Wednesday 16 November 2011

Trends about our near future. First the bad news.


Trends: first let’s get the negative stuff on the table. 
by Tom Thorne
The current trend is clearly to an economic downturn of some length. Politicians will only commit to a “possible recession” but we all know that the cards are stacked against an economic upturn and perhaps we are all looking at a decade of stifled economic opportunity. For me at age 70 that is a bleak prospect as I attempt to protect my meagre retirement savings. For a newly minted university graduate looking for a first job the prospect of using their education productively must be daunting.
The reason is, of course, governments living above their means is about to come home to roost big time. Simply stated the problem is governments spend more than their economies can bring in. In the west we are also  an aging population and that is expensive to maintain socially and so we have seen the first cuts to pensions and benefits happen in Europe which takes money and spending out of the economic cycles. European Union (EU) countries are all on the brink. EU members like Greece, Spain, Portugal, Ireland and now Italy are likely to fall into default. 
The economic fallout will be exasperated by the fools who run stock markets, banks and  investment houses with their programmed trades and lack of long term strategic economic thinking. The whole mess will snowball into a dreaded downturn. EU country bonds must now bribe investors with between 6 to 7.5 percent interest rates for buyers to even consider taking on the risk of loaning these countries money. This means that money to keep going with the status quo is more expensive and so the debts of these miscreant countries will deepen since they will never pay off the principals of their loans. 
Cash rich countries like China will scoop up all sorts of bargains when this strategic fall from economic grace happens with the first defaults. As I have said in earlier pieces I don’t know who will benefit from what I call Chinese state capitalism but it won’t be Europeans and North Americans. However the downturn will enable China to buy into the west for resources like oil and ores but also sadly for  control of high technology  intellectual property. This may stifle recovery and the innovation needed before the real crisis arrives by or before 2021.
Wasting youth through educational debt loads
In addition, throughout the western world youth unemployment of well educated people is gigantic. Some EU countries have 40 percent plus youth with no employment or at best under employment in McJobs and so-called “service positions” like call centres. Low paying part time jobs cannot hope to pay for the education debts many young people have these days. Add to this the high debt loads held by many individuals and families in the western countries and it is all a recipe for more problems and not solutions.
Also many western countries with large cadres of underemployed or unemployed youth, face huge debts for their time at university and college. They have been told all their lives that education is the way to prosper in a high technology information economy and now the promise is not happening. Hopefully all these educated young people can now use their educations to create opportunities for themselves because they can kiss away government jobs being created for them. The 99/1 protests may be the head end of some kind of social and political economic change that is evolving mostly out of frustration with existing institutions.
Also a lot of private capital is locked up by skittish entrepreneurs. Many private sector companies are sitting on piles of cash but they are reluctant to invest in new enterprise because they fear the default likelihood of their governments and the resulting general economic malaise that would result. So a vicious circle of distrust has set in. The jobs young people with educations could fill are not being created. Dare we now use the “D” word? Certainly it is psychologically depressing.
Government jobs are cutback to curtail the spiral into default and so the cycle of gloom swirls towards a lengthy recession that if we don’t stop it with private sector investment and innovation may become a depression. With governments cutting back on employment and aging populations making more demands on traditional government services such as health care there is a crunch coming that is very big and prolonged.
Gloomy isn’t it? Now add to the mix that we are now 7 billion humans on earth and in 10 years we will be possibility 12 billion people sharing this planet and the economic prospects are looking desperate another “D” word no politician will touch. How will 12 billion people be fed, clothed and kept healthy? Well we know it won’t happen with current political, economic and technological formulas.
What we are doing at this time in 2011 is staying the inevitable crash of population, pollution, environmental degradation and resource depletion that is a decade off at best. The USA- EU debt crisis and default pales, when we examine how good our rebound has to be to stave off the real crisis a decade from now.  A lot has to change and change is not something that humans do well.
© Copyright 2011, Tom Thorne, All Rights Reserved

Monday 14 November 2011

Canadian Parliamentary Opposition bland as Liberals and New Democrats navel gaze.

A whizzened Parliamentary Opposition is the current situation as Liberals and New Democrats navel gaze.



