large as China’s. The smaller East Asian countries also have vastly bigger surpluses on a per capita basis. So why focus on China?

...

What bothers me the most is Krugman’s assertion that China is “standing in the way” of an increase in US aggregate demand. This makes the Chinese seem like some sort of enemy of the US, even though the private actions of those thrifty Nordics are doing us far more harm, according to Krugman’s model. Even worse, it suggests that we are helpless victims, whereas even Krugman admits that the fundamental problem is that we don’t use monetary and fiscal policy to boost our own aggregate demand (AD.) So the “harm” being done is only harmful if our policymakers ignore textbook advice to keep AD at an adequate level. Yes, we are ignoring that textbook advice, but I’m having trouble seeing how that’s China’s fault. Again, I’m not arguing that there is any logical inconsistency there, but I can’t imagine that many of Krugman’s readers will connect the dots as I have. Most will assume that China really is “standing in the way,” not that we could offset any harm with the flip of a switch.

You can read the rest on your own. Personally, I think it is this finger-pointing that has got America into where it is right now. America is like a big bully in high school, or a jock, if you will. They have pretty much had things the way they wanted their whole lives and now, something doesn't go their way, they just can't get their heads around it. America needs to do a lot of soul-searching and accept a little bit of bitter medicine in the form of humility and understand that they themselves are the problem.

As Scott Sumner aptly puts it at the end of his piece:

The worst mistake the world could make right now is to descend into nationalistic posturing. We can all see what’s going on in Europe, and we all know how nationalism can end up hurting everyone. The last thing we should be doing right now is pointing fingers at foreigners.

We have the ability to solve our own AD problem; now we need to get on with doing it. If the Senate wants to do something constructive, give the Fed a mandate consistent with what the Senate wants the Fed to accomplish. If the Senate wants more AD, don’t try to take it out of the pockets of Chinese workers. Let’s do it the way economics textbooks say it should be done, with Federal Reserve targeting of prices or NGDP.

Don’t make policy based on zero sum thinking. The world needs growth, not trade wars. 

Zombie Economics

Awesome :) I like Krugman's title better: In the Long Run, We Are Undead.

Hat tip: Paul Krugman, Cezmi Dispinar

Volume 3 Issue 39: Two-Cent Economics

Countering the Contagious Western Economic Illness

Here, Mohamed El-Erian says it exactly like it is:

The very fact that we are posing this question is novel and notable it its own right. You can add this to the list of previously unthinkable things that we have witnessed lately. That list includes, just in the last few weeks, America’s loss of its sacred AAA rating; its political flirtation with a debt default; mounting concern about debt restructurings in peripheral European economies and talk about a possible eurozone breakup; and Switzerland’s dramatic steps to reduce (yes, reduce) its safe-haven status. 

The answer to the emerging markets’ question would have been straightforward a few years ago. It is not today. 

In the world of old, the West’s economic malaise already would have pulled the rug from beneath most emerging-market countries. Indeed, the conventional wisdom – supported by many painful experiences – was that when the industrial countries sneezed, the emerging world caught a cold. 

Today, however, several (though not all) emerging-market countries are benefiting from years of considerable efforts to reduce their financial vulnerability by accumulating huge amounts of international reserves. They have also paid back a significant share of external debt and converted much of what remains into more manageable local-currency liabilities. 

This sharp balance-sheet improvement has been instrumental in enabling emerging countries to bounce back strongly from the 2008-2009 global financial crisis, whereas the West continues to hobble along. Indeed, until the recent renewed downturn in America and Europe, the emerging world’s major policy concern was too much growth, mounting inflationary pressure, and economic overheating. 

Today’s emerging countries have considerable policy flexibility and much greater latitude to act than they had in the past. Accordingly, faced with a weakening global economy, they confront two basic policy choices.

Biggest Employers in the World

The Pot calling the Kettle black.

Currency Manipulating For The Win?

So it is OK for Switzerland to cap the CHF to the EUR, but it is not OK for China to peg the RMB to the USD. Is the SNB not manipulating the CHF? Where is the shouting from the US? Oh wait, the cap doesn't affect the US. So they don't have to pressure the Swiss.

Volume 3 Issue 34: Intelligent Investing

Volatility Is The Name Of The Game

Here is a chart of the S&P500 for the past 6 months:

S&P500

Just look at the plunge in the last few weeks. Then some rebound and then more plunging. Some say it is the credit rating downgrade, some say it is the weak economic conditions in the US and the Eurozone. But then look at the KLCI:

KLCI

The plunge is there too. Once investors started to worry about the US economy, they will start to worry about every other economy. The most frequently asked question would be, will the plunge continue? Have the stock market indices bottomed out?

If you look at the global economic environment, the issues and problems are endless:

1. Weak US economy 
Two years after the financial crisis, the unemployment rate of the US is still stuck at 9.1%. All the other indicators point to weak demand within the economy. There is even talk that the US might become the next Japan. However, I think this is unlikely. But I do believe that a recession is coming. If you have been following Bloomberg closely, you would have noticed that more and more fund managers and strategists are downgrading their outlook. While it is not in my habit to listen to other analysts, but we all know that the markets tend to fulfill itself. If everyone thinks it will go down, then it will.

2. Eurozone debt crisis 
For those of us who have a keener memory will remember that the talk about the debt crisis started all the way back in March 2010. This is a long-standing problem and there are no solutions in sight. What's worse is that it seems to be spreading to the bigger economies like Italy, Spain and France. Many things can go wrong from here as politicians continue to talk, talk and talk but there is no actual doing.