The federal Liberal party remains in political limbo hopefully searching for their political mojo. The New Democrats are searching for a leader. There isn’t much opposition to Harper at a crucial time.
by Tom Thorne
I fondly remember the days of Pierre Trudeau and Jean Chretien when the Liberal Party of Canada was a force to be reckoned with in Canadian political life. Now the Liberal party is a shade of its former self headed by interim leader Bob Rae who can't seem to juice Liberals into any public action. That may be a choice of the Liberals as they say they are regrouping.
Bob Rae may vey well be active in the Liberal Party back rooms building the party apparatus for the next federal election, but a Liberal public presence is not seen very much. Unfortunately what is out of sight is out of mind. If the Liberal party wants to return to the Canadian political stage they must be heard on the issues facing Canadians.
Silence and at best lackluster criticism of the Harper government seems to be the strategy at the moment. It is if the Liberals have decided to lie low for a time or sniff the wind more than before before having anything to say. The result: their political donations remain low in fact about half of what the energetic Conservatives have brought into their coffers.
The Liberal's recent defeat seems to sting deeply and their sadness after their recent public rejection at the polls seems to have hit them hard. Liberals when they are out of power lose their reason for being. They lose their political mojo. It's more likely that they miss power so much they can taste its bitterness each day. They seem to have taken their dolls and gone home.
A silent opposition is no opposition.
Liberals seem gun shy even when Prime Minister Stephen Harper decided to scrap the gun registry and to destroy the files that have been built up over the years that the police regularly use. Surely that issue needs the attention of an opposition Liberal Party or do they feel they are vulnerable to criticism for the overspending on that program?
And where are the Liberals when the jobless figures went up this month? Their silence means that the Harper government gets off light. When that happens the Conservatives look very good even when they are vulnerable concerning their Crime bill legislation and the concerns of provincial governments about the costs of its implementation. Quebec has told Harper that they do not intend to take on any additional costs of implementing the crime bills by hiring more prison staff or building new prisons. Again silence from the Liberals.
With the New Democratic Party (NDP) now engaged in a leadership race there is a void opposing the Harper Conservatives. Liberals are without an energetic presence in Question Period and in the halls of parliament. It is all so bland as the Conservative agenda goes on each day largely unopposed.
And that is bad for Canada. If the opposition is sidetracked by internal navel gazing about the future of the Liberal Party or in the case of the New Democrats choosing a new leader then Canadians will be served poorly by this parliament.
A majority Harper government is blandness personified.
In some ways the New Democrats and the Liberals know that the Harper Conservatives can do what they like with their majority. However, a majority does not mean that the opposition fades into the background consumed by leadership races or finding their political raison d'ĂȘtre.
The current international fiscal malaise brought on mostly by European Union members such as Greece and Italy playing out political games while their fiscal house is teetering on collapse means that Canadians of all political stripes need to be on full alert.
The Canadian smugness about how we rode out the 2008 meltdown no longer stands. If Europe goes down first into recession and then into default then Canada will feel the pinch immediately. The Conservatives will need to pull back on their current fiscal plans in order to make certain that our economy can survive a European slide into uncharted fiscal foibles. 
Navel gazing time for Liberals and New Democrats is now over. All Canadian political parties have to mount a creative responses to survive the inevitable fall out from European financial fiscal foibles that we all know is coming. 
© Copyright 2011, Tom Thorne, All Rights Reserved.
   

Friday 4 November 2011

European debt crisis offers China many new opportunities.

China has much more muscle on the world stage.

The Chinese strategy is to use capitalism against itself to increase their realpolitik influence in the world. 