3. China's inflation muddle
As I mentioned in Two-Cent Economics, China's inflation problem is a delicate and difficult issue. It cannot let inflation spiral out of hand, and it cannot slow down its economy too fast. Once again, too many things can go wrong from this. No human can control the weather conditions. The most China can do is to cool down its demand. The supply side is out of their control. So far, Mother Nature has not been kind in 2011. Earthquake in Japan, droughts, floods, cyclones, more earthquakes, ash clouds and most recently, snow in New Zealand. Who would have thought of that?

4. The Middle East and North Africa
The political uprisings began in Tunisia in December 2010 and spread across all the other countries like Egypt,  Libya and Syria. The problems in Libya and Syria doesn't seem to be ending soon as more and more people get killed every day. Things can turn bad in so many different ways.

With so much uncertainly in the political and economic environment globally, all I can say is that, anything can go wrong. Not all of them will go wrong, but all it takes is a few of the things to go wrong and the stock markets will plunge like no other. The best thing to do right now is to do your homework. Look out for good companies, and build up your war chest. Save up your cash. When things go bad, good stocks are going to look cheap. In times of war, prepare for peace. In times of peace, prepare for war. Those are the great words of Sun Tzu.

US Learning From Singapore?

Even Scott Sumner thinks its the US can learn from Singapore:

7. The East Asian countries that actually are pretty rich (Singapore, Hong Kong, Taiwan, South Korea and Japan) tend to have tax rates that are well below the average of western countries.

8. Despite taxes that are much lower than in the US, Singapore has lots of nice roads and new infrastructure.

If we want to find an East Asian model to emulate, I’d suggest looking to low tax, rich, efficient Singapore, not poor and inefficient China.

Volume 3 Issue 32: Intelligent Investing

Double Dip?

I think this article by Robert Reich, Professor of Public Policy at UC Berkeley, pretty much describes what is happening in the US:

Imagine your house is burning. You call the fire department but your call isn’t answered because every fire fighter in town is debating whether there will be enough water to fight fires over the next ten years, even though water is plentiful right now. (Yes, there’s a long-term problem.) One faction won’t even allow the fire trucks out of the garage unless everyone agrees to cut water use. An agency that rates fire departments has just issued a downgrade, causing everyone to hoard water.

While all this squabbling continues, your house burns to the ground and the fire has now spread to your neighbors’ homes. But because everyone is preoccupied with the wrong question (the long-term water supply) and the wrong solution (saving water now), there’s no response. In the end, the town comes up with a plan for the water supply over the next decade, but it’s irrelevant because the whole town has been turned to ashes.

Okay, I exaggerate a bit, but you get the point. The American economy is on the verge of another recession. Most Americans haven’t even emerged from the last one. Consumers (70 percent of the economy) won’t or can’t spend because their major asset is worth a third less than it was five years ago, they can’t borrow as before, and they’re justifiably worried about their jobs and wages. And without customers, businesses won’t expand and hire. So we’re trapped in a vicious cycle that’s getting worse.

Volume 3 Issue 32: Two-Cent Economics

Read China’s Lips

Stephen Roach advises all of us to read China's lips:

But, by raising the consumption share of its GDP, China will also absorb much of its surplus saving. That could bring its current account into balance – or even into slight deficit – by 2015. That will sharply reduce the pace of foreign-exchange accumulation and cut into China’s open-ended demand for dollar-denominated assets. 

So China, the largest foreign buyer of US government paper, will soon say, “enough.” Yet another vacuous budget deal, in conjunction with weaker-than-expected growth for the US economy for years to come, spells a protracted period of outsize government deficits. That raises the biggest question of all: lacking in Chinese demand for Treasuries, how will a savings-strapped US economy fund itself without suffering a sharp decline in the dollar and/or a major increase in real long-term interest rates?

The cavalier response heard from Washington insiders is that the Chinese wouldn’t dare spark such an endgame. After all, where else would they place their asset bets? Why would they risk losses in their massive portfolio of dollar-based assets?

China’s answers to those questions are clear: it is no longer willing to risk financial and economic stability on the basis of Washington’s hollow promises and tarnished economic stewardship. The Chinese are finally saying no. Read their lips.

A New World Architecture

I suppose this is a follow-up from yesterday's post on "Democracy as an Economic Liability".

Here is an article from George Soros (a considerably big name in a small place like this). Some excerpts:

The system cannot survive in its present form, and the US has more to lose by not being in the forefront of reforming it. The US is still in a position to lead the world, but, without far-sighted leadership, its relative position is likely to continue to erode. It can no longer impose its will on others, as George W. Bush’s administration sought to do, but it could lead a cooperative effort to involve both the developed and the developing world, thereby reestablishing American leadership in an acceptable form.

The alternative is frightening, because a declining superpower losing both political and economic dominance but still preserving military supremacy is a dangerous mix. We used to be reassured by the generalization that democratic countries seek peace. After the Bush presidency, that rule no longer holds, if it ever did.

Who's afraid of the big bad wolf?

The Migrant's Eye - by Shaun Tan

I had posted another article written by Shaun Tan before. He was a finalist in the 2011 World Bank International Essay Competition on Youth Migration. Here is is essay entitled, "The Migrant's Eye" (pdf). If you don't want to download the pdf, you can read the article here from the Malaysian Insider.

You can also go to the essay competition website. They do have some really good essays there.

How The iPhone Widens The US Trade Deficit With China

Warning: Proceed with caution. The article is probably more for the economically inclined.

For those of you who are still hung up on the US-China trade imbalance, here is a nice article to show why the US is attacking a straw man they created. By the way, Krugman did it too. Read here.

Note: I found this article long ago and I had been saving it for a more in depth discussion, but seeing as the issue is fast losing its relevance (maybe), I decided to post it up, mainly to keep it on record, in case I need to look for it again in the future.