by Tom Thorne
The Chinese are now spreading their influence across the globe by keeping their currency exchange rate artificially low which subsequently attracts capital and manufacturing, the profits of which they invest in debt ridden Europe and  the Americas and the rest of the world. They have also built up trade deficits with most western countries by producing cost effective and low cost goods. The result is $3 trillion US sitting in a pot to buy up resources and infrastructure world wide.
The new Chinese revolution is state run capitalism and its effects are being felt world wide on every continent. The new Chinese revolution is financial and it is a strategic world revolution taking advantage of tapped out debt ridden European Union (EU) countries, resource rich but undeveloped African countries needing investment, Central and South American countries with valuable resources and of course the United States. Canada is also feeling this pressure to accept Chinese investment in our resource based economy.
In Mao Zedong’s wildest dreams he couldn’t have spawned a revolution world wide the likes of this one. The Chinese leadership have mastered capitalism and turned it on itself. Communism made be dead but revolutionary state run capitalism has taken its place. Most western countries seem to think that the Chinese have joined the world community as a honest partner.
I don’t see it that way. The Chinese leadership are strategic realpolitik thinkers and they are determined with a quarter of the world’s population to look after, to spread their doctrines across the Globe by economic control of assets, resources and infrastructure. 
The Chinese Revolution is still in play.
The revolutionary nature of  modern China has not changed from Mao Zedong’s time. The only thing that has changed is how the revolution will be implemented. This is a Great Leap Forward that is actually working unlike the Mao Zedong wide eyed debacle in the 1960’s.
Deficit financing of the EU and the huge debt of the United States have given the Chinese a wide open opportunity to expand with their surplus revenues. It is not a matter of whether they will do this it is a fact that they are actively and aggressively buying up debt or making investments world wide.
The outcome of this current situation is a bigger role for the Chinese on the world stage. Their low cost manufacturing has made it easy for western countries to manufacture high quality low cost goods in China. That has cost jobs in the west and as a result created social costs that have mounted up as Western countries try to maintain living standards of their populations that are in most cases aging. 
Hence the EU fiscal crises we see starting with Greece’s profligate over spending and the EU attempts to maintain a high living standards without enough revenues to maintain them.
Chinese self interest will always trump any altruism for the rest of the world.
Make no mistake, the Chinese aggressive form of capitalism is there to serve only China. There is very little thought given to what happens in the west. China will fuel the economies of the west so they can continue to sell to us. They are investing in the west because they fear a downturn at home will create social unrest. We saw their response to the 2008 meltdown and that should be our guide now.
So the Chinese are on a learning curve about the effects of their brand of state capitalism. They actually need to keep the west operating to keep their economy humming although at the end of this western debt exercise they will own more of the west. That is the outcome of dealing with revolutionary state capitalism.
Another Chinese strategy could be to let the west fester in debt problems for a while and begin to serve the internal markets they have at home. Millions of Chinese people do not share in the economic revolution they have started. The wealth that has accumulated is mostly located in their Economic Zones not in the countryside which is remains poor.  There is a giant demand for goods and services from their own population and they could take the wealth they have gained in the west and turn it inward to raise their own internal living standards.
However, the internal politics and inherent corruption of their fast built economy is now coming home to roost. Too many in the Economic Zones have too much to lose if the economy is extended too fast to the Chinese countryside or if it falters in the west. The the rapid economic growth has built a level of them and us self interest into Chinese society that has the potential to create dissension within the country as many Chinese see that they are not sharing in this Great Leap Forward.
Combine this with the levels of corruption that are ongoing in the Chinese internal systems and the problems they face at home may very well become more important that their realpolitik activities across the globe. However the Chinese will probably multitask their problems and opportunities to make it all work for their self interest.
© Copyright 2011, Tom Thorne, All Rights Reserved.

Thursday 3 November 2011

The Greek Referendum: How to increase Chinese influence in the affairs of G7 economics.

French President Nicolas Sarkozy: "Papandreou wipe that smile off your face!". 
German Chancellor Angela Merkel: "George, How can you even think about having a referendum?"




Greece’s assets will soon be available at a big discount. Greek dallying with a referendum will decide when Greek assets go for fire sale prices. 

by Tom Thorne
When Greece joined the European Community (EC) in 1981 it took a further 11 years before they took on the Euro as their currency in 2002. Greece is not a rich country. In fact it is one of the poorest in the EC. The population is about 11 million people.
Manufacturing is important to Greece and it is a also a producer of farm products including grains, poultry, cattle and wine making. The tourist industry is a major earner for the Greek economy. 
Greece goes on each year spending more than they bring in to the tune of 140 percent of the GNP. The recent deal with the European leaders and the European Central banks bailed them out of their debt crisis so it is now 120 percent of GNP that they have to cover with austerity measures. 
This new situation will still require lots of government austerity at least until 2020 and very likely beyond that date. A referendum on any question will not change this situation. Greeks do not have a bright future for the moment. Their standard of living is going to go down a lot.
Zorba economics.
You would think that the Greek Government would be relatively content with the deal they cut at Brussels but like their famous icon Zorba they now want to undo their belts and look for trouble. It seems reckless to propose a referendum especially when the outcome is a guaranteed lose-lose.
However, despite this obvious outcome, Greek Prime Minister George Papandreou has decided to put a referendum question to the Greek people. The fact that the Greek Government is now playing political games at home with the deal they got last week in Brussels has angered the other member states of the EU and particularly those who use the Euro as their currency. Seventeen out of 27 EU countries use the Euro.
So what is the Greek Referendum going to be about? This particular referendum is pure political form without substance. It is unclear but it seems to be a choice between going for the Brussels EU deal or rejecting it. 
Prime Minister Papandreou seems is mostly playing internal Greek politics but even members of his own government are balking at the referendum idea and are close to or about to revolt. Perhaps Papandreou wants his government to fall.  Who really knows. This weak decision has caused the world financial prospects to return to turbulence.
Papandreou clings to power but he is already politically bankrupt.
So what is to be gained? Very little except buying time so Papandreou can tamp down Greek internal civil unrest that has been going on with constant strikes and demonstrations. However it is a weak move that will create more problems than it will solve. Greece will become a pariah in the EU community if this referendum goes ahead.
Some commentators believe that the referendum is about  whether Greeks accept the Brussels deal or not. Others think the referendum may be about withdrawing from the EU or even dropping the Euro as their currency. All bad things for Greece at the moment. Greek assets will be available at bankruptcy prices.
At play, of course is the big bad EU against little Greece gambit. That one is fatuous since the problems the Greeks face are largely created by their own weak governments over the years who spent when there was little to spend.
For a long time the Greek Government has not managed to collect the taxes needed to maintain the programs they offered to their people. Tax evasion is a big problem in Greece. The economy that chugs along is the official one. Then there is the unofficial black economy that thrives on cash payments for goods and services.
Italy, Spain and Portugal are also in trouble largely because those countries like Greece cannot seem to get their people to pay taxes and grasp the concept of the greater social good. Europe is frankly awash in black money economies. 
Even when governments do cut backs and impose austerity measures many European economies continue to function at quite a decent level. This is direct evidence of black or underground economies and rampant tax evasion. 
If the people in Greece don’t want to pay taxes than they should not expect to get government services, pensions or pay rises, nor get a bailout from the EU. Perhaps the people who conduct these black transactions want to provide services normally provided by governments on their own? Something has to give and the current economic malaise is the result of high expectations with low tax revenues. 
Papandreou’s wrist slapped.
Yesterday Prime Minister Papandreou was summoned to the G20 meeting in France. There he was lectured about getting on with deal he signed with the EU. They slapped his wrist but they also set off internal political rows in Greece that may see the Papandreou government fall or be forced to call an election.
The fragile nature of European finance at the moment  does not need the Greeks playing games inside or outside of Greece. Greek failure to follow what the EU decided has the potential to begin the slide that will be a domino effect starting with Greece, then Portugal, then maybe Ireland, Spain and the real problem a much larger Italian economy.
If the dominos start to drop there is no doubt that Europe will slide into a deep recession which in turn will ensure the US economy begins to slip further trying to manage its debt load.
And sitting on the side of all of this will be China, whose ability to sell to Western Europe and North America will be truncated if there is a recession. They will than begin to bailout the most vulnerable countries like Greece and Portugal by buying up government paper and even private assets as they drop in value.
This act will create a Chinese presence in European finance of some consequence and serve the geopolitical and economic strategies of the Chinese to further build their controls into the global economy. A downturn in the West is an opportunity for cash rich China to flex its muscles on the world stage by financing a bailout.
The consequences of that action is a 4.6 Trillion dollar Chinese GNP will have a lot to say over the 30 Trillion US Dollar GNP generated by the North American and ECU countries and they will be able to do it at fire sale bankruptcy prices. For the Chinese its a win-win. To test this idea try this search on Google or Yahoo: Chinese investment in Greece.
© Copyright 2011, Tom Thorne, All Rights Reserved
French President Nicolas Sarkozy: "Papandreou wipe that smile off your face!". 
German Chancellor Andrea Merkel: